TIDMNAUT
RNS Number : 9509R
Nautilus Marine Services PLC
06 March 2019
NAUTILUS MARINE SERVICES PLC
(the "Group" or "Nautilus")
AUDITED FINAL RESULTS FOR THE YEARED 31 DECEMBER 2018
Nautilus Marine Services PLC (AIM: NAUT), the Group focused on
making strategic investments in service providers, technologies,
and assets to offer integrated and innovative solutions for
multiple offshore service industries, today announces its audited
final results for the year ended 31 December 2018 (the
"Period").
Highlights:
-- The Group received multiple offers for its Colombia
operations in late 2018, many on terms that, if realised, would be
agreeable to the Company. As announced in January 2019 (post-period
end), it is therefore likely that the Company will divest of its
Bolivar and Bocachico contracts or the entities holding them (the
"Disposal Group") during 2019. Accordingly, the Disposal Group has
been classified as held for sale at year end. In accordance with
International Financial Reporting Standards ("IFRS"), the Group has
reported these assets and their associated liabilities as a
"disposal group" within its Consolidated Statement of Financial
Position as at 31 December 2018, and income/(loss) from the
Disposal Group are reflected as discontinued operations within the
Consolidated Statement of Comprehensive Income for all periods
presented.
-- $11 million cash as at 31 December 2018.
-- Losses from continuing operations of $9.2 million,
representing a $2.0 million decrease in losses as compared to the
prior year period.
-- $1.8 million (64%) decrease in operating expenses for
offshore vessels and equipment as a result of cost reduction
initiatives implemented during late 2017.
-- $1.1 million (20%) decrease in administrative expenses for
continuing operations primarily due to staffing reductions within
the corporate group implemented during 2017 and 2018.
-- $643 thousand gain on disposals, primarily due to sales of
non-strategic offshore vessels and equipment during the year.
-- $666 thousand impairment charge on certain vessels within the
Group's offshore fleet as a result of decreased third party fleet
valuation reports at year-end.
-- $1.7 million impairment reversal (included within income from
discontinued operations) as a result of the initial measurement of
the Disposal Group to the estimated recoverable amount of fair
value less costs to sell upon classification as held for sale.
"Enquiries:
Nautilus Marine Services PLC
nautilusirinfo@nmsplc.com
--------------------
www.nautilusmarineplc.com
--------------------
finnCap Ltd
--------------------
Christopher Raggett/Kate Bannatyne 020 7220 0500
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Yellow Jersey
--------------------
Tim Thompson/ Henry Wilkinson +44 (0)20 3004 9512
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The information communicated in this announcement contains
inside information for the purposes of Article 7 of the Market
Abuse Regulation (EU) No. 596/2014.
Forward-looking statements
This annual report may include statements that are, or may be
deemed to be, "forward-looking statements". These forward-looking
statements can be identified by the use of forward-looking
terminology, including the terms "believes", "estimates", "plans",
"projects", "anticipates", "expects", "intends", "may", "will" or
"should" or, in each case, their negative or other variations or
comparable terminology, or by discussions of strategy, plans,
objectives, goals, future events or intentions. These
forward-looking statements include all matters that are not
historical facts. They appear in a number of places throughout this
annual report and include, but are not limited to, statements
regarding the Group's intentions, beliefs or current expectations
concerning, among other things, the Group's results of operations,
financial position, liquidity, prospects, growth, strategies and
expectations of the industry. By their nature, forward-looking
statements involve risk and uncertainty because they relate to
future events and circumstances. Forward-looking statements are not
guarantees of future performance and the development of the markets
and the industries in which the Group operates may differ
materially from those described in, or suggested by, any
forward-looking statements contained in this annual report. In
addition, even if the development of the markets and the industries
in which the Group operates are consistent with the forward-looking
statements contained in this annual report, those developments may
not be indicative of developments in subsequent periods. A number
of factors could cause developments to differ materially from those
expressed or implied by the forward-looking statements including,
without limitation, general economic and business conditions,
industry trends, competition, commodity prices, changes in law or
regulation, currency fluctuations (including the US dollar),
changes in its business strategy, political and economic
uncertainty. Save as required by law, the Company is under no
obligation to update the information contained in this annual
report.
Past performance cannot be relied on as a guide to future
performance.
Chairman's Statement
2018 Strategic Initiatives
Following its decision during the prior year to shift the
Group's focus from Latin American oil and gas exploration and
production to global offshore services, the Group spent substantial
time during the year seeking and evaluating opportunities to
acquire or otherwise invest in offshore service companies as well
as related offshore service assets and technologies. The offshore
industry conditions have made it increasingly difficult for the
Group to locate investment opportunities at attractive pricing. As
a result, the Group began to investigate expanded energy investment
strategies during the second half of the year.
While the Group continued to actively monitor and assess
offshore market conditions to identify opportunities to either put
its offshore vessels and equipment into service or sell these at
attractive pricing, it also concurrently implemented further
significant reductions in its administrative and offshore operating
cost structures. These reductions included additional staff
reductions, the transition of the fleet closer to cold layup
status, and relocation and down-sizing of its corporate office. The
Group expects to keep this reduced cost structure in place while
depressed market conditions persist.
The Group also worked during the year to address contractual
concerns over the continuity of production at its two remaining oil
and gas fields in Colombia. In response to these concerns, the
Group developed and initiated a plan to resume production and/or
development activities at both of its fields. These plans include
testing and analysis of its current wellbores to evaluate their
potential to restore production given advances in technologies.
Further, the Group intends to obtain new seismic studies which will
aid in the identification of potential well sites. The Group is
confident that these actions will assuage any contractual concerns
and that the Group will continue to enjoy full title over these
assets until they are sold.
As the Group worked to develop these plans for the Colombia
assets, it also began to receive increasingly attractive offers to
purchase these assets. Following initial evaluations of these
offers, the Board and management concluded that it is in the
Group's best interests to pursue the divestiture of these
properties during 2019, and as a result this operating segment is
reflected at year-end as discontinued operations within the Group's
reporting. Until the Group is able to identify and complete an
acceptable transaction for its Colombian assets, it intends to
continue to focus on controlling costs at these fields while
maintaining contractual and environmental compliance and
progressing its reactivation plans.
Outlook
The Group took appropriate steps during 2018 to identify
opportunities to sell non-strategic vessels and equipment at
premiums over acquisition costs. Management intends to continue to
closely monitor costs and opportunistically divest from this pool
of assets until it is able to establish profitable operations.
During January and February 2019, the Company received optional
conversion notifications from McLarty Capital Partners ("McLarty"),
the holder of a majority of the Series A Convertible Notes (as
defined and described in the Company's AIM Admission Document
published on 16 January 2017), and Aeterna Capital Fund II, LLC
("Aeterna"). As a result of these conversions, the Company paid
approximately $1.49 million for the settlement of accrued interest
and issued approximately 16.4 million ordinary shares using the
conversion price of 50 pence per ordinary share at a fixed exchange
rate of GBP1/US$1.22. Following this conversion, McLarty and
Aeterna hold approximately 23.85 per cent and 7.37 per cent,
respectively, of the Company's outstanding shares. The outstanding
principal balance of its Series A Convertible Notes decreased from
$10.5 million to $500 thousand, which will save the Company
approximately $811 thousand in annual interest. The conversion of
these notes into permanent capital presents a significant
improvement in the Group's financial position.
The Group believes this reduced cost structure and improved
financial position, combined with opportunistic divestitures, will
allow the Group to not only survive the duration of this industry
downturn, but to also maintain a level of liquidity to allow it to
take advantage of opportunities created during this trying
period.
Mikel Faulkner
Non-Executive Chairman
5 March 2019
Financial Review of Operations
Overview
The Group continued to struggle to identify opportunities to
operate its offshore vessels and equipment profitably at prevailing
market rates, and as a result did not generate any revenues from
continuing operations during the year. Loss from continuing
operations fell by $2.0 million during the current year, however.
This was primarily due to cost reduction initiatives that were
implemented over the past two years. The Group also worked
throughout the year to identify opportunities for its inactive
assets, and as a result was able to divest of certain non-strategic
vessels and equipment for proceeds of $902 thousand. These assets
had a cost basis of $244 thousand at the time of their sale,
resulting in significant gains in spite of demand for offshore
vessels and equipment remaining low throughout the period.
The Group also determined it was likely to divest of its
Colombian Oil and Gas segment (the "Disposal Group") during the
year following interest being expressed by multiple parties during
late 2018. In accordance with International Financial Reporting
Standards ("IFRS"), it has reported these assets and their
associated liabilities as a disposal group within its Consolidated
Statement of Financial Position as at 31 December 2018, and
income/(loss) from the Disposal Group are reflected as discontinued
operations within the Consolidated Statement of Comprehensive
Income for all periods presented.
Group Performance
In order to conserve its resources while its assets remain
inactive, management implemented additional reductions in its cost
structure, and the operations teams at the oil fields in Colombia
and the dock facility in Louisiana also identified and implemented
strategies to reduce their respective costs. The Group believes
that its current cost structure will be sufficient to maintain and
preserve its assets until they are able to return to operations
and/or be sold upon a return to favourable pricing in the energy
industry.
Cost of Sales
Cost of sales from continuing operations, excluding depreciation
and amortisation, were $1.0 million during 2018 and primarily
consisted of operations staffing, dock and facility costs, vessel
maintenance, property taxes, and insurance. These 2018 costs
decreased by 64% from the prior year costs of $2.8 million. The
current year benefited from staff reductions and the transition of
the vessels toward a cold-stack status, as this transition
eliminated crewing and ship management costs and greatly reduced
its utility costs. The prior year period also contained
approximately $566 thousand in one-time transition and assessment
costs which were incurred in relation to the initial acquisition
and receipt of the offshore assets.
There was not a significant change in depreciation and
amortisation charges from continuing operations between the two
periods, as the 2018 period includes charges of $2.0 million, and
the 2017 period includes charges of $1.9 million. The slight
increase between the two periods is due to the acquisition of
vessels and equipment occurring during February of 2017, which
resulted in one less month of depreciation during the prior
year.
Administrative Costs
Administrative costs from continuing operations decreased by
$1.1 million, or 20%, primarily due to personnel reductions which
were implemented during 2017 and 2018. The Group employed eleven
administrative employees following its acquisition of the offshore
vessels and equipment during February 2017, and it currently
employs six. It is expected that there will be further reductions
in administrative costs during 2019 as a result of the staffing
reductions implemented during late 2018.
Finance Income and Gain on Sales
Interest income from continuing operations remained consistent
during the 2017 and 2018 periods due to the Everest Note Receivable
of $4 million remaining outstanding during both periods. Interest
income was $320 thousand during the 2018 period and $320 thousand
during the 2017 period.
Gains from asset sales from continuing operations increased
significantly during the current period, up from $100 thousand
during the prior year to $643 thousand during the current year. The
current year gain primarily resulted from the sale of the DC Polo,
DC Star, and DC Fred vessels along with certain offshore equipment,
while the prior year gain resulted from the scrapping of the DC
Victory, DC Sterling and DC Triumph vessels. Proceeds from the
current year sales were $904 thousand.
Finance Costs
Finance costs from continuing operations increased from $1.8
million up to $2.0 million during the year due to interest and
accretion on the Group's convertible notes which were issued during
February, March, and April of 2017. These notes were issued in
conjunction with the February 2017 transaction pursuant to which
the Group received $10.5 million in cash along with offshore
vessels and equipment. There was $10.5 million in principal
outstanding on the Series A Convertible Notes at 31 December 2018
which bear interest of 8 per cent per annum, and a combined total
of $21.1 million in principal outstanding on the Series B and C
Convertible Notes which bear interest of 6 per cent per annum.
Impairment Loss
The Group utilises a third-party offshore shipbroker to provide
valuation certificates for its vessels to assist with its
impairment evaluations at each year-end. As a result of the 2018
valuations, the Group recognised an impairment charge from
continuing operations of $666 thousand due to the assessed fair
value of three of its offshore vessels being less than their net
book values at 31 December 2018. The decrease in values is
primarily due to lower pricing levels being observed for
divestitures of similar vessels during 2018.
Income from Discontinued Operations
The Disposal Group generated net income of $77 thousand and $2.2
million for the 2018 and 2017 periods, respectively. Although the
Disposal Group achieved an overall reduction in administrative and
operating costs in the current year, the $4.0 million impairment
reversal in the prior year, as compared to $1.7 million in the
current year, resulted in decreased net income during the current
year.
At 31 December 2017, management estimated the value of the
contingent reserves at Bolivar to be $3.9 million as a result of
the higher oil price, while the Bocachico reserves remained
uneconomic. As a result of this increase in value, the Group
recorded a $4.0 million impairment reversal on its Bolivar contract
during the 2017 period. At 31 December 2018, prior to classifying
the Disposal Group as held for sale, management determined that the
amount expected to be recovered through a disposal transaction
(fair value less costs to sell) was greater than the carrying value
and as a result, a further impairment reversal of $1.7 million was
recognised relating to the Bocachico and Bolivar areas.
Cash Flow and Liquidity
The Group had $11.0 million in cash and $14.8 million in working
capital from its continuing operations at 31 December 2018. The
Group expects that its current cash resources, along with the
collection of its Note Receivable from Everest Hill Group, Inc. and
opportunistic divestitures, will provide sufficient support for the
organisation and its initiatives until its assets are able to
generate cash from operations.
Sarah Gasch
Managing Director and Finance Director
5 March 2019
PRIMARY FINANCIAL STATEMENTS
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2018
2018 2017*
$'000 $'000
Continuing Operations
-------------------------------------- --- -------- -------------------------
Revenue - -
Cost of sales (3,023) (4,699)
-------------------------------------------- -------- -------------------------
Gross loss (3,023) (4,699)
-------------------------------------------- -------- -------------------------
Gain on disposal of assets 643 100
Administrative expenses (4,539) (5,582)
Impairment charge (666) (53)
-------------------------------------------- -------- -------------------------
Operating loss from continuing
operations (7,585) (10,234)
-------------------------------------------- -------- -------------------------
Finance income and other 526 863
Finance expense and other (2,003) (1,827)
Loss before taxation from continuing
operations (9,062) (11,198)
-------------------------------------------- -------- -------------------------
Tax expense (94) -
-------------------------------------- --- -------- -------------------------
Loss from continuing operations,
net of tax (9,156) (11,198)
-------------------------------------------- -------- -------------------------
Income from discontinued operations,
net of tax 77 2,239
-------------------------------------------- -------- -------------------------
Total loss for the year attributable
to the equity owners of the parent (9,079) (8,959)
--------------------------------------------
Other comprehensive income/(loss) - -
Total comprehensive loss for the
year attributable to the equity
owners of the parent (9,079) (8,959)
-------------------------------------------- -------- -------------------------
Loss per share for continuing
operations
- Basic and diluted $ (0.25) $ (0.31)
Income per share for discontinued
operations
- Basic and diluted $ 0.00 $ 0.06
Total loss per share
- Basic and diluted $ (0.25) $ (0.25)
--------------------------------------- -------- -------------------------
*The prior year has been adjusted to reflect the presentation of
the Oil and Gas segment as discontinued operations in 2018 (see
note 4).
Figures in thousands except for per share information.
Consolidated Statement of Financial Position
As at 31 December 2018
2018 2017
$'000 $'000
-------------------------------------- --------- ---------
Assets
Non-current assets
Intangible assets 15 130
Other non-current assets 16 946
Property, plant and equipment 8,672 15,427
--------------------------------------- --------- ---------
Total non-current assets 8,703 16,503
--------------------------------------- --------- ---------
Current assets
Inventories 111 146
Note receivable and accrued interest 4,013 4,013
Trade and other receivables 74 7
Prepayments and other assets 97 303
Cash and cash equivalents 10,964 16,758
--------------------------------------- --------- ---------
15,259 21,227
Assets in disposal group classified 7,117 -
as held for sale
-------------------------------------- --------- ---------
Total current assets 22,376 21,227
Total assets 31,079 37,730
--------------------------------------- --------- ---------
Liabilities
Non-current liabilities
Convertible loan notes and accrued
interest (17,814) (15,809)
Long-term provisions - (2,712)
--------------------------------------- --------- ---------
Total non-current liabilities (17,814) (18,521)
--------------------------------------- --------- ---------
Current liabilities
Trade and other payables (380) (533)
Short-term provisions - (361)
Corporate and equity tax liabilities (48) (55)
Derivative financial liabilities (39) (262)
--------------------------------------- --------- ---------
(467) (1,211)
Liabilities directly associated (3,861) -
with assets in disposal group
classified as held for sale
-------------------------------------- --------- ---------
Total current liabilities (4,328) (1,211)
--------------------------------------- --------- ---------
Total liabilities (22,142) (19,732)
--------------------------------------- --------- ---------
Net assets 8,937 17,998
--------------------------------------- --------- ---------
Capital and reserves attributable
to equity holders of the parent
Share capital 608 608
Share premium 27,139 27,139
Capital reserve 30,435 30,435
Other reserves 1,307 1,307
Accumulated losses (50,552) (41,491)
--------------------------------------- --------- ---------
Total equity 8,937 17,998
--------------------------------------- --------- ---------
Consolidated Statement of Cash Flows
For the year ended 31 December 2018
2018 2017
$'000 $'000
----------------------------------------- -------- ---------
Cash flows from operating activities
Cash used by operations (6,584) (10,343)
Tax paid (continuing and discontinued
operations) (203) (203)
------------------------------------------ -------- ---------
Net cash used in operating activities (6,787) (10,546)
------------------------------------------ -------- ---------
Cash flows from investing activities
Interest on note receivable 320 366
Proceeds from disposal of assets 904 116
Purchase of intangible assets
and property, plant and equipment (6) (124)
------------------------------------------ -------- ---------
Cash provided by investing activities
- continuing operations 1,218 358
Cash used in investing activities
- discontinued operations (46) -
Net cash provided by investing
activities 1,172 358
------------------------------------------ -------- ---------
Cash flows from financing activities
Issuance of convertible loan
notes pursuant to Transaction
B - 10,500
Cash settlement of share-based
payment options (168) -
----------------------------------------- -------- ---------
Cash (used in)/provided by financing
activities - continuing operations (168) 10,500
Cash used in financing activities
- discontinued operations - -
Net cash (used in)/provided by
financing activities (168) 10,500
------------------------------------------ -------- ---------
(Decrease)/increase in cash and cash
equivalents for the year (5,783) 312
Cash and cash equivalents at
beginning of year 16,758 16,446
Cash and cash equivalents at
the end of year (1) 10,975 16,758
------------------------------------------ -------- ---------
(1) Includes cash of $12 thousand from discontinued operations
which is included in Assets in Disposal Group as at 31 December
2018.
Consolidated Statement of Changes in Equity
For the year ended 31 December 2018
Share Share Capital Other Accumulated Total
capital premium reserve reserves losses equity
$'000 $'000 $'000 $'000 $'000 $'000
----------------------------------- -------- -------- --------- --------- ------------ --------
At 1 January 2017 608 27,139 51,855 - (53,966) 25,636
Comprehensive loss for
the year:
Total loss for the year - - - - (8,959) (8,959)
Other comprehensive income/(loss) - - - - - -
----------------------------------- -------- -------- --------- --------- ------------ --------
Total comprehensive loss
for the year attributable
to equity owners of the
parent - - - - (8,959) (8,959)
Transaction with owners:
Share-based payment -
options equity settled - - - - 14 14
Capital reserve transfer - - (21,420) - 21,420 -
Equity proportion of
convertible loan note - - - 1,307 - 1,307
------------------------------------ -------- -------- --------- --------- ------------ --------
Other movements within
equity - - (21,420) 1,307 21,434 1,321
------------------------------------ -------- -------- --------- --------- ------------ --------
At 1 January 2018 608 27,139 30,435 1,307 (41,491) 17,998
Comprehensive loss for
the year:
Total loss for the year - - - - (9,079) (9,079)
Other comprehensive income/(loss) - - - - - -
----------------------------------- -------- -------- --------- --------- ------------ --------
Total comprehensive loss
for the year attributable
to equity owners of the
parent - - - - (9,079) (9,079)
Transaction with owners:
Share-based payment -
options equity settled - - - - 28 28
Cash settlement of share-based
payment options - - - - (10) (10)
Other movements within
equity - - - - 18 18
------------------------------------ -------- -------- --------- --------- ------------ --------
At 31 December 2018 608 27,139 30,435 1,307 (50,552) 8,937
------------------------------------ -------- -------- --------- --------- ------------ --------
ABRIDGED NOTES TO THE PRIMARY FINANCIAL STATEMENTS
For the twelve months ended 31 December 2018
1. Accounting policies
Basis of preparation
The principal accounting policies adopted in the preparation of
the financial statements are set out below. The policies have been
consistently applied to all the years presented, unless otherwise
stated.
In forming its opinion as to going concern, the Board prepares a
working capital forecast based upon its assumptions. The Board also
prepares a number of alternative scenarios modelling the business
variables and key risks and uncertainties. Based upon these, the
Board remains confident that the Group's current cash on hand and
internally generated cash flows will enable the Group to fully
finance its future working capital and discretionary expenditures
beyond the period of 12 months of the date of this report.
The financial statements of the Group for the 12 months ended 31
December 2018 have been prepared in accordance with International
Financial Reporting Standards ("IFRS") and their interpretations
issued by the International Accounting Standards Board ("IASB") as
adopted by the European Union ("EU").
Certain prior year amounts in the Consolidated Statement of
Financial Position and Consolidated Statement of Comprehensive
Income have been reclassified to conform with current year
presentation for the purposes of comparability. These
reclassifications include the presentation of discontinued
operations in the Consolidated Statement of Comprehensive Income
for the year ended 31 December 2017 to conform to the Oil and Gas
segment's classification as held for sale at December 2018.
2. Acquisition of Offshore Service Vessel-Owning Companies
Shareholders approved the acquisition of offshore service
vessel-owning companies through two separate transactions on 8
February 2017, and the Company's shares were re-admitted to the
AIM, a market operated by the London Stock Exchange, as Nautilus
Marine Services PLC (LSE-AIM: "NAUT"). These two acquisitions are
described below:
Transaction A: The Group acquired three offshore service vessels
through the acquisition of vessel-owning companies from Everest
Hill Group, Inc. ("Everest"), a related party, in exchange for: (i)
forgiveness of $8 million of the outstanding principal amount of
the Note Receivable; (ii) the amendment of the terms of the Note
Receivable to reduce the interest rate from 12 per cent to 8 per
cent per annum and to extend the maturity date from 15 January 2017
to 15 September 2018; and (iii) contingent additional consideration
equal to the lower of $5 million or 75 per cent of the net cash
inflows attributable to the three vessels for the period of
eighteen months following completion of their acquisition by the
Group. Part of the existing collateral under the Note Receivable,
comprising Everest's and its affiliates' shareholdings in HKN,
which is a substantial shareholder in the Company, will remain in
place. Please see note 13 for further information on the Note
Receivable.
For accounting purposes, this acquisition has been treated as an
asset acquisition with the acquisition date fair value of $8
million in consideration issued allocated between the three
offshore service vessels acquired based on independent, third-party
valuations. The fair value of the consideration was determined to
be the value of the forgiveness of the outstanding Note Receivable.
No gain or loss was recorded on the extinguishment of the debt as a
result of the proximity of the maturity date of the original loan
and the extinguishment date upon acquisition and the amended note
terms being at arms-length terms. In addition, the fair value of
the contingent consideration related to the future net cash inflows
of the three vessels was determined to be $nil as of the
acquisition date and as at 31 December 2017. This Level 3 fair
value was based on internal probability weighted cash projections
and operating assumptions related to the three vessels (see note 16
for further information). The duration of the 18-month contingency
measurement period expired during August 2018 and there was no
contingent consideration due or paid to Everest. As at 31 December
2018, the Group had no contingent consideration liabilities.
Transaction B: The Group acquired (i) a barge vessel through the
acquisition of Everest Vessel Holdings, LLC from a related-party,
Alan Quasha, HKN's Chairman of the Board, and (ii) eight offshore
service vessels along with related offshore dive equipment through
the acquisition of a vessel-owning company, Maritime Finance, LLC,
owned by McLarty Capital Partners ("MCP") and Caleura Limited. As
consideration, the Group issued three series of convertible loan
notes: Series A Convertible Loan Notes ("Series A Loan Notes"),
Series B Convertible Loan Notes ("Series B Loan Notes") and Series
C Convertible Loan Notes ("Series C Loan Notes"). In addition to
the acquired vessels and equipment, the Group received $10.5
million in cash. Please see note 14 for further information on the
convertible loan notes.
For accounting purposes, this acquisition has been treated as an
asset acquisition. The acquisition date fair value of $16.1 million
in consideration issued consisted of $10.5 million received in
cash, with the remaining $4 million allocated to the offshore
service vessels and $1.6 million allocated to offshore equipment
and inventory based on independent, third-party valuations. The
fair value of the convertible loan notes issued as consideration
was based on an independent, third-party valuation using a binomial
lattice model. This Level 3 fair value was calculated with inputs
such as volatility, risk-free interest rate and credit spread (see
note 16 for further information).
3. Assets and Liabilities in Disposal Group Classified as Held
for Sale
In December 2018, the Group, with the support of the Board,
committed to divest of its Oil and Gas segment, which is comprised
of its three wholly-owned subsidiaries, Global Energy Management
Resources-Colombia, Inc., Lagosur Petroleum Colombia, Inc. and
Cinco Ranch Petroleum Colombia, Inc. (the "Disposal Group"). The
Disposal Group holds the Bolivar and Bocachico Contracts in the
Magdalena Valley of Colombia. The Group began evaluating divestment
and strategic partnering opportunities for the Disposal Group
during 2017. Following these initial evaluations, the Board and
Group's management team believe the sale of the Group's assets in
the Middle Magdalena Basin presents a significant opportunity to
realise cash value from these non-strategic assets while
eliminating the associated annual operating costs and future
abandonment obligations. While several expressions of interest have
been made, as at 31 December 2018 a purchase and sale agreement had
not been executed. However, the Group expects a sale to be complete
within 12 months.
Prior to classifying the Oil and Gas segment as held for sale,
the carrying amounts of the non-current assets and liabilities were
measured and reviewed for possible impairment or impairment
reversal as required by IFRS 5. This review resulted in an
impairment reversal of $1.7 million at 31 December 2018 (see notes
12 and 15). Upon classification as held for sale as at 31 December
2018, the Disposal Group was measured at the lower of the carrying
amount and the fair value less costs to sell, which is categorised
as a Level 3 non-recurring fair value measurement. Depending on the
terms of a final purchase and sale agreement, a subsequent
recognition of a gain or loss on the sale of the Disposal Group may
result.
The following major classes of assets and liabilities related to
this Disposal Group that have been classified as held for sale in
the Consolidated Statement of Financial Position as at 31 December
2018:
2018
$'000
Intangible assets 157
Property, plant and equipment 6,189
Other non-current assets (1) 678
Inventories 20
Trade and other receivables 6
Prepayments and other assets 55
Cash and cash equivalents 12
Assets in disposal group classified
as held for sale 7,117
-------------------------------------- ------
Decommissioning and environmental
provisions (2) 3,215
Trade and other payables 603
Corporate and equity tax liabilities 43
Liabilities directly associated with
assets in disposal group classified
as held for sale 3,861
-------------------------------------- ------
(1) Other non-current assets represent VAT deposits that do not
expire and are not expected to be offset against taxes payable
during the next year.
(2) See note 1 for discussion regarding these provisions and
note 15 for a roll-forward of these provisions for the current and
prior year periods.
4. Discontinued Operations of Oil and Gas Segment
In December 2018, the Group classified its Oil and Gas segment
as held for sale. As a result, the operations of the Disposal Group
have been treated as discontinued operations for the year ended 31
December 2018, with comparable presentation for the prior year
period ended 31 December 2017. The table below provides further
details of the amounts shown in the Consolidated Statement of
Comprehensive Income for the discontinued operations of the Oil and
Gas segment for the 12 months ended 31 December 2018 and 2017:
2018 2017
$'000 $'000
-------------------------------------- ------ ------
Revenue - 250
Cost of sales (476) (853)
Gross loss (476) (603)
-------------------------------------- ------ ------
Administrative expenses (696) (767)
Impairment reversal 1,711 4,021
Finance income and other 6 14
Finance expense and other (364) (247)
-------------------------------------- ------ ------
Income before taxation 181 2,418
Tax expense (104) (179)
-------------------------------------- ------ ------
Income from discontinued operations,
net of tax 77 2,239
-------------------------------------- ------ ------
The Group's business units did not generate any revenues during
the year ended 31 December 2018. During 2017, all revenues from the
Group's business units were generated from oil liftings from the
Group's Bocachico field located in Colombia. This activity resulted
in sales of crude oil to one Colombia-based customer which amounted
to $250 thousand for the year ended 31 December 2017. The Bocachico
field was shut-in during late 2017 in order to decrease operating
costs and environmental risk while the contract area remains
uneconomic, and the field continued to be shut-in during the 2018
period.
For the year ended 31 December 2018, the Group's recognised an
impairment reversal of $1.7 million related to the Bocachico and
Bolivar areas. These impairment reversals were the result of
management's estimated recoverable amounts being higher than the
current carrying amount of the net assets immediately prior to
classification as held for sale. Based on discussions with
potential counter parties, management determined that the amount
expected to be recovered through a disposal transaction (fair value
less costs to sell) is higher than the value-in-use, as determined
by a third-party reserve valuation as at 31 December 2018.
For the year ended 31 December 2017, the Disposal Group
recognised a net impairment reversal of $4 million. This was
comprised of an impairment reversal of $4.1 million related to the
Bolivar area as a result of a view of stabilisation of increased
oil pricing at 31 December 2017 of $66.87 per barrel and a decrease
in the decommissioning provision, partially offset by an impairment
charge of $57 thousand for the Bocachico area due to increases in
the decommissioning and environmental provisions, as this area
remained uneconomic at the 31 December 2017 pricing.
5. Notes to the Consolidated Statement of Cash Flows
(a) Reconciliation of loss before taxation to net cash flow used
by operations
2018 2017
$'000 $'000
------------------------------------------ -------- ---------
Continuing operations
Loss before tax (9,062) (8,767)
Adjustments for:
Depreciation of property, plant
& equipment 1,980 1,843
Amortisation of intangible assets 15 15
Gain on derivative financial instruments (199) (543)
Gain on sale of assets (643) (100)
Impairment charge/(reversal) 666 (3,968)
Inventory obsolescense provision
and write downs 1 380
Share based expense 185 14
Interest income (320) (366)
Interest and accretion expense
on convertible loan notes 2,005 1,756
Unwinding of discount on decommissioning
provision - 219
------------------------------------------ -------- ---------
Operating cash flow before movements
in working capital (5,372) (9,517)
------------------------------------------ -------- ---------
Decrease in inventories - 36
Decrease in trade and other receivables 63 28
Increase/(decrease) in trade and
other payables 89 (876)
------------------------------------------ -------- ---------
Cash used in continuing operations (5,220) (10,329)
------------------------------------------ -------- ---------
Discontinued operations
Loss before tax 181 (13)
Adjustments for:
Depreciation of property, plant
& equipment 2 -
Loss on sale of assets 1 -
Impairment reversal 4 (1,711) -
Provision for uncollectible accounts - 1
Unwinding of discount on decommissioning
provision 273 -
------------------------------------------ -------- ---------
Operating cash flow before movements
in working capital (1,254) (12)
------------------------------------------ -------- ---------
Decrease in inventories 5 -
Decrease in trade and other receivables 268 -
Decrease in trade and other payables (383) (2)
------------------------------------------ -------- ---------
Cash used in discontinued operations (1,364) (14)
------------------------------------------ -------- ---------
Cash used by operations (6,584) (10,343)
------------------------------------------ -------- ---------
(b) Significant non-cash transactions
During the year ended 31 December 2017, the Group acquired
property, plant and equipment comprised of offshore service vessels
and dive and operating equipment valued at $13.3 million and
inventory valued at $303 thousand through the forgiveness of $8
million of the outstanding principal amount of the Note Receivable
and issuance of convertible loan notes (see note 2 for additional
information).
During the year ended 31 December 2018, the Group had no
significant non-cash transactions.
(c) Reconciliation of liabilities arising from financing
activities
Non-cash changes
----------------------------------------------------------
Foreign Fair
Cash exchange value Interest
flows Acquisition movement changes Payable Accretion
2017 $'000 $'000 $'000 '$'000 '$'000 '$'000 2018
------------------------ ------- ------- ------------ ---------- --------- --------- ---------- -------
Convertible loan
notes 15,809 - - - - 2,135 (130) 17,814
Derivative liabilities 262 - - (24) (199) 0 0 39
Total liabilities
from financing
activities 16,071 - - (24) (199) 2,135 (130) 17,853
------------------------ ------- ------- ------------ ---------- --------- --------- ---------- -------
Non-cash changes
----------------------------------------------------------
Foreign Fair
Cash exchange value Interest
flows Acquisition movement changes Payable Accretion
2016 $'000 $'000 $'000 '$'000 '$'000 '$'000 2017
------------------------ ------ ------- ------------ ---------- --------- --------- ---------- -------
Convertible loan
notes - 10,500 3,553 - - 1,663 93 15,809
Derivative liabilities - - 780 25 (543) - - 262
Total liabilities
from financing
activities - 10,500 4,333 25 (543) 1,663 93 16,071
------------------------ ------ ------- ------------ ---------- --------- --------- ---------- -------
6. Loss per Share
Basic loss per share amounts are calculated by dividing loss for
the year attributable to ordinary equity holders of the parent by
the weighted average number of ordinary shares outstanding for the
year.
Diluted loss per share amounts are calculated by adjusting the
loss attributable to ordinary equity holders and the weighted
average number of ordinary shares outstanding for the effects of
all dilutive potential ordinary shares, comprised of those related
to convertible loan notes and share options. The convertible loan
notes are assumed to have been converted into ordinary shares and
the net loss is adjusted to eliminate the related finance costs,
including interest and accretion, and any gain or loss recognised
on the derivative financial liability related to the convertible
loan notes. The calculation of the dilutive potential ordinary
shares related to employee and Director share option plans includes
only those options with exercise prices below the average share
trading price for each year.
The following table reflects the loss and share data used in the
basic and diluted loss per share calculations:
(Figures in thousands except for share and per share information
which is disclosed in $)
2018 2017
$'000 $'000
------------------------------------------ --- ----------- -----------
Loss from continuing operations after
taxation (9,156) (11,198)
Income from discontinued operations
after taxation 77 2,239
----------- -----------
Net loss attributable to equity holders (9,079) (8,959)
----------------------------------------------- ----------- -----------
Loss per share for continuing operations
- Basic and diluted $ (0.25) $ (0.31)
Income per share for discontinued
operations
- Basic and diluted $ 0.00 $ 0.06
Total loss per share
- Basic and diluted $ (0.25) $ (0.25)
Basic weighted average number of shares 36,112,187 36,112,187
Dilutive potential ordinary shares:
Employee and Director share option
plans - -
Shares on conversion of loan notes - -
Diluted weighted average number of
shares 36,112,187 36,112,187
----------------------------------------------- ----------- -----------
Basic and diluted loss per share are the same because the
following potentially dilutive shares were considered to be
anti-dilutive due to the loss arising in the period:
2018 2017
-------------------------------------- ----------- -----------
Employee and Director share option
plans - 2,350,000
Shares on conversion of loan notes 26,728,060 26,205,533
--------------------------------------- ----------- -----------
(1) Of these shares, 925,464 shares are related to shares to be
issued for accrued interest payable upon the conversion of loan
notes which can be settled in cash or shares at the Company's
option (2017: 402,937 shares).
7. Operating loss from continuing operations
Loss from continuing operations is stated after charging:
2018 2017 (1)
$'000 $'000
----------------------------------------- ------ ---------
Depreciation and amortisation (included
in cost of sales):
Property plant and equipment 1,980 1,841
Intangible assets 15 15
Gain on disposal of assets (643) (100)
Operating expenses 1,028 2,843
Employee costs 3,023 4,165
Auditor's remuneration 300 348
Other administrative costs 1,216 1,069
Impairment charge 666 53
Total cost of sales, administrative
and other operating costs 7,585 10,234
----------------------------------------- ------ ---------
(1) The prior year has been adjusted to reflect the presentation
of the Oil and Gas segment as discontinued operations in 2018 (see
note 4).
During the year, the Group obtained the following services from
the Group's auditors at costs as detailed below:
Analysis of auditors' remuneration
2018 2017 (1)
$'000 $'000
--------------------------------------- ------ ---------
Group Auditors
Audit Services
Statutory audit 99 98
Review of interim report 13 22
Non-audit Services
Due diligence related services 65 7
Other services (tax and consulting) 123 122
Other Auditors
Prior year statutory audit 0 7
Transaction-related due diligence
services (2) 0 52
Other services (tax and consulting) 0 40
--------------------------------------- ------ ---------
Total auditors' remuneration 300 348
--------------------------------------- ------ ---------
(1) The prior year has been adjusted to reflect the presentation
of the Oil and Gas segment as discontinued operations in 2018 (see
note 4).
(2) See note 2 for additional information regarding the
transaction.
8. Employee costs
Group employee costs (including Executive Directors) during the
year amounted to:
2018 2017 (1)
$'000 $'000
----------------------------------------------- ------ ---------
Wages and salaries 2,292 3,533
Social security costs and other payroll
taxes 130 195
Insurance and other benefits 268 268
Company contributions to defined contribution
plan 148 155
Share-based payments - options - equity
settled 185 14
----------------------------------------------- ------ ---------
Total employee costs 3,023 4,165
----------------------------------------------- ------ ---------
(1) The prior year has been adjusted to reflect the presentation
of the Oil and Gas segment as discontinued operations in 2018 (see
note 4).
The average number of Group employees (including Executive
Directors) was:
2018 2017
------------------------------- ----- -----
Technical and operations 3 7
Management and administrative 11 15
------------------------------- ----- -----
Total Group employees 14 22
------------------------------- ----- -----
(1) The current year includes 1 technical and operations
employee and 3 management and administrative employees of the Oil
and Gas segment, which was classified as discontinued operations in
2018 (see note 4).
The employee costs and number of employees above do not include
contract and casual labour in field operations which are charged
directly to operating expense as incurred. These employees are not
on the Group's payroll and are contracted through third
parties.
Key management personnel in the prior year comprised of the
Executive Chairman, Managing Director, Finance Director, and
Director of Business Development. As a result of personnel
reductions, key management personnel in the current year comprised
of the Executive Chairman, Managing Director, Finance Director,
Company Secretary and Treasurer. Compensation paid to the
Non-executive Directors and key management personnel:
2018 2017
$'000 $'000
------------------------------------------------- ------ ------
Non-executive Director fees (1) 264 240
Compensation and benefits paid to
key management personnel:
Compensation paid 1,253 1,363
Termination benefits 146 -
Performance bonuses 7 270
Social security costs and other payroll
taxes 62 61
Health and life insurances 94 72
Other benefits 63 47
Company contributions to defined
contribution plan 57 66
Share-based payments - options - equity-settled
(2) 174 12
------------------------------------------------- ------ ------
Total 2,120 2,131
------------------------------------------------- ------ ------
(1) Includes social security contributions by the Group of $20
thousand in 2018 (2017: $24 thousand).
(2) The increase in 2018 is primarily due to the termination of
the share-based payment option plan in December 2018 (see note
18).
As at 31 December 2018, there were no amounts due to or from key
management personnel (2017: nil). Directors' remuneration for the
current and prior year, as well as shareholdings and share options
interests are shown in the tables below:
Other
Termination Benefits Bonus Total Total
Salary Benefits (2) (3) Fees 2018 2017
$'000 $'000 $'000 $'000 $'000 $'000 $'000
-------------------- ------- ------------ ---------- ------ ------ ------ -------
Executives
Mikel Faulkner 320 117 57 122 - 616 651 (4)
Non-executives (1)
Alan Henderson - - - 6 88 94 80
David Quint - - - 6 88 94 80
Zac Phillips - - - 2 88 90 80
-------------------- ------- ------------ ---------- ------ ------ ------ -------
Total 320 117 57 136 264 894 891
-------------------- ------- ------------ ---------- ------ ------ ------ -------
(1) The non-executive fees were paid in Pounds Sterling in the
amount GBP60 thousand each (2017: GBP60 thousand).
(2) Included in benefits is $29 thousand related to the fair
value of the company vehicle gifted to Mr. Faulkner upon his
retirement as an executive.
(3) The 2018 bonuses consisted of the share option plan
termination payment in exchange for the cancellation of the
outstanding options.
(4) This included 2016 salary of $75 thousand contingent on the
completion of the transaction in 2017 to acquire offshore service
assets.
As at 31 December
2018 As at 1 January 2018
-------------------- -----------------------
Ordinary Ordinary
Shares Options Shares Options
---------------- ---------- -------- ---------- -----------
Mikel Faulkner 370,000 - 370,000 2,140,000
Alan Henderson 14,527 - 14,527 150,000
David Quint 135,000 - 135,000 150,000
Zac Phillips 15,241 - 15,241 50,000
Total 534,768 - 534,768 2,490,000
---------------- ---------- -------- ---------- -----------
All the holdings are beneficially held.
In December 2018, the Group terminated the Group's
equity-settled option scheme. As a result, grantees with valid
outstanding options received a cash payment in exchange for the
cancellation of the options. As at 31 December 2018, the Group had
no options outstanding.
9. Cost of sales
A reconciliation of cost of sales by nature is as follows:
2018 2017 (1)
$'000 $'000
------------------------------- ------ ---------
Operating expenses 1,028 2,843
Depreciation and amortisation 1,995 1,856
------------------------------- ------ ---------
Total cost of sales 3,023 4,699
------------------------------- ------ ---------
(1) The prior year has been adjusted to reflect the presentation
of the Oil and Gas segment as discontinued operations in 2018 (see
note 4).
10. Finance income and other
2018 2017 (1)
$'000 $'000
----------------------------------------- ------ ---------
Income on note receivable and other 327 320
Unrealized gain on derivative financial
liabilities (2) 199 543
----------------------------------------- ------ ---------
Total finance income and other 526 863
----------------------------------------- ------ ---------
(1) The prior year has been adjusted to reflect the presentation
of the Oil and Gas segment as discontinued operations in 2018 (see
note 4).
(2) The derivative financial liabilities are a result of the
convertible loan notes issued in connection with the transaction
(see note 2). The gains are primarily due to the decrease in the
Company's share price.
11. Finance expense and other
2018 2017 (1)
$'000 $'000
--------------------------------------- ------- ---------
Accretion expense on convertible loan
notes (130) 93
Interest expense on convertible loan
notes 2,135 1,663
Foreign currency exchange (gain)/loss (2) 71
---------------------------------------
Total finance expense and other 2,003 1,827
--------------------------------------- ------- ---------
(1) The prior year has been adjusted to reflect the presentation
of the Oil and Gas segment as discontinued operations in 2018 (see
note 4).
12. Property, plant and equipment
Offshore
equipment Office
and Facilities
site and equipment
Oil and
Vessels improvements properties pipelines other Total
$'000 $'000 $'000 $'000 '$'000 $'000
------------------------------- -------- ------------- ------------ ----------- ---------- ---------
Cost
At 1 January 2017 - - 45,264 2,956 867 49,087
Additions 12,025 1,359 - - 78 13,462
Disposals - (18) - - (400) (418)
Change in decommissioning
and environmental provision - - (163) - - (163)
At 31 December 2017 12,025 1,341 45,101 2,956 545 61,968
------------------------------- -------- ------------- ------------ ----------- ---------- ---------
Additions - - 501 - 5 506
Disposals (208) (100) (65) - (80) (453)
Change in decommissioning
and environmental provision - - 171 - - 171
Reclassified to assets held
for sale - - (45,708) (2,956) (436) (49,100)
At 31 December 2018 11,817 1,241 - - 34 13,092
------------------------------- -------- ------------- ------------ ----------- ---------- ---------
Depreciation:
At 1 January 2017 - - (45,264) (2,956) (846) (49,066)
Provided during the year (1,512) (300) - - (31) (1,843)
Disposals - 4 - - 396 400
Impairment (charge)/reversal (53) - 4,021 - - 3,968
At 31 December 2017 (1,565) (296) (41,243) (2,956) (481) (46,541)
------------------------------- -------- ------------- ------------ ----------- ---------- ---------
Provided during the year (1,634) (316) - - (32) (1,982)
Disposals 35 42 8 - 62 147
Impairment (charge)/reversal (666) - 1,711 - - 1,045
Reclassified to assets held
for sale - - 39,524 2,956 431 42,911
At 31 December 2018 (3,830) (570) - - (20) (4,420)
------------------------------- -------- ------------- ------------ ----------- ---------- ---------
Net book value at 31 December
2018 7,987 671 - - 14 8,672
Net book value at 31 December
2017 10,460 1,045 3,858 - 64 15,427
Net book value at 1 January
2017 - - - - 21 21
As a result of the February 2017 asset acquisitions, the Group
acquired 11 offshore service vessels, one barge vessel, and related
offshore equipment. Three of the acquired offshore service vessels
were sold as scrap prior to delivery to the Group's dock facility
and certain offshore equipment was sold during the prior year
period. These disposals resulted in a gain on disposal of assets of
$100 thousand for the year ended 31 December 2017. During 2018, the
Group closed on the sale of three of its offshore service vessels
and certain offshore equipment for proceeds of $894 thousand. These
disposals resulted in a gain on disposal of assets of $659 thousand
for the year ended 31 December 2018.
The Group performed its annual impairment assessment as at 31
December 2018. For the purposes of assessing impairment for the
vessels, the Group obtained an independent, third-party valuation
to determine the fair value of each vessel at 31 December 2018. As
a result, the Group recognised an impairment charge of $666
thousand related to the offshore service vessels as a result of
decreased current market valuations (2017: $53 thousand). The Group
did not identify any factors that would indicate the value of its
offshore service equipment may be impaired since the acquisition
date measurement in February 2017 (see note 2 for additional
information).
Property, plant and equipment in the Group's Oil and Gas segment
was assessed for impairment as at 31 December 2018 immediately
prior to being reclassified as held for sale. As such, the Group
considered the recoverable amounts of the two CGUs, the Bolivar
area and the Bocachico area, by measuring the value-in-use and fair
value less costs to sell.
The value-in-use calculations using risked cash flow projections
include estimates about the future financial performance of each
CGU. All estimates and assumptions included in the value-in-use
calculations are derived from the reserve report developed by Ralph
E. Davis Associates, Inc., an independent petroleum engineering
firm, and are based on the PRMS joint reserve and resource
definitions of the Society of Petroleum Engineers, the World
Petroleum Council, the American Association of Petroleum Geologists
and the Society of Petroleum Evaluation Engineers consistent with
UK reporting practices. The projected risked discounted cash flows
are calculated using the Brent oil pricing as at 31 December 2018
of $53.80 per bbl with an escalation of 3 per cent each following
year (2017: $66.87 per bbl), with historical pricing discounts and
historical operating costs. The pre-tax discount rate applied to
the cash flow projections is 10 per cent (2017: 10 per cent). As a
result of the decreased oil pricing and oil price projections as of
the current year end, both of the Group's oil properties were
determined to be uneconomic with no estimated value-in-use as at 31
December 2018.
The Group estimated fair value less costs to sell based on an
average of the cash consideration discussed with potential counter
parties. Non-cash consideration included in these offers, such as
royalties, were not assigned any value. This is due to the
significant amount of judgements and uncertainty regarding inputs
to this valuation, including the timing and scope of a purchaser's
development plans that are not in the Group's control. Based on
these estimates, which are categorised as a non-recurring level 3
fair value measurement, management determined that the amount
expected to be recovered through a disposal transaction (fair value
less costs to sell) is higher than the value-in-use. This
recoverable amount was greater than the carrying value and as a
result, an impairment reversal of $1.7 million was recognised
related to the Bocachico and Bolivar areas.
Prior to 2018, these assessments were based on a recoverable
amount which was determined based on value-in-use calculations
derived from third-party reserve reports, as there was no reliable
market to estimate fair value less costs to sell. As a result, the
Group recognised a net impairment reversal of $4 million primarily
due to the increase in oil pricing and a view of stabilisation of
the increased oil pricing at as 31 December 2017. This comprised of
an impairment reversal of $4.1 million related to the Bolivar area
based upon the reserve report valuation of the discounted cash
flows for the contingent reserves within this contract. However,
the Bocachico area remained uneconomic at the increased 31 December
2017 pricing. As a result, an impairment charge of $57 thousand was
recognised due to increases in the decommissioning and
environmental provisions during 2017.
13. Note receivable
2018 2017
$'000 $'000
----------------------------------- ------ ------
Note receivable 4,000 4,000
Accrued interest receivable 13 13
Total note receivable and accrued
interest as at 31 December 4,013 4,013
----------------------------------- ------ ------
Cash received for interest income 320 366
----------------------------------- ------ ------
On 15 September 2015, the Group and HKN, Inc. ("HKN")
(collectively as "Co-Lenders") entered into a secured, short-term
financing note agreement ("Note Receivable") with Everest Hill
Energy Group Ltd. ("Everest") for the principal amount of $10
million. Everest is an affiliated company of the Quasha family
trusts which also have an interest in Lyford Investments, Inc., an
existing shareholder of the Group. HKN Inc, ("HKN"), the Group's
principal shareholder, Lyford Investments, Inc. and its parties
acting in concert with it are interested in 22,567,016 shares of
the Group, representing 62.49 per cent of the issued share capital
of the Company. By virtue of these holdings, entry into this Note
Receivable constituted a related party transaction.
Under the Note Receivable, the Group participated as a Co-Lender
by loaning $8.0 million and HKN participated by loaning $2.0
million of the principal amount to Everest. The Note Receivable is
secured by all of Everest's and its subsidiaries' holdings of the
Group and HKN. The Group serves as the collateral agent for the
Co-Lenders. The Note Receivable was subject to an interest charge
of 12 per cent per annum, payable monthly in arrears, with the
principal amount being repayable in full on 15 March 2016. Everest
paid to the Group a 2 per cent transaction fee of $160 thousand in
September 2015 upon the closing of the Note Receivable.
On 29 February 2016, the Co-Lenders amended the Note Receivable
with Everest. Under this amendment, the Group loaned an additional
$2.0 million principal amount to Everest and extended the maturity
date six months to 15 September 2016. In addition, the Group was
granted right of first refusal to purchase certain offshore oil
service vessels owned by Everest and its affiliates. Everest paid
to the Group a 2 per cent transaction fee of $40 thousand upon the
execution of the amendment.
On 9 September 2016, the Co-Lenders extended the maturity date
of the amended Note Receivable by thirty days to 15 October 2016.
On 14 October 2016, the Co-Lenders extended the maturity date
thirty days from 15 October 2016 to 15 November 2016. On 28 October
2016, the Group acquired HKN's rights of their outstanding
principal amount of $2.0 million in respect of the Note Receivable
and as a result the Group is now the sole lender of the Note
Receivable with collateral remaining in place and securing the
obligation. On 14 November 2016, the Group extended the maturity
date to 15 January 2017. The Note Receivable continued to be
subject to an interest charge of 12 per cent per annum, payable
monthly in arrears.
On 8 February 2017, the Note Receivable was amended as a result
of the completion of Transaction A (as disclosed in note 2). As a
result, the principal balance of the note decreased from $12
million to $4 million and the maturity date was extended from 15
January 2017 to 15 September 2018. In addition, interest was
amended from payable monthly in arrears at 12 per cent per annum to
payable quarterly in arrears at 8 per cent per annum.
On 2 August 2018, the Group (the "Lender") amended the Note
Receivable with Everest. Under the amendment, the Group extended
the maturity date from 15 September 2018 to 30 April 2019. In
addition, the amendment provides for a Lender's Call Option which
requires Everest to pay $2 million of the outstanding principal
amount no later than thirty days after the Group provides written
notice of the exercise of the Lender's Call Option to Everest. The
Note Receivable continues to be subject to an interest charge of 8
per cent per annum, payable quarterly in arrears, and the existing
collateral, comprised of Everest's and its affiliates'
shareholdings in HKN, which is a substantial shareholder in the
Company, remains in place. The change in maturity date did not
impact the classification of the Note Receivable on the
Consolidated Statement of Financial Position as it continues to be
a current asset.
In accordance with application of IFRS 9 at 1 January 2018, the
Group assessed the credit risk of the Note Receivable. The credit
risk at the time of initial recognition was considered low and
using the credit risk indicators outlined in note 17, management
assessed whether the credit risk had increased significantly.
Although, the Group modified the terms of the Note Receivable,
these modifications were not a result of a deterioration of credit
quality. Further, as no other indicators were identified as being
present, the Group determined there had not been a significant
increase in credit risk as of the reporting date. As such, a loss
allowance equal to the twelve month expected credit losses was
measured using a probability weighted cash flow approach for a
range of possible outcomes. This included estimations by management
using significant unobservable inputs, such as the assumption
regarding credit worthiness of the borrower, in addition to the
payment history of interest obligations. Due to the estimated
current value of the collateral exceeding the expected credit
losses, no cash shortfall is estimated. As such, no allowance for
expected credit losses related to the Note Receivable was
recognised within opening equity at 1 January 2018 or as at 31
December 2018 as part of the application of IFRS 9.
14. Convertible Loan Notes and Interest Payable
As a result of the completion of Transaction B on 8 February
2017 (as disclosed in note 2), the Group issued three series of
convertible loan notes in exchange for $10.5 million in cash and
vessels, equipment and inventory with a fair market value of $5.6
million.
After the reporting period, the Group received voluntary
conversion notices from noteholders for the conversion of Series A
Loan Notes with a combined nominal value of $10 million (see note
20 for further details).
A summary of the terms of the convertible loan notes are as
follows:
Convertible Loan Note
--------------------------------------------------------------------------------------
Term: Series A Series B Series C
------------ --------------------------- --------------------------- ----------------------------
Principal
Amount: $10.5 million $6.1 million $15.0 million
Maturity 1 January 2027 1 January 2029 1 January 2032 (unless
Date: (unless converted (unless converted converted to Ordinary
to Ordinary Shares to Ordinary Shares Shares before then).
before then). before then). Payments Payments on maturity
Payments on on maturity are are to be settled
maturity are to be settled in in cash or satisfied
to be settled cash or satisfied in whole or in part
in cash. in whole or in by the issue of Ordinary
part by the issue Shares at the option
of Ordinary Shares of the Company.
at the option of
the Company.
Interest: Non-compounding Non-compounding Non-compounding interest
interest will interest will be will be payable upon
be payable upon payable upon maturity maturity or conversion
maturity or conversion or conversion (calculated (calculated on a
(calculated on on a 360-day calendar 360-day calendar
a 360-day calendar year) at 6 per year) at 6 per cent,
year) at 8 per cent, payable in payable in cash or
cent. cash or satisfied satisfied by the
by the issue of issue of Ordinary
Ordinary Shares Shares at the option
at the option of of the Company.
the Company.
Conversion The outstanding The outstanding The outstanding principal
Price: principal amount principal amount amount will be convertible
will be convertible will be convertible into Ordinary Shares
into Ordinary into Ordinary Shares at 225 pence per
Shares at 50 at 160 pence per share, subject to
pence per share, share, subject adjustment in certain
subject to adjustment to adjustment in circumstances.
in certain circumstances. certain circumstances.
A holder of convertible loan notes may convert any portion of
the outstanding principal amount and (in the case of the Series B
Loan Notes and Series C Loan Notes only) any unpaid and accrued
interest of the convertible loan notes into Ordinary Shares at the
applicable conversion price at any time following thirty days from
the issue of the relevant convertible loan notes with a 20-day
notice to the Company. All three series of convertible loan notes
contain both a fixed exchange rate of $1.22:GBP1 and the right for
the Company to force conversion if the Company's average share
price equals or exceeds 110 per cent of the conversion price for a
period of ten consecutive business days. Furthermore, the Company
may redeem each issue of convertible loan notes any time after
issuance at their nominal value with a 10-day notice to the note
holder. For the Series B Loan Notes and Series C Loan Notes only,
any amounts not previously converted into shares at maturity will
be repaid in cash or by the issuance of shares at a price equal to
the higher of (i) the conversion price and (ii) 110 per cent of the
average closing price of the Company's shares for ten consecutive
business days, at the option of the Company. As a result, the
Series B Loan Notes and Series C Loan Notes failed the 'fixed for
fixed' classification under IAS 32.
The Group determined the convertible loan notes issued to be
compound financial liabilities. The Group classified the conversion
features of the Series A Loan Notes as equity due to the fixed
settlement terms. Accordingly, the proceeds received on issuance
were allocated into their liability and equity components. The
Group classified the conversion features of the Series B Loan Notes
and Series C Loan Notes as derivative financial liabilities.
Accordingly, the proceeds received on issuance were allocated into
their host debt liability and embedded derivative components. The
following table details the movements of the convertible loan note
issuances during the periods ended 31 December 2018 and 2017:
2018 2017
$'000 $'000
------- --------
Balance at 1 January 15,809 -
Issuance of convertible loan notes - 16,140
Proportion classified as equity - (1,307)
Proportion classified as derivative
financial liabilities - (780)
Interest payable 2,135 1,663
Accretion expense (130) 93
------- --------
Convertible loan notes and accrued
interest 17,814 15,809
------- --------
(1) Of the interest payable, $1.5 million and $673 thousand was
related to the Series A loan note, which is payable by the Group in
cash upon conversion as at 31 December 2018 and 2017,
respectively.
15. Decommissioning and environmental provisions
2018 2017
Long-term provisions $'000 $'000
--------------------------------------------- -------- ------
Decommissioning liability at start
of year, non-current (1) 2,712 2,161
Unwinding of discount 273 219
Reclassification from short-term provisions
(2) - 578
Decrease in provision (3) (240) (246)
Reclassified to liabilities held for
sale (5) (2,745) -
Decommissioning liability at end of
year, non-current - 2,712
--------------------------------------------- -------- ------
Total long-term provision - 2,712
--------------------------------------------- -------- ------
2018 2017
Short-term provisions $'000 $'000
--------------------------------------------- -------- ------
Decommissioning liability at start
of year, current (1) 314 810
Reclassification to long-term provisions
(2) - (578)
Increase in provision(3) 145 82
Reclassified to liabilities held for
sale (5) (459) -
--------------------------------------------- -------- ------
Decommissioning liability at end of
year, current - 314
--------------------------------------------- -------- ------
Environmental provision - current,
at start of year (4) 47 138
Decrease in provision (36) (91)
Reclassified to liabilities held for
sale (5) (11) -
Environmental provision - current,
at end of year - 47
--------------------------------------------- -------- ------
Total short-term provision - 361
--------------------------------------------- -------- ------
(1) The decommissioning provision represents the present value
of decommissioning costs for existing assets in the Group's oil
operations, which are expected to be incurred between 2018 and
2024. These provisions have been generated based on the Group's
internal estimates, and where available, studies and analyses from
external sources. Assumptions, based on the current economic
environment, have been made which management believes are a
reasonable basis upon which to estimate the future liability. As at
31 December 2017, these estimates are included within short-term
and long-term provisions within the Consolidated Statement of
Financial Position. As a result of the Oil and Gas segment being
classified as held for sale in 2018, these estimates were
reclassified as liabilities directly associated with assets in
disposal group classified as held for sale for within the
Consolidated Statement of Financial Position as at 31 December
2018. These estimates are reviewed periodically to take into
account any material changes to those assumptions.
(2) During 2017, the Group reassessed the scope of the
discretionary projects designated as current at the Bolivar area
and decided to defer a portion to be performed upon the expiration
of the contracts in order to preserve cash on hand. This resulted
in the reclassification from short-term to long-term provisions of
$578 thousand during 2017.
(3) Decommissioning cost estimates increase or decrease as a
result of management current estimates and identification of any
additional requirements for the final decommissioning for both
Contract Areas. However, actual decommissioning costs will
ultimately depend upon future market prices for the necessary
decommissioning work required at the time assets are decommissioned
and abandoned. Furthermore, the timing of decommissioning is likely
to depend on when the fields cease to produce at economically
viable rates, which in turn is dependent upon future oil and gas
prices that are inherently uncertain.
(4) The environmental provision represents the creation of an
environmental investment reserve to reflect a liability under
Colombian law for certain exploration and producing contracts
requiring the Group to perform additional reinvestment in the
amount of 1 per cent of specified investment activity to provide
for the recovery, conservation, preservation, and monitoring of the
hydrographic basin of the exploration areas and obligations to
perform social contract requirements. For the 1 per cent
reinvestment obligation, a provision is provided and an amount
equal to the provision is recognised within the cost of the
respective asset and amortised on a unit of production basis.
Changes in estimates are recognised prospectively, with
corresponding adjustments to the provisions and the associated
fixed asset. Changes in estimate of other environmental and social
obligations are recognised in cost of sales.
(5) As at 31 December 2018 all the decommissioning and
environmental liabilities were associated with the Group's
Colombian oil operations, which were classified as held for sale at
31 December 2018. As a result, these liabilities are included
within liabilities held for sale at 31 December 2018 (see note
3).
16. Financial Instruments- Fair Value Measurement
During 2018, the Group issued financial instruments measured at
fair value. The Group has assessed the different levels in the fair
value hierarchy, for its financial instruments, based on the inputs
used in the valuation techniques. The following tables show the
valuation techniques used in measuring level 3 fair values, as well
as the significant unobservable inputs used.
Significant unobservable
Type Level Measurement Valuation technique inputs
-------------------------- ------ ------------ --------------------- -------------------------
Derivative financial 3 Recurring Binomial lattice Share price volatility
liabilities (derivative model
component of convertible
loan notes)
-------------------------- ------ ------------ --------------------- -------------------------
Contingent consideration 3 Recurring Probability weighted Operating and cash
cash forecasts flow projections
-------------------------- ------ ------------ --------------------- -------------------------
The following table details the movements of the derivative
financial liabilities during the periods ended 31 December 2018 and
2017:
2018 2017
$'000 $'000
------ ------
Balance at 1 January 262 -
Proportion of convertible loan notes
classified as derivative financial
liabilities - 780
Unrealized gain on derivative financial
liabilities (199) (543)
Foreign exchange movement (24) 25
------ ------
Derivative financial liabilities 39 262
------ ------
During the years ended 31 December 2018 and 2017, gains of $199
thousand and $543 thousand, respectively, were recognised on the
revaluation of the derivative financial liabilities within finance
income and other in the Consolidated Statement of Comprehensive
Income.
The contingent consideration relates to the acquisition of
offshore service vessel-owning companies which own three vessels as
a result of the completion of Transaction B (as disclosed in note
2). The fair value of the contingent consideration related to the
future net cash inflows through August 2018 of the three vessels
was determined to be $nil at acquisition and as at 31 December
2017. The duration of the 18-month contingency measurement period
expired during August 2018 and there was no contingent
consideration due or paid to Everest.
17. Financial Instruments- Risk Measurement
Principal financial instruments
The principal financial instruments used by the Group, from
which financial instrument risk arises are as follows:
-- Note receivable
-- Cash and cash equivalents
-- Trade and other payables
-- Convertible loan notes
-- Derivative financial liabilities
The Group is exposed through its continuing operations to the
following risks through holding and issuing financial
instruments:
-- Market risk
-- Credit risk
-- Foreign exchange risk
-- Liquidity risk
The Board has overall responsibility for the determination of
the Group's risk management objectives and policies and, whilst
retaining responsibility for them, it has delegated the authority
for designing and operating processes that ensure the effective
implementation of the objectives and policies to the Group's
finance function. The Board receives regular reports from the
Group's Managing Director through which it reviews the
effectiveness of the processes in place and the appropriateness of
the objectives and policies it sets. The overall objective of the
Board is to set policies that seek to reduce risk as far as
possible without unduly affecting the Group's competitiveness and
flexibility. Further quantitative information in respect of these
risks is presented throughout these financial statements and
details regarding these policies are set out below.
2018 2017
Financial assets and liabilities as per
Consolidated Statement of Financial Position: $'000 $'000
------------------------------------------------- ------- -------
Financial assets (all at amortised cost):
Trade and other receivables, continuing
operations 74 7
Trade and other receivables, discontinued
operations 6 -
Note receivable 4,013 4,013
Cash and cash equivalents 10,964 16,758
Total financial assets 15,057 20,778
------------------------------------------------- ------- -------
Financial liabilities:
At amortised cost
Trade and other payables, continuing operations 380 533
Trade and other payables, discontinued
operations 603 -
Convertible loan notes 17,814 15,809
At fair value
Derivative financial liabilities 39 262
Total financial liabilities 18,836 16,604
------------------------------------------------- ------- -------
Market risk
The Group does not consider itself exposed to significant cash
flow interest rate risk from its deposits of cash and cash
equivalents with banks. The cash balances maintained by the Group
are proactively managed in order to ensure that the maximum level
of benefit is received for the available funds without affecting
the working capital flexibility the Group requires.
The Group does not consider itself exposed to cash flow interest
rate risk related to debt instruments in the form of convertible
loan notes, which carry fixed interest rates within the terms of
the agreements. Through fixing the interest rates within the
agreements, the Company considers it has minimised the exposure of
the Group to cash flow interest rate risk. No subsidiary company of
the Group is permitted to enter into any borrowing facility without
the prior consent of the Board. The Group has no floating rate
debt. During 2017, the Group issued long-term convertible loan
notes, which comprised its fixed rate debt, ranging from fixed
interest rates of 6 per cent to 8 per cent.
The interest rate profile of the Group's financial assets and
liabilities at 31 December 2018 was as follows:
US Dollar
US Dollar equivalent of: $'000
----------------------------------- ----------
Cash at bank on which no interest
is received 10,964
Fixed rate debt (1) (17,814)
Net cash (6,850)
----------------------------------- ----------
(1) Of this fixed rate debt, $16.96 million can be settled by
the issue of ordinary shares of the Company under the terms of the
convertible loan notes (see note 14). See note 20 for post
reporting date transaction involving this fixed rate debt.
The profile at 31 December 2017 for comparison purposes was as
follows:
US Dollar
US Dollar equivalent of: $'000
----------------------------------- ----------
Cash at bank on which no interest
is received 16,743
Fixed rate debt (1) (15,809)
Net cash 934
----------------------------------- ----------
(1) Of this fixed rate debt, $15.14 million can be settled by
the issue of ordinary shares of the Company under the terms of the
convertible loan notes (see note 14).
At 31 December 2018, the Group held cash of $12 thousand (2017:
$15 thousand) in demand deposits and money market investments
denominated in Colombian Pesos within its assets classified as held
for sale which were subject to floating rates which averaged 0.1
per cent during the year (2017: averaged 0.1 per cent return on
investment). Changes in the interest rates would not have a
significant impact on the Group's finance income for the interest
income generated.
Credit risk
Credit risk is the risk of financial loss to the Group if a
customer or a counterparty to a financial instrument fails to meet
its contractual obligations.
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses using a lifetime expected credit loss
provision for trade and other receivables. Due to the current low
number of trade and other receivables, the Group assessed the
expected credit losses on an individual account basis. During this
process, the probability of the non-payment of the trade receivable
is evaluated based on credit quality of the associate and aging of
the receivable. As at 31 December 2018, all trade receivables were
current and no accounts were identified as having a probability of
non-payment due to the nature of the associate. As such, as at 31
December 2018, no allowance for expected credit losses related to
trade and other receivables was recognised.
The Group assesses credit risk on its Note Receivable using
forward looking expected credit loss model. The methodology used to
determine the amount of the provision is based on whether there has
been a significant increase in credit risk since initial
recognition of the financial asset. Management considers the
following indicators to assess whether there has been a significant
increase in credit risk on the note receivable:
-- Past due contractual payments (more than 30 days past due),
-- Changes to existing terms of the note because of changes in
the credit risk of the financial instrument,
-- Deterioration of the value of the collateral,
-- Changes in the behavior of the borrower,
-- Significant changes to the financial position of the borrower, and
-- Expected or increased potential for breaches of covenants
and/or events of default.
The credit risk as the time of initial recognition was
considered low, the loan was considered fully collateralized and
the credit risk for the Note Receivable was not considered to have
increased significantly since the initial recognition as of the
reporting date. As such, no allowance for expected credit losses
related to the note receivable was recognised within opening equity
or as at 31 December 2018 as part of the application of IFRS 9 (see
note 13 for further discussion).
Credit risk arises from cash and cash equivalents and from
exposure via deposits with banks. For cash and cash equivalents,
the Group only uses recognised banks with high credit ratings. The
Group's cash deposits are mainly held in two banks, which are both
independently rated with a minimum grading of "A".
Foreign exchange risk
Foreign exchange risk arises because the Group has operations
located in various parts of the world whose local operational
currency is not the same as the presentation currency of the Group.
Although its wider market penetration reduces the Group's
operational risk, the Group's net assets arising from such overseas
operations are exposed to currency risk resulting in gains and
losses on translation into US Dollars. Only in exceptional
circumstances will the Group consider hedging its net investments
in overseas operations as generally it does not consider that the
reduction in foreign currency exposure warrants the cash flow risk
created from such hedging techniques. It is the Group's policy to
ensure that individual Group entities enter into local transactions
in their operational currency and that surplus funds over and above
working capital requirements should be transferred to the parent
company treasury. The Group considers this policy minimises any
unnecessary foreign exchange exposure.
In order to monitor the continuing effectiveness of this policy,
the Board, through their approval of capital expenditure budgets
and review of management accounts, considers the effectiveness of
the policy on an ongoing basis. The following table discloses the
exchange rates of those currencies utilised by the Group:
Discontinued
Operations
-------------
Pound Colombian
Foreign currency units to
$1.00 US Dollar Sterling Peso
--------------------------- --------- -------------
At 31 December 2018 0.787 3,250
--------------------------- --------- -------------
At 31 December 2017 0.741 2,984
--------------------------- --------- -------------
Currency exposures
The monetary assets and liabilities of the Group that are not
denominated in US Dollars and are therefore exposed to currency
fluctuations are shown below. The amounts shown represent the US
Dollar equivalent of local currency balances.
Pound
Sterling
US Dollar equivalent
of exposed net monetary
liabilities from operations $'000
------------------------------ ----------
At 31 December 2018 (122)
------------------------------ ----------
At 31 December 2017 (139)
------------------------------ ----------
Colombian
Peso
US Dollar equivalent
of exposed net monetary
liabilities held for
sale $'000
------------------------------ ----------
At 31 December 2018 (3,572)
------------------------------ ----------
At 31 December 2017 (3,696)
------------------------------ ----------
Foreign currency sensitivity analysis
As at 31 December 2018, the Group holds net monetary liabilities
in foreign currencies, mainly in the form of trade payable and
accrued liabilities payable in Pound Sterling. Further, the Group's
liabilities classified as held for sale is comprised of
decommissioning and environmental provisions denominated in the
Colombian Peso. As such, the Group is exposed to fluctuations in
exchange rates.
A sensitivity analysis based on a 10 per cent volatility
assumption is used to estimate the potential impact of variations
in foreign exchange rates from the US Dollar against the relevant
foreign currencies. A positive number below indicates a decrease in
the net loss from operations where the US Dollar strengthens
against the relevant currency. For a 10 per cent weakening of the
US Dollar against the relevant currency, there would be a
comparable impact increasing the loss from operations, and the
balances below would be negative.
Pound
Sterling
Currency Impact on Loss
from Operations $'000
------------------------- ---------
At 31 December 2018 12
------------------------- ---------
At 31 December 2017 14
------------------------- ---------
Colombian
Peso
Currency Impact on Loss $'000
from Discontinued Operations
------------------------------- ----------
At 31 December 2018 357
------------------------------- ----------
At 31 December 2017 370
------------------------------- ----------
Liquidity risk
Liquidity risk arises from the Group's management of working
capital and the investment activities. It is the risk that the
Group will encounter difficulty in meeting its financial
obligations as they fall due. The Group's policy is to ensure that
it will always have sufficient cash to allow it to meet its
liabilities when they become due. As at 31 December 2018, the Group
has no near-term debt and its interest payment obligations are not
due until the maturity of its long-term debt. In addition, the
Group does not have any mandatory drilling obligations related to
its Oil and Gas segment or long-term commitments related to its
Offshore segment. The Group will seek to reduce future liquidity
risk through strong cost controls, divestitures of non-strategic
assets, and monthly updates of its forecast results and cash flows,
in order to provide the Group with solid tools to monitor define
and approve all cash uses with the purpose of ensuring the funds
required to develop the expected operational activities.
The Group maintains an integrated business performance and cash
flow forecasting model, incorporating the most recent Consolidated
Statement of Financial Position information (updated monthly) with
the business plan and current year budget and management
expectations. The Group's performance against budget and associated
cash flow forecast is evaluated on a monthly basis. The Group's
management reviews rolling 12-month cash flow projections on
periodic basis as well as information regarding cash balances and
Group performance against budget. At the reporting date, these
projections indicate that the Group expected to have sufficient
liquidity to meet its obligations under all reasonably expected
circumstances.
The following tables illustrate the contractual maturity
analysis of the Group's financial liabilities:
2018 2017
Analysis of current financial liabilities
include: $'000 $'000
------------------------------------------- ------ ------
Up to 3 months (1) 963 402
3 to 6 months - 131
Over 6 months (2) 20 -
Total current financial liabilities 983 533
------------------------------------------- ------ ------
(1) Includes $583 thousand in trade payable and accrued
liabilities included within liabilities held for sale in the
current year (note 3).
(2) Includes $20 thousand in trade payable and accrued
liabilities included within liabilities held for sale in the
current year (note 3).
2018 2017
Analysis of debt include: $'000 $'000
---------------------------- ------- -------
Between five and ten years 8,346 -
In ten years or more 9,468 15,809
Total 17,814 15,809
---------------------------- ------- -------
Capital management policies
The Board has established guidelines and policies which are for
the management of the Group's capital resources, including
shareholder equity and debt, based on a long-term strategy against
which the Board continually evaluates and monitors the achievement
of corporate objectives and the development of the Group's
portfolio in core areas. Specific capital management policies set
forth include the following:
-- the reinvestment of all profits into new and existing assets
that fit the corporate objectives;
-- consolidation of positions in developing regions and
disposition of assets of low materiality or where meaningful
operational influence cannot be achieved;
-- identification of the appropriate mix of debt, equity and
partner sharing opportunities in order to balance the highest
returns to shareholders overall with the most advantageous timing
of investment flows;
-- the hiring and maintenance of highly qualified employees
through effective manpower management processes, including
compensation and benefit programmes in concert with ongoing
training and motivational programmes; and
-- the retention of maximum flexibility to allocate capital
resources between projects based on available funds and quality of
opportunities.
On a monthly basis, management receives financial and
operational performance reports that enable continuous management
of assets, liabilities and liquidity. In addition, management
communicates frequently with the Board of Directors to provide
consistent information and data to evaluate and measure the
achievement of objectives. The above policies and practices are
consistent with strategies and objectives employed in prior years
and are expected to remain consistent in the extension of future
resource allocation objectives.
18. Share-based payments
Equity-settled - Discretionary share option incentive plan
Prior to December 2018, the Group periodically granted share
options to employees and Directors, as approved by the Board under
the Company's share option scheme. The vesting period and
expiration date of the granted options is determined for each
grant. For grants prior to 2017, vested options can be exercised up
to expiration, or 24 months after the resignation or termination of
the Director or employee, whichever is the earlier.
In December 2018, the Group terminated the Company's
equity-settled option scheme. As a result, the remaining
share-based payment expense was accelerated and the grantees with
valid outstanding options received a cash payment in exchange for
the cancellation of the options. As at 31 December 2018 and 2017
the following share options were outstanding in respect of the
ordinary shares:
Year ended 31 December 2018
Number
Cancelled exercisable
Year Number Issued upon Number at Price
of of in Forfeited/ plan of year Start End per
grant shares year lapsed termination shares end date date share
-------- ---------- ------- ----------- ------------ -------- ------------ ------------ ------------ --------
2002 1,400,000 - - (1,400,000) - - 31.01.2002 31.01.2019 50.0p
2004 240,000 - - (240,000) - - 03.12.2004 03.12.2019 151.1p
2005 40,000 - - (40,000) - - 08.12.2005 08.12.2018 265.1p
2008 250,000 - - (250,000) - - 11.02.2008 11.02.2018 100.0p
2008 260,000 - - (260,000) - - 11.12.2008 11.12.2018 70.0p
2011 - - - - - - 06.10.2011 06.10.2021 83.0p
2012 50,000 - (50,000) - - - 13.07.2012 13.07.2022 100.0p
2013 60,000 - - (60,000) - - 01.10.2013 01.10.2023 100.0p
2014 50,000 - - (50,000) - - 01.04.2014 01.04.2024 100.0p
2017 1,110,000 - (250,000) (860,000) - - 31.03.2017 31.03.2027 50.0p
2017 25,000 - (25,000) - - - 26.10.2017 26.10.2027 50.0p
Total 3,485,000 - (325,000) (3,160,000) - -
-------- ---------- ------- ----------- ------------ -------- ------------ ------------ ------------ --------
Number
exercisable Price
Year Number Issued Forfeited/ Number at year Start per
of grant of shares in year lapsed of shares end date End date share
----------- ----------- ---------- ------------ ----------- ------------- ------------ ------------ --------
2002 2,415,196 - (1,015,196) 1,400,000 1,400,000 31.01.2002 31.01.2019 50.0p
2004 450,000 - (210,000) 240,000 240,000 03.12.2004 03.12.2019 151.1p
2005 40,000 - - 40,000 40,000 08.12.2005 08.12.2018 265.1p
2008 300,000 - (50,000) 250,000 250,000 11.02.2008 11.02.2018 100.0p
2008 500,000 - (240,000) 260,000 260,000 11.12.2008 11.12.2018 70.0p
2011 125,000 - (125,000) - - 06.10.2011 06.10.2021 83.0p
2012 50,000 - - 50,000 50,000 13.07.2012 13.07.2022 100.0p
2013 63,334 - (3,334) 60,000 60,000 01.10.2013 01.10.2023 100.0p
2014 50,000 - - 50,000 50,000 01.04.2014 01.04.2024 100.0p
2017 - 1,560,000 (450,000) 1,110,000 - 31.03.2017 31.03.2027 50.0p
2017 - 25,000 - 25,000 - 26.10.2017 26.10.2027 50.0p
Total 3,993,530 1,585,000 (2,093,530) 3,485,000 2,350,000
----------- ----------- ---------- ------------ ----------- ------------- ------------ ------------ --------
The initial fair values of awards granted under the Group's
equity option plan have been calculated using the Black-Scholes
option pricing model that takes into account factors specific to
share incentive plans such as the vesting periods, estimated share
price volatility, the expected dividend yield on the Company's
shares and expected exercise of share options. The following
principal assumptions were used in the valuation:
Risk-free
Share
price Fair
at investment Employee value
Grant date Exercise Option Dividend
date of grant price Volatility life yield rate turnover of options
-------- ---------- --------- ----------- ----------- --------- ----------- ---------- -----------
3 Dec
2004 151.1p 151.1p 36.73% 5 Dec 2019 0% 4.65% 3.7 years 51p
8 Dec
2005 265.1p 265.1p 33.02% 8 Dec 2018 0% 4.23% 3.3 years 76p
11 Feb 11 Feb
2008 82.4p 100.0p 53.14% 2018 0% 4.49% 4.2 years 47p
11 Dec 11 Dec
2008 67.5p 70.0p 55.63% 2018 0% 4.49% 3.8 years 32p
6 Oct
2011 87.0p 83.0p 49.57% 6 Oct 2021 0% 1.58% 5.0 years 23p
13 Jul 13 Jul
2012 76.0p 100.0p 49.57% 2022 0% 0.75% 3.0 years 19p
1 Oct
2013 98.5p 100.0p 49.57% 1 Oct 2023 0% 1.53% 3.0 years 34p
1 Apr
2014 72.5p 100.0p 49.57% 1 Apr 2024 0% 1.99% 3.0 years 18p
31 Mar 31 Mar
2017 14.0p 0.50p 55.00% 2027 0% 1.16% 7.4 years 4p
26 Oct 26 Oct
2017 9.8p 0.50p 55.00% 2027 0% 1.38% 7.4 years 2p
-------- ---------- --------- ----------- ----------- --------- ----------- ---------- -----------
Expense arising from share-based payments
The expense arising from equity-settled share options made to
employees was $185 thousand for the period, of which $173 thousand
was related to the cancellation payment for the plan termination,
of which $16 thousand is related to the accelerated vesting of the
shares granted in 2017. In addition, expense arising from equity
settled share options based on the initial fair values of the
awards granted and expected employee turnover was $12 thousand
(2017: $14 thousand).
19. Related party disclosures
HKN, Everest, and its parties in concert are major shareholders
of the Company. During 2017, the Group completed the acquisition of
offshore service vessel-owning companies through two separate
transactions from Everest and other related parties (see note 2).
As part of the transactions, the Group amended its outstanding Note
Receivable with Everest (see note 13).
In addition, during the year ended 31 December 2017, the Group
purchased an automobile for $35 thousand and $8 thousand in
furniture and computer equipment from HKN. No payments were made
for assets during 2018.
The Group entered into agreements with Oil and Advisors LTD, in
which Zac Phillips, a non-executive director, performed independent
consulting services. The Group paid $15 thousand and $17 thousand
for contract services during the years ended 31 December 2018 and
2017, respectively.
In December 2018, the Group entered into an agreement with Mr.
Faulkner, to perform advisory services effective 1 January 2019
through 30 June 2019. This agreement may be terminated by either
party with 30 days' notice. The total fees to be paid over the term
of this agreement, if not early terminated, amount to $60 thousand.
No payments were paid or payable under this agreement as at 31
December 2018.
20. Post reporting date events
After the reporting date, the Group received voluntary
conversion notices from noteholders. In January 2019, McLarty
Capital Partners, converted all of their Series A Loan Notes with a
nominal value of $7.64 million. As a result of the conversion, the
Group made payments for the settlement of accrued interest payable
of $1.1 million and issued 12,524,590 new ordinary shares at 1p
each. In February 2019, Aeterna Capital Fund II, LLC, converted all
their Series A Loan Notes transferred from Caleura Limited with a
nominal value of $2.36 million. As a result of the conversion, the
Group made payments for the settlement of accrued interest payable
of $366 thousand and issued 3,868,852 new ordinary shares at 1p
each.
In addition, the Group closed on sales of certain offshore
equipment and inventory for proceeds of $506 thousand after the
reporting date. These disposals resulted in a gain on disposal of
assets of $91 thousand.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SSLESIFUSEED
(END) Dow Jones Newswires
March 06, 2019 02:01 ET (07:01 GMT)
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