TIDMSCIR
RNS Number : 9166Q
Scirocco Energy PLC
30 June 2022
30 June 2022
Scirocco Energy plc
("Scirocco Energy" or "the Company")
Full-Year Results 2021
Scirocco Energy (AIM: SCIR), the AIM investing company targeting
attractive assets within the European sustainable energy and
circular economy markets, is pleased to announce its audited annual
results for the period ended 31 December 2021.
The Annual Report & Accounts will be posted to the Company's
website later today, and physically to Shareholders, where
appropriate. The Company will shortly be posting its Notice of AGM
and a further announcement will be made in this regard as and when
appropriate.
Period and Post-Period Highlights
-- During 2021 the Group developed and progressed its strategy
to invest in sustainable energy assets
-- In June 2021, the Group announced a joint venture investment
in EAG to support the acquisition of a portfolio of Anaerobic
Digestion ("AD") plants in Northern Ireland and the rest of the
UK.
-- In July obtained shareholder approval for the adoption of the new investment policy
-- In September, supported EAG's first acquisition - of 100% of
shares of Greenan Generation Limited ("GGL")
o Since completion the asset has performed very well exceeding
EBITDA forecasts.
-- In Q1, sold significant part of its holding of Helium One plc
("HE1") realising GBP3.4m and leaving the Group's holding in HE1 as
less than 1%.
-- On 13 June 2022 (post period) the Group announced that it had
entered into a conditional binding agreement with Wentworth
Resources plc (AIM: WEN) to divest its 25% non-operated interest in
the Ruvuma asset, Tanzania, for a total consideration of up to
US$16 million
-- Proposed Transaction was approved by way of an ordinary
resolution at a General Meeting on 29th June 2022
Commenting on the Results, Alastair Ferguson, Non-Executive
Chairman, said:
"The Group has made significant steps through the course of 2021
and into the first half of 2022 to re-position itself as a
renewables business focused on delivering green energy solutions
alongside generating revenue and returns for our shareholders.
With the establishment of the Joint Venture with EAG, the Group
has demonstrated the ability to work with a management team to
construct a business with attractive growth prospects and follow on
investment opportunities. This is our template which as we move
forward will be used in other renewable energy assets.
With the sale of Ruvuma moving ahead following the vote in
favour at the General Meeting on 29th June 2022, the Group's
resources are now released to fund follow-on and new investments in
the target space and elements of the consideration will provide
additional investing firepower as they arrive."
For further information:
Scirocco Energy plc
Tom Reynolds, CEO +44 (0) 20 7466
Doug Rycroft, COO 5000
Strand Hanson Limited, Nominated Adviser +44 (0) 20 7409
James Spinney / Ritchie Balmer / Rory Murphy 3494
WH Ireland Limited, Broker +44 (0) 0207
Harry Ansell / Katy Mitchell 220 1666
Buchanan, Financial PR +44 (0) 20 7466
Ben Romney / Jon Krinks 5000
The information contained within this announcement is considered
to be inside information prior to its release, as defined in
Article 7 of the Market Abuse Regulation No. 596/2014, and is
disclosed in accordance with the Company's obligations under
Article 17 of those Regulations.
Chairman's Statement
On behalf of the Board of Directors, I hereby present the
financial statements of Scirocco Energy plc (the "Company") and its
subsidiaries (the "Group") for the year ended 31 December 2021.
2021 was a year of transition for the Group as we looked to
accelerate our strategic pivot into the renewable energy and
climate technology sector. 2021, like 2020 before, remained a
challenging year for all companies in the energy sector regardless
of size primarily due to the global pandemic. I am confident that
the Group has made the correct decision in pursuing a strategy that
looks to capitalise on the macro-environmental factors driving at
the heart of investment in the "new world order" of greener energy
solutions. In my capacity as Non-Executive Chairman of the Group, I
am pleased to provide a review of the financial year for 2021, as
well as the outlook for 2022. I would also like to take this
opportunity to thank shareholders for their patience as we
implement a refreshed strategy in a difficult environment.
Strategy and Portfolio
During 2021 the Group developed and progressed its strategy to
invest in sustainable energy assets through a number of workstreams
including a review of opportunities which meet the core target
areas, obtaining shareholder approval for the adoption of the new
investment policy and executing its first investment in a
sustainable energy platform company - Energy Acquisitions Group
Limited ("EAG").
Tanzanian Legacy Assets - Ruvuma Disposal
In line with this strategy and previous guidance to the market
the Group continued the sales process for legacy assets in Tanzania
which was launched in 2020. Engagement took place throughout 2021
with various interested parties although no transaction was agreed
within the period.
On 13 June 2022 (post period) the Group announced that it had
entered into a conditional binding agreement with Wentworth
Resources plc (AIM: WEN) to divest its 25% non-operated interest in
the Ruvuma asset, Tanzania, for a total consideration of up to
US$16 million comprised of.
-- Initial consideration of US$3 million payable on completion of the Proposed Transaction;
-- US$3 million payable upon final investment decision being
taken by the parties to the Ruvuma Asset Production Sharing
Agreement or the JOA as the case may be;
-- Deferred consideration of up to US$8 million payable in the
form of a 25% net revenue share from the point when Ruvuma
commences delivery of gas to the gas buyer;
-- Contingent consideration of US$2 million payable on gross
production reaching a level equal to or greater than 50Bcf.
In addition Wentworth will provide Scirocco with a loan of up to
$6,250,000 to meet all cash calls pursuant to the Ruvuma JOA
arising between 1 January 2022 and expected Completion date.
The first $3m to be drawn under the loan is interest free
however any amounts drawn in excess of $3m will incur interest at a
rate of 7% per annum until such time as the grant of the security
in respect of the loan is approved by the Minister for Energy in
Tanzania.
The total consideration represents over a significant premium to
Scirocco's prevailing market capitalisation and the deal
strengthens Scirocco's balance sheet and, critically, removes the
imminent need to raise capital to fund the Ruvuma work
programme.
Pursuant to Rule 15 of the AIM Rules for Companies, the Proposed
Transaction was presented for shareholder approval by way of an
ordinary resolution at a General Meeting scheduled for 29th June
2022, The resolution was approved by 63.44% of shareholders
voting.
The Group began 2021 with a developing strategy to invest in
sustainable energy assets.
As part of this development in the strategy, Scirocco announced
the appointment of Mr Muir Miller to the Board on 18 March 2021.
Muir brings a wealth of skills and experience in the low carbon
sector and has taken an active role in the review of new
opportunities in the transition energy space as well as joining the
board of EAG to assist in the stewardship of this important
asset.
During 2021 the Group sold a significant part of its holding of
Helium One plc ("HE1") taking advantage of an attractive valuation
offered in Q1. Scirocco realised GBP3,406,805 from the sale of
17,841,300 HE1 shares in 2021 leaving the Group's holding in HE1 as
less than 1%. This capital allowed the Group to make its first
investment under the new strategy as well as funding the ongoing
development plan in Ruvuma.
In June 2021, the Group announced a joint venture investment in
EAG to support the acquisition of a portfolio of Anaerobic
Digestion ("AD") plants in Northern Ireland and the rest of the UK.
This investment remained contingent on a revised shareholder
mandate for investment policy.
In July 2021, the Group presented the following new investment
policy to shareholders at the Annual General Meeting.
Scirocco's investing policy is to acquire a diverse portfolio of
direct and indirect interests in sustainable energy and circular
economy assets within the European energy market. The Board is
seeking to invest in opportunities which meet the following
criteria:
-- cash generative, with the potential to re-invest operational cash flow in further growth;
-- situated within the European energy space;
-- acquisition targets within the low-carbon space, including
renewable energy, circular economy and energy storage and transfer
sectors;
-- assets which can attract the necessary investment capital,
taking appropriate account of growing investor sentiment towards
ESG and SRI indicators; and
-- assets which deliver stable returns, with lower exposure to global commodity prices.
The investment policy was approved with a supportive vote of
99.6% of those voting.
Scirocco then supported EAG's first acquisition - of 100% of
shares of Greenan Generation Limited ("GGL") - which was completed
in September 2021 and was funded from the proceeds of sale of HE1
shares. Since completion the asset has performed very well
exceeding EBITDA forecasts.
In December 2021, the Group announced the agreement of an
exclusivity and supply arrangement with SEM Energy Limited to
access technology which will allow the processing of digestate
material from Anaerobic Digestion ('AD') plants into organic
fertiliser. This provides EAG a significant lever to add value to
each of the AD plants it acquires as well as to third party AD
plants through the installation of merchant digestate management
equipment.
Outlook
Scirocco is now well placed to capitalise on the broad range of
investment opportunities within the sustainable energy and circular
economy sectors.
With the establishment of the Joint Venture with EAG, the Group
has demonstrated the ability to work with a management team to
construct a business with attractive growth prospects and follow on
investment opportunities. This is our template which as we move
forward will be used in other renewable energy assets.
With the sale of Ruvuma moving ahead following the vote in
favour at the General Meeting on 29 June 2022, the Group's
resources are now released to fund follow-on and new investments in
the target space and elements of the consideration will provide
additional investing firepower as they arrive.
With respect to the Ruvuma interest, the Board expects to
support Wentworth in its effort to deliver a prompt completion of
the transfer of ownership which will deliver the first of a series
of payments under the APA.
This now clears the way for the Group to aggressively pursue
incremental investment opportunities by supporting EAG as well as
other platform companies.
EAG has now signed up a further three investment sites and has
the potential to grow rapidly in 2022 and 2023.
The Group has screened a number of additional investment
opportunities through 2021 and 1H 2022 and expects to pursue
them.
Recognising that growth will require funding, the Board has been
investigating sources of parallel investment which would reduce the
call on Scirocco's balance sheet in the short term by bringing in
third party capital alongside Scirocco balance sheet cash.
Section 172 (1) Statement
The Group was admitted to the AIM Market of the London Stock
Exchange on 12 April 2007 and has been a public company from this
date. The Group is required to provide a Section 172(1) statement
under the terms of its AIM listing. This disclosure aims to
describe how the Directors have acted to promote the success of the
company for the benefit of its members as a whole, taking into
account (amongst other matters) the matters set out in section
172(1)(a) to (f) of the Companies Act which are set out below.
(a) the likely consequences of any decision in the long term
As discussed above, the decision to propose and adopt the new
investment policy - approved and adopted by shareholder vote at the
AGM in July 2021 - and the decision to sell the Ruvuma asset to
Wentworth Resources plc have been taken with the long term future
of the company in mind. In taking these decisions the Board has
taken account of the relative risk involved in each of the relevant
investments and chosen a sustainable course of action which allows
the company to be developed in a more predictable manner by
targeting investment assets with significantly lower levels of
uncertainty and which deliver cash flow in the short term which is
then available to be reinvested. The Group has not made any other
decisions which will likely affect the company in the long term in
the current financial year.
(b) the interests of the company's employees
Aside from the Directors, the Group has one employee and the
decisions to promote the success of the company for the benefit of
its members as a whole as described above are entirely consistent
with the interests of the company's employee.
(c) the need to foster the company's business relationships with
suppliers, customers and others
Aside from a small number of service providers, the success of
the Group's investment strategy will be driven in part by the
business relationships that exist between the Directors and the
management of the Group's investee companies and as such the
maintenance of such relationships is given a very high priority by
the Directors.
(d) the impact of the company's operations on the community and
the environment
During the current investment phase the Group has no operations.
The Directors are nevertheless cognisant of the potential impact of
future investments on affected communities and the environment and
such factors will continue to be considered as part of investment
appraisal and decision making.
(e) the desirability of the company maintaining a reputation for
high standards of business conduct
The Group's standing and reputation with other energy companies,
equity investors, providers of debt, advisers and the relevant
authorities are key in the Company achieving its investment
objectives and the Group's ethics and behaviour, as summarised in
the Group's Business Principle and Ethics, will continue to be
central to the conduct of the Directors. The Group is advised by
blue-chip experienced advisers which also assist in maintaining
high standards of conduct.
(f) the need to act fairly as between members of the company
The Directors will continue to act fairly between the members of
the Group as required under the Companies Act, the AIM Rules and
QCA corporate governance principles.
Conclusion
The Group has made significant steps through the course of 2021
and into the first half of 2022 to re-position itself as renewables
business focused on delivering green energy solutions alongside
generating revenue and returns for our shareholders. It feels like
there has been a generational shift in thinking which is going to
lead to significant changes and opportunities in the transition of
the energy sector. The companies that recognize this and move
quickly to transform will be the beneficiaries, and the Board feels
that the Group is already well down this path and hopes to pay a
leading role in the public markets for investment in greener energy
solutions. I was delighted that we were able to complete our first
deal in the transition energy space and in doing so create a
platform for future investment in the anaerobic digestion sector
and associated technologies, a market segment ripe for
consolidation.
The Board is excited and fully engaged in the transformation to
the transition energy space.
We see significant opportunities for value creation for a Group
with the right strategy, the right partners and focused on the
right opportunities. We remain convinced that the future lies in
the low carbon sector. We have been laying the building blocks to
ensure we can be a part of this future, and believe that 2022 will
be the year when our hard work behind the scenes results in value
accretive transactions for the benefit of the Group and its
shareholders.
Once again I would like to thank the Board and the Executive
Team for their dedication and commitment and thank our shareholders
for their patience and understanding.
Alastair Ferguson
Non-Executive Chairman
Date: .....................
Strategic Report
Energy Acquisitions Group Limited
In June 2021, Scirocco Energy announced its first transaction in
the European transition energy market in line with the Group's new
growth strategy. The Group made an investment into Energy
Acquisitions Group Ltd ("EAG"), a specialist acquisition and
operating vehicle in the sustainable energy sector, and in which
Scirocco holds a 50% interest.
This initial investment was be used by EAG to acquire 100% of
Greenan Generation Limited ("GGL") and associated 0.5 MWe Anaerobic
Digestion plant located in County Londonderry, Northern Ireland.
GGL is a cash generative, operational AD plant which the EAG team
will focus on optimizing to enhance EBITDA margins and free cash
flow from the project.
Anaerobic digestion is a process that creates biogas, a
renewable energy source that will help the UK deliver on its
decarbonisation commitments.
The investment into EAG was funded by cash on the balance sheet
and the EAG team has identified further opportunities to invest in
a pipeline of AD plants in the UK totalling c. GBP30 million in
value.
The investment positives supporting the investment in the EAG
platform are as follows:
-- Low carbon sustainable energy. The carbon intensity of
sources of energy is under critical review. As a result of the
ability to generate natural gas from agricultural waste, the carbon
footprint of the biogas is therefore lower.
-- Index linked revenue streams. The assets targeted by EAG
benefit from government subsidised revenue streams which are
escalated on an annual basis in line with inflation. For example,
at GGL, the NIROC credits representing c. 60% of revenue are
government backed and index linked.
In December 2021 the Company announced that its subsidiary,
Scirocco Energy (UK) Limited ('SEUK') signed an exclusivity
agreement with leading sustainability technology provider, SEM
Energy Limited. The exclusivity accrues to SEUK, its affiliates and
its investee company EAG.
SEM is a developer of technologies within the circular economy
sector. It is anticipated that SEM will provide EAG with digestate
management and nutrient recovery technology, known as the H2OPE
System.
The system processes digestate, a by-product of the biogas
process, into nutrient dense, high-quality fertiliser,
nutritionally balanced growth media and a sustainable peat
substitute which can be used within a range of growing
environments. It also produces re-usable water, and significantly
reduces CO2 emissions compared to traditional practices.
Key terms of the agreement:
-- SEM will exclusively supply to SEUK, its Affiliates, EAG (the
"Scirocco Parties"), the H2OPE System for the application to
digestate generated from AD plants within the UK and Ireland;
-- The exclusive period runs until end June 2023, unless
extended by the parties in accordance with the agreement;
-- SEUK will use reasonable endeavours to purchase or procure
that the Scirocco Parties purchase a minimum of five units of the
H2OPE System within the exclusivity period;
-- If Scirocco Parties do not meet certain order requirements
during the exclusivity period, the exclusivity may fall away, but
Scirocco Parties are still able to order units of the H2OPE System
from SEM during the term on a non-exclusive basis.
EAG intends to apply the technology to its operating plant at
Greenan, as well as working with owners of other operational AD
plants to assess the potential benefits of funding the installation
of a 'bolt-on' nutrient recovery system on a merchant basis.The
addition of the H2OPE System technology to existing AD plants has
the potential to deliver an additional revenue stream through the
creation of high value co-product, depending on the level of
refinement required for a specific market sector while
simultaneously reducing the carbon intensity of the process.
Financial performance
In Q1 2022 the revenue received for the quarter by Greenan
totalled GBP323k (unaudited) supported by high power prices through
the period. This compares to the same period in 2021 where revenue
was GBP240k (unaudited) - a 34.5% year on year increase. EBITDA for
Q1 2022 was GBP158k and at current power prices, EBITDA for the
first 12 months of EAG's ownership of GGL is on target to exceed
GBP600k.
Operational
During Q1 2022, in order to future proof the plant at its
Greenan site, the EAG team completed the replacement and
recommissioning of a number of elements of critical equipment, at a
total cost of c. GBP230k funded from operational cash flow:
-- all mixers in the premix tank
-- all primary digester mixers, and refurbishment of all mixer
infrastructure including winches, winch motors and guide rails
-- Full Edina CHP (Combined Heat & Power) engine block change, and completing major service
-- Upgrade and replacement of augers and pumps in feed and
recirculation system including installation of automatic
recirculation system
Tanzania
Scirocco continues to hold two licence interests in natural gas
in Tanzania.
A. Ruvuma PSA
ARA Petroleum Tanzania Limited ("APT") 50% *
Aminex plc ("AEX") 25%
Scirocco Energy plc 25%
* APT became operator in October 2020 following the completion
of its farm-in to the AEX working interest
In 2021 Scirocco held a 25% working interest in the Ruvuma
Petroleum Sharing Agreement ("Ruvuma PSA") in the south-east of
Tanzania covering an area of 3,447 square kilometres of which
approximately 90% lies onshore and the balance offshore. The Ruvuma
PSA is in a region of southern Tanzania where very substantial gas
discoveries have been made offshore in recent years and where gas
has also been discovered onshore and along the coastal islands at
Ntorya, Mnazi Bay, Kiliwani North and Songo-Songo.
As a result of a review of the strategic options available to
the Group the Tanzanian assets were identified as held for sale
during 2020 and a sale process was launched.
On 13 June 2022 the Group announced that it has entered into a
conditional binding agreement with Wentworth Resources plc (AIM:
WEN) to divest its 25% non-operated interest in the Ruvuma asset,
Tanzania, for a total consideration of up to US$16 million
comprised of.
-- Initial consideration of US$3 million payable on completion of the Proposed Transaction;
-- US$3 million payable upon final investment decision being
taken by the parties to the Ruvuma Asset Production Sharing
Agreement or the JOA as the case may be;
-- Deferred consideration of up to US$8 million payable in the
form of a 25% net revenue share from the point when Ruvuma
commences delivery of gas to the gas buyer;
-- Contingent consideration of US$2 million payable on gross
production reaching a level equal to or greater than 50Bcf.
In addition Wentworth will provide Scirocco with a loan of up to
$6,250,000 to meet all cash calls pursuant to the Ruvuma JOA
arising between the Economic Date of 1 January 2022 and expected
Completion timeline.
The first US$3 million to be drawn under the loan is interest
free however any amounts drawn in excess of US$3 million will incur
interest at a rate of 7% per annum until such time as the grant of
the security in respect of the loan is approved by the Minister for
Energy in Tanzania.
Background to the Proposed Transaction
In March 2020 the Group announced its intention to sell its 25%
interest in the Ruvuma PSA, onshore Tanzania. As a further
development of this initiative, in November 2020 the Group outlined
a strategic pivot to invest in sustainable energy assets. In the
Board's view, the main drivers for the pivot were the
following:
-- access to capital for small cap E&P investment was facing
numerous challenges due to a significant shift of investor
sentiment away from the sector;
-- availability of investable assets. With the increasing
momentum to decarbonize the energy sector the Board expected to be
able to identify a strong supply of investable opportunities in
that space;
-- ability to build cashflow. The nature of assets being
targeted would allow the Group to build immediate cashflow which
would then be available for re-investment in further growth;
and
-- manageable investment scale. The type of investments being
targeted are expected to support capital investments at smaller
scale allowing the Group to grow its asset base in smaller
incremental steps with a lower average capital expenditure
requirement per investment.
If the Proposed Transaction completes, Scirocco will no longer
be exposed to the costs (or the potential upside) associated with
the Ruvuma Asset and will be free to pursue its Investing Policy
approved in July 2021, with a view to building a portfolio of
sustainable energy assets. An update on the Group's recent
activities and the Board's intentions in respect of the Investing
Policy are set out at the end of this section.
The Proposed Transaction will involve the disposal of the
Group's entire interest in the Ruvuma Asset for an initial
consideration of US$3 million in cash payable upon completion of
the Proposed Transaction, plus deferred consideration of up to
US$13 million in aggregate, payment of which is contingent upon
fulfilment of certain conditions and milestones set out in the
Asset Purchase Agreement (and as detailed below).
In addition to entering into the Asset Purchase Agreement, the
Group and Wentworth have entered into the Facility Agreement under
which Wentworth has agreed, subject to the satisfaction of certain
conditions, to provide loan funding to the Group to allow it to
meet its cash call obligations pursuant to the Ruvuma JOA prior to
completion of the Proposed Transaction.
Reasons for the Proposed Transaction
Throughout the course of 2021 and in early 2022, the Group
conducted an extensive asset marketing process with a view to
divesting its Tanzanian assets in line with its strategy re-fresh
in 2020 and in furtherance of its Investing Policy.
The Group and the Directors are of the view that early-stage
hydrocarbon assets remain a challenging investment space for
micro-cap companies that ultimately lack the balance sheet strength
or the depth of portfolio to absorb the range of potential outcomes
for such assets. Additionally, the ability for micro-cap companies
to access capital in the oil and gas sector has been significantly
impaired in the last few years. These dynamics have primarily been
driven by:
-- overall lack of returns in the sector for investors, driven
by persistently low oil prices for a number of years until the
recent increases witnessed; and
-- an exodus of capital from the oil and gas sector in light of
the ongoing pressure to decarbonize the global energy sector.
Against that backdrop, the Directors announced in 2021 that they
intended to deliver on a new investment strategy focused on
sustainable energy assets and the circular economy, which
culminated in the adoption by the Group of the Investing Policy.
The primary objective of this strategy is to create a business
capable of delivering a return premium for its shareholders while
not exposing them to the bifurcated outcomes of success and failure
that are often associated with the oil and gas sector (and, in
particular, early-stage assets such as the Ruvuma Asset).
The Directors believe that the Proposed Transaction will be
beneficial in the following respects:
-- if the maximum potential consideration is received, the
Proposed Transaction will be a highly-accretive deal for Scirocco,
representing a premium of over 200% against Scirocco's current
market cap (assuming a market cap of approximately GBP3.4
million);
-- the Proposed Transaction is firmly aligned with the Group's
strategy to divest its oil and gas assets and focus on
opportunities in the circular economy and sustainable energy
assets;
-- the terms of the Proposed Transaction are the result of
extensive negotiations with Wentworth and, before that, a two-year
sales process that exhausted all other reasonably viable
purchasers;
-- the Proposed Transaction strengthens Scirocco's balance sheet
and, critically, removes the imminent need to raise capital
equivalent to or potentially in excess of the current market cap to
fund the 2022 work programme for the Ruvuma Asset (the estimated
funding gap at present being equal to c. GBP3.5 million);
-- the contingent aspects of the Proposed Transaction provide
exposure to material upside potential in the event certain key
project milestones are achieved, while also reducing exposure to
the downside risks associated with the uncertain prospects of the
Ruvuma Asset;
-- Wentworth is a particularly suitable counterparty given its
existing relationships and presence in Tanzania, which should
reduce execution risk;
-- the Proposed Transaction is appropriately structured to
reflect the ongoing risk associated with the Ruvuma Asset, as well
as the challenges of operating in the current macro environment as
described above;
-- exiting the Ruvuma Asset will enable the Group to accelerate
its strategy of building a portfolio of cash generative assets
focused on renewables and the circular economy, as well as
streamlining its activities and strengthening its strategic
narrative to appeal to a broader range of potential investors;
-- the Proposed Transaction provides cash that can be deployed
to fund near-term non-dilutive growth for the Group; and
-- while the Ruvuma Asset represents a compelling project, it
has technical and commercial risk that is in the Directors' view
not suitable for a Group of Scirocco's size and strategic direction
as highlighted by the Board when proposed the new Investing Policy
in 2021.
License Extension
In August 2021, the Joint Venture formally received the
extension of the Mtwara Licence in respect to the Ntorya Location
from the Ministry of Energy of Tanzania. The extension is valid for
a two years. Under the terms of the extension the Joint Venture
must carry out the following work programme:
-- Acquired 200 square kilometres (surface coverage) of 3D
seismic (min. expenditure of US $7 million)
-- Drill the Chikumbi-1 exploration well (min. expenditure of US$15 million)
-- Complete the negotiation of the Gas Terms for the Ruvuma PSA
with the Tanzania Petroleum Development Corporation
2021 Operational Update
Despite challenges to operational progress in 2021, due in part
to the effect of COVID-19 on operations, the Board believes that
all projects made progress from a technical evaluation and planning
perspective.
The proposed gross 2021 work programme and budget for Ruvuma was
US$22.9 million which included seismic acquisition work and
drilling preparation. However due to delays in receiving the
approvals for the seismic contract award and the restriction in
international travel resulting from the COVID-19 pandemic the Joint
Venture was unable to make significant operational progress on the
asset during the period. Had the full work programme been executed
as budgeted Scirocco would have been expected to fund approximately
US$5.7 million.
During 2021, the operator, ARA Petroleum Tanzania Limited ("APT"
or the "Operator") completed the tendering work for the acquisition
of 454 km2 3D seismic and following approval of the contract award
by the Tanzanian authorities for the issue of the seismic
acquisition contract made the award in September 2021 to Africa
Geophysical Services Limited ("AGS").
The award followed an extensive tendering exercise conducted by
the Operator for the seismic programme during which the joint
venture was able to take advantage of favourable market conditions
securing a Lumpsum contract considerably below the joint venture's
expected budget for the activity.
The final contract consists of approximately 338 km(2) of 3D
seismic data focusing on the area of primary interest.
AGS commenced mobilization to location in late 2021 and continue
to progress with the data acquisition, weather permitting, and
focus on the proposed location for the Chikumbi-1 well ("CH-1") to
acquire as much data as possible before the start of the rainy
season with the programme re-commencing after that with no
additional cost to the JV partners.
The Chikumbi-1 exploration and appraisal well is now expected to
spud in the fourth quarter of 2022. Assuming a successful outcome
from the drilling of the Chikumbi-1 well, first gas from the
project is anticipated to be delivered by the end of 2024. The work
programme scheduling is in line with the Group's expected funding
commitments towards it.
APT has also re-interpreted the existing 2D seismic dataset and
considers the Ntorya gas reservoir to be the product of a stacked,
high-energy, channelised sand system. The Operator's revised
mapping and internal management estimates suggest a mean risked gas
in place ("GIIP") for the Ntorya accumulation of 3,024 Bcf in
multiple lobes and a mean risked recoverable gas resource of 1,990
Bcf which will be appraised by the planned seismic and drilling
programme.
Technical Overview
During 2018 the Joint Venture conducted technical work with the
support of RPS Energy Consultants Limited, on the resource
estimates, and by IO Consulting, on the development engineering and
economics, leading to the upgraded resource estimates included in
Table 1. The independent studies now estimate gross 2C contingent
resources of 763 bcf, of which 191 bcf are net to Scirocco's
working interest, equivalent to approximately 31.8 mmbbls oil
equivalent.
Resource summary - Ntorya Field
Gross Licence Basis (bcf)
Licence 1C 2C 3C Gross Mean unrestricted GIIP
Mtwara Development pending 26 81 213
Mtwara Development unclarified 324 682 950 1870
763
Resource summary excluding Ntorya Field
Prospective Resources (bcf)*
Gross on Licence
Prospect/Lead 1U 2U 3U Mean unrisked Pg %
Chikumbi Jurassic 399 936 1,798 1,351** 8***
* Assuming development licence is ratified
** P50
*** RPS assessment of PG
B. Kiliwani North Development Licence ("KNDL")
Scirocco holds a 8.3918% working interest in the Kiliwani North
Development Licence. This interest was finalised following the exit
of Bounty Oil and Gas NL from the Joint Venture. TPDC has a back-in
right to take up an interest in the KNDL which would reduce
Scirocco's interest to 7.975%. To date TPDC has not taken up that
right.
2021 Operational Update
As a result of reservoir pressure decline and
compartmentalisation, the Kiliwani North-1 well has not produced
during the period.
The well has produced approximately 6.4 bcf of gas to date from
a compartment estimated to contain approximately 10 BCF. Estimated
gas resources have been independently audited by RPS Energy, who
show the Kiliwani North structure to contain approximately 31 bcf
(gross mean GIIP).
The Joint Venture has been exploring various options to
reinstate production from the well. The Operator has prepared, and
is awaiting approval for, a remedial work programme intended to
establish fluid levels in the well bore, measure reservoir pressure
and to unload fluid using foam treatment technology.
Aminex (the operator) undertook preliminary remedial work to
repair the downhole safety valve in late 2018. This resulted in the
flow of a small volume of gas to the gas facility before the well
quickly ceased flow, likely due to fluid build-up in the wellbore.
Aminex has prepared a perforation strategy for a lower zone within
the reservoir and an alternative remedial work programme intended
to establish fluid levels in the wellbore, reservoir pressure and
to unload potential fluid using foam treatment. The operator is
working with the TPDC on agreed methods to handle wellbore fluids
which will potentially be unloaded during operations on the well.
Agreement and planning will be required prior to starting
operations.
If successful, this operation is expected to re-establish gas
production from the well. The Joint Venture has been waiting on
final approvals for a significant period of time and whilst the
Joint Venture is confident that the unloading and perforation
operations can be carried out, there is no firm timeline on when
the approvals will be granted which would allow the operation to
commence. The Joint Venture estimates that once approvals are in
place the work could be carried out within a 3 - 6 month time
period subject to travel restrictions associated with the ongoing
COVID-19 pandemic being lifted.
A resource report by LR Senergy, completed in May 2015,
attributed approximately 28 bcf gross best estimate contingent
resource to the Kiliwani North field. These estimates were
revisited by RPS in 2018 following production over an 18-month
period totalling approximately 6.4 bcf. This resulted in a new
Pmean GIIP of 30.8 bcf and a remaining gross 2P reserve of 1.94
bcf. It is felt that with further intervention additional gas can
be recovered from the KN-1 well.
In October 2021, the Operator announced that on behalf of the
Joint Venture, reached an agreement with the Tanzania Petroleum
Development Corporation ("TPDC") for the payment of outstanding
monies owed for past gas sales to the TPDC.
The agreed settlement followed constructive negotiations over
the course of 2021 between Aminex and the TPDC.
The settlement between the parties involves netting off past gas
sales of US$6.77 million due to the Kiliwani North Joint Venture
("KNJV"), of which Scirocco Energy holds an 8.39% working interest,
against licence and training fees and the profit share on the
unpaid gas sales owed to TPDC.
As at 30 June 2021, and as previously reported, the KNJV was
owed US$8.34 million by the TPDC. Of this amount, the KNJV has
agreed to waive its claim for interest of US$1.57 million under the
Kiliwani North Gas Sales Agreement ("GSA") on the unpaid gas sales
to settle the matter and secure payment by the TPDC.
Scirocco Energy shall receive US$0.15 million its share of the
gas sales net of remittance of indirect taxes and export
duties.
The well has not produced since the first quarter of 2018,
during which the Kiliwani North-1 ("KN-1") well produced
intermittently. The intermittent production was mainly as a result
of increased water production, natural reservoir depletion and a
relatively high inlet pressure at the Songo Songo Island Gas
Processing Plant ("SSIGPP").
The Joint Venture has identified the possibility of perforating
a lower and potentially gas saturated section of the reservoir.
Operator conducted analysis indicates the possibility of providing
up to 8 bcf of additional resource from KN-1. The Joint Venture
will continue to consider plans for 3D seismic acquisition over
Kiliwani North to support the identification of further drilling or
side-track opportunities which may be required to drain the
remainder of the structure.
Helium One
Scirocco was an early investor in and largest (pre-IPO)
shareholder of Helium One Limited ("Helium One") following an
original equity subscription in 2017 and participation within a
convertible loan note issuance in early 2019. Immediately prior to
the company's IPO in December 2020 Scirocco held a c. 12%
interest.
Helium One completed an IPO in early December 2020 when it
completed its admission to the AIM market of the London Stock
Exchange following the amalgamation with Attis Oil and Gas. The IPO
highlights included;
-- Successfully raised GBP6 million by way of an oversubscribed
placing of 211,267,597 ordinary shares with institutional and other
investors at a price of 2.84 pence per Ordinary Share
-- Large-scale, high-grade primary helium project with un-risked
prospective helium resource (2U/P50) of c. 138 bcf;
-- Management team with an extensive track record of
exploration, development and operations in Africa
-- Fully funded for exploration programme commencing in Q1/Q2
2021 consisting of infill seismic acquisition and three well
drilling programme targeting high priority Prospects over the Rukwa
Project
Immediately following the IPO, Scirocco held a 4.29% interest in
Helium One
Operational Update
Seismic campaign
In February 2021, Helium One announced that it had commenced the
150km infill seismic campaign with the objective of providing
improved resolution over identified drill targets.
Close spaced seismic data acquisition will be focussed in areas
of known prospectivity to assist in providing greater clarity on
the subsurface structures which Helium One believe have the highest
chances of successfully discovering Helium. The seismic campaign is
fully permitted and benefits from strong community and governmental
support.
Drilling campaign
The company executed its first drilling campaign in Q2 2021, the
highlight of which included:
-- Securing all necessary drilling permits to execute its
drilling campaign as planned
-- Safe drilling of the Tai-1 exploration well
-- Tai-1 well encountered elevated helium levels as connection gas
-- Tai-1A completed to a depth of 1121m with helium shows
identified in all three target formations
-- Helium shows encountered over five intervals in the Karoo Formation
-- A 130m thick claystone unit was encountered above the top
Karoo sands, indicating good seal presence for the Karoo
reservoir
-- Wireline logging of the uppermost Karoo indicates good
reservoir potential with 15-20% porosities.
-- Petrophysical analysis indicates no free gas in the uppermost
thinly bedded Karoo sands associated with helium shows
-- Helium shows within the deeper and thicker sandstone units of
the main Karoo reservoir were not able to be logged due to poor and
deteriorating hole conditions
-- Subsequently the Tai-2 exploration well was drilled -
although completed without identifying helium has, the well
provided valuable information on shallow trap and seal
potential.
Disposal
During 2021 Scirocco sold a substantial proportion of its
holding in Helium One in a series of tranches as announced on 18
May 2021 and on 27 July 2021. The Group also exercised 1 million
share options (with strike price US$0.035) that it held over Helium
One's share capital.
Following the above transactions, Scirocco's holding in Helium
One at 31 December 2021 was 4,456,088 ordinary shares, which
represents c. 0.85% of Helium One's currently issued share
capital.
In aggregate, Scirocco has realised c. GBP3.41 million in
proceeds from its sale of Helium One shares since Helium One was
admitted to trading on AIM.
Other investments - non-core
A. Ausable Reef gas assets located in Ontario, Canada (28.56% interest)
On 22 March 2019, Scirocco announced that as part of the
portfolio rationalisation, the Group had signed Heads of Terms
("HoT") with Levant Exploration and Production Corp. ("Levant") for
the divestment of Scirocco's 28.56% in the Ausable Reef gas assets
(the "Assets") to Levant.
In July 2020, the Group announced that it had entered into a
conditional asset purchase agreement ("Agreement") with Reef
Resources Limited ("Reef") and Levant for the sale of its 28.56%
interest in the Assets to Levant.
Unfortunately, Levant was unable to satisfy certain of the
conditions to completion contained in the Agreement and
consequently Reef and Scirocco elected to terminate the Agreement
in March 2021.
Following the termination of the Agreement, Scirocco entered
into a quit claim agreement with Reef on the 15 March 2021 pursuant
to which Scirocco has transferred, for nominal consideration, its
28.56% interest in the Assets to Reef and Reef has assumed the
associated liabilities, historic and future, in each case with
effect from 1 December 2020.
The Group fully impaired the value of its holding in the Assets
to zero in 2017 and incurred only nominal costs related to its
holding in the Assets in 2021 in the lead up to executing the quit
claim agreement with Reef.
Mr Tom Reynolds
Director
Glossary and Notes
2D seismic seismic data collected using the two dimensional common
depth point method
3D three-dimensional
AIM London Stock Exchange Alternative Investment Market
API American Petroleum Institute
barrel 45 US gallons
or bbl
bbls barrels of oil
bcf billion cubic feet
best estimate the most likely estimate of a parameter based on all available
or P50 data, also often termed the P50 (or the value of a probability
distribution of outcomes ta the 50% confidence level)
billion 10 to the power of 9
bopd barrels of oil per day
CNG condensed natural gas
contingent those quantities of petroleum estimated, at a given date,
resources to be potentially recoverable from known accumulations, but
the associated projects are not yet considered mature enough
for commercial development due to one or more contingencies
CPR Competent Persons Report
discovery a petroleum accumulation for which one or several exploratory
wells have been established through testing, sampling and/or
logging the existence of a significant quantity of potentially
moveable hydrocarbons
electric tools used within the wellbore to measure the rock and fluid
logs properties of the surrounding formations
GIIP gas initially in place
GSA gas sales agreement
HH-1 Horse Hill-1 well
HHDL Horse Hill Developments Limited
KN-1 Kiliwani North-1 well
KNDL Kiliwani North Development Licence
m thousand (ten to the power 3)
mm million (ten to the power 6)
mmbbls milion barrels of oil
mmscf million standard cubic feet of gas
mmscfd millon standard cubic feet of gas per day
OGA UK Oil and Gas Authority (formally the Department of Energy
and Climate Change
oil in stock tank oil initially in place, those quantities of oil
place or that are estimated to be known reservoirs prior to production
STOIIP commencing
pay reservoir in portion of a reservoir formation that contains
economically producible hydrocarbons. The overall interval
in which pay sections occur is the gross pay; the portion
of the gross pay that meets specific criteria such as minimum
porosity, perme
PEDL Petroleum Exploration and Development Licence
permeability the capability of a porous rock or sediment to permit the
flow of fluids through the pore space
petrophysics the study of the physical and chemical properties of rock
formations and their interactions with fluids
play a set of known or postulated oil or gas accumulations sharing
similar geologic properties
porosity the percentage of void space in a rock formation
prospective those quantities of petroleum which are estimated, at a
resources given date, to be potentially recovered from undiscovered
accumulations
proven those quantities of petroleum, which, by analysis of geoscience
reserves and engineering data, can be estimated with reasonable certainty
to be commercially recoverable (1P), from a given data forward,
from known reservoirs and under defined economic conditions,
probable those additional reserves which analysis of geoscience and
reserves engineering data indicate are less likely to be recovered
than Proven Reserves but more certain to be recovered than
Possible Reserves. It is equally likely that actual remaining
quantities recover
possible those additional reserves which analysis of geoscience and
reserves engineering data suggest are less likely to be recoverable
than Probable Reserves. The total quantities ultimately recovered
from the project have a low probability to exceed the sum
of Proved reserves
PSA petroleum sharing agreement
PRMS Petroleum Resources Management system
reserves those quantities of petroleum anticipated to be commercially
recovered by application of development projects to known
accumulations from a given date forward under defined conditions
reservoir a subsurface rock formation containing an individual natural
accumulation of moveable petroleum
SPE Society of Petroleum Engineers
tcf trillion cubic feet
trillion 10 to the power of 12
unconventional widely accepted to mean those hydrocarbon reservoirs that
reservoir are tight; that is have low permeability
The Directors are pleased to present this year's annual report together
with the financial statements for the year ended 31 December 2021.
A statement on Corporate Governance is set out on pages 21 to 34.
Principal Activities
The principal activity, in line with the investing policy approved
by shareholders in July 2021, is to acquire a diverse portfolio of
direct and indirect interests in attractive cash generative and development
assets within the European sustainable energy market. The Board is
seeking to invest in assets which meet the following criteria:
* cash generative, with the potential to re-invest
operational cash flow in further growth;
* situated within the broad energy space, a market
which the Board knows well;
* primary targets within one of three asset
classifications:
Energy. Assets which are involved in the direct production of low
carbon energy
Circular. Assets which recover valuable components from waste streams
Vector. Assets involved with the transmission, storage and delivery
of low carbon energy
* assets which can attract the necessary investment
capital, taking appropriate account of growing
investor sentiment towards ESG and SRI indicators;
and
* assets which deliver stable returns, with lower
exposure to global commodity prices.
The Group may invest by way of outright acquisition, including the
intellectual property, of a relevant business, partnerships or joint
venture arrangements, or by the acquisition of assets. Such investments,
for the most part, will be focused on the Group acquiring part of
a company or project (which in the case of an investment in a company
may be private or listed on a stock exchange, and which may be pre-revenue),
and such investments may constitute a minority stake in the company
or project in question. The Group's investments may take the form
of equity, joint venture debt, convertible instruments, licence rights,
or other financial instruments as the Directors deem appropriate.
Scirocco intends to be a long-term investor and the Directors will
place no minimum or maximum limit on the length of time that any
investment may be held.
There is no limit on the number of projects into which the Group
may invest, nor the proportion of the Group's gross assets that any
investment may represent at any time.
Business Review and Future Developments
A detailed review of the Group's business is set out in the Chairman's
statement incorporating the strategic report (pages 1-15).
Details of expected future developments for the Group are set out
in the Chairman's statement incorporating the strategic report (pages
1-15).
Results and Dividends
Loss on ordinary activities after taxation amounted to GBP3.691 million
(2020: GBP4.118 million). The Directors do not recommend payment
of a dividend (2020: nil).
Key Performance Indicators
Given the nature of the business and that the Group had adopted a
new investing policy and is in the early stages of developing new
operations, the directors are of the opinion that analysis using
KPIs is not appropriate for an understanding of the development,
performance or position of our businesses at this time. The Board
will review this position during 2023 and will look to introduce
a KPI indicators when the Group is in the position to do so.
Directors
The directors who held office during the year and up to the date
of signature of the financial statements were as follows:
Date of appointment Date of resignation
Executive Directors
Jonathan Fitzpatrick 2 May 2018 9 July 2021
Alastair Ferguson 6 August 2018 -
Thomas Reynolds 4 December 2018 -
Non-Executive Directors
Donald Nicolson 11 November 2019
Muir Miller 18 February 2021
Directors' Remuneration
The Company remunerates the Directors at a level commensurate with
the size of the Company and the experience of its Directors. The
Remuneration Committee has reviewed the Directors' remuneration and
believes it upholds the objectives of the Company with regard to
these issues. Details of the Director emoluments and payments made
for professional services rendered are set out in Note 7 to the financial
statements.
Directors' Interests
The Directors' interests in the share capital of the Company at 31
December 2021 were:
At 31 December 2021 At 31 December 2020
Director Shares Options Shares Options
Jonathan Fitzpatrick 26,203,189 * 22,608,067 26,203,189 * 18,461,483
Alastair Ferguson 24,325,395 27,778,237 24,325,395 16,323,575
Tom Reynolds 2,464,108 ** 18,843,342 2,464,108 ** 18,843,342
Donald Nicolson - 15,332,053 - 10,419,772
Muir Miller *** - 4,484,314 - -
* includes indirect interest of 916,624 shares held by Carolyn Fitzpatrick
** includes indirect interest of 286,738 shares held by Paula Reynolds
*** Mr Muir Miller joined the Board on 18 February 2021
No Director had, during the year or at the end of the year, other
than disclosed above, a material interest in any contract in relation
to the Group's activities except in respect of service agreements.
Gneiss Energy, which is wholly owned by Mr Fitzpatrick and his wife,
maintains a service contract for the provision of operational and
technical management services, guidance and support on public relations
and market engagement strategy, flexible work space and meeting rooms,
telephones, company secretary support and corporate finance advisory
services with the Company, the details of which are disclosed in
Note 22 to the financial statements.
Subject to the conditions set out in the Companies Act 2006, the
Company has arranged appropriate Directors' and Officers' insurance
to indemnify the Directors against liability in respect of proceedings
brought by third parties. Such provisions remain in force at the
date of this report.
Substantial Shareholdings
At 30 June 2022 the following had notified the Company of disclosable
interests in 3% or more of the nominal value of the Company's shares:
Shareholder Number of shares % of Issued
Capital
Interactive Investor Services Nominees
Limited 83,339,933 10.98%
Forest Nominees Limited 68,534,128 9.03%
Interactive Investor Services Nominees
Limited 48,053,575 6.33%
Hargreaves Lansdown (Nominees) Limited 45,758,207 6.03%
Barclays Direct Investing Nominees Limited 42,905,615 5.65%
HSDL Nominees Limited 37,327,678 4.92%
Hargreaves Lansdown (Nominees) Limited 34,626,161 4.56%
Hargreaves Lansdown (Nominees) Limited 33,728,233 4.45%
Securities Services Nominees Limited 24,598,242 3.24%
The Bank of New York (Nominees) Limited 24,525,123 3.23%
Pershing Nominees Limited 24,325,395 3.21%
HSBC Client Holdings Nominee (UK) Limited 24,111,619 3.18%
Environmental Responsibility
The Group is aware of the potential impact that its investee companies
may have on the environment. The Group ensures that it, and its investee
companies at a minimum comply with the local regulatory requirements
and the revised Equator Principles with regard to the environment.
Supplier Payment Policy
The Group's policy is to agree terms and conditions with suppliers
in advance; payment is then made in accordance with the agreement
provided the supplier has met the terms and conditions. Suppliers
are typically paid within 30 days of issue of invoice.
Employment Policies
The Group will be committed to promoting policies which ensure that
high calibre employees are attracted, retained and motivated, to
ensure the ongoing success for the business. Employees and those
who seek to work within the Group are treated equally regardless
of sex, marital status, creed, colour, race or ethnic origin.
Political Contributions and Charitable Donations
During the period the Group did not make any political contributions
or charitable donations.
Financial Instruments
See Note 21 to the financial statements.
Related Party Transactions
See Note 22 to the financial statements.
Post Reporting Date Events
At the date these financial statements were approved, being 30 June
2022, the Directors were not aware of any significant post balance
sheet events other than those set out in the notes to the financial
statements.
Annual General Meeting ("AGM")
This report and nancial statements will be presented to shareholders
for their approval at the AGM. The Notice of the AGM will be distributed
to shareholders together with the Annual Report.
Health and Safety
The Group's aim will always be to achieve and maintain the highest
standard of workplace safety. In order to achieve this objective
the Group sets demanding standards for workplace safety and will
provide comprehensive training and support to employees.
Auditor
PKF Littlejohn LLP were reappointed as auditors of the Group and
in accordance with Section 285 of the Companies Act 2006, a resolution
preposing they be reappointed will be proposed at the next Annual
General Meeting.
Going Concern
The Directors note the losses that the Group has made for the year
ended 31 December 2021. The Directors have prepared cash flow forecasts
for the period ending 30 June 2023 which take account of the current
cost and operational structure of the Group. The base case forecast
takes account of the sale of Ruvuma to Wentworth Resources plc and
the loan structure provided within that structure to cover cash calls
arising from the asset. With the Ruvuma cash calls covered following
the approval of shareholders at the general meeting on 29th June
2022, the remaining cost structure of the Group comprises a proportion
of discretionary spend and therefore in the event that cash flows
become constrained, costs can be reduced to enable the Group to operate
within its available funding. These forecasts demonstrate that the
Group has sufficient cash funds available, on the assumption that
further funds can be sourced as and when needed, to allow it to continue
in business for a period of at least twelve months from the date
of approval of these financial statements.
Accordingly, the financial statements have been prepared on a going
concern basis. Comments on going concern are included in the Operations
report and note 1. Although the Ruvuma asset has been sold, no guarantee
can be made that the sale completes. The critical assumption in the
going concern determination is that the Ruvuma PSA and the costs
associated with the development of the Ntoyra natural gas discovery
are met by the Group drawing against the loan provided by Wentworth
for its 25% interest. In the event the sale did not complete, it
is assumed that - if required - the Group would be able to access
additional funding. If additional funding was not available there
is a risk that commitments could not be fulfilled, and assets would
be relinquished.
Statement of Disclosure to the Auditor
In the case of each person who was a Director at the time this report
was approved:
* So far as that Director was aware there was no
relevant available information of which the Group's
auditor was unaware; and
* That Director had taken all necessary steps to make
themselves aware of any relevant audit information,
and to establish that the Group's auditors were aware
of that information.
Electronic Communication
The maintenance and integrity of the Group's website is the responsibility
of the Directors: the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors accept
no responsibility for any changes that may have occurred to the financial
statements since they were initially presented on the website.
The Group's website is maintained in accordance with AIM Rule 26.
Legislation in the United Kingdom governing the preparation and dissemination
of the financial statements may differ from legislation in other
jurisdictions.
On behalf of the board
..............................
Mr Tom Reynolds
Director
Date: 30 June 2022.
The Directors are responsible for preparing the financial statements
in accordance with applicable law and regulations. Company law requires
the Directors to prepare financial statements for each financial
year. Under that law the Directors are required to prepare the Financial
Statements in accordance with UK-adopted international accounting
standards.
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of
the state of affairs of the Company as at the end of the financial
year and of the profit or loss of the Company for that period. In
preparing these financial statements, the Directors are required
to:
* select suitable accounting policies and then apply
them consistently;
* make judgments and accounting estimates that are
reasonable and prudent;
* state whether the UK adopted international accounting
standards have been followed subject to any material
departures disclosed and explained in the financial
statements; and
* prepare the financial statements on a going concern
basis unless it is inappropriate to presume that the
Company will continue in business.
The Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Company's transactions
and disclose with reasonable accuracy at any time the financial
position of the Company and enable them to ensure that the financial
statements comply with the Companies Act 2006. They are also responsible
for safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the Company's
website. Legislation in the United Kingdom governing the preparation
and dissemination of the financial statements may differ from legislation
in other jurisdictions.
The Company is compliant with AIM Rule 26 regarding the Company's
website.
As Chairman of Scirocco Energy plc, it is my responsibility to ensure
that the Board is performing its role effectively and has the capacity
and ability, structure and support to enable it to continue to do
so.
How we govern the Company
Information on how the Company organises its Corporate Governance
is set out below and can also be found on the Company's website www.sciroccoenergy.com
and is, in the opinion of the Board, fully in accordance with the
revised requirements of AIM Rule 26.
From September 2018 onwards, all AIM quoted companies were required
to set out details of the recognised corporate governance code that
the Board of Directors has decided to adopt and provide reasons for
any departures where it does not comply with the code. The Company
has elected to adopt the 2018 Quoted Companies Alliance Corporate
Governance Code for Small and Mid-Sized Companies (the "QCA Code").
The Company intends to adhere to the recommendations of the QCA Code
to the extent it considers them appropriate in light of the Company's
size, liquidity and capital resources.
The QCA code is constructed around 10 broad principles and a set
of disclosures. The QCA has stated what it considers to be appropriate
arrangements for growing companies and asks companies to provide
an explanation of how they are meeting the principles through the
prescribed disclosures. We have considered how we apply each principle
to the extent that the Board judges these to be appropriate in the
circumstances, and below we provide an explanation of the approach
take in relation to each.
2020 and 2021 have seen, amongst others, the following governance
developments:
* The Chairman, CEO and COO met with major shareholders
and hosted a number conference calls with investors;
* AIM Rules Compliance and Disclosure Committee
established;
* Developed the transition energy strategy through 2020
and issued an augmented strategy in Q1 2021;
* Addition of Muir Miller to the Board in February
2021;
* Establishing an ESG Committee that Muir Miller
chaired in 1H21.
Board of Directors
The Board is responsible for the overall governance of the Company.
Its responsibilities include setting the strategic direction of the
Company, providing leadership to put the strategy into action and
to supervise the management of the business.
During 2021, Scirocco Energy operated with a five-member Board and
the Board between February 2021 and the beginning of July 2021 when
it reverted to a four-member Board. The Board was further strengthened
in February 2021 when Mr Muir Miller was appointed as an Independent
Non-Executive Director. Mr Miller brings with him a wealth of experience
in the low carbon sector and will be instrumental in building the
company in line with the stated transition energy strategy. As part
of a managed transition and maintaining an appropriate number of
Directors Mr Jon Fitzpatrick did not seek re-election at the 2021
AGM and down on the 9th July 2021 as a Director of the Company.
The Board currently comprises three non-executive Directors ('NEDs')
and the CEO. Biographies of the Directors are on pages 25-26. Due
to their shareholding in the Company, one of the NEDs are not considered
by the Board to be independent. The roles and responsibilities of
the Chairman, CEO, Non-Executive Directors and Company Secretary
are set out on the website and summarised below.
The Board has established the corporate governance values of the
Company and has overall responsibility for setting the Company's
strategic aims, de ning the business plan and strategy and managing
the nancial and operational resources of the Company. Overall supervision,
acquisition, divestment and other strategic decisions are considered
and determined by the Board. The Executive team is supported by the
wider team and external service providers as required. The Directors
are of the opinion that the Board comprises a suitable balance and
that the recommendations of the QCA Code have been implemented to
an appropriate level. The Board, through the Chairman in particular,
maintains regular contact with its advisers and public relations
consultants in order to ensure that the Board develops an understanding
of the views of major shareholders about the Company.
Terms of Reference
The Terms of Reference of all Board Committees are available on the
website.
Record of meetings
The Board meets regularly throughout the year. For the period ending
31 December 2021 the Board met 6 times (2020: 17, 2019: 14, 2018:
10, 2017: 4) in relation to normal operational matters and on an
ad hoc basis as required to transact additional business to support
the Company's activities.
The Board is responsible for formulating, reviewing and approving
the Company's strategy, nancial activities and operating performance.
Day-to-day management is devolved to the Executive Director and management
who are charged with consulting the Board on all signi cant nancial
and operational matters. All Directors have access to the advice
of the Company's solicitors and the Company Secretary necessary information
is supplied to the Directors on a timely basis to enable them to
discharge their duties e ectively and all Directors have access to
independent professional advice, at the Company's expense, as and
when required.
Internal controls
The Directors acknowledge their responsibility for the Company's
systems of internal controls and for reviewing their effectiveness.
These internal controls are designed to safeguard the assets of the
Company and to ensure the reliability of nancial information for
both internal use and external publication. Whilst they are aware
that no system can provide absolute assurance against material misstatement
or loss, in light of increased activity and further development of
the Company, continuing reviews of internal controls will be undertaken
to ensure that they are adequate and e ective.
Compliance
The Company has also reviewed the appropriate policies and procedures
to ensure compliance with the UK Bribery Act. The Company continues
actively to promote good practice throughout the Company and has
initiated a rolling programme of anti-bribery and corruption training
for all relevant employees and consultants.
QCA Principles
Review of each of the QCA Principles:
Principle 1:
Establish a strategy Scirocco Energy plc is an investment company
and business model which whose strategy is to acquire a diverse portfolio
promote long-term value of direct and indirect interests in attractive
for shareholders cash generative and development assets within
the European sustainable energy market. In
2020, the Board announced its plan to review
and augment its strategy to invest in a broader
European energy market strategy targeting
attractive growth opportunities predominantly
within the European gas and energy transition
market whilst maximising value for shareholders
from the Company's existing portfolio. This
has been further developed as announced on
18 February 2021 and the Board is seeking
opportunities which meet the following criteria:
-- cash generative, with the potential to
re-invest operational cash flow in further
growth;
-- situated within the broad energy space,
a market which the Board knows well;
-- primary targets within one of three asset
classifications:
- Energy - assets which are involved in
the direct production of low carbon energy.
- Circular - Assets which recover valuable
components from waste streams.
- Vector - Assets involved with the transmission,
storage and delivery of low carbon energy.
-- assets which can attract the necessary
investment capital, taking appropriate
account of growing investor sentiment towards
ESG and SRI indicators; and
-- assets which deliver stable returns, with
lower exposure to global commodity prices.
Principle 2:
Seek to understand and The Board is committed to maintaining good
meet shareholder needs communication and having constructive dialogue
and expectations with all its shareholders. The Company has
close ongoing relationships with its private
shareholders. Institutional shareholders
and analysts have the opportunity to discuss
issues and provide feedback at meetings with
the Company. In addition, all shareholders
are encouraged to attend, where possible,
the Company's Annual General Meeting. Investors
also have access to current information on
the Company though its website, www.sciroccoenergy.com,
and via Tom Reynolds (CEO) and Doug Rycroft
(COO), who are available to answer investor
relations enquiries. The Company in conjunction
with its investor relations advisor has developed
a Communications Strategy to formalise how
shareholder communications are managed.
Principle 3:
Take into account wider The Board recognises that the long-term success
stakeholder and social of the Company is reliant upon its ability
responsibilities and and willingness to engage with the broader
their implications for range of stakeholders to positively influence
long-term success the development of the Company and the communities
we interact with operationally and corporately.
The Board has put in place a range of processes
and systems to ensure that there is close
oversight and contact with its key resources
and relationships.
Given that Scirocco Energy plc is a small
company there is close interaction between
the Board and Executive Management to help
ensure successful two-way communication with
agreement on goals, targets and aspirations
for the Company. Scirocco Energy plc through
its advisers and JV partners has developed
close ongoing relationships with a broad
range of its stakeholders and provides them
with the opportunity to raise issues and
provide feedback to the Company.
Principle 4:
Embed effective risk It is critical that Scirocco Energy plc has
management, considering a robust view of its risk profile and appetite
both opportunities and so as to ensure both its existing and new
threats, throughout investments are managed within acceptable
the organization. margins of risk. The processes are in place
to understand the Company's key drivers for
success and to be able to assess the associated
risks in delivering on its strategy successfully.
Given the specialised nature of investing
in, and being involved in, the operations
of specialised assets in the energy sector,
it is imperative that the Board considers
at all times that it has the appropriate
risk management system including both people
and processes to successfully mitigate these
risks.
The Board encourages a dynamic and constructive
dialogue between Executive Management, its
advisers and the Board including the willingness
to challenge assumptions and the consideration
of emerging and interrelated risks for its
investment portfolio.
In addition to its other roles and responsibilities,
the Audit Committee is responsible to the
Board for ensuring that procedures are in
place and are being implemented effectively
to identify, evaluate and manage the significant
risks faced by the Company. The risk assessment
matrix below sets out those risks, and identifies
the controls that are currently in place.
This matrix is updated as changes arise in
the nature of risks or the controls that
are implemented to mitigate them. The Audit
Committee reviews the risk matrix and the
effectiveness of scenario testing on a regular
basis. The Board has a comprehensive review
of the risks every six months and works with
Executive Management to understand and agree
on the types and format of risk information
that the Board requires. In addition the
Board periodically assesses the risk oversight
processes and ensure suitability with/and
alongside its current policies.
See risk management section which begins
on page 29.
Principle 5:
Maintain the Board as The Board is currently comprised of four
a well-functioning, Directors; Alastair Ferguson, Non-Executive
balanced team led by Chairman; Donald Nicolson, Independent Non-Executive
a chair Director, Muir Miller Independent Non-Executive
Director and Tom Reynolds, CEO. Biographical
details of the current Directors are set
out within Principle Six below.
Executive and Non-Executive Directors are
subject to re-election at intervals of no
more than three years. The letters of appointment
of all Directors are available for inspection
at the Company's registered office during
normal business hours. The Executive Director
is considered to be a full-time employee
whilst the Non-Executive Directors are considered
to be part time but are expected to provide
as much time to the Company as is required.
The Board elects a Chairman to chair every
meeting.
The Board notes that the QCA recommends that
the Chairman's responsibilities should be
devolved from the day-to-day running of the
business in order to ensure independence.
The Board meets at least four times per calendar
year. It has established an Audit Committee,
a Remuneration Committee and an AIM Rules
Compliance and Disclosures Committee, which
are set out in more detail below. At this
stage, the Board does not consider it necessary
to establish a separate Nominations Committee.
It shall continue to monitor the need to
match resources to its operational performance
and costs and the matter will be kept under
review going forward.
Attendance at Board and Committee Meetings
The Company reports annually on the number
of Board and Committee meetings held during
the year and the attendance record of individual
Directors.
To date in the current financial year the
Directors have a good record of attendance
at such meetings. In order to be efficient,
the Directors meet formally and informally
both in person and by telephone. To date
there have been at least quarterly meetings
of the Board, and the volume and frequency
of such meetings is expected to continue
at this rate.
Principle 6:
Ensure that between The Board currently consists of four Directors.
them the Directors have The Company believes that the current balance
the necessary up-to-date of skills and experience in the Board as
experience, skills and a whole, reflects a very broad range of commercial
capabilities and professional skills across geographies
and industries and all of the Director's
have experience in public markets.
The Board recognises that it currently has
a limited diversity and this will form a
part of any future recruitment consideration
if the Board concludes that replacement or
additional directors are required.
The Board shall review annually the appropriateness
and opportunity for continuing professional
development whether formal or informal.
Alastair Ferguson (Non-Executive Chairman)
Mr Ferguson is a Chartered Engineer and has
over 40 years' experience in the oil and
gas industry, the last seven of which have
been spent in various Chairman and non-executive
director positions. Mr Ferguson has considerable
commercial management experience and has
specific expertise in business development
and managing projects in complex political
environments.
Donald Nicolson (Independent Non-Executive
Director)
Mr Nicolson is a senior business leader with
more than 35 years experience in oil, gas,
mining and natural stone sectors. During
this time, he has held multiple board roles,
executive & non-executive, in both publicly-listed
and private companies. Between 2016 and 2019,
Mr Nicolson held the role of Chairman and
interim CEO for mining and quarrying firm
Levantina Natural Stone Co., having previously
held Vice Chairman, non-Executive Director
and Advisor roles. Mr Nicolson spent more
than 26 years with BP Exploration, during
which he held roles including Director of
BP North Sea, Chief of Staff to BP CEO (E&P),
Vice President for BP Alaska and Vice President
for BP Canada. Mr Nicolson is skilled in
strategy development, asset management, business
planning, investment decision making, and
business restructuring and has significant
fund-raising experience, including main market
IPO and debt refinancing.
Muir Miller (Independent Non-Executive Director)
Mr Miller is a Chartered Engineer and Member
of the Institution of Mechanical Engineers
with over two decades of senior executive
experience, with particular focus on the
renewable energy sector. Most recently, Mr
Miller was Managing Director of Peel Energy,
part of the privately owned, diverse and
entrepreneurial Peel Group, a leading infrastructure,
transport and real estate investor in the
UK, with collective investments owned and
under management of more than GBP5 billion.
Prior to joining Peel Energy, he was Business
Development Manager at Energy Power Resources,
with an installed capacity of 113MW of dedicated
biomass assets, 70MW of landfill gas assets,
and 100 MW of wind assets in France, UK and
Sweden. Between 2005 and 2007, Mr Miller
was CEO of Novera Macquarie Renewable Energy,
a joint venture with annual turnover of GBP32
million and one of the largest independent
renewable energy operators in the UK with
a total installed generating capacity of
117.5MW across 53 geographically diverse
sites.
Tom Reynolds (CEO)
Mr Reynolds is a Chartered Engineer with
over 25 years' experience in the energy sector,
including a range of technical and commercial
roles with BP plc, Total SA and British Nuclear
Fuels plc. He has also held management positions
at private equity investment and advisory
firms, including 3i plc, and specialises
in strategic planning, investment management
and cross-border M&A transaction execution
in the oil, gas, energy and infrastructure
sectors.
Principle 7:
Evaluate Board performance Internal evaluation of the Board, the Committees
base on clear and relevant and individual Directors is to be undertaken
objectives, seeking on an annual basis in the form of peer appraisal
continuous improvement. and discussions to determine their effectiveness
and performance as well as testing the Directors'
continued independence. This will be undertaken
in conjunction with external advisers as
appropriate.
The results and recommendations that come
out of the appraisals for the directors shall
identify the key corporate and financial
targets that are relevant to each Director
and their personal targets in terms of career
development and training. Progress against
previous targets shall also be assessed where
relevant.
Principle 8:
Promote a corporate The Board is aware that the tone and culture
culture that is based set by the Board will greatly impact all
on ethical values and aspects of the Company as a whole and the
behaviours way that partners, contractors and advisors
behave. The corporate governance arrangements
that the Board has adopted are designed to
ensure that the Company delivers long term
value to its shareholders and that shareholders
have the opportunity to express their views
and expectations for the Company in a manner
that encourages open dialogue with the Board.
A large part of the Company's activities
is centred upon what needs to be an open
and respectful dialogue with partners, clients
and other stakeholders. Therefore, the importance
of sound ethical values and behaviours is
crucial to the ability of the Company to
successfully achieve its corporate objectives.
The Board places great import on this aspect
of corporate life and seeks to ensure that
this flows through all that the Company does.
The directors consider that at present the
Company has an open culture facilitating
comprehensive dialogue and feedback and enabling
positive and constructive challenge. The
Company has adopted a code for Directors'
and employees' dealings in securities which
is appropriate for a company whose securities
are traded on AIM and is in accordance with
the requirements of the Market Abuse Regulation
which came into effect in 2016.
Principle 9:
Maintain governance Ultimate authority for all aspects of the
structures and process Company's activities rests with the Board,
that are fit for purpose the respective responsibilities of the Chairman
and support good decision and Executive Director arising as a consequence
making by the Board of delegation by the Board. The Board has
adopted appropriate delegations of authority
which set out matters which are reserved
to the Board. The Chairman is responsible
for the effectiveness of the Board, while
management of the Company's business and
primary contact with shareholders has been
delegated by the Board to the Executive Director.
Audit Committee
The Audit Committee is comprised of Donald
Nicolson (Chairman) and Alastair Ferguson.
This committee has primary responsibility
for monitoring the quality of internal controls
and ensuring that the financial performance
of the Company is properly measured and reported.
It receives reports from the Executive Management
and auditors relating to the interim and
annual accounts and the accounting and internal
control systems in use throughout the Company.
The Audit Committee shall meet not less than
twice in each financial year and it has unrestricted
access to the Company's auditors.
Remuneration Committee
The Remuneration Committee is comprised of
Alastair Ferguson (Chairman) and Donald Nicolson.
The Remuneration Committee reviews the performance
of the executive directors and employees
and makes recommendations to the Board on
matters relating to their remuneration and
terms of employment. The Remuneration Committee
also considers and approves the granting
of share options pursuant to the share option
plan and the award of shares in lieu of bonuses.
AIM Rules Compliance and Disclosures Committee
The AIM Rules Compliance and Disclosure Committee
is responsible for ensuring the Company has
at all times sufficient procedures, resources
and controls in place to enable compliance
with the AIM Rules for Companies and make
accurate disclosures to meet its disclosure
obligations under MAR. The committee is comprised
of Alastair Ferguson (Chairman), Donald Nicolson,
and Tom Reynolds.
ESG and Sustainability Committee
The ESG and Sustainability Committee is comprised
of Muir Miller (Chairman), Alastair Ferguson
and Tom Reynolds. The Committee was established
by Scirocco Energy PLCs Board of Directors
and has responsibility for shaping and steering
the group's approach to sustainability and
ESG in all its investments. It develops and
reviews the Company's strategy and activities;
ensures that sustainability and ESG considerations
and criteria are incorporated into the Company's
investment processes and asset management
activities; and will develop and review the
policies, programmes, targets, and initiatives
relating to ESG matters. The ESG and Sustainability
Committee shall meet at least twice each
year and otherwise as required.
Non-Executive Directors
The Board has adopted guidelines for the
appointment of Non-Executive Directors which
have been in place and which have been observed
throughout the year. These provide for the
orderly and constructive succession and rotation
of the Chairman and non-executive directors
insofar as both the Chairman and non-executive
directors will be appointed for an initial
term of five years and may, at the Board's
discretion believing it to be in the best
interests of the Company, be appointed for
subsequent terms.
In accordance with the Companies Act 2006,
the Board complies with: a duty to act within
their powers; to promote the success of the
Company; to exercise independent judgement;
to exercise reasonable care, skill and diligence;
to avoid conflicts of interest; not to accept
benefits from third parties and to declare
any interest in a proposed transaction or
arrangement.
External Representation
The Company has in the past invested in projects
and jurisdictions where it believes it has
a competitive advantage in providing early
stage capital alongside specialist knowledge
to realise potential value. In order to ensure
the Company has full visibilty and appropriate
controls over the projects it has invested
in the Company has representative participation
in the various operating committees and /
or Boards. The detail of which is outlined
in the table below;
Asset
Ruvuma PSC - Operating Committee
Kiliwani North Development Licence - Operating
Committee
EAG - Board representation
Principle 10:
Communicate how the The Board is committed to maintaining good
company is governed communication and having constructive dialogue
and is performing by with all of its shareholders. The Company
maintaining a dialogue has close ongoing relationships with its
with shareholders and private shareholders. Institutional shareholders
other relevant stakeholders and analysts have the opportunity to discuss
issues and provide feedback at meetings with
the Company. In addition, all shareholders
are encouraged, where possible, to attend
the Company's Annual General Meeting. As
part of the Communications Strategy the Board
has engaged investor relations advisers to
guide the Company on best practice methods
of communicating through digital, print and
verbal mediums.
Investors also have access to current information
on the Company though its website and via
the Executive Management Team comprising
of Tom Reynolds (CEO) and Doug Rycroft (COO),
who are available to answer investor relations
enquiries. The Company proposes in 2021,
subject to the necessary formalities, to
move to electronic communications with shareholders.
The Company shall include, when relevant,
in its annual report, any matters of note
arising from the three Board committees.
Risk Management
Scirocco's activities are subject to a range of financial risks including
commodity prices, liquidity, exchange rates and loss of operational
equipment or wells.
These risks are managed with the oversight of the Board of Directors
and the Audit Committee through ongoing review, considering the operational
business and economic circumstance at that time. The primary risk
facing the business is that of liquidity.
Activity Risk Impact Control(s)
Financial Liquidity, market Inability to continue Robust capital and cost
and credit risk as a going concern management policies and
procedures
Reduction in asset values
Inappropriate controls Incorrect reporting Appropriate authority
and accounting policies of assets and investment levels
as agreed and delegated
by the Board
Adherence to Statement
of Accounting Policies
as detailed in financial
statements
Audit Committee
Recoverability of Reduction in net Trade debtors relate
trade debtors assets to a government entity
with which the Joint
Venture has a valid Gas
Sales Agreement, therefore
the Board remains of
the opinion that the
debt is fully recoverable
Regulatory Breach of rules Censure of withdrawl Strong compliance regime
adherence of listing authorisation instilled at the management,
advisory and Board levels
of the Company
Company established an
AIM Rules Compliance
and Disclosure Committee
in 2020
Strategic Damage to reputation Inability to secure Effective communication
new capital or investments with shareholders coupled
with consistent messaging
to potential investees
Robust compliance and
adherence to the Company's
ABC Policy
Inadequate disaster Loss of key operational Secure off-site storage
recovery procedures and financial data of data
Operational Significant operational Damage/loss of equipment Review of operator emergency
event in JVs and injury/death response plans and appropriate
contingency plans
Significant geopolitical Loss of operating Stakeholders engagement
event in one of ability and/or major plans to ensure visibility
our operating theatres project delays in political operating
environment
Management Recruitment and Reduction in operating Alignment of company's
retention of key capability recruitment and retention
staff and advisors objectives to ensure
a motivated workforce
and a safe working environment
Balancing salary with
longer term incentive
and retention plans aligning
participants directly
to the shareholder experience
Investment Discrete investments Reduction in value Robust risk management
suffer a change of investments process during the selection
in circumstance and investment process
or other risks manifesting including where appropriate
during the period third party technical,
of ownership financial, legal and
commercial due diligence
activity
Tom Reynolds
Director
Audit Committee Report
Scirocco's Audit Committee meets at least twice a year and is presently
chaired by Donald Nicolson and Alastair Ferguson is the other member
of the Committee.
Mr Nicolson joined the Board on 11th November 2019 and assumed the
role of Audit Committee Chairman.
During the course of 2020 and 2021 the Committee has reviewed:
* The statements to be included in the Annual report
concerning internal control, risk management and the
going concern statement;
* The carrying values of the producing and intangible
assets;
* The procedures for detecting fraud;
* The systems and controls for the prevention of
bribery; and
The committee has overseen the relationship with the external auditor,
including:
* Approved their remuneration for audit and non-audit
services;
* Approved their terms of engagement and the scope of
the audit;
* Satisfied itself that there are no relationships
between the auditor and the Company which could
adversely affect the auditor's independence and
objectivity;
* Monitored the auditor's processes for maintaining
independence, its compliance with relevant UK law,
regulation, other professional requirements and the
Ethical Standard, including the guidance on the
rotation of audit partner and staff;
* Assessed the qualifications, expertise and resources,
and independence of the external auditor and the
effectiveness of the external audit process;
* Evaluated the risks to the quality and effectiveness
of the financial reporting process in the light of
the external auditor's communications with the
committee;
* Met with the external auditor without management
being present, to discuss the auditor's remit and any
issues arising from the audit; and
* Discussed with the external auditor the factors that
could affect audit quality and reviewed and approved
the annual audit plan, ensuring it is consistent with
the scope of the audit engagement, having regard to
the seniority, expertise and experience of the audit
team.
The committee reviewed the findings of the audit with the external
auditor, including:
* A discussion of issues which arose during the audit,
including any errors identified during the audit; and
the auditor's explanation of how the risks to audit
quality were addressed;
* Key accounting and audit judgements;
* The auditor's view of their interactions with senior
management;
* A review of any representation letters requested by
the external auditor before they were signed by
management;
* A review of the management letter and management's
response to the auditor's findings and
recommendations; and
* A review of the effectiveness of the audit process,
including an assessment of the quality of the audit,
the handling of key judgements by the auditor, and
the auditor's response to questions from the
committee.
Donald Nicolson
Audit Committee Chair
Remuneration Committee Report
Scirocco's Remuneration Committee reviews the scale and structure
of the Executive Directors' remuneration and the terms of their service
contracts.
The remuneration and terms and conditions of appointment of the Non-Executive
Directors are set by the Board with recommendations from the Remuneration
Committee.
Mr Alastair Ferguson chairs the committee and Mr Jon Fitzpatrick
and Mr Donald Nicolson are the other members. Mr Fitzpatrick stepped
down from the Board in July 2021 and his position on the Remuneration
Committee was not replaced. The Remuneration Committee met 4 times
in 2021.
In setting the remuneration for the Executive Directors and key staff,
the committee compares published remuneration data for other AIM
and Main LSE Board energy transition companies of a similar market
capitalisation and seeks to ensure that the remuneration of the Executive
Directors is broadly comparable to their peers in other similarly
sized organisations. Moving forward the committee intends to broaden
the group of companies it reviews in this regard to include low carbon
and renewable companies of a similar standing.
In 2021 the Remuneration Committee supported the company in a number
of changes to the remuneration policy and compensation payments due
to directors, these included;
-- Resetting the CEOs remuneration based on increased workload
-- review and benchmarking of Directors' fees through 2021
and proposed remuneration for Muir Miller who joined the
Board in 1Q21
-- continued implementation of the share option scheme in
lieu of fees for the Board and Executive Management which
supports the Board's desire to preserve the Company's cash
position.
Alastair Ferguson
Remuneration Committee Chair
AIM Rules Compliance and Disclosures Committee
Scirocco's AIM Rules Compliance and Disclosures Committee is responsible
for ensuring the Company has, at all times, sufficient procedures,
resources and controls in place to enable compliance with the AIM
Rules for Companies and make accurate disclosures to meet its disclosure
obligations under MAR.
The committee was comprised of Jon Fitzpatrick (Chairman) (until
his departure from the Board), Alastair Ferguson (current Chairman),
Donald Nicolson, and Tom Reynolds. Following the Mr Fitzpatrick's
decision not to stand again for election at the 2021 Annual General
Meeting, the work of the committee has been managed at the Board
level with the plan to formally reconstitute the committee as activity
levels ramp up in 2022 and beyond.
The Committee has established protocols to:
-- Ensure that each meeting of the full Board includes discussions
of AIM matters, in particular to brief the Board as to
issues raised with the Nomad and advice given, as they
arise;
-- Ensure that the executive Directors are communicating as
necessary with the Company's Nomad regarding ongoing compliance
with the AIM Rules and in relation to proposed or potential
transactions;
-- Ensure that advice received from the Nomad is recorded
and taken into account;
-- Ensure that all announcements made have been verified and
approved by the Nomad whose name must be on all material
announcements to RNS;
-- Ensure that the Nomad is supplied with information on the
Company's financial condition on a regular and timely basis
and of any other key developments in the Company from time
to time;
-- Ensure that the Nomad is maintaining regular contact with
the Company;
-- Circulate to other members of the Board details of any
rule changes which are notified to the Chairman of the
Committee by the Nomad; and
-- Ensure that the executive Directors take into account advice
given by the Nomad from time to time.
Alastair Ferguson
AIM Rules Compliance and Disclosures Committee Chair
ESG and Sustainability Committee Report
The ESG and Sustainability Committee was established by the Company's
Board of Directors and has the responsibility for shaping and steering
the Group's approach to sustainability and ESG in all its investments.
The ESG Committee was set up in September 2021 when it held the first
formal meeting and met three times in the year. The Committee is
integral to the new Company Investment Strategy to invest in sustainable
energy assets, as adopted and approved by shareholders at the 2021
AGM. During the course of 2021 and 2022, the Committee has completed
the following work:
-- Developed and approved a Terms of Reference for the ESG
Committee going forward which supports the Company's new
Investment strategy.
-- Following review, agreed to using the UN Sustainable Development
Goals (UNSDGs) as the foundation of the Companies sustainability
strategy, as it provides the Company with a structured
environmental, social, and governance (ESG) framework.
The UNSDGs aim to tackle the global challenges we face,
including poverty, inequality, and climate change, by 2030.
-- Reviewed each the 17 UN Sustainable Development Goals as
part of a workshop to determine which of the Goals are
most relevant to Scirocco and how much the Company can
contribute to each Goal.
-- Set commitments and targets for the four high priority
UN Sustainable Development Goals with the aim of integrating
these as part of the Company's new investment strategy.
Muir Miller
ESG and Sustainability Committee Chair
Opinion
We have audited the financial statements of Scirocco Energy Plc
(the 'parent company') and its subsidiaries (the 'group') for the
year ended 31 December 2021 which comprise the Group Statement of
comprehensive income, the Group and Company Statement of financial
position, the Group and Company Statement of changes in equity,
the Group and Company Statement of cash flows and Notes to the Group
and Company financial statements, including significant accounting
policies. The financial reporting framework that has been applied
in their preparation is applicable law and UK-adopted international
accounting standards and as regards the parent company financial
statements, as applied in accordance with the provisions of the
Companies Act 2006.
In our opinion:
* the financial statements give a true and fair view of
the state of the group's and of the parent company's
affairs as at 31 December 2021 and of the group loss
for the year then ended;
* the group financial statements have been properly
prepared in accordance with UK-adopted international
accounting standards;
* the parent company financial statements have been
properly prepared in accordance with UK-adopted
international accounting standards and as applied in
accordance with the provisions of the Companies Act
2006; and
* the financial statements have been prepared in
accordance with the requirements of the Companies Act
2006.
Basis for opinion
We conducted our audit in accordance with International Standards
on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the Auditor's responsibilities
for the audit of the financial statements section of our report.
We are independent of the group and parent company in accordance
with the ethical requirements that are relevant to our audit of
the financial statements in the UK, including the FRC's Ethical
Standard as applied to listed entities, and we have fulfilled our
other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
directors' use of the going concern basis of accounting in the preparation
of the financial statements is appropriate. Our evaluation of the
directors' assessment of the group and parent company's ability
to continue to adopt the going concern basis of accounting included:
* Reviewing the cash flow forecasts prepared by
management for the period up to twelve monthes from
the date of approval of these financial statements
* Corroborating, providing challenge to key assumptions
and reviewing for reasonableness;
* A comparison of actual results for the year to past
budgets to assess the forecasting ability/accuracy of
management;
* Reviewing post-year end Regulatory News Service (RNS)
announcements and holding discussions with management
on future plans; and
* Assessing the adequacy of going concern disclosures
within the annual report and financial statements.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the group and parent
company's ability to continue as a going concern for a period of
at least twelve months from when the financial statements are authorised
for issue.
Our responsibilities and the responsibilities of the directors with
respect to going concern are described in the relevant sections
of this report
Our application of materiality
The quantitative and qualitative thresholds for materiality determine
the scope of our audit and the nature, timing and extent of our
audit procedures
Based on our professional judgement, we determined overall materiality
for the financial statements as a whole applied to the group financial
statements was GBP188,000 based on 1% of gross assets. The performance
materiality for the group was GBP131,000. The materiality for the
financial statements as a whole applied to the parent company financial
statements was GBP186,000 (2020: GBP190,000) based on 1% of gross
assets. The performance materiality for the parent company was GBP130,000
(2020: GBP133,000).
We use a different level of materiality ('performance materiality')
to determine the extent of our testing for the audit of the financial
statements. Performance materiality is set based on 70% of overall
materiality as adjusted for the judgements made as to the entity
risk and our evaluation of the specific risk of each audit area
having regard to the internal control environment.
Where considered appropriate performance materiality may be reduced
to a lower level, such as, for related
party transactions and directors' remuneration.
We agreed with the Audit Committee to report to it all identified
errors in excess of GBP9,400 for the group and GBP9,300 (2020:GBP9,500)
for the parent company. Errors below that threshold would also be
reported to it if, in our opinion as auditor, disclosure was required
on qualitative grounds.
Our approach to the audit
In designing our audit, we determined materiality and assessed the
risks of material misstatement in the financial statements. In particular
we looked at areas involving significant accounting estimates and
judgements by the directors in respect of the carrying values of
the group and parent company's investments and intangible assets,
and considered future events that are inherently uncertain. We also
addressed the risk of management override of internal controls,
including evaluation whether there was evidence of bias by the directors
that represented a risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in our professional judgment,
were of most significance in our audit of the financial statements
of the current period and include the most significant assessed
risks of material misstatement (whether or not due to fraud) we
identified, including those which had the greatest effect on: the
overall audit strategy, the allocation of resources in the audit;
and directing the efforts of the engagement team. These matters
were addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters.
Key Audit Matter How our scope addressed this
matter
Valuation and Disclosure of Assets
Held for sale (Note 10)
The group holds assets held for Our work in this area included
disposal for GBP14.7 million as but was not limited to:
at 31 December 2021. * Reviewing RNS announcements during the year and post
year end to corroborate management's plan to sell the
Post year end, management have signed assets and the conditions attached to the proposed
a binding agreement to divest the sale.
asset.
There is a risk that these assets * Reviewing disclosures made in respect of the assets
are not accounted for in accordance and ensuring these are accurate and in accordance
with International Financial Reporting with IFRS 5;
Standard (IFRS) 5. Given that management
has an offer on the asset, there
is also a risk that the realisable * Reviewing disclosures made in respect of any linked
value of the assets have decreased liabilities as these will need to be separately
further and thus an impairment may disclosed as discontinued operations; and
be required but may not have been
accounted for by management.
* Reviewing management's assessment of the valuation
and impairment of assets held for sale. Challenging
management assumptions and estimates and ensuring
these are valued at realisable value.
Valuation and impairment of Intercompany
receivables (Note 16)
The group has granted loans amounting Our work in this area included
to GBP1.2 million to an associate. but was not limited to:
As the associate is in pre-revenue * Reviewing the valuation methodology for the
start-up phase, there is uncertainty recoverability held and ensuring that the carrying
on the recoverability of this loan. values are supported by sufficient and appropriate
Management's forecasts to support audit evidence;
the recoverability involve estimates
and judgements. There is the risk
that these recoverable balances * Reviewing the movement in intercompany receivables to
have not been valued in accordance ensure it is accounted for and disclosed correctly in
IFRS 9 and require impairment. line with IFRS 9;
* Ensuring that appropriate disclosures surrounding the
estimates made in respect of any valuations are
included in the financial statements;
Other information
The other information comprises the information included in the
annual report, other than the financial statements and our auditor's
report thereon. The directors are responsible for the other information
contained within the annual report. Our opinion on the group and
parent company financial statements does not cover the other information
and, except to the extent otherwise explicitly stated in our report,
we do not express any form of assurance conclusion thereon. Our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the course
of the audit, or otherwise appears to be materially misstated. If
we identify such material inconsistencies or apparent material misstatements,
we are required to determine whether this gives rise to a material
misstatement in the financial statements themselves. If, based on
the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report
that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the
audit:
* the information given in the strategic report and the
directors' report for the financial year for which
the financial statements are prepared is consistent
with the financial statements; and
* the strategic report and the directors' report have
been prepared in accordance with applicable legal
requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and
the parent company and their environment obtained in the course
of the audit, we have not identified material misstatements in the
strategic report or the directors' report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
* adequate accounting records have not been kept by the
parent company, or returns adequate for our audit
have not been received from branches not visited by
us; or
* the parent company financial statements are not in
agreement with the accounting records and returns; or
* certain disclosures of directors' remuneration
specified by law are not made; or
* we have not received all the information and
explanations we require for our audit.
Responsibilities of directors
As explained more fully in the Directors' responsibilities statement,
the directors are responsible for the preparation of the group and
parent company financial statements and for being satisfied that
they give a true and fair view, and for such internal control as
the directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether
due to fraud or error.
In preparing the group and parent company financial statements,
the directors are responsible for assessing the group and the parent
company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to
liquidate the group or the parent company or to cease operations,
or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor's report
that includes our opinion. Reasonable assurance is a high level
of assurance but is not a guarantee that an audit conducted in accordance
with ISAs (UK) will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on
the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below:
* We obtained an understanding of the group and parent
company and the sector in which they operate to
identify laws and regulations that could reasonably
be expected to have a direct effect on the financial
statements. We obtained our understanding in this
regard through discussions with management, industry
research, application of cumulative audit knowledge
and experience of the sector etc. This is evidenced
by discussion of laws and regulations with the
management, reviewing minutes of meetings of those
charged with governance and RNS announcements and
review of legal or professional expenditures.
* We determined the principal laws and regulations
relevant to the group and parent company in this
regard to be those arising from Companies Act 2006,
AIM rules, GDPR, Employment Law, Health and Safety
Law, Anti-Bribery and Money Laundering Regulations
and QCA compliance.
* We designed our audit procedures to ensure the audit
team considered whether there were any indications of
non-compliance by the group and parent company with
those laws and regulations. These procedures included,
but were not limited to:
* Discussion with management regarding potential
non-compliance;
* Review of legal and professional fees to understand
the nature of the costs and the existence of any
non-compliance with laws and regulations; and
* Review of minutes of meetings of those charged with
governance and RNS anouncements
* We also identified the risks of material misstatement
of the financial statements due to fraud. We
considered, in addition to the non-rebuttable
presumption of a risk of fraud arising from
management override of controls, that the potential
for management bias was identified in relation to the
carrying value of the investments and intangible
assets.
* As in all of our audits, we addressed the risk of
fraud arising from management override of controls by
performing audit procedures which included, but were
not limited to: the testing of journals; reviewing
accounting estimates for evidence of bias; and
evaluating the business rationale of any significant
transactions that are unusual or outside the normal
course of business and review of bank statements
during the year to identify any large and unusual
transactions where the business rationale is not
clear.
Because of the inherent limitations of an audit, there is a risk
that we will not detect all irregularities, including those leading
to a material misstatement in the financial statements or non-compliance
with regulation. This risk increases the more that compliance with
a law or regulation is removed from the events and transactions
reflected in the financial statements, as we will be less likely
to become aware of instances of non-compliance. The risk is also
greater regarding irregularities occurring due to fraud rather than
error, as fraud involves intentional concealment, forgery, collusion,
omission or misrepresentation.
A further description of our responsibilities for the audit of the
financial statements is located on the Financial Reporting Council's
website at: www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them
in an auditor's report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone, other than the company and the company's members as a
body, for our audit work, for this report, or for the opinions we
have formed.
Zahir Khaki (Senior Statutory Auditor)
for and on behalf of PKF Littlejohn
LLP
Statutory Auditor
15 Westferry Circus, Canary Wharf,
London E14 4HD
Date: .30 June 2022.
2021 2020
Notes GBP000 GBP000
GROUP
Administrative expenses (1,892) (3,323)
Operating loss 6 (1,892) (3,323)
Other income 58 -
Other gains and losses 8 2,196 -
Profit/(loss) before taxation 362 (3,323)
Income tax expense 9 - -
Profit/(loss) for the year from
continuing operations 362 (3,323)
Loss for the year from discontinued
operations 10 (4,053) (795)
Loss and total comprehensive income
for the year (3,691) (4,118)
Other comprehensive income:
Earnings per share 11
Basic and diluted (0.49) (0.57)
Earnings per share from continuing
operations
Basic 0.05 (0.46)
Diluted 0.04 -
Earnings per share from discontinued
operations
Basic and diluted (0.53) (0.11)
The accounting policies and notes on pages 49 to 85 form part of
these financial statements.
2021 2020
GROUP Notes GBP000 GBP000
Non-current assets
Financial assets at fair
value through profit or
loss 12 437 1,667
437 1,667
Current assets
Trade and other receivables 16 153 421
Cash and cash equivalents 2,059 1,168
Loan receivable from related
party 22 1,244 -
Assets held for sale 15 11,600 14,803
15,056 16,392
Total assets 15,493 18,059
Current liabilities
Trade and other payables 17 178 248
Liabilities held for sale 15 166 166
344 414
Net current assets 14,712 15,978
Net assets 15,149 17,645
Equity
Called up share capital 18 1,518 1,448
Share premium account 19 38,155 38,399
Deferred share capital 18 2,729 1,831
Share based payments 20 1,941 1,470
Retained earnings (29,194) (25,503)
Total equity 15,149 17,645
The accounting policies and notes on pages 49 to 85 form part of
these financial statements.
The financial statements were approved by the board of directors
and authorised for issue on ......................... and are signed
on its behalf by:
..............................
Mr Tom Reynolds
Director
Date: ..30 June 2022..
Company Registration No. 05542880
2021 2020
COMPANY Notes GBP000 GBP000
Non-current assets
Financial assets at fair
value through profit or
loss 12 437 1,667
437 1,667
Current assets
Trade and other receivables 16 153 421
Cash and cash equivalents 2,059 1,168
Loan receivable from subsidiary 22 1,244 -
Assets held for sale 15 11,600 14,803
15,056 16,392
Total assets 15,493 18,059
Current liabilities
Trade and other payables 17 178 248
Liabilities held for sale 15 166 166
344 414
Net current assets 14,712 15,978
Net assets 15,149 17,645
Equity
Called up share capital 18 1,518 1,448
Share premium account 19 38,155 38,399
Deferred share capital 18 2,729 1,831
Share based payments 20 1,941 1,470
Retained earnings (29,194) (25,503)
Total equity 15,149 17,645
The accounting policies and notes on pages 49 to 85 form part of
these financial statements.
The financial statements were approved by the board of directors
and authorised for issue on ......................... and are signed
on its behalf by:
..............................
Mr Tom Reynolds
Director
Date: .30 June 2022.
Company Registration No. 05542880
Share Share Deferred Share-based Retained Total
capital premium share capital payments earnings
account
Notes GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
GROUP
Balance at 1 January 2020 1,264 37,316 1,831 1,135 (21,385) 20,161
Year ended 31 December 2020:
Loss and total comprehensive income for the
year - - - - (4,118) (4,118)
Issue of share capital 18,19 184 1,083 - - - 1,267
Credit to equity for equity-settled share-based
payments 20 - - - 335 - 335
Balance at 31 December 2020 1,448 38,399 1,831 1,470 (25,503) 17,645
Year ended 31 December 2021:
Loss and total comprehensive income for the
year - - - - (3,691) (3,691)
Issue of share capital 18,19 70 292 (362) - - -
Shares not issued moved to deferred share
capital* 18,19 - (536) 536 - - -
Consideration received for shares to be issued 18 - - 724 - - 724
Credit to equity for equity-settled share-based
payments 20 - - - 471 - 471
Balance at 31 December 2021 1,518 38,155 2,729 1,941 (29,194) 15,149
The accounting policies and notes on pages 49 to 85 form part of these financial statements.
* the adjustment is made to correct deferred shares incorrectly recorded as share premium in the
prior year
Share Share Deferred Share-based Retained Total
capital premium share capital payments earnings
account
Notes GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
COMPANY
Balance at 1 January 2020 1,264 37,316 1,831 1,135 (21,385) 20,161
Year ended 31 December 2020:
Loss and total comprehensive income for the
year - - - - (4,118) (4,118)
Issue of share capital 18,19 184 1,083 - - - 1,267
Credit to equity for equity-settled share-based
payments 20 - - - 335 - 335
Balance at 31 December 2020 1,448 38,399 1,831 1,470 (25,503) 17,645
Year ended 31 December 2021:
Loss and total comprehensive income for the
year - - - - (3,691) (3,691)
Issue of share capital 18,19 70 292 (362) - - -
Shares not issued moved to deferred share
capital* 18,19 - (536) 536 - - -
Consideration received for shares to be issued 18 - - 724 - - 724
Credit to equity for equity-settled share-based
payments 20 - - - 471 - 471
Balance at 31 December 2021 1,518 38,155 2,729 1,941 (29,194) 15,149
The accounting policies and notes on pages 49 to 85 form part of these financial statements.
* the adjustment is made to correct deferred shares incorrectly recorded as share premium in the
prior year
2021 2020
Notes GBP000 GBP000 GBP000 GBP000
GROUP
Cash flows from operating activities
Cash absorbed by operations 26 (1,417) (877)
Interest paid - (3)
Net cash outflow from operating
activities (1,417) (880)
Investing activities
Cash movements in relation to
assets held for sale (642) -
Purchase of intangible assets - (293)
Loan granted to related party (1,200) -
Proceeds on disposal of investments - 10
Proceeds from sale of investment 3,426 -
Net cash generated in investing
activities 1,584 (283)
Financing activities
Proceeds from issue of shares 724 1,267
Net cash generated from
financing activities 724 1,267
Net increase in cash and cash
equivalents 891 104
Cash and cash equivalents at beginning
of year 1,168 1,064
Cash and cash equivalents
at end of year 2,059 1,168
The accounting policies and notes on pages 49 to 85 form part of
these financial statements.
2021 2020
Notes GBP000 GBP000 GBP000 GBP000
COMPANY
Cash flows from operating activities
Cash absorbed by operations 26 (1,417) (877)
Interest paid - (3)
Net cash outflow from operating
activities (1,417) (880)
Investing activities
Cash movements in relation to
assets held for sale (642) -
Purchase of intangible assets - (293)
Loan granted to subsidiary (1,200) -
Proceeds on disposal of investments - 10
Proceeds from sale of investment 3,426 -
Net cash generated in investing
activities 1,584 (283)
Financing activities
Proceeds from issue of shares 724 1,267
Net cash generated from
financing activities 724 1,267
Net increase in cash and cash
equivalents 891 104
Cash and cash equivalents at beginning
of year 1,168 1,064
Cash and cash equivalents
at end of year 2,059 1,168
The accounting policies and notes on pages 49 to 85 form part of
these financial statements.
1 Accounting policies
Company information
Scirocco Energy plc ("Scirocco", the "Group") is a public listed
company incorporated in England & Wales. The address of its registered
office 1 Park Row, Leeds, United Kingdom, LS1 5AB. The Company's
ordinary shares are traded on the AIM Market operated by the
London Stock Exchange. The financial statements of Scirocco Energy
plc for the year ended 31 December 2021 were authorised for issue
by the Board on 30 June 2022 and the statement of financial position
is signed on the Board's behalf by Mr Reynolds.
Investing policy
Scirocco's investing policy is to acquire a diverse portfolio
of direct and indirect interests in exploration, development
and production oil and gas assets, and any other subsurface gas
assets of potential commercial significance, located worldwide
but predominantly in the Americas, Europe or Africa.
The Group may invest by way of outright acquisition or by the
acquisition of assets, including the intellectual property, of
relevant business, partnerships or joint venture arrangements.
Such investments may result in the Group acquiring the whole
part of a company or project (which in the case of an investment
in a company may be private or listed on a stock exchange, and
which may be pre-revenue), may constitute a minority stake in
the Group or project in question and may take the form of equity,
joint venture debt, convertible instruments, license rights,
or other financial instruments as the Directors deem appropriate.
Scirocco intends to be a long-term investor and the Directors
will place no minimum or maximum limit on the length of time
that any investment may be held.
There is no limit on the number of projects into which the Group
may invest, nor the proportion of the Group's gross assets that
any investment may represent at any time and the Group will consider
possible opportunities anywhere in the world.
All of Scirocco's assets will be held in its own name, or through
wholly owned subsidiaries (note 13).
Statement of compliance with IFRS
The financial statements of the Group and the Company have been
prepared in accordance with UK-adopted international accounting
standards and as applied in accordance with the provisions of
the Companies Act 2006. The Directors have taken advantage of
the exemption available under Section 408 of the Companies Act
2006 and not presented an income statement nor a statement of
comprehensive income for the Company alone. The principal accounting
policies adopted by the Group are set out below.
Accounting convention
The financial statements have been prepared on the historical
cost basis, except for the measurement to fair value of assets
and financial instruments as described in the accounting policies
below, and on a going concern basis.
The financial report is presented in Pound Sterling (GBP) and
all values are rounded to the nearest thousand pounds (GBP'000)
unless otherwise stated. The functional currency of the Group
and Company are also GBP.
1 Accounting policies
Going concern
The Directors note the losses that the Group has made for the
year ended 31 December 2021. The Directors have prepared cash
flow forecasts for the period ending 30 June 2023 which take
account of the current cost and operational structure of the
Group. The base case forecast takes account of the sale of Ruvuma
to Wentworth Resources plc and the loan structure provided within
that structure to cover cash calls arising from the asset. With
the Ruvuma cash calls covered following the approval of shareholders
at the general meeting on 29th June 2022, the remaining cost
structure of the Group comprises a proportion of discretionary
spend and therefore in the event that cash flows become constrained,
costs can be reduced to enable the Group to operate within its
available funding. These forecasts demonstrate that the Group
has sufficient cash funds available, on the assumption that further
funds can be sourced as and when needed, to allow it to continue
in business for a period of at least twelve months from the date
of approval of these financial statements.
Accordingly, the financial statements have been prepared on a
going concern basis. Comments on going concern are included in
the Operations report and note 1. Although the Ruvuma asset has
been sold, no guarantee can be made that the sale completes.
The critical assumption in the going concern determination is
that the Ruvuma PSA and the costs associated with the development
of the Ntoyra natural gas discovery are met by the Group drawing
against the loan provided by Wentworth for its 25% interest.
In the event the sale did not complete, it is assumed that -
if required - the Group would be able to access additional funding.
If additional funding was not available there is a risk that
commitments could not be fulfilled, and assets would be relinquished.
Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Company and its subsidiaries as at 31 December
2021. Control is achieved when the Group is exposed, or has rights,
to variable returns from its involvement with the investee and
has the ability to affect those returns through its power over
the investee. Specifically, the Group controls an investee if,
and only if, the Group has:
* Power over the investee (i.e., existing rights that
give it the current ability to direct the relevant
activities of the investee)
* Exposure, or rights, to variable returns from its
involvement with the investee
* The ability to use its power over the investee to
affect its returns
Generally, there is a presumption that a majority of voting rights
results in control. To support this presumption and when the
Group has less than a majority of the voting or similar rights
of an investee, the Group considers all relevant facts and circumstances
in assessing whether it has power over an investee, including:
* The contractual arrangement(s) with the other vote
holders of the investee
* Rights arising from other contractual arrangements
* The Group's voting rights and potential voting rights
The Group re-assesses whether or not it controls an investee
if facts and circumstances indicate that there are changes to
one or more of the three elements of control. Consolidation of
a subsidiary begins when the Group obtains control over the subsidiary
and ceases when the Group loses control of the subsidiary. Assets,
liabilities, income and expenses of a subsidiary acquired or
disposed of during the year are included in the consolidated
financial statements from the date the Group gains control until
the date the Group ceases to control the subsidiary.
1 Accounting policies
Profit or loss and each component of OCI are attributed to the
equity holders of the parent of the Group and to the non-controlling
interests, even if this results in the non-controlling interests
having a deficit balance. When necessary, adjustments are made
to the financial statements of subsidiaries to bring their accounting
policies in line with the Group's accounting policies. All intra-group
assets and liabilities, equity, income, expenses and cash flows
relating to transactions between members of the Group are eliminated
in full on consolidation.
A change in the ownership interest of a subsidiary, without a
loss of control, is accounted for as an equity transaction. If
the Group loses control over a subsidiary, it derecognises the
related assets (including goodwill), liabilities, non-controlling
interest and other components of equity, while any resultant
gain or loss is recognised in profit or loss. Any investment
retained is recognised at fair value.
b) Investment in associates and joint ventures
An associate is an entity over which the Group has significant
influence. Significant influence is the power to participate
in the financial and operating policy decisions of the investee,
but is not control or joint control over those policies.
A joint venture is a type of joint arrangement whereby the parties
that have joint control of the arrangement have rights to the
net assets of the joint venture. Joint control is the contractually
agreed sharing of control of an arrangement, which exists only
when decisions about the relevant activities require the unanimous
consent of the parties sharing control.
The considerations made in determining significant influence
or joint control are similar to those necessary to determine
control over subsidiaries. The Group's investment in its associate
and joint venture are accounted for using the equity method.
Under the equity method, the investment in an associate or a
joint venture is initially recognised at cost. The carrying amount
of the investment is adjusted to recognise changes in the Group's
share of net assets of the associate or joint venture since the
acquisition date. Goodwill relating to the associate or joint
venture is included in the carrying amount of the investment
and is not tested for impairment separately.
The statement of profit or loss reflects the Group's share of
the results of operations of the associate or joint venture.
Any change in OCI of those investees is presented as part of
the Group's OCI. In addition, when there has been a change recognised
directly in the equity of the associate or joint venture, the
Group recognises its share of any changes, when applicable, in
the statement of changes in equity. Unrealised gains and losses
resulting from transactions between the Group and the associate
or joint venture are eliminated to the extent of the interest
in the associate or joint venture.
The aggregate of the Group's share of profit or loss of an associate
and a joint venture is shown on the face of the statement of
profit or loss outside operating profit and represents profit
or loss after tax and non-controlling interests in the subsidiaries
of the associate or joint venture.
The financial statements of the associate or joint venture are
prepared for the same reporting period as the Group. When necessary,
adjustments are made to bring the accounting policies in line
with those of the Group.
After application of the equity method, the Group determines
whether it is necessary to recognise an impairment loss on its
investment in its associate or joint venture. At each reporting
date, the Group determines whether there is objective evidence
that the investment in the associate or joint venture is impaired.
If there is such evidence, the Group calculates the amount of
impairment as the difference between the recoverable amount of
the associate or joint venture and its carrying value, and then
recognises the loss within 'Share of profit of an associate and
a joint venture' in the statement of profit or loss.
1 Accounting policies
Current assets held for sale
Current assets are classified as assets held for sale when their
carrying amount is to be recovered principally through a sale
transaction and a sale is considered highly probable. They are
stated at the lower of carrying amount and fair value less costs
to sell.
Discontinued operations
In accordance with IFRS 5 'Non-current assets held for sale and
discontinued operations', the net results relating to the assets
held for sale are presented within discontinued operations in
the income statement (for which the comparatives have been restated)
and the assets and liabilities of these operations are presented
separately in the balance sheet. Refer to note 10 for further
details.
Fair value measurement
IFRS 13 establishes a single source of guidance for all fair
value measurements. IFRS 13 does not change when an entity is
required to use fair value, but rather provides guidance on how
to measure fair value under IFRS when fair value is required
or permitted. The resulting calculations under IFRS 13 affected
the principles that the Group uses to assess the fair value,
but the assessment of fair value under IFRS 13 has not materially
changed the fair values recognised or disclosed. IFRS 13 mainly
impacts the disclosures of the Group. It requires specific disclosures
about fair value measurements and disclosures of fair values,
some of which replace existing disclosure requirements in other
standards.
Cash and cash equivalents
Cash in the statement of financial position comprise cash at
banks and on hand, which are subject to an insignificant risk
of changes in value.
Financial instruments
Financial assets and financial liabilities are recognised on
the balance sheet when the Group has become a party to the contractual
provisions of the instrument.
Classification
The Group classifies its financial assets and liabilities in
the following measurement categories:
* those to be measured subsequently at fair value
(either through Other Comprehensive Income or through
profit or loss); and
* those to be measured at amortised cost.
The classification depends on the entity's business model for
managing the financial assets and the contractual terms of the
cash flows.
Recognition and measurement
A financial instrument is recognised if the Group becomes a party
to the contractual provisions of the instrument. Financial assets
are derecognised if the Group's contractual rights to the cash
flows from the financial assets expire or if the Group transfers
the financial asset to another party without retaining control
or substantially all risks and rewards of the asset. Regular
way purchases and sales of financial assets are accounted for
at trade date, i.e. the date the Group commits itself to purchase
or sell the asset.
At initial recognition, the Group measures a financial asset
at its fair value plus, in the case of a financial asset not
at fair value through profit or loss ("FVTPL"), transaction costs
that are directly attributable to the acquisition of the financial
asset. Transaction costs of financial assets carried at FVTPL
are expensed in profit or loss.
Subsequent measurement of debt instruments depends on the Group's
business model for managing the asset and the cash flow characteristics
of the asset. Currently, the Group's financial assets are all
held for collection of contractual cash flows, which are solely
payments of principal and interest. Accordingly, the Group's
financial assets are measured subsequent to initial recognition
at amortised cost.
1 Accounting policies
Impairment
On a forward-looking basis, the Group estimates the expected
credit losses associated with its receivables and other financial
assets carried at amortised cost, and records a loss allowance
for these expected losses.
Trade and other receivables
Trade and other receivables outside of normal payment terms accrue
interest at a rate determined by the operator and are stated
at their nominal value as reduced by appropriate allowances for
estimated irrecoverable amounts.
Financial liability and equity
Financial liabilities and equity instruments are classified according
to the substance of the contractual arrangements entered into.
An equity instrument is any contract that evidences a residual
interest in the assets of the Group after deducting all of its
liabilities.
Trade and other payables
Trade and other payables are non interest bearing and are stated
at their nominal value.
Equity instruments
Equity instruments issued by the Group are recorded at the proceeds
received, net of direct issue costs.
Equity reserves
Share capital is determined using the nominal value of shares
that have been issued.
The share premium account represents premiums received on the
initial issuing of the share capital. Any transaction costs associated
with the issuing of shares are deducted from share premium, net
of any related income tax benefits.
The share based payment reserve represents the cumulative amount
which has been expensed in the income statement in connection
with share based payments, less any amounts transferred to retained
earnings on the exercise of share options.
Retained earnings includes all current and prior period results
as disclosed in the income statement.
Deferred shares includes shares that have been allocated to investment
partners that will be converted to share capital when certain
future conditions are met
Derivatives
Derivatives are initially recognised at fair value at the date
a derivative contract is entered into and are subsequently remeasured
to fair value at each reporting end date. The resulting gain
or loss is recognised in profit or loss immediately unless the
derivative is designated and effective as a hedging instrument,
in which event the timing of the recognition in profit or loss
depends on the nature of the hedge relationship.
A derivative with a positive fair value is recognised as a financial
asset, whereas a derivative with a negative fair value is recognised
as a financial liability. A derivative is presented as a non-current
asset or liability if the remaining maturity of the instrument
is more than 12 months and it is not expected to be realised
or settled within 12 months. Other derivatives are classified
as current.
1 Accounting policies
Taxation
The tax expense represents the sum of the current tax and deferred
tax.
Current tax
The current tax is based on taxable profit for the period. Taxable
profit differs from net profit as reported in the income statement
because it excludes items of income or expense that are taxable
or deductible in other periods and it further excludes items
that are never taxable or deductible. The liability for current
tax is calculated by using tax rates that have been enacted or
substantively enacted by the balance sheet date.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable
on differences between the carrying amount of assets and liabilities
in the financial statements and the corresponding tax bases used
in the computation of taxable profit, and is accounted for using
the balance sheet liability method. Deferred tax liabilities
are recognised for all taxable temporary differences and deferred
tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary
differences can be utilised. Such assets and liabilities are
not recognised if the temporary difference arises from goodwill
or from the initial recognition (other than in a business combination)
of other assets and liabilities in a transaction which affects
neither the tax profit not the accounting profit.
Provisions
Provisions are recognised for liabilities of uncertain timings
or amounts that have arisen as a result of past transactions
and are discounted at a pre-tax rate reflecting current market
assessments of the time value of money and the risks specific
to the liability.
Share-based payments
Where share options are awarded to employees, the fair value
of the options at the date of grant is charged to the income
statement over the vesting period. Non-market vesting conditions
are taken into account by adjusting the number of equity instruments
expected to vest at each balance sheet date so that, ultimately,
the cumulative amount recognised over the vesting period is based
on the number of options that eventually vest. Market vesting
conditions are factored into the fair value of the options granted.
As long as all other vesting conditions are satisfied, a charge
is made irrespective of whether the market vesting conditions
are satisfied. The cumulative expense is not adjusted for failure
to achieve a market vesting condition.
Where the terms and conditions of options are modified before
they vest, the increase in the fair value of the options, measured
immediately before and after the modification, is also charged
to the income statement over the remaining vesting period.
Where equity instruments are granted to persons other than employees,
the income statement is charged with the fair value of goods
and services received. Equity-settled share-based payments are
measured at a fair value at the date of grant except if the value
of the service can be reliably established. The fair value determined
at the grant date of equity-settled share-based payments is expensed
on a straight-line basis over the vesting period, based on the
Group's estimate of shares that will eventually vest.
Foreign exchange
Transactions in currencies other than Sterling are recorded at
the rates of exchange prevailing on the dates of the transactions.
At each balance sheet date, monetary assets and liabilities that
are denominated in foreign currencies are retranslated at the
rates prevailing on the balance sheet date. Gains and losses
arising on retranslation are included in the income statement
for the period.
1 Accounting policies
Oil and gas properties and other property, plant and equipment
(i) Initial recognition
Oil and gas properties and other property, plant and equipment
are stated at cost, less accumulated depreciation and accumulated
impairment losses.
The initial cost of an asset comprises its purchase price or
construction cost, any costs directly attributable to bringing
the asset into operation, the initial estimate of the decommissioning
obligation and, for qualifying assets (where relevant), borrowing
costs. The purchase price or construction cost is the aggregate
amount paid and the fair value of any other consideration given
to acquire the asset. The capitalised value of a finance lease
is also included within property, plant and equipment.
When a development project moves into the production stage, the
capitalisation of certain construction/development costs ceases,
and costs are either regarded as part of the cost of inventory
or expensed, except for costs which qualify for capitalisation
relating to oil and gas property asset additions, improvements
or new developments.
(ii) Depreciation/amortisation
Oil and gas properties are depreciated/amortised on a unit-of
production basis over the total proved developed and undeveloped
reserves of the field concerned, except in the case of assets
whose useful life is shorter than the lifetime of the field,
in which case the straight-line method is applied. Rights and
concessions are depleted on the unit-of-production basis over
the total proved developed and undeveloped reserves of the relevant
area.
The unit-of production rate calculation for the depreciation/amortisation
of field development costs takes into account expenditures incurred
to date, together with sanctioned future development expenditure.
An item of property, plant and equipment and any significant
part initially recognised is derecognised upon disposal or when
no future economic benefits are expected from its use or disposal.
Any gain or loss arising on derecognition of the asset (calculated
as the difference between the net disposal proceeds and the carrying
amount of the asset) is included in the statement of profit or
loss and other comprehensive income when the asset is derecognised.
The asset's residual values, useful lives and methods of depreciation/amortisation
are reviewed at each reporting period and adjusted prospectively.
(iii) Major maintenance, inspection and repairs
Expenditure on major maintenance refits, inspections or repairs
comprises the cost of replacement assets or parts of asset, inspection
costs and overhaul costs. Where an asset, or part of an asset
that was separately depreciated and is now written off is replaced
and it is probably that future economic benefits associated with
the item will flow to the Group, the expenditure will be capitalised.
Where part of the asset replaced was not separately considered
as a component and therefore not depreciated separately, the
replacement value is used to estimate the carrying amount of
the replaced asset(s) and is immediately written off. Inspection
costs associated with major maintenance programmes are capitalised
and amortised over the period of the next inspection. All other
day-to-day repairs and maintenance costs are expensed as incurred.
1 Accounting policies
Provision for rehabilitation / Decommissioning Liability
The Group recognises a decommissioning liability where it has
a present legal or constructive obligation as a result of past
events, and it is probably that an outflow of resources will
be required to settle the obligation, and a reliable estimate
of the amount of obligation can be made.
The obligation generally arises when the asset is installed or
the ground/environment is disturbed at the field location. When
the liability is initially recognised, the present value of the
estimated costs is capitalised by increasing the carrying amount
of the related oil and gas assets to the extent that it is incurred
by the development/construction of the field. Any decommissioning
obligations that arise through the production of inventory are
expensed when the inventory item is recognised in cost of goods
sold.
Changes in the estimated timing or cost of decommissioning are
dealt with prospectively by recording an adjustment to the provision
and a corresponding adjustment to oil and gas assets. Any reduction
in the decommissioning liability and, therefore, any deduction
from the asset to which it relates, may not exceed the carrying
amount of that asset. If it does, any excess over the carrying
value is taken immediately to the statement of profit or loss
and other comprehensive income.
Segmental reporting
A business segment is a group of assets or operations engaged
in providing services that are subject to risks and returns that
are different from those of other business segments. A geographical
segment is engaged in providing services within a particular
economic environment that is subject to different risks and returns
from other segments in other economic environments. The company
has two segments; corporate head office costs and Tanzania.
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker
(CODM). The CODM, who is responsible for allocating resources
and assessing performance of the operating segments, has been
identified as Thomas Reynolds that makes strategic decisions.
Segment results include items directly attributable to a segment
as well as those that can be allocated on a reasonable basis.
Investments
The Group's financial asset investments are classified and measured
at fair value, under IFRS 9, with changes in fair value recognised
in profit and loss as they arise.
Gains and losses on investments disposed of or identified are
included in the net profit or loss for the period.
Investments held by the Group are held for resale. Therefore
where the Group's equity stake in an investee company is 20%
or more equity accounting for associates is not considered to
be appropriate.
2 Adoption of new and revised standards and changes in accounting
policies
In the current year, the following new and revised Standards
and Interpretations have been adopted by the Company. The adoption
of these standards has had no impact on the current period however
may have an effect on future periods.
IFRS 4 (Amendments) Extension of the temporary Immediate
exemption from applying IFRS
9
IFRS 9, IAS 39, IFRS Interest rate benchmark reform 1 January
7, IFRS 4 and IFRS 16 - phase 2 2021
(Amendments)
IFRS 16 (Amendments) Covid-19-related rent concessions 1 April 2021
IFRIC Cloud Computing Costs 1 January
2021
Standards which are in issue but not yet effective
At the date of authorisation of these financial statements, the
following Standards and Interpretations, which have not yet been
applied in these financial statements, were in issue but not
yet effective (and in some cases had not yet been adopted by
the United Kingdom):
IFRS 17 Insurance contracts 1 January
2023
IAS 1 (Amendments) Classification of liabilities 1 January
as current or non-current 2023
IFRS 3 (Amendments) Reference to the Conceptual 1 January
Framework 2022
IAS 16 (Amendments) Property, plant and equipment 1 January
- proceeds before intended 2022
use
IAS 37 (Amendments) Onerous contracts - cost of 1 January
fulfilling a contract 2022
Annual Improvements Amendments to IFRS 1 (subsidiary 1 January
2018-2020 Cycle as a first-time adopter), IFRS 2022
9 (fees in the '10 percent'
test for derecognition of financial
liabilities), IFRS 16 (lease
incentives), IAS 41 (taxation
in the fair value measurements)
IAS 1 (Amendments) Classification of liabilities 1 January
as current or non-current - 2023
deferral of effective date
IAS 1 and IFRS Practice Disclosure of accounting policies 1 January
Statement 2 2023
IAS 8 (Amendments) Definition of accounting estimates 1 January
2023
IAS 12 (Amendments) Deferred tax related to assets 1 January
and liabilities arising from 2023
a single transaction
The directors do not expect that the adoption of the other Standards
listed above will have a material impact on the financial statements
of the Company aside from additional disclosures.
3 Critical accounting estimates and judgements
The Group makes estimates and assumptions regarding the future.
Estimates and judgements are continually evaluated based on historical
experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
In the future, actual experience may differ from these estimates
and assumptions. The estimates and assumptions that have a significant
risk of causing a material adjustment to the carrying amounts
of assets and liabilities within the next financial year are
discussed below.
The preparation of the Financial Statements in conformity with
IFRS requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amount of expenses during the period.
Actual results may vary from the estimates used to produce these
Financial Statements.
Estimates and judgements are regularly evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances.
Items subject to such estimates and assumptions, that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial years,
include but are not limited to:
Useful lives of intangible assets and property, plant and equipment
(note 12)
Intangible assets and property, plant and equipment are amortised
or depreciated over their useful lives. Useful lives are based
on the management's estimates of the period that the assets will
generate revenue, which are based on judgement and experience
and periodically reviewed for continued appropriateness. Changes
to estimates can result in significant variations in the carrying
value and amounts charged to the income statement in specific
periods.
Share-based payments (note 20)
The Group utilised an equity-settled share-based remuneration
scheme for employees. Employee services received, and the corresponding
increase in equity, are measured by reference to the fair value
of the equity instruments at the date of grant, excluding the
impact of any non-market vesting conditions. The fair value of
share options are estimated by using Black-Scholes valuation
method as at the date of grant. The assumptions used in the valuation
are described in Note 22 and include, among others, the expected
volatility, expected life of the options and number of options
expected to vest.
Deferred taxation (note 9)
Deferred tax assets are recognised when it is judged more likely
than not that they will be recovered. Deferred tax assets are
currently nil based on the likelihood of recovery.
Recoverability of oil and gas assets (note 12)
The Company assesses each asset or cash generating unit (CGU)
each reporting period to determine whether any indication of
impairment exists. Where an indicator of impairment exists, a
formal estimate of the recoverable amount is made, which is considered
to be the higher of the fair value less costs of disposal (VLCD)
and value in use (VIU). The assessments require the use of estimates
and assumptions such as long-term oil prices (considering current
and historical prices, price trends and related factors), discount
rates, operating costs, future capital requirements, decommissioning
costs, exploration potential reserves (see(a) Hydrocarbon reserves
and resource estimates above) and operating performance (which
includes production and sales volumes). These estimates and assumptions
are subject to risk and uncertainty. Therefore, there is possibility
that changes in circumstances will impact these projections,
which may impact the recoverable amount of assets and/or CGUs.
3 Critical accounting estimates and judgements
Decommissioning provisions (note 12)
There is uncertainty around the cost of decommissioning as cost
estimates can vary in response to many factors, including changes
to the relevant legal requirements, the emergence of new technology
or experience at other assets. The expected timing, work scope
and amount and currency mix of expenditure may also change. Therefore,
significant estimates and assumptions are made in determining
the provision for decommissioning.
The estimated decommissioning costs are reviewed annually by
an internal expert from the joint venture partner. Provision
for environmental clean-up and remediation costs is based on
current legal and contractual requirements, technology and management's
estimate of costs with reference to current price levels. Future
cost estimates are discounted to present value using a rate that
approximates the time value of money, which is currently 5.89%.
The discount rate is based on the average yield on Tanzanian
Government bonds for foreign currency loans of a duration of
more than 10 years.
4 Operating Segments
Based on risks and returned, the directors consider that the primary
reporting format is by business segment. The directors consider
that there are two business segments:
* Head office support from the UK
* Segment assets for Canada relate to an investment in
Corallian Energy
* Discontinued operations on its investments in
Tanzania
Continuing Operations Discontinuing
Operations
2021 Canada UK Total Tanzania Total
GBP000 GBP000 GBP000 GBP000 GBP000
Revenue - - - - -
Administrative expenses - (1,890) (1,890) - (1,890)
Interest income - - - 12 12
Finance costs - (2) (2) - (2)
Other gains and losses - 2,196 2,196 (4,065) (1,869)
Other income - 58 58 - 58
Profit/(Loss) from operations
per reportable segment - 362 362 (4,053) (3,691)
Additions to non-current
assets - 26 26 - 26
Reportable segment assets 125 3,721 3,846 11,600 15,446
Reportable segment liabilities - 157 157 166 323
4 Operating Segments
2020 Canada UK Total Tanzania Total
GBP000 GBP000 GBP000 GBP000 GBP000
Revenue - - - - -
Administrative expenses - (3,323) (3,323) - (3,323)
Interest income - - - 18 18
Finance costs - - - (3) (3)
Other gains and losses - - - (810) (810)
Other income - - - - -
Profit/(Loss) from operations
per reportable segment - (3,323) (3,323) (795) (4,118)
Additions to non-current
assets - - - 293 293
Reportable segment assets 125 1,296 1,421 17,476 18,897
Reportable segment
liabilities - 249 249 166 415
5 Revenue
2021 2020
GBP000 GBP000
Other significant revenue
Interest income 12 18
12 18
Contract balances
2021 2020
GBP000 GBP000
Trade receivables - 272
Accrued income and interest - 90
Trade receivables accrue interest for non payment. Outstanding
debtors accrue interest at a rate in accordance with the joint
venture agreement and are generally on terms of 30 days. In 2021,
there is a provision of GBPnil (2020: GBP55k) for expected credit
losses on trade receivables.
Interest income relates to interest charged on outstanding invoices.
An operating segment is a distinguishable component of the Company
that engages in business activities from which it may earn revenues
and incur expenses, whose operating results are regularly reviewed
by the Company's chief operating decision maker to make decisions
about the allocation of resources and assessment of performance
and about which discrete financial information is available.
6 Expenses by Nature
2021 2020
Continuing Operations GBP000 GBP000
Exchange losses 8 68
Fees payable to the Company's auditor for the
audit of the Company's financial statements 19 36
Professional, legal and consulting fees 920 617
AIM related costs including investor relations 157 136
Costs relating to OneDYAS transaction - 640
Accounting related services 93 114
Travel and subsistence - 17
Office and administrative expenses 87 47
Other expenses 38 72
Impairment losses - 1,384
Share-based payments 471 335
Directors remuneration 94 (206)
Wages and salaries and other related costs 5 63
1,892 3,323
7 Employees
The average number of employees (excluding executive directors)
was one (2020: nil). There was one employee who began employment
in October 2021.
During the year ended 31 December 2021 the Directors opted to
receive remuneration in the form of share options in lieu of
fees (note 22).
2021 2020
GBP000 GBP000
Their aggregate remuneration comprised :
Wages and salaries 11 8
Directors remuneration 94 (206)
Salary Share-based Termination Total
and fees payments payments
GBP000 GBP000 GBP000 GBP000
Year ended 31 December 2021
Jonathan Fitzpatrick (resigned
9 July 2021) - 36 - 36
Alastair Ferguson (7) 140 - 132
Tom Reynolds 91 146 - 237
Donald Nicolson 10 89 - 100
Muir Miller (appointed 18
February 2021) - 35 - 35
Doug Rycroft (senior management) - 25 - 25
94 471 - 564
7 Employees
Salary Share-based Termination Total
and fees payments payments
GBP000 GBP000 GBP000 GBP000
Year ended 31 December 2020
Jonathan Fitzpatrick 6 67 - 73
Alastair Ferguson (44) 143 - 99
Tom Reynolds 16 57 - 73
Donald Nicolson 6 57 - 63
Don Strang (resigned 26 November
2018) (6) - - (6)
Dan Maling (resigned 7 February
2019) (184) - - (184)
Doug Rycroft (senior management) - 13 - 13
(206) 335 - 129
No directors received pension contributions in 2021 or 2020.
8 Other gains and losses
2021 2020
GBP000 GBP000
Gain on sale of financial assets at fair value
through profit or loss 2,196 -
9 Income tax expense
2021 2020
GBP000 GBP000
UK corporation tax on profits for the current
period - -
Total UK current tax - -
Deferred tax
Origination and reversal of temporary differences - -
Total tax charge - -
9 Income tax expense
The charge for the year can be reconciled to the loss per the
income statement as follows:
2021 2020
GBP000 GBP000
Loss before taxation (3,692) (4,118)
Expected tax credit based on a corporation tax
rate of 19.00% (2020: 19.00%) (701) (783)
Effect of expenses not deductible in determining
taxable profit 837 442
Income not taxable (420) (2)
Other non-reversing timing differences - (14)
Deferred tax not recognised - 596
Remeasurement of deferred tax for changes in
tax rates (45) (239)
Chargeable gains 329 -
Taxation charge for the year - -
No deferred tax asset has been recognised because there is uncertainty
of the timing of suitable future profits against which they can
be recovered. The company has losses carried forward of GBP6,312k
(2020 - GBP5,162k).
10 Discontinued operations
The Company has a 25% interest in a high-quality development
project in Tanzania which the Directors are actively seeking
to divest. This stake has been valued at $16m and operations
relating to this stake are detailed below. For details on the
divestment please refer to the Strategic Report.
The results of the discontinued business, which have been included
in the income statement, balance sheet and cash flow statement,
were as follows:
2021 2020
GBP000 GBP000
Impairment on fair value revaluation (3,846) (810)
Investment losses/revenues (207) 18
Finance costs - (3)
Loss before taxation (4,053) (795)
Net loss attributable to discontinuation (4,053) (795)
10 Discontinued operations
The loss after tax on disposal of the assets held for
sale is made up as follows:
GBP000
Fair value less costs to sell 11,828
Net book value of assets disposed:
Intangible assets (15,901)
Oil and gas properties (750)
Decommissioning provision 166
Impairment on fair value revaluation at 31 December
2020 810
(15,675)
Impairment on fair value revaluation at 31 December
2021 (3,846)
Loss per share impact from discontinued
operations
2021 2020
Basic and diluted impact (pence) (0.10) (0.11)
Cash flow statement
2021 2020
GBP000 GBP000
Net cash flows from investing
activities (642) (237)
Net cash flows from discontinued
operations (642) (237)
11 Earnings per share
The calculation of loss per share is based on the loss after taxation
divided by the weighted average number of shares in issue during
the year.
2021 2020
Number of shares
Weighted average number of ordinary shares for
basic profit/loss per share (000) 758,788 723,950
Weighted average number of ordinary shares for
diluted profit per share (000) 854,621 -
Earnings GBP000 GBP000
Continuing operations
Profit/loss for the period from continued operations 361 (3,324)
Discontinued operations
(Loss) for the period from discontinued operations (4,053) (795)
Basic earnings per share
From continuing operations (pence per share) 0.05 (0.47)
From discontinued operations (pence per share) (0.53) (0.11)
(0.49) (0.57)
Diluted earnings per share
From continuing operations (pence per share) 0.04 -
From discontinued operations (pence per share) - -
- -
12 Financial assets at fair value through profit or loss
GROUP AND COMPANY
2021 2020
GBP000 GBP000
Financial assets at fair value through profit or loss
Quoted equity investments 312 1,542
Unquoted equity investments 125 125
437 1,667
The quoted investments in the current year relate to an equity
investment held in Helium One Ltd, a company incorporated in
the British Virgin Islands. Their subsidiaries hold helium mining
licences across Tanzania. The shares held have been valued at
the mark-to-market value of 7.00p per share at 31 December 2021.
The unquoted investments in the current year relate to an equity
investment held in Corallian Energy Limited, a company incorporated
in England. The Company holds interests in oil and gas basins
in the United Kingdom.
Unquoted Equity Investments
GBP000
At 1 January 2020 125
Remeasurement -
At 1 January 2021 125
Remeasurement -
At 31 December 2021 125
13 Subsidiaries
Details of the company's subsidiaries at 31 December 2021 are
as follows:
Name of undertaking Registered office Principal Class of % Held
activities
shares held Direct
1 Park Row, Leeds,
Scirocco Energy United Kingdom, LS1 Dormant Holding
International Limited 5AB Company Ordinary 100.00
1 Park Row, Leeds,
Scirocco Energy United Kingdom, LS1 Investment
(UK) Limited 5AB Holding Company Ordinary 100.00
The results of all subsidiaries are included within the consolidated
results of Scirocco Energy plc.
14 Associates
During the current year the Group acquired 50% of the share capital
of Energy Acquisitions Group Limited, a company incorporated
in Northern Ireland. The company acquires and finances renewable
energy assets in the United Kingdom.
Details of the company's associates at 31 December 2021 are as
follows:
Name of undertaking Registered office Principal Class of % Held
activities
shares held Direct
32 Lodge Road, Coleraine, Investment
Energy Acquisitions Northern Ireland, BT52 in renewable
Group Limited 1NB energy assets Ordinary 50.00
Energy Acquisitions Group Limited summary statement of financial
position
2021
GBP000
Non-current assets 617
Current assets 603
Current liabilities (461)
Non-current liabilities (900)
Equity (141)
Energy Acquisitions Group Limited summary profit and loss account
2021
GBP000
Administrative expenses (126)
Interest payable and similar expenses (6)
Loss for the financial year (132)
The results of Energy Acquisition Group Limited are standalone
results and do not include the results of Greenan Generation
Limited
In accordance with IAS 28, as the Group's share of loss of an
associate/joint venture exceeds its interest in the associate/joint
venture, the entity has not recognised its share of losses.
15 Assets and liabilities classified as held
for sale
2021 2020
GROUP AND COMPANY GBP000 GBP000
Intangible assets 11,246 14,449
Oil and gas properties 354 354
Total assets classified as held for sale 11,600 14,803
Decommissioning provision 166 166
Total liabilities classified as held for sale 166 166
At the date of authorisation of the financial statements it was
determined that a sale would be highly probable (see note 10).
16 Trade and other receivables
2021 2020
GROUP AND COMPANY GBP000 GBP000
Trade receivables - 273
Provision for bad and doubtful debts (note 23) - (55)
- 218
Other receivables 111 -
VAT recoverable 21 16
Loan receivable from associate 1,244 -
Loan to Helium One Ltd - 73
Prepayments 21 114
1,397 421
The directors consider that the carrying amount of trade and
other receivables approximates to their fair value.
17 Trade and other payables
2021 2020
GROUP AND COMPANY GBP000 GBP000
Trade payables 142 152
Accruals 36 57
Social security and other taxation - 5
Other payables - 34
178 248
17 Trade and other payables
The directors consider that the carrying amount of trade payables
approximates to their fair value.
18 Share capital
GROUP AND COMPANY Number of Nominal value
shares
GBP000
a) Called up, allotted, issued and fully paid: Ordinary shares of
0.2 p each
As at 31 December 2020 723,949,575 1,448
20 October 2021 - placing for cash at
0.02p 34,838,350 70
At 31 December 2021 758,787,925 1,518
b) Deferred shares
2021 2020
GBP000 GBP000
At beginning of year 1,831 1,831
Shares not issued moved to deferred
share capital 536 -
Issue of new shares (362) -
Consideration received for shares to
be issued 724 -
At end of year 2,729 1,831
c) Total Share options in issue
During the year no incentive options were granted (2020: 51,419,781).
As at 31 December 2021 there were 51,419,781 incentive options in
issue (2020: 585,000,000)
During the year 24,997,841 (2020: 19,055,864) share options in lieu
of salary and/or fees due to the relevant option holders were granted.
As at 31 December 2021 there were 44,053,706 share options in lieu
of salary and/or fees in issue (2020: 19,055,864).
d) Total warrants in issue
No warrants lapsed in the year and no warrants were issued, cancelled
or exercised during the year (2020: 12,500,000 warrants were issued).
As at 31 December 2021 12,500,000 warrants were outstanding (2020:
12,500,000). In the post balance sheet period these warrants have
expired unexercised.
19 Share premium account
2021 2020
GROUP AND COMPANY GBP000 GBP000
At beginning of year 38,399 37,316
Shares not issued moved to deferred share capital (536) 1,083
Issue of new shares 292 -
At end of year 38,155 38,399
20 Share based payment
GROUP AND COMPANY
The Company has opted to remunerate the directors for the year
to 31 December 2021 by a grant of an option over the ordinary
shares of the capital of the Company as detailed in the deed of
option grants. The life of the options is 18 months. There are
three executive directors and two non-executive directors who
are members of the plan. The following table summarises the expense
recognised in the Statement of Comprehensive Income since the
options were granted.
2021 2020
GBP000 GBP000
Directors options 285 236
Incentive options 186 99
Credit to equity for equity-settled share-based
payments 471 335
During June 2020 (and the height of the Covid-19 pandemic) the
Company sought to put in place a strategy that would help to conserve
the Company's cash position in the near term and also to maximise
alignment between the Board, Management Team and Shareholders.
Accordingly, the Company proposed to grant nominal cost options
over new Ordinary Shares of 0.2p (GBP0.0020) to Directors and
select members of the Management Team ("the Director Options").
The Director Options were granted over a total of 24,997,841 (2020:
19,055,864) Ordinary Shares and have an aggregate value equal
(on a net basis, after deduction of the nominal exercise price
per Ordinary Share) to the fair value of salary and/or fees due
to the relevant option holders up to December 2021.
Members of the Management Team were also awarded options over
Ordinary Shares with an exercise price of 1.3p (GBP0.013) ("the
Incentive Options"), which was approximately a 24% premium to
the closing midmarket price of the Company's Ordinary Shares on
26 June 2020. Each Incentive Option is ordinarily
exercisable on the 2nd anniversary of the grant date (being 30
June 2022), except in the event of specified corporate events
or, exceptionally, if the option holder leaves as a 'good leaver'.
The Company used the Black-Scholes model to determine the value
of the incentive options and the inputs. There were no share options
for the year ended 31 December 2020. The value of the options
and the inputs for the year ended 31 December 2021 were as follows:
20 Share based payment
Issue 30 June 2020
Incentive options
Share price at grant (pence) 1.09
Exercise price at grant (pence) 1.30
Expected volatility (%) 84.42
Expected life (years) 6
Risk free rate (%) 0.17
Expected dividends (pence) nil
Expected volatility was determined by using the Company's share
price for the preceding 3 years.
The total share-based payment expense in the year for the Company
was GBP186,013 in relation to the issue of incentive options (2020:
GBP99,207) and GBPnil finance charges in relation to warrants
(2020: GBPnil).
The Incentive Options granted represent approximately 7.9% of
the Company's issued share capital (excluding warrants issued
to Prolific Basins LLC). The Board has retained additional headroom
for future Incentive Options as it recognises that the future
performance of the Company will be dependent on its ability to
retain the services of key executives.
21 Financial instruments
GROUP
Categories of financial instruments
The following table combines information about:
* Classes of financial instruments based on their
nature and characteristics; and
* The carrying amounts of financial instruments.
2021 2020
GBP000 GBP000
Financial assets at amortised cost
Trade receivables - 245
Other debtors 111 -
Prepayments and accrued
income 21 114
Cash and cash equivalents 2,059 1,168
Loan to associate 1,244 -
3,435 1,527
21 Financial instruments
Book Value Fair Value Book Value Fair Value
2021 2021 2020 2020
GBP000 GBP000 GBP000 GBP000
Financial assets at fair
value
Non-current Investment
- Helium One 312 312 1,542 1,542
Non-current Investment
- Corallian Energy Limited 125 125 125 125
Current Loans - Helium
One - - 73 73
437 437 1,740 1,740
2021 2020
GBP000 GBP000
Financial liabilities at amortised
cost
Trade payables 142 152
Accruals and deferred
income 36 57
178 209
The table below analyses financial instruments carried at fair
value, by valuation method.
Fair values are categorised into different levels in a fair value
hierarchy based on the inputs used in the valuation techniques
as follows:
* Level 1: quoted prices (unadjusted) in active markets
for identical assets or liabilities.
* Level 2: inputs other than quoted prices included in
Level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or
indirectly (i.e derived from prices).
* Level 3: inputs for the asset or liability that are
not based on observable market data (unobservable
inputs).
The fair values for the Company's assets and liabilities are not
materially different from their carrying values in the financial
statements.
The following table presents the Company's financial assets that
are measured at fair value:
Level 1 Level 2 Level 3 Total
GBP000 GBP000 GBP000 GBP000
Non-current Investment
- Helium One 312 - - 312
Non-current Investment
- Corallian Energy Limited - - 125 125
312 - 125 437
The Company does not have any liabilities measured at fair value.
There have been no transfers in to or transfers out of fair value
hierarchy levels in the period.
21 Financial instruments
Financial instruments
in level 1
The fair value of financial instruments traded in active markets
is based on quoted market prices at the reporting date. A market
is regarded as active if quoted prices are readily and regularly
available from an exchange, dealer, broker, industry group, pricing
service, or regulatory agency, and those prices represent actual
and regularly occurring market transactions on an arm's length
basis. The quoted market price used for financial assets held by
the Company is the current bid price.
Financial instruments in
level 2
The fair value of financial instruments that are not traded in
an active market is determined by using valuation techniques. These
valuation techniques maximise the use of observable market data
where it is available and rely as little as possible on entity
specific estimates. If all significant inputs required to fair
value an instrument are observable, the instrument is included
in level 2. No investments are valued using level 2 inputs in the
period.
Financial instruments
in level 3
If one or more of the significant inputs is not based on observable
market data, the instrument is included in Level 3. Following the
guidance of IFRS 9, these financial instruments have been assessed
to determine the fair value of the instrument. In their assessment,
the Directors have considered both external and internal indicators
to decide whether an impairment charge must be made or whether
there needs to be a fair value uplift on the instrument. Instruments
included in Level 3 comprise of convertible loan notes held with
Helium One. Details of this can be found at Note 17.
The carrying value of the Company's financial assets and liabilities
measured at amortised cost are approximately equal to their fair
value.
The Company is exposed through its operations to one or more of
the following financial risk:
* Fair value or cash flow interest rate risk
* Foreign currency risk
* Liquidity risk
* Credit risk
* Market risk
* Expected credit losses
Policy for managing these risks is set by the Board. The policy
for each of the above risks is described in more detail below.
Fair value and cashflow interest rate risk
Generally the Company has a policy of holding debt at a floating
rate. The directors will revisit the appropriateness of this policy
should the Company's operations change in size or nature. Operations
are not permitted to borrow long-term from external sources locally.
Foreign currency risk
Foreign exchange risk arises because the Company has operations
located in various parts of the world whose functional currency
is not the same as the functional currency in which the Company's
investments are operating. The Company's net assets are exposed
to currency risk giving rise to gains or losses on retranslation
into sterling. Only in exceptional circumstances will the Company
consider hedging its net investments in overseas operations as
generally it does not consider that the reduction in volatility
in net assets warrants the cash flow risk created from such hedging
techniques.
21 Financial instruments
The Company's exposure to foreign currency risk at the end of the
reporting period is summarised below. All amounts are presented
in GBP equivalent.
2021 2020
$000 $000
USD USD
Trade and other receivables 150 274
Cash and cash equivalents 1,415 1,006
Trade and other payables (166) (142)
Net exposure 1,399 1,138
Sensitivity analysis
As shown in the table above, the Company is primarily exposed to
changes in the GBP:USD exchange rate through its cash balance held
in USD and trading balances and to changes in the GBP:EUR exchange
rate due to the deposit denominated in EUR. The table below shows
the impact in GBP on pre-tax profit and loss of a 10% increase/decrease
in the GBP to USD exchange rate, holding all other variables constant.
Also shown is the impact of a 10% increase/decrease in the GBP
to EUR exchange rate, being the other primary currency exposure.
2021 2020
GBP000 GBP000
GBP:USD exchange rate increases 10% 116 126
GBP:USD exchange rate decreases 10% (142) (154)
Liquidity risk
The liquidity risk of each entity is managed centrally by the treasury
function. Each operation has a facility with treasury, the amount
of the facility being based on budgets. The budgets are set locally
and agreed by the board annually in advance, enabling the cash
requirements to be anticipated. Where facilities of entities need
to be increased, approval must be sought from the finance director.
Where the amount of the facility is above a certain level agreement
of the board is needed.
All surplus cash is held centrally to maximise the returns on deposits
through economies of scale. The type of cash instrument used and
its maturity date will depend on the forecast cash requirements.
The table below analyses the company's financial liabilities into
relevant maturity groupings based on their contractual maturities.
The amounts presented are the undiscounted cash flows.
Less than 6 to 12 Between Between
6 months months 1 and 2 years 2 and 5
years
GBP000 GBP000 GBP000 GBP000
31 December 2021
Trade and other payables 178 - - -
31 December 2020
Trade and other payables 243 - - -
21 Financial instruments
Credit risk
The Company is mainly exposed to credit risk from credit sales.
It is Company policy, implemented locally, to access the credit
risk of new customers before entering contracts. Such credit ratings
are taken into account by local business practices.
The Company does not enter into complex derivatives to manage credit
risk, although in certain isolated cases may take steps to mitigate
such risks if it is sufficiently concentrated.
Market risk
As the Company is now investing in listed companies, the market
risk will be that of finding suitable investments for the Company
to invest in and the returns that those investments will return
given the markets that in which investments are made.
Expected credit losses
Allowances are recognised as required under the IFRS 9 impairment
model and continue to be carried until there are indicators that
there is no reasonable expectation of recovery.
For trade and other receivables which do not contain a significant
financing component, the Company applies the simplified approach.
This approach requires the allowance for expected credit losses
to be recognised at an amount equal to lifetime expected credit
losses. For other debt financial assets the Company applies the
general approach to providing for expected credit losses as prescribed
by IFRS 9, which permits for the recognition of an allowance for
the estimated expected loss resulting from default in the subsequent
12-month period. Exposure to credit loss is monitored on a continual
basis and, where material, the allowance for expected credit losses
is adjusted to reflect the risk of default during the lifetime
of the financial asset should a significant change in credit risk
be identified.
The majority of the Company's financial assets are expected to
have a low risk of default. A review of the historical occurrence
of credit losses indicates that credit losses are insignificant
due to the size of the Company's clients and the nature of the
services provided. The outlook for the oil and gas industry is
not expected to result in a significant change in the Company's
exposure to credit losses. As lifetime expected credit losses are
not expected to be significant the Company has opted not to adopt
the practical expedient available under IFRS 9 to utilise a provision
matrix for the recognition of lifetime expected credit losses on
trade receivables. Allowances are calculated on a case-by-case
basis based on the credit risk applicable to individual counterparties.
Exposure to credit risk is continually monitored in order to identify
financial assets which experience a significant change in credit
risk. In assessing for significant changes in credit risk the Company
makes use of operational simplifications permitted by IFRS 9. The
Company considers a financial asset to have low credit risk if
the asset has a low risk of default; the counterparty has a strong
capacity to meet its contractual cash flow obligations in the near
term; and no adverse changes in economic or business conditions
have been identified which in the longer term may, but will not
necessarily, reduce the ability of the counterparty to fulfil its
contractual cash flow obligations. Where a financial asset becomes
more than 30 days past its due date additional procedures are performed
to determine the reasons for non-payment in order to identify if
a change in the exposure to credit risk has occurred.
Should a significant change in the exposure to credit risk be identified
the allowance for expected credit losses is increased to reflect
the risk of expected default in the lifetime of the financial asset.
The Company continually monitors for indications that a financial
asset has become credit impaired with an allowance for credit impairment
recognised when the loss is incurred. Where a financial asset becomes
more than 90 days past its due date additional procedures are performed
to determine the reasons for non-payment in order to identify if
the asset has become credit impaired.
21 Financial instruments
The Company considers an asset to be credit impaired once there
is evidence that a loss has been incurred. In addition to recognising
an allowance for expected credit loss, the Company monitors for
the occurrence of events that have a detrimental impact on the
recoverability of financial assets. Evidence of credit impairment
includes, but is not limited to, indications of significant financial
difficulty of the counterparty, a breach of contract or failure
to adhere to payment terms, bankruptcy or financial reorganisation
of a counterparty or the disappearance of an active market for
the financial asset.
A financial asset is only written off when there is no reasonable
expectation of recovery.
A provision matrix can be used based on historical data of default
rates adjusted for a forward looking estimate. The history of default
rates needs to be accessed in conjunction with the aging of the
trade receivable balance. The aging of a balance alone does not
require a provision but can be used as a structure to apply the
rates calculated. The historical default rates are used in accordance
with forward looking information.
In order to determine the amount of ECL to be recognised in the
financial statements, Scirocco is using a provision matrix based
on its historical observed default rates which is adjusted for
forward-looking estimates and establishes that ECL should be calculated
as:
Non-past due 0.5% of carrying value
30 days past due 2% of carrying value
31-60 past due 4% of carrying value
61-90 past due 6% of carrying value
90 days-3 years past due 10% of carrying value
Over 3 years past due 20% of carrying value
The simplified approach enables Scirocco to make an estimate of
ECL as they are unable to track the credit worthiness of customers.
The total outstanding amount is GBP8k at 31 December 2021 which
is not past due resulting in an ECL of GBPnil in the current year.
COMPANY
Categories of financial instruments
The following table combines information about:
* Classes of financial instruments based on their
nature and characteristics; and
* The carrying amounts of financial instruments.
2021 2020
GBP000 GBP000
Financial assets at amortised cost
Trade receivables - 245
Other debtors 111 -
Prepayments and accrued
income 21 114
Cash and cash equivalents 2,059 1,168
Loan to subsidiary 1,244 -
3,435 1,527
21 Financial instruments
Book Value Fair Value Book Value Fair Value
2021 2021 2020 2020
GBP000 GBP000 GBP000 GBP000
Financial assets at fair
value
Non-current Investment
- Helium One 312 312 1,542 1,542
Non-current Investment
- Corallian Energy Limited 125 125 125 125
Current Loans - Helium
One - - 73 73
437 437 1,740 1,740
2021 2020
GBP000 GBP000
Financial liabilities at amortised
cost
Trade payables (142) (152)
Accruals and deferred
income (36) (57)
178 209
The table below analyses financial instruments carried at fair
value, by valuation method.
Fair values are categorised into different levels in a fair value
hierarchy based on the inputs used in the valuation techniques
as follows:
* Level 1: quoted prices (unadjusted) in active markets
for identical assets or liabilities.
* Level 2: inputs other than quoted prices included in
Level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or
indirectly (i.e derived from prices).
* Level 3: inputs for the asset or liability that are
not based on observable market data (unobservable
inputs).
The fair values for the Company's assets and liabilities are not
materially different from their carrying values in the financial
statements.
The following table presents the Company's financial assets that
are measured at fair value:
Level 1 Level 2 Level 3 Total
GBP000 GBP000 GBP000 GBP000
Non-current Investment
- Helium One 312 - - 312
Non-current Investment
- Corallian Energy Limited - - 125 125
312 - 125 437
The Company does not have any liabilities measured at fair value.
There have been no transfers in to or transfers out of fair value
hierarchy levels in the period.
21 Financial instruments
Financial instruments
in level 1
The fair value of financial instruments traded in active markets
is based on quoted market prices at the reporting date. A market
is regarded as active if quoted prices are readily and regularly
available from an exchange, dealer, broker, industry group, pricing
service, or regulatory agency, and those prices represent actual
and regularly occurring market transactions on an arm's length
basis. The quoted market price used for financial assets held by
the Company is the current bid price.
Financial instruments in
level 2
The fair value of financial instruments that are not traded in
an active market is determined by using valuation techniques. These
valuation techniques maximise the use of observable market data
where it is available and rely as little as possible on entity
specific estimates. If all significant inputs required to fair
value an instrument are observable, the instrument is included
in level 2. No investments are valued using level 2 inputs in the
period.
Financial instruments
in level 3
If one or more of the significant inputs is not based on observable
market data, the instrument is included in Level 3. Following the
guidance of IFRS 9, these financial instruments have been assessed
to determine the fair value of the instrument. In their assessment,
the Directors have considered both external and internal indicators
to decide whether an impairment charge must be made or whether
there needs to be a fair value uplift on the instrument. Instruments
included in Level 3 comprise of convertible loan notes held with
Helium One. Details of this can be found at Note 17.
The carrying value of the Company's financial assets and liabilities
measured at amortised cost are approximately equal to their fair
value.
The Company is exposed through its operations to one or more of
the following financial risk:
* Fair value or cash flow interest rate risk
* Foreign currency risk
* Liquidity risk
* Credit risk
* Market risk
* Expected credit losses
Policy for managing these risks is set by the Board. The policy
for each of the above risks is described in more detail below.
Fair value and cashflow interest rate risk
Generally the Company has a policy of holding debt at a floating
rate. The directors will revisit the appropriateness of this policy
should the Company's operations change in size or nature. Operations
are not permitted to borrow long-term from external sources locally.
Foreign currency risk
Foreign exchange risk arises because the Company has operations
located in various parts of the world whose functional currency
is not the same as the functional currency in which the Company's
investments are operating. The Company's net assets are exposed
to currency risk giving rise to gains or losses on retranslation
into sterling. Only in exceptional circumstances will the Company
consider hedging its net investments in overseas operations as
generally it does not consider that the reduction in volatility
in net assets warrants the cash flow risk created from such hedging
techniques.
21 Financial instruments
The Company's exposure to foreign currency risk at the end of the
reporting period is summarised below. All amounts are presented
in GBP equivalent.
2021 2020
$000 $000
USD USD
Trade and other receivables 150 274
Cash and cash equivalents 1,415 1,006
Trade and other payables (166) (142)
Net exposure 1,399 1,138
Sensitivity analysis
As shown in the table above, the Company is primarily exposed to
changes in the GBP:USD exchange rate through its cash balance held
in USD and trading balances and to changes in the GBP:EUR exchange
rate due to the deposit denominated in EUR. The table below shows
the impact in GBP on pre-tax profit and loss of a 10% increase/decrease
in the GBP to USD exchange rate, holding all other variables constant.
Also shown is the impact of a 10% increase/decrease in the GBP
to EUR exchange rate, being the other primary currency exposure.
2021 2020
GBP000 GBP000
GBP:USD exchange rate increases 10% 116 126
GBP:USD exchange rate decreases 10% (142) (154)
Liquidity risk
The liquidity risk of each entity is managed centrally by the treasury
function. Each operation has a facility with treasury, the amount
of the facility being based on budgets. The budgets are set locally
and agreed by the board annually in advance, enabling the cash
requirements to be anticipated. Where facilities of entities need
to be increased, approval must be sought from the finance director.
Where the amount of the facility is above a certain level agreement
of the board is needed.
All surplus cash is held centrally to maximise the returns on deposits
through economies of scale. The type of cash instrument used and
its maturity date will depend on the forecast cash requirements.
The table below analyses the company's financial liabilities into
relevant maturity groupings based on their contractual maturities.
The amounts presented are the undiscounted cash flows.
Less than 6 to 12 Between Between
6 months months 1 and 2 years 2 and 5
years
GBP000 GBP000 GBP000 GBP000
31 December 2021
Trade and other payables 178 - - -
31 December 2020
Trade and other payables 243 - - -
21 Financial instruments
Credit risk
The Company is mainly exposed to credit risk from credit sales.
It is Company policy, implemented locally, to access the credit
risk of new customers before entering contracts. Such credit ratings
are taken into account by local business practices.
The Company does not enter into complex derivatives to manage credit
risk, although in certain isolated cases may take steps to mitigate
such risks if it is sufficiently concentrated.
Market risk
As the Company is now investing in listed companies, the market
risk will be that of finding suitable investments for the Company
to invest in and the returns that those investments will return
given the markets that in which investments are made.
Expected credit losses
Allowances are recognised as required under the IFRS 9 impairment
model and continue to be carried until there are indicators that
there is no reasonable expectation of recovery.
For trade and other receivables which do not contain a significant
financing component, the Company applies the simplified approach.
This approach requires the allowance for expected credit losses
to be recognised at an amount equal to lifetime expected credit
losses. For other debt financial assets the Company applies the
general approach to providing for expected credit losses as prescribed
by IFRS 9, which permits for the recognition of an allowance for
the estimated expected loss resulting from default in the subsequent
12-month period. Exposure to credit loss is monitored on a continual
basis and, where material, the allowance for expected credit losses
is adjusted to reflect the risk of default during the lifetime
of the financial asset should a significant change in credit risk
be identified.
The majority of the Company's financial assets are expected to
have a low risk of default. A review of the historical occurrence
of credit losses indicates that credit losses are insignificant
due to the size of the Company's clients and the nature of the
services provided. The outlook for the oil and gas industry is
not expected to result in a significant change in the Company's
exposure to credit losses. As lifetime expected credit losses are
not expected to be significant the Company has opted not to adopt
the practical expedient available under IFRS 9 to utilise a provision
matrix for the recognition of lifetime expected credit losses on
trade receivables. Allowances are calculated on a case-by-case
basis based on the credit risk applicable to individual counterparties.
Exposure to credit risk is continually monitored in order to identify
financial assets which experience a significant change in credit
risk. In assessing for significant changes in credit risk the Company
makes use of operational simplifications permitted by IFRS 9. The
Company considers a financial asset to have low credit risk if
the asset has a low risk of default; the counterparty has a strong
capacity to meet its contractual cash flow obligations in the near
term; and no adverse changes in economic or business conditions
have been identified which in the longer term may, but will not
necessarily, reduce the ability of the counterparty to fulfil its
contractual cash flow obligations. Where a financial asset becomes
more than 30 days past its due date additional procedures are performed
to determine the reasons for non-payment in order to identify if
a change in the exposure to credit risk has occurred.
Should a significant change in the exposure to credit risk be identified
the allowance for expected credit losses is increased to reflect
the risk of expected default in the lifetime of the financial asset.
The Company continually monitors for indications that a financial
asset has become credit impaired with an allowance for credit impairment
recognised when the loss is incurred. Where a financial asset becomes
more than 90 days past its due date additional procedures are performed
to determine the reasons for non-payment in order to identify if
the asset has become credit impaired.
21 Financial instruments
The Company considers an asset to be credit impaired once there
is evidence that a loss has been incurred. In addition to recognising
an allowance for expected credit loss, the Company monitors for
the occurrence of events that have a detrimental impact on the
recoverability of financial assets. Evidence of credit impairment
includes, but is not limited to, indications of significant financial
difficulty of the counterparty, a breach of contract or failure
to adhere to payment terms, bankruptcy or financial reorganisation
of a counterparty or the disappearance of an active market for
the financial asset.
A financial asset is only written off when there is no reasonable
expectation of recovery.
A provision matrix can be used based on historical data of default
rates adjusted for a forward looking estimate. The history of default
rates needs to be accessed in conjunction with the aging of the
trade receivable balance. The aging of a balance alone does not
require a provision but can be used as a structure to apply the
rates calculated. The historical default rates are used in accordance
with forward looking information.
In order to determine the amount of ECL to be recognised in the
financial statements, Scirocco is using a provision matrix based
on its historical observed default rates which is adjusted for
forward-looking estimates and establishes that ECL should be calculated
as:
Non-past due 0.5% of carrying value
30 days past due 2% of carrying value
31-60 past due 4% of carrying value
61-90 past due 6% of carrying value
90 days-3 years past due 10% of carrying value
Over 3 years past due 20% of carrying value
The simplified approach enables Scirocco to make an estimate of
ECL as they are unable to track the credit worthiness of customers.
The total outstanding amount is GBP8k at 31 December 2021 which
is not past due resulting in an ECL of GBPnil in the current year.
22 Related party transactions
GROUP
The Company had the following amounts outstanding from its investee
companies (Note 17) at 31 December:
2021 2020
GBP000 GBP000
Helium One opening balance 73 76
Foreign exchange movement - (3)
Conversion to shares in Helium One (73) -
Balance at 31 December - 73
Details of director's remuneration, being key personnel, are given
in Note 7.
22 Related party transactions
The Company entered into transactions with the following related
parties who have common directors during the current year:
2021 2020
GBP000 GBP000
Gneiss Energy Limited - provision of
corporate finance advisory - common
director Jonathan Fitzpatrick 606 225
Quixote Advisors Ltd - provision of
management services - common director
Tom Reynolds (19) 27
During the current year, the Group loaned GBP1,200,000 to Energy
Acquisitions Group Limited, a 50% owned associate of the Group
and accrued interest of GBP44,000. The loan is repayable on demand
and interest is payable and accrued in accordance with loan agreement.
COMPANY
The Company had the following amounts outstanding from its investee
companies (Note 17) at 31 December:
2021 2020
GBP000 GBP000
Helium One opening balance 73 76
Foreign exchange movement - (3)
Conversion to shares in Helium One (73) -
Balance at 31 December - 73
Details of director's remuneration, being key personnel, are given
in Note 7.
Amounts due from subsidiaries
2021 2020
GBP000 GBP000
Scirocco Energy (UK) Limited 1,244 -
Interest is payable and accrued in accordance with loan agreement.
Intercompany balances are repayable on demand.
The Company entered into transactions with the following related
parties who have common directors during the current year:
22 Related party transactions
2021 2020
GBP000 GBP000
Gneiss Energy Limited - provision of
corporate finance advisory - common
director Jonathan Fitzpatrick 606 225
Quixote Advisors Ltd - provision of
management services - common director
Tom Reynolds (19) 27
During the current year, the Company loaned GBP1,200,000 to Scirocco
Energy (UK) Limited, a 100% owned subsidiary of the Company and
accrued interest of GBP44,000. The loan is repayable on demand
and interest is payable and accrued in accordance with loan agreement.
23 Ultimate controlling party
GROUP AND COMPANY
In the opinion of the directors there is no controlling party.
24 Commitments
GROUP AND COMPANY
As at 31 December 2021, the Company had no material commitments
(2020: GBPnil).
25 Retirement benefit scheme
GROUP AND COMPANY
The Company operates only the basic pension plan required under
UK legislation, contributions thereto during the year amounted
to GBPnil (2020: GBPnil).
26 Cash generated from operations
2021 2020
GROUP GBP000 GBP000
Profit/(loss) for the year after tax for continuing
operations 361 (3,323)
(Loss)/profit for the year after tax for discontinuing
operations (4,053) (795)
Adjustments for:
Finance costs - 3
Impairment of investments - 1,385
Loss on fair value revaluation of assets held
for sale 3,846 810
Gain from sale of investment (2,196) -
Interest accrued on loan to related party (44) -
Equity settled share based payment expense 471 335
Decrease in provisions - (352)
Movements in working capital:
Decrease in trade and other receivables 268 1,011
(Decrease)/increase in trade and other
payables (70) 49
Cash absorbed by operations (1,417) (877)
2021 2020
COMPANY GBP000 GBP000
Profit/(loss) for the year after tax for continuing
operations 361 (3,323)
(Loss)/profit for the year after tax for discontinuing
operations (4,053) (795)
Adjustments for:
Finance costs - 3
Impairment of investments - 1,385
Loss on fair value revaluation of assets held
for sale 3,846 810
Gain from sale of investment (2,196) -
Interest accrued on loan to subsidiary (44) -
Equity settled share based payment expense 471 335
Decrease in provisions - (352)
Movements in working capital:
Decrease in trade and other receivables 268 1,011
(Decrease)/increase in trade and other
payables (70) 49
Cash absorbed by operations (1,417) (877)
27 Post balance sheet event
At the date these financial statements were approved, being 30
June 2022, the Directors were not aware of any significant post
balance sheet events other than those set out in the notes to
the financial statements.
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END
FR URABRUKUNOAR
(END) Dow Jones Newswires
June 30, 2022 13:31 ET (17:31 GMT)
Grafico Azioni Solo Oil (LSE:SOLO)
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Grafico Azioni Solo Oil (LSE:SOLO)
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