STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

2022             2021

Notes		£000	£000	£000	£000
GROUP AND COMPANY
Cash flows from operating activities
Cash absorbed by operations	26	(1,515)		(1,417)
Net cash outflow from operating activities			(1,515)		(1,417)
Investing activities
Cash movements in relation to assets held for sale		(2,467)		(642)
Loans granted to related party		(70)		(1,200)
Proceeds from disposal of investments		161		3,426
Net cash (used in)/generated from
investing activities			(2,376)		1,584
Financing activities
Proceeds from issue of shares		-		724
Cash settlement of deferred shares not
issued		(362)		-
Loan proceeds in relation to assets held for
sale		2,944		-
Net cash generated from financing
activities			2,582		724
Net (decrease)/increase in cash and cash
equivalents			(1,309)		891
Cash and cash equivalents at beginning of year			2,059		1,168
Cash and cash equivalents at end of year			750		2,059

 

 

 

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

1  Accounting policies Company information

Scirocco Energy plc ("Scirocco", the "Group") is a public listed company incorporated in England & Wales. The address of its registered office 1 Park Row, Leeds, United Kingdom, LS1 5AB. The Company's ordinary shares are traded on the AIM Market operated by the London Stock Exchange. The financial statements of Scirocco Energy plc for the year ended 31 December 2022 were authorised for issue by the Board on X and the statement of financial position is signed on the Board's behalf by Mr Reynolds.

 

Investing policy

Scirocco's investing policy is to acquire a diverse portfolio of direct and indirect interests in sustainable energy and circular economy assets within the European energy market. The Board is seeking to invest in opportunities which meet the following criteria:

 

•  cash generative, with the potential to re-invest operational cash flow in further growth;

•  situated within the European energy space;

•  acquisition targets within the low-carbon space, including renewable energy, circular economy and energy storage and transfer sectors;

•  assets which can attract the necessary investment capital, taking appropriate account of growing investor sentiment towards ESG and SRI indicators; and

•   assets which deliver stable returns, with lower exposure to global commodity prices.

 

The Company may invest by way of outright acquisition or by the acquisition of assets, including the intellectual property, of a relevant business, partnerships or joint venture arrangements. Such investments may constitute a minority stake in the company (which may be private or listed on a stock exchange, and which may be pre-revenue) or project in question. The Company's investments may take the form of equity, joint venture debt, convertible instruments, licence rights, or other financial instruments as the Directors deem appropriate.

 

Scirocco intends to be a long-term investor and the Directors will place no minimum or maximum limit on the length of time that any investment may be held. There is no limit on the number of projects into which the Company may invest, nor the proportion of the Company's gross assets that any investment may represent at any time.

 

Statement of compliance with UK adopted IAS

The financial statements of the Group and the Company have been prepared in accordance with UK-adopted international accounting standards and as applied in accordance with the provisions of the Companies Act 2006. The Directors have taken advantage of the exemption available under Section 408 of the Companies Act 2006 and not presented an income statement nor a statement of comprehensive income for the Company alone. The principal accounting policies adopted by the Group are set out below.

 

Accounting convention

The financial statements have been prepared on the historical cost basis, except for the measurement to fair value of assets and financial instruments as described in the accounting policies below, and on a going concern basis.

 

The financial report is presented in Pound Sterling (£) and all values are rounded to the nearest thousand pounds (£'000) unless otherwise stated. The functional currency of the Group and Company are also GBP.

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

1   Accounting policies                                       (Continued)

 

Going concern

The Directors note the losses that the Group has made for the year ended 31 December 2022. The Directors have prepared cash flow forecasts for the period ending 30 June 2023 which take account of the current cost and operational structure of the Group. The base case forecast takes account of the sale of Ruvuma to ARA Petroleum Tanzania ("APT") and the loan structure provided within that structure to cover cash calls arising from the asset. With the Ruvuma cash calls covered following the approval of shareholders at the general meeting on 29th June 2022, the remaining cost structure of the Group comprises a proportion of discretionary spend and therefore in the event that cash flows become constrained, costs can be reduced to enable the Group to operate within its available funding. These forecasts demonstrate that the Group has sufficient cash funds available, on the assumption that further funds can be sourced as and when needed, to allow it to continue in business for a period of at least twelve months from the date of approval of these financial statements.

 

Accordingly, the financial statements have been prepared on a going concern basis. Comments on going concern are included in the Operations report and note 1. Although the Ruvuma asset has been sold, no guarantee can be made that the sale completes within 12 months of the approval of the financial statements. The critical assumption in the going concern determination is that the Ruvuma PSA and the costs associated with the development of the Ntoyra natural gas discovery are met by the Group drawing against the loan provided by APT for its 25% interest. Based on this, there is material uncertainty present, given that draws on the facility would become due in the event the sale does not complete. In the event the sale did not complete, it is assumed that - if required - the Group would be able to access additional funding. If additional funding was not available there is a risk that commitments could not be fulfilled, and assets would be relinquished.

 

Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December 2022. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:

 

•  Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee)

•  Exposure, or rights, to variable returns from its involvement with the investee

•  The ability to use its power over the investee to affect its returns

 

Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

 

•  The contractual arrangement(s) with the other vote holders of the investee

•  Rights arising from other contractual arrangements

•  The Group's voting rights and potential voting rights

 

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.

 

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

1   Accounting policies                                       (Continued)

 

Profit or loss and each component of OCI are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group's accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

 

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.  If the Group loses control over a subsidiary, it recognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.

 

Investment in joint ventures

 

An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

 

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

 

The considerations made in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries. The Group's investment in its associate and joint venture are accounted for using the equity method.

 

Under the equity method, the investment in an associate or a joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group's share of net assets of the associate or joint venture since the acquisition date. Goodwill relating to the associate or joint venture is included in the carrying amount of the investment and is not tested for impairment separately.

 

The statement of profit or loss reflects the Group's share of the results of operations of the associate or joint venture. Any change in OCI of those investees is presented as part of the Group's OCI. In addition, when there has been a change recognised directly in the equity of the associate or joint venture, the Group recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the associate or joint venture are eliminated to the extent of the interest in the associate or joint venture.

 

The aggregate of the Group's share of profit or loss of an associate and a joint venture is shown on the face of the statement of profit or loss as part of operating loss and represents profit or loss after tax and non- controlling interests in the subsidiaries of the associate or joint venture.

 

The financial statements of the associate or joint venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group.

 

After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associate or joint venture. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value, and then recognises the loss within 'Share of profit of an associate and a joint venture' in the statement of profit or loss.

 

 

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

1   Accounting policies                                       (Continued)

 

Current assets held for sale

Current assets are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell.

 

Discontinued operations

In accordance with IFRS 5 'Non-current assets held for sale and discontinued operations', the net results relating to the assets held for sale are presented within discontinued operations in the income statement (for which the comparatives have been restated) and the assets and liabilities of these operations are presented separately in the balance sheet. Refer to note 10 for further details.

 

Fair value measurement

IFRS 13 establishes a single source of guidance for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The resulting calculations under IFRS 13 affected the principles that the Group uses to assess the fair value, but the assessment of fair value under IFRS 13 has not materially changed the fair values recognised or disclosed. IFRS 13 mainly impacts the disclosures of the Group. It requires specific disclosures about fair value measurements and disclosures of fair values, some of which replace existing disclosure requirements in other standards.

 

Cash and cash equivalents

Cash in the statement of financial position comprise cash at banks and on hand, which are subject to an insignificant risk of changes in value.

 

Financial instruments

Financial assets and financial liabilities are recognised on the balance sheet when the Group has become a party to the contractual provisions of the instrument.

 

Classification

The Group classifies its financial assets and liabilities in the following measurement categories:

•  those to be measured subsequently at fair value (either through Other Comprehensive Income or through profit or loss); and

•  those to be measured at amortised cost.

The classification depends on the entity's business model for managing the financial assets and the contractual terms of the cash flows.

 

Recognition and measurement

A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Group's contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Regular way purchases and sales of financial assets are accounted for at trade date, i.e. the date the Group commits itself to purchase or sell the asset.

 

At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss ("FVTPL"), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVTPL are expensed in profit or loss.

 

Subsequent measurement of debt instruments depends on the Group's business model for managing the asset and the cash flow characteristics of the asset. Currently, the Group's financial assets are all held for collection of contractual cash flows, which are solely payments of principal and interest. Accordingly, the Group's financial assets are measured subsequent to initial recognition at amortised cost.

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

1   Accounting policies                                       (Continued)

 

Impairment

On a forward-looking basis, the Group estimates the expected credit losses associated with its receivables and other financial assets carried at amortised cost, and records a loss allowance for these expected losses.

 

Trade and other receivables

Trade and other receivables outside of normal payment terms accrue interest at a rate determined by the operator and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.

 

Financial liability and equity

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.

 

Trade and other payables

Trade and other payables are non interest bearing and are stated at their nominal value.

 

Equity instruments

Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

 

Financial assets at fair value through profit or loss

Financial assets are classified as at FVTPL when the financial asset is held for trading. This is the case if:

 

•  the asset has been acquired principally for the purpose of selling in the near term, or

•  on initial recognition it is part of a portfolio of identified financial instruments that the company manages together and has a recent actual pattern of short-term profit taking, or

•  it is a derivative that is not designated and effective as a hedging instrument.

 

Financial assets at FVTPL are stated at fair value with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset. Interest and dividends are included in 'Investment income' and gains and losses on remeasurement included in 'other gains and losses' in the statement of comprehensive income.

 

Equity reserves

Share capital is determined using the nominal value of shares that have been issued.

 

The share premium account represents premiums received on the initial issuing of the share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits.

 

The share based payment reserve represents the cumulative amount which has been expensed in the income statement in connection with share based payments, less any amounts transferred to retained earnings on the exercise of share options.

 

Retained earnings includes all current and prior period results as disclosed in the income statement.

 

Deferred shares includes shares that have been allocated to investment partners that will be converted to share capital when certain future conditions are met

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

1   Accounting policies                                       (Continued)

 

Derivatives

Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to fair value at each reporting end date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

 

A derivative with a positive fair value is recognised as a financial asset, whereas a derivative with a negative fair value is recognised as a financial liability. A derivative is presented as a non-current asset or liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are classified as current.

 

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

1   Accounting policies                                       (Continued)

 

Taxation

The tax expense represents the sum of the current tax and deferred tax.

 

Current tax

The current tax is based on taxable profit for the period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. The liability for current tax is calculated by using tax rates that have been enacted or substantively enacted by the balance sheet date.

 

Deferred tax

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction which affects neither the tax profit not the accounting profit.

 

Provisions

Provisions are recognised for liabilities of uncertain timings or amounts that have arisen as a result of past transactions and are discounted at a pre-tax rate reflecting current market assessments of the time value of money and the risks specific to the liability.

 

Share-based payments

Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the income statement over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition.

 

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the income statement over the remaining vesting period.

 

Where equity instruments are granted to persons other than employees, the income statement is charged with the fair value of goods and services received. Equity-settled share-based payments are measured at a fair value at the date of grant except if the value of the service can be reliably established. The fair value determined at the grant date of equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest.

 

Foreign exchange

Transactions in currencies other than Sterling are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Gains and losses arising on retranslation are included in the income statement for the period.

 

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

 

1   Accounting policies                                       (Continued)

 

Oil and gas properties and other property, plant and equipment

•   Initial recognition

Oil and gas properties and other property, plant and equipment are stated at cost, less accumulated depreciation and accumulated impairment losses.

 

The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of the decommissioning obligation and, for qualifying assets (where relevant), borrowing costs. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. The capitalised value of a finance lease is also included within property, plant and equipment.

 

When a development project moves into the production stage, the capitalisation of certain construction/ development costs ceases, and costs are either regarded as part of the cost of inventory or expensed, except for costs which qualify for capitalisation relating to oil and gas property asset additions, improvements or new developments.

 

•    Depreciation/amortisation

Oil and gas properties are depreciated/amortised on a unit-of production basis over the total proved developed and undeveloped reserves of the field concerned, except in the case of assets whose useful life is shorter than the lifetime of the field, in which case the straight-line method is applied. Rights and concessions are depleted on the unit-of-production basis over the total proved developed and undeveloped reserves of the relevant area.

 

The unit-of production rate calculation for the depreciation/amortisation of field development costs takes into account expenditures incurred to date, together with sanctioned future development expenditure. An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit or loss and other comprehensive income when the asset is derecognised.

 

The asset's residual values, useful lives and methods of depreciation/amortisation are reviewed at each reporting period and adjusted prospectively.

 

•     Major maintenance, inspection and repairs

Expenditure on major maintenance refits, inspections or repairs comprises the cost of replacement assets or parts of asset, inspection costs and overhaul costs. Where an asset, or part of an asset that was separately depreciated and is now written off is replaced and it is probably that future economic benefits associated with the item will flow to the Group, the expenditure will be capitalised. Where part of the asset replaced was not separately considered as a component and therefore not depreciated separately, the replacement value is used to estimate the carrying amount of the replaced asset(s) and is immediately written off. Inspection costs associated with major maintenance programmes are capitalised and amortised over the period of the next inspection. All other day-to-day repairs and maintenance costs are expensed as incurred.

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

1   Accounting policies                                       (Continued)

 

Provision for rehabilitation / Decommissioning Liability

The Group recognises a decommissioning liability where it has a present legal or constructive obligation as a result of past events, and it is probably that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount of obligation can be made.

 

The obligation generally arises when the asset is installed or the ground/environment is disturbed at the field location. When the liability is initially recognised, the present value of the estimated costs is capitalised by increasing the carrying amount of the related oil and gas assets to the extent that it is incurred by the development/construction of the field. Any decommissioning obligations that arise through the production of inventory are expensed when the inventory item is recognised in cost of goods sold.

 

Changes in the estimated timing or cost of decommissioning are dealt with prospectively by recording an adjustment to the provision and a corresponding adjustment to oil and gas assets. Any reduction in the decommissioning liability and, therefore, any deduction from the asset to which it relates, may not exceed the carrying amount of that asset. If it does, any excess over the carrying value is taken immediately to the statement of profit or loss and other comprehensive income.

 

Segmental reporting

A business segment is a group of assets or operations engaged in providing services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing services within a particular economic environment that is subject to different risks and returns from other segments in other economic environments. The company has two segments; corporate head office costs and Tanzania.

 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker (CODM). The CODM, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as Thomas Reynolds that makes strategic decisions. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

 

Investments

The Group's financial asset investments are classified and measured at fair value, under IFRS 9, with changes in fair value recognised in profit and loss as they arise.

 

Gains and losses on investments disposed of or identified are included in the net profit or loss for the period.

 

Investments held by the Group are held for resale, therefore where the Group's equity stake in an investee company is 20% or more, equity accounting for these associates is not considered to be appropriate.

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

2  Adoption of new and revised standards and changes in accounting policies

 

In the current year, the following new and revised Standards and Interpretations have been adopted by the Company. The adoption of these standards has had no impact on the current period however may have an effect on future periods.

 

IFRS 3 (Amendments)	Reference to the conceptual framework	1 January 2022
IAS 16 (Amendments)	Property, plant and equipment - proceeds before intended use	1 January 2022
IAS 37 (Amendments)	Onerous contracts - cost of fulfilling a contract	1 January 2022
IFRIC	Amendments to IFRS 1 (subsidiary as a first-time adopter), IFRS 9 (fees in the '10 liabilities), IFRS 16 (lease incentives), IAS 41 (taxation in the fair value measurements)	1 January 2022

 

Standards which are in issue but not yet effective

 

At the date of authorisation of these financial statements, the following Standards and Interpretations, which have not yet been applied in these financial statements, were in issue but not yet effective (and in some cases had not yet been adopted by the United Kingdom):

 

IFRS 17	Insurance contracts	1 January 2023
IAS 1 and IFRS	Practice Statement Disclosure of accounting policies	1 January 2023
IAS 8 (Amendments)	Definition of accounting estimates	1 January 2023
IAS 12 (Amendments)	Deferred tax related to assets and liabilities arising from a single transaction	1 January 2023
IFRS 16 (Amendments)	Liability in a Sale and Leaseback	1 January 2024
IAS 1 (Amendments)	Classification of liabilities as current or non-current deferral of effective date	1 January 2024
IAS 1 (Amendments)	Non-current liabilities with covenants	1 January 2024

 

 

The directors do not expect that the adoption of the other Standards listed above will have a material impact on the financial statements of the Company aside from additional disclosures.

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

 

3  Critical accounting estimates and judgements

 

The Group makes estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

 

The preparation of the Financial Statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of expenses during the period. Actual results may vary from the estimates used to produce these Financial Statements.

 

Estimates and judgements are regularly evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

 

Items subject to such estimates and assumptions, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial years, include but are not limited to:

 

Share-based payments (note 20)

The Group utilised an equity-settled share-based remuneration scheme for employees. Employee services received, and the corresponding increase in equity, are measured by reference to the fair value of the equity instruments at the date of grant, excluding the impact of any non-market vesting conditions. The fair value of share options are estimated by using Black-Scholes valuation method as at the date of grant. The assumptions used in the valuation are described in Note 21 and include, among others, the expected volatility, expected life of the options and number of options expected to vest.

 

Deferred taxation (note 9)

Deferred tax assets are recognised when it is judged more likely than not that they will be recovered. Deferred tax assets are currently nil based on the likelihood of recovery.

 

Recoverability of assets held for sale (note 15)

The Company assesses assets held for sale each reporting period to determine whether any indication of impairment exists. Where an indicator of impairment exists, a formal estimate of the recoverable amount is made, which is considered to be the fair value less costs of sale. The assessments require the use of estimates and assumptions such as long-term oil prices (considering current and historical prices, price trends and related factors), discount rates, operating costs, future capital requirements, decommissioning costs, exploration potential reserves (see(a) Hydrocarbon reserves and resource estimates above) and operating performance (which includes production and sales volumes). These estimates and assumptions are subject to risk and uncertainty. Therefore, there is possibility that changes in circumstances will impact these projections, which may impact the recoverable amount of assets and/or CGUs.

 

Recoverability of loan receivable from joint venture (note 16)

The Company has determined that the loan to the joint venture is fully recoverable and enforceable based on a signed loan agreement and the value of the underlying company. At the time of signing the financial statements the loan was repayable on demand, but will not be callable within twelve months of the signing of the financial statements. The loan has been classified as a non-current asset, reflecting Management's intention.

 

Decommissioning provisions (note 15)

There is uncertainty around the cost of decommissioning as cost estimates can vary in response to many factors, including changes to the relevant legal requirements, the emergence of new technology or experience at other assets. The expected timing, work scope and amount and currency mix of expenditure may also change. Therefore, significant estimates and assumptions are made in determining the provision for decommissioning.

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

•       Critical accounting estimates and judgements                         (Continued)

 

The estimated decommissioning costs are reviewed annually. Provision for environmental clean-up and remediation costs is based on current legal and contractual requirements, technology and management's estimate of costs with reference to current price levels. Future cost estimates are discounted to present value using a rate that approximates the time value of money, which is currently 5.89%. The discount rate is based on the average yield on Tanzanian Government bonds for foreign currency loans of a duration of more than 10 years. The company assess the reasonableness of the decommissioning provision annually and believes it represents a fair view of the potential liability.

 

•      Operating Segments

 

Based on risks and returned, the directors consider that the primary reporting format is by business segment. The directors consider that there are two business segments:

•  Head office support from the UK

•  Discontinued operations on its investments in Tanzania

 

	Continuing Operations	Discontinued Operations
2022	UK	Tanzania	Total
	£000	£000	£000
Revenue	40	-	40
Administrative expenses	(1,613)	-	(1,613)
Interest income	134	-	134
Other gains and losses	3	(3,377)	(3,374)
Other income	(2)	-	(2)
(Loss) from operations per reportable segment	(1,438)	(3,377)	(4,815)
Additions to non-current assets	244	-	244
Reportable segment assets	2,477	10,715	13,192
Reportable segment liabilities	224	3,110	3,334
2021	Total	Tanzania	Total
	£000	£000	£000
Administrative expenses	(1,890)	-	(1,890)
Interest income	-	12	12
Finance costs	(2)	-	(2)
Other gains and losses	2,196	(4,065)	(1,869)
Other income	58	-	58
Profit/(Loss) from operations per reportable segment	362	(4,053)	(3,691)
Additions to non-current assets	26	-	26
Reportable segment assets	3,846	11,600	15,446
Reportable segment liabilities	157	166	323

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

5  Revenue
	2022		2021
	£000		£000
Share of profit in joint venture Interest income	40 -		- 12
	40		12
Contract balances	2022		2021
	£000		£000
Trade receivables Accrued income and interest	- -		- -

 

Trade receivables accrue interest for non payment. Outstanding trade debtors accrue interest at a rate in accordance with the joint venture agreement and are generally on terms of 30 days. In 2022, there is a provision of £nil (2021: nil) for expected credit losses on trade receivables.

 

Interest income relates to interest charged on outstanding invoices.

 

An operating segment is a distinguishable component of the Company that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the Company's chief operating decision maker to make decisions about the allocation of resources and assessment of performance and about which discrete financial information is available.

 

6	Expenses by Nature
		2022	2021
	Continuing Operations	£000	£000
	Exchange (gains)/losses	(169)	8
	Fees payable to the Company's auditor for the audit of the Company's financial statements	74	19
	Professional, legal and consulting fees	752	920
	AIM related costs including investor relations	134	157
	Accounting related services	152	93
	Travel and subsistence	18	-
	Office and administrative expenses	104	87
	Other expenses	2	38
	Share-based payments	130	471
	Directors remuneration	334	94
	Wages and salaries and other related costs	82	5
		1,613	1,892

 

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

 

7  Employees

 

The average number of employees (excluding executive directors) was one (2021:1).

 

During the year ended 31 December 2022 the Directors opted to receive remuneration in the form of share options in lieu of fees (note 20).

 

		2022		2021
		£000		£000
Their aggregate remuneration comprised :
Wages and salaries		44		11

 

Directors remuneration

	Salary and fees	Share-based payments	Termination payments		Total
	£000	£000	£000		£000
Year ended 31 December 2022
Alastair Ferguson	75	25	-		100
Tom Reynolds	200	25	-		225
Donald Nicolson	33	41	-		74
Muir Miller (appointed 18 February 2021)	26	27	-		53
Doug Rycroft (senior management)	-	12	-		12
					464
	334	130
	Salary and fees	Share-based payments	Termination payments		Total
	£000	£000	£000		£000
Year ended 31 December 2020
Jonathan Fitzpatrick (resigned 9 July 2021)		36	-		36
Alastair Ferguson	7	140	-		133
Tom Reynolds	91	146	-		237
Donald Nicolson	10	89	-		99
Muir Miller (appointed 18 February 2021)           -	-	35	-		35
Doug Rycroft (senior management)             -	-	25	-		25
					565
	94	471	-
No directors received pension contributions in 2022 or 2021.

 

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

8	Other gains and losses 2022	2021
	£000	£000
	Gain on sale of financial assets at fair value through profit or loss                61 Impairment of financial assets at fair value through profit or loss                (58)	2,196 -
	3	2,196
9	Income tax expense 2022	2021
	£000 UK corporation tax on profits for the current period                      -	£000 -
	Total UK current tax                                     -	-
	Deferred tax Origination and reversal of temporary differences                       -	-
	Total tax charge                                        -	-
	The charge for the year can be reconciled to the loss per the income statement as follows:

 

	2022	2021
	£000	£000
(Loss) before taxation	(4,815)	(3,692)
Expected tax credit based on a corporation tax rate of 19.00% (2021: 19.00%)	(915)	(701)
Effect of expenses not deductible in determining taxable profit	754	837
Income not taxable	(35)	(420)
Remeasurement of deferred tax for changes in tax rates	187	(45)
Chargeable gains	9	329
Taxation charge for the year	-	-

 

No deferred tax asset has been recognised because there is uncertainty of the timing of suitable future profits against which they can be recovered. The company has losses carried forward of £7,079k (2021 - £6,312k).

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

10  Discontinued operations

 

The Company has a 25% interest in a high-quality development project in Tanzania which the Directors are actively seeking to divest. This stake has been valued at $16m and operations relating to this stake are detailed below. For details on the divestment please refer to the Strategic Report.

 

 

 

The results of the discontinued business, which have been included in the income statement, balance sheet and cash flow statement, were as follows:

 

	2022	2021
	£000	£000
Impairment on fair value revaluation	(3,377)	(3,846)
Investment losses	-	(207)
Net loss attributable to discontinuation	(3,377)	(4,053)
The loss after tax on carrying value of assets held for sale is made up as follows:		2022
		£000
Fair value less costs to sell		7,605
Net book value of assets disposed: Intangible assets		(18,368)
Oil and gas properties		(380)
Loan to ARA Petroleum		2,944
Decommissioning provision		166
Impairment on fair value revaluation at 31 December 2021		4,656
		(10,982)
Impairment on fair value revaluation at 31 December 2022		(3,377)
Loss per share impact from discontinued operations	2022	2021
Basic impact (pence)	(0.38)	(0.51)
Diluted impact (pence)	(0.34)	(0.45)

 

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

 

10	Discontinued operations		(Continued)
	Cash flow statement	2022	2021
		£000	£000
	Net cash flows from financing activities	2,467	-
	Net cash flows from investing activities	(2,467)	(642)
	Net cash flows from discontinued operations	-	(642)

 

 

 

Remaining cash received from financing activities was used for other operational expenses.

 

11 Earnings per share

 

 

 

The calculation of loss per share is based on the loss after taxation divided by the weighted average number of shares in issue during the year.

 

Number of shares	2022	2021
Weighted average number of ordinary shares for basic profit/loss per share (000)	900,496	758,788
Weighted average number of ordinary shares for diluted profit per share (000)	1,022,703	854,621
Earnings	£000	£000
Continuing operations
Profit for the period from continued operations	1,939	361
Discontinued operations
(Loss) for the period from discontinued operations	(6,754)	(4,053)
Basic earnings per share
From continuing operations (pence per share)	0.22	0.05
From discontinued operations (pence per share)	(0.75)	(0.53)
	(0.53)	(0.49)
Diluted earnings per share
From continuing operations (pence per share)	(0.14)	0.04
From discontinued operations (pence per share)	(0.33)	(0.47)
	(0.47)	(0.43)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

14  Joint ventures

 

The Group has a 50% (2021: 50%) interest in joint venture, Energy Acquisitions Group Limited, a company incorporated in Northern Ireland. The primary activity of Energy Acquisitions Group Limited is to acquire and finance renewable energy assets in the United Kingdom.

 

The Group's interest in EAG is accounted for using the equity method in the consolidated financial statements. Summarised financial information of the joint venture, and reconciliation with the carrying amount of the investment in the consolidated financial statements at 31 December 2022 are set out below:

 

Energy Acquisitions Group Limited consolidated summary statement of financial position (unaudited)

	2022	2021
	£000	£000
Non-current assets	2,960	2,808
Current assets	593	445
Current liabilities	(113)	(411)
Non-current liabilities	(3,360)	(2,985)
The following amounts have been included in the amounts above Cash and cash equivalents	326	245
Current financial liabilities	(113)	(411)
Non-current financial liabilities	(3,360)	(2,985)
Net Assets (100%)	80	(143)
Group share of net assets (50%)	40	(72)

 

Energy Acquisitions Group Limited consolidated summary profit and loss account (unaudited)

	2022		2021
	£000		£000
Revenue	1,414		1,164
Direct Costs	(561)		(557)
Overhead and administrative expenses	(297)		(232)
Interest payable and similar expenses	(334)		(655)
Profit for the financial year	222		(80)

 

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

14  Joint ventures                                           (Continued)

 

 

The following amounts have been included in the amounts above
Depreciation and amortisation	62	(223)
Interest income	-	-
Interest expense	334	655
Income tax expense	-	52

 

There were no dividends received from the joint venture during the year and there are no dividends forecast.

 

The joint venture had no contingent liabilities or commitments as at 31 December 2022 and 221. The financial statements of the JV are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group. Presentation of the summarised financial information has been made on the basis of the Joint Venture's published financial statements.

 

15	Assets and liabilities classified as held for sale	2022		2021
	GROUP AND COMPANY	£000		£000
	Intangible assets	10,714		11,246
	Oil and gas properties	-		354
	Total assets classified as held for sale	10,714		11,600
	Loan	2,944		-
	Decommissioning provision	166		166
	Total liabilities classified as held for sale	3,110		166

 

At the date of authorisation of the financial statements it was determined that a sale would be highly probable (see note 10).

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

16	Trade and other receivables
		2022		2021
	GROUP	£000		£000
	Current Other receivables	96		111
	VAT recoverable	74		21
	Prepayments	40		21
	Non current	210		153
	Loan receivable from joint venture	1,448		1,244

 

The directors have assessed the trade and other receivables for impairment and consider that the carrying amount of trade and other receivables approximates to their fair value.

 

 

                                                                                      

 

	2022		2021
COMPANY	£000		£000
Other receivables	96		111
VAT recoverable	74		21
Prepayments	40		21
Non current	210		153
Loan receivable from subsidiary	1,450		1,244

 

The directors have assessed the trade and other receivables for impairment and consider that the carrying amount of trade and other receivables approximates to their fair value.

 

17	Trade and other payables	2022		2021
	GROUP	£000		£000
	Trade payables	38		142
	Accruals	65		36
	Other payables	121		-
		224		178

 

The directors consider that the carrying amount of trade payables approximates to their fair value.

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

17	Trade and other payables		(Continued)
		2022	2021
	COMPANY	£000	£000
	Trade payables	38	142
	Accruals	55	36
	Other payables	121	-
		214	178

 

The directors consider that the carrying amount of trade payables approximates to their fair value.

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

                                                                                                                                         

 

•      Total Share options in issue

During the year no incentive options were granted (2021: nil). As at 31 December 2022 there were 51,419,781 incentive options in issue (2021: 51,419,781)

 

During the year 26,733,539 (2021: 24,997,841) share options in lieu of salary and/or fees due to the relevant option holders were granted. As at 31 December 2022 there were 70,787,245 share options in lieu of salary and/or fees in issue (2021: 44,053,706).

 

•      Total warrants in issue

All warrants lapsed in the year and no warrants were issued, cancelled or exercised during the year (2021: no warrants were issued).

 

As at 31 December 2022 there were no warrants outstanding (2021: 12,500,000).

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

20  Share based payment GROUP AND COMPANY

The Company has opted to remunerate the directors for the year to 31 December 2022 by a grant of an option over the ordinary shares of the capital of the Company as detailed in the deed of option grants. The life of the options is 18 months. There are three executive directors and two non-executive directors who are members of the plan. The following table summarises the expense recognised in the Statement of Comprehensive Income since the options were granted.

 

	2022		2021
	£000		£000
Directors options	130		285
Incentive options	-		186
Credit to equity for equity-settled share-based payments	130		471

 

During June 2020 (and the height of the Covid-19 pandemic) the Company sought to put in place a strategy that would help to conserve the Company's cash position in the near term and also to maximise alignment between the Board, Management Team and Shareholders.

 

Accordingly, the Company proposed to grant nominal cost options over new Ordinary Shares of 0.2p (£0.0020) to Directors and select members of the Management Team ("the Director Options"). The Director Options were granted over a total of 26,733,539 (2021: 24,997,841) Ordinary Shares and have an aggregate value equal (on a net basis, after deduction of the nominal exercise price per Ordinary Share) to the fair value of salary and/or fees due to the relevant option holders up to December 2022.

 

Members of the Management Team were also awarded options over Ordinary Shares with an exercise price of

1.3p (£0.013) ("the Incentive Options"), which was approximately a 24% premium to the closing midmarket price of the Company's Ordinary Shares on 26 June 2020. Each Incentive Option is ordinarily exercisable on the 2nd anniversary of the grant date (being 30 June 2022), except in the event of specified corporate events or, exceptionally, if the option holder leaves as a 'good leaver'.

 

The Company used the Black-Scholes model to determine the value of the incentive options and the inputs. The value of the options and the inputs for the year ended 31 December 2022 were as follows:

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

20	Share based payment	(Continued)
		Issue 30 June 2020
		Incentive options
	Share price at grant (pence)	1.09
	Exercise price at grant (pence)	1.30
	Expected volatility (%)	84.42
	Expected life (years)	6
	Risk free rate (%)	0.17
	Expected dividends (pence)	nil

 

Expected volatility was determined by using the Company's share price for the preceding 3 years.

 

The total share-based payment expense in the year for the Company was £86,806 in relation to the issue of incentive options (2021: £186,013) and £nil finance charges in relation to warrants (2021: £nil).

 

The Incentive Options granted represent approximately 7.9% of the Company's issued share capital (excluding warrants issued to Prolific Basins LLC). The Board has retained additional headroom for future Incentive Options as it recognises that the future performance of the Company will be dependent on its ability to retain the services of key executives.

 

21 Financial instruments

GROUP

Categories of financial instruments

The following table combines information about:

•  Classes of financial instruments based on their nature and characteristics; and •  The carrying amounts of financial instruments.
	2022		2021
Financial assets at amortised cost	£000		£000
Other debtors	96		111
Prepayments and accrued income	40		21
Cash and cash equivalents	750		2,059
Loan to joint venture	1,448		1,244
	2,334		3,435

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

21	Financial instruments				(Continued)
		Book Value	Fair Value	Book Value	Fair Value
		2022	2022	2021	2021
		£000	£000	£000	£000
	Financial assets at fair value
	Non-current Investment - Helium One	206	206	312	312
	Non-current Investment - Corallian Energy Limited	67	67	125	125
		273	273	437	437
				2022	2021
				£000	£000
	Financial liabilities at amortised cost
	Trade payables			38	142
	Accruals and deferred income			65	36
	Other payables			121	-
				224	178

 

The table below analyses financial instruments carried at fair value, by valuation method.

 

Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

•  Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

•  Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e derived from prices).

•  Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

The fair values for the Company's assets and liabilities are not materially different from their carrying values in the financial statements.

 

The following table presents the Company's financial assets that are measured at fair value:

 

 

 

	Level 1	Level 2	Level 3		Total
	£000	£000	£000		£000
Non-current Investment - Helium One	206	-	-		206
Non-current Investment - Corallian Energy Limited	-	-	67		67
	206		67		273

 

 

The Company does not have any liabilities measured at fair value. There have been no transfers in to or transfers out of fair value hierarchy levels in the period.

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

21  Financial instruments                                       (Continued)

 

Financial instruments in level 1

The fair value of financial instruments traded in active markets is based on quoted market prices at the reporting date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. The quoted market price used for financial assets held by the Company is the current bid price.

 

Financial instruments in level 2

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. No investments are valued using level 2 inputs in the period.

 

Financial instruments in level 3

If one or more of the significant inputs is not based on observable market data, the instrument is included in Level

3. Following the guidance of IFRS 9, these financial instruments have been assessed to determine the fair value of the instrument. In their assessment, the Directors have considered both external and internal indicators to decide whether an impairment charge must be made or whether there needs to be a fair value uplift on the instrument. Instruments included in Level 3 comprise of the Corallian investment. Details of this can be found at Note 12.

 

The carrying value of the Company's financial assets and liabilities measured at amortised cost are approximately equal to their fair value.

 

The Company is exposed through its operations to one or more of the following financial risk:

•  Fair value or cash flow interest rate risk

•  Foreign currency risk

•  Liquidity risk

•  Liquidity risk in specific regard to sale of Ruvuma asset not completing

•  Credit risk

•  Market risk

•  Expected credit losses

 

Policy for managing these risks is set by the Board. The policy for each of the above risks is described in more detail below.

 

Fair value and cashflow interest rate risk

Generally the Company has a policy of holding debt at a floating rate. The directors will revisit the appropriateness of this policy should the Company's operations change in size or nature. Operations are not permitted to borrow long-term from external sources locally.

 

Foreign currency risk

Foreign exchange risk arises because the Company has operations located in various parts of the world whose functional currency is not the same as the functional currency in which the Company's investments are operating. The Company's net assets are exposed to currency risk giving rise to gains or losses on retranslation into sterling. Only in exceptional circumstances will the Company consider hedging its net investments in overseas operations as generally it does not consider that the reduction in volatility in net assets warrants the cash flow risk created from such hedging techniques.

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

21  Financial instruments                                       (Continued)

 

The Company's exposure to foreign currency risk at the end of the reporting period is summarised below. All amounts are presented in GBP equivalent in the statement of financial position.

 

	2022		2021
	$000		$000
	USD		USD
Trade and other receivables	116		150
Cash and cash equivalents	878		1,415
Trade and other payables	-		(166)
Net exposure	994		1,399

 

Sensitivity analysis

As shown in the table above, the Company is primarily exposed to changes in the GBP:USD exchange rate through its cash balance held in USD and trading balances. The table below shows the impact in GBP on pre-tax profit and loss of a 10% increase/decrease in the GBP to USD exchange rate, holding all other variables constant.

 

	2022	2021
	£000	£000
GBP:USD exchange rate increases 10%	136	116
GBP:USD exchange rate decreases 10%	(69)	(142)

                                             

 

Liquidity risk

The liquidity risk of each entity is managed centrally by the treasury function. Each operation has a facility with treasury, the amount of the facility being based on budgets. The budgets are set locally and agreed by the board annually in advance, enabling the cash requirements to be anticipated. Where facilities of entities need to be increased, approval must be sought from the finance director. Where the amount of the facility is above a certain level agreement of the board is needed.

 

All surplus cash is held centrally to maximise the returns on deposits through economies of scale. The type of cash instrument used and its maturity date will depend on the forecast cash requirements.

 

 

The table below analyses the company's financial liabilities into relevant maturity groupings based on their contractual maturities. The amounts presented are the undiscounted cash flows.

 

	Less than 6 months	6 to 12 months	Between 1 and 2 years	Between 2 and 5 years
	£000	£000	£000	£000
31 December 2022
Trade and other payables	224	-	-	-
31 December 2021
Trade and other payables	178	-	-	-

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

21  Financial instruments                                       (Continued)

 

Credit risk

The Company is mainly exposed to credit risk from credit sales. It is Company policy, implemented locally, to access the credit risk of new customers before entering contracts. Such credit ratings are taken into account by local business practices.

 

The Company does not enter into complex derivatives to manage credit risk, although in certain isolated cases may take steps to mitigate such risks if it is sufficiently concentrated.

 

Market risk

As the Company is now investing in listed companies, the market risk will be that of finding suitable investments for the Company to invest in and the returns that those investments will return given the markets that in which investments are made.

 

Expected credit losses

Allowances are recognised as required under the IFRS 9 impairment model and continue to be carried until there are indicators that there is no reasonable expectation of recovery.

 

For trade and other receivables which do not contain a significant financing component, the Company applies the simplified approach. This approach requires the allowance for expected credit losses to be recognised at an amount equal to lifetime expected credit losses. For other debt financial assets the Company applies the general approach to providing for expected credit losses as prescribed by IFRS 9, which permits for the recognition of an allowance for the estimated expected loss resulting from default in the subsequent 12-month period. Exposure to credit loss is monitored on a continual basis and, where material, the allowance for expected credit losses is adjusted to reflect the risk of default during the lifetime of the financial asset should a significant change in credit risk be identified.

 

The majority of the Company's financial assets are expected to have a low risk of default. A review of the historical occurrence of credit losses indicates that credit losses are insignificant due to the size of the Company's clients and the nature of the services provided. The outlook for the oil and gas industry is not expected to result in a significant change in the Company's exposure to credit losses. As lifetime expected credit losses are not expected to be significant the Company has opted not to adopt the practical expedient available under IFRS 9 to utilise a provision matrix for the recognition of lifetime expected credit losses on trade receivables. Allowances are calculated on a case-by-case basis based on the credit risk applicable to individual counterparties.

 

Exposure to credit risk is continually monitored in order to identify financial assets which experience a significant change in credit risk. In assessing for significant changes in credit risk the Company makes use of operational simplifications permitted by IFRS 9. The Company considers a financial asset to have low credit risk if the asset has a low risk of default; the counterparty has a strong capacity to meet its contractual cash flow obligations in the near term; and no adverse changes in economic or business conditions have been identified which in the longer term may, but will not necessarily, reduce the ability of the counterparty to fulfil its contractual cash flow obligations. Where a financial asset becomes more than 30 days past its due date additional procedures are performed to determine the reasons for non-payment in order to identify if a change in the exposure to credit risk has occurred.

 

Should a significant change in the exposure to credit risk be identified the allowance for expected credit losses is increased to reflect the risk of expected default in the lifetime of the financial asset. The Company continually monitors for indications that a financial asset has become credit impaired with an allowance for credit impairment recognised when the loss is incurred. Where a financial asset becomes more than 90 days past its due date additional procedures are performed to determine the reasons for non-payment in order to identify if the asset has become credit impaired.

 

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

21  Financial instruments                                       (Continued)

 

The Company considers an asset to be credit impaired once there is evidence that a loss has been incurred. In addition to recognising an allowance for expected credit loss, the Company monitors for the occurrence of events that have a detrimental impact on the recoverability of financial assets. Evidence of credit impairment includes, but is not limited to, indications of significant financial difficulty of the counterparty, a breach of contract or failure to adhere to payment terms, bankruptcy or financial reorganisation of a counterparty or the disappearance of an active market for the financial asset.

 

A financial asset is only written off when there is no reasonable expectation of recovery.

 

The Company employs the simplified approach to make an estimate of ECL. There are no outstanding balances as at 31 December 2022 resulting in an ECL of £nil in the current year.

 

COMPANY

 

Categories of financial instruments

The following table combines information about:

•  Classes of financial instruments based on their nature and characteristics; and •  The carrying amounts of financial instruments.
	2022		2021
Financial assets at amortised cost	£000		£000
Other debtors	96		111
Prepayments and accrued income	40		21
Cash and cash equivalents	750		2,059
Loan to subsidiary	1,450		1,244
	2,336		3,435

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

21	Financial instruments				(Continued)
		Book Value	Fair Value	Book Value	Fair Value
		2022	2022	2021	2021
		£000	£000	£000	£000
	Financial assets at fair value
	Non-current Investment - Helium One	206	206	312	312
	Non-current Investment - Corallian Energy Limited	67	67	125	125
		273	273	437	437
				2022	2021
				£000	£000
	Financial liabilities at amortised cost
	Trade payables			38	142
	Accruals and deferred income			55	36
	Other payables			121	-
				214	178

 

The table below analyses financial instruments carried at fair value, by valuation method.

 

Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

•  Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

•  Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e derived from prices).

•  Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

The fair values for the Company's assets and liabilities are not materially different from their carrying values in the financial statements.

 

The following table presents the Company's financial assets that are measured at fair value:

 

	Level 1	Level 2	Level 3		Total
	£000	£000	£000		£000
Non-current Investment - Helium One	206	-	-		206
Non-current Investment - Corallian Energy Limited	-	-	67		67
	206	-	67		273

 

The Company does not have any liabilities measured at fair value. There have been no transfers in to or transfers out of fair value hierarchy levels in the period.

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

21  Financial instruments                                       (Continued)

 

Financial instruments in level 1

The fair value of financial instruments traded in active markets is based on quoted market prices at the reporting date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. The quoted market price used for financial assets held by the Company is the current bid price.

 

Financial instruments in level 2

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. No investments are valued using level 2 inputs in the period.

 

Financial instruments in level 3

If one or more of the significant inputs is not based on observable market data, the instrument is included in Level

3. Following the guidance of IFRS 9, these financial instruments have been assessed to determine the fair value of the instrument. In their assessment, the Directors have considered both external and internal indicators to decide whether an impairment charge must be made or whether there needs to be a fair value uplift on the instrument. Instruments included in Level 3 comprise of the Corallian investment. Details of this can be found at Note 12.

 

The carrying value of the Company's financial assets and liabilities measured at amortised cost are approximately equal to their fair value.

 

The Company is exposed through its operations to one or more of the following financial risk:

•  Fair value or cash flow interest rate risk

•  Foreign currency risk

•  Liquidity risk

•  Liquidity risk in specific regard to sale of Ruvuma asset not completing

•  Credit risk

•  Market risk

•  Expected credit losses

 

Policy for managing these risks is set by the Board. The policy for each of the above risks is described in more detail below.

 

Fair value and cashflow interest rate risk

Generally the Company has a policy of holding debt at a floating rate. The directors will revisit the appropriateness of this policy should the Company's operations change in size or nature. Operations are not permitted to borrow long-term from external sources locally.

 

Foreign currency risk

Foreign exchange risk arises because the Company has operations located in various parts of the world whose functional currency is not the same as the functional currency in which the Company's investments are operating. The Company's net assets are exposed to currency risk giving rise to gains or losses on retranslation into sterling. Only in exceptional circumstances will the Company consider hedging its net investments in overseas operations as generally it does not consider that the reduction in volatility in net assets warrants the cash flow risk created from such hedging techniques.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

 

21  Financial instruments                                       (Continued)

 

The Company's exposure to foreign currency risk at the end of the reporting period is summarised below. All amounts are presented in GBP equivalent in the statement of financial position.

 

	2022		2021
	$000		$000
	USD		USD
Trade and other receivables	116		150
Cash and cash equivalents	878		1,415
Trade and other payables	-		(166)
Net exposure	994		1,399

 

Sensitivity analysis

As shown in the table above, the Company is primarily exposed to changes in the GBP:USD exchange rate through its cash balance held in USD and trading balances. The table below shows the impact in GBP on pre-tax profit and loss of a 10% increase/decrease in the GBP to USD exchange rate, holding all other variables constant.

 

	2022	2021
	£000	£000
GBP:USD exchange rate increases 10%	136	116
GBP:USD exchange rate decreases 10%	(69)	(142)

                                                                               

 

Liquidity risk

The liquidity risk of each entity is managed centrally by the treasury function. Each operation has a facility with treasury, the amount of the facility being based on budgets. The budgets are set locally and agreed by the board annually in advance, enabling the cash requirements to be anticipated. Where facilities of entities need to be increased, approval must be sought from the finance director. Where the amount of the facility is above a certain level agreement of the board is needed.

 

All surplus cash is held centrally to maximise the returns on deposits through economies of scale. The type of cash instrument used and its maturity date will depend on the forecast cash requirements.

 

 

The table below analyses the company's financial liabilities into relevant maturity groupings based on their contractual maturities. The amounts presented are the undiscounted cash flows.

 

	Less than 6 months	6 to 12 months	Between 1 and 2 years	Between 2 and 5 years
	£000	£000	£000	£000
31 December 2022
Trade and other payables	214	-	-	-
31 December 2021
Trade and other payables	178	-	-	-

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

21  Financial instruments                                       (Continued)

 

Credit risk

The Company is mainly exposed to credit risk from credit sales. It is Company policy, implemented locally, to access the credit risk of new customers before entering contracts. Such credit ratings are taken into account by local business practices.

 

The Company does not enter into complex derivatives to manage credit risk, although in certain isolated cases may take steps to mitigate such risks if it is sufficiently concentrated.

 

Market risk

As the Company is now investing in listed companies, the market risk will be that of finding suitable investments for the Company to invest in and the returns that those investments will return given the markets that in which investments are made.

 

Expected credit losses

Allowances are recognised as required under the IFRS 9 impairment model and continue to be carried until there are indicators that there is no reasonable expectation of recovery.

 

For trade and other receivables which do not contain a significant financing component, the Company applies the simplified approach. This approach requires the allowance for expected credit losses to be recognised at an amount equal to lifetime expected credit losses. For other debt financial assets the Company applies the general approach to providing for expected credit losses as prescribed by IFRS 9, which permits for the recognition of an allowance for the estimated expected loss resulting from default in the subsequent 12-month period. Exposure to credit loss is monitored on a continual basis and, where material, the allowance for expected credit losses is adjusted to reflect the risk of default during the lifetime of the financial asset should a significant change in credit risk be identified.

 

The majority of the Company's financial assets are expected to have a low risk of default. A review of the historical occurrence of credit losses indicates that credit losses are insignificant due to the size of the Company's clients and the nature of the services provided. The outlook for the oil and gas industry is not expected to result in a significant change in the Company's exposure to credit losses. As lifetime expected credit losses are not expected to be significant the Company has opted not to adopt the practical expedient available under IFRS 9 to utilise a provision matrix for the recognition of lifetime expected credit losses on trade receivables. Allowances are calculated on a case-by-case basis based on the credit risk applicable to individual counterparties.

 

Exposure to credit risk is continually monitored in order to identify financial assets which experience a significant change in credit risk. In assessing for significant changes in credit risk the Company makes use of operational simplifications permitted by IFRS 9. The Company considers a financial asset to have low credit risk if the asset has a low risk of default; the counterparty has a strong capacity to meet its contractual cash flow obligations in the near term; and no adverse changes in economic or business conditions have been identified which in the longer term may, but will not necessarily, reduce the ability of the counterparty to fulfil its contractual cash flow obligations. Where a financial asset becomes more than 30 days past its due date additional procedures are performed to determine the reasons for non-payment in order to identify if a change in the exposure to credit risk has occurred.

 

Should a significant change in the exposure to credit risk be identified the allowance for expected credit losses is increased to reflect the risk of expected default in the lifetime of the financial asset. The Company continually monitors for indications that a financial asset has become credit impaired with an allowance for credit impairment recognised when the loss is incurred. Where a financial asset becomes more than 90 days past its due date additional procedures are performed to determine the reasons for non-payment in order to identify if the asset has become credit impaired.

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

21   Financial instruments                                       (Continued)

 

The Company considers an asset to be credit impaired once there is evidence that a loss has been incurred. In addition to recognising an allowance for expected credit loss, the Company monitors for the occurrence of events that have a detrimental impact on the recoverability of financial assets. Evidence of credit impairment includes, but is not limited to, indications of significant financial difficulty of the counterparty, a breach of contract or failure to adhere to payment terms, bankruptcy or financial reorganisation of a counterparty or the disappearance of an active market for the financial asset.

 

A financial asset is only written off when there is no reasonable expectation of recovery.

 

The Company employs the simplified approach to make an estimate of ECL. There are no outstanding balances as at 31 December 2022 resulting in an ECL of £nil in the current year.

 

•      Related party transactions GROUP

The Company had the following amounts outstanding from its investee companies (Note 13) at 31 December:

	2022		2021
	£000		£000
Helium One opening balance	-		73
Conversion to shares in Helium One	-		(73)
Balance at 31 December	-		-
Details of director's remuneration, being key personnel, are given in Note 7.

 

The Company entered into transactions with the following related parties who have common directors during the current year:

 

	2022	2021
	£000	£000
Gneiss Energy Limited - provision of corporate finance advisory - common director Jonathan Fitzpatrick	489	606
Quixote Advisors Ltd - provision of management services - common director Tom Reynolds	-	(19)

 

The primary contract with Gneiss Energy Limited has terminated. The only remaining contract with the related party is in relation to the sale of the Ruvuma asset which will terminate automatically upon completion of the sale.

 

In the prior year, the Group loaned £1,200,000 to Energy Acquisitions Group Limited, a 50% owned joint venture of the Group and accrued interest of £134,000 (2021: £44,000). The loan is repayable on demand but is not callable in the 12 months after the date of signing these financial statements. Iinterest is payable and accrued in accordance with the loan agreement. Outstanding balance at 31 December 2022 is $1,448k (2021:

£1,244k)

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

22  Related party transactions                                    (Continued)

 

COMPANY

 

The Company had the following amounts outstanding from its investee companies (Note 13) at 31 December:

	2022		2021
	£000		£000
Helium One opening balance	-		73
Conversion to shares in Helium One	-		(73)
Balance at 31 December	-		-
Details of director's remuneration, being key personnel, are given in Note 7.
Amounts due from subsidiaries	2022		2021
	£000		£000
Scirocco Energy (UK) Limited	1,451		1,244

 

Interest is payable and accrued in accordance with loan agreement. Intercompany balances are repayable on demand.

 

The Company entered into transactions with the following related parties who have common directors during the current year:

 

	2022	2021
	£000	£000
Gneiss Energy Limited - provision of corporate finance advisory - common director Jonathan Fitzpatrick	489	606
Quixote Advisors Ltd - provision of management services - common director Tom Reynolds	-	(19)

 

The primary contract with Gneiss Energy Limited has terminated. The only remaining contract with the related party is in relation to the sale of the Ruvuma asset which will terminate automatically upon completion of the sale.

 

In the prior year, the Company loaned £1,200,000 to Scirocco Energy (UK) Limited, a 100% owned subsidiary of the Company and accrued interest of £134,000 (2021: £44,000). The loan is repayable on demand but is not callable in the twelve months from the date of signing these financial statements, interest is payable and accrued in accordance with the loan agreement. Outstanding balance at 31 December 2022 is $1,448k (2021:

£1,244k)

 

23 Ultimate Controlling Party

In the opinion of the directors there is no controlling party.

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

24           Commitments

 

GROUP AND COMPANY

 

As at 31 December 2022, the Company had no material commitments (2021: £nil).

25           Retirement benefit scheme GROUP AND COMPANY

 

The Company operates only the basic pension plan required under UK legislation, contributions there to during the year amounted to £nil (2021: £nil).

 

26	Cash generated from operations	2022	2021
	GROUP	£000	£000
	(Loss)/profit for the year after tax for continuing operations	(1,438)	362
	(Loss)/profit for the year after tax for discontinuing operations	(3,377)	(4,053)
	Adjustments for: Unrealised gain on investments held	2	-
	Impairment of investments	58	-
	Loss on fair value revaluation of assets held for sale	3,377	3,846
	Gain from sale of investment	(57)	(2,196)
	Interest accrued on loan to related party	(134)	(44)
	Equity settled share based payment expense	130	471
	Share of profit in joint venture	(40)	-
	Movements in working capital: (Increase)/decrease in trade and other receivables	(82)	268
	Increase/(decrease) in trade and other payables	46	(71)
	Cash absorbed by operations	(1,515)	(1,417)

 

 

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2022

 

 

27 Post balance sheet event

 

At the date these financial statements were approved, being 30 June 2022, the Directors would like to call attention to the below post balance sheet events.

 

Sale of Tanzanian Assets

The sale of the 25% non-operating interest in the Ruvuma asset, Tanzania, was originally announced in the prior period. An agreement has been entered into for the sale of this asset with ARA Petroleum Tanzania ("APT"). As communicated to the market in an RNS dated 25 May 2023, the long stop date on this agreement has been extended to 31 August 2023 and both parties expect to complete the transaction within this timeframe although completion cannot be guaranteed.

 

Part sale of Helium One shareholding

In June 2023 the Company sold 1,906,088 shares of Helium One for an average price of 7.5p/share.

 

Sale of Corallian shareholding

In March 2023, the Company sold it's 25% holding in the Corallian asset. Net proceeds for this sale amounted to £67k. The asset has been reflected in the financial statements as at 31 December 2022 at this sales price which is considered to be representative of fair market value.

 

Changes to Board of Directors

As announced in RNS dated 1st March, 16th March and 27th April, to reflect the change in strategic direction of the Company, and to retain the appropriate level of skills, experience, and independence, there have been changes to the Board of Directors in the period after the Balance Sheet date. Muir Miller has stepped down from the Board effective 31 May 2023. In addition, Don Nicolson has notified of his intention to step down in due course. The Company has appointed directors Niall Roberts and Matt Bower after consultation with significant shareholders who joined the Board on 1st March 2023 and 27th April 2023, respectively. The Company expects to identify and appoint a suitable independent non-executive director to replace Don Nicolson in due course.