TIDMUKOG
RNS Number : 9823F
UK Oil & Gas PLC
25 March 2022
UK Oil & Gas Plc
("UKOG" or the "Company")
Annual Review and Accounts for the year ended 30 September
2021
UK Oil & Gas Plc (AIM: UKOG), a UK and internationally
focused energy company, is pleased to announce its full year
results for the full year ended 30 September 2021. A copy of the
full annual report and details of the Company's annual general
meeting will be posted to shareholders in due course. A copy of the
full annual report will also be made available on the Company's
website.
Qualified Person's Statement
Matt Cartwright, UKOG's Commercial Director, who has 39 years of
relevant experience in the global oil industry, has approved the
information contained in this announcement. Mr Cartwright is a
Chartered Engineer and member of the Society of Petroleum
Engineers.
STRATEGIC REPORT FOR THE YEARED 30 September 2021
The Directors present their strategic report on the group for
the year ended 30 September 2021.
OUR BUSINESS
UK Oil & Gas Plc ("UKOG" or the "Company") is an energy
company currently primarily focused upon oil & gas exploration
and production. We specialise in creating new geological ideas,
concepts and methodologies to find and produce oil & gas from
previously unexplored or overlooked rock formations within
established petroleum producing provinces.
Our current operational focus is on the UK and Turkey onshore
sectors, where we aim to build a sustainable oil & gas
production base that can act as a springboard to further worldwide
opportunities. UKOG has operated safely and environmentally
responsibly in the UK since 2013.
Our current UK onshore portfolio consists of direct and indirect
interests in six oil & gas exploration, appraisal, development
and production assets, all situated within the Weald and
Purbeck-Wight Basins of southern England. We are the largest
acreage holder in the south of England, with assets covering 689
gross km(2).
We hold majority interests in four UK onshore oil & gas
discoveries, the most notable being at Horse Hill and Loxley in
Surrey, together with a significant position in the Kimmeridge
Limestone (KL) oil deposit or "play". UKOG holds the largest
acreage position within the play's most prospective area or "sweet
spot", covering 489 gross km(2).
Our UK oil & gas portfolio contains a good balance of
low-risk production, appraisal and development assets as well as
upside exploration assets within both the Kimmeridge Limestone and
Portland conventional plays.
Our portfolio in Turkey consists of a 50% non-operated working
interest in the 305 km(2) Resan licence in southeast Turkey,
containing the potentially significant undeveloped Basur-Resan oil
discovery plus further exploration prospects. This project is
assessed to contain significantly greater discovered oil volumes
than any of our UK projects and, if successful, offers potentially
transformational growth for the Company.
Our portfolio, notably Basur-Resan in Turkey, has the potential
to generate significant returns for the Company and its
shareholders.
The Company is reviewing the potential acquisition of further
new international producing oil and gas properties which have the
potential to deliver potentially significant short term cash flow.
These assets also have the potential to become self-funding
relatively quickly.
As a further diversification, we are increasingly active in the
newly emerging geothermal energy field, where we possess the key
subsurface and engineering skills necessary to make such projects
work. We have teamed up with UK geothermal technology specialist
Ceraphi Energy Limited ("Ceraphi") to evaluate the economic
feasibility of transitioning a part of our Horse Hill site into a
geothermal and solar energy hub. This hub could potentially supply
heat energy to a defined significant industrial end-user in the
area. We are also a founder member of the Geothermal Energy
Advancement Association.
As well as standalone geothermal projects, we are currently
investigating the viability of hybrid energy sites centred around
subsurface gas and/or hydrogen storage. These projects are
envisaged to test the Company's hydrogen battery concept to provide
peak-shaver power generation and green hydrogen generation from
geothermal and other renewable sources. Two new prime coastal sites
have been identified and are under active investigation.
A review of business activities in the year and future
developments is outlined within the Statement from the Chairman
(page 5), the Chief Executive's Statement (page 6) and the
Operational Review (page 12).
OUR STRATEGY
UKOG aims to build a diverse, sustainable and self-funding
international energy business which has the following strategic
objectives:
Oil & Gas:
1. Find and Develop Low-Cost and Long-life Assets
- Continuing to invest in new and existing near-term production
assets in the international sector is a key priority. New assets
added to the Company's portfolio must demonstrate potential
self-funding capacity in the near term. Once in production,
revenues from these assets will provide free cash flow to re-invest
and deliver shareholder returns.
2. Resource and Reserve Growth
- Building our recoverable resources, reserves and future
production through targeted and disciplined high-impact
exploration, appraisal projects and acquisitions, both in UK and
increasingly in the international sector.
3. Balance Risk and Reward
- Maximising value by ground floor or early entry where possible.
- Judicious use of farmouts to provide operational funding.
- Maximising return on investment by actively considering
divestment after an asset has been de-risked, where
appropriate.
Geothermal, Renewables and Hydrogen:
1. UK Energy Diversification - Reduce Carbon Footprint of
Company's Existing Petroleum Producing Sites
- Where viable, implement geothermal and/or solar energy
cogeneration plus battery storage from existing wells/sites.
- Where viable, add new standalone geothermal and battery storage for grid/heat export.
2. Find and Develop New Stand-alone Geothermal and Energy-hub Projects
- Ground floor entry, either operated or as joint venture partner.
- UK initial focus, international expansion if successful or
commercially viable opportunities arise.
- Strategic partnerships with sector technology specialists.
3. Hydrogen
- Investigate potential sites for hydrogen generation, storage and hydrogen battery concept.
- Focus initially on the UK, with international expansion if
successful or if commercially viable opportunities arise.
- Ground floor operated entry through planning permission
stages, with possible subsequent strategic partnerships/JV
arrangements with a large infrastructure player.
- Strategic partnerships with sector technology specialists.
Targeted Portfolio Management:
Continuously review and high-grade our portfolio to either
acquire or divest further stakes in existing assets. We also look
to acquire assets at any stage in the life cycle and are not
limited by geography, where we can create significant value for
shareholders.
UKOG shares this vision and strategy through internal dialogue
with employees and externally with shareholders and stakeholders
via public announcements and dissemination of information through
our website and the Annual Report and Accounts.
STATEMENT FROM THE CHAIRMAN
Two years ago, the price of crude oil in the USA was briefly
negative. As we approach the end of the first quarter of 2022, the
picture is altogether optimistic and brighter, with Brent crude
surpassing 100 dollars per barrel as I write this statement. The
uncertainty of oil prices over the last 24 months has thankfully
stabilised, but that cannot be said of the geo-political picture
where any number of dramas could unfold which could alter the mood
of our industry.
That is why I am excited by UKOG's pursuit of opportunities in
renewable energy, notably in respect of geothermal energy and gas
storage solutions for hydrogen development. As a country the UK
needs to be more self-reliant and less dependent on international
gas pipelines. Over decades we have allowed our gas storage
capacity to fall alarmingly. UKOG, a company with multi-faceted
ambitions and abilities, is looking at domestic projects which
could reverse that decline. Additionally, the management team is
also considering several other potentially exciting opportunities
both domestic and international and is proactively seeking to
diversify the Company's portfolio in recognition of the rapidly
evolving industry landscape.
The Company's gas project at Loxley is in the hands of the
Secretary of State after a tortuous appeal process, but I hope that
common sense will prevail and follow the view of Energy Minister
Greg Hands who said: "We will always prefer British gas production
to foreign imports". Given today's mammoth carbon footprint of
importing oil and gas into the UK, why should the resources
directly under our feet, including Loxley, not be drilled and
developed?
I have only recently taken on the role of Chairman, but I have
had close links with UKOG for many years and fully support the
efforts of Stephen Sanderson to take on new opportunities in new
territories and in new sectors. Whilst some private investors may
harbour concerns regarding the recent trend in the Company's share
price, raising funds from equity remains a necessary part of UKOG's
strategy as it continues funding the forward growth of its high
priority projects. This will remain the case until such time as the
Group is generating self-sufficient cash flows from operations.
Reserve-based lending is rarely an economic option for junior oil
companies primarily engaged in exploration and, whilst I have
sympathy for any frustrations regarding share dilution, I am
encouraged that the Company is building a highly desirable and
carefully curated asset portfolio with long-term economic
promise.
It requires a great deal of specialist knowledge and experience
for a business to spin several plates in this industry, however
geographical and sector-based diversification remains core to
UKOG's ambitions. Tireless efforts continue to be made in the
pursuit of maximising shareholder value, and as ever there is no
room for standing still.
I confidently predict a busy 2022 on all fronts, both home and
abroad. There will rarely be a dull moment and, as we approach the
drilling of our first production well in Turkey, let's hope for an
enjoyable and profitable ride.
Nicholas Mardon Taylor
Non-Executive Chairman, 24 March 2022
CHIEF EXECUTIVE'S STATEMENT
I am delighted to be able to write this Annual Report in a more
optimistic environment than a year ago, with the Covid-19 pandemic
beginning to be brought under control thanks to the creative
intervention of science-based solutions in double-quick time.
UKOG has emerged blinking into the glow of a new world of
opportunity as we explore, amongst other opportunities, fresh
commercial ideas for renewable energy generation. As was made
perfectly clear during the COP26 climate change conference in
Glasgow last Autumn, the world requires fossil fuels for the
foreseeable future to sustain our lifestyle and to keep our homes
and businesses warm and lit, but we all acknowledge that it is
vital to move towards cleaner methods of power generation and
transportation.
It is not a case of out with the old, in with the new. More a
case of a sensible and logical transition. As Business Secretary K
wasi Kwarteng put it, "transition" from oil and gas "not
extinction".
With this in mind, we have spent time and energy looking at
creating an all-encompassing energy hub in the south of England for
geothermal power generation, where we have identified a prime site
for geothermal energy and a first-rate end user. Our high-level
ambition is to convert part of our Horse Hill well site into a
geothermal energy hub, having signed a Heads of Terms agreement
with geothermal specialists Ceraphi, who confidently predict that
we could supply more than 200,000 megawatt hours per year of
continuous baseload from that site primarily in the form of heat
energy.
We are also actively evaluating two potential sites in the UK
for hydrogen generation and storage, to take advantage of the
national transition from natural gas to hydrogen for industrial and
domestic power and heating demands. Part of the project would
encompass a new 'hydrogen-battery' concept to store energy for use
during peak power demand, together with 'green-power' from
geothermal to generate 'green-hydrogen'.
These are early days, but they are also exciting ones for the
Company as we actively embrace this new world and its unique
challenges.
A year ago, we spread our international reach into Turkey having
entered an exciting joint venture with Aladdin Middle East ("AME"),
exemplifying our ongoing strategy of active portfolio management.
We are continually high grading our portfolio, both by seeking new
high potential assets and divesting lower ranking assets, as and
when opportunities present themselves. In this way we can harness
fast-tracked organic growth through the project execution
stage.
In this spirit of expanding our horizons we have completed the
evaluation of potentially lucrative proven oil & gas field
opportunities elsewhere in the world, including in the United
States, where access to such opportunities has arisen from within
the Directors' extensive business network. Should negotiations be
successful, there is the realistic prospect of adding significantly
to both our reserves and cash flow base in the coming year.
Turkey
UKOG's December visit to Ankara for first-time face-to-face
meetings with our joint venture operator AME was hugely successful
and of great benefit to all concerned. Travel restrictions in place
due to Covid-19 had prevented this trip ever since we completed our
Farm-In agreement for a 50% non-operated working interest in the
305 km(2) Resan Licence.
The Resan Licence lies within the SE Anatolian basin, a
geological continuation of the prolific Zagros "fold-belt"
petroleum system within the foothills of the Taurus-Zagros
mountains in Iraq, Iran and Turkey, one of the Middle East's major
oil producing areas. Multiple producing oil fields lie to the
immediate west and south-east of the Licence, containing
significant proven recoverable reserves.
The recent focus at our Basur-Resan licence has been the
acquisition of a 2D seismic programme. This followed news from AME
that drilling of the Basur-3 appraisal well was halted when the
directional assembly was temporarily stuck in the 12 1/4 " hole
section. Credit must be given to AME's drilling team who performed
a successful recovery or 'fishing' operation to return the assembly
safely back to surface.
With the first phase of seismic acquisition now complete, we
look forward to the drilling of a Basur-3 sidetrack ("B-3S") once
processed seismic results have been received. B-3S is located
within the north-western
structural culmination of the 60 km(2) Basur-Resan anticlinal
structure, with a surface location approximately 1.2 km north of
the 1964 Basur-1 oil discovery well.
The B-3 appraisal well was the first modern well designed to
properly appraise and assess the extent and commercial viability of
the Basur-Resan oil pool discovered in the 1950s-1960s. Its primary
objectives were the naturally fractured and dolomitised limestone
rocks of the Cretaceous age Garzan and Mardin formations, which are
productive at our partner AME's East Sadak oil field, whose western
edge is some 20 km to the southeast and along the same geological
anticlinal trend.
AME's and the Company's bid for three new licences in last
year's Turkish mini-licence round, announced on 10 December 2020,
was ultimately unsuccessful. The mini-licence round attracted
several other bidders including the Turkish national oil company,
TPAO, to whom the licences were awarded. Although the result was
disappointing given the work programme offered by AME and UKOG, the
bid was always ancillary to the Company's main focus of appraising
Basur-Resan.
The Company continues to look for additional projects in Turkey
and has reviewed a further new opportunity to the southeast of our
Resan licence. This contains an interesting and potentially
material undrilled anticlinal feature analogous to both East Sadak
and Basur-Resan.
Horse Hill
The focus at Horse Hill has been on optimising production and
keeping capital expenditure under firm control. To assist this, we
completed a material purchase of surface production equipment from
PW Well Test. A more efficient and suitable gas flare has also been
installed at the site.
A facilities upgrade was completed in the year, with
modifications made in preparation for transitioning the site to
automated 24-hour production, together with the installation of the
first tranche of permanent facility equipment required under the
Health and Safety Executive's Control of Major Accident Hazards
(COMAH) regulations.
Well intervention operations were completed efficiently towards
the beginning of the year. Despite the resulting October and
November downtime, total Portland oil production during the first
quarter was 7,045 bbl. Average production uptime was 57% over that
period and ranged from 37% during October's main HH-1 intervention
period, to 85% in November, post-intervention.
Notably, the Oil and Gas Authority ("OGA") granted two-year
extensions to the remaining deadlines for the PEDL137 and PEDL246
Retention Area work programmes in the year, and at the end of 2020
over 162,000 bbl of Brent quality crude had been produced and
exported from the Kimmeridge and Portland pools.
Injunction
The High Court upheld the Company's injunction against unlawful
protests at the Horse Hill site. Mrs Justice Falk found that there
was a sufficiently real and imminent risk to justify the interim
injunction order and its revised scope, which prohibits trespass to
the site's land, obstruction of the main entrance and lorry
surfing. The injunction remained in force until autumn 2021.
Judicial Review
We were delighted that in February 2022 the Court of Appeal
rejected the Judicial Review ("JR") appeal of Surrey County
Council's ("SCC") September 2019 planning consent for long-term oil
production at Horse Hill, 85.635% owned by UKOG. The written
judgement means that the planning consent for Horse Hill oil
production was granted entirely lawfully and, as such, confirms
that Horse Hill can remain operational until the end of its
commercial field life.
This latest judgment in UKOG's favour comes after more than two
years in which Sarah Finch on behalf of the Weald Action group ha s
sought to stop the Company's oil production at Horse Hill. Given
that during this time five judges have found against their case,
one cannot help but wonder why they were permitted so many repeated
bites at the same legal cherry. That seems at very least unfair and
perhaps is also somewhat unjust.
Loxley
The future of our wholly-owned gas appraisal project at Loxley
is now in the hands of the Secretary of State for Levelling Up,
Housing and Communities (SoS), who has recovered the Company's
appeal against Surrey County Council's decision to refuse planning
consent. The final appeal determination will now be made by the SoS
utilising the Planning Inspector's report and recommendation.
Whilst the Company had expected a decision from the Planning
Inspectorate in the first quarter of 2022, the recovery by the SoS
may lengthen the timeline for an appeal decision.
The project was refused twice by SCC in June and November 2020,
before a virtual public inquiry was held in August 2021.
As questions regarding the UK's gas supply and record high gas
prices have risen to the fore in recent months, I hope that in
deciding the appeal, the SoS will carefully consider how Loxley
gas, as a secure domestic source, could help address various
pertinent national issues, including how the increasing import
dependency exposes UK consumers to upwards gas price volatility and
decreasing security of supply. New domestic gas, such as Loxley,
could help mitigate this situation.
Similarly, higher pre-combustion carbon footprint LNG imports
could also negatively impact the initial phases of the UK's
'Hydrogen Economy' from a net zero aspect, as it is widely
predicted that 'blue hydrogen' from methane reforming will
initially constitute a significant proportion of available
hydrogen.
Domestic gas offers a significant "net zero advantage" in this
respect. The Company has stated that, if granted necessary
permissions, it plans to supply Loxley gas as a feedstock for
reforming into hydrogen, fully in keeping with the government's net
zero ambitions and plans.
Isle of Wight
The disappointing, but not unexpected, decision by the Isle of
Wight's planning committee to refuse consent for the appraisal and
testing of the Arreton discovery merely served to underscore our
growing interest in the international arena for oil and gas, and
our new direction into geothermal and hydrogen-based energy in the
UK. The refusal went against the recommendation by the council's
planning officers to approve the project.
We took considerable care and undertook much research to
minimise the potential impacts of the site, choosing a location
300m distant from the A3056 and adjacent to land with existing
non-agricultural commercial uses, namely the Wight Farm Anaerobic
Digestion Energy Power Station and the Blackwater Quarry for
aggregates. No objections to the development were raised by
statutory consultees on environmental, drinking water, landscape or
health and safety grounds.
Given the number of new opportunities available to the Company,
all of which are considered to offer far greater success case
economic impact and higher probabilities of success than the
proposed Isle of Wight project, the Company has decided not to
appeal against the planning refusal. The envisaged GBP0.5 million
planning appeal costs will therefore remain available and could be
used for developing new oil & gas and geothermal/energy storage
projects (see New Ventures below).
New Ventures
The Company evaluated a number of potential producing oil &
gas fields and near-term production opportunities in the period
with the greatest number being within the United States, where the
career histories of the Board give privileged access to a broad
network of opportunities. A full due diligence evaluation of one
international property is now in its final stages.
As stated above, the Company is also currently evaluating the
technical and commercial feasibility of two new potentially
significant geothermal-hub projects together with two hydrogen-hub
storage and renewable energy projects, one in the south of England
and the other in the northeast.
The Company hopes to bring at least one new oil and gas
opportunity and one or more geothermal-hub and hydrogen-hub
projects to fruition in the coming year.
In tandem with most other similar companies, UKOG relies on the
liquidity of its shares to be able to raise funds from equity,
which it views as the most sensible and realistic way of funding
the growth of its projects and portfolio pipeline. However, with
UKOG's wide-ranging activity and interests we firmly believe that
the Company is progressing towards being self-sufficient in its
generation of cash flows.
During the reporting period, we successfully raised GBP2.2
million in October 2020 to fund our share of initial drilling and
seismic costs in Turkey. This was followed in July 2021 when we
successfully raised approximately GBP5.0 million to fund our
remaining share of the Basur-3 appraisal well's drilling,
completion and testing costs and planned 2D seismic acquisition
costs.
At the same time, we decided to announce an Open Offer to all
shareholders to give them the opportunity to invest on the same
terms as those who participated in the Placing. This resulted in
the Company raising a further GBP0.5 million.
Last summer we also completed the final instalment due under the
sale and purchase agreement of the Horse Hill surface production
equipment from PW Well Test Ltd. UKOG acquired the equipment for a
total of GBP1.65 million.
Director Share Purchase Programme
In May 2021 we announced that the Company was committed to put
in place an annual MAR compliant Defined Director Share Purchase
Programme in which a director commits to purchase UKOG ordinary
shares each month equivalent in value to a fixed percentage of
their net monthly salary. I made my first purchase in December and
am continuing to make monthly purchases in line with the
programme.
Market Place
The oil and gas industry has rebounded strongly throughout 2021,
with oil prices reaching their highest levels in six years. At the
time of writing, Brent prices have surpassed $100 per barrel, with
concerns about the omicron variant of Covid-19 easing. This
optimism has been tempered by the worrying events in Ukraine which
will have a direct impact on our future security.
Renewables
UKOG became one of the six founder members of the newly formed
Geothermal Energy Advancement Association ("GEAA") in line with our
goals, strategy and ambitions to enter this new sector at birth. We
believe our membership can help raise awareness amongst policy
makers and the public of the benefits of this renewable energy
sector. The potential conversion of part of our Horse Hill well
site into a geothermal energy hub represents the Company's first
direct step into this sector.
Board Changes
We announced just before Christmas that, after a thorough
external recruitment process, Matt Gormley had joined UKOG as the
Company's Chief Financial Officer, a non-board position. He was
previously Group Financial Controller of Shanta Gold Limited and an
Audit Manager at Grant Thornton UK LLP. I was delighted to welcome
Matt into the UKOG team. His fresh perspective from an alternate
sector will be particularly valuable as UKOG seeks to expand
internationally and diversify into green geothermal and hydrogen
energy within the UK.
With effect from 1 January 2022 the board was also restructured,
with Kiran Morzaria stepping down as Finance Director to become a
Non-Executive Director. Allen Howard moved from Non-Executive
Chairman to become an Executive Director of the Company on a
part-time basis. Nicholas Mardon Taylor became Non-Executive
Chairman.
I would also like to take this opportunity to express my sincere
thanks and gratitude to Kiran Morzaria for his huge influence on
the Company. I'm pleased with Kiran's continuing involvement,
albeit on a non-executive basis.
Stephen Sanderson
Chief Executive, 24 March 2022
For further information, please contact:
UK Oil & Gas PLC
Stephen Sanderson / Matt Gormley / Allen Tel: 01483 941493
D Howard
WH Ireland Ltd (Nominated Adviser and
Broker)
James Joyce / Andrew de Andrade Tel: 020 7220 1666
Communications
Brian Alexander Tel: 01483 941493
This announcement contains inside information for the purposes
of Article 7 of the UK version of Regulation (EU) No 596/2014 which
is part of UK law by virtue of the European Union (Withdrawal) Act
2018, as amended ("MAR"). Upon the publication of this announcement
via a Regulatory Information Service, this inside information is
now considered to be in the public domain.
PRINCIPAL RISKS AND UNCERTAINTIES
UKOG continuously monitors its risk exposures and reports its
review to the board of directors ("The Board"). The Board reviews
these risks and focuses on ensuring effective systems of internal
financial and non-financial controls are in place and
maintained.
Key Risk Areas
Key risk areas surrounding our existing business are tabulated
below; categorised as being Strategic, Operational and
Financial.
Risk Mitigation Magnitude and likelihood
Strategic risks
--------------------------------- -------------------------
Exposure to political Through industry associations Magnitude- High
risk, we operate in and direct contact, Likelihood - Medium
and may seek new opportunities the Company engages
in countries, regions with Government and
and cities where political, other appropriate organisations
economic and social to ensure the Company
transition may take is kept abreast of
place. Political instability, expected potential
changes to the regulatory changes and takes an
or taxation environment, active role in making
international trade appropriate representations.
disputes and barriers
to free trade, international
sanctions, expropriation
or nationalisation of
property, civil strife,
strikes, insurrections,
acts of terrorism, acts
of war and public health
situations (including
the continued impact
of the COVID-19 pandemic
or any future epidemic
or pandemic) may disrupt
or curtail our operations
or development activities
and could affect the
ability of UKOG to deliver
to its Strategy.
--------------------------------- -------------------------
Operational risks
--------------------------------- -------------------------
Permitting risk, planning, During the period the Magnitude- High
environmental, licensing Company continued to Likelihood - High
and other permitting face several challenges
risks associated with in obtaining all the
our operations particularly permits that it requires
with exploration drilling to deliver on its strategy.
operations. This is despite UKOG's
compliance with regulations,
proactive engagement
with regulators and
communities, and the
expertise and experience
of its management team.
We believe this is
because of changing
priorities within the
United Kingdom and
the Company has sought
to further diversify
this risk by seeking
investments outside
the United Kingdom.
--------------------------------- -------------------------
Exploration risk, the Analysis of available Magnitude- High
Company fails to locate technical information Likelihood - High
and explore hydrocarbon-bearing to determine the work
prospects that have programme. Risk-sharing
the potential to deliver arrangements entered
commercially, e.g. key to reduce downside
wells are dry or less risk.
successful than anticipated.
--------------------------------- -------------------------
Oil production, oil Analysis of available Magnitude- High
is not produced in the technical information Likelihood - Medium
anticipated quantities to improve our understanding
from the Group's assets, of the reservoir and
or it cannot be produced continue to review
economically. cost structure to target
low production costs.
--------------------------------- -------------------------
Price and markets , During the previous Magnitude- High
our financial performance reporting period the Likelihood - High
is impacted by fluctuating Group entered into
prices of oil, gas and production at Horse
refined products. Oil, Hill. The Group determined
gas and product prices that given its stage
are subject to international of development the
supply and demand and costs of hedging would
margins can be volatile. be prohibitive. The
Political developments, Group continues to
increased supply from will continue to keep
new oil and gas or alternative this under review.
low carbon energy sources, At this point the Group
technological change, also continues to review
global economic conditions, costs where appropriate.
public health situations
(including the continued
impact of the COVID-19
pandemic or any future
epidemic or pandemic).
Loss of key staff Provide and maintain Magnitude- High
competitive remuneration Likelihood - Low
packages to attract
the right calibre of
staff. Build a strong
and unified team.
-------------------------------- ---------------------
Financial risks
-------------------------------- ---------------------
Liquidity risk , exposure The Board regularly Magnitude- High
through its operations reviews UKOG's cash Likelihood - Medium
to liquidity risks. flow forecasts and
the availability or
adequacy of its current
facilities to meet
UKOG's cash flow requirements.
-------------------------------- ---------------------
OPERATIONAL REVIEW
UKOG's operational activities were concentrated on the Horse
Hill oil field, located near Gatwick Airport, and on the Resan
licence in south-east Turkey, containing the undeveloped
Basur-Resan oil discovery.
Horse Hill Oil Field, PEDL137 and PEDL246 (UKOG 85.635%)
The field and surrounding licence is operated by UKOG's
subsidiary company Horse Hill Developments Ltd ("HHDL") in which
UKOG has 77.9% ownership. The Licensees are HHDL (65% interest) and
UKOG (137/246) Ltd (35% interest).
At the beginning of the reporting period, further well
intervention operations on Horse Hill-1 ("HH-1") were safely
completed, optimising oil flow by isolating the Kimmeridge
perforations, by reperforating the full Portland oil producing
section, by insertion of a new simplified production tubing string
and by setting the downhole pump at a deeper level than the
existing perforations to increase pumping efficiency.
The intervention was immediately followed by an ongoing series
of multi-week production optimisation trials to achieve an optimum
balance between oil revenues and water handling and other
operational costs. Trials include well-cycling (i.e., shutting in
the well for a set period each day to reduce water inflow) and pump
optimisations. The trials continued for several months.
These improvements set HH-1 up for long term continuous and
optimised oil production from the Portland. Conversion of the HH-2z
well to water injection, subject to regulatory approval, plus
further infill development of both Portland (HH-3 well) and
Kimmeridge (HH-4 well) offer significant upside for the Horse Hill
field.
Pressure build-up data was also carried out confirming the HH-1
connected oil in place volumes of 7-11 mmbbl.
The removal of ancillary third-party rental equipment and the
purchase of the surface production equipment from PW Well Test Ltd
was completed.
Due to the coronavirus pandemic the OGA granted two-year
extensions to the remaining deadlines for the PEDL137 and PEDL246
Retention Area work programmes.
Planned shutdowns were successfully completed to install new
surface production facilities in line with requirements under the
Control of Major Accident Hazards (COMAH) Regulations. In addition,
a new more efficient gas flare was installed and commissioned
successfully at Horse Hill.
As of end-December over 162,000 bbl of Brent quality crude had
been produced and exported from the Kimmeridge and Portland
pools.
Significant efforts have again been made in managing and
reducing operational costs. Recent Brent crude prices of over
$90/bbl have helped operational cash flow from the field.
During the period an energy efficiency study was completed for
Horse Hill to reduce diesel consumption and carbon emissions
recommending the installation of 250kW solar PV and 67kWh Li-ion
battery storage. Further detailed scoping is required during the
next period to confirm capital expenditure and timings for the
project within the overall field development.
Post period, the Company announced the signing of a Heads of
Terms with geothermal specialists Ceraphi to enter into a joint
venture agreement to develop part of the Horse Hill site into a
geothermal energy hub (GeoHub). The GeoHub, currently at a
conceptual stage, is targeted to generate and supply more than
200,000 MWh per year of continuous baseload, primarily as heat
energy. The project's first phase would aim to supply significant
industrial end-users in the locality with 100% green heating and
cooling plus ancillary green electricity and/or hydrogen.
Turkey, Resan Licence (UKOG 50%)
In October 2020, UKOG completed a Participation Agreement and
Joint Operating Agreement with Aladdin Middle East Ltd ("AME"), an
independent oil company with 60 years of operational experience in
Turkey, to take a 50% non-operated working interest in the 305
km(2) Resan Licence.
UKOG is taking an active technical role in a 4-well oil
appraisal and step-out exploration drilling programme designed
primarily to assess the commercial viability of the significant
Basur-Resan oil discovery. The transaction was approved by the
Turkish government and completed in January 2021.
The Resan Licence lies within the SE Anatolian basin, a
geological continuation of the prolific Zagros "fold-belt"
petroleum system within the foothills of the Taurus-Zagros
mountains in Iraq, Iran and Turkey, one of the Middle East's major
oil producing areas. Multiple producing oil fields lie to the
immediate west and south-east of the Licence, containing
significant proven recoverable reserves.
UKOG quickly built on this exciting entry into Turkey by
submitting an application for three further exploration licences
covering four blocks, again with a 50% interest and AME as
operator. Disappointingly, however, the Turkish government decided
to award the licences to the Turkish national oil company,
TPAO.
Construction of the drilling pad and access road for the Basur-3
("B-3") appraisal well began in March 2021 and was completed in
May. The Turkish Energy Ministry approved drilling of B-3 in April
and well was spudded on 26(th) June. The directional drilling
assembly became stuck in the 12 1/4 " hole section whilst pulling
out of hole. The rig performed a successful recovery or 'fishing'
operation to free the drilling assembly and return it safely back
to surface. The incident occurred after the well had made good
progress, reaching a drilled depth immediately above the Garzan and
Mardin target objectives, which remain untested.
AME advised that, to achieve the well's primary objective of
appraising the Basur-1 oil discovery, a deviated mechanical
sidetrack, B-3S, is planned, the existing 12 1/4 " hole section
being considered unsuitable for onwards drilling. AME further
advised that, to ensure the sidetrack is optimally located, they
plan to pause further drilling until after the acquisition and
processing of the new seismic data over the sidetrack's envisaged
trajectory.
The B-3 appraisal well was the first modern well designed to
properly appraise and assess the extent and commercial viability of
the Basur-Resan oil pool discovered in the 1950s-1960s. Its primary
objectives were the naturally fractured and dolomitised limestone
rocks of the Cretaceous age Garzan and Mardin Formations, which are
productive at our partner AME's East Sadak oil field, whose western
edge is some 20 km to the southeast and along the same geological
anticlinal trend.
Active planning of B-3S is well underway and initial discussions
with prospective drilling rig contractors have taken place, with
detailed well planning and contractor selection progressing. In the
interests of maximising cost efficiencies, plans are in place for
surplus UKOG-owned casing to be transferred to the B-3S site for
utilisation during drilling. It is planned that the well will
commence upon receipt and interpretation of the fast-track seismic
processing,
Good progress has been made post period by Viking Geophysical
Services (VGS) in acquiring the 2D seismic programme. VGS'
acquisition programme is being overseen by an expert quality
control consultant and a first tranche of acquisition (Phase 1) has
been completed. Priority has been given to process 3 lines covering
the B-3S area and trajectory plus the proposed new Resan-6 drilling
location. Existing legacy data has also been recently reprocessed
and a pre-stack depth migration process has commenced aimed at
sharpening the seismic imaging of faults that may be encountered
along the B-3S trajectory.
Loxley, Broadford Bridge, PEDL234 (UKOG (234) 100%)
The OGA approved an amendment to the PEDL234 Retention Area work
programme, wherein Loxley-1 is to be drilled by December 2023.
Following Surrey County Council's (SCC) initial 29(th) June 2020
planning committee meeting, SCC decided that the Loxley Gas project
should be redetermined on 27(th) November 2020. However, again
contrary to the recommendation of its own planning team, SCC
refused Loxley planning consent. In February 2021 UKOG filed an
appeal to the Planning Inspectorate, with our leading legal counsel
advising that there are strong grounds to expect a positive appeal
outcome. The appeal was heard via a public inquiry commencing on
27(th) July 2021.
Post period, the Planning Inspectorate advised that the
Secretary of State ("SoS") had recovered the appeal. The final
appeal determination will now be made by the SoS utilising the
Planning Inspector's report and recommendation.
The Company has submitted a further planning permission
extension application to West Sussex County Council's Planning
Committee for its Broadford Bridge-1/1z Kimmeridge oil
discovery.
Arreton, Isle of Wight, PEDL331 (UKOG 95%)
UKOG's planning application to the Isle of Wight Council for the
appraisal drilling and flow testing of the Arreton oil discovery
was refused post period. Having taken time to consider, the Company
has decided not to appeal this decision.
Other Assets
Stable oil production with low water cut continues from the
Horndean oil field in Hampshire (UKOG 10%).
Kris Bone Matt Cartwright
Operations Director Commercial Director
24 March 2022 24 March 2022
FINANCIAL REVIEW
Income Statement
Revenues for the year from sales of oil amounted to GBP1.56
million (2020: GBP0.91 million). This increase of 71.4% was largely
driven by long term oil production having commenced partway through
the 2020 financial year at Horse Hill, via HH-1. The Group sold
36,664 bbl from Horse Hill and Horndean during the year at an
average sale price of GBP43/bbl.
Depletion, Depreciation and Amortisation costs amounted to
GBP0.69 million (2020: GBP1.37 million), reflecting the
stabilisation of production from Horse Hill during the year and the
impact of certain assets being fully depreciated during the
previous financial year. Other Cost of Sales reduced to GBP1.07
million (2020: GBP1.17 million). The Group recorded a gross loss
for the year of GBP0.19 million (2020: GBP1.63 million).
Administration expenses during the year amounted to GBP2.10
million (2020: GBP1.76 million). Following an impairment review
carried out as at 30 September 2021, the net present value of the
HH-1 well at Horse Hill was determined to be lower than its
recorded book value, and it was therefore determined that the value
of associated oil & gas properties should be impaired by
GBP1.46 million. This lower net present value assessment was
primarily due to lower-than-expected flow rates at HH-1 where
production rates have now stabilised following commencement of
long-term oil production during the previous financial year.
An Operating loss for the year of GBP3.81 million was recorded
(2020: GBP14.1 million). Finance costs amounted to GBP0.89 million
(2020: GBP0.29 million), relating primarily to unwinding of
discounts on decommissioning provisions. An exploration write-off
of GBP0.95 million was recognised following the Company's decision
not to appeal the October 2021 decision by the Isle of Wight
Council's Planning Committee to refuse consent for the appraisal
and testing of the Arreton oil and gas discovery.
The net effect of the above was a retained loss for the year of
GBP4.89 million (2020: GBP20.94 million).
Balance Sheet
During the financial year to 30 September 2021, non-current
assets decreased to GBP37.68 million (2020: GBP37.78 million). This
included the effects of an impairment of oil & gas assets at
Horse Hill, an exploration write-off at the Arreton oil and gas
discovery, and GBP2.11 million of capital expenditure on oil
exploration & evaluation assets, primarily at the Basur-Resan
oil discovery in Turkey.
Cash and cash equivalents totalled GBP4.73 million at the
year-end (2020: GBP1.63 million) which contributed significantly to
an increase in current assets from GBP2.38 million at 30 September
2020 to GBP5.36 million at 30 September 2021. Current liabilities
decreased to GBP4.15 million (2020: GBP5.07 million) following a
reduction in trade and other creditors.
At the end of the year, the Group's net assets amounted to
GBP37.50 million (2020: GBP34.01 million).
Cash Flow and Financing
The net cash outflow from operating activities during the
reporting period was GBP1.41 million (2020: cash outflow of GBP2.77
million). The reduced outflow is primarily attributable to working
capital movements and twelve months of operating cash flows from
Horse Hill in the year to 30 September 2021.
UKOG raised GBP7.12 million during the reporting period via the
issue of equity (net of share issue costs), which was used
primarily to fund investing activities (GBP2.72 million). A portion
of the amount raised remained unspent at the end of the year.
As a result of the above, the Group recorded a GBP3.09 million
net increase in cash and cash equivalents during the year and had
GBP4.73 million in cash and cash equivalents at the end of the
year.
Matt Gormley
Chief Financial Officer
24 March 2022
KEY PERFORMANCE INDICATORS
UKOG has adopted both financial and non-financial key
performance indicators (KPI's) to measure progress against our
strategy. These KPI's will develop and new ones will be added as we
progress our strategy.
KPI's
Production (bopd) Operating costs Operating Cashflow
(GBP/bbl)* GBPm
-------------------------- ---------------------------- ---------------------------
Year 2021 2020 Year 2021 2020 Year 2021 2020
(bopd) 140 128 (GBP/bbl) 29 28 GBPm (1.41) (2.77)
----- ----- ----- ----- ------- -------
HH-1 entered HH-1 entered into Operating cash
into production production during outflows reduced
during March March 2020. Operating during the reporting
2020. These rates costs have remained period as a result
are reported largely consistent of higher revenues
on a gross basis since production and working capital
and as such represent from HH1 stabilised. movements.
all production
and relevant
costs irrespective
of amounts attributable
to non-controlling
interest shareholders
of operating
subsidiaries.
-------------------------- ---------------------------- ---------------------------
Reason for Group production Operating costs Cashflow is key
choice will provide per bbl are a to providing funding
operating cashflow key focus at our for investing
to fund our investments operations and in the business
and deliver shareholder the focus for and pursuing our
value. At this the Company is strategy. This
point in time to keep these has to date been
we receive production costs low, so funded predominantly
from our ownership as to improve via equity and
in the Horndean cash generation debt.
oil field which from our producing
is not under assets. Currently,
our control and operating costs
the Horse Hill are in relation
oil field of to our ownership
which we own of the Horndean
85.635%. oil field (10%
ownership), which
is not under our
control, and the
Horse Hill oil
field of which
we own 85.635%.
-------------------------- ---------------------------- ---------------------------
How we measure Daily and weekly Operating costs Ca shflow forecasts
production is are monitored are reported to
monitored for closely, to ensure the Board on a
all producing that budget targets regular basis,
assets and reported are being met. to ensure our
to senior management. progress is within
Production forecasts our budget. Long-term
are prepared forecasts are
during the year also provided
to measure progress to ensure that
against the production the strategy of
target. the business can
be adequately
funded.
-------------------------- ---------------------------- ---------------------------
* Operating costs exclude depreciation of the oil asset and
indirect management charges from UKOG
Other non-Financial
KPI's
Lost time injuries (LTI & LTI Frequency)
----------------------------------------------------
2021 - 0, LTI Frequency 0; 2020 - 0, LTI Frequency
0
----------------------------------------------------
Reason for choice Health & safety is our highest priority and
we look to provide the highest level of protection
to all our stakeholders
----------------------------------------------------
How we measure We track HSE lagging indicators during the year,
which are reported to the Board. We aim to have
zero LTI's. If we have an LTI it is investigated,
and a clear remedial action is identified and
implemented.
----------------------------------------------------
RESERVES AND RESOURCES
Total aggregate net discovered 2C (mid case) contingent
resources and 2P (mid case) reserves now stand at 37.48 mmboe.
HH-1 production remains in contingent resource category, while
the company waits on the Environment Agency Production Permit. Upon
the receipt of this permit, the company intends to review the HH-1
production decline and attribute reserves to HH-1, thus
transferring them from Contingent Resources to Reserves
category.
Discovered prospective resources (i.e., undiscovered but drill
ready within identified exploration prospects) remain the same as
last year, while we seek to resume drilling on the Turkey
Basur-Resan licence.
Table 1: Recoverable Reserves mmbbl: Producing Fields, Gross and
Net (as of 31 December 2021)
Asset UKOG Gross mmbbl Net Attributable Operator
% Interest mmbbl
1P 2P 3P 1P 2P 3P
----- ----- ----- ------ ------ -----
Horndean (1) 10 1.02 1.20 1.37 0.10 0.12 0.14 IGas
------------ ----- ----- ----- ------ ------ ----- ---------
TOTAL (mmbbl)(2)
(3) 0.10 0.12 0.14
------------ ----- ----- ----- ------ ------ ----- ---------
N otes:
1. DeGolyer and MacNaughton ("D&M") for IGas Feb 2022, 2.
Horse Hill reserve volumes await external CP verification following
12 months of stable production history, see text above, 3. Avington
is temporarily shut-in, consequently no reserves are attributable,
recoverable resources shown in Table 3 below.
Table 2: Contingent Resources mmbbl/mmboe (i.e., discovered and
drill ready recoverable volumes)
Asset Licence UKOG Gross Net Attributable Operator
% mmbbl/mmboe mmbbl/mmboe
1C 2C 3C mean 1C 2C 3C mean
----- ----- ----- ----- ----- ----- ----- -----
Turkey, M47
Basur-Resan b1,
(4) b2 50 14.9 30.5 67.0 37.2 7.5 15.3 33.5 18.6 AME
--------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ---------
Horse-Hill
Portland
(1) PEDL137 85.64 0.6 1.5 3.6 1.9 0.5 1.3 3.1 1.6 HHDL
--------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ---------
Horse-Hill
Kimmeridge
(6) PEDL137 85.64 0.4 1.6 6.1 2.7 0.3 1.4 5.2 2.3 HHDL
--------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ---------
Loxley
Gas (3
,5) PEDL234 100 3.1 5.5 9.3 5.9 3.1 5.5 9.3 5.9 UKOG
--------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ---------
Arreton
Portland
(1) PEDL331 95 1.4 3.7 10.3 5.1 1.3 3.5 9.8 4.9 UKOG
--------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ---------
Arreton
Oolite
(1) PEDL331 95 6.2 10.8 17.6 11.5 5.9 10.3 16.7 11.0 UKOG
--------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ---------
Avington
(2) PEDL070 5 0.5 0.7 1.0 0.7 0.03 0.04 0.05 0.04 IGas
--------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ---------
Horndean
(2) PL211 10 0.3 0.8 1.3 0.8 0.03 0.08 0.13 0.08 IGas
--------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ---------
TOTAL mmboe 18.6 37.3 77.8 44.4
------ ----- ----- ----- ----- ----- ----- ----- ----- ---------
Notes:
1. Xodus June 2018, estimates for Horse Hill are deterministic
based upon per well recoveries , 2. D&M for IGas Feb 2022,
estimates for Horndean and Avington are deterministic, not
probabilistic, 3. Xodus September 2020, probabilistic based upon
range of recovery factors, 4. Xodus June 2020, probabilistic based
upon range of recovery factors, 5. 1 million bbl oil equivalent
(mmboe) = 5.8 bcf, 6. RPS Jun 2019.
Table 3: Prospective Resources (i.e., exploration, drill ready
but as yet undiscovered recoverable volumes)
Asset Licence UKOG Gross mmbbl Net Attributable
% mmbbl
Low Best High Mean Low Best High Mean
---- ----- ----- ----- ---- ------ ------ -----
Turkey, Prospect
A (2) M47 b1,b2 50 4.0 8.7 17.0 9.9 2.0 4.4 8.5 5.0
----------- ----- ---- ----- ----- ----- ---- ------ ------ -----
Godshill Portland
(1) PEDL331 95 1.7 6.8 17.4 8.6 1.6 6.5 16.5 8.2
----------- ----- ---- ----- ----- ----- ---- ------ ------ -----
Arreton North
(1) PEDL331 95 0.5 2.7 7.6 3.6 0.5 2.6 7.2 3.4
----------- ----- ---- ----- ----- ----- ---- ------ ------ -----
TOTAL 4.1 13.4 32.3 16.6
----- ---- ----- ----- ----- ---- ------ ------ -----
Notes:
1. Xodus June 2018, Godshill possesses the same underlying Lower
Oolite potential as Arreton but this target was not reviewed by
Xodus in 2018, to be included in any subsequent external CP review,
2. Xodus June 2020
HEALTH, SAFETY AND THE ENVIRONMENT
UKOG is committed to providing, so far as is reasonably
practicable, a quality working environment that is safe and one
that poses no risks to the health and safety of our employees,
contractors, the local community and stakeholders.
The health & safety of employees and the public, and the
protection of the environment, are core business objectives of
UKOG. They rank equally with the company's other business
objectives.
Health, safety and environmental (HSE) risks associated with the
business practices of UKOG are addressed through the effective
implementation of our HSE Policy, which is designed to ensure that
every person who works for UKOG is responsible for ensuring that
health and safety is managed in all aspects of our business.
The Company's HSE aspirations are: "get it right, first time,
every time with no accidents, no harm to people, the ecology and
the environment".
To achieve the identified objectives, we will ensure that all
necessary and reasonable resources are made available. We will
confirm that objectives are being met by reviewing and reporting on
performance and auditing the implementation and operation of UKOG's
HSE Management System.
Our full HSE framework is available on our website:
http://www.ukogplc.com/page.php?pID=101
Health & Safety Review
UKOG, under our operating subsidiary HHDL, has continued
production activities at Horse Hill, including safe completion of
well intervention operations. A new, more efficient, enclosed gas
flare with lower carbon emissions was installed on the site during
the period. An energy efficiency study was also completed for Horse
Hill to reduce diesel consumption and carbon emissions,
recommending the installation of 250kW solar PV and 67kWh of Li-ion
battery storage. In addition, HHDL has continued the process of
obtaining the full environmental production permit, including water
injection and additional development drilling, from the Environment
Agency (EA). The permitting process has taken longer than
anticipated with the regulator but award of the permit is expected
in Q2 2022.
Well site construction, together with the associated access
road, and drilling activities were completed without incident by
our operating partner AME in Turkey. AME carried out 11 HSE audits
of Oceanmec during their drilling operations.
There were no lost time injuries or environmental incidents on
any of UKOG's sites during the reporting period or post period. The
lost time injury frequency was also zero.
The EA and Health and Safety Executive made a number of site
visits, linked to Horse Hill well operations and production
equipment.
A workscope for Horse Hill site modifications and upgrades was
agreed with the Competent Authority (CA) under Regulation 6 of the
Control of Major Accident Hazards Regulations (2015) (COMAH). The
first phase of these COMAH upgrades was safely completed in the
period.
UKOG continues to keep good housekeeping standards on its sites.
The Company continuously monitors all its live operations for
noise, ensuring noise from its sites is kept to a minimum, and is
compliant with the levels set by the relevant site planning
approval. UKOG only utilises service companies that can demonstrate
commitment to our HSE standards.
Community engagement
Any complaints received are reviewed and responded to.
Communication links are in place with residents close to our sites,
who can call UKOG at any time.
Because of our strict Covid-19 policy to ensure the safety of
our staff and visitors, we kept visits to Horse Hill to a
minimum.
The Company meets and communicates regularly with local police
to give operational updates.
Route to development
UKOG operates within a highly regulated industry, led by the
OGA, a Government agency reporting to the Department for Business,
Energy & Industrial Strategy, who among other things are
responsible for checking a company's financial and operational
competency before issuing a Petroleum Exploration and Development
Licence ("PEDL") and other regulatory approvals.
Once a potential site has been identified, UKOG must secure
landowner consent and a land lease to operate on the land, before
the EA assess any risk to groundwater and air quality, as well as
the arrangements for waste management.
In parallel with seeking EA permits, discussions with local
planning authorities begin. They in turn seek the views of the
local community and statutory consultees. The Health and Safety
Executive also regulates and monitors all onshore oil & gas
exploration and production activities.
DIRECTORS' SECTION 172 STATEMENT
The following disclosure describes how the Directors have had
regard to the matters set out in section 172(1)(a) to (f) and forms
the Directors' statement required under section 414CZA of The
Companies Act 2006.
The matters set out in section 172(1) (a) to (f) are that a
Director must act in the way they consider, in good faith, would be
most likely to promote the success of the Company for the benefit
of its members as a whole, and in doing so have regard (amongst
other matters) to:
-- the likely consequences of any decisions in the long term;
-- the interests of the company's employees;
-- the need to foster the company's business relationships with suppliers/customers and others;
-- the impact of the company's operations on the community and environment;
-- the company's reputation for high standards of business conduct; and
-- the need to act fairly between members of the company.
As set out above in the Strategic Report the Board remains
focused on providing value for shareholders through the long term
success of the Company. The means by which this is achieved is set
out further below.
Likely Consequences of any Decisions in the Long Term
The Statement From the Chairman, the Chief Executive's Statement
and the Strategic Review set out the Company's strategy. In
applying this strategy, particularly in seeking new projects and
developing current ones to deliver reserves and resource growth,
the Board assesses the long term future of our projects and
investments with a view to shareholder return. The approach to
general strategy and risk management strategy of the group is set
out in the Statement of Compliance with the QCA Code of Practice
(Principles 1 and 4) on pages 23 to 29 .
Interest of Employees
The Group has a very limited number of employees and all have
direct access to the Executive Directors on a daily basis and to
the Chairman, if necessary. The Group has a formal Employees'
Policy manual which includes processes for confidential report and
whistleblowing.
Need to Foster the Company's Business Relationships with
Suppliers/Customers and Others
The Group continuously interacts with a variety of suppliers and
customers important to its success. The Group strives to strike the
right balance between engagement and communication. Furthermore,
the Company works within the limitations of what can be disclosed
to the various stakeholders with regards to maintaining
confidentiality of market and/or commercially sensitive
information. Our suppliers are fundamental to ensuring that the
Group can execute its development and production strategy on time
and on budget. Using quality suppliers ensures that as a business
we meet the high standards of performance that we expect of
ourselves and vendor partners. Our management team work closely
with our suppliers, via one on one meetings and where possible
supplier site visits and facility reviews to ensure our suppliers
are able to meet our requirements.
Impact of the Company's Operations on the Community and
Environment
The Group takes its responsibility within the community and
wider environment seriously. Its approach to its social
responsibilities is set out in the Statement of Compliance with the
QCA Code of Practice (Principle 3) on page 23 .
The Desirability of the Company Maintaining a Reputation for
High Standards of Business Conduct
The Directors are committed to high standards of business
conduct and governance and have adopted the QCA Code of Practice
which is set out on pages 23 to 29 . Where there is a need to seek
advice on particular issues, the Board will consult with its
lawyers and nominated advisers to ensure that its reputation for
good business conduct is maintained.
The Need to Act Fairly Between Members of the Company
The Board's approach to shareholder communication is set out in
the Statement of Compliance with the QCA Code of Practice
(Principle 2) on page 23 . The Company aims to keep shareholders
fully informed of significant developments in the Group's progress.
Information is disseminated through Stock Exchange announcements,
website updates and, where appropriate, video-casts.
During 2021 the Company issued numerous stock exchange
announcements on operational issues. All information is made
available to all shareholders at the same time and no individual
shareholder, or group of shareholders, is given preferential
treatment.
CORPORATE GOVERNANCE
Introduction to Governance
The Directors recognise that good corporate governance is a key
foundation for the long-term success of the Company. As the Company
is listed on the AIM market of the London Stock Exchange it also is
subject to the continuing requirements of the AIM Rules. The Board
has therefore adopted the principles set out in the Corporate
Governance Code for small and midsized companies published by the
Quoted Companies Alliance ("QCA Code"). The principles are listed
below with an explanation of how the Company applies each
principle, and the reasons for any aspect of non-compliance.
1. Establish a strategy and business model which promote long-
term value for shareholders
UK Oil & Gas Plc provides shareholders with a full
discussion of corporate strategy within our Annual Report. A
dedicated section explains how we will establish long term
shareholder value, as set out on page 3.
The Company is focused around 3 key strategic goals: Maximise
production and recovery from its existing asset portfolio, grow the
asset portfolio through select onshore development and appraisal
projects, actively manage costs and risks through operational and
management control of the entire process of exploring, appraising
and developing its assets.
The Management team actively evaluates projects that
simultaneously de-risk the current portfolio and create long-term
shareholder value. Projects are evaluated based on many
characteristics to mitigate risk to our current activities,
including but not limited to, alignment with the Company's core
competencies, geography, time horizon and value creation. Further,
a core component of the Company's activities includes an active
dialogue with our legal and legislative advisors to ensure the
Company remains up to date on current legislation, policy and
compliance issues.
Key business challenges and how they may be mitigated are
detailed on pages 10 to 11 .
2. Seek to understand and meet shareholder needs and
expectations
UKOG encourages two-way communication with institutional and
private investors. The Chief Executive talks regularly with the
Company's major shareholders and ensures that their views are
communicated fully to the Board. Where voting decisions are not in
line with the company's expectations the Board will engage with
those shareholders to understand and address any issues. The
Company Secretary is the main point of contact for such
matters.
The Company seeks out appropriate platforms to communicate to a
broad audience its current activities, strategic goals and broad
view of the sector and other related issues. This includes but is
not limited to media interviews, website videos, in-person investor
presentations and written content.
Communication to all stakeholders is the direct responsibility
of the Senior Management team. Managers work directly with
professionals to ensure all inquiries (through established channels
for this specific purpose such as email or phone) are addressed in
a timely matter and that the Company communicates with clarity on
its proprietary internet platforms. Senior management routinely
provides interviews to local media and business reporters in
support of the company's activities. The Board routinely reviews
the Company communication policy and programmes to ensure quality
communication with all stakeholders.
3. Take into account wider stakeholder and social
responsibilities and their implications for long-term success
In all endeavours, the Company gives due consideration to the
impact on its neighbours. The Company seeks out methodologies,
processes and expertise in order to address the concerns of the
non-investment community. As such, it actively identifies the
bespoke needs of local communities and their respective planners.
For example, the company provides for local hotlines and
establishes community liaison groups to address local questions and
concerns.
UKOG seeks to maintain positive relationships within the
communities in which it operates. As such, UKOG is dedicated to
ensuring:
-- Open and honest dialogue;
-- Engagement with stakeholders at all stages of
development;
-- Proactive addressing of local concerns;
-- Active minimisation of impact on our neighbours; and
-- Adherence to a strict health and safety code of conduct.
As a responsible OGA approved and EA permitted UK operator, UKOG
is committed to utilising industry best practices and achieving the
highest standards of environmental management and safety.
Our operations:
-- Continuously assess and monitor environmental impact;
-- Promote internally and across our industry best practices for
environmental management and safety; and
-- Constant attention to maintaining our exemplary track record
of safe oil & gas production.
For more information please refer to page 19 of the Annual
Report as well as the Community section within the Company's
corporate website.
4. Embed effective risk management, considering both
opportunities and threats, throughout the organization
Risk Management on pages 10 to 11 of the Annual Report details
risks to the business, how these are mitigated and the change in
the identified risk over the last reporting period.
The Board considers risks to the business at every Board meeting
(at least 4 meetings are held each year) and the risk register is
updated at each meeting. The Company formally reviews and documents
the principal risks to the business at least annually.
Both the Board and senior managers are responsible for reviewing
and evaluating risk and the Executive Directors meet at least
monthly to review ongoing trading performance, discuss budgets and
forecasts and new risks associated with ongoing trading.
5. Maintain the Board as a well-functioning, balanced team led
by the chair
Oversight of UKOG is performed by the Company's Board of
Directors. Nicholas Mardon Taylor, the Non-Executive Chairman, is
responsible for the running of the Board and Stephen Sanderson, the
Chief Executive, has executive responsibility for running the
Company's business and implementing Company strategy. All Directors
receive regular and timely information regarding the Company's
operational and financial performance.
Relevant information is circulated to the Directors in advance
of meetings. In addition, minutes of the meetings of the Directors
of the UK subsidiaries are circulated to the Board. All Directors
have direct access to the advice and services of the Company
Secretary and are able to take independent professional advice in
the furtherance of the duties, if necessary, at the company's
expense.
The Board comprises two Executive Directors and two
Non-Executive Directors with a mix of significant industry and
business experience within public companies. The Board considers
that all Non-Executive Directors bring an independent judgement to
bear. All Directors must commit the required time and attention to
thoroughly fulfil their duties.
The Board has a formal schedule of matters reserved to it and is
supported by the Audit, Remuneration, Nomination and AIM Rules
compliance committee. The Schedule of Matters Reserved and
Committee Terms of Reference are available on the Company's website
and can be accessed on the Corporate Governance page of the
website.
6. Ensure that between them the Directors have the necessary
up-to-date experience, skills and capabilities
The Nomination Committee will determine the composition of the
Board of the Company and appointment of senior employees. It will
develop succession plans as necessary and report to the Directors.
Where new Board appointments are considered the search for
candidates is conducted, and appointments are made, on merit,
against objective criteria and with due regard for the benefits of
diversity on the Board, including gender.
The Company Secretary supports the Chairman in addressing the
training and development needs of Directors.
As a small company, all members of the Board share
responsibility for all Board functions. As such the Board will from
time to time engage outside consultants to provide an independent
assessment.
7. Evaluate Board performance based on clear and relevant
objectives, seeking continuous improvement
The Board intends to carry out an internal evaluation on
individual Directors on an ad-hoc basis in the form of peer reviews
and appraisals. The individual reviews and appraisals are used to
identify group and individual targets which are reviewed and
assessed at the end of the financial year.
8. Promote a corporate culture that is based on ethical values
and behaviours
The Company is committed to maintaining and promoting high
standards of business integrity. Company values, which incorporate
the principles of corporate social responsibilities (CSR) and
sustainability, guide the Company's relationships with clients,
employees and the communities and environment in which we operate.
The Company's approach to sustainability addresses both our
environmental and social impacts, supporting the Company's vision
to remain an employer of choice, while meeting client demands for
socially responsible partners.
Company policy strictly adheres to local laws and customs while
complying with international laws and regulations. These policies
have been integral in the way group companies have done business in
the past and will continue to play a central role in influencing
the Group's practice in the future.
The ethical values of UKOG including health, safety,
environmental, social and community and relationships, are set out
on page 19 of the Annual Report.
9. Maintain governance structures and processes that are fit for
purpose and support good decision-making by the Board
The Company has adopted a model code for directors' dealings and
persons discharging managerial responsibilities appropriate for an
AIM company, considering the requirements of the Market Abuse
Regulations "MAR"), and takes reasonable steps to ensure compliance
is also observed by the Company's employees (AIM Rule 21 in
relation to directors' dealings).
The Corporate Governance Statement details the company's
governance structures, the role and responsibilities of each
director. Details and members of the Audit Committee and
Remuneration Committee can be found on page 28 .
10. Communicate how the company is governed and is performing by
maintaining a dialogue with shareholders and other relevant
stakeholders
The Company encourages two- way communication with both its
institutional and private investors and responds quickly to all
queries received. The Chief Executive talks regularly with the
Company's major shareholders and ensures that their views are
communicated fully to the Board.
The Board recognises the AGM as an important opportunity to meet
private shareholders. The Directors are available to listen to the
views of shareholders informally immediately following the AGM.
To the extent that voting decisions are not in line with
expectations, the Board will engage with shareholders to understand
and address any issues.
In addition to the investor relations activities carried out by
the Company as set out above, and other relevant disclosures
included within the Investor Relations section of the Company's
website, reports on the activities of each of the Committees during
the year are set out in the Annual Report.
While building a strong governance framework the Company also
tries to ensure that it takes a proportionate approach and that its
processes remain fit for purpose as well as embedded within the
culture of the organisation. We continue to evolve our approach and
make ongoing improvements as part of building a successful and
sustainable company.
Board of Directors
The Board consists of a team of experienced multidisciplinary
members who are committed to delivering shareholder value.
Nicholas Mardon Taylor, Non-Executive Chairman
Nicholas Mardon Taylor served as the Chief Financial Officer of
Hurricane Energy PLC from May 2012 until January 2016. He has
worked in the oil industry for over 35 years, his first involvement
in the North Sea being in the early licensing rounds. He was with
Hurricane from 2005 to January 2016 when he was the Company's first
CFO and was subsequently responsible for the Company's
Environmental Management System.
Stephen Sanderson, Chief Executive
Stephen Sanderson joined UK Oil & Gas Plc in September 2014.
He was appointed Executive Chairman and Chief Executive in July
2015 and in August 2018 ceded his role as Executive Chairmen as
part of improvements in corporate governance. A highly experienced
petroleum geologist, oil industry veteran and upstream energy
business leader, with over 30 years operating experience, Stephen
is a proven oil finder and has been instrumental in the discovery
of more than 12 commercial conventional fields, including the
Norwegian Smorbuk-Midgaard field complex.
Stephen held a variety of senior management roles for ARCO
(which was acquired by BP in 2000), Wintershall AG (a subsidiary of
German chemical giant BASF) and three junior start-ups. He created
and ran successful new exploration businesses in Africa, Europe and
South America. He has significant technical and commercial
expertise in the petroleum systems of Africa, the North Sea,
Norway, onshore UK & Europe, South America, the South Atlantic,
Middle East, Asia, India, Australia and the USA. He is a graduate
and Associate of the Royal School of Mines, Imperial College,
London, a Fellow of the Geological Society of London and a member
of the American Association of Petroleum Geologists.
Allen D Howard, Executive Director
Allen Howard was Senior Vice President of Houston-based Premier
Oilfield Laboratories, having been Chief Operating Officer of well
analysis experts Nutech. Allen also held senior positions with
Schlumberger. He holds a degree in Chemical Engineering from Texas
Tech University and an MBA from Mays Business School in Texas.
Allen was appointed as Non-Executive Chairman for UKOG in August
2018, before taking up his current Executive role at the beginning
of 2022.
Kiran Morzaria, Non-Executive Director
Kiran Morzaria holds a Bachelor of Engineering (Industrial
Geology) from the Camborne School of Mines and an MBA (Finance)
from CASS Business School. He has extensive experience in the
mineral resource industry working in both operational and
management roles. Mr Morzaria spent the first four years of his
career in exploration, mining and civil engineering. He then
obtained his MBA and became the Finance Director of Vatukoula Gold
Mines Plc for seven years. He has served as a director of a number
of public companies in both an executive and non-executive
capacity; he is a non-executive director of European Metals
Holdings Ltd and the Chief Executive Officer for Cadence Minerals
Plc. Mr Morzaria previously served in an Executive capacity as the
Finance Director of UKOG, transitioning to his current
Non-Executive position at the beginning of 2022.
Board and Committee Membership
Member Board Title Audit Committee Remuneration Committee
Title Title
Stephen Sanderson Chief Executive
------------------- ---------------- -----------------------
Allen D Howard Executive Director
------------------- ---------------- -----------------------
Nicholas Mardon Non-Executive Member Member
Taylor Chairman
------------------- ---------------- -----------------------
Kiran Morzaria Non-Executive Chairman Chairman
Director
------------------- ---------------- -----------------------
The Board and its Committees
The Board of the Company consists of two Executive Directors and
two Non-Executive Directors. The Non-Executive Directors are not
considered independent under the FRC Code as they hold options
and/or shares in the Company. However, the Board considers that the
Non-Executive Directors are independent of management under all
other measures and are able to exercise independence of judgement
.
With effect from 1 January 2022 the board was restructured.
Kiran Morzaria stepped down as Finance Director and became a
Non-Executive Director. Allen Howard moved from Non-Executive
Chairman to become an Executive Director of the Company on a
part-time basis. Nicholas Mardon Taylor became the Non-Executive
Chairman.
The Board is responsible for formulating, reviewing and
approving the Company's strategy, financial activities and
operating performance. Day-to-day management is devolved to the
executive directors, who are charged with consulting the Board on
all significant financial and operational matters. The Board
retains ultimate accountability for governance and is responsible
for monitoring the activities of the executive team.
The roles of Chairman and Chief Executive are split in
accordance with best practice. The Chairman has the responsibility
of ensuring that the Board discharges its responsibilities. The
Chairman is also responsible for the leadership and effective
working of the Board, for setting the Board agenda, and ensuring
that Directors receive accurate, timely and clear information. No
one individual has unfettered powers of decision.
The Chief Executive has the overall responsibility for creating,
planning, implementing, and integrating the strategic direction of
the Company. This includes responsibility for all components and
departments of the business. The Chief Executive ensures that the
organisation's leadership maintains constant awareness of both the
external and internal competitive landscape, opportunities for
expansion, customer base, markets, new industry developments and
standards.
The Board met regularly during the year. Tabulated below is the
attendance of Board Members during the reporting period. Several of
the meetings held during the year were in relation to the allotment
of equity and, given that these meetings were largely procedural in
nature, it was not deemed necessary for the non-executive board
members to attend.
Board Member Meetings
attended
(out of
a total
possible)
Nicholas Mardon Taylor 3/11
-----------
Stephen Sanderson 11/11
-----------
Allen D Howard 3/11
-----------
Kiran Morzaria 11/11
-----------
Audit Committee
The audit committee consists of Kiran Morzaria (Chairman) and
Nicholas Mardon Taylor. Prior to 1 January 2022 the audit committee
consisted of Nicholas Mardon Taylor (Chairman) and Allen D Howard.
The Audit Committee met once during the year.
Board member Meetings attended (out of
a total possible)
Nicholas Mardon Taylor 1/1
--------------------------
Allen D Howard 1/1
--------------------------
The principal duties and responsibilities of the Audit Committee
include:
-- Overseeing the Company's financial reporting disclosure
process; this includes the choice of appropriate accounting
policies
-- Monitoring the Company's internal financial controls and assess their adequacy
-- Reviewing key estimates, judgements and assumptions applied
by management in preparing published financial statements
-- Annually assessing the auditor's independence and objectivity
-- Making recommendations in relation to the appointment,
re-appointment and removal of the company's external auditor
Remuneration Committee
The Remuneration Committee consists of Kiran Morzaria (Chairman)
and Nicholas Mardon Taylor. Prior to 1 January 2022 the
Remuneration Committee consisted of Nicholas Mardon Taylor
(Chairman) and Allen D Howard. The Remuneration Committee met once
during the year.
Board member Meetings attended (out of
a total possible)
Nicholas Mardon Taylor 1/1
--------------------------
Allen D Howard 1/1
--------------------------
The principal duties and responsibilities of the Remuneration
Committee include:
-- Setting the remuneration policy for all Executive Directors
-- Recommending and monitoring the level and structure of remuneration for senior management
-- Approving the design of, and determining targets for,
performance related pay schemes operated by the company and approve
the total annual payments made under such schemes
-- Reviewing the design of all share incentive plans for
approval by the board and shareholders
None of the Committee members have any personal financial
interest (other than as shareholders and option holders), conflicts
of interest arising from cross-directorships or day-to-day
involvement in the running of the business. No director plays a
part in any financial decision about his or her own
remuneration.
Internal Controls
The Board is responsible for establishing and maintaining the
Company's system of internal controls and reviewing its
effectiveness. The procedures that include financial, operational,
health and safety, compliance matters and risk management are
reviewed on an ongoing basis.
The Company's internal control procedures include the
following:
-- Board approval for all significant projects, including
corporate transactions and major capital projects;
-- The Board receives and reviews regular reports covering both
the technical progress of projects and the Company's financial
affairs to facilitate its control;
-- There is a comprehensive budgeting and planning system for
all items of expenditure with an annual budget approved by the
Board;
-- The Company has in place internal control and risk management
systems in relation to the Company's financial reporting process
and the Company's process for preparing consolidated accounts.
These systems include policies and procedures to ensure that
adequate accounting records are maintained, and transactions are
recorded accurately and fairly to permit the preparation of
consolidated financial statements in accordance with IFRS; and
-- The Audit Committee reviews draft annual and interim reports
before recommending their publication to the Board. The Audit
Committee discusses with the Chief Financial Officer and external
auditors the significant accounting policies, estimates and
judgements applied in preparing these reports.
The internal control system can only provide reasonable and not
absolute assurance against material misstatement or loss. The Board
has considered the need for a separate internal audit function but,
bearing in mind the present size and composition of the Company,
does not consider it necessary at the current time.
UK Bribery Act
UKOG has 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.
Relations with Shareholders
Communications with shareholders are considered important by the
Directors. The primary contact with shareholders, investors and
analysts is the Chief Executive. Other senior management, however,
regularly speak to investors and analysts during the year.
Company circulars and press releases have also been issued
throughout the year for the purpose of keeping investors informed
about the Company's progress and in accordance with AIM
regulations.
The Company also maintains a website (www.ukogplc.com) which is
regularly updated and contains a wide range of information about
the Company.
DIRECTORS' REMUNERATION REPORT
This report explains our remuneration policy for Directors and
sets out how decisions regarding Directors' pay for the period
under review have been taken.
Directors' Remuneration Policy
The Company's policy is to maintain levels of remuneration
sufficient to attract, motivate and retain senior executives.
Executive Director remuneration currently consists of basic
salary, pensions, annual bonus (based on annually set targets) and
long-term incentives (to reward long term performance).
The Company seeks to strike an appropriate balance between fixed
and performance-related reward so that the total remuneration
package is structured to align a significant proportion to the
achievement of performance targets, reinforcing a clear link
between pay and performance. The performance targets for staff,
senior executives and the Executive Directors are each aligned to
the key drivers of the business strategy, thereby creating a strong
alignment of interest between staff, Executive Directors and
shareholders.
The Remuneration Committee will continue to review the Company's
remuneration policy and make amendments, as and when necessary, to
ensure it remains fit for purpose and continues to drive high
levels of executive performance and remains both affordable and
competitive in the market.
Annual Statement
During the year no annual cash bonus scheme was adopted, as the
current remuneration was viewed as sufficient to attract, motivate
and retain senior executives. At the end of July 2020 the Directors
agreed to an interim salary cut of between 20% and 50% of their
monthly salary; this was agreed due to the impact COVID-19 had on
the Group's revenues due to a significant reduction in the price of
oil. These interim salary cuts remained in place until March 2021
at which point previous salaries were reinstated.
During the year and as required under the Pensions Act of 2008
the Company implemented an automatic enrolment pension scheme and
contributed up to 3% of Executive Directors qualifying
earnings.
Remit of the Remuneration Committee
The remit of the Remuneration Committee is provided in the
Corporate Governance section.
Share Price Movements During the Year
The Company's share price as at 30 September 2021 was GBP0.0014
per share. The share price range during the year was GBP0.0035 to
GBP0.0012 (2020 - GBP0.0016 to GBP0.0115).
Current Arrangement in Financial Year (Audited)
Executive Directors are employed under rolling contracts with
notice periods of 12 months or less from the Company. Non-Executive
Directors are employed under rolling contracts with notice period
of three months, under which they are not entitled to any pension,
benefits or bonuses.
During the years ended 30 September 2020 and 2021 the Directors
occupied the following Board positions: Allen D Howard
(Non-Executive Chairman), Stephen Sanderson (Chief Executive
Officer), Kiran Morzaria (Finance Director), Nicholas Mardon Taylor
(Non-Executive Director). The Directors' emoluments for the year
were as follows:
Year ended 30 September 2021
Salary Bonus Pension Share Benefits Total
Based in Kind
Payments
------------------- -------------------- --------
Director Board Position* GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------- -------- -------- -------- ---------- --------- --------
Nicholas Mardon Non-Executive
Taylor Director 44 - - - - 44
-------------------- -------- -------- -------- ---------- --------- --------
Stephen Sanderson Chief Executive 284 - 1 - 1 287
-------------------- -------- -------- -------- ---------- --------- --------
Non-Executive
Allen D Howard Chairman 48 - - - 48
-------------------- -------- -------- -------- ---------- --------- --------
Kiran Morzaria Executive Director 92 - 1 - - 93
-------------------- -------- -------- -------- ---------- --------- --------
Total Directors 468 - 2 - 1 471
-------- -------- -------- ---------- --------- --------
Year ended 30 September 2020
Salary Bonus Pension Share Benefits Total
Based in Kind
Payments
------------------- -------------------- --------
Director Board Position* GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------- -------- -------- -------- ---------- --------- --------
Nicholas Mardon Non-Executive
Taylor Director 49 - - - - 49
-------------------- -------- -------- -------- ---------- --------- --------
Stephen Sanderson Chief Executive 297 - 1 - 3 301
-------------------- -------- -------- -------- ---------- --------- --------
Non-Executive
Allen D Howard Chairman 54 - - - - 54
-------------------- -------- -------- -------- ---------- --------- --------
Kiran Morzaria Executive Director 115 - - - - 115
-------------------- -------- -------- -------- ---------- --------- --------
Total Directors 515 - 1 - 3 519
-------- -------- -------- ---------- --------- --------
*Board positions listed are the positions which were occupied
during the financial year being reported. The Board was
subsequently restructured with effect from 1 January 2022, as
detailed within the Corporate Governance section.
As at 30 September 2021, the outstanding long-term incentives,
in the form of options, held by the Directors who served during the
period are set out in the table below.
At 1 Issued lapsed At 30 Exercise Date from Expiry
October during / exercised September price which date
2020 the year during 2021 exercisable
the year
Share options No. No. No. No. GBP
million million million million
--------- ---------- ------------- ----------- --------- ------------- -----------
Stephen Sanderson 25 - - 25 0.0115 25/05/2017 24/05/2022
--------- ---------- ------------- ----------- --------- ------------- -----------
Stephen Sanderson 25 - - 25 0.0130 27/09/2020 25/09/2024
--------- ---------- ------------- ----------- --------- ------------- -----------
Total 50 - - 50
--------- ---------- ------------- ----------- --------- ------------- -----------
At 1 Issued lapsed At 30 Exercise Date from Expiry
October during / exercised September price which date
2020 the year during 2021 exercisable
the year
Share options No. No. No. No. GBP
Million million million million
--------- ---------- ------------- ----------- --------- ------------- -----------
Kiran Morzaria 20.0 - - 20.0 0.0115 25/05/2017 24/05/2022
--------- ---------- ------------- ----------- --------- ------------- -----------
Kiran Morzaria 6.5 - - 6.5 0.0130 27 /09/2020 25/09/2024
--------- ---------- ------------- ----------- --------- ------------- -----------
Total 26.5 - - 26.5
--------- ---------- ------------- ----------- --------- ------------- -----------
At 1 Issued lapsed At 30 Exercise Date from Expiry
October during / exercised September price which date
2020 the during 2021 exercisable
year the year
Share options No. No. No. No. GBP
Million million million million
--------- -------- ------------- ----------- --------- ------------- -----------
Allen Howard 10 - - 10 0.0115 25/05/2017 24/05/2022
--------- -------- ------------- ----------- --------- ------------- -----------
Allen Howard 5 - - 5 0.0130 27 /09/2020 25/09/2024
--------- -------- ------------- ----------- --------- ------------- -----------
Total 15 - - 15
--------- -------- ------------- ----------- --------- ------------- -----------
At 1 Issued lapsed At 30 Exercise Date from Expiry
October during / exercised September price which date
2020 the during 2021 exercisable
year the year
Share options No. No. No. No. GBP
million million million million
--------- -------- ------------- ----------- --------- ------------- -----------
Nicholas Mardon
Taylor 4 - - 4 0.0130 27 /09/2020 25/09/2024
--------- -------- ------------- ----------- --------- ------------- -----------
Total 4 - - 4
--------- -------- ------------- ----------- --------- ------------- -----------
REPORT OF THE DIRECTORS
The Directors present their annual report together with the
audited consolidated financial statements of the Group for the Year
Ended 30 September 2021.
Business Review and Future Developments
A review of business activities in the year and future
developments is outlined in the Statement From The Chairman (page
5), the Chief Executive's Statement (page 6) and the Operational
Review (page 12).
Principal Activity and Business Review
The principal activity of the Group is exploring for, appraising
and developing oil & gas assets.
Results and Dividends
Loss on ordinary activities of the Group after taxation amounted
to GBP4,833,000 (2020: loss of GBP20,937,000). The Directors do not
recommend the payment of a dividend (2020: GBPnil). The Company has
no plans to adopt a dividend policy in the immediate future.
Principal Risks and Uncertainties
Information of the principal risks and uncertainties facing the
Group is included in the Principal Risks and Uncertainties section
of the Strategic Report.
Financial Risk Management Objectives and Policies
The Group's principal financial instruments are trade
receivables, trade payables, cash at bank, and borrowings. The main
purpose of these financial instruments is to fund the Group's
operations.
It is, and has been throughout the period under review, the
Group's policy that no trading in financial instruments shall be
undertaken. The main risk arising from the Group's financial
instruments is liquidity risk. The Board reviews and agrees
policies for managing this risk and this is summarised below.
Liquidity Risk
The Group's objective is to maintain a balance between
continuity of funding and flexibility through the use of equity and
its cash resources. Further details of this are provided in the
principal accounting policies, headed 'going concern'.
Key Performance Indicators ("KPI's")
KPI's adopted by the Group are detailed in the KPI's section of
the Strategic Report.
Going Concern
The Directors note the losses and cash outflows that the Group
has made for the year ended 30 September 2021. The Directors have
prepared cash flow forecasts for the period to 31 March 2023, which
take into account anticipated production and costs, the forward
curve of Brent crude oil and external funding.
The Group closely monitors and manages its liquidity risks. Cash
flow forecasts for the Group are regularly produced based on, inter
alia, management's best estimate of the Group's production and
expenditure forecasts and future oil prices. The cost structure of
the Group comprises a high proportion of discretionary spend and
therefore in the event that cash flows become constrained, costs
can be quickly reduced to enable the Group to operate within its
available funding.
Notwithstanding the Company's current cash balance and minimal
contractual expenditure commitments, the Board are cognisant of the
potential impacts of COVID-19 or other possible unforeseen events
outside of its control on the Group. W hilst the potential future
impacts are unknown, the Board has considered the operational
disruption that could be caused by factors such as national
restrictions enforced in response to the COVID-19 pandemic,
factoring in these potential impacts and reasonable mitigating
actions to forecasts and sensitivity scenarios.
Taking into account anticipated production and costs, the
forward curve of Brent crude oil and external funding, forecasts
prepared demonstrate that the Group will have sufficient cash funds
available to allow it to continue in business for a period of at
least twelve months from the date of approval of these financial
statements. The Company has minimal contractual expenditure
commitments and the Board considers that in conjunction with equity
or debt financing, the present funds are sufficient to maintain the
working capital of the Company for a period of at least 12 months
from the date of signing the Annual Report and Financial
Statements. For these reasons the Directors adopt the going concern
basis in the preparation of the Financial Statements.
Events After the Reporting Period
Events after the Reporting Period are outlined in Note 24 to the
Financial Statements.
Corporate Governance
Information in relation to the Corporate Governance of the Group
is contained within the Corporate Governance Section of the
Strategic Report.
Suppliers' 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.
Charitable Contributions
During the year the Group made charitable donations amounting to
GBPNil (2020 - GBPNil).
Substantial Shareholdings
As at 06 January 2022 , the Company had been notified of the
following substantial shareholdings in its ordinary share
capital:
Shareholder Number of Ordinary Holding %
Shares
Hargreaves Lansdown (Nominees)
Limited 2,148,165,647 13.23%
------------------- ----------
Interactive Investor Services
Nominees Limited 1,731,921,508 10.67%
------------------- ----------
Hargreaves Lansdown (Nominees)
Limited 1,451,439,204 8.94%
------------------- ----------
Barclays Direct Investing Nominees
Limited 1,228,568,726 7.57%
------------------- ----------
Interactive Investor Services
Nominees Limited 1,117,483,614 6.88%
------------------- ----------
Hargreaves Lansdown (Nominees)
Limited 1,060,037,130 6.53%
------------------- ----------
HSDL Nominees Limited 1,039,533,166 6.40%
------------------- ----------
HSDL Nominees Limited 750,162,712 4.62%
------------------- ----------
HSBC Client Holdings Nominee
(Uk) Limited 550,403,443 3.39%
------------------- ----------
Jim Nominees Limited 524,815,517 3.23%
------------------- ----------
Current Board & Directors Interests
Nicholas Mardon Non-Executive
Taylor Chairman
Stephen Sanderson Chief Executive
Allen D Howard Executive Director
Kiran Morzaria Non-Executive
Director
The directors hold options to purchase new ordinary shares in
the Company, details of which are specified in the Renumeration
Report on page 30 to 32 . In addition, Stephen Sanderson holds
3,470,387 ordinary shares in the Company and Kiran Morzaria holds
4,508,178 ordinary shares in the Company.
Auditor
PKF Littlejohn LLP has expressed their willingness to continue
in office as auditor and a resolution to reappoint PKF Littlejohn
LLP as auditor will be proposed at the forthcoming Annual General
Meeting ("AGM").
Annual General Meeting
Notice of the forthcoming Annual General Meeting has been
enclosed separately.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the annual report
and financial statements in accordance with applicable law and
regulations.
Under that law the Directors have elected to prepare the Group
and Parent Company financial statements in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006. 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 Group and Company and of the profit or loss of the
Group for that period. In preparing these financial statements, the
Directors are required to:
-- Select suitable accounting policies and then apply them consistently;
-- Make judgements and estimates that are reasonable and prudent;
-- State whether applicable IFRS's have been followed, subject
to any material departures disclosed and explained in the financial
statements; and
-- Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group 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 Group and Company and enable them to
ensure that the financial statements comply with the Companies Act
2006. They are also responsible for safeguarding the assets of the
Group and 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's
website is maintained in accordance with AIM Rule 26.
Statement as to Disclosure of Information to the Auditor
As at the date of this report the serving directors confirm
that:
-- So far as each Director is aware, there is no relevant audit
information of which the Group's auditors are unaware, and
-- They have taken all the steps that they ought to have taken
as Directors in order to make themselves aware of any relevant
audit information and to establish that the Group's auditor are
aware of that information.
ON BEHALF OF THE BOARD
Stephen Sanderson
Director
24 March 2022
REPORT OF THE INDEPENT AUDITOR TO THE MEMBERS OF UK OIL &
GAS PLC
Opinion
We have audited the financial statements of UK Oil & Gas plc
(the 'parent company') and its subsidiaries (the 'group') for the
year ended 30 September 2021 which comprise the Consolidated
Statement of Comprehensive Income, the Consolidated and Parent
Company Statement of Financial Position, the Consolidated and
Parent Company Statements of Changes in Equity, the Consolidated
and Parent Company Statements of Cash Flow and notes to the
financial statements, including significant accounting policies.
The financial reporting framework that has been applied in their
preparation is applicable law and international accounting
standards in conformity with the requirements of the Companies Act
2006 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 30
September 2021 and of the group's loss for the year then ended;
-- the group financial statements have been properly prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006;
-- the parent company financial statements have been properly
prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 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's and parent
company's ability to continue to adopt the going concern basis of
accounting included a review of the group cash flow forecasts, and
challenging the areas of management judgement and estimation
uncertainty. Discussions with management surrounding the groups
committed costs and assessment of those against current cash
balances in a disaster scenario, to ensure the group have
sufficient funds to continue to operate as a going concern.
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's or 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
For the purposes of determining whether the financial statements
are free from material misstatement, we define materiality as a
magnitude of misstatement that makes it probably that the economic
decisions of a reasonable knowledgeable person, relying on the
financial statements, would be changed or influenced. We also
determine a level of performance materiality which we use to assess
the extent of testing needed to reduce an appropriately low level
in the probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality for the financial statements as a
whole.
Materiality for the group financial statements was set at
GBP600,000 (2020: GBP788,000). This was calculated based in 1.5% of
net assets for the year. Net assets was used as the benchmark for
the basis of materiality being the key area of relevance to
stakeholders in assessing the financial performance of the group in
its early years of production. The same basis for the calculation
of materiality for the parent company financial statements was
used, however restricted to GBP599,999 (2020: GBP787,999), to
ensure a level below that of group materiality as required by ISA
(UK) 600.
We also determine a level of performance materiality which we
use to assess the extent of testing needed to reduce to an
appropriately low level probability that the aggregate of
uncorrected and undetected misstatements exceeds materiality for
the financial statements as a whole. Performance materiality for
the group and part company was set at GBP390,000 (2020: GBP472,800)
and GBP389,999 (2020: GBP472,799) respectively, being 65% of
materiality for the financial statements as a whole.
We agreed to report to those charged with governance all
corrected and uncorrected misstatements we identified through our
audit with a value in excess of GBP30,000 for both the group and
parent company. We also agreed to report any other audit
misstatements below that threshold that we believe warranted
reporting on qualitative grounds.
Our approach to the audit
The scope of our audit was influenced by 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.
As part of our planning, we assessed all components of the group
for their significance under ISA (UK) 600 in order to determine the
scope of the work to be performed. Those entities of the group
which were considered to be significant components, being UK Oil
& Gas plc and Horse Hill Developments Limited, were subject to
full scope audit procedures, and those considered to be material,
being UKOG (137/246) Holdings Limited, UKOG (234) Limited and UKOG
(37/246) Limited were subject to audit procedures on significant
and identified risk areas only, in accordance with ISA (UK) 600 for
group reporting purposes. Procedures were then performed to address
the risks identified and for the most significant assessed risks of
material misstatement, the procedures are outlined below in the key
audit matters section of this report. The remaining components were
subject to analytical review procedures.
We did not rely on the work of any component auditors.
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
Carrying value and correct classification Our work in this area included:
of exploration and evaluation * Reviewing impairment workings prepared by management
assets (Note 11) against the criteria per IFRS 6, and challenging the
There is a risk that the assets assumptions made thereto;
are incorrectly valued or need
to be impaired. As Horse Hill
entered the production stage * Vouching a sample of additions in the period to
last year, there is a risk that supporting documentation and ensure they meet the
the assets are incorrectly included capitalisation criteria per IFRS 6;
as intangibles when they should
be reclassified to Tangibles.
* Reviewing the effect of COVID-19 on the group and the
potential profitability of said assets; and
* Vouched a sample of exploration and evaluation assets
at the year end to supporting licences and ensuring
they are valid
There are no key observations
outside of the work performed
above.
==================================================================
Carrying value of producing Our work in this area included:
assets (Note 12) * A review of management's net present value workings,
There is a risk of material and challenging key assumptions made including the
misstatement around the carrying discount rate, forecasted oil price and reserves
value of PPE, whether any impairment estimates;
is required and if the correct
assets have been included within
PPE compared to Exploration * Reviewing the effect of COVID-19 on the group and the
and Evaluation of Assets. potential profitability of said assets;
* Reviewing the unit of production method of depletion
and performing a recalculation of the charge thereto;
* Verifying the mathematical accuracy of calculations
prepared by management; and
* Physically verifying a sample of assets to support
existence and correct classification.
* Impairment charges were process in respect of the
carrying value of HHDL following the receipt of the
Exodus reserves estimate report.
Key Observations:
The impairment assessment of
the Horse Hill Developments
Oil & Gas Properties took into
consideration an oil price of
$91/barrel, being the spot rate
at assessment. Forward curves
provide significant differing
estimates, and thus management
have determined this to be the
most appropriate for this assessment
within these financial statements.
If the oil price were to change,
this will affect the value in
use assessment of the assets
and either increase or decrease
the impairment charge processed.
==================================================================
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.
-- 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
- IFRS
- Employment Law
- Bribery Act
- Tax legislation
- Health and Safety legislation
- Environmental law
-- 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:
- enquiries of management
- review of RNS announcements
- review of board and other committee minutes
-- 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, and the information disclosed in
the Key Audit Matters section of this report, we did not identify
any significant fraud risks.
-- 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.
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.
Alistair Roberts (Senior Statutory Auditor) 15 Westferry
Circus
For and on behalf of PKF Littlejohn LLP Canary Wharf
Statutory Auditor London E14 4HD
24 March 2022
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR YEARED 30 September 2021
30 Sep 30 Sep
Notes 2021 2020
GBP'000 GBP'000
------------------------------------------ ------ -------- ---------
Revenue 6 1,562 908
Cost of sales
Depletion, Depreciation and Amortisation (684) (1,367)
Other Cost of Sales (1,067) (1,171)
Gross loss (189) (1,630)
------------------------------------------ ------ -------- ---------
Operating expenses
Administrative expenses (2,098) (1,755)
Impairment expense 12 (1,456) (10,652)
Foreign exchange losses (62) (16)
Operating loss 6 (3,805) (14,053)
------------------------------------------ ------ -------- ---------
Finance Cost 8 (89) (286)
Exploration Write-off 11 (946) (6,598)
Loss before taxation (4,840) (20,937)
------------------------------------------ ------ -------- ---------
Taxation 9 (43) -
------------------------------------------ ------ -------- ---------
Retained loss for the year (4,883) (20,937)
------------------------------------------ ------ -------- ---------
Retained loss attributable to;
Equity holders of the Parent (4,492) (20,937)
Non-Controlling Interests (391) -
------------------------------------------ ------ -------- ---------
(4,883) (20,937)
------------------------------------------ ------ -------- ---------
There are no other comprehensive income or expenses during the
two reported periods to disclose.
All operations are continuing.
Earnings per share Pence Pence
-------------------- --- ------- -------
Basic and diluted 10 (0.03) (0.24)
The accompanying accounting policies and notes form an integral
part of these financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 September 2021
Notes 2021 2020
GBP'000 GBP'000
--------------------------------- ------ --------- ---------
Assets
Non-current assets
Exploration & evaluation assets 11 30,420 29,259
Decommissioning Asset 11 95 285
Oil & Gas properties 12 5,472 6,380
Property, Plant & Equipment 12 1,690 1,852
Total non-current assets 37,677 37,776
--------------------------------- ------ --------- ---------
Current assets
Inventory 14 2 1
Trade and other receivables 15 627 742
Cash and cash equivalents 16 4,727 1,634
--------------------------------- ------ --------- ---------
Total current assets 5,356 2,378
--------------------------------- ------ --------- ---------
Total Assets 43,033 40,154
--------------------------------- ------ --------- ---------
Current liabilities
Trade and other payables 17 (1,067) (1,981)
Borrowings 18 (3,087) (3,084)
--------------------------------- ------ --------- ---------
Total current liabilities (4,154) (5,065)
--------------------------------- ------ --------- ---------
Non-current Liabilities
Provisions 19 (1,376) (1,031)
--------------------------------- ------ --------- ---------
Total non-current liabilities (1,376) (1,031)
--------------------------------- ------ --------- ---------
Total liabilities (5,530) (6,096)
--------------------------------- ------ --------- ---------
Net Assets 37,503 34,058
--------------------------------- ------ --------- ---------
Equity
Share capital 20 13,208 12,694
Share premium account 107,097 99,528
Share based payment reserve 21 2,056 1,811
Accumulated losses (84,580) (80,088)
--------------------------------- ------ --------- ---------
37,781 33,945
--------------------------------- ------ --------- ---------
Non-controlling interest (278) 113
Total shareholders' equity 37,503 34,058
--------------------------------- ------ --------- ---------
These financial statements were approved by the Board of
Directors on 24 March 2022 and are signed on its behalf by:
Stephen Sanderson Allen Howard
Director Director
The accompanying accounting policies and notes form an integral
part of these financial statements.
COMPANY STATEMENT OF FINANCIAL POSITION
AS AT 30 September 2021
Notes 2021 2020
GBP'000 GBP'000
------------------------------------ ------ --------- ---------
Assets
Non-current assets
Exploration & evaluation assets 11 823 1,644
Investment in subsidiary companies 13 26,242 21,406
Property, Plant and Equipment 12 1,632 1,773
------------------------------------ ------ --------- ---------
Total non-current assets 28,697 24,823
------------------------------------ ------ --------- ---------
Current assets
Trade and other receivables 15 308 546
Intercompany balances 21,727 26,690
Cash and cash equivalents 16 4,146 1,346
------------------------------------ ------ --------- ---------
Total current assets 26,181 28,583
------------------------------------ ------ --------- ---------
Total Assets 54,878 53,406
------------------------------------ ------ --------- ---------
Current liabilities
Trade and other payables 17 (330) (1,419)
------------------------------------ ------ --------- ---------
Total Current Liabilities (330) (1,419)
------------------------------------ ------ --------- ---------
Total liabilities (330) (1,419)
------------------------------------ ------ --------- ---------
Net Assets 54,548 51,986
------------------------------------ ------ --------- ---------
Shareholders' Equity
Share capital 20 13,208 12,694
Share premium account 107,097 99,528
Share based payment reserve 21 2,056 1,811
Accumulated losses (67,813) (62,046)
------------------------------------ ------ --------- ---------
Total shareholders' equity 54,548 51,986
------------------------------------ ------ --------- ---------
As permitted by section 408 of the Companies Act 2006, the
profit and loss account of the parent company has not been
separately presented in these accounts. The parent company loss for
the year was GBP5,766,000 (2020: loss GBP15,378,000).
These financial statements were approved by the Board of
Directors on 24 March 2022 and are signed on its behalf by:
Stephen Sanderson Allen Howard
Director Director
Registered number: 05299925
The accompanying accounting policies and notes form an integral
part of these financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 30 September 2021
Share based Non
payment Accumulated Controlling
Share capital Share premium reserve losses Total Interests Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- -------------- -------------- --------------- ------------ --------- --------------- ---------
Balance at 1
October 2019 12,250 85,773 1,811 (59,153) 40,681 113 40,794
Loss for the
year - - - (20,937) (20,937) - (20,937)
Total
comprehensive
income - - - (20,937) (20,937) (20,937)
---------------- -------------- -------------- --------------- ------------ --------- --------------- ---------
Issue of shares 444 14,240 - - 14,684 - 14,684
Cost of share
issue - (485) - - (485) - (485)
Total
transactions
with
owners 444 13,755 - - 14,199 - 14,199
Balance at 30
September
2020 12,694 99,528 1,811 (80,088) 33,945 113 34,058
---------------- -------------- -------------- --------------- ------------ --------- --------------- ---------
Loss for the
year - - - (4,492) (4,492) (391) (4,883)
Total
comprehensive
income - - - (4,492) (4,492) (391) (4,883)
---------------- -------------- -------------- --------------- ------------ --------- --------------- ---------
Issue of shares 507 8,231 - - 8,738 - 8,738
Cost of share
issue - (765) 245 - (520) - (520)
Warrants
exercised 7 103 - - 110 - 110
Total
transactions
with
owners 514 7,569 245 - 8,328 - 8,328
Balance at 30
September
2021 13,208 107,097 2,056 (84,580) 37,781 (278) 37,503
---------------- -------------- -------------- --------------- ------------ --------- --------------- ---------
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 30 September 2021
Share based Accumulated
Share capital Share premium payment reserve losses Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- -------------- -------------- ----------------- ------------ ---------
Balance at 1 October 2019 12,250 85,773 1,811 (46,669) 53,165
Loss for the year - - - (15,378) (15,378)
Total comprehensive income - - - (15,378) (15,378)
-------------------------------- -------------- -------------- ----------------- ------------ ---------
Issue of shares 444 14,240 - - 14,684
Cost of share issue - (485) - - (485)
Total transactions with owners 444 13,755 - - 14,199
Balance at 30 September 2020 12,694 99,528 1,811 (62,047) 51,986
-------------------------------- -------------- -------------- ----------------- ------------ ---------
Loss for the year (5,766) (5,766)
Total comprehensive income (5,766) (5,766)
-------------------------------- -------------- -------------- ----------------- ------------ ---------
Issue of shares 507 8,231 - - 8,738
Cost of share issue - (765) 245 - (520)
Warrants exercised 7 103 - - 110
Total transactions with owners 514 7,569 245 - 8,328
Balance at 30 September 2021 13,208 107,097 2,056 (67,813) 54,548
-------------------------------- -------------- -------------- ----------------- ------------ ---------
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE YEARED 30 September 2021
2021 2020
GBP'000 GBP'000
-------------------------------------------- -------- ---------
Cash flows from operating activities
Loss before tax (4,840) (20,937)
Depletion & impairment 2,140 11,995
Exploration write-off 946 6,598
Cash movement on provisions - (8)
Increase in inventories (1) (1)
Decrease in trade & other receivables 115 437
Increase / (decrease) in trade &
other payables 187 (1,142)
Finance cost 89 286
Taxation paid (43) -
-------------------------------------------- -------- ---------
Net cash outflow from operating activities (1,407) (2,773)
--------------------------------------------- -------- ---------
Cash flows from investing activities
Expenditures on exploration & evaluation
assets (2,107) (7,360)
Expenditures on oil & gas properties (594) (4)
Expenditures on plant, property &
equipment (17) (371)
Net cash outflow from investing activities (2,718) (7,735)
--------------------------------------------- -------- ---------
Cash flows from financing activities
Proceeds from issue of share capital 7,638 7,734
Share issue costs (520) (485)
Warrants exercised 110 -
Loan transaction fees (10) -
Repayments of convertible loan note - (1,825)
Convertible loan financing fees - (175)
--------------------------------------------- -------- ---------
Net cash inflow from financing activities 7,218 5,249
--------------------------------------------- -------- ---------
Net change in cash and cash equivalents 3,093 (5,258)
--------------------------------------------- -------- ---------
Cash and cash equivalents at beginning
of the period 1,634 6,892
Cash and cash equivalents at end
of the period 4,727 1,634
--------------------------------------------- -------- ---------
COMPANY STATEMENT OF CASH FLOW
FOR THE YEARED 30 September 2021
2021 2020
GBP'000 GBP'000
------------------------------------------- -------- ---------
Cash flows from operating activities
Loss before tax (5,766) (15,378)
Depletion & impairment 4,163 14,226
Decrease / (increase) in trade &
other receivables 239 (236)
Increase / (decrease) in trade &
other payables 10 (111)
Interest income (16) (473)
Finance cost 10 175
--------------------------------------------
Net cash (outflow) from operating
activities (1,360) (1,797)
-------------------------------------------- -------- ---------
Cash flows from investing activities
Expenditures on exploration & evaluation
assets - (645)
Expenditures on property, plant &
equipment (4) (324)
Loan advanced to subsidiary (3,054) (7,332)
Net cash (outflow) from investing
activities (3,058) (8,302)
-------------------------------------------- -------- ---------
Cash flows from financing activities
Proceeds from issue of share capital 7,638 7,734
Share issue costs (520) (485)
Warrants exercised 110 -
Loan transaction fees (10) -
Repayments of convertible loan note - (1,825)
Convertible loan financing fees - (175)
Net cash inflow from financing activities 7,218 5,294
-------------------------------------------- -------- ---------
Net change in cash and cash equivalents 2,800 (4,850)
-------------------------------------------- -------- ---------
Cash and cash equivalents at beginning
of the period 1,346 6,196
Cash and cash equivalents at end
of the period 4,146 1,346
-------------------------------------------- -------- ---------
NOTES TO THE FINANCIAL STATEMENTS
1. Corporate Information
The consolidated financial statements of UK Oil & Gas Plc
(the Company) and its subsidiaries (collectively, the Group), for
the year ended 30 September 2021 were authorised for issue by the
directors on 24 March 2022. UK Oil & Gas Plc (the Company &
parent) is a public limited company incorporated and registered in
the United Kingdom and listed on the Alternative Investment Market
(AIM). The registered office is located at The Broadgate Towers, 20
Primrose Street, London EC2A 2EW.
The Group is principally engaged in oil production and oil &
gas exploration and evaluation (see Note 4). Information on the
Group's structure is provided in Note 13 and information on other
related parties is provided in Note 25.
2. Principal Accounting Policies
a) Basis of preparation
The consolidated financial statements of the UK Oil & Gas
Plc (the Company) and subsidiaries (the Group) have been prepared
in accordance with International Accounting Standards in conformity
with the requirements of the Companies Act 2006 ("IFRSs") as they
apply to the Group for the year ended 30 September 2021 and with
the Companies Act 2006.
The accounting policies have been applied consistently
throughout the preparation of these financial statements, 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 consolidated financial statements provide
comparative information in respect of the previous period.
Subsidiary Undertakings Exempt from Audit
UK Oil & Gas Plc has guaranteed the liabilities of the
subsidiaries listed below under section 479A of the Companies Act
2006 in respect of the year ended 30 September 2021.
UKOG (234) Ltd - 07055133
UKOG (GB) Limited - 04050227
UKOG Solent Limited - 0500092
UKOG Weald Limited - 04881234
UKOG (137/246) Holdings Ltd - 09010542
UKOG (137/246) Ltd - 06807023
UK Oil & Gas Investments Ltd - 11252712
UKOG Turkey Ltd - 10212262
UK Geothermal Ltd - 13386906
New and Amended Standards and Interpretations
During the year, the Group adopted the following new and amended
IFRSs for the first time for the reporting period commencing 1
October 2020:
-- Amendments to IAS 1 and IAS 8: Definition of material
-- Amendments to References to the Conceptual Framework in IFRS Standards
There is no material impact on the financial statements
following the adoption of these new standards and
interpretations.
New Standards and interpretations Not Yet Adopted
Certain new standards, interpretations and amendments to
existing standards have been published that are effective for
reporting periods starting 1 October 2021. These have not been
early adopted by the Group and are not expected to have a material
impact on the entity in the current or future reporting
periods:
-- Amendments to IFRS 3: Business Combinations - Reference to the Conceptual Framework
-- Amendments to IAS 16: Property Plant and Equipment
-- Amendments to IAS 37: Provisions, Contingent Liabilities and Contingent Assets
-- Annual Improvements to IFRS Standards 2018-2020 Cycle
2. Principal Accounting Policies (continued)
-- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16:
Interest Rate Benchmark Reform - Phase 2
-- Amendment to IFRS 16 Leases - Covid 19 Related Rent Concessions
b) Going Concern
The Directors note the losses and cash outflows that the Group
has made for the year ended 30 September 2021. The Directors have
prepared cash flow forecasts for the period to 31 March 2023, which
take into account anticipated production and costs, the forward
curve of Brent crude oil and external funding.
The Group closely monitors and manages its liquidity risks. Cash
flow forecasts for the Group are regularly produced based on, inter
alia, management's best estimate of the Group's production and
expenditure forecasts and future oil prices. The cost structure of
the Group comprises a high proportion of discretionary spend and
therefore in the event that cash flows become constrained, costs
can be quickly reduced to enable the Group to operate within its
available funding.
Notwithstanding the Company's current cash balance and minimal
contractual expenditure commitments, the Board are cognisant of the
potential impacts of COVID-19 or other possible unforeseen events
outside of its control on the Group. W hilst the potential future
impacts are unknown, the Board has considered the operational
disruption that could be caused by factors such as national
restrictions enforced in response to the COVID-19 pandemic,
factoring in these potential impacts and reasonable mitigating
actions to forecasts and sensitivity scenarios.
The Group's base case going concern model was run with average
oil prices of $82/bbl to March 2023. There is a high degree of
uncertainty around these forward rates. Taking into account
anticipated production and costs, the forward curve of Brent crude
oil and external funding, these forecasts demonstrate that the
Group will have sufficient cash funds available 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.
It is the prime responsibility of the Board to ensure the Group
remains a going concern. At 31 September 2021 the Company had cash
and cash equivalents of GBP4,727,000 and borrowings of
GBP3,087,000. These borrowings are due by the Company's subsidiary,
Horse Hill Developments Ltd, to its shareholders. There is no
repayment schedule associated with this loan and repayment is
determined by the directors of Horse Hill Developments Ltd. The
intent is to repay this loan from the free cash flow generated from
the HH-1 well or any other further developments on the licence
areas of Horse Hill Developments Ltd. The Company has minimal
contractual expenditure commitments and the Board considers that in
conjunction with equity or debt financing, the present funds are
sufficient to maintain the working capital of the Company for a
period of at least 12 months from the date of signing the Annual
Report and Financial Statements. For these reasons the Directors
adopt the going concern basis in the preparation of the Financial
Statements.
c) Basis of consolidation
Subsidiaries are all entities (including structured entities)
over which the Group has control. The Group controls an entity when
the Group is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those
returns through its power over the entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the
Group. They are deconsolidated from the date that control ceases.
All intercompany transactions and balances between Group companies,
including unrealised profits arising from them, are eliminated in
full.
At 30 September 2021, the Group comprised the Company and
entities controlled by UK Oil & Gas Plc (its subsidiaries)
(note 13). No new subsidiaries were acquired during the year, and
none were dissolved / struck off or liquidated.
d) Business combinations
The acquisition method of accounting is used to account for all
business combinations, regardless of whether equity instruments or
other assets are acquired. The consideration transferred for the
acquisition of a subsidiary comprises the:
-- fair values of the assets transferred
-- liabilities incurred to the former owners of the acquired business
-- equity interests issued by the group
-- fair value of any asset or liability resulting from a
contingent consideration arrangement, and
-- fair value of any pre-existing equity interest in the subsidiary.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are, with limited
exceptions, measured initially at their fair values at the
acquisition date. The group recognises any non-controlling interest
in the acquired entity on an acquisition-by-acquisition basis
either at fair value or at the non-controlling interest's
proportionate share of the acquired entity's net identifiable
assets. Acquisition-related costs are expensed as incurred.
Where settlement of any part of the consideration is deferred or
contingent, the amounts payable in the future are recognised at
their fair value at the acquisition date. The discount rate used is
the entity's incremental borrowing rate, being the rate at which a
similar borrowing could be obtained from an independent financier
under comparable terms and conditions.
Contingent consideration is classified either as equity or a
financial liability. Amounts classified as a financial liability
are subsequently remeasured to fair value with changes in fair
value recognised in profit or loss. Contingent consideration
classified as equity is not remeasured and its subsequent
settlement is accounted for within equity.
Goodwill is initially measured at cost (being the excess of the
consideration transferred and the amount recognised for
non-controlling interests and any previous interest held of the net
identifiable assets acquires and liabilities assumed). If the fair
value of the net assets acquired is in excess of the aggregate
consideration transferred, the difference is recognised in profit
or loss.
If the business combination is achieved in stages, the
acquisition date carrying value of the acquirer's previously held
equity interest in the acquiree is remeasured to fair value at the
acquisition date. Any gains or losses arising from such
remeasurement are recognised in profit or loss.
e) Joint arrangements
Certain of the Group's licence interests are held jointly with
others under arrangements whereby unincorporated and jointly
controlled ventures are used to explore, evaluate and ultimately
develop and produce from its oil & gas interests. The Group's
share of assets, liabilities, income and expenditure of these joint
operations, have been classified in the appropriate balance sheet
and income statement headings, except where its share of such
amounts remain the responsibility of another party in accordance
with the terms of carried interests.
When the Group, acting as an operator or manager of a joint
arrangement, receives reimbursement of direct costs recharged to
the joint arrangement, such recharges represent reimbursements of
costs that the operator incurred as an agent for the joint
arrangement and therefore have no effect on profit or loss.
f) Revenue
Revenue comprises the invoiced value of goods and services
supplied by the Group, excluding value added tax and trade
discounts. Revenue is recognised when control passes to the
customer and there is no unfulfilled obligation that could affect
the customer's acceptance of the goods. In the case of oil and
petroleum products, this generally occurs when the product is
physically transferred into a vessel, pipe or other delivery
mechanism.
Revenue from the production of oil, from fields in which the
Group has an interest with other producers, is recognised based on
the Group's working interest and the terms of the relevant
production sharing contracts. Differences between oil lifted and
sold and the Group's share of production are not significant.
Revenues from the sale of oil produced as a by-product of the
evaluation or "testing" phase of a well are offset against the cost
of the intangible asset that is being created. This can be seen by
reference to Note 11.
Non-current assets
Intangible Exploration & Evaluation Assets
The Group accounts for exploration and evaluation costs in
accordance with the requirements of IFRS 6 Exploration for and
Evaluation of Mineral Resources as follows:
-- Pre-licence costs (costs incurred prior to obtaining the
legal rights to explore an area) are expensed immediately to the
Income Statement.
-- Exploration licence and leasehold land and property
acquisition costs are capitalised in intangible assets.
-- Licence costs paid in connection with a right to explore in
an existing exploration area are capitalised and amortised over the
term of the permit.
-- Costs directly associated with an exploration well are
capitalised as exploration and evaluation intangible assets until
the drilling of the well is complete and the results have been
evaluated. These costs include directly attributable employee
remuneration, materials and consumables, drilling (including coring
and sampling), evaluation of technical feasibility and commercial
viability (including appraisal drilling and production
testing).
-- Revenues generated from the sale of hydrocarbons during this
phase are offset against the cost of the intangible asset.
Exploration and evaluation assets are assessed for impairment at
each reporting date, before reclassification and whenever facts and
circumstances suggest that they may be impaired . If no future
activity is planned, the licence has been relinquished or has
expired, or where development is likely to proceed but there are
indications that the exploration and evaluation asset costs are
unlikely to be recovered in full either by development or through
sale, the carrying value of the asset is written off to the Income
Statement.
Property, Plant and Equipment - Oil & Gas Properties
Oil & 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 any associated finance
lease is also included within property, plant and equipment.
Oil & gas properties are depreciated/amortised on a
unit-of-production basis over the total proved developed and
undeveloped reserves of the field concerned. 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.
The Group's interests in oil & gas properties are assessed
for indication so impairment including events or changes in
circumstances which indicate that the carrying value of an asset
may not be recoverable. Any impairment in value is charged to the
Income Statement.
Other Property, Plant and Equipment
Other property, plant and equipment is stated at cost to the
Group less accumulated depreciation. These assets are generally
depreciated on a straight-line basis over their estimated useful
lives, which is between 2 and 10 years depending on the type of
asset.
Decommissioning Assets
A decommissioning asset is recognised in the appropriate
category of the Group's non-current assets (intangible exploration
and evaluation assets and property, plant and equipment) depending
on the underlying accounting treatment for the operations or asset
leading to the associated decommissioning provision. The asset is
assessed for impairment as necessary and otherwise depleted on a
straight-line basis over the estimated period to future removal of
production facilities or site restoration.
g) Decommissioning Provisions
A provision for decommissioning is recognised where a liability
for the removal of production facilities or site restoration
exists.
h) Segmental information
An operating segment is a distinguishable component of the Group
that is involved in oil production, oil exploration or related
activities, within a particular economic environment, which is
subject to risks and rewards that are different from those of other
segments.
Operating segments are reported in a manner consistent with
internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker, who is responsible for
allocating resources and assessing performance of the operating
segments, has been identified as the Board of Directors of the
Company.
i) Financial Instruments
Financial Assets
Financial assets are divided into the following categories:
loans and receivables and available-for-sale financial assets.
Financial assets are assigned to the different categories by
management on initial recognition, depending on the purpose for
which they were acquired, and are recognised when the Group becomes
party to contractual arrangements. Both loans and receivables and
available for sale financial assets are initially recorded at fair
value.
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. Trade receivables, most other receivables and cash and cash
equivalents fall into this category of financial assets. Loans and
receivables are measured subsequent to initial recognition at
amortised cost using the effective interest method, less provision
for impairment. Any change in their value through impairment or
reversal of impairment is recognised in the income statement.
Cash and cash equivalents comprise cash on hand and short term
deposits. Any interest earned is classified as interest income
within finance income.
A financial asset is derecognised only where the contractual
rights to the cash flows from the asset expire or the financial
asset is transferred, and that transfer qualifies for
derecognition. A financial asset is transferred if the contractual
rights to receive the cash flows of the asset have been transferred
or the Group retains the contractual rights to receive the cash
flows of the asset but assumes a contractual obligation to pay the
cash flows to one or more recipients.
A financial asset that is transferred qualifies for
derecognition if the Group transfers substantially all the risks
and rewards of ownership of the asset, or if the Group neither
retains nor transfers substantially all the risks and rewards of
ownership but does transfer control of that asset.
Financial Liabilities
Financial liabilities are obligations to pay cash or other
financial assets and are recognised when the Group becomes a party
to the contractual provisions of the instrument.
All financial liabilities initially recognised at fair value
less transaction costs and thereafter carried at amortised cost
using the effective interest method, with interest-related charges
recognised as an expense in finance cost in the income statement. A
financial liability is derecognised only when the obligation is
extinguished, that is, when the obligation is discharged or
cancelled or expires.
Impairment of Financial Assets
At the end of each reporting period, a provision is made if
there is sufficient evidence that a financial asset or group of
financial assets has been impaired. Provision against trade
receivables is made when there is objective evidence that the Group
will not be able to collect all amounts due to it in accordance
with the original terms of those receivables. The amount of the
write-down is determined as the difference between the asset's
carrying amount and the present value of estimated future cash
flows.
j) Inventories
Inventories are stated at the lower of cost and net realisable
value. The cost of materials is the purchase cost, determined on
first-in, first-out basis. The cost of crude oil and refined
products is the purchase cost, the cost of refining, including the
appropriate proportion of depreciation, depletion and amortisation
and overheads based on normal operating capacity, determined on a
weighted average basis. The net realisable value of crude oil
and
refined products is based on the estimated selling price in the
ordinary course of business, less the estimated costs of completion
and the estimated costs necessary to make the sale.
k) Taxation
The tax charge includes both current and deferred tax.
Current tax assets and liabilities are measured at the amount
expected to be paid to or received from the tax authorities,
calculated using tax rates that have been enacted or substantively
enacted by the balance sheet date. Taxable profits or losses differ
from the reported profit or loss before taxation in the Income
Statement as it excludes items that are taxable or deductible in
different periods, as well as items that are never deductible or
taxable.
Deferred income taxes are calculated using the liability method
on temporary differences. Deferred tax is generally provided on the
difference between the carrying amounts of assets and liabilities
and their tax bases. However, deferred tax is not provided on the
initial recognition of goodwill, nor on the initial recognition of
an asset or liability unless the related transaction is a business
combination or affects tax or accounting profit.
Deferred tax on temporary differences associated with shares in
subsidiaries and joint ventures is not provided if reversal of
these temporary differences can be controlled by the Company and it
is probable that reversal will not occur in the foreseeable future.
In addition, tax losses available to be carried forward as well as
other income tax credits to the Company are assessed for
recognition as deferred tax assets.
Deferred tax liabilities are provided in full, with no
discounting. Deferred tax assets are recognised to the extent that
it is probable that the underlying deductible temporary differences
will be able to be offset against future taxable income. Deferred
tax assets and liabilities are calculated at tax rates that are
expected to apply to their respective period of realisation,
provided they are enacted or substantively enacted at the balance
sheet date.
Changes in deferred tax assets or liabilities are recognised as
a component of tax expense in the income statement, except where
they relate to items that are charged or credited directly to
equity in which case the related deferred tax is also charged or
credited directly to equity.
l) Share-Based Payments
The Group operates a number of equity-settled, share-based
compensation plans, under which the entity receives services from
employees as consideration for equity instruments (options) of the
Company. The fair value of the employee services received in
exchange for the grant of the options is recognised as an expense.
The total amount to be expensed is determined by reference to the
fair value of the options granted:
-- Including any market performance conditions;
-- Excluding the impact of any service and non-market
performance vesting conditions (for example, profitability or sales
growth targets, or remaining an employee of the entity over a
specified time period; and,
-- Including the impact of any non-vesting conditions (for
example, the requirement for employees to save).
Non-market vesting conditions are included in assumptions about
the number of options that are expected to vest. The total expense
is recognised over the vesting period, which is the period over
which all of the specified vesting conditions are to be
satisfied.
In addition, in some circumstances, employees may provide
services in advance of the grant date, and therefore the grant-date
fair value is estimated for the purposes of recognising the expense
during the period between service commencement period and grant
date.
m) Share-Based Payments (continued)
At the end of each reporting period, the entity revises its
estimates of the number of options that are expected to vest based
on the non-market vesting conditions. It recognises the impact of
the revision to original estimates, if any, in profit or loss, with
a corresponding adjustment to equity.
When the options are exercised, the Company issues new shares.
The proceeds received, net of any directly attributable transaction
costs, are credited to share capital (nominal value) and share
premium.
m) Equity
Equity comprises the following:
-- "Share capital" representing the nominal value of equity shares.
-- "Share premium" representing the excess over nominal value of
the fair value of consideration received for equity shares, net of
expenses of the share issue.
-- "Share based payment reserve" represents the value of equity
benefits provided to employees and directors as part of their
remuneration and provided to consultants and advisors hired by the
Group from time to time as part of the consideration paid.
-- "Retained earnings" represents retained profits and (losses).
m) Foreign currencies
The consolidated financial statements are presented in UK pound
sterling, the functional currency of the Group. Transactions in
other currencies are translated at the exchange rate ruling at the
date of the transaction. Monetary assets and liabilities in foreign
currencies are translated at the rates of exchange ruling at the
balance sheet date. Non-monetary items that are measured at
historical cost in a foreign currency are translated at the
exchange rate at the date of the transaction. Non-monetary items
that are measured at fair value in a foreign currency are
translated using the exchange rates at the date when the fair value
was determined.
Any exchange differences arising on the settlement of monetary
items or on translating monetary items at rates different from
those at which they were initially recorded are recognised in the
profit or loss in the period in which they arise. Exchange
differences on non-monetary items are recognised in other
comprehensive income to the extent that they relate to a gain or
loss on that non-monetary item taken to other comprehensive income,
otherwise such gains and losses are recognised in the income
statement. The Group and Company's functional currency and
presentational currency is Sterling.
3. Significant accounting judgements, estimates and assumptions
The preparation of the Group's consolidated financial statements
requires management to make judgements, estimates and assumptions
that affect the reported amounts of revenues, expenses during the
reporting period, and reported amounts of assets and liabilities,
and the disclosure of contingent liabilities at the date of the
consolidated financial statements. Estimates and assumptions are
continuously evaluated and are based on management's experience and
other factors, including expectations of future events that are
believed to be reasonable under the circumstances. However, actual
outcomes can differ from these estimates.
In particular, the Group has identified the following areas
where significant judgements, estimates and assumptions are
required, and where if actual results were to differ, this could
materially affect the financial position of financial results
reported in a future period. Further information on each of these
areas and how they impact the various accounting policies are
described below and also in the relevant notes to the financial
statements.
Judgements
(i) Estimates and assumptions
The key assumptions concerning the future and other key sources
of estimation uncertainty at the reporting date that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are described below. The Group based its assumptions and estimates
on parameters available when the consolidated financial statements
were prepared. Existing circumstances and assumptions about future
developments, however, may change due to market change or
circumstances arising beyond the control of the Group. Such changes
are reflected in the assumptions when they occur.
3. Significant accounting judgements, estimates and assumptions (continued)
(ii) Hydrocarbon reserve and resource estimates
The Group estimates and reports hydrocarbon reserves in line
with the principles contained in the SPE Petroleum Resources
Management Reporting System (PRMS) framework. As the economic
assumptions used may change and as additional geological
information is obtained during the operation of a field, estimates
of recoverable reserves may change.
The volume of proved and probable oil & gas reserves is an
estimate that affects the unit of production depreciation of
producing oil & gas property, plant and equipment as well as
being a significant estimate affecting decommissioning provisions,
impairment calculations and the valuation of oil & gas
properties in business combinations. Contingent resources affect
the valuation of exploration and exploration assets acquired in
business combinations and the estimation of the recoverable value
of those assets in impairment tests. Proved and probable reserves
and contingent resources are estimated using standard recognised
evaluation techniques. Estimates are reviewed at least annually and
are regularly estimated by independent consultants. Future
development costs are estimated taking into account the level of
development required to produce the reserves by reference to
operators, where applicable, and internal engineers.
The current long-term Brent oil price assumption used in the
estimation of reserves is US$64/bbl. The carrying amount of oil
& gas development and production assets at 30 September 2021 is
shown in Note 12.
(iii) Recoverable value of intangible exploration and evaluation
assets and goodwill
The Group has capitalised intangible exploration and evaluation
assets in accordance with IFRS 6. Significant judgement is required
to determine whether it continues to be appropriate to carry these
costs on the balance sheet and whether the assets have been
impaired.
The key areas in which management have applied judgement include
the Group's intention to proceed with a future work programme for a
prospect or licence, the likelihood of licence and planning
permission renewal, plans for relinquishment, assessment of results
from wells or geological or geophysical studies, and the assessment
of whether the carrying value of the exploration and evaluation
assets is unlikely to be recovered in full from successful
development or by sale.
Goodwill is assessed in each reporting period to determine
whether there is any impairment.
In both the above areas, the assessments include estimates and
assumptions such as long-term oil prices, foreign exchange rates,
discount rates, reserves, production profiles and capital
expenditure, all of which are subject to risk and uncertainty. It
is possible therefore that changes in these estimates may impact
the recoverable values of goodwill and exploration and evaluation
assets.
Details of the Group's intangible exploration and evaluation
assets and goodwill are disclosed in Note 11 to the financial
statements.
(iv) Recoverable value of property, plant and equipment
Management reviews the Group's reported property, plant and
equipment 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 requires
the use of key assumptions and judgements such as long-term oil
prices, foreign exchange rates, discount rates, reserves,
production profiles and capital expenditure, all of which are
subject to risk and uncertainty.
Details of the Group's property, plant and equipment are
disclosed in Note 12 to the financial statements.
(v) Decommissioning costs
The estimated cost of decommissioning at the end of the
producing lives of fields is periodically reviewed and is based on
forecast prices and technology at the balance sheet date. Provision
is made for the estimated cost using a discounted cash flow method
and a risk free rate of return. Details of the Group's
decommissioning provisions are disclosed in Note 19 to the
financial statements.
4. Segmental Reporting
All of the Group's assets and operations are located in the
United Kingdom and Turkey. For management purposes, the Group is
organised into business units based on the main types of activities
and has three reportable segments, as follows:
-- Oil exploration and production: includes producing business activities
-- Oil exploration and evaluation: includes non-producing activities.
-- Head Office, corporate and administrative, including parent company activities.
The Board of Directors monitors the operating results of its
business units separately for the purpose of making decisions about
resource allocation and performance assessment. Segment performance
is evaluated based on operating profit or loss and is measured
consistently with operating profit or loss in the consolidated
financial statements. However, the Group's financing (including
finance costs and finance income) and income taxes are managed on a
group basis and are not allocated to operating segments.
The accounting policies used by the Group in reporting segments
internally are the same as those used in the financial
statements.
Subject to further acquisitions and/or disposals, the Group
expects to further review its segmental information during the
forthcoming financial year, as it begins to see the full impact of
its acquisitions and/or disposals.
Group Oil exploration Corporate
Oil production & evaluation & Administrative Consolidated
Year ended 30 September GBP'000 GBP'000 GBP'000 GBP'000
2021
---------------------------- --------------- ---------------- ------------------ -------------
Revenue
External Customers 1,562 - - 1,562
Total revenue 1,562 - - 1,562
---------------------------- --------------- ---------------- ------------------ -------------
Results
Depreciation, Depletion
& Amortisation (348) (190) (146) (684)
Exploration and Production
Write offs & Impairment (1,456) (946) - (2,402)
Finance costs 2 (81) (10) (89)
Loss before taxation (1,716) (1,375) (1,749) (4,840)
---------------------------- --------------- ---------------- ------------------ -------------
Taxation - (43) - (43)
Loss after taxation (1,716) (1,418) (1,749) (4,883)
---------------------------- --------------- ---------------- ------------------ -------------
Segment assets 5,200 5,331 32,502 43,033
---------------------------- --------------- ---------------- ------------------ -------------
Segment liabilities (3,340) (1,955) (235) (5,530)
---------------------------- --------------- ---------------- ------------------ -------------
Other disclosures:
Capital expenditure
(1) 594 2,107 17 2,718
---------------------------- --------------- ---------------- ------------------ -------------
(1) Capital expenditure consists of capitalised exploration
expenditure, development expenditure, additions to oil & gas
properties and to other intangible assets including expenditure on
assets from the acquisition of subsidiaries.
Group Oil exploration Corporate
Oil production & evaluation & Administrative Consolidated
Year ended 30 September GBP'000 GBP'000 GBP'000 GBP'000
2020
---------------------------- --------------- ---------------- ------------------ -------------
Revenue
External Customers 908 - - 908
Total revenue 908 - - 908
---------------------------- --------------- ---------------- ------------------ -------------
Results
Depreciation, Depletion
& Amortisation (756) (573) (38) (1,367)
Exploration and Production
Write offs & Impairment (10,652) (6,598) - (17,250)
Finance costs (111) - (175) (286)
Profit/(loss) before
& after taxation (17,870) (689) (2,378) (20,937)
---------------------------- --------------- ---------------- ------------------ -------------
Segment assets 10,011 4,641 25,502 40,154
---------------------------- --------------- ---------------- ------------------ -------------
Segment liabilities (3,788) (890) (1,418) (6,096)
---------------------------- --------------- ---------------- ------------------ -------------
Other disclosures:
Goodwill on acquisition - - - -
Capital expenditure
(1) 1,770 7,360 - 9,130
---------------------------- --------------- ---------------- ------------------ -------------
(1) Capital expenditure consists of capitalised exploration
expenditure, development expenditure, additions to oil & gas
properties and to other intangible assets including expenditure on
assets from the acquisition of subsidiaries.
5. Operating Loss
2021 2020
Group GBP'000 GBP'000
----------------------------------------- -------- --------
Operating (loss) is stated after
charging:
- Directors' remuneration - fees
& salaries 471 515
- Employee Benefit Trust charge 7 7
- Auditors' remuneration
Audit-related assurance services 62 56
Other compliance services - -
- Depletion of oil & gas properties 314 743
-------------------------------------------- -------- --------
6. Revenue
The Group has recognised the following amounts relating to
revenue in the statement of comprehensive income:
2021 2020
Group GBP'000 GBP'000
--------------------------------------- -------- --------
Revenue from contracts with customers 1,562 908
1,562 908
-------- --------
All revenue is derived from sales of oil from one geographic
location and is recognised at a point in time.
7. Directors and Employees
The Company employed the services of an average of 14 employees
in the year (2020: 13), of which an average of 4 (2020: 4) were
Executive and Non-Executive Directors. Remuneration in respect of
these employees was:
2021 2020
Group GBP'000 GBP'000
-------------------------------------------------- -------- --------
Employment costs, including Directors,
during the year:
Wages and salaries 1,369 1,423
Social security costs 174 179
Employee pension costs 13 11
Benefits in kind 9 6
-------- --------
1,565 1,619
-------- --------
Employee pension costs payable at the end of the year amounted
to GBP2,000 (2020: GBP2,000).
Average number of persons, including Executive
Directors employed No. No.
Administration 8 7
Operations 6 6
14 13
-------- --------
Directors' remuneration GBP'000 GBP'000
-------- --------
Emoluments 471 519
2021 2020
GBP'000 GBP'000
-------- --------
Stephen Sanderson 287 301
Kiran Morzaria 93 115
Allen Howard 48 54
Nicholas Mardon Taylor 44 49
Total Directors Emoluments 471 519
-------- --------
Fees and salaries Bonuses Pension Benefits in Kind Share based Total
payments (*)
2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
S Sanderson 284 - 1 1 - 287
K Morzaria 92 - 1 - - 93
A Howard 48 - - - - 48
N Mardon Taylor 44 - - - - 44
468 - 2 1 - 471
------------------ -------- -------- ----------------- -------------- --------
Fees and salaries Bonuses Pension Benefits in Kind Share based Total
payments (*)
2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
S Sanderson 297 - 1 3 - 301
K Morzaria 115 - - - - 115
A Howard 54 - - - - 54
N Mardon Taylor 49 - - - - 49
515 - 1 3 - 519
------------------ -------- -------- ----------------- -------------- --------
* Share based payments are non-cash remuneration by way of the
issue of share options in the company.
8. Finance Costs
2021 2020
GBP'000 GBP'000
--------------------------------------- -------- --------
Loan interest due to non-controlling
interests 3 111
Unwind discount on decommissioning
provision (note 19) 98 -
Change in estimate of decommissioning
liability (22) 23
Loan transaction fees 10 -
Convertible loan note fees - 175
------------------------------------------ -------- --------
Finance Costs 89 309
------------------------------------------ -------- --------
9. Income Tax
There is no tax credit on the loss for the current or prior
year. The tax assessed for the year differs from the standard rate
of corporation tax in the UK as follows:
2021 2020
GBP'000 GBP'000
------------------------------------- -------- ---------
Loss for the year before tax (4,840) (19,041)
Tax rate 40% (30% for ring-fenced
activities plus 10% ring fence
supplement) 40% 40%
---------------------------------------- -------- ---------
Expected tax credit (1,936) (7,616)
Tax adjustment for non-deductible
expenditure 207 388
Tax impact of capital allowances (8) (10)
Adjustment in respect of prior
periods 43 -
Impact of losses taxed at different
rates 636 576
Tax impact of losses carried
forward 1,101 6,584
Future income tax benefit not
brought to account - 78
---------------------------------------- -------- ---------
Actual tax expense 43 -
---------------------------------------- -------- ---------
The Group estimated carried forward tax losses are GBP10,799,000
(2020: GBP6,529,000), none of which are recognised as a deferred
tax asset.
10. Earnings per Share
The calculation of the basic loss per share is calculated by
dividing the consolidated loss attributable to the equity holders
of the Company by the weighted average number of ordinary shares in
issue during the year.
2021 2020
Group GBP'000 GBP'000
-------------------------------------------- --------------- --------------
Loss attributable to ordinary shareholders (4,492) (20,937)
--------------------------------------------- --------------- --------------
Number Number
-------------------------------------------- --------------- --------------
Weighted average number of ordinary
shares for calculating basic loss per
share 13,481,093,231 8,577,532,755
--------------------------------------------- --------------- --------------
Pence Pence
-------------------------------------------- --------------- --------------
Basic and diluted loss per share (0.03) (0.24)
--------------------------------------------- --------------- --------------
10. Earnings per Share (continued)
As inclusion of the potential ordinary shares would result in a
decrease in the earnings per share they are considered to be
anti-dilutive, as such, a diluted earnings per share is not
included. The potential amount of dilutive shares is 435,125,816,
which represents outstanding options and warrants.
11. Intangible assets
Group Company
Exploration Decommissioning Goodwill Total Exploration
& evaluation Asset & evaluation
costs costs
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- -------------- ---------------- --------- ---------- --------------
Cost & Net Book
Value
As at 1 October
2019 27,224 355 17,443 45,021 2,344
Reclassification 17,443 - (17,443) - -
Additions 9,116 596 - 9,712 601
Revenues from
sale of by-product (1,755) - - (1,755) -
Transfers (14,869) (173) - (15,042) -
Exploration Write
offs & (7,899) (494) - (8,392) (1,302)
Amortisation
--------------------- -------------- ---------------- --------- ---------- --------------
As at 30 September
2020 29,259 285 - 29,544 1,643
--------------------- -------------- ---------------- --------- ---------- --------------
Additions 2,107 - - 2,107 119
Exploration Write
offs & (946) (190) - (1,136) (939)
Amortisation
--------------------- -------------- ---------------- --------- ---------- --------------
As at 30 September
2021 30,420 95 - 30,515 823
--------------------- -------------- ---------------- --------- ---------- --------------
Revenues from the sale of hydrocarbons produced as a by-product
of testing and evaluation activities are offset against the costs
of the intangible asset. These totalled GBPnil in the year (2020:
GBP1,755,000).
In March 2020 the first Horse Hill well was put into production
and as a result the carrying value of this well of GBP14.86 million
was transferred from exploration & evaluation assets to oil
& gas properties during the previous financial year.
The Directors have assessed the fair value of the exploration
& evaluation assets as at 30 September 2021. An impairment
review was carried out on the exploration & evaluation assets.
Having taken time to consider, the Company has decided not to
appeal the October 2021 decision by the Isle of Wight Council's
Planning Committee to refuse consent for the appraisal and testing
of the Arreton oil and gas discovery, and as such has written off
the value of associated exploration & evaluation assets. No
further impairment of exploration & evaluation assets was
identified during this review.
Exploration and evaluation activity involves the search for
hydrocarbon resources, the determination of technical feasibility
and the assessment of commercial viability of an identified
resource. Additions during the year reflect the associated
exploration and evaluation activities.
At this point the Company is still assessing the potential of
the remaining assets and will continue to develop and evaluate
these assets in the coming year. Since their acquisition dates
there has been no further material changes to the Licence areas.
The directors therefore consider that no further impairment is
required at 30 September 2021.
Joint Operations
UKOG's wholly owned subsidiary UKOG Turkey Ltd signed a
participation agreement and joint operating agreement with AME
during the year, to take a 50% non-operated working interest in the
305 km(2) Resan M47-b1, b2 licence in Turkey. Together with AME,
the business is working towards finalising the design and delivery
of a successful first appraisal well aimed at establishing the
commerciality of the aerially extensive and as yet undeveloped
Basur-Resan oil discovery contained within the licence.
12. Oil & Gas Properties
Property,
plant
Oil & gas Decommissioning &
properties Asset equipment Total Total
2021 2021 2021 2021 2020
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ------------ ---------------- ----------- --------- ---------
Cost
As at 1 October 16,568 193 2,180 18,941 2,134
Transfers - - - - 15,042
Additions 594 - 17 611 1,766
Change in estimate - 267 - 267 -
------------------------ ------------ ---------
As at 30 September 17,162 460 2,197 19,819 18,941
------------------------ ------------ ---------------- ----------- --------- ---------
Depletion & impairment
As at 1 October (10,358) (23) (327) (10,708) (508)
Depletion charge (314) - (179) (493) (850)
Impairment (1,456) - - (1,456) (9,350)
As at 30 September (12,128) (23) (506) (12,657) (10,709)
------------------------ ------------ ---------------- ----------- --------- ---------
Carrying value
As at 30 September 5,034 437 1,691 7,162 8,232
------------------------ ------------ ---------------- ----------- --------- ---------
Impairment Review
The Directors have carried out an impairment review as at 30
September 2021. The Directors determined that the net present value
of the HH-1 well was GBP3.63 million and therefore determined that
HH-1 should be impaired by GBP1.46 million. The net present value
utilised an internally generated depletion curve that was
independently reviewed. Costs were based on current costs less any
anticipated savings. A long-term Brent oil price of US$91/bbl was
used being the spot rate at the time of assessment, with a discount
rate of 6.3% used being the weighted average costs of capital of
Horse Hill Developments Ltd, the holding company of HH-1. Based on
current production at Horndean no impairment was deemed
necessary.
Property, plant &
equipment
2021 2020
Company GBP'000 GBP'000
------------------------ ---- ---------------------- --------
Cost
As at 1 October 1,815 116
Additions 4 1,699
------------------------------- --------
As at 30 September 1,819 1,815
------------------------------- ---------------------- --------
Depletion & impairment
As at 1 October (42) (8)
Depletion charge (145) (26)
------------------------------- ---------------------- --------
As at 30 September (187) (34)
------------------------------- ---------------------- --------
Carrying value
As at 30 September 1,632 1,773
------------------------------- ---------------------- --------
13. Investment in Subsidiaries
Company 2021 2020
GBP'000 GBP'000
-------------------------- -------- --------
Cost and net book amount
At 1 October 21,406 26,206
Capital reorganisation
of subsidiaries 7,915 -
Impairment (3,079) (4,800)
----------------------------- -------- --------
At 30 September 26,242 21,406
----------------------------- -------- --------
The Directors carried out an impairment review of the Company's
Investment in its subsidiaries as at 30 September 2021. As a result
the Directors determined to impair its investments in Horse Hill
Developments Ltd, UKOG Solent Ltd and UKOG Weald Ltd by GBP2.65
million, GBP0.30 million and GBP0.13 million respectively. Further
details in respect of the assumptions used for the impairment
review of oil & gas properties within Horse Hill Developments
Ltd have been outlined within Note 12.
The Company holds more than 50 per cent of the share capital of
the following companies as at 30 September 2021:
Country Proportion Functional Nature of
Company of Registration held Currency business
UKOG (GB) Limited UK 100% GBGBP Oil production
UKOG Solent Limited UK 100% GBGBP Oil exploration
UKOG Weald Limited UK 100% GBGBP Oil exploration
UKOG (234) Limited UK 100% GBGBP Oil exploration
Horse Hill Developments
Ltd UK 77.9% GBGBP Oil production
UKOG (137/246) Holdings
Ltd UK 100% GBGBP Holding Company
UKOG (137/246) Ltd UK 100% GBGBP Oil exploration
UKOG (Turkey) Ltd UK 100% GBGBP Oil exploration
UK Oil & Gas Investments
Limited UK 100% GBGBP Dormant
UK Geothermal Limited UK 100% GBGBP Dormant
The registered address of each of these subsidiaries can be
found on the website of Companies House.
All subsidiary undertakings are included in the consolidated
financial statements. The proportion of the voting rights in the
subsidiary undertaking held directly by the parent company do not
differ from the proportion of the ordinary shares held. The
following companies are taking an exception from the audit of the
financial statements as per S479A of the Companies Act; UKOG (GB)
Limited (04050227), UKOG Solent Limited (05000092), UKOG Weald
Limited (04991234), UKOG (234) Ltd (07055133), UKOG (137/246)
Holdings Ltd (09010542), UKOG (Turkey) Ltd (10212262), UK Oil &
Gas Investments Limited ( 11252712), UK Geothermal Limited
(13386906) .
14. Inventory
2021 2020
Group GBP'000 GBP'000
------------------------- -------- --------
Inventories - Crude Oil 2 1
Total 2 1
-------------------------- -------- --------
15. Trade and Other Receivables
Group Company
2021 2020 2021 2020
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- -------- -------- -------- --------
Trade debtors 44 19 22 9
Other debtors 268 442 47 356
Loans to subsidiary companies - - 21,727 26,690
Prepayments and accrued
income 315 281 239 182
------------------------------- -------- -------- -------- --------
Total 627 742 22,035 27,236
------------------------------- -------- -------- -------- --------
The directors consider that the carrying amount of trade and
other receivables approximates to their fair value.
16. Cash and Cash Equivalents
Group Company
2021 2020 2021 2020
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- -------- -------- -------- --------
Cash at bank and in hand 4,727 1,634 4,146 1,346
-------------------------- -------- -------- -------- --------
Total 4,727 1,634 4,146 1,346
-------------------------- -------- -------- -------- --------
17. Trade and Other Payables
Group Company
------------------ ------------------
2021 2020 2021 2020
Current trade and other GBP'000 GBP'000 GBP'000 GBP'000
payables
------------------------------ -------- -------- -------- --------
Trade creditors 745 1,362 84 1,199
Other creditors 48 483 49 49
Accruals and deferred income 273 136 197 171
Total 1,067 1,981 330 1,419
------------------------------ -------- -------- -------- --------
The Directors consider that the carrying amount of trade and
other payables approximates to their fair value.
18. Borrowings
Group Company
------------------ ------------------
2021 2020 2021 2020
Borrowings GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- -------- -------- -------- --------
Loans payable to Non-Controlling
Interests 3,087 3,084 - -
---------------------------------- -------- -------- -------- --------
Total 3,087 3,084 - -
---------------------------------- -------- -------- -------- --------
At 30 September 2021, the outstanding loan balances owed to
HHDL's shareholders were; Alba Mineral Resources PLC ( Alba)
GBP2.52 million (2020: GBP2.52m), Doriemus PLC (Doremius) GBP0.57
million (2020: GBP0.57) and UK Oil & Gas Plc GBP16.59 million
(2020: GBP16.03m). The loans are payable on determination by the
Board of HHDL. The loans currently attract an interest rate
equivalent to the Bank of England base rate, which was 0.1% during
the year.
19. Provisions - Decommissioning
2021 2020
Group GBP'000 GBP'000
-------------------- -------- --------
As at 1 October 1,031 427
Change of estimate 247 615
Release - (11)
Unwind discount 98 -
-------------------- -------- --------
As at 30 September 1,376 1,031
--------------------- -------- --------
The amount provided for at 30 September 2021 represents the
Group's share of decommissioning liabilities in respect of the
producing Horndean and Avington fields, the producing site at Horse
Hill and the Broadford Bridge drilling site.
The Company makes full provision for the future cost of
decommissioning oil production facilities and pipelines on a
discounted basis upon the installation of those facilities. The
decommissioning provision represents the present value of
decommissioning costs relating to oil & gas properties.
These provisions have been created based on the Company's
internal estimates. Assumptions used include an average group-wide
discount rate of 10.0% and an annual inflation rate of 2.0% applied
to future decommissioning costs. Assumptions based on the current
economic environment have been made, which management believes are
a reasonable basis upon which to estimate the future liability.
These estimates are reviewed regularly to take into account any
material changes to the assumptions.
However, actual decommissioning costs will ultimately depend
upon future market prices for the necessary decommissioning works
required which will reflect market conditions at the relevant time.
Furthermore, the timing of decommissioning is likely to depend on
when the fields cease to produce at economically viable rates.
This, in turn, will depend upon future oil & gas prices, which
are inherently uncertain.
20. Share Capital
Number of
ordinary Nominal Total
Ordinary Shares shares Value Value
GBP GBP'000
Issued at 30 September 2019 6,658,567,170 0.0001 666
On 2 December 2019, placing for cash
at 0.85p per share 235,294,117 0.0001 24
On 02 January 2020, for acquisition
at 0.91p per share 331,125,828 0.0001 33
On 01 April 2020, for acquisition
at 0.39p per share 255,102,041 0.0001 25
On 30 April 2020, placing for cash
at 0.20p per share 637,500,000 0.0001 64
On 3 June 2020, placing for cash at
0.20p per share 2,100,000,000 0.0001 210
On 24 June, warrant exercise at 0.20p
per share 129,375,000 0.0001 13
On 08 July 2020, for acquisition at
0.20p per share 131,014,768 0.0001 13
For conversion of loan notes (at prices
from 0.19p to 0.98p) 621,406,132 0.0001 62
----------------------------------------- --------------- -------- --------
Issued at 30 September 2020 11,099,385,057 0.0001 1,110
On 02 October 2020, placing for cash
at 0.16p per share 1,374,999,993 0.0001 137
On 04 December 2020, warrant exercise
at 0.16p per share 68,750,000 0.0001 7
On 11 February 2021, for acquisition
at 0.20p per share 412,475,262 0.0001 41
On 25 May 2021, for acquisition at
0.13p per share 262,759,440 0.0001 26
On 05 July 2021, placing for cash
at 0.18p per share 2,763,888,878 0.0001 276
On 27 July 2021, placing for cash
at 0.18p per share 256,974,621 0.0001 26
Issued at 30 September 2021 16,239,233,251 0.0001 1,624
--------------- -------- --------
Deferred shares
The Company has in existence at 30 September 2021 and at 30
September 2020, 1,158,385,352,229 deferred shares of 0.001p. These
deferred shares do not carry voting rights.
Total Ordinary and Deferred Shares
The issued share capital as at 30 September 2021 is as
follows:
Number Nominal Value Total Value
of shares GBP GBP'000
----------------- ------------------ -------------- ------------
Ordinary shares 16,239,233,251 0.0001 1,624
Deferred shares 1,158,385,352,229 0.00001 11,584
------------
13,208
============
21. Share Based Payments
Share Options
No options were granted during the year (2020: nil).
As at 30 September 2021 the options
in issue were:
Options in
Exercise price Expiry date issue
30 September
2021
------------------------------------ -------------- -------------
1.15p 24 May 2022 117,000,000
1.6p 12 April 2023 17,500,000
25 September
1.13p 2024 121,500,000
256,000,000
------------------------------------ -------------- -------------
No options were exercised, and no options were cancelled during
the year (2020: none exercised, none cancelled). No options lapsed
during the year (2020: 45,000,000).
Warrants
As of 30 September 2021, 179,125,816 warrants were in issue
(2020: 40,931,372).
206,944,444 warrants were issued during the year (2020:
153,638,706). No warrants lapsed during the year (2020: nil).
68,750,000 warrants were exercised during the year (2020:
129,375,000 exercised).
Employee Benefit Trust
The Company established an employee benefit trust called the UK
Oil & Gas Employee Benefit Trust (EBT) on 29 September 2014, to
implement the use of the Company's existing share incentive plan
over 10% of the Company's issued share capital from time to time in
as efficient a manner as possible for the beneficiaries of that
plan. The EBT is a discretionary trust for the benefit of
directors, employees and consultants of the Company. The shares
held in the EBT are intended to be used to satisfy future awards
made by the Company's Remuneration Committee under the share
incentive scheme.
The EBT did not subscribe to shares during the year to 30
September 2021 (2020: nil). The balance of ordinary shares held by
the EBT on 30 September 2021 was 250,000,000 (2020: 250,000,000).
Awards of Ordinary Shares to beneficiaries by the EBT will be
subject to appropriate vesting and other performance conditions, in
line with normal market practice, which will be set by the
Remuneration Committee.
Details of share options granted during the year to Directors,
consultants & employees over the ordinary shares are as
follows:
Issued Lapsed
At 1 during / exercised At 30
October the during September Exercise Date from Expiry
2020 year the year 2021 price which exercisable date
No. No. No. No. GBP
Share options Million Million Million Million
A Howard 10 - - 10 0.0115 25/05/2017 24/05/2022
A Howard 5 - - 5 0.0113 27/09/2019 25/09/2024
K Morzaria 20 - - 20 0.0115 25/05/2017 24/05/2022
K Morzaria 6.5 - - 6.5 0.0113 27/09/2019 25/09/2024
S Sanderson 25 - - 25 0.0115 25/05/2017 24/05/2022
S Sanderson 25 - - 25 0.0113 27/09/2019 25/09/2024
N Mardon
Taylor 4 - - 4 0.0113 27/09/2019 25/09/2024
95.5 - - 95.5
Consultants 62 - - 62 0.0115 25/05/2017 24/05/2022
Consultants
& employees 17.5 - - 17.5 0.0160 13/04/2018 12/04/2023
Consultants
& employees 81 - - 81 0.0113 27/09/2019 25/09/2024
256 - - 256
--------- -------- ------------- -----------
The share price range during the year was GBP0.0035 to GBP0.0012
(2020 - GBP0.0016 to GBP0.0115).
The disclosure of Weighted Average Exercise Prices and a
Weighted Average Contractual Life analysis is not viewed as
informative because of the minimal variation of options currently
in issue, and therefore has accordingly not been disclosed.
For those options granted where IFRS 2 "Share-Based Payment" is
applicable, the fair values were calculated using the Black-Scholes
model. The inputs into the model were as follows:
Risk free Share price Expected Share price
rate volatility life at date of
grant
13 April 2018 (0.4p) 0.8% 128.9% 1.72 years GBP0.015
13 April 2018 (1.6p) 0.9% 128.9% 5 years GBP0.015
27 September 2019
(1.13p) 0.4% 63.13% 5 years GBP0.011
Expected volatility was determined by calculating the historical
volatility of the Company's share price for 12 months prior to the
date of grant. The expected life used in the model has been
adjusted, based on management's best estimate, for the effects of
non-transferability, exercise restrictions and behavioural
considerations. The Company recognised total expenses of GBPnil
(2020: GBPnil) relating to equity-settled share-based payment
transactions during the year, and GBPnil (2020: GBPnil) was
transferred via equity to retained earnings on the exercising or
lapse of options during the year.
Details of warrants granted during the year to consultants over
the ordinary shares are as follows:
Issued Lapsed
At 1 during / exercised At 30
October the during September Exercise Date from Expiry
2020 year the year 2021 price which exercisable date
No. No. No. No. GBP
Warrants Million Million Million Million
Consultants 17 - - 17 0.0105 02/04/2019 02/04/2022
Consultants 5 - - 5 0.0115 04/11/2019 04/11/2022
Consultants 12 - - 12 0.0085 29/11/2019 29/11/2022
Consultants 8 - - 8 0.0020 24/05/2020 24/05/2023
Consultants - 69 (69) - 0.0016 06/10/2020 06/10/2023
Consultants - 138 - 138 0.0016 02/07/2021 01/07/2024
41 207 (69) 179
--------- -------- ------------- -----------
22. Financial Instruments and Risk Analysis
Financial Assets by Category
The categories of financial asset, all included initially
measured at fair value and subsequently carried at amortised cost
in the balance sheet and the headings in which they are included
are as follows:
Current assets - Group 2021 2020
GBP'000 GBP'000
----------------------------- -------- --------
Inventory 2 1
Trade and other receivables 627 742
Cash and cash equivalents 4,727 1,634
------------------------------ -------- --------
5,356 2,377
----------------------------- -------- --------
Current assets - Company 2021 2020
GBP'000 GBP'000
----------------------------- -------- --------
Trade and other receivables 308 546
Intercompany balances 21,727 26,690
Cash and cash equivalents 4,146 1,346
------------------------------ -------- --------
26,181 28,583
----------------------------- -------- --------
Financial Liabilities by Category
The categories of financial liability all included at fair value
and subsequently carried at amortised cost in the balance sheet and
the headings in which they are included are as follows:
Current liabilities - Group 2021 2020
GBP'000 GBP'000
---------------------------- -------- --------
Trade and other payables 1,067 1,981
Borrowings 3,087 3,084
-------- --------
4,154 5,065
-------- --------
Current liabilities - Company 2021 2020
GBP'000 GBP'000
------------------------------ -------- --------
Trade and other payables (330) (1,419)
(330) (1,419)
-------- --------
The group is exposed to market risk through its use of financial
instruments and specifically to credit risk, and liquidity risk
which result from both its operating and investing activities. The
group's risk management is coordinated at its head office, in close
co-operation with the board of Directors, and focuses on actively
securing the group's short to medium term cash flows by minimising
the exposure to financial markets.
Long term financial investments are managed to generate lasting
returns. The group does not actively engage in the trading of
financial assets for speculative purposes, nor does it write
options. The most significant financial risks to which the group is
exposed to are described below.
Interest Rate Sensitivity
The group is not substantially exposed to interest rate
sensitivity, other than in relation to interest bearing bank
accounts.
Credit Risk Analysis
The group's exposure to credit risk is limited to the carrying
amount of trade receivables and cash at bank. The group
continuously monitors defaults of customers and other
counterparties, identified either individually or by Company, and
incorporates this information into its credit risk controls. Where
available at reasonable cost, external credit ratings and/or
reports on customers and other counterparties are obtained and
used.
The group's policy is to deal only with creditworthy
counterparties. Group management considers that trade receivables
that are not impaired for each of the reporting dates under review
are of good credit quality, including those that are past due. None
of the group's financial assets are secured by collateral or other
credit enhancements. The credit risk for liquid funds and other
short-term financial assets is considered negligible since the
counterparties are reputable banks with high quality external
credit ratings.
Liquidity Risk Analysis
The majority of the Group's liabilities are contractually due
within one year. The loan due from HHDL to Alba and Doriemus is
payable on determination by the Board of HHDL.
The group's continued future operations depend on the ability to
raise sufficient working capital through the issue of equity share
capital or debt financing. The Directors are confident that
adequate funding will be forthcoming with which to finance
operations. Controls over expenditure are carefully managed.
Capital Management Policies
The group's capital management objectives are to:
- Ensure the group's ability to continue as a going concern; and
- Provide a return to shareholders
- To provide capital for the purpose of strengthening the Group's risk management capability.
The Group actively and regularly reviews and manages its capital
structure, to ensure an optimal capital structure, and equity
holder returns, taking into consideration the future capital
requirements of the Group and capital efficiency, prevailing and
projected profitability, projected operating cash flows, projected
capital expenditures and projected strategic investment
opportunities. Management regards total equity as capital and
reserves, for capital management purposes.
Commodity Price Risk
The Group is exposed to the risk of fluctuations in prevailing
market commodity prices on the mix of oil & gas products it
produces. The Group's policy is to manage these risks through the
use of contract-based prices with customers.
Commodity Price Sensitivity
The table below summarises the impact on profit before tax for
changes in commodity prices. The analysis is based on the
assumption that the crude oil price moves 10% resulting in a change
of US$ 9.30/bbl (2020: US$ 6.84/bbl), with all other variables held
constant. Reasonably possible movements in commodity prices were
determined based on a review of the last two years' historical
prices and economic forecasters' expectations.
Increase/decrease in crude oil Effect on profit Effect on profit
prices before tax for before tax for
the year ended the year ended
30 September 30 September
2021 2020
Increase/(Decrease) Increase/(Decrease)
--------------------- ---------------------
GBP'000 GBP'000
Increase US$ 9.30 /bbl (2020: US$
6.84/bbl) 253 98
Decrease US$ 9.30 /bbl (2020: US$
6.84/bbl) (253) (98)
--------------------- ---------------------
Currency Risk
The Group has no significant monetary assets or liabilities that
are denominated in a foreign currency. The Group's exposed to
currency risk, with the price of Brent Crude Oil being denominated
in US$. The current exposure is not seen as material, with the
current level of revenue being generated therefrom. The Board will
continue to monitor this risk as the operations and/or revenues
increase.
23. Commitments & Contingent Liabilities
Ongoing exploration expenditure is required to maintain title to
the Group's exploration permits. No provision has been made in the
financial statements for these amounts as the expenditure is
expected to be fulfilled in the normal course of the operations of
the Group. As at 30 September 2021, the Group had no further
material commitments (2020: none).
24. Events after the Reporting Date
Apart from the those disclosed in the Strategic Report which
forms part of these Annual Report and Accounts, there are no events
to report after the reporting date.
25. Related Party Transactions
Transactions with Related Parties
In February 2019 UK Oil & Gas Plc engaged Apex Completions,
LLC (Apex) as a consultant to the Company. Allen Howard, UKOG's
Executive Director, is a Director of and a shareholder in Apex and,
as a result, the Agreement is considered a related party
transaction. Apex was engaged to help the Company further develop
its understanding of the Portland and Kimmeridge reservoirs. The
Agreement provides for Apex to periodically invoice the Company for
work carried out based upon the time spent by its personnel. During
the year Apex charged consultancy fees of GBPnil (2020 -
GBP82,000). The amounts due to Apex at the end of the year amounted
to GBPnil (2020: GBPnil).
UK Oil & Gas Plc paid a subscription fee for membership with
United Kingdom Onshore Oil & Gas (UKOOG) during the year. UKOOG
represent the onshore oil and gas industry and wider supply chain
and provides the Company with general industry advice and
representation. Stephen Sanderson, UKOG's Chief Executive, is a
Director of UKOOG and, as a result, the subscription fee for
membership is considered a related party transaction. During the
year the Company paid GBP30,000 for its membership with UKOOG
(2020: GBP30,000). The amounts due to UKOOG at the end of the year
amounted to GBPnil (2020: GBPnil).
Remuneration of Key Management Personnel
The remuneration of the directors, and other key management
personnel of the Company, is set out below in aggregate for
each of the categories specified in IAS24 Related Party Disclosures.
Further details in respect of the remuneration of the directors
can be found within the Directors Remuneration Report on page
30.
2021 2020
GBP'000 GBP'000
---------------------------------------------------- ---------- ---------
Short-term employee benefits 959 1,046
---------------------------------------------------- ---------- ---------
959 1,046
---------------------------------------------------- ---------- ---------
26. Ultimate Controlling Party
In the opinion of the Directors there is no controlling
party.
COMPANY INFORMATION
Company registration number 05299925
Registered office The Broadgate Tower 8th Floor
20 Primrose Street
London
EC2A 2EW
Directors Nicholas Mardon Taylor
Stephen Sanderson
Allen Howard
Kiran Morzaria
Secretary Kiran Morzaria
Auditors PKF Littlejohn LLP
Chartered Accountants
Registered Auditor
15 Westferry Circus, Canary
Wharf
London, E14 4HD
Nominated Adviser WH Ireland Limited
24 Martin Lane
London, EC4R 0DR
Solicitors Hill Dickinson
The Broadgate Tower 8th Floor
20 Primrose Street
London, EC2A 2EW
Registrars Share Registrars Limited
The Courtyard,
17 West Street
Farnham,
Surrey, GU9 7DR
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END
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