Magnolia Petroleum Plc / Index: AIM /
Epic: MAGP / Sector: Oil & Gas
19 June 2017
Magnolia Petroleum
Plc (‘Magnolia’ or ‘the Company’)
Final Results and Notice of AGM
Magnolia Petroleum Plc, the AIM quoted US focused oil and gas
exploration and production company, announces its final
results for the year ended 31 December
2016.
Overview
- Interests in 153 producing wells in proven US onshore
formations (2015: 213) following:
- Commencement of production of 15 new wells
- Divestment of producing wells with little or no economic
value
- Elected to participate in eight new wells compared to 38 in
2015 as low oil prices reduced drilling activity across the US
onshore sector
- Strong pick-up in activity seen post period end with Magnolia
electing to participate in 28 new wells due to recovery in
sentiment and Company’s focus on prolific low cost plays such as
the SCOOP and the STACK in Oklahoma
- Long pipeline of new proposals including six low risk, high
impact wells to the Bakken and Three Forks Sanish formations in
North Dakota – on the same spacing
unit as the Company’s best performing well, the Lazy DE 24-7H
- Updated reserves report issued post period end included
significant increase in Proven Developed Producing (‘PDP’) reserves
due to new wells commencing production:
- 112% increase in total net PDP oil and condensate reserves to
282.686 Mbbl as at 1 January 2017
(1 July 2016: 133.31 Mbbl)
- 303% increase in total net PDP gas reserves to 2,343.116 MMCF
(1 July 2016: 580.67 MMcf)
- 25% increase in the value (‘NPV9’) of total net PDP reserves as
at April 2017 to US$4,300,000 (1 July
2016: US$3,445,180)
- Board and management team strengthened following appointment of
highly experienced petroleum engineer Leonard Wallace as a Non-executive
director and post period end of geologist Lanny Woods as a technical consultant
Financial Review
- 2016 revenues of US$1,273,612
(2015: US$1,991,021) – reflects a
more than 11% year on year reduction in WTI and drop in drilling
activity
- EBITDA of (US$332,600)
(2015: (US$8,125,883)
- Adjusted EBITDA after removal of foreign exchange movements and
impairments (US$242,310) (2015:
(US$292,180))
- Tangible assets (comprising producing properties) of
US$4,518,177 (2015: US$7,294,470) – provides strong asset backing
compared to current market capitalisation
- 33% reduction in full year operating costs builds on last
year’s 31% drop in the cost base
- £775,000 raised via the issue of new ordinary shares to fund
new drilling activity
Magnolia CEO, Rita Whittington
said, “Magnolia has emerged from the two year downturn in oil and
gas markets with a lower cost base; a strengthened balance sheet,
following the partial repayment of our reserves based lending
facility; and strong asset backing in the form of our proven
developed reserves. Furthermore, we have taken advantage of
depressed markets to increase our leasehold position in low cost
plays, such as the SCOOP and the STACK in Oklahoma where excellent production and
recovery rates are being consistently reported for new wells,
including those in which Magnolia has an interest.
“Our objective has been to ensure Magnolia is able to replicate
at today’s sub US$50 oil prices, the
double-digit growth rates in net production and reserves we
achieved year on year when oil was trading at US$90 plus per barrel. Now that we have
achieved this, we are rolling out our tried and tested strategy of
acquiring leases in producing US onshore formations and proving up
the reserves by drilling alongside established operators, such as
Continental Resources. Already since the turn of the year we
have announced our participation in 28 new wells and with many more
proposals in the pipeline, we are excited for the year ahead and
beyond.”
Chief Executive’s Statement
Magnolia Petroleum is an oil and gas producer and explorer with
a portfolio of interests in over 150 producing wells in proven US
onshore formations, including the Bakken in North Dakota and the Woodford and Mississippi Lime in
Oklahoma. Magnolia’s financial and operational performance
during the year under review was therefore always going to reflect
a second successive year of falling oil prices. Thanks to the
swift action we have taken, however, we have not only minimised the
impact of low oil prices on the bottom line but, as demonstrated
post year end by the 28 new wells we have announced in the prolific
SCOOP and STACK plays in Oklahoma,
we are well placed to capitalise on the recovery in sentiment and
activity we are seeing.
West Texas Intermediate (“WTI”) averaged US$43.33 per barrel during 2016, more than 11%
lower than 2015’s average price of US$48.67 per barrel which in turn was
approximately 50% below the US$95 per
barrel level that had prevailed in previous years. Lower oil
prices not only reduce the payments we receive for our oil and gas,
but also curtail production growth as operators look to shut-in
unprofitable wells while at the same time focus new drilling on
those areas with low breakeven costs. In terms of our
financials and our operations, full year revenues came in at
US$1,273,612 (2015: US$1,991,021), while reduced drilling activity
across the sector led to only 15 new wells in which Magnolia has an
interest in commencing production during the year. This
compares to the 37 new wells that came on stream during 2015 and 48
new wells in 2014.
Full year numbers are by their nature backward looking.
Thanks to the rally in the oil price that was triggered in Q4 2016
by the agreement between members and non-members of OPEC to cut
production, and Magnolia’s emergence from the extremely sharp
downturn as a low cost, asset backed US onshore oil and gas
business. Subject to prices, market conditions and sentiment,
I remain confident for the future that we can deliver on our
objective to replicate the management team’s previous successes in
generating value for shareholders, by acquiring leases in active
and producing US onshore plays and proving up the reserves by
participating in drilling new wells.
This platform is one that has, at its core, the active
management of all types of risk associated with the oil and gas
industry. Broadly speaking exploration risk is managed by
focusing on proven formations; execution risk is managed by
participating in drilling alongside established operators such as
Continental Resources and Chesapeake Energy; individual well risk
is managed by building a diversified portfolio of leases and wells
and limiting the amount of interest Magnolia holds in any one well;
meanwhile oil price risk is managed by focusing on areas that
require relatively low oil prices to breakeven and ensuring our
cost base, capital commitments and financing costs remain low,
manageable and flexible.
Since Magnolia was admitted to trading on AIM in 2011, we have
significantly increased the size of our portfolio of producing
wells to 150 plus today, which serves to demonstrate the success we
have had in managing exploration, execution and individual well
risk. While little could be done to stem the decline in revenues,
we were able to move quickly to minimise the impact this had on our
bottom line. A 33% year on year drop in operating expenses,
which built on last year’s 31% reduction, a significant repayment
of our reserves based lending facility, and prioritising new
drilling and leasing activity on plays that are commercial at sub
US$50 oil prices have combined to
generate a year on year improvement at the EBITDA level.
Our actions during the year have not all been defensive.
Low oil prices also present opportunities, specifically to acquire
leases in our core areas of focus, most notably the prolific SCOOP
and STACK in Oklahoma. These two highly active plays are well
suited to thrive in today’s oil price environment: wells are
economic at oil prices around US$40
bbl; record production rates have been reported as the horizontal
laterals are extended and the amount of pay in each well has
increased; drilling and completion costs have been significantly
reduced; and initial decline rates during the first 12-18 months of
production are lower than those in other US plays. Over the
last two years we have been taking advantage of depressed market
conditions to increase our exposure to these two areas. The
flurry of new wells that we have announced post period end is
testament to the success we have had in this regard.
A number of these new SCOOP and STACK wells commenced production
in time for them to have a material impact on the level of our net
proven developed reserves. Post period end we announced the
results of an updated reserves report which included a 112%
increase in total net PDP oil and condensate reserves to 282.686
Mbbl as at 1 January 2017
(1 July 2016: 133.31 Mbbl of oil and
condensate); a 303% increase in total net PDP gas reserves to
2,343.116 MMCF (1 July 2016: 580.67
MMcf gas); and a 25% increase in the value (NPV9) of total net PDP
reserves as at April 2017 to
US$4,300,000 (1 July 2016: US$3,445,180). Our PDP reserves alone
provide Magnolia with strong asset backing compared to the
Company’s current market valuation. Importantly, our PDPs
understate the true asset backing behind Magnolia as they do not
include proved shut-in, proved undeveloped, probable and possible
reserve classes as well as Magnolia’s interests in undeveloped
acreage.
Since this report was published, we have announced our
participation in a series of new SCOOP and STACK wells, several of
which are increased density wells being drilled on the same spacing
unit as existing producers. In addition, we continue to
receive proposals to drill new wells across our acreage. Most
notably, post period end Marathon Oil has proposed six new wells on
some of Magnolia’s most productive leases in North Dakota. With interests of up to 2%, we
view these as low risk, high impact opportunities as they are being
drilled on the same spacing unit as existing wells which have been
prolific producers, returning to date almost 2.5 times their
original investment. We are not alone in recognising the
value of these leases as third parties have expressed their
interest in acquiring all or part of our stake. We are
currently evaluating our options for these wells but they serve to
highlight the quality of Magnolia’s leases in the eyes of the
industry.
During the year and post period end, a number of changes have
been made to the composition of the Board and management
team. In May 2016, we added oil
and gas engineering experience to the Board following the
appointment of Leonard Wallace as a
Non-Executive Director of the Company. Leonard is an
experienced management professional specialising in drilling
engineering, well construction, production management and rig
operation with numerous years’ experience within the oil and gas
exploration and production industry. Post period end, further
changes to the Board were made as I took up the position of CEO of
the Company, while Derec Norman was
appointed as Chief Financial Officer.
In addition, in April 2017 we were
pleased to announce the appointment of Lanny Woods as a technical consultant.
Lanny has numerous years of experience as an exploration and
production geologist, particularly exploring and developing onshore
US fields in Oklahoma,
Texas and Wyoming.
Previously Lanny and I worked together as part of the management
team at Primary Natural Resources I and II, two oil and gas
property acquisition and development companies, which achieved a
3:1 return on equity upon divestment. Following the
appointment of Leonard and Lanny, we believe Magnolia’s Board and
management team has never been stronger in terms of having the
right mix of industry expertise covering all key areas of the
business, including lease acquisition, geology, engineering, and
finance.
Outlook
Over the course of 2016, Magnolia elected to participate in just
eight wells. By contrast, so far in 2017 we have announced
our participation in 28 wells. Even though this figure
represents a major increase on the previous full year number, it
understates the huge turnaround in sentiment we have witnessed, as
it does not include those wells we declined to participate in, let
alone the growing number of drilling proposals we continue to
receive.
In line with our strategy, all 28 wells announced in 2017 are in
highly active plays where the economics of drilling and producing
remain attractive at sub US$50 oil
prices. In our view, this highlights the success we have had
in taking advantage of the downturn to accelerate the repositioning
of our leasehold position in favour of the SCOOP and the
STACK. With a strategic foothold in these prolific, low cost
plays established and a proven team in place, we will look to add
to our position in this US onshore sweet spot as and when it makes
commercial sense to do so. We have worked hard to ensure
Magnolia’s strategy of acquiring and developing leases is relevant
in today’s world of sub US$50 oil
prices, and under my stewardship we will continue to do so. I
look forward to providing updates on our progress in the year
ahead.
Finally, I would like to thank the Board, management team and
all our advisers for their hard work over the last twelve months
and also to our shareholders for their continued support.
Rita Whittington
Chief Executive Officer
16 June 2017
Operations Report
Sycamore Resources (‘Sycamore’) has completed an evaluation of
Magnolia's reserves and associated value. As at 1 January 2017, the Company’s ownership in wells
within North Dakota and
Oklahoma had a total net Proven
Developed Reserves ('PDP') of 282,686 barrels of oil and condensate
and 2.3 Billion cubic feet of gas. Sycamore has given these
reserves a non-discounted value of US$15,652,000 and an NPV9 of US$4,300,000 as at April 2017.
Oklahoma Production
Sycamore's evaluation of Magnolia's total PDP reserves in
Oklahoma shows 174,971 barrels of
oil and condensate and 2.2 BCF of gas, with an assigned
non-discounted value of US$9,063,000.
Magnolia holds interest in wells within two very active oil and
gas plays within the state of Oklahoma: The "SCOOP PLAY" South Central
Oklahoma Oil Province and the horizontal Woodford Shale development
in the western portion of the Arkoma Basin - Pittsburg, Hughes and Coal Counties. Though not a big oil producing
area, the Arkoma play produces
large quantities of gas. Magnolia has observed an increase in
the value of its interests in wells due in part to better product
pricing and lower projected well decline rates. Initial production
for many of the wells was achieved by flowing up the tubing to the
surface. Over time, pressures decrease (along with production
rates) until the well cannot sustain production. At this point, the
wells are then put on artificial lift (pumping units or submersible
pumps). A number of wells in which Magnolia has an interest are
just now going on artificial lift which will help sustain
production rates. Drilling and completion costs have also seen a
decline in the past 12 months which has helped to foster a
resurgence in drilling activity.
SCOOP
The primary zone of interest in this play is the Woodford Shale.
The play covers an extensive area of over 3,300 square miles and
includes portions of Stephens,
Grady, Garvin, and Carter Counties, Oklahoma. The oil rich
Woodford Shale is up to 400 feet thick and is located at drill
depths from 8,000 to 16,000 feet. This is a liquids rich
play, yielding high volumes of oil and condensate. Initial
production rates can range between over 1,000 BOPD and 7,000 MCFD
with ultimate reserves exceeding 500 MBO and 7 BCFG per well.
Magnolia holds interests in a number of wells within this play
area, including:
- Continental Resources operated Chalfant 1-7H, Woodford Shale Completion, well
has recovered 5.37 BCFG and 85 MBO and is still producing over 2.8
Million cubic feet of gas and 30 barrels of oil per day.
- Continental Resources operated Condit 1-5H, Woodford Shale
Completion, well has recovered 4.11 BCFG and 105 MBO and is still
producing over 2.2 Million cubic feet of gas and 25 barrels of oil
per day.
- Continental Resources operated Forrest 2-8H, Woodford Shale
Completion, well has recovered 3.20 BCFG and 54 MBO and is still
producing over 1.89 Million cubic feet of gas and 22 barrels of oil
per day.
Arkoma Basin Woodford Shale
Like the SCOOP Play, the primary zone of interest is the
Woodford Shale. The shale in this area is 120 to over 220
feet thick and found at drill depths between 7,500 and 11,000 feet
(Shallower than the SCOOP area). The wells were originally drilled
with a horizontal lateral section from 2,500 to 5,000 feet.
Currently these lateral sections may comprise lengths greater than
10,000 feet. Initial production rates with the shorter laterals
exceeded 4,000 MCFGPD with ultimate recoveries over 5 BCFG. Listed
below are examples of wells Magnolia holds an interest in this
play:
- Trinity operated Regina 1-2524H, Woodford Shale Completion, has
recovered 1.3 BCF and is currently producing 1.72 Million cubic
feet of gas per day
- Trinity operated Clara 1-1324H, Woodford Shale Completion, has
recovered 0.8 BCF and is currently producing 0.928 Million cubic
feet of gas per day
STACK
The Stack (Sooner Trend Anadarko (basin) Canadian, Kingfisher counties) is another highly active
play that Magnolia is looking for opportunities to invest in.
The play has now extended into other adjacent counties, such as
Dewey and Custer
counties.
The primary zones of this play are the Woodford Shale,
Hunton Lime and Mississippi - Mermac formations. All
three zones are drilled horizontally - initial wells had lateral
sections of 5,000 feet, now they are extending to nearly 10,000
feet.
Wells within the Mississippi
portion have initial production rates exceeding 2,100 BOPD and
3,500 MCFGPD, while projected ultimate recoveries are estimated at
400 MBO and 3 BCF per well.
The wells in the Woodford
portion of the play have initial production rates exceeding 500
BOPD and 1,500 MCFGPD with ultimate recoveries of 275 MBO and 1
BCFG per well.
Unlike the Northern Oklahoma Mississippi Play - the
Mississippi-Mermac produces significantly less formation water
which translates into much lower operating costs and reduced
capital costs for disposal wells. This play is one of the most
active in Oklahoma.
Mississippi Lime Formation,
Oklahoma
The Mississippi Lime is an historic oil and gas system that has
been producing at depths ranging from 4,500 to 7,000 feet from
several thousand vertical wells for over 50 years. During
2016, the following six wells in which Magnolia holds interests in
commenced production from the Mississippi Lime:
- Gray 7-27-12 1H (1.86%):
439.83boepd
- Gray 7-27-12 2H (1.86%): 903
boepd
- Wilber (1.22%): 960.83 boepd
- Maxine (0.40%): 1030 boepd
- Billy Rae 1 (0.54%): 365.5
boepd
- Double R 9 (0.44%): 216.33
boepd
In total Magnolia now holds interests in 35 wells which are
producing from the Mississippi Lime.
Woodford Formation, Oklahoma
The Woodford lies below and is
the source rock to the Mississippi Lime formation in
Oklahoma. As a result, much of Magnolia’s leases in
Oklahoma are prospective for both
the Woodford and the Mississippi
Lime. Like the Bakken, the Woodford formation in Oklahoma is an established reservoir that has
been reopened following the introduction of horizontal drilling and
stimulation technology.
During 2016, the following seven wells in which Magnolia holds
interests in commenced production from the Woodford:
- Billy Rae 2 (0.54%): 73.33
boepd
- Moore (0.22%): 902.83
boepd
- Baxendale 3H-1X (0.03%): 1217.83 boepd
- Baxendale 2H-1X (0.03%): 1327.83 boepd
- Baxendale 4H-1X (0.03%): 1448.50 boepd
- Baxendale 5H-1X (0.03%): 2493.66 boepd
- Baxendale 6H-1X (0.03%): 2099.66
boepd
In total Magnolia now holds interests in 56 wells which are
producing from the Woodford.
Other Formations in Oklahoma
Magnolia holds interests in wells which are producing from other
formations in Oklahoma, including
the Hunton, Cleveland,
Wilcox, Wayside, Simpson Dolomite,
Springer and Viola reservoirs. During 2016, the following well in
which Magnolia holds an interest in commenced production from the
Springer formation:
•
Michele Abel H12XH (0.13%): 2,256
boepd
The Bakken / Three Forks Sanish
Formations, North Dakota
Magnolia holds interests in 42 wells which are producing from
the Bakken and Three Forks Sanish (‘TFS’) formations in North
Dakota. The Bakken is a reservoir which is estimated to hold
3.65 billion barrels of undiscovered, technically recoverable oil
(2013 US Geological Survey). The TFS is a separate reservoir
lying directly below the Bakken, with an estimated 3.73 billion
barrels of recoverable oil (2013 US Geological Survey).
Production and overall economics have suffered through a very
low price period but we have seen good improvements in pricing in
the last 6 months. Also with the anticipated completion of the
Keystone XL pipeline in the summer of 2017, producers should
realize a significant reduction in transportation costs, up to
US$3.00 per barrel lower. The low
price period has had a positive effect on the drillers - the
average time to drill a well was 20 days but can be as low as 12
days. Better pricing, lower transportation costs and lower drilling
costs should result in much greater activity and better economics
than has been observed over the past couple of years.
Sycamore Resources (Sycamore) estimated Magnolia's Bakken and
Three Forks Proven Developed Reserves ('PDP') at 157,913 barrels of
oil and condensate and 135.49 MMcf of natural gas to which Sycamore
assigned an undiscounted value of US$6,589,000.
Wells in this play that Magnolia holds an interest include:
- Marathon Oil operated Lazy DE -24-7H (Bakken completion) - well
has recovered over 290,000 barrels of oil and 193 million cubic
feet of gas and is still producing over 135 BOPD and 120 MCFD
- Marathon Oil operated Curtis
Kerr 24-8H (Bakken completion)- well has recovered over
200,000 BO and 129 million cubic feet of gas and is still producing
over 90 BOPD and 75 MCFD
- Marathon Oil operated Nicky Kerr
14-8H (Bakken completion) - well has recovered over 239,000 BO and
140 million cubic feet of gas and is still producing over 95 BOPD
and 65 MCFD
Summary
During the period, 15 new wells in which Magnolia has an
interest commenced production, while the Company elected to
participate in another eight. This represents a sharp
contraction in activity compared to previous years and highlights
the severity of the downturn experienced by the wider US onshore
industry.
Post period end, the combination of a recovery in the oil price,
Magnolia’s exposure to low cost plays in Oklahoma such as the SCOOP and the STACK, and
a sharp drop in drilling costs across the sector has led to a
significant rebound in the number of wells in which the Company is
participating. Already these are having a positive impact on
the level of Magnolia’s PDP reserves, as demonstrated by the
updated operations report.
Lanny Woods
Technical Adviser to the Company
16 June 2017
Financial Review
During the 12 months to 31 December
2016, net production generated revenues of US$1,273,612, compared to US$1,991,021 the previous year. The
continued drop in the price of oil is largely responsible for the
drop in revenues, both directly by lowering sales prices achieved
and indirectly through operators shutting in wells to curtail
production.
To minimise the impact of the weaker revenue performance on
Magnolia’s bottom line, further reductions in the Company’s direct
operating expenses were made during the year. These totalled
US$1,901,652 in 2016 (2015:
US$2,784,769). US$1,070,124 (2015: US$1,547,313) of this total is a non-cash item
covering depreciation costs. A further US$553,510 (2015: US$990,854) was due to lease operating expenses,
while production tax and marketing fees came in at US$278,018 (2015: US$246,602).
Property, plant and equipment (comprising producing properties)
as at end December 2016 stood at
US$4,518,177 (2015: US$7,294,470) while intangible assets (comprising
new leases and wells that are drilling but not yet completed) stood
at US$1,684,559 (2015: US$1,830,773). Non-cash impairments have
been provided for in the results for the year ended 31 December 2016 totalling US$2,207,293 (2015: US$8,511,709). In addition, over the course
of the year the Company divested 67 non-commercial wells with
little or no economic value.
During the year, £775,000 was raised via the issue of new
ordinary shares to fund the drilling of new wells operated by a
number of leading operators including Chesapeake Energy,
Continental Resources and BP America. A total of 694,642,856
new ordinary shares in the Company were issued over the period.
A request for a longer-term extension to our reserved based
lending facility (‘the Facility’) is currently being processed by
the Company’s bank. The Bank continues to view the Facility
as part of a long-term relationship with Magnolia. In line
with this, the Bank has agreed to extend the Facility from
8 June 2017 to 8 August 2017 while it processes the appropriate
paperwork, loan documents as well as the relevant financial and
reserve report information that has been provided by Magnolia’s
management. As a reminder, the current ratio covenant was
already waived until further written notice by the Bank.
As of 2 June 2017, a general
meeting has been requisitioned by Steven
Snead, Snead Family LLC, Snead Family 2012 LLC and
R. Sterling Snead (the “Activist
Shareholder”). Among the proposals as set forth by the
Activist Shareholder is a demand for the removal of Rita Whittington as a director. It is
further believed, by the Board, that the intent is also to remove
Ms Whittington as CEO immediately after the new proposed directors
are appointed. This will trigger the Group needing to
immediately compensate Ms Whittington according to her employment
agreement.
In addition, shareholder approval of such proposal could trigger
a Change of Control and an Event of Default under our Loan
Agreement with Bank SNB. The remedies available to Bank SNB
under our Loan Agreement, are to “terminate its commitment to lend
hereunder” and “declare all principal and interest on the Note…due
and payable”. At this time, we have no assurance that if the
shareholders approve the proposals, the Bank will not enforce any
of its remedies under the Loan Agreement.
Derec Norman
Chief Financial Officer
16 June 2017
STRATEGIC REPORT
The Directors of the Company and its subsidiary undertaking
(which together comprise “the Group”) present their Strategic
Report on the Group for the year ended 31
December 2016.
Principal Activities
The principal activity of the Group is onshore oil and gas
exploration and production in the United
States of America. Magnolia Petroleum Plc acts as a holding
company and provides direction and other services to its
subsidiary.
The Company’s subsidiary is Magnolia Petroleum Inc.
(“Magnolia”), an independent oil and gas exploration and production
company based near Tulsa,
Oklahoma, USA. Magnolia’s core area of business is in the
Bakken/Three Forks Sanish area in North
Dakota and Montana, the
emerging Mississippi Formation in Oklahoma and the Woodford/Hunton oil and gas formations in
Oklahoma, United States.
The review of business and future developments are included in
the Chief Executive Officer’s Statement and the Operation
Report.
Organisation Review
The Board is responsible for providing strategic direction for
the Group. This incorporates setting out objectives,
management policies and performance criteria. The Board
assesses its performance against these on a monthly basis.
Composition of the Board at 31 December
2016 was two Executive Directors and three Non-Executive
Directors; however, Thomas
Wagenhofer, Non-Executive Chairman resigned effective
23 February 2017 at which point
Ron Harwood was appointed interim
Non-Executive Chairman and Steven
Snead, CEO and Executive Director resigned effective
1 April 2017. The Board believes that
the present composition provides an appropriate mix to conduct the
Group’s affairs.
Strategic Approach
The Board’s strategic intent is to maximise shareholder value
through the continuing investment into new wells and leases in
proven US onshore formations and participating alongside
established operators in multiple wells, while further reducing
costs, where applicable.
Magnolia provides shareholders with exposure to the high growth
associated with the junior oil and gas sector, while minimising
exploration risk. This is achieved with a low overhead
base.
Key Performance Indicators
The Board monitors the overall performance of the Group by
reference to Key Performance Indicators (“KPIs”). KPIs for the
year, together with comparative data, are presented below:
|
2016 |
2015 |
|
|
|
Revenue |
$1,273,612 |
$1,991,021 |
Gross profit margin (excluding
depreciation) |
34.71% |
37.85% |
Participation in well drilling programmes are monitored on an
individual project basis in terms of revenue and cost per barrel of
oil or mcf (one thousand cubic feet) of gas, together with the
anticipated payback period on each project.
STRATEGIC REPORT
Risks and Uncertainties
The Group’s activities expose it to a variety of risks and
uncertainties.
Market risk
The Group operates in an international market for hydrocarbons
and is exposed to risk arising from variations in the demand for
and price of the hydrocarbons. Oil and gas prices historically have
fluctuated widely and are affected by numerous factors over which
the Group does not have any control, including world production
levels, international economic trends, currency exchange
fluctuations, inflation, speculative activity, consumption patterns
and global or regional political events.
Non-operator risk
On non-operated interests, the Group, in most instances, will
depend on operators to initiate and supervise the drilling and
operation of such wells. As such the Group cannot always accurately
predict the timing of the cash flows associated with the drilling
of these wells. If the Group is unable or unwilling to comply with
its payment obligations, it would seek to negotiate a farm-out with
some sort of back-in upon pay-out or sell down a portion of its
leasehold interests and participate with a smaller interest.
This could reduce the Group’s future revenues and earnings.
Oil and gas exploration and production
risks
The Group is primarily a non-operator working interest owner and
is reliant on the operator for managing all aspects of its
exploration and production activities in its non-operated
interests. There are significant risks and hazards inherent in the
exploration and production of oil and gas, including environmental
hazards, industrial incidents, labour disputes, fire, drought,
flooding and other acts of God. The occurrence of any of these
hazards can delay or interrupt production and increase production
costs. There is no guarantee that oil and/or gas will be discovered
in any of the Group’s existing or future licences/permitted acreage
or that commercial quantities of oil and/or gas can be
recovered.
The Group currently holds less than a 100 per cent working
interest in the majority of its completed wells and in wells which
are being drilled. It is also likely to hold less than 100 per cent
in wells which may be drilled in the future. The Group could be
held liable for the joint activity obligations of the other working
interest owners, such as non-payment of costs and liabilities
arising from the actions of those other working interest owners. In
the event that other working interest owners do not pay their share
of such costs, the Group would be likely to have to pay those costs
but would pick up an additional proportionate interest in the
well.
Environmental risk
The Group’s operations are subject to environmental regulation
in all the jurisdictions in which it operates. The Group is unable
to predict the effect of additional environmental laws and
regulations which may be adopted in the future, including whether
any such laws or regulations would adversely affect the Group’s
operations. There can be no assurance that such new environmental
legislation once implemented will not oblige the Group to incur
significant expenses and undertake significant investments.
Risks and Uncertainties
(continued)
Licences and title
The leases in which the Group has or is seeking to have an
interest will be subject to termination after the primary term of
such leases unless there is current production of oil and/or gas in
commercial quantities. If a lease is not extended after the primary
term, the Group may lose the opportunity to develop and discover
any hydrocarbon resources on that lease area. In taking an
assignment of an oil and/or gas lease, the Group would, in
accordance with industry practice, rely on the warranty
provisions.
This report was approved by the Board
on 16 June 2017 and signed on its
behalf:
Ronald Harwood
Non-Executive Director, Interim Chairman
REPORT OF THE DIRECTORS
The Directors present their Annual Report and the audited
Financial Statements for the year ended
31 December 2016.
Directors and Directors’ interests
The Directors who held office during the year to the date of
approval of these Financial Statements, together with their
beneficial interests in the ordinary shares of the Company, are
shown below.
|
31
December 2016 |
1
January 2016
(or later date of appointment) |
|
Ordinary
Shares |
Options and
warrants |
Ordinary
Shares |
Options and
warrants |
Ronald Sanford
Harwood (1) |
34,623,175 |
13,354,915 |
33,123,175 |
3,354,915 |
Rita Fern Whittington |
13,725,669 |
28,905,661 |
12,225,669 |
16,905,661 |
Leonard Wallace |
- |
- |
- |
- |
Thomas
Wagenhofer (2) |
4,142,855 |
- |
3,285,713 |
- |
Steven Otis
Snead (3) |
204,226,748 |
36,417,161 |
202,726,748 |
24,417,161 |
(1) Ronald Sanford Harwood’s shares are
held by the Ronald S. Harwood Trust.
(2) Thomas Wagenhofer – resigned with
effect 23 February 2017.
(3) Includes 93,209,040 ordinary shares
owned by the Snead Family LLC, 50,000,000 held by Snead Family 2012
LLC and 11,400,000 ordinary shares owned by R. Sterling Snead. Steven Snead resigned with effective
1 April 2017.
Ronald Sanford
Harwood, Non-Executive Chairman
Mr Harwood graduated from Wharton School of Finance and
Commerce, University of Pennsylvania,
with a Bachelor of Science degree in Economics. During the
course of his extensive business career, he has had active
involvement in originating and developing projects in a wide range
of sectors, including oil and gas exploration and production, but
also in financial and business development services,
telecommunications, computer software, power generation and
specialty chemicals.
Mr Harwood has had active involvement in originating and
developing projects in oil and gas exploration and production. He
founded Bellwood Petroleum Corporation in 1985, and successor
Bellwood Petroleum LLC in 2007 and Colony Petroleum, LLC in 1990.
Colony, an oil and gas investment fund, secured US and
international investors to participate in oil and gas exploration
and production ventures originated and operated by American and
Canadian independent oil and gas companies. Mr. Harwood was
also one of the original founders, investor and director of
Magnolia Petroleum since 2008.
Rita Fern
Whittington, Chief Executive Officer
Mrs Whittington is a petroleum landman with more than 30 years’
experience in acquisition, operations and management of oil and gas
properties.
She began her career in 1977 working for an Oklahoma based oil exploration company where
she became a prospect manager. In 1985, she joined Kaiser-Francis
Oil Company in Oklahoma as a land
supervisor. Between 1987 and 1989, she acted as a title
analyst for Terra Resources Inc. specialising in Gulf Coast,
Texas and Louisiana properties. In 1989, she
joined Enerlex Inc. as vice president where she spent nine years
negotiating and purchasing thousands of mineral acres. From
1998 to 2001, she was land administrator for Brighton Energy LLC,
focusing on building the company’s portfolio through acquisitions
and disposals. In 2001, she joined Primary Natural Resources, Inc
as a primary member of the asset management team, developing and
expanding the company until it sold its assets in 2003. It
commenced business again in 2004 and sold its assets in 2008.
Mrs Whittington was also one of the original founders, investor and
director of Magnolia since 2008.
Leonard
Wallace, Non-Executive Director
Mr. Wallace is a highly experienced oil and gas engineer,
specialising in drilling engineering, well construction and rig
operations, and production operations within the exploration and
production industry. Mr. Wallace is also currently the owner of
Tartan Petroleum Ltd.
Mr. Wallace was a hand on drilling and production engineer and
project manager. His early career was with Exxon in the US
with focus of drilling and production engineering. International
assignments included technical manager for Exxon’s first offshore
production in the North Sea. BHP / Hamilton Bothers followed
his time with Exxon where he managed their offshore North Sea
production. In addition, Mr. Wallace was Vice President for
international operations for Kerr
McGee. After early retirement, he spent 15 years as a
consultant for Chevron on projects in Brazil, Singapore building deep water drilling
vessels. His last assignment with Chevron was part of a new
country drilling team in Kurdistan. He currently serves as an
advisor with Alpha Petroleum in Houston, assigned to Pemex’s shallow offshore
drilling and production in Mexico.
Directors’ Remuneration
The Remuneration Committee of the Board of Directors is
responsible for determining and reviewing compensation arrangements
for all Directors and Senior Executives. The Remuneration Committee
assesses the appropriateness of the nature and amount of emoluments
of such officers on a periodic basis by reference to relevant
employment market conditions with the overall objective of ensuring
maximum stakeholder benefit from the retention of a high quality
Board and senior executive team.
The following remuneration table comprises Directors’ fees and
benefits in kind that were payable to Directors who held office
during the year ended 31 December
2016:
|
Short term employee
benefits for the year ended 31 December
2016
US$ |
Long term employee
benefits for the year ended 31 December 2016
US$ |
Other for the year
ended 31 December 2016
US$ |
Total for the year
ended 31 December 2016
US$ |
Total for the year
ended 31 December 2015
US$ |
|
|
|
|
|
|
Thomas Wagenhofer (resigned 23 Feb
2017) |
16,198 |
- |
- |
16,198 |
10,695 |
Steven Otis Snead (resigned 1 Apr
2017) |
17,545 |
- |
- |
17,545 |
33,732 |
Leonard Wallace |
3,165 |
- |
- |
3,165 |
- |
Rita Fern Whittington |
197,545 |
600 |
30,270 |
228,415 |
245,438 |
Ronald Sanford Harwood |
17,545 |
- |
- |
17,545 |
33,732 |
Directors’ and Officers’ Indemnity
Insurance
The Company has made qualifying third-party indemnity provisions
for the benefit of its Directors and Officers. These were made
during the previous period and remain in force at the date of this
report.
Dividends
The Directors do not recommend the payment of a dividend (2015:
£Nil).
Going Concern
The Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence though
30 June 2018, as projected. However,
this expectation is subject to material adverse unforeseen events
that may occur, including but not limited to oil and gas prices,
non-operations control of wells and continuation of forebearance by
the Bank. Further details on their assumptions and their conclusion
thereon are included in the statement of going concern included in
Note 2.3 to the Financial Statements. The auditors have drawn
attention to going concern in our audit report by way of an
emphasis of matter.
Events after the Reporting Period
The events after the reporting period are set out in
Note 26 to the Financial Statements.
Provision of Information to
Auditor
So far as each of the Directors is aware at the time this report
is approved:
· there is no relevant
audit information of which the Company's auditor is unaware;
and
· the Directors have
taken all steps that they ought to have taken to make themselves
aware of any relevant audit information and to establish that the
auditor is aware of that information.
Independent Auditor
The auditor, PKF Littlejohn LLP will be proposed for
reappointment in accordance with section 485 of the Companies Act
2006. PKF Littlejohn LLP has signified its willingness to continue
in office as auditor.
This report was approved by the board
on 16 June 2017 and signed on its
behalf:
Ronald
Harwood
Non-Executive Director, Interim Chairman
STATEMENT OF DIRECTORS’
RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report
and the Financial Statements in accordance with applicable law and
regulations. Company law requires the Directors to prepare
financial statements for each financial year. Under that law
the Directors have elected to prepare the Group and Parent Company
Financial Statements in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union.
Under company law the Directors must not approve the Financial
Statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and Group as at the end
of the financial year and of the profit or loss of the Group for
that period. In preparing these Financial Statements, the Directors
are required to:
- select suitable accounting policies and then apply them
consistently;
- make judgments and accounting estimates that are reasonable and
prudent;
- state whether the applicable IFRS’s as adopted by the European
Union have been followed; subject to any material departures
disclosed and explained in the Financial Statements; and
- prepare the Financial Statements on a going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and the Group 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
Company and Group and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The maintenance and integrity of the website is the
responsibility of the Directors. The work carried out by the
auditors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes
that may have occurred to the information contained in the
Financial Statements since they were initially presented on the
website. Legislation in the United
Kingdom governing the preparation and dissemination of the
Financial Statements and other information included in annual
reports may differ from legislation in other jurisdictions.
The Company is compliant with AIM Rule 26 regarding the
Company’s website.
This report was approved by the board
on 16 June 2017 and signed on its
behalf:
Ronald
Harwood
Non-Executive Director, Interim Chairman
CORPORATE GOVERNANCE REPORT
The Board of Directors
As at 31 December 2016, the Board
of Directors comprised five members: two Executive Directors and
three Non-Executive Directors including the Chairman Thomas Wagenhofer, who was appointed to the
Board on 29 June 2015, as
Non-Executive Chairman. In addition, Leonard Wallace has been appointed to the Board,
effective 16 May 2016. The Executive Directors have a wealth
of experience in the oil and gas industry. Similarly the
Non-Executive Directors together have extensive mineral, oil and
gas exploration experience and financial experience.
Board Meetings
The Board ordinarily meets on a monthly basis and as and when
further required, providing effective leadership and overall
management of the Group’s affairs by reference to those matters
reserved for its decision. This includes the approval of the budget
and business plan, major capital expenditure, acquisitions and
disposals, risk management policies and the approval of the
financial statements. Formal agendas, papers and reports are sent
to the Directors, in a timely manner, prior to the Board
meetings.
|
Number held and
entitled to attend |
Number
attended |
Thomas Wagenhofer |
17 |
16 |
Leonard Wallace |
10 |
7 |
Ronald Harwood |
17 |
17 |
Steven Snead |
17 |
17 |
Rita Whittington |
17 |
17 |
Corporate Governance Practices
The Board recognises the importance of sound corporate
governance commensurate with the size of the Group and the
interests of Shareholders. As the Group grows, the Directors will
develop policies and procedures which reflect the requirements of
the UK Corporate Governance Code (the Code), as published by the
Financial Reporting Council so far as is practicable, taking into
account the size and nature of the Company. The Directors do note
that they are not required to adopt the Code and nor do they do
so.
Remuneration and Audit Committees
The remuneration committee comprises Leonard Wallace (Chairman) and Ronald Harwood, and is responsible for reviewing
the performance of the Executive Directors and for setting the
framework and broad policy for the scale and structure of their
remuneration taking into account all factors which it shall deem
necessary. The remuneration committee also determines the
allocation of share options and is responsible for setting up any
performance criteria in relation to the exercise of options granted
under any share options schemes adopted by the Group.
The audit committee comprises Ronald
Harwood (Chairman) and Leonard
Wallace, and has primary responsibility for monitoring the
quality of internal controls, ensuring that the financial
performance of the Group is properly measured and reported on and
for reviewing reports from the Group and Company’s auditor relating
to the Group’s accounting and internal controls.
Internal Controls
The Board recognises the importance of both financial and
non-financial controls and has reviewed the Group's control
environment and any related shortfalls during the year. Since the
Group was established, the Directors are satisfied that, given the
current size and activities of the Group, adequate internal
controls have been implemented. Whilst they are aware that no
system can provide absolute assurance against material misstatement
or loss, in light of the current activity and proposed future
developments of the Group, continuing reviews of internal controls
will be undertaken to ensure that they are adequate and
effective.
CORPORATE GOVERNANCE REPORT
Relations with Shareholders
The Board is committed to providing effective communication with
the shareholders of the Company. Significant developments are
disseminated through stock exchange announcements and regular
updates on the Company website. The Board views the Annual General
Meeting as a forum for communication between the Group and its
shareholders and encourages their participation in its agenda.
REPORT OF THE INDEPENDENT AUDITOR
Independent Auditor’s Report to the
members of Magnolia Petroleum Plc
We have audited the Financial Statements of Magnolia Petroleum
plc for the year ended 31 December 2016 which comprise
the Consolidated Statement of Comprehensive Income, the
Consolidated and Parent Company Statements of Financial Position,
the Consolidated and Parent Company Statements of Cash Flow, the
Consolidated and Parent Company Statements of Changes in Equity,
and the related notes. The financial reporting framework that has
been applied in their preparation is applicable law and
International Financial Reporting 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.
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 matters we are required to
state to them in an auditor’s report and for no other
purpose. To the fullest extent permitted 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.
Respective responsibilities of
Directors and Auditor
As explained more fully in the Statement of Directors’
Responsibilities, the Directors are responsible for the preparation
of the Financial Statements and for being satisfied that they give
a true and fair view. Our responsibility is to audit and
express an opinion on the Financial Statements in accordance with
applicable law and International Standards on Auditing (UK and
Ireland). Those standards
require us to comply with the Auditing Practices Board’s Ethical
Standards for Auditors.
Scope of the audit of the Financial
Statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the Group’s and Parent Company’s circumstances and
have been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by
Directors; and the overall presentation of the financial
statements. In addition, we read all the financial and
non-financial information in the Annual Report to identify material
inconsistencies with the audited financial statements and to
identify any information that is apparently materially incorrect
based on, or materially inconsistent with, the knowledge acquired
by us in the course of performing the audit. If we become aware of
any apparent material misstatements or inconsistencies we consider
the implications for our report.
Opinion on Financial Statements
In our opinion:
· the
Financial Statements give a true and fair view of the state of the
Group’s and of the Parent Company’s affairs as at 31 December 2016 and of the Group’s loss for the
year then ended;
· have
been properly prepared in accordance with IFRSs as adopted by the
European Union; and
· have
been prepared in accordance with the requirements of the Companies
Act 2006.
Emphasis of matter – going concern
In forming our opinion on the Financial Statements, which is not
modified, we have considered the adequacy of the disclosure made in
note 2.3 to the Financial Statements concerning the Group and
Company’s ability to continue as a going concern. The Group
incurred a net loss of $1,551,275
during the year ended 31 December
2016 and, at that date, the Group had net current
liabilities of $438,248. The
company’s ability to continue as a going concern is dependent on
continuing support from its lenders and its ability to raise funds
on the open market. These conditions, along with the other matters
explained in note 2.3 to the Financial Statements, indicate the
existence of a material uncertainty which may cast significant
doubt on the Group and Company’s ability to continue as a going
concern. The Financial Statements do not include the adjustments
that would result if the Group and Company were unable to continue
as a going concern.
Opinion on other matter prescribed by
the Companies Act 2006
In our opinion, based on the work undertaken in the course of
the audit:
· the
information given in the Chief Executive Officer’s Statement,
Operations Report, Financial Report, Strategic Report and the
Director’s Report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
· the Chief
Executive Officer’s Statement, Operations Report, Financial Report,
Strategic Report and the Director’s Report have been prepared in
accordance with applicable legal requirements.
Matters on which we are required to
report by exception
In light of the knowledge and understanding of the company and
its environment obtained in the course of the audit, we have not
identified material misstatements in the Chief Executive Officer’s
Statement, Operations Report, Financial Report, Strategic Report
and the Director’s Report.
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if, in
our opinion:
· adequate
accounting 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
accounting records and returns; or
· certain
disclosures of Directors’ remuneration specified by law are not
made; or
· we
have not received all the information and explanations we require
for our audit.
Joseph Archer (Senior
statutory auditor)
1 Westferry Circus
For and on behalf of PKF Littlejohn
LLP
Canary Wharf
Statutory
Auditor
London E14 4HD
16 June 2017
MAGNOLIA
PETROLEUM PLC CONSOLIDATED
STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 December 2016
|
Note |
Year ended
31 December
2016 |
Year ended
31 December
2015 |
|
|
$ |
$ |
Continuing
Operations |
|
|
|
Revenue |
|
1,273,612 |
1,991,021 |
Operating
expenses |
6 |
(831,528) |
(1,237,456) |
Depreciation |
13 |
(1,070,124) |
(1,547,313) |
|
|
________ |
________ |
|
|
|
|
Gross
(Loss) |
|
(628,040) |
(793,748) |
|
|
|
|
Impairment of
property, plant and equipment |
13 |
(2,207,293) |
(3,538,523) |
Impairment of
intangible assets |
14 |
- |
(4,973,181) |
Differences due to
foreign exchange |
|
2,117,003 |
678,001 |
Administrative
expenses |
6 |
(702,354) |
(1,045,884) |
Other income |
9 |
17,960 |
- |
|
|
________ |
________ |
|
|
|
|
Operating
(Loss) |
|
(1,402,724) |
(9,673,335) |
|
|
|
|
Finance income |
11 |
- |
139 |
Finance costs |
11 |
(148,551) |
(120,080) |
|
|
________ |
________ |
|
|
|
|
(Loss) before
Tax |
|
(1,551,275) |
(9,793,276) |
|
|
|
|
Income tax |
10 |
- |
- |
|
|
________ |
________ |
(Loss) for
the year attributable to owners of the parent |
|
|
|
|
|
(1,551,275) |
(9,793,276) |
|
|
________ |
________ |
Other Comprehensive
Income: |
|
|
|
Items that may be
reclassified subsequently to profit or loss |
|
|
|
Currency translation
differences |
|
(2,208,770) |
(697,415) |
|
|
_______ |
_______ |
|
|
|
|
Other Comprehensive
Income for the Year, Net of Tax |
|
(2,208,770) |
(697,415) |
|
|
________ |
________ |
Total Comprehensive
Income for the Year attributable to the owners of the
parent |
|
(3,760,045) |
(10,490,691) |
|
|
________ |
________ |
Loss per share
attributable to the owners of the parent during the year |
|
|
|
|
|
|
|
Basic and diluted
(cents per share) |
12 |
(0.09)
________ |
(0.98)
________ |
The Notes on pages 28 to 52 form part of these Financial
Statements.
CONSOLIDATED STATEMENT OF FINANCIAL
POSITION
As at 31 December 2016
|
Note |
As at
31 December
2016 |
As at
31 December
2015 |
ASSETS |
|
$ |
$ |
Non–Current
Assets |
|
|
|
Property, plant and
equipment |
13 |
4,518,177 |
7,294,470 |
Intangible assets |
14 |
1,684,559 |
1,830,773 |
|
|
_________ |
_________ |
|
|
|
|
Total Non-Current
Assets |
|
6,202,736 |
9,125,243 |
|
|
_________ |
_________ |
Current
Assets |
|
|
|
Trade and other
receivables |
16 |
610,941 |
441,764 |
Cash and cash
equivalents |
17 |
241,347 |
645,759 |
|
|
________ |
________ |
|
|
|
|
Total Current
Assets |
|
852,288 |
1,087,523 |
|
|
________ |
________ |
|
|
|
|
TOTAL
ASSETS |
|
7,055,024 |
10,212,766 |
|
|
_________ |
_________ |
EQUITY AND
LIABILITIES |
|
|
|
Equity attributable
to Owners of Parent |
|
|
|
Share capital |
18 |
2,619,986 |
1,704,820 |
Share premium |
|
15,254,643 |
15,200,219 |
Merger reserve |
|
1,975,950 |
1,975,950 |
Share option and
warrants reserve |
|
65,163 |
209,042 |
Reverse acquisition
reserve |
|
(2,250,672) |
(2,250,672) |
Translation
reserve |
|
(3,171,657) |
(962,887) |
Retained losses |
|
(11,367,372) |
(9,959,977) |
|
|
_________ |
_________ |
|
|
|
|
Total
Equity |
|
3,126,041 |
5,916,495 |
|
|
_________ |
_________ |
Non-Current
Liabilities |
|
|
|
Borrowings |
19 |
- |
3,154,784 |
|
|
________ |
________ |
|
|
|
|
Total Non-Current
Liabilities |
|
- |
3,154,784 |
|
|
________ |
________ |
Current
Liabilities |
|
|
|
Trade and other
payables |
20 |
1,290,536 |
1,141,487 |
Borrowings |
19 |
2,638,447 |
- |
|
|
________ |
________ |
|
|
|
|
Total Current
Liabilities |
|
3,928,983 |
1,141,487 |
|
|
________ |
________ |
|
|
|
|
TOTAL EQUITY AND
LIABILITIES |
|
7,055,024 |
10,212,766 |
|
|
_________ |
_________ |
These Financial Statements were approved by the Board of
Directors on June 2017 and were signed
on its behalf by:
Ronald
Harwood
Director
The Notes on pages 28 to 52 form part of these Financial
Statements.
COMPANY STATEMENT OF FINANCIAL
POSITION
Registered number
05566066
As at 31 December 2016
|
Note |
As at
31 December
2016 |
As at
31 December
2015 |
|
|
$ |
$ |
ASSETS |
|
|
|
Non–Current
Assets |
|
|
|
Investments in
subsidiaries |
15 |
2,885,085
________ |
3,453,879
________ |
Total Non–Current
Assets |
|
2,885,085
________ |
3,453,879
________ |
Current
Assets |
|
|
|
Trade and other
receivables |
16 |
1,468,697 |
12,663,513 |
Cash and cash
equivalents |
17 |
10,197
_________ |
44,210
_________ |
Total Current
Assets |
|
1,478,894
_________ |
12,707,723
_________ |
|
|
|
|
TOTAL
ASSETS |
|
4,363,979
_________ |
16,161,602
_________ |
EQUITY AND
LIABILITIES |
|
|
|
Equity attributable
to Shareholders |
|
|
|
Share capital |
18 |
2,619,986 |
1,704,820 |
Share premium |
18 |
15,254,643 |
15,200,219 |
Merger reserve |
|
1,975,950 |
1,975,950 |
Share option and
warrants reserve |
|
65,163 |
209,042 |
Translation
reserve |
|
(4,129,356) |
(1,407,825) |
Retained losses |
|
(11,525,560)
_________ |
(1,570,070)
_________ |
Total
Equity |
|
4,260,826
_________ |
16,112,136
_________ |
|
|
|
|
Current
Liabilities |
|
|
|
Trade and other
payables |
20 |
103,153
______ |
49,466
______ |
Total Current
Liabilities |
|
103,153
______ |
49,466
______ |
|
|
|
|
TOTAL EQUITY AND
LIABILITIES |
|
4,363,979
_________ |
16,161,602
_________ |
The Company has elected to take the exemption under Section 408
of the Companies Act 2006 from presenting the Parent Company
Statement of Comprehensive Income.
The loss for the Parent Company for the year was $10,099,369 (2015: $203,635).
These Financial Statements were approved by the Board of
Directors on June 2017 and were signed
on its behalf by:
Ronald
Harwood
Director
The Notes on pages 28 to 52 form part of these Financial
Statements.
CONSOLIDATED STATEMENT OF CHANGES
IN EQUITY
Year ended 31 December 2016
|
Attributable to the owners of the parent |
|
Group ($) |
Share
capital |
Share
Premium |
Merger
reserve |
Share
option and warrants
reserve |
Reverse
acquisition
reserve |
Translation
reserve |
Retained
losses |
Total
equity |
|
Balance at
1 January 2015 |
1,481,396 |
13,954,026 |
1,975,950 |
209,042 |
(2,250,672) |
(265,472) |
(166,701) |
14,937,569 |
Loss for the year |
- |
- |
- |
- |
- |
- |
(9,793,276) |
(9,793,276) |
|
|
|
|
|
|
|
|
|
Other Comprehensive
Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation
differences |
- |
- |
- |
- |
- |
(697,415) |
- |
(697,415) |
|
|
|
|
|
|
|
|
|
Total Comprehensive Income for
the Year |
- |
- |
- |
- |
- |
(697,415) |
(9,793,276) |
(10,490,691) |
|
|
|
|
|
|
|
|
|
Transactions with
Owners |
|
|
|
|
|
|
|
|
Share issue |
223,424 |
1,340,543 |
- |
- |
- |
- |
- |
1,563,967 |
Share issue costs |
- |
(94,350) |
- |
- |
- |
- |
- |
(94,350) |
|
|
|
|
|
|
|
|
|
Transaction with
owners, recognised directly in equity |
223,424 |
1,246,193 |
- |
- |
- |
- |
- |
1,469,617 |
Balance at
31 December 2015 |
1,704,820 |
15,200,219 |
1,975,950 |
209,042 |
(2,250,672) |
(962,887) |
(9,959,977) |
5,916,495 |
|
|
|
|
|
|
|
|
|
Balance at
1 January 2016 |
1,704,820 |
15,200,219 |
1,975,950 |
209,042 |
(2,250,672) |
(962,887) |
(9,959,977) |
5,916,495 |
Loss for the year |
- |
- |
- |
- |
- |
- |
(1,551,274) |
(1,551,274) |
Other Comprehensive
Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation
differences |
- |
- |
- |
- |
- |
(2, 208,770) |
- |
(2,208,770) |
|
|
|
|
|
|
|
|
|
Total Comprehensive Income for
the Year |
- |
- |
- |
- |
- |
(2,208,770) |
(1,551,274) |
(3,760,044) |
|
|
|
|
|
|
|
|
|
Share options cancelled |
- |
- |
- |
(143,879) |
- |
- |
143,879 |
- |
|
|
|
|
|
|
|
|
|
Transactions with
Owners |
|
|
|
|
|
|
|
|
Share issue |
915,166 |
136,740 |
- |
- |
- |
- |
- |
1,051,906 |
Share issue costs |
- |
(82,316) |
- |
- |
- |
- |
- |
(82,316) |
|
|
|
|
|
|
|
|
|
Transaction with owners,
recognised directly in equity |
915,166 |
54,424 |
- |
- |
- |
- |
- |
969,590 |
Balance at
31 December 2016 |
2,619,986 |
15,254,643 |
1,975,950 |
65,163 |
(2,250,672) |
(3,171,657) |
(11,367,372) |
3,126,041 |
|
|
|
|
|
|
|
|
|
|
The Notes on pages 28 to 52 form part of these Financial
Statements.
COMPANY STATEMENT OF CHANGES IN
EQUITY
Year ended 31 December 2016
|
Attributable to the shareholders |
Company ($) |
Share
capital |
Share
premium |
Merger
reserve |
Share
Option and warrants
reserve |
Translation
reserve |
Retained
losses |
Total
equity |
Balance
at
1 January 2015 |
1,481,396 |
13,954,026 |
1,975,950 |
209,042 |
(536,827) |
(1,366,435) |
15,717,152 |
|
|
|
|
|
|
|
|
Loss for the year |
- |
- |
- |
- |
- |
(203,635) |
(203,635) |
|
|
|
|
|
|
|
|
Other Comprehensive
Income |
|
|
|
|
|
|
|
Currency translation
differences |
- |
- |
- |
- |
(870,998) |
- |
(870,998) |
|
|
|
|
|
|
|
|
Total
Comprehensive
Income for the Year |
- |
- |
- |
- |
(870,998) |
(203,635) |
(1,074,633) |
|
|
|
|
|
|
|
|
Transactions with
Owners |
|
|
|
|
|
|
|
|
|
Share issue |
223,424 |
1,340,543 |
- |
- |
- |
- |
1,563,967 |
Share issue costs |
- |
(94,350) |
- |
- |
- |
- |
(94,350) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contributions
by and distributions to owners of the parent, recognised directly
in equity |
223,424 |
1,246,193 |
- |
- |
- |
- |
1,469,617 |
|
|
|
|
|
|
|
|
Balance
at
31 December 2015 |
1,704,820 |
15,200,219 |
1,975,950 |
209,042 |
(1,407,825) |
(1,570,070) |
16,112,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at
1 January 2016 |
1,704,820 |
15,200,219 |
1,975,950 |
209,042 |
(1,407,825) |
(1,570,070) |
16,112,136 |
|
|
|
|
|
|
|
|
Loss for the year |
- |
- |
- |
- |
- |
(10,099,369) |
(10,099,369) |
|
|
|
|
|
|
|
|
Other Comprehensive
Income |
|
|
|
|
|
|
|
Currency translation
differences |
- |
- |
- |
- |
(2,721,531) |
- |
(2,721,531) |
|
|
|
|
|
|
|
|
Total
Comprehensive
Income for the Year |
- |
- |
- |
- |
(2,721,531) |
(10,099,369) |
(12,820,900) |
|
|
|
|
|
|
|
|
Share options
cancelled |
- |
- |
- |
(143,879) |
- |
143,879 |
- |
|
|
|
|
|
|
|
|
Transactions with
Owners |
|
|
|
|
|
|
|
|
|
Share issue |
915,166 |
136,740 |
- |
- |
- |
- |
1,051,906 |
Share issue costs |
- |
(82,316) |
- |
- |
- |
- |
(82,316) |
|
|
|
|
|
|
|
|
Total contributions
by and distributions to owners of the parent, recognised directly
in equity |
915,166 |
54,424 |
- |
- |
- |
- |
969,590 |
Balance at
31 December 2016 |
2,619,986 |
15,254,643 |
1,975,950 |
65,163 |
(4,129,356) |
(11,525,560) |
4,260,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Notes on pages 28 to 52 form part of these Financial
Statements.
CONSOLIDATED STATEMENT OF CASH
FLOWS
Year ended 31 December 2016
|
|
Year
ended
31 December |
Year ended
31 December |
|
Note |
2016 |
2015 |
|
|
$ |
$ |
Cash Flows from Operating
Activities |
|
|
|
(Loss) before tax |
|
(1,551,275) |
(9,793,276) |
Impairment of property, plant and
equipment |
13 |
2,207,293 |
3,538,523 |
Impairment of intangible assets |
14 |
- |
4,973,181 |
Depreciation |
13 |
1,073,456 |
1,553,240 |
Foreign exchange |
|
(2,148,150) |
(676,825) |
Finance income |
11 |
- |
(139) |
Finance costs |
11 |
148,551 |
120,080 |
|
|
________ |
________ |
|
|
|
|
|
|
(270,125) |
(285,216) |
Changes to working
capital |
|
|
|
(Increase)/Decrease in trade and
other receivables |
|
(169,177) |
555,902 |
Increase/(Decrease) in trade and
other payables |
|
149,049 |
(392,329) |
|
|
________ |
________ |
|
|
|
|
Cash (used in)
operations |
|
(290,253) |
(121,643) |
Interest paid |
11 |
(148,551) |
(120,080) |
|
|
________ |
________ |
|
|
|
|
Net Cash (used in) Operating
Activities |
|
(438,804) |
(241,723) |
|
|
________ |
________ |
Cash Flows from Investing
Activities |
|
|
|
Purchases of intangible assets |
14 |
(1,114) |
(376,062) |
Purchases of property, plant and
equipment |
13 |
(413,162) |
(1,056,849) |
Interest received |
11 |
- |
139 |
|
|
________ |
________ |
|
|
|
|
Net Cash used in Investing
Activities |
|
(414,276)
________ |
(1,432,772)
________ |
Cash Flows from Financing
Activities |
|
|
|
Proceeds from issue of ordinary
shares |
18 |
1,051,906 |
1,563,967 |
Issue costs |
18 |
(82,316) |
(94,350) |
Proceeds from borrowings |
|
(516,337)
________ |
418,510
________ |
Net Cash generated from Financing
Activities |
|
453,253
________ |
1,888,127
________ |
|
|
|
|
Net (Decrease)/Increase in Cash
and Cash Equivalents |
|
(399,827)
________ |
213,632
________ |
Movement in Cash and Cash
Equivalents |
|
|
|
Cash and cash equivalents at the
beginning of the year |
17 |
645,759 |
433,748 |
Exchange loss on cash and cash
equivalents |
|
(4,585) |
(1,621) |
Net (Decrease)/Increase in cash and
cash equivalents |
|
(399,827)
_______ |
213,632
________ |
Cash and Cash Equivalents at the
End of the Year |
17 |
241,347
_______ |
645,759
________ |
The Notes on pages 28 to 52 form part of these Financial
Statements.
COMPANY STATEMENT OF CASH
FLOWS
Year ended 31 December 2016
|
|
Year
ended
31 December |
Year
ended
31 December |
|
Note |
2016 |
2015 |
|
|
$ |
$ |
Cash Flows from Operating
Activities |
|
|
|
Loss before tax |
|
(10,099,369) |
(203,635) |
Foreign exchange |
|
(31,147) |
2,139 |
|
|
_______ |
_______ |
|
|
(10,130,516) |
(201,496) |
Changes to working
capital |
|
|
|
Decrease in trade and other
receivables |
|
5,006 |
13,425 |
Increase in trade and other
payables |
|
50,387 |
17,745 |
|
|
_______ |
_______ |
|
|
|
|
Net Cash used in Operating
Activities |
|
(10,075,123) |
(170,326) |
|
|
_______ |
_______ |
Cash Flows from Financing
Activities |
|
|
|
Proceeds from issue of ordinary
shares |
18 |
1,051,906 |
1,563,967 |
Issue costs |
18 |
(82,316) |
(94,350) |
(Increase) in funding subsidiary
undertaking |
|
9,076,105 |
(1,257,121) |
|
|
_______ |
________ |
|
|
|
|
Net Cash generated from Financing
Activities |
|
10,045,695 |
212,496 |
|
|
_______ |
________ |
|
|
|
|
Net (Decrease)/Increase in Cash
and Cash Equivalents |
|
(29,428) |
42,170 |
|
|
_______ |
________ |
Movement in Cash and Cash
Equivalents |
|
|
|
|
|
|
|
Cash and cash equivalents at the
beginning of the year |
17 |
44,210 |
3,661 |
Exchange loss on cash and cash
equivalents |
|
(4,585) |
(1,621) |
Net (Decrease)/Increase in cash and
cash equivalents |
|
(29,428)
_______ |
42,170
_______ |
Cash and Cash Equivalents at the
End of the Year |
17 |
10,197
_______ |
44,210
_______ |
|
|
|
|
The Notes on pages 28 to 52 form part of these Financial
Statements.
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2016
1 GENERAL
INFORMATION
The Consolidated Financial Statements of Magnolia Petroleum plc
(“the Company”) consists of the following companies: Magnolia
Petroleum plc and Magnolia Petroleum Inc. (together “the
Group”).
The Company is a public limited company which is listed on the
AIM market of the London Stock Exchange and incorporated and
domiciled in England and
Wales. Its registered office
address is Suite 321, 19-21 Crawford Street, London, W1H 1PJ.
The information contained in this announcement has been
extracted from the Company’s Report and Accounts for the financial
year to 31 December 2016 and, as
such, references to notes and page numbers may have changed.
Shareholders should read the full report and accounts which can be
found on the Company’s website.
2 SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of
these Consolidated Financial Statements are set out below.
These policies have been consistently applied to all the years
presented, unless otherwise stated.
2.1 Basis of preparation of
Financial Statements
The Consolidated Financial Statements of Magnolia Petroleum plc
have been prepared in accordance with International Financial
Reporting Standards (IFRS) and IFRIC interpretations (IFRS IC) as
adopted by the European Union and the Companies Act 2006
applicable to companies reporting under IFRS.
The Financial Statements have been prepared under the historical
cost convention.
The preparation of Financial Statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group’s accounting policies. The areas involving
a higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the consolidated
Financial Statements, are disclosed in Note 4.
2.2 Basis of consolidation
The Consolidated Financial Statements consolidate the Financial
Statements of Magnolia Petroleum plc and the audited Financial
Statements of its subsidiary undertaking made up to 31 December 2016.
Subsidiaries are all entities over which the Group has control.
The Group controls an entity when the Group is exposed to, or has
rights to, variable returns from its involvement with the investee
and has the ability to affect those returns through its power over
the investee. Subsidiaries are fully consolidated from the date on
which control is transferred to the Group. They are deconsolidated
from the date that control ceases.
The Company acquired Magnolia Petroleum Inc. on 23 October 2009 through a share exchange.
As the shareholders of Magnolia Petroleum Inc. had control of the
legal parent, Magnolia Petroleum plc, the transaction was accounted
for as a reverse acquisition in accordance with IFRS 3 “Business
Combinations”. The following accounting treatment has been applied
in respect of the reverse acquisition:
· the
assets and liabilities of the legal subsidiary Magnolia Petroleum
Inc. are recognised and measured in the Consolidated Financial
Statements at their pre-combination carrying amounts, without
restatement to fair value; and
· the
equity structure appearing in the Consolidated Financial Statements
reflects the equity structure of the legal parent, Magnolia
Petroleum plc, including the equity instruments issued to effect
the business combination.
The cost of acquisition was measured as the fair value of the
assets acquired, equity instruments issued and liabilities incurred
or assumed at the date of exchange, plus certain costs directly
attributable to the acquisition.
2 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
2.2 Basis of consolidation (continued)
In accounting for the acquisition of Magnolia Petroleum Inc.,
the Company has taken advantage of Section 612 of the Companies Act
2006 and accounted for the transaction using merger relief.
Investments in subsidiaries are accounted for at cost less
impairment. Where necessary, adjustments are made to the financial
statements of subsidiaries to bring the accounting policies used
into line with those used by other members of the Group. All
inter-company transactions and balances between Group entities are
eliminated on consolidation.
2.3 Going concern
The Group’s business activities, together with the factors
likely to affect its future development and performance are set out
in the Chief Executive Officer’s Statement. In addition, notes 3
and 23 to the Financial Statements disclose the Group’s and
Company’s objectives, policies and processes for managing financial
risks and capital.
At the year end the Group was in discussion with Bank SNB, the
lenders of the Group’s $6 million
revolving credit facility, with regards to agreeing certain waivers
of, and amendments to, the Group’s facility due to non-compliance
at that date of financial and other covenants. Discussions
also included an extension to the facility’s maturity date that was
originally due to end on 7 March 2017
but was extended to 8 June 2017 by
Bank SNB. At 31 December 2016
the Group’s borrowings under the facility amounted to $2,638,447.
A request for a longer-term extension to our Facility is
currently being processed by the Group’s Bank. The Bank continues
to view the Facility as part of a long-term relationship with
Magnolia. In line with this, the Bank has agreed to extend the
Facility from 8 June 2017 to
8 August 2017 while it processes the
appropriate paperwork, loan documents as well as the relevant
financial and reserve report information that has been provided by
the Group’s management.
The borrowing base limit liability of $1,604,565 is due for repayment in full on
8 August 2017 and the decision to
extend is at Bank SNB’s discretion.
The Group was non-compliant on all covenants, as a reminder, the
Bank has waived the current ratio covenant until further written
notice. Funding future growth will however be via the Group’s own
generated cash-flow, wherever possible. The Group’s cash
flow forecasts and projections prepared up to 30 June 2018 show that the Group has sufficient
funds and facilities to fund its current ongoing operating costs
and the scheduled principal repayments plus interest of the
borrowings in excess of the borrowing base of $1,604,565. Additional funds will be
required if Bank SNB require repayment of the borrowing base
liability on 8 August 2017. The
Directors have a reasonable expectation that the Company and Group
has adequate resources to continue in operational existence through
30 June 2018 as projected; however
subject to material adverse unforeseen events that may occur,
including but not limited to oil and gas prices, non-operational
control of wells and continuation of forbearance by the Bank. For
this reason, the Directors continue to adopt the going concern
basis of accounting in preparing the Financial Statements.
As of 2 June 2017, a general
meeting has been requisitioned by Steven
Snead, Snead Family LLC, Snead Family 2012 LLC and
R. Sterling Snead (the “Activist
Shareholder”). Among the proposals as set forth by the
Activist Shareholder is a demand for the removal of Rita Whittington as a director. Under the
employment agreement with Ms. Whittington, approximately
$350,000 USD will become immediately
due and payable by the Group.
2 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
2.4 Changes in accounting policy
and disclosure
a) New standards, amendments and
interpretations adopted by the Group
No new standards, amendments or interpretations, effective for
the first time for the financial year beginning on or after
1 January 2016 have had a material
impact on the Group or Company.
b) New and amended standards and
interpretations issued but not yet effective or endorsed and not
early adopted
A number of new standards and amendments to standards and
interpretations are effective for annual periods beginning after
1 January 2016, and have not been
applied in preparing these consolidated financial statement. None
of these are expected to have a significant effect on the
consolidated financial statements of the Group.
2.5 Revenue recognition
Revenue represents the amounts receivable from operators for the
Group’s share of oil and / or gas revenues less any royalties
payable to the lessor or assignor of the mineral rights. Revenue is
recognised in the period to which the declarations from the
operators relate.
Other income is recognised in the accounting period for the sale
of assets.
2.6 Foreign Currency Translation
(a) Functional and presentation
currency
Items included in each of the Financial Statements of the
Group’s entities are measured using the currency of the primary
economic environment in which the entity operates (the ‘functional
currency’). The functional currency of the UK parent entity is
sterling and the functional currency of the subsidiary is US
Dollars. The Financial Statements are presented in US Dollars,
rounded to the nearest Dollar, which is the Group’s and Company’s
presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions or valuation where such items are re-measured. Foreign
exchange gains and losses resulting from the settlement of such
transactions and from the translation at year-end exchange rates of
monetary assets and liabilities denominated in foreign currencies
are recognised in the statement of comprehensive income.
2.6 Foreign Currency Translation
(continued)
(c) Group companies
The results and financial position of all the Group entities
that have a functional currency different from the presentation
currency are translated into the presentation currency as
follows:
· assets
and liabilities for each Statement of Financial Position presented
are translated at the closing rate at the date of that Statement of
Financial Position;
· income
and expenses for each statement of comprehensive income are
translated at average exchange rates (unless this average is not a
reasonable approximation of the cumulative effect of the rates
prevailing on the transaction dates, in which case income and
expenses are translated at the dates of the transactions); and
· all
resulting exchange differences are recognised in other
comprehensive income.
On consolidation, exchange differences arising from the
translation of the net investment in foreign entities, and of
monetary items receivable from foreign subsidiaries for which
settlement is neither planned nor likely to occur in the
foreseeable future are taken to other comprehensive income. When a
foreign operation is sold, such exchange differences are recognised
in the Statement of Comprehensive Income as part of the gain or
loss on sale.
2.7 Property, plant and equipment
Following evaluation of successful exploration wells, if
commercial reserves are established and the technical feasibility
of extraction demonstrated, and once a project is sanctioned for
commercial development, then the related capitalised exploration
costs are transferred into a single field cost centre within
‘producing properties’ within property, plant and equipment after
testing for impairment. Where results of exploration drilling
indicate the presence of hydrocarbons which are ultimately not
considered commercially viable, all related costs are written off
to the Statement of Comprehensive Income.
The net book values of ‘producing properties’ are depreciated on
a unit of production basis at a rate calculated by reference to
proven and probable reserves and incorporating the estimated future
cost of developing and extracting those reserves.
All costs incurred after the technical feasibility and
commercial viability of producing hydrocarbons has been
demonstrated are capitalised within ‘drilling costs and equipment’
on a well by well basis. Subsequent expenditure is capitalised only
where it either enhances the economic benefits of the
development/producing asset or replaces part of the existing
development/producing asset. Any costs remaining associated with
the part replaced are expensed.
Net proceeds from any disposal of an exploration asset are
initially credited against the previously capitalised costs. Any
surplus proceeds are credited to the Statement of Comprehensive
Income.
All property, plant and equipment other than oil and gas assets
are stated at historical cost less depreciation. Historical cost
includes expenditure that is directly attributable to the
acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or
recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item
will flow to the Group and the cost of the item can be measured
reliably. All other repairs and maintenance are charged to the
Statement of Comprehensive
2.7 Property, plant and equipment
(continued)
Depreciation is charged so as to allocate the cost of assets,
over their estimated useful lives, on a straight line basis as
follows:
Drilling costs and equipment – 10 years
Motor vehicles and office equipment – 4 years
Oil and gas producing properties held in property, plant and
equipment are mainly depreciated on a unit of production basis at a
rate calculated by reference to proven and probable reserves and
incorporating the estimated future cost of developing and
extracting those reserves.
The assets’ residual values and useful lives are reviewed, and
adjusted if appropriate, at each financial year-end.
Gains and losses on disposal are determined by comparing
proceeds with carrying amount. These are included in the Income
Statement.
Decommissioning
Where a material liability for the removal of production
facilities and site restoration at the end of the production life
of a field exists, a provision for decommissioning is recognised.
The amount recognised is the present value of estimated future
expenditure determined in accordance with local conditions and
requirements. The cost of the relevant property, plant and
equipment asset is increased with an amount equivalent to the
provision and depreciated on a unit of production basis. Changes in
estimates are recognised prospectively, with corresponding
adjustments to the provision and the associated non-current
asset.
2.8 Intangible assets
a. Goodwill
Under the reverse acquisition, goodwill represents the excess of
the cost of the combination over the acquirer’s interest in the net
fair values of the legal parent. The fair value of the equity
instruments of the legal subsidiary issued to effect the
combination was not available and therefore the fair value of all
the issued equity instruments of the legal parent prior to the
business combination was used as the basis for determining the cost
of the combination.
Goodwill is initially recognised as an asset at cost and is
subsequently measured at cost less any impairment. Goodwill which
is recognised as an asset is reviewed for impairment at least
annually. Any impairment is recognised immediately and is not
subsequently reversed.
b. Drilling costs and mineral
leases
The Group applies the successful efforts method of accounting
for oil and gas assets, having regard to the requirements of IFRS 6
‘Exploration for and Evaluation of Mineral Resources’. Costs
incurred prior to obtaining the legal rights to explore an area are
expensed immediately to the Statement of Comprehensive Income.
Expenditure incurred on the acquisition of a licence interest is
initially capitalised within intangible assets on a licence by
licence basis. Costs are held, unamortised, within mineral leases
until such time as the exploration phase of the licence area is
complete or commercial reserves have been discovered. The cost of
the licence is subsequently transferred into “Producing Properties”
within property, plant and equipment and depreciated over its
estimated useful economic life.
2.8 Intangible assets (continued)
b. Drilling costs and mineral
leases (continued)
Exploration expenditure incurred in the process of determining
exploration targets is capitalised initially within intangible
assets as drilling costs. Drilling costs are initially capitalised
on a well by well basis until the success or otherwise has been
established. Drilling costs are written off on completion of
a well unless the results indicate that hydrocarbon reserves exist
and there is a reasonable prospect that these reserves are
commercially viable. Drilling costs are subsequently transferred
into ‘Drilling costs and equipment’ within property, plant and
equipment and depreciated over their estimated useful economic
life. All such costs are subject to regular technical, commercial
and management review on at least an annual basis to confirm the
continued intent to develop or otherwise extract value from the
discovery. Where this is no longer the case, the costs are
immediately expensed to the Statement of Comprehensive Income.
Impairment of Non-Financial Assets
Assets not ready for use are not subject to amortisation and are
tested annually for impairment. Assets that are subject to
amortisation or depreciation are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount may not be recoverable. An impairment loss is
recognised for the amount by which the asset’s carrying amount
exceeds its recoverable amount. The recoverable amount is the
higher of an asset’s fair value less costs to sell and value in
use. For the purposes of assessing impairment, assets are
grouped at the lowest levels for which there are separately
identifiable cash flows (cash-generating units).
Non-financial assets other than goodwill that suffered impairment
are reviewed for possible reversal of the impairment at each
reporting date.
2.9 Financial assets
Classification
Financial assets are recognised when the Group becomes a party
to the contractual provisions of the instrument. At initial
recognition, the Group classifies its financial assets as loans and
receivables which comprise ‘trade and other receivables’ and ‘cash
and cash equivalents’.
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. They are included in current assets, except for
maturities greater than 12 months after the end of the reporting
period.
Recognition and measurement
Loans and receivables are initially recognised at the amount
expected to be received, less where material, a discount to reduce
the loans and receivables to fair value. Subsequently, loans
and receivables are measured at amortised cost using the effective
interest method less a provision for impairment.
Derecognition
The Group derecognises a financial asset when the contractual
rights to the cash flows from the asset expire, or it transfers the
rights to receive the contractual cash flows on the financial asset
in a transaction in which substantially all the risks and rewards
of the ownership of the financial asset are transferred. Any
interest in transferred financial assets that is created or
retained by the Group is recognised as a separate asset or
liability.
2.9 Financial assets
(continued)
Derecognition also takes place for certain assets when the Group
writes-off balances pertaining to the assets deemed to be
uncollectible.
The Group derecognises a financial liability when its
contractual obligations are discharged or cancelled or expire.
Impairment of financial assets
At each Statement of Financial Position date, the Group assesses
whether there is objective evidence that financial assets are
impaired. Financial assets are impaired when objective evidence
demonstrates that a loss event has occurred after the initial
recognition of the asset, and the loss event has an impact on the
future cash flows of the asset that can be estimated reliably.
The Group considers the evidence of impairment at both a
specific asset and collective level. All individually significant
financial assets are assessed for specific impairment. All
significant assets found not to be specifically impaired are then
collectively assessed for any impairment that has been incurred but
not yet identified. Assets that are not individually significant
are then collectively assessed for impairment by grouping together
financial assets (carried at amortised cost) with similar risk
characteristics. When a subsequent event causes the amount of
impairment loss to decrease, the impairment loss is reversed
through the Income Statement.
2.10 Trade and other receivables
Trade and other receivables are recognised initially at fair
value and subsequently measured at amortised cost using the
effective interest method, less provision for impairment. A
provision for impairment of trade receivables is established when
there is objective evidence that the Group will not be able to
collect all amounts due according to the original terms of
receivables.
2.11 Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and
demand deposits with banks.
2.12 Trade
and other payables
Trade and other payables are initially measured at fair value
and are subsequently measured at amortised cost using the effective
interest method.
2.13 Borrowings
Borrowings are recognised initially at fair value, net of
transaction costs incurred. Borrowings are subsequently
carried at amortised cost; any difference between the proceeds (net
of transaction costs) and the redemption value is recognised in the
Income Statement over the period of the borrowings, using the
effective interest method.
Borrowings are classified as current liabilities unless the
Group has an unconditional right to defer settlement of the
liability for at least 12 months after the end of the reporting
period.
2.14 Borrowing costs
Borrowing costs are recognised in the Income Statement in the
period in which they are incurred.
2.15 Share capital and other
reserves
Ordinary shares are classified as equity when there is no
obligation to transfer cash or other assets. Incremental costs
directly attributable to the issue of equity instruments are shown
in equity as a deduction from the proceeds, net of tax. Incremental
costs directly attributable to the issue of equity instruments as
consideration for the acquisition of a business are included in the
cost of acquisition.
Other reserves include merger reserve, share option and warrants
reserve, reverse acquisition reserve and translation reserve. The
share option and warrants reserve represent the movement in fair
value of options and warrants in the year. The reverse acquisition
reserve represents the reserve on the reverse acquisition of
Magnolia Plc by Mangnolia Inc. The translation reserve represents
effects of currency translation in the year.
2.16 Share based payment
The Group operates equity-settled, share-based compensation
plans under which the entity receives services from employees and
suppliers as consideration for equity instruments (options and
warrants) of the Company. The fair value of the services
received in exchange for the grant of options and warrants is
recognised as an expense and as a component of equity, if
material. The total amount to be expensed over the vesting
period is determined by reference to the fair value of the options
and warrants granted using the Black-Scholes pricing model.
When the options are exercised, the Company issues new
shares. The proceeds received, net of any directly
attributable transaction costs, are credited to share capital
(nominal value) and share premium.
2.17 Taxation
The tax expense or credit comprises current and deferred
tax. It is calculated using tax rates that have been enacted
or substantively enacted by the Statement of Financial Position
date.
Deferred tax is accounted for using the balance sheet liability
method in respect of temporary differences arising from differences
between the carrying amount of assets and liabilities in the
financial statements and the corresponding tax basis used in the
computation of taxable profit. In principle, deferred tax
liabilities are recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such assets
and liabilities are not recognised if the temporary difference
arises from goodwill (or negative goodwill) or from the initial
recognition (other than in a business combination) of other assets
and liabilities in a transaction, which affects neither the tax
profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary
differences arising on investments in subsidiaries and associates,
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 is calculated at the tax rates that are
expected to apply to the period when the asset is realised or the
liability is settled. Deferred tax is charged or credited in
the Statement of Comprehensive Income, except when it relates to
items credited or charged directly to equity, in which case the
deferred tax is also dealt with in equity. Deferred tax
assets and liabilities are offset when they relate to income taxes
levied by the same taxation authority and the Group intends to
settle its current tax assets and liabilities on a net basis.
2.18 Leasing
Leases in which a significant portion of the risks and rewards
of ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases (net of any incentives
received from the lessor) are charged to the Income Statement on a
straight-line basis over the period of the lease.
Segment Information
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker,
who is responsible for allocating resources and assessing
performance of the operating segments and making strategic
decisions.
2.19 Pension Obligations
The Group makes contributions to defined contribution pension
plans. The Group has no legal or constructive obligations to pay
further contributions if the plans do not hold sufficient assets to
pay all employees the benefits relating to employee service in the
current or prior periods. The contributions are recognised as
employee benefit expense when they are paid.
2.20 Exceptional items
Exceptional items are disclosed separately in the Financial
Statements where it is necessary to do so to provide further
understanding of the financial performance of the Group. They are
material items of income or expense that have been shown separately
due to the significance of their nature or amount.
3 FINANCIAL RISK
MANAGEMENT
The Group’s activities expose it to a variety of financial
risks: market risk (including currency risk and cash flow and
interest rate risk), credit risk and liquidity risk.
Market risk
The Group operates in an international market for hydrocarbons
and is exposed to risk arising from variations in the demand for
and price of the hydrocarbons. Oil and gas prices historically have
fluctuated widely and are affected by numerous factors over which
the Group has no control, including world production levels,
international economic trends, exchange rate fluctuations,
speculative activity and global or regional political events.
a) Currency risk
The majority of the Group’s sales and purchase transactions are
denominated in US dollars. The Company’s expenditure is
predominantly denominated in Sterling. The currencies are stable
and any exchange risk is managed by maintaining bank accounts
denominated in those currencies.
b) Cash flow and interest rate risk
The Group’s interest rate risk arises from long-term
borrowings. Borrowings issued at variable rates expose the
Group to cash flow interest rate risk, which is partially offset by
cash held at variable rates. During 2016, the Group’s
borrowings at variable rates were denominated in US dollars.
At 31 December 2016, if variable
interest rates on borrowings are 10 basis points higher/lower with
all other variables held constant, the annual interest expense will
be $134,561 higher / $129,284 lower.
Credit risk
Credit risk represents the risk of loss the Group would incur if
operators and counterparties fail to fulfil their credit
obligations. The maximum exposure to credit risk is represented by
the carrying amount of each financial asset.
3 FINANCIAL RISK MANAGEMENT
(continued)
Where the Group is not an operator of wells, the Group’s trade
receivables and accrued income result from contractual amounts due
from third party operators. The risk is concentrated between
a relatively small group of operators given the small number of
parties involved in oil and gas exploration and production
activities. The Group seeks to mitigate this risk where possible by
assessing the credit quality of the operators and by establishing
ongoing and long-term relationships.
Liquidity risk
Cash flow forecasting is performed in the operating entities of
the Group, and aggregated by Group Finance. Group Finance
monitors rolling forecasts of the Group’s liquidity requirements to
ensure it has sufficient cash to meet operational needs, while
seeking to maintain sufficient headroom on its undrawn committed
borrowing facilities (Note 19) at all times, so that the Group does
not breach borrowing limits or covenants (where applicable) on any
of its borrowing facilities. Such forecasting takes into
consideration the Group’s debt financing plans, covenant
compliance, compliance with internal Statement of Financial
Position ratio targets, and, if applicable, external regulatory or
legal requirements (for example, currency restrictions).
The table below analyses the Group’s non-derivative financial
liabilities and net-settled derivative financial liabilities into
relevant maturity groupings, based on the remaining period at the
Statement of Financial Position to the contractual maturity
date. The amounts disclosed in the table are the contractual
undiscounted cash flows.
Group |
Less than |
Between |
At
31 December 2016 |
1 year |
1 and 2 years |
|
|
|
Borrowings |
- |
2,638,447 |
Trade
and other payables |
1,132,983 |
- |
|
|
|
At
31 December 2015 |
|
|
|
|
|
Borrowings |
- |
3,154,784 |
Trade
and other payables |
1,092,137 |
- |
4 CRITICAL
ACCOUNTING ESTIMATES AND JUDGEMENTS
Use of estimates and judgements
The preparation of Financial Statements in conformity with IFRSs
requires management to make judgements, estimates and assumptions
that affect the application of policies and reported amounts of
assets and liabilities, income and expenses. The estimates and
associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the
judgements about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ
from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future periods. In
particular, information about significant areas of estimation
uncertainty and critical judgements in applying accounting policies
that have the most significant effect on the amount recognised in
the financial statements are described below.
4 CRITICAL ACCOUNTING ESTIMATES AND
JUDGEMENTS (continued)
Estimated impairment of producing
properties and capitalised drilling costs & equipment
At 31 December 2016, mineral
leases and capitalised drilling costs & equipment on producing
properties have a total carrying value of $4,518,177 (2015: $7,288,003) (Note 13). Management tests
annually whether the assets have future economic value in
accordance with the accounting policies. These assets are also
subject to an annual impairment review by an independent
consultant.
The recoverable amount of each property has been determined
based on a value in use calculation which requires the use of
certain estimates and assumptions such as long term commodity
prices (i.e. oil and gas prices), discount rates, operating costs,
future capital requirements and mineral resource estimates.
These estimates and assumptions are subject to risk and uncertainty
and therefore a possibility that changes in circumstances will
impact the recoverable amount.
In assessing the carrying amounts of its producing properties
and related drilling and equipment costs, the Directors have used
an updated reserves report (“The Report”) and have concluded that
an impairment charge of $2,207,293
should be recognised to write down the value of the
assets.
Recoverability of non-producing
mineral leases and capitalised drilling costs & equipment
Mineral leases and drilling costs on non-producing properties
have a carrying value at 31 December
2016 of $1,400,340 (2015:
$1,490,520). Management tests
annually whether non-producing mineral leases have future economic
value in accordance with the accounting policy stated in Note 2.8.
This assessment takes into consideration the likely commerciality
of the asset, the future revenues and costs pertaining and the
discount rates to be applied for the purposes of deriving a
recoverable value. In the event that a lease does not represent an
economic drilling target and results indicate that there is no
additional upside, the mineral lease and drilling costs will be
impaired. The Directors have reviewed the estimated value of the
licences and have concluded that an impairment charge of
$0 should be recognised.
Decommissioning
Where the Group has decommissioning obligations in respect of
its assets, the full extent to which the provision is required
depends on the legal requirements at the time of decommissioning,
the costs and timing of any decommissioning works and the discount
rate applied to such costs.
Estimated impairment of goodwill
Goodwill has a carrying value at 31
December 2016 of $284,219
(2015: $340,253). The Group tests
annually whether goodwill has suffered any impairment in accordance
with the accounting policy stated in Note 2.8. Management
have concluded that there is no impairment charge necessary to the
carrying value of goodwill.
Estimated useful lives of property,
plant and equipment
Useful lives are based on industry standards and historical
experience which are subjected to yearly evaluation. For producing
properties, the Group’s considerations include the lease period of
the agreement, estimated levels of proven and probable reserves and
the estimated future cost of developing and extracting those
reserves. Management review property, plant and equipment at each
Statement of Financial Position date to determine whether there are
any indications of impairment. If any such indication exists, an
estimate of the recoverable amount is performed, and an impairment
loss is recognised to the extent that the carrying amount exceeds
the recoverable amount. The Directors have reviewed the estimated
value of each property and do not consider any further impairment
to be necessary.
5 SEGMENTAL
INFORMATION
The Executive Directors are the Group’s chief operating
decision-makers.
The Group operates in two geographical areas, the United Kingdom and the United States of America. Activities in
the UK are mainly administrative in nature whilst the activities in
the USA relate to exploration and
production from oil and gas wells. The reports reviewed by the
Board of Directors that are used to make strategic decisions are
based on these geographical segments.
|
Year
ended 31 December 2016 |
|
USA |
UK |
Intra-segment balances |
Total |
|
$ |
$ |
$ |
$ |
|
|
|
|
|
Revenue from external customers |
1,273,612 |
- |
- |
1,273,612 |
Gross loss |
(628,040) |
- |
- |
(628,040) |
Operating profit/(loss) |
8,696,646
________ |
(10,099,370)
_______ |
-
___ |
(1,402,724)
________ |
Impairment – property,
plant and
equipment |
2,207,293 |
- |
- |
2,207,293 |
Impairment – intangible assets |
- |
- |
- |
- |
Depreciation |
1,073,456 |
- |
- |
1,073,456 |
Capital expenditure |
414,276 |
- |
- |
414,276 |
Total assets |
6,701,392 |
4,363,979 |
(4,010,347) |
7,055,024 |
Total liabilities |
5,235,312
_________ |
103,153
_________ |
(1,409,482)
_________ |
3,928,983
_________ |
|
Year
ended 31 December 2015 |
|
USA |
UK |
Intra-segment balances |
Total |
|
$ |
$ |
$ |
$ |
Revenue from external customers |
1,991,021 |
- |
- |
1,991,021 |
Gross profit |
(793,748) |
- |
- |
(793,748) |
Operating profit/(loss) |
(9,469,700)
________ |
(203,635)
_______ |
-
___ |
(9,673,335)
________ |
Impairment – property,
plant and
equipment |
3,538,523 |
- |
- |
3,538,523 |
Impairment – intangible assets |
4,973,181 |
- |
- |
4,973,181 |
Depreciation |
1,553,240 |
- |
- |
1,553,240 |
Capital expenditure |
1,432,911 |
- |
- |
1,432,911 |
Total assets |
9,819,175 |
16,161,602 |
(16,108,264) |
9,872,513 |
Total liabilities |
16,901,190
_________ |
49,466
_________ |
(12,654,385)
_________ |
4,296,271
_________ |
5 SEGMENTAL INFORMATION
(continued)
A reconciliation of the operating loss to loss before taxation
is provided as follows:
|
Year ended
31 December
2016 |
Year ended
31 December
2015 |
|
$ |
$ |
|
|
|
Operating (Loss) for reportable
segments |
(1,402,724) |
(9,673,335) |
|
|
|
Finance income |
- |
139 |
Finance costs |
(148,551)
________ |
(120,080)
_______ |
(Loss) before tax |
(1,551,275)
________ |
(9,793,276)
_______ |
The amounts provided to the Board of Directors with respect to
total assets are measured in a manner consistent with that of the
Financial Statements. These assets are allocated based on the
operations of the segment and physical location of the asset.
Goodwill recognised by the Group is managed centrally and is not
considered to be a segmental asset.
Reportable segments’ assets are reconciled to total assets as
follows:
|
Year ended
31 December
2016 |
Year ended
31 December
2015 |
|
$ |
$ |
|
|
|
Segmental assets for reportable
segments |
6,770,805 |
9,872,513 |
Unallocated:
goodwill |
284,219
_________ |
340,253
_________ |
|
|
|
Total assets per
Statement of Financial Position |
7,055,024
_________ |
10,212,766
_________ |
Information about major
customers/operating partners
In the year ended 31 December 2016
revenues of $330,306 and $154,266 are derived from two operators. These
revenues were all generated in the USA.
In the year ended 31 December 2015
revenues of $586,842 and $401,168 are derived from two operators. These
revenues were all generated in the USA.
6 EXPENSES BY NATURE
Group |
2016 |
2015 |
|
$ |
$ |
|
|
|
Operator costs |
553,510 |
990,854 |
Production taxes |
278,018 |
246,602 |
|
_______ |
_______ |
|
|
|
Total operating
expenses |
831,528 |
1,237,456 |
|
_______ |
_______ |
Directors’
remuneration and fees |
282,868 |
151,914 |
Consulting fees |
18,863 |
39,130 |
Legal, professional
and compliance costs |
128,599 |
229,724 |
Depreciation |
3,332 |
5,927 |
Office staff
costs |
103,742 |
267,514 |
Other costs |
164,950 |
351,675 |
|
________ |
________ |
|
|
|
Total administrative
expenses |
702,354 |
1,045,884 |
|
________ |
________ |
7 AUDITOR REMUNERATION
Services provided by the Company’s
auditor and its associates
During the year, the Group (including its overseas subsidiaries)
obtained the following services from the Company’s auditor:
|
2016 |
2015 |
|
$ |
$ |
Fees payable to the
Company’s auditor for the audit of the Parent Company |
|
|
and consolidated
Financial Statements |
28,000 |
27,500 |
|
|
|
Fees payable to the
Company’s auditor for other services: |
|
|
- in relation to tax
compliance |
2,177 |
2,177 |
|
_______ |
_______ |
8 STAFF COSTS
The Group and Company incurred the following staff costs
(including Directors):
|
Group |
|
2016 |
2015 |
|
$ |
$ |
|
|
|
Wages and
salaries |
378,872 |
481,226 |
Social security
costs |
14,645 |
16,957 |
Pension costs |
600 |
7,200 |
Other benefits |
58,891 |
69,995 |
|
_______ |
_______ |
|
453,008 |
575,378 |
|
_______ |
_______ |
Directors’ Emoluments
The Directors’ emoluments in respect of qualifying services are
detailed in the Directors’ Report.
The average monthly number of staff, including the Directors,
during the financial year was as follows:
|
Group |
|
2016 |
2015 |
|
No. |
No. |
|
|
|
Administrative and
managerial |
6 |
7 |
|
___ |
___ |
|
Company |
|
2016 |
2015 |
|
No. |
No. |
|
|
|
Administrative and
managerial |
5 |
5 |
|
___ |
___ |
9 OTHER INCOME
|
Group |
|
2016 |
2015 |
|
$ |
$ |
|
|
|
Sale of Assets |
17,960 |
- |
|
________ |
________ |
10 INCOME TAX
Tax charge for the period
The tax charge for the year is $Nil (2015: $Nil).
Factors affecting the tax charge for
the period
The tax charge for each year is explained below:
|
|
2016
$ |
2015
$ |
|
|
|
|
(Loss)/profit for the year before
taxation |
|
(11,540,274) |
(9,793,276) |
|
|
|
|
(Loss)/profit for the period before
tax multiplied by the weighted average tax rate of 22.50% (2015:
39.59%) |
|
(2,596,236) |
(3,877,092) |
|
|
|
|
Expenses not deductible for tax
purposes – impairment of non-current assets |
|
2,743,822 |
3,984,640 |
Tax losses for which no deferred tax
asset recognised - UK |
|
24,830 |
80,618 |
Tax losses for which no deferred tax
asset recognised - US |
|
(318,928) |
342,819 |
Revenue deduction for capitalised
costs - US |
|
(418,875) |
(1,341,233) |
|
|
_______ |
_______ |
|
|
|
|
Income tax charge |
|
-
_______ |
-
_______ |
The Group has UK tax losses of approximately $1,308,000 (2015: $1,284,000) and US tax losses of
approximately $14,012,000 (2015:
losses of approximately $14,331,000)
available to carry forward against future taxable profits. A
potential deferred tax asset of approximately $261,000 (2015: $260,000) on the UK losses and $5,604,000 (2015: $3,659,000) on the US losses has not been
recognised because of uncertainty over the timing of future taxable
profits against which the losses may be offset.
11 FINANCE INCOME AND FINANCE COSTS |
2016 |
2015 |
|
$ |
$ |
|
|
|
Interest income |
- |
139 |
|
___ |
___ |
|
|
|
Interest expense and
fees – bank borrowings |
(148,551) |
(120,080) |
|
_______ |
______ |
12 EARNINGS PER SHARE
The calculation of earnings per share of loss of 0.09 cents per share (2015 loss per share:
0.98 cents) is calculated by dividing
the loss attributable to ordinary shareholders of $1,551,275 (2015 loss: $9,793,276) by the weighted average number of
ordinary shares of 1,751,458,563 (2015: 995,081,516) in issue
during the period.
In accordance with IAS 33, there is no difference between the
basic and diluted earnings per share.
Details of share options and warrants that could potentially
dilute earnings per share in future periods are set out in Note 18.
None of the share options and warrants were dilutive as at
31 December 2016.
13 PROPERTY, PLANT AND EQUIPMENT
Group
Cost |
Producing properties
(Mineral
Leases)
$ |
Drilling
costs and equipment
$ |
Motor
vehicles
and office
equipment
$ |
Total
$ |
|
|
|
|
|
At 1 January 2015 |
1,344,755 |
12,231,907 |
21,671 |
13,598,333 |
Additions |
3,890 |
1,049,901 |
3,058 |
1,056,849 |
Impairment |
- |
- |
- |
- |
Transferred from
intangible assets |
704 |
34,307 |
- |
35,011 |
Disposals |
-
________ |
-
________ |
-
______ |
-
________ |
|
|
|
|
|
At 31 December
2015 |
1,349,349
________ |
13,316,115
________ |
24,729
______ |
14,690,193
________ |
|
|
|
|
|
Additions |
7 |
413,155 |
- |
413,162 |
Transferred from
intangible assets |
18,992 |
72,302 |
- |
91,294 |
|
________ |
_________ |
______ |
_________ |
|
|
|
|
|
At 31 December
2016 |
1,368,348
________ |
13,801,572
_________ |
24,729
______ |
15,194,649
_________ |
Accumulated Depreciation and
Impairment |
|
|
|
|
|
|
|
|
|
At 1 January 2015 |
450,201 |
1,841,424 |
12,335 |
2,303,960 |
Charge for the
period |
251,645 |
1,295,668 |
5,927 |
1,553,240 |
Impairment |
385,161
_______ |
3,153,362
_______ |
-
_____ |
3,538,523
________ |
|
|
|
|
|
At 31 December
2015 |
1,087,007
_______ |
6,290,454
_______ |
18,262
_____ |
7,395,723
________ |
|
|
|
|
|
Charge for the
period |
114,337 |
955,787 |
3,332 |
1,073,456 |
Impairment |
-
_______ |
2,207,293
________ |
-
______ |
2,207,293
_________ |
|
|
|
|
|
At 31 December
2016 |
1,201,344
_______ |
9,453,534
________ |
21,594
_____ |
10,676,472
________ |
Net Book
Amount |
|
|
|
|
|
|
|
|
|
At 31 December
2015 |
262,342
________ |
7,025,661
_________ |
6,467
______ |
7,294,470
_________ |
|
|
|
|
|
At 31 December
2016 |
167,004
________ |
4,348,038
_________ |
3,135
______ |
4,518,177
_________ |
Transfers from intangible assets represent licence areas where
production has commenced together with drilling costs associated
with these licences.
Producing properties and drilling costs depreciation expense of
$1,070,124 (2015: $1,547,313) has been charged in cost of
sales.
Motor vehicles and office equipment depreciation expense of
$3,332 (2015: $5,927) has been charged in administrative
expenses.
14 INTANGIBLE ASSETS
Group |
Goodwill
$ |
Drilling
costs
$ |
Mineral
leases
$ |
Total
$ |
Cost |
|
|
|
|
At 1 January 2015 |
359,222 |
50,037 |
6,072,613 |
6,481,872 |
Additions |
- |
291,332 |
84,730 |
376,062 |
Transferred to
property, plant and
equipment |
- |
(34,307) |
(704) |
(35,011) |
Disposals |
- |
- |
- |
- |
Exchange movements |
(18,969) |
- |
- |
(18,969) |
Impairment |
- |
(225,230) |
(4,747,951) |
(4,973,181) |
|
|
|
|
|
At 31 December 2015 |
340,253 |
81,832 |
1,408,688 |
1,830,773 |
|
|
|
|
|
Additions |
- |
1,214 |
(100) |
1,114 |
Transferred to
property, plant and
equipment |
- |
(72,302) |
(18,992) |
(91,294) |
Exchange movements |
(56,034) |
- |
- |
(56,034) |
Impairment |
- |
- |
- |
- |
|
|
|
|
|
As at 31 December 2016 |
284,219 |
10,744 |
1,389,596 |
1,684,559 |
|
|
|
|
|
Amortisation |
|
|
|
|
At 1 January 2015, 31
December 2015
and 31 December 2016 |
- |
- |
- |
- |
|
|
|
|
|
Net Book Amount |
|
|
|
|
At 31 December 2015 |
340,253 |
81,832 |
1,408,688 |
1,830,773 |
|
|
|
|
|
At 31 December 2016 |
284,219 |
10,744 |
1,389,596 |
1,684,559 |
Drilling costs and mineral leases represent acquired intangible
assets with an indefinite useful life and are tested annually for
impairment. Expenditure incurred on the acquisition of mineral
leases is capitalised within intangible assets until such time as
the exploration phase is complete or commercial reserves have been
discovered. Exploration expenditure including drilling costs are
capitalised on a well by well basis if the results indicate the
existence of a commercially viable level of reserves.
Impairment review – Property, plant
and equipment and Intangible assets
The Directors have undertaken a review to assess whether
circumstances exist which could indicate the existence of
impairment as follows:
· The Group
no longer has title to the mineral lease.
· A
decision has been taken by the Board to discontinue exploration due
to the absence of a commercial level of reserves.
· Sufficient
data exists to indicate that the costs incurred will not be fully
recovered from future development and participation.
· The Group
has disposed of the licence in 2016 therefore the asset has been
written down to net realisable value.
Following their assessment the Directors recognised an
impairment charge totalling US$2,207,293 for the year ended 31 December
2016 (2015: $8,511,704).
This is associated with a markdown in the value of its interests in
producing properties identified as non- economic at today’s low oil
prices. The impairment in 2015 was comprised of write-downs
associated with the cost of mineral leases which had expired and a
markdown in the value of its interests in producing properties
identified as non-economic at the day’s low oil prices.
The Directors believe that no impairment is necessary on the
carrying value of goodwill. Goodwill arose on the reverse
acquisition of Magnolia Petroleum Plc. The goodwill represents the
value of the parent company being an AIM listed entity to Magnolia
Petroleum Inc.
15 INVESTMENTS
Investments in subsidiaries
|
2016 |
2015 |
|
$ |
$ |
Company |
|
|
Shares in group
undertakings |
|
|
At 1 January |
3,453,879 |
3,646,431 |
Exchange
movements |
(568,794) |
(192,552) |
|
________ |
________ |
|
|
|
At 31 December |
2,885,085 |
3,453,879 |
|
________ |
________ |
Investments in group undertakings
are recorded at cost, which is the fair value of the consideration
paid.
Principal subsidiaries
Name |
Country of incorporation
and residence |
Nature of business |
Registered capital |
Proportion of equity shares held by Company |
|
|
|
|
|
Magnolia Petroleum
Inc. |
P.O.
Box 140660, Broken Arrow, OK 74014 |
Oil and
gas exploration |
Ordinary shares US$1 |
100% |
This subsidiary undertaking is included in the consolidation.
The proportion of the voting rights in the subsidiary undertaking
held directly by the Parent Company does not differ from the
proportion of ordinary shares held.
16 TRADE AND OTHER RECEIVABLES
|
Group |
Company |
|
2016 |
2015 |
2016 |
2015 |
|
$ |
$ |
$ |
$ |
|
|
|
|
|
Trade receivables |
442,884 |
254,461 |
- |
- |
Other receivables |
30,394 |
30,394 |
- |
- |
Amounts due from group
undertakings |
51,794 |
- |
1,461,276 |
12,654,385 |
Prepayments |
85,869 |
156,908 |
7,421 |
9,128 |
|
_______ |
________ |
_________ |
_________ |
|
|
|
|
|
|
610,941 |
441,763 |
1,468,697 |
12,663,513 |
|
_______ |
________ |
_________ |
_________ |
Trade receivables comprise customer receivables. Trade
receivables are neither past due nor impaired and relate to
existing customers with no defaults in the past. The Group retains
all risks associated with these receivables until fully
recovered.
The fair value of all receivables is the same as their carrying
values stated above.
As at 31 December 2016, trade
receivables of $442,884 (2015:
$254,461) were fully performing.
16 TRADE AND OTHER RECEIVABLES (continued)
Group
The carrying amounts of the Group’s trade and other receivables
are denominated in the following currencies:
|
2016 |
2015 |
|
$ |
$ |
|
|
|
UK Pounds |
7,421 |
9,129 |
US Dollar |
603,520 |
432,635 |
|
_______ |
________ |
|
|
|
|
610,941 |
441,764 |
|
_______ |
________ |
The maximum exposure to credit risk at the reporting date is the
carrying value of each class of receivable mentioned above.
The Group does not hold any collateral as security.
Company
The carrying amounts of the Company’s trade and other
receivables are denominated in UK pound sterling.
17 CASH AND CASH EQUIVALENTS
|
Group |
Company |
|
2016 |
2015 |
2016 |
2015 |
|
$ |
$ |
$ |
$ |
|
|
|
|
|
Cash at bank |
241,347 |
645,759 |
10,197 |
44,210 |
|
_______ |
_______ |
______ |
______ |
At 31 December 2016, the Group
held cash of $10,197 (2015:
$44,210) in a bank with a Fitch
credit rating of A (Stable) and $231,150 (2015: $601,549) in a bank where no Fitch credit rating
is available.
18 SHARE CAPITAL AND PREMIUM
|
|
Ordinary shares |
|
Share premium |
|
Group |
Number of shares |
Nominal value
£ |
Nominal value
$ |
|
Nominal value
£ |
Nominal value
$ |
Total
$ |
|
|
|
|
|
|
|
|
At 1 January 2015 |
910,672,851 |
910,673 |
1,481,396 |
|
8,703,462 |
13,954,026 |
15,435,422 |
|
__________ |
_______ |
________ |
|
________ |
_________ |
_________ |
|
|
|
|
|
|
|
|
Placing shares |
146,142,856 |
146,143 |
223,424 |
|
876,857 |
1,340,543 |
1,563,967 |
Issue costs |
- |
- |
- |
|
(60,000) |
(94,350) |
(94,350) |
|
|
|
|
|
|
|
|
At 31 December
2015 |
1,056,815,707
___________ |
1,056,816
_______ |
1,704,820
________ |
|
9,520,319
________ |
15,200,219
_________ |
16,905,039
_________ |
|
|
|
|
|
|
|
|
Placing shares |
694,642,856 |
694,642 |
915,166 |
|
95,357 |
136,740 |
1,051,906 |
Issue costs |
- |
- |
- |
|
(66,750) |
(82,316) |
(82,316) |
|
___________ |
_______ |
________ |
|
________ |
_________ |
_________ |
|
|
|
|
|
|
|
|
At 31 December
2016 |
1,751,458,563
___________ |
1,751,458
_______ |
2,619,986
________ |
|
9,548,926
________ |
15,254,643
_________ |
17,874,629
_________ |
Each ordinary share has a nominal value of 0.1 pence per share.
Share options and warrants
Share options and warrants outstanding and exercisable at the
end of the year have the following expiry dates and exercise
prices:
|
|
|
|
No.
Options/warrants |
Expiry date |
|
Exercise price in
pence per share |
|
2016 |
2015 |
|
|
|
|
|
|
24 January 2017 |
|
2.85 |
|
1,754,386 |
1,754,386 |
1 November 2018 |
|
0.15 |
|
225,000,000 |
- |
25 November 2018 |
|
1.30 |
|
23,397,268 |
52,820,768 |
28 January 2020 |
|
2.925 |
|
5,084,745 |
20,338,982 |
31 December 2020 |
|
0.4 |
|
84,677,737
_________ |
-
_________ |
|
|
|
|
339,914,136
_________ |
74,914,136
_________ |
The options and warrants are exercisable starting immediately
from the date of grant other than those expiring on 24 January 2017, which were exercisable from 24
January 2014. The Company and Group have no legal or
constructive obligation to settle or repurchase the warrants or
options in cash.
18 SHARE
CAPITAL AND PREMIUM (continued)
Share options and warrants
(continued)
A reconciliation of options granted and lapsed during the year
ended 31 December 2016 is shown
below.
|
Year
ended
31 December 2016 |
Year
ended
31 December 2015 |
|
No. of
options
and
warrants |
Weighted average
exercise price |
No. of options and
warrants |
Weighted average
exercise price |
|
|
(in pence) |
|
(in pence) |
|
|
|
|
|
Outstanding at beginning of
year |
74,914,136 |
1.78 |
74,914,136 |
1.78 |
|
_________ |
____ |
_________ |
____ |
Outstanding at end of year |
339,914,136
_________ |
0.35
____ |
74,914,136
_________ |
1.78
____ |
Exercisable at end of year |
339,914,136
_________ |
0.35
____ |
74,914,136
_________ |
1.78
____ |
The warrants and options outstanding at 31 December 2016 had a weighted average remaining
contractual life of 2.4 years (2015: 3.2 years).
No options or warrants were exercised during the year.
There were 44,677,737 options cancelled, 84,677,737 options granted
and 225,000,000 warrants granted during the year.
19 BORROWINGS
Group
Company
2016
2015
2016
2015
$
$
$
$
Non-current
Bank borrowings (including arrangement
fee)
-
3,154,784
-
-
________ _______ ____ ____
Current
Bank borrowings (including arrangement
fee)
2,638,447
-
-
-
________ _______ ____ ____
As at 31 December 2016 the Group
had a $6 million revolving credit
facility with, subject to certain conditions being met, a maturity
date of 8 August 2017 (originally 7
March 2017). The borrowing base is reassessed on a six
monthly basis and adjusted in line with the level of the Group’s
proven developed producing reserves. Interest is charged on
credit drawn down at the Wall Street Journal Prime rate (currently
3.75%) +1.25%. The credit facility is secured against all of
the producing leases and operating equipment owned by the Group,
together with sales contracts and farm-out agreements. Note
2.3 provides details of amendments to the terms of the revolving
credit facility subsequent to the year end.
The fair value of borrowings equals their carrying amount. All
borrowings are denominated in US dollars. The Group has the
following undrawn borrowing facilities:
19 BORROWINGS (continued)
|
Group |
Company |
|
2016 |
2015 |
2016 |
2015 |
|
$ |
$ |
$ |
$ |
Expiring beyond one
year |
- |
- |
- |
- |
|
____ |
____ |
____ |
____ |
20 TRADE AND OTHER PAYABLES
|
Group |
Company |
Current |
2016 |
2015 |
2016 |
2015 |
|
$ |
$ |
$ |
$ |
|
|
|
|
|
Trade and other
payables |
1,213,873 |
1,092,137 |
26,490 |
116 |
Accrued expenses |
76,663 |
49,350 |
76,663 |
49,350 |
|
________ |
________ |
______ |
______ |
|
|
|
|
|
|
1,290,536 |
1,141,487 |
103,153 |
49,466 |
|
________ |
________ |
______ |
______ |
21 FINANCIAL INSTRUMENTS BY CATEGORY
|
Group |
Company |
|
2016 |
2015 |
2016 |
2015 |
|
$ |
$ |
$ |
$ |
Assets as per
Statement of Financial Position |
|
|
|
|
|
|
|
|
|
Loans and
receivables: |
|
|
|
|
|
|
|
|
|
Trade and other
receivables |
525,071 |
284,855 |
1,468,697 |
12,654,385 |
(excluding
prepayments) |
|
|
|
|
Cash and cash
equivalents |
241,347 |
645,759 |
10,197 |
44,210 |
|
_______ |
_______ |
________ |
________ |
|
|
|
|
|
|
766,418 |
930,614 |
1,478,894 |
12,698,595 |
|
_______ |
_______ |
________ |
________ |
Liabilities per Statement of Financial Position
Financial liabilities at amortised cost:
Borrowings |
2,638,447 |
3,154,784 |
- |
- |
Trade and other
payables |
1,290,536 |
1,141,487 |
103,153 |
49,466 |
(excluding
non-financial liabilities) |
________ |
________ |
______ |
______ |
|
|
|
|
|
|
3,928,983 |
4,296,271 |
103,153 |
49,466 |
|
________ |
________ |
______ |
______ |
22 TREASURY POLICY
The Company and Group operate informal treasury policies which
include ongoing assessments of interest rate management and
borrowing policy. The Board approves all decisions on
treasury policy.
The Group has financed its activities by raising funds through
the placing of shares and through bank borrowings set out in Note
19 above. There are no material differences between the book
value and fair value of the financial assets.
23 CAPITAL MANAGEMENT POLICIES
The Group and Company’s capital management objectives are:
· to ensure
compliance with borrowing covenants;
· to ensure
the Group’s and Company’s ability to continue as a going concern;
and
· to
provide an adequate return to shareholders.
In order to maintain or adjust the capital structure, the Group
may issue new shares or sell assets to reduce debts.
The current $6 million revolving
credit facility maturity date (see Note 19) has subsequent to the
year end been extended from 7 March
2017 to 8 August 2017. The Group will continue making
principal reduction payments, along with interest payments in
accordance with financial and non-financial loan covenants.
24 CAPITAL COMMITMENTS
The Group and Company set the amount of capital in proportion to
its overall financing structure and manage their capital structure
and make adjustments to it in the light of changes in economic
conditions and the risk characteristics of the underlying
assets.
As at 31 December 2016 or 2015 the
Group had no capital commitments for drilling and equipment costs
contracted but not provided for.
25 RELATED PARTY TRANSACTIONS
Transactions with Group
undertakings
During the year ended 31 December
2016 the Company charged management fees of $61,501 (2015: $43,504) to Magnolia Petroleum Inc, the Company’s
wholly owned subsidiary for the provision of administrative and
management services. $61,501 (2015:
$43,504) in relation to these fees
was outstanding at the year end date and is included within Trade
and other receivables. As at 31 December 2016, the amount due
to the Company from Magnolia Petroleum Inc was $11,398,483 (2015: $12,654,385).
All Group transactions were eliminated on consolidation.
Transactions with Enerlex Inc
Steven Snead and his wife have a
100% interest in the issued share capital of Enerlex Inc.
(“Enerlex”). The rental agreement between Enerlex and Magnolia
Petroleum Inc was revised on 30 September
2014 whereby Enerlex agreed to provide Magnolia Petroleum
Inc on a month to month basis with office premises and services for
$3,500 per month. A charge of
$31,000 (2015: $42,000) was recognised during the year under the
former and revised agreement. Subsequently, a reduced rate of
$2,500 per month was agreed on
effective February 2016 until
31 March 2017 on which day this lease
was terminated. Magnolia moved its offices on 31 March 2017.
Enerlex gave an undertaking to Magnolia Petroleum Inc dated
15 November 2011 whereby Enerlex
undertakes that if any of the mineral leases granted to Magnolia
Petroleum Inc on any of the mineral interests in the Woodford/Hunton play in Oklahoma expires at the end of the primary
period because of non-drilling, Enerlex will at Magnolia Petroleum
Inc’s request grant a further three year lease on the same terms as
the expired lease.
25 ULTIMATE CONTROLLING PARTY
As at the Statement of Financial Position date, the Directors do
not consider there is an ultimate controlling party.
26 EVENTS AFTER THE REPORTING PERIOD
On 23 February 2017 Thomas
Wagenhofer resigned from the Board as non-executive Chairman
On 1 April 2017 Steven Snead
resigned from the Board and as Chief Executive Officer.
On 26 April 2017 the Company
issued 37,500,000 new ordinary shares, at a price of 0.12 pence per share, to the Directors of the
Company: Steven Snead; Rita Whittington; Ronald
Harwood; and Leonard Wallace
in settlement of their fees for the period from 1 April 2016 to 31 March
2017.
On the same date, the Company also issued 25,000,000 new
ordinary shares, at a price of 0.12
pence per share, to the Directors of the Company:
Steven Snead; Rita Whittington; and Ronald Harwood as bonuses for 2016.
On the same date, Directors of the Company Rita Whittington; and
Leonard Wallace subscribed for
21,918,403 new ordinary shares in the Company, for £33,593.75.
On 30 May 2017 the Company
received a requisition notice from Steven
Snead, Snead Family 2012 LLC, Snead Family LLC and R
Sterling Snead. The notice has been deemed valid.
27 POSTING OF ACCOUNTS
The Company will today post to all shareholders a copy of the
Report and Accounts for the year ended 31
December 2016, together with a Notice of Annual General
Meeting. These documents will shortly be available to
download from the Company’s
website, www.magnoliapetroleum.com.
MAGNOLIA PETROLEUM
PLC
NOTICE OF ANNUAL
GENERAL MEETING
Notice is given that the Annual
General Meeting of Magnolia Petroleum plc (“the Company”) will be
held at 15.30 p.m. (London) on 12 July
2017 at The Broadgate Tower, 20 Primrose Street,
London EC2A 2EW, UK to consider
and, if thought fit, pass the following resolutions, of which
resolutions 1 to 3 will be proposed as ordinary
resolutions:
1. To receive the directors’ report and audited
financial statements of the Company for the year ended 31 December 2016.
2. To re-elect Leonard
Wallace as a director of the Company.
3. To re-appoint PKF Littlejohn LLP as auditors of
the Company and to authorise the directors to set their fees.
By Order of the
Board
Registered Office:
S
Salter
Suite 321
Secretary
19-21 Crawford Street
London W1H 1PJ
United Kingdom
Dated 16 June 2017
** ENDS**
For further information on Magnolia Petroleum Plc
visit www.magnoliapetroleum.com or contact the
following:
Rita Whittington |
Magnolia Petroleum Plc |
+01918449 8750 |
Jo Turner / James Caithie |
Cairn Financial Advisers
LLP |
+44 20 7213 0880 |
Colin Rowbury |
Cornhill Capital Limited |
+44 20 7710 9610 |
Lottie Brocklehurst |
St Brides Partners Ltd |
+44 20 7236 1177 |
Frank Buhagiar |
St Brides Partners
Ltd |
+44 207 236 1177 |