TIDMPGR
RNS Number : 9836M
Phoenix Global Resources PLC
27 May 2022
27 May 2022
Phoenix Global Resources plc
("Phoenix" or the "Company")
Final Results for the year ended 31 December 2021
Phoenix Global Resources plc (AIM: PGR; BCBA: PGR), the upstream
oil and gas company, announces its audited final results for the
year ended 31 December 2021.
Summary
-- Revenue of US$78.4 million (2020: US$54.0 million)
-- Adjusted EBITDA US$13.1 million (2020: Adjusted EBITDA loss of US$7.2 million)(1)
-- Cash generated from operations US$49.6 million (2020: cash used in operations US$6.3 million)
-- Operating loss of US$58.7 million (2020: loss of US$219.7 million)
-- Average daily sales in 2021 of 4,425 beopd (2020: 3,776 boepd)(2)
-- 2P reserves at 54.0MMboe (2020: 18.8MMboe)
Outlook
Whilst we have seen Covid-19 restrictions gradually lifting and
economic and industrial activity increasing, the conflict in
Ukraine has negatively changed the global economic outlook.
Argentina continues to experience high inflation and a continuous
devaluation of the Peso. The country is in its fourth straight year
of recession. However, t he action taken by the Company to reduce
its costs in all areas of the business is reflected in the
significant change in cash generated from operations of US$49.6
million in 2021 compared to cash used in operations of US$6.4
million in 2020 and also reflects the more favourable pricing
environment. The year end reserves, prepared by independent
reservoir engineers, showed a significant increase in 2P reserves
compared with prior year, primarily due to a significant increase
in the 2P reserves at Mata Mora. The Company is fundamentally
focused on unconventional development and has good assets in this
space but recognises that significant investment will be required
in the coming years to develop these and enhance value and
acknowledges this is subject to being able to access funding to
support these activities, which may include third party partners
and local debt providers in the funding mix.
Notes:
(1)Adjusted EBITDA represents earnings before interest, taxes,
depreciation, amortisation and non-recurring expenses
(2)Excluding production from non-core assets sold
For further information, please contact:
Phoenix Global Resources Pablo Bizzotto, CEO T: +54 11 5258 7500
plc Nigel Duxbury, CFO T: +44 20 3912 2800
Shore Capital Toby Gibbs T: +44 20 7408 4090
Nominated Adviser and David Coaten
Joint Broker
Panmure Gordon John Prior T: +44 20 7886 2500
Joint Broker Atholl Tweedie
About Phoenix
Phoenix Global Resources is an independent oil and gas
exploration and production company focused on Argentina and listed
on both the London Stock Exchange (AIM: PGR) and the Buenos Aires
Stock Exchange (BCBA: PGR) and offers its investors an opportunity
to invest directly into Argentina's Vaca Muerta shale formation and
other unconventional resources. The Company has over 0.8 million
licenced working interest acres in Argentina (of which
approximately 0.7 million are operated), 54.0 million boe of
working interest 2P reserves and average working interest
production of 4,553 boepd in 2021. Phoenix has signi cant exposure
to the unconventional opportunity in Argentina through its
approximately 0.4 million working interest acres with Vaca Muerta
and other unconventional potential.
Annual Report
The Company will be posting to shareholders a copy of the
audited annual report for the year ended 31 December 2021 on or
around 6 June 2022 together with the notice for a General Meeting,
to be held at the offices of Phoenix Global Resources at 1(st)
Floor, 62 Buckingham Gate, London SW1E 6AJ at 9.00am on 30 June
2021. The annual report will be made available on the Company's
website on the day of its posting.
The Company's website is www.phoenixglobalresources.com
CHAIRMAN'S STATEMENT
Whilst the environment continues to be challenging, the steps
taken by the Company to reduce its costs has put it in a stronger
position to focus on the continued development of its
unconventional assets. Our prime focus is Mata Mora, which the
board believes is the Company's main driver to unlocking value.
The Company's major shareholder, Mercuria Group Limited
('Mercuria'), continues to be supportive and the directors, whilst
exercising a degree of caution, believe the Company has a cost base
from which it can leverage its interests in its unconventional
assets, whilst appreciating this position could change very quickly
in these uncertain times.
Overview and current operations
2020 was dominated by Covid-19 and its rapid development as a
life-threatening global pandemic. Globally, respective governments'
responses were one of containment through lockdown, social
distancing restrictions, quarantine and self-isolation for
substantially all citizens, whilst countries rolled out vaccination
programs. In 2021 we saw restrictions gradually lifting and
economic and industrial activity increasing.
The global economic recovery has progressed more strongly than
anticipated a year ago, but it is becoming increasingly imbalanced,
as lower income economies struggle to keep up where vaccination
rates are low and the conflict in Ukraine has negatively changed
the global economy, harming growth and putting upward pressure on
inflation when it is already high.
The economic situation in Argentina has deteriorated
significantly with the key economic indicators reflecting this
situation and whilst the environment continues to be extremely
challenging, the Company is in a stronger position to produce
proven, developed and producing reserves economically at lower
prices with a positive contribution to cash flow and allow it to
focus on the continued development of its unconventional assets.
The action taken by the Company to reduce its costs in all areas of
the business is reflected in the significant change in cash
generated from operations of US$49.6 million in 2021 compared to
cash used in operations of US$6.4 million in 2020 and also reflects
the more favourable pricing environment.
However, whilst the economic and political uncertainty in
Argentina continues, Argentina held discussions with the
International Monetary Fund ('IMF') to restructure the country's
US$45 billion of debt. At the end of January 2022 President
Fernandez's government announced that it had reached an
"understanding" with the IMF on key policies that would allow the
country to reach a new financing agreement to restructure this
debt. In April 2022, Argentina's senate approved the agreement
reached with the IMF, which has now been approved by the executive
board of the IMF, which should help to reduce some of the economic
uncertainty.
Furthermore, the strong international economic sanctions on
trade with Russia have resulted in a significant escalation in
energy prices, with Brent increasing from a year end price of
US$77/bbl to US$113/bbl at 6 May 2022.
Whilst Argentina uses a locally set oil price to shield local
industry from international price swings, which limits the benefit
the Company receives from international price increases, the
Company, subject to permit approval, is now able to export some of
its production to take advantage of the favourable international
prices.
During 2021, the Neuquén P rovince issued a decree granting the
Company a 35 year unconventional exploitation concession over
approximately 43,372 acres in the northern part of Mata Mora and
extending the exploration rights over approximately 11,918 acres in
the southern part of Mata Mora for 5 years to April 2026. The
Province also issued a decree approving a one year extension of the
Company's exploration rights for the Corralera Noreste and
Corralera Sur blocks to April 2022. The Company is currently in
discussion with the Province to further extend the exploration
periods of these licences.
The Mata Mora concession involves a pilot phase with certain
works to be completed by March 2026, which includes a capex
commitment of US$110 million, consisting of four pads of three
horizontal wells each, with an average lateral length of 2,150
metres. The Corralera exploration commitment includes obligations
to execute two horizontal wells by April 2022, which have been
completed.
The unconventional work programs for 2022 include the testing
and evaluation of the well in Corralera North East, the completion,
testing and evaluation of the well in Corralera Sur, the drilling
and completion of pads 2 and 3 (each of three wells) and the
drilling and completion of three additional wells on pad 1, all in
Mata Mora North.
The year end, reserves prepared by independent reservoir
engineers, showed a significant increase in 2P reserves compared
with prior year. This increase is primarily due to a significant
increase in the 2P reserves at Mata Mora that was partly offset by
a decrease in the 2P reserves at Puesto Rojas.
Funding
Our major shareholder, Mercuria, continues to be supportive of
the Company's plans and has extended short-term debt facilities to
fund operations. At the year end, the Company had drawn down
US$348.0 million under these facilities and US$45.4 million of
interest had been capitalised. Mercuria has written to the Company
stating its intention to continue t o provide financial support to
the Company in order that it may continue to operate and service
its liabilities as they fall due in the period to 30 June 2023 and
fund the planned work programs. Mercuria has also specifically
agreed to not demand repayment of the existing loans (principal and
interest) during this period. This letter, which by its nature is
not legally binding, represents a letter of comfort stating
Mercuria's current intention to continue to provide financial
support.
Whilst it has taken more time than anticipated, the Company and
Mercuria are still seeking to restructure the existing facilities,
but do not expect this to be completed until later in the year. The
directors still believe they will be able to agree the
renegotiation of the existing debt with Mercuria and formalise an
agreement for new funding and that the Group and Company can
continue as a going concern for the foreseeable future. The
application of the going concern basis of preparation of the
financial statements included in the Company's Annual Report is
based on the letter that has been received from Mercuria and the
ongoing discussion with the Mercuria principals. Accordingly, the
directors continue to adopt the going concern basis for accounting
in preparing the 2021 financial statements.
However, the directors recognise that if financial support over
the period to 30 June 2023 was not to be available and the Company
is unable to restructure the existing loan agreements from Mercuria
or obtain funding from alternative sources, this gives rise to a
material uncertainty that may cast significant doubt on the Group's
and Company's ability to continue as a going concern.
Summary
Whilst we have seen Covid-19 restrictions gradually lifting and
economic and industrial activity increasing, the conflict in
Ukraine has negatively changed the global economic outlook.
Argentina continues to experience high inflation and a
continuous devaluation of the Peso. The country is in its fourth
straight year of recession. Whilst agreement has been reached
between the Argentine government and the IMF to restructure the
country's US$45 billion of debt, the underlying economic indicators
are not encouraging. Notwithstanding, t he current administration
continues its intent to provide economic and regulatory support to
four key sectors of the economy: agriculture; oil and gas; mining;
and intellectual services.
The Company is also conscious of its environmental, social
governance responsibilities and developing policies and procedures
to reduce emissions and establish goals that minimise the impact on
the environment and our stakeholders.
The Company is fundamentally focused on unconventional
development and has good assets in this space but recognises that
significant investment will be required in the coming years to
develop these and enhance value and acknowledges this is subject to
being able to access funding to support these activities, which may
include third-party partners and local debt providers in the
funding mix.
Sir Michael Rake
Non-executive chairman
27 May 2022
OPERATING REVIEW
Overview
Phoenix Global Resources seeks to add value to its operation by
optimising the use of deployed capital, continuously looking for
new profitable opportunities and achieving levels of operative
excellence in a friendly and harmonious way taking into account
personnel, local communities and the environment.
The Company is focused on reducing the production decline of
mature fields and generating new development opportunities, whilst
delivering profitable growth combined with our expanding
unconventional exploration and development projects.
The operations team has extensive experience in conventional and
unconventional oil and gas operations with a continuing focus on
delivering safe, ethical and reliable operations.
During the first and second quarter the Company focused on the
planning for the 2021 and 2022 work programs and in the third
quarter, the Company began exploration activities in Vaca Muerta,
in the Corralera areas, in the northern part of the Neuquén basin.
Two horizontal and multi-fractured wells with a branch length of
2,000 metres and 2,130 metres respectively were drilled and
completed. The initial results from these activities are currently
under evaluation.
The drilling rig was then moved to the Mata Mora field, located
in the central part of the Neuquén basin close to the hot shale
developments, to start drilling the 12 well program pursuant to the
pilot plan commitment under the unconventional exploitation
concession awarded in 2021.
In late 2021, the Company also drilled the Picunche vertical
exploratory well in the Rio Atuel field, Malargüe, which will be
completed in Q2 2022.
In all cases, the targeted operating metrics were achieved in
the drilling and completion activities, which were completed on
time and in line with budget.
Our growth plan is based on the development of an inventory of
approximately 170 wells in Mata Mora Norte, our flagship project in
Vaca Muerta, whilst maintaining the highest efficiency and safety
standards.
The Company has also carried out work to optimise production
from our conventional fields. Production decline was reduced in the
Tupungato and Atamisqui fields, whilst maintaining operating cost
levels and high HSE standards.
During the year the Company also developed an export channel for
some of our production, allowing us to take advantage of higher
international prices.
Our health, safety and environment policy demonstrates our
commitment to personnel and the environment, which we consider to
be an integral part of our operations. The Company embraces the
communities in which we operate and as part of our ongoing
commitment to sustainable development, we encourage local
involvement and seek to create significant long-term benefits in
the communities close to our operations. Our main initiatives
include institutional support, education, training, welfare and
emergency aid. These activities are part of an approach that
defines the way in which we interact with our various
stakeholders.
Total proven reserves as of 31 December 2021 reached 26.4 MMboe,
an increase of 210% compared with 31 December 2020. The proven
reserves replacement ratio was 882%, whilst the replacement ratio
of total oil reserves was 950%. The increase was driven primarily
by the addition of new unconventional well locations at Mata Mora
and secondary recovery programs at Chachahuen. 2C contingent
resources fell by 81% partly due to the migration of resources into
reserves and partly due to the removal of 2C contingent resources
associated with the negative assessment of unconventional
prospectivity at Puesto Rojas and the reclassification of
contingent resources at Corralera from 2C to 3C.
Production in 2021 was at a level consistent with 2020,
reflecting the benefits of the work undertaken to reduce the
production decline of mature fields, particularly given no new
production was included.
During 2021, operating costs were 4% lower than 2020, despite
the extra work carried out to maximise assets lives, which included
the review of more than 15 field service contracts leading to a
restructured and more flexible cost base.
NEUQUÉN BASIN
In the Neuquén basin, the Company has interests in 11 operated
assets and 4 non-operated assets including Mata Mora and
Corralera.
Operated Assets
Mata Mora
During the year the Neuquén P rovince issued a decree granting
the Company a 35 year unconventional exploitation concession over
approximately 43,372 acres in the northern part of Mata Mora and
extending the exploration rights over approximately 11,918 acres in
the southern part of Mata Mora for 5 years to April 2026.
The Mata Mora exploitation concession involves a pilot phase
with certain works to be completed by March 2026, which includes a
capex commitment of US$110 million, consisting of four pads of
three horizontal wells each, with an average lateral length of
2,150 metres.
The Company commenced the drilling activity for pad 2 during the
year, which consists of three wells with 2,600 metre horizontal
lateral lengths and 37 frac stages and has, after the year end,
finished drilling three vertical sections, to depths of 2,314
metres, 2,280 metres and 2,316 metres and three horizontal branches
navigating the Vaca Muerta formation. Completion activities have
commenced and are due to be finished at the end of May 2022 with
flowback testing due to start soon thereafter.
The Company has now started the pad 3 drilling program.
The early production facilities are under construction and works
are being carried out on the oil and gas treatment and measurement
stations and flowline tie-ins to oil and gas evacuation pipelines
are being installed. This will enable the Company to avoid flaring
in line with the Company's sustainability goals.
The Mata Mora exploration concession (Mata Mora Sur) covers a
region that involves agricultural activity and the San Patricio del
Chañar town and will remain in the exploration phase for a further
five years with a 3D seismic acquisition commitment.
Corralera
The primary unconventional target has changed from the Agrio to
the Vaca Muerta formation based on revised expectation of fluid
type given the contrasting thermal maturity, neighbouring well
results and better understanding of landing zone alternatives for
the Vaca Muerta formation.
During the year, the Province issued a decree approving a one
year extension of the Company's exploration rights for the
Corralera Noreste and Corralera Sur blocks to April 2022. The
Company is currently in discussions with the Province to further
extend the exploration periods of these licences.
In Corralera Noreste, the Company has finished the drilling of a
vertical exploration well to a depth of 2,970 metres and its
horizontal branch with a 2,000 metre lateral length and 29 frac
stages, navigating the Vaca Muerta formation. The initial flowback
testing has been completed, which produced high volumes of water
and low volumes of oil with a high presence of CO . The well is
currently shut in for well testing with pressure build up, isotope
sampling and tracer analysis currently being carried out.
In Corralera Sur, the Company has completed the drilling of a
vertical exploration well to a depth of 3,639 metres and its
horizontal branch with a 2,134 metre lateral length and 30 frac
stages, navigating the Vaca Muerta formation. The initial flowback
testing has been completed, which produced high volumes of water
and low volumes of oil with a high presence of CO . Water and gas
samples have been taken to run laboratory analysis to understand
their origins.
Rio Atuel
The Company has executed the drilling and completion activities
of a conventional vertical exploration well. The well was drilled
to a depth of 2,131 metres penetrating the Huitrin and Chachao
formations. After stimulating the well, oil in the two formations
has been tested. Initial flow rates are in line with expectations
with a low water cut. The well is currently in production and under
initial evaluation, which is expected to be completed in Q2
2022.
La Paloma - Cerro Alquitran
In 2019, the LP-9 and LP-7 wells were drilled in the La
Paloma/Cerro Alquitran area targeting the Grupo Neuquén formation.
The Company has decided to not complete these wells and is
currently evaluating its options.
Puesto Rojas - Cerro Mollar - La Brea
The drop in production primarily relates to a higher rate of
decline from the wells producing from the Agrio and Vaca Muerta
formations, with only 5 wells currently producing from the 12 wells
drilled in the last campaign. Based on the variable results from
these Agrio and Vaca Muerta vertical wells and following a detailed
evaluation carried out by management, it has concluded that the
unconventional prospectivity in this area has a "high risk/low
reward" and management is currently evaluating its options.
Cerro Doña Juana-Loma Cortaderal
Due to the Covid-19 pandemic, the Company was granted an
extension to August 2022 to fulfil its commitments. The Company is
currently seeking approval from the Mendoza Province to perform an
expanded geochemical sampling to satisfy the pending commitments. A
decision from the Province is still pending.
El Manzano
A local company, Venoil, has now been appointed the operator for
this field and it plans to restart production from several wells in
Q2 2022.
La Tropilla - Santo Domingo - Aguada de Castro
A detailed evaluation has been carried out by the sub-surface
team and it has concluded that the unconventional prospectivity in
this area has a "high risk/low reward" and management is currently
evaluating its options.
Non-operated assets
Chachahuen - Cerro Morado Este
In the Chachahuen Sur area, the focus in 2021 has been to
improve the water flooding projects and start a polymer pilot
project. A plan to reduce production losses has also been prepared,
which will require the building of a gas and oil pipeline from
Chachahuen to the Puesto Hernandez field. Injection water quality
issues have been identified and the operator is currently preparing
a plan that will be implemented before the tertiary recovery pilot
project begins.
At Cerro Morado Este, we have focused on the reduction of
production losses. This will require an alternative route for fluid
evacuation due to flooding of current routes when it rains. A
remediation of "Bateria 1" at the Chachahuen field is also being
carried out and a tertiary recovery pilot project is planned for
2022.
Nine vertical pilot wells have been drilled, which are planned
to be connected in Q2 2022 as part of the delineation program for
this large area.
The Chachahuen licence is operated by YPF.
Cajon de los Caballos
A detailed evaluation has been carried out by the sub-surface
team and it has concluded that the unconventional prospectivity in
this area has a "high risk/low reward" and management is currently
evaluating its options.
The licence is operated by Roch.
CUYANA BASIN
In the Mendoza Province, the Company has interests in two
operated assets in the Cuyana basin. A brief summary of these
assets is provided below.
Operated assets
Tupungato - Atamisqui
In the first half of the year 13 pulling interventions were
completed with results exceeding expectations. The production
during Q1 was below budget but since April 2021 oil production has
been above budget. General maintenance work and some minor jobs
were also carried out at the Tupungato water injection plant.
A well risk analysis was performed on well T-48 and management
concluded that the well should be abandoned. Due to the condition
of the wellhead a specialised team was hired to perform remediation
jobs. The well is now in a secure condition and the abandonment is
planned for later this year. A critical tanks inspection and
reparation campaign was started in May 2021 and a well swabbing
campaign was started in September 2021. Sub-surface modelling was
started in June 2021, as no comprehensive modelling has been
carried out for over 40 years. A static model has been completed
and some opportunities for implementing secondary recovery have
been identified and the possibility of tertiary recovery is under
analysis. A dynamic model is now being developed with the support
of an external consultant.
AUSTRAL BASIN
In the Terra del Fuego Province the Company has interests in
three non-operated assets in the Austral basin in a joint venture
with Roch S.A. and others.
Non-operated assets
Rio Cullen - Angostura - Las Violetas
The San Martin wells continue to produce with the water cut rate
in line with expectations. The operator has proposed the drilling
of an extra well in an independent reservoir compartment.
Alternatives for production evacuation are also being analysed in
the event delivery through the YPF buoy is disrupted and Total's
facilities have been identified as a possible option.
FINANCIAL REVIEW
Revenue and gross margin
Revenue for the year was US$78.4 million (2020: US$54.0
million), comprising revenue from oil sales of US$76.0 million
(2020: US$52.2 million) and revenue from gas sales of US$2.4
million (2020: US$1.8 million).
The increase in oil revenue year-on-year resulted primarily from
an increase in the average realised oil price per barrel and higher
sale volumes.
The average realised oil sales price in 2021 was US$51.26/bbl, a
36% increase on the average price of US$37.74/bbl in 2020. Realised
prices achieved by the Company are indirectly linked to Brent.
Crude oil prices increased during the year with the average
Brent crude price increasing year-on-year by 42%, from an average
of US$43/bbl in 2020 to an average of US$61/bbl in 2021. Local
Argentine oil prices do not fully track international prices as
local price controls limit the benefit of rising international
prices. However, the Company in the future expects a gradual
increase in local prices, reducing the gap between local and
international prices.
Average daily oil sales in the year were 4,062 bopd compared
with 3,776 bopd in 2020.
Gas revenues arise primarily in the non-operated segment and
increased by US$0.5 million in the year compared with 2020, mainly
due to an increase of 51% in the realised price from an average of
US$1.98/Mcf in 2020 to an average of US$2.99/Mcf in 2021. This
increase was partially offset by a 15% reduction in sales volumes
from 930 MMcf in 2020 to 794 MMcf in 2021.
Operating costs
Average operating costs (excluding depreciation) were 4% lower
than 2020 at US$17.9/boe.
Depreciation decreased by US$1.7 million in the year from
US$41.3 million in 2020 to US$39.6 million in 2021, primarily due
to the revised year end reserves estimates and the 2021 capex
program.
Other costs
At the year end, management's impairment assessment considers
potential triggers for impairment including, inter-alia, adverse
results from drilling programs, changes in oil and gas prices and
other market conditions, cost of future development and licence
periods.
Potential triggers were identified, leading to an impairment
assessment, which was primarily based on the revised year end
reserves estimates resulting in an impairment charge of US$28.9
million. Impairment charges have been recognised in respect of
Puesto Rojas, La Brea, La Paloma, Cerro Alquitran and Atamisqui,
which were partially offset by the partial reversal of impairment
charges recognised in prior years at Chachahuen. Furthermore, an
additional US$3.7 million charge has been recognised in relation to
the reclassification of an asset previously held for sale. See note
4.
Finance income and costs
In the current year the Group recognised net finance income of
US$29.4 million compared to net finance costs of US$15.4 million in
2020. In 2021 this was primarily driven by the benefit on transfers
of US Dollars into Argentina under the 'contado con liquidacion'
mechanism.
Taxation
A US$4.3 million tax credit was recognised in 2021, compared
with a US$38.0 million tax credit in 2020. This resulted primarily
from deferred tax adjustments relating to additions and impairment
provisions and the deferred tax benefit of the increase in net
operating losses, which the respective companies expect to recover
in future periods.
Balance sheet
At 31 December 2021, the Group had net assets of US$1.1 million,
a decrease of US$25.1 million compared with 31 December 2020.
During the year, intangible assets and property, plant and
equipment decreased by US$7.7 million primarily due to charges for
impairment of US$28.9 million, DD&A of US$39.6 million offset
by US$52.4 million of additions and the reclassification of assets
held for sale of US$8.6 million.
Current and non-current trade and other receivables increased
from US$29.5 million to US$41.9 million at 31 December 2021
primarily due to the increase in advance payments for capex
programs. Inventories increased from US$18.3 million to US$20.1
million at 31 December 2021. Net deferred tax liabilities decreased
from US$33.6 million to US$28.3 million at 31 December 2021
primarily due to an increase in deferred tax assets associated with
tax losses. Trade and other payables increased from US$26.2 million
to US$39.2 million at 31 December 2021 due to the increase in
creditors associated with the ongoing capex programs.
Funding status and going concern
Total borrowings in the year increased by US$67.6 million, from
US$332.2 million at 31 December 2020 to US$399.8 million at 31
December 2021. The increase resulted primarily from the drawdown of
an additional US$55.7 million of funds from the revolving
convertible credit facility and bridging facility with Mercuria and
an increase in accrued interest of US$14.7 million. Funds advanced
under the credit facilities have been used to fund the ongoing work
programs. This increase in funding was partially offset by the part
repayment of local Argentine debt.
Our major shareholder, Mercuria, continues to be supportive of
the Company's plans and has extended short-term debt facilities to
fund operations. At the year end, the Company had drawn down
US$348.0 million under these facilities and US$45.4 million of
interest had been capitalised. Mercuria has written to the Company
stating its intention to continue t o provide financial support to
the Company in order that it may continue to operate and service
its liabilities as they fall due in the period to 30 June 2023 and
fund the planned work programs. Mercuria has also specifically
agreed to not demand repayment of the existing loans (principal and
interest) during this period. This letter, which by its nature is
not legally binding, represents a letter of comfort stating
Mercuria's current intention to continue to provide financial
support.
Whilst it has taken more time than anticipated, the Company and
Mercuria are still seeking to restructure the existing facilities,
but do not expect this to be completed until later in the year. The
directors still believe they will be able to agree the
renegotiation of the existing debt with Mercuria and formalise an
agreement for new funding and that the Group and Company can
continue as a going concern for the foreseeable future. The
application of the going concern basis of preparation of the
financial statements included in the Company's Annual Report is
based on the letter that has been received from Mercuria and the
ongoing discussion with the Mercuria principals. Accordingly, the
directors continue to adopt the going concern basis for accounting
in preparing the 2021 financial statements.
However, the directors recognise that if financial support over
the period to 30 June 2023 was not to be available and the Company
is unable to restructure the existing loan agreements with Mercuria
or obtain funding from alternative sources, this gives rise to a
material uncertainty that may cast significant doubt on the Group's
and Company's ability to continue as a going concern.
At 31 December 2021, the Group had cash and cash equivalents of
US$66.3 million (2020: US$5.4 million).
Consolidated income statement
For the year ended 31 December 2021
2021 2020
Note US$'000 US$'000
Revenue 3 78,370 54,001
----- -------------- --------------
Cost of sales (81,472) (81,401)
----- -------------- --------------
Gross loss (3,102) (27,400)
----- -------------- --------------
Selling and distribution expenses (3,840) (1,958)
----- -------------- --------------
Exploration expenses (704) (2,746)
----- -------------- --------------
Impairment charges 4,5 (28,882) (171,129)
----- -------------- --------------
Gain/(loss) on sale of non-current assets 350 (6)
----- -------------- --------------
Administrative expenses (16,967) (14,892)
----- -------------- --------------
Loss on the reclassification of assets held
for sale 4 (3,653) -
----- -------------- --------------
Other operating expenses (1,917) (1,527)
----- -------------- --------------
Operating loss (58,715) (219,658)
----- -------------- --------------
Finance income 54,816 6,905
----- -------------- --------------
Finance costs (25,378) (22,276)
----- -------------- --------------
Loss before taxation (29,277) (235,029)
----- -------------- --------------
Taxation 4,256 38,005
----- -------------- --------------
Loss for the year (25,021) (197,024)
----- -------------- --------------
Loss per ordinary share
----- -------------- --------------
Basic and diluted loss per share 7 (0.01) (0.07)
----- -------------- --------------
The above consolidated income statement should be read in
conjunction with the accompanying notes.
Consolidated statement of comprehensive income
For the year ended 31 December 2021
2021 2020
US$'000 US$'000
Loss for the year (25,021) (197,024)
------------- ----------
Translation differences - -
------------- ----------
Total comprehensive loss for the year (25,021) (197,024)
------------- ----------
There are no impairment losses on revalued assets recognised
directly in equity.
The above consolidated statement of comprehensive income should
be read in conjunction with the accompanying notes.
Consolidated statement of financial position
At 31 December 2021
2021 2020
Note US$'000 US$'000
Non-current assets
----- -------------- ------------
Property, plant and equipment 4 154,227 158,357
----- -------------- ------------
Intangible assets and goodwill 5 208,438 211,974
----- -------------- ------------
Other receivables 6,698 4,124
----- -------------- ------------
Deferred tax assets 25,777 20,116
----- -------------- ------------
Total non-current assets 395,140 394,571
----- -------------- ------------
Current assets
----- -------------- ------------
Assets held for sale 4 - 11,965
----- -------------- ------------
Inventories 20,112 18,349
----- -------------- ------------
Trade and other receivables 35,245 25,399
----- -------------- ------------
Cash and cash equivalents 66,265 5,386
----- -------------- ------------
Total current assets 121,622 61,099
----- -------------- ------------
Total assets 516,762 455,670
----- -------------- ------------
Non-current liabilities
----- -------------- ------------
Trade and other payables 381 299
----- -------------- ------------
Borrowings 6 - 6,641
----- -------------- ------------
Deferred tax liabilities 54,117 53,682
----- -------------- ------------
Provisions 19,286 15,965
----- -------------- ------------
Total non-current liabilities 73,784 76,587
----- -------------- ------------
Current liabilities
----- -------------- ------------
Liabilities held for sale - 447
----- -------------- ------------
Trade and other payables 38,817 25,909
----- -------------- ------------
Income tax liability 2,217 920
----- -------------- ------------
Borrowings 6 399,759 325,592
----- -------------- ------------
Provisions 1,138 121
----- -------------- ------------
Total current liabilities 441,931 352,989
----- -------------- ------------
Total liabilities 515,715 429,576
----- -------------- ------------
Net assets 1,047 26,094
----- -------------- ------------
Equity
----- -------------- ------------
Share capital and share premium 457,194 457,183
----- -------------- ------------
Other reserves (112,150) (112,150)
----- -------------- ------------
Retained deficit (343,997) (318,939)
----- -------------- ------------
Total equity 1,047 26,094
----- -------------- ------------
The above consolidated statement of financial position should be
read in conjunction with the accompanying notes.
Consolidated statement of changes in equity
For the year ended 31 December 2021
Called
up Retained
share Share Treasury (deficit)/ Other Total
capital premium shares earnings reserves equity
Capital and reserves US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
At 1 January 2020 364,175 93,023 (464) (121,867) (112,150) 222,717
--------- ---------- -------------- --------------- ----------- -------------
Loss for the year - - - (197,024) - (197,024)
--------- ---------- -------------- --------------- ----------- -------------
Total comprehensive loss for
the year - - - (197,024) - (197,024)
--------- ---------- -------------- --------------- ----------- -------------
Issue of employee vested shares - - 449 (449) - -
--------- ---------- -------------- --------------- ----------- -------------
Fair value of share-based
payments - - - 401 - 401
--------- ---------- -------------- --------------- ----------- -------------
At 31 December 2020 364,175 93,023 (15) (318,939) (112,150) 26,094
--------- ---------- -------------- --------------- ----------- -------------
Loss for the year - - - (25,021) - (25,021)
--------- ---------- -------------- --------------- ----------- -------------
Total comprehensive loss for
the year - - - (25,021) - (25,021)
--------- ---------- -------------- --------------- ----------- -------------
Cash settlement of vested
share awards - - - (165) - (165)
--------- ---------- -------------- --------------- ----------- -------------
Fair value adjustment - - 11 - - 11
--------- ---------- -------------- --------------- ----------- -------------
Fair value of share-based
payments - - - 128 - 128
--------- ---------- -------------- --------------- ----------- -------------
At 31 December 2021 364,175 93,023 (4) (343,997) (112,150) 1,047
--------- ---------- -------------- --------------- ----------- -------------
Merger(1) Warrant(2) Translation(3) Total other
reserve reserve reserve reserves
Other reserves US$'000 US$'000 US$'000 US$'000
At 1 January 2020 (112,000) 2,105 (2,255) (112,150)
---------- ----------- --------------- ------------
At 31 December 2020 (112,000) 2,105 (2,255) (112,150)
---------- ----------- --------------- ------------
At 31 December 2021 (112,000) 2,105 (2,255) (112,150)
---------- ----------- --------------- ------------
(1)The merger reserve is a non-distributable capital reserve
arising from the issue and allotment of shares at a price higher
than the nominal value of the shares and issued to satisfy purchase
considerations
(2)The warrant reserve results from the valuation attributed to
warrants granted
(3)The translation reserve results from exchange differences
arising from the translation of the assets and liabilities of the
Group's operations into the presentation currency at exchange rates
prevailing on the balance sheet date and income and expense items
at the average exchange rates for the year
The above statement of consolidated changes in equity should be
read in conjunction with the accompanying.
Consolidated statement of cash flows
For the year ended 31 December 2021
2021 2020
US$'000 US$'000
Cash flows from operating activities
--------------- ----------------
Cash generated from/(used in) operations 49,637 (6,318)
--------------- ----------------
Income taxes paid (84) (73)
--------------- ----------------
Net cash inflow/(outflow) from operating
activities 49,553 (6,391)
--------------- ----------------
Cash flows from investing activities
--------------- ----------------
Payments for property, plant and equipment (15,297) (4,099)
--------------- ----------------
Payments for intangibles (21,827) (998)
--------------- ----------------
Payments for held for sale assets (887) (371)
--------------- ----------------
Proceeds from sale of non-current assets 401 -
--------------- ----------------
Net cash outflow from investing activities (37,610) (5,468)
--------------- ----------------
Cash flows from financing activities
--------------- ----------------
Proceeds from borrowings 55,740 14,260
--------------- ----------------
Repayment of borrowings (2,433) (801)
--------------- ----------------
Interest paid (1,595) (709)
--------------- ----------------
Principal lease payments (198) (5,327)
--------------- ----------------
Net cash inflow from financing activities 51,514 7,423
--------------- ----------------
Net increase/(decrease) in cash and cash equivalents 63,457 (4,436)
--------------- ----------------
Cash and cash equivalents at the beginning
of the year 5,386 11,002
--------------- ----------------
Effects of exchange rates on cash and cash
equivalents (2,578) (1,180)
--------------- ----------------
Cash and cash equivalents at end of year 66,265 5,386
--------------- ----------------
Non-cash financing activities 15,814 15,867
--------------- ----------------
The above consolidated statement of cash flows should be read in
conjunction with the accompanying notes.
Notes to the consolidated financial statements
1. General information
The financial information set out in this announcement does not
comprise the Group's statutory accounts for the years ended 31
December 2021 or 31 December 2020.
The financial information has been extracted from the audited
statutory accounts of the Company for the year ended 31 December
2021, which were approved by the directors and authorised for issue
on 27 May 2021. The auditors reported on these accounts; the report
was unqualified and did not contain a statement under Section
498(2) or Section 498(3) of the Companies Act 2006.
The statutory accounts for the year ended 31 December 2020 have
been delivered to the Registrar of Companies and those for the year
ended 31 December 2021 will be delivered to the Registrar of
Companies in due course.
2. Basis of preparation
On 31 December 2020, IFRS as adopted by the European Union at
that date was brought into UK law and became UK-adopted
International Accounting Standards, with future changes being
subject to endorsement by the UK Endorsement Board. The Company
transitioned to UK-adopted International Accounting Standards in
its consolidated financial statements on 1 January 2021. This
change constitutes a change in accounting framework. However, there
is no impact on recognition, measurement or disclosure in the
period reported as a result of the change in framework. These
consolidated financial statements have been prepared in accordance
with UK-adopted International Accounting Standards and with the
requirements of the Companies Act 2006 as applicable to companies
reporting under those standards.
The significant accounting policies applied in preparing these
consolidated financial statements are set out below. These policies
have been consistently applied throughout the year and to each
subsidiary of the Group.
The financial statements have been prepared under the historical
cost convention except as where stated.
Going concern
The Group generates cash from its existing conventional oil and
gas production operations. However, it was formed with the stated
intention of undertaking a significant exploration, evaluation and
development program focused on the Group's unconventional oil and
gas assets in Argentina, including the Vaca Muerta formation, which
requires significant investment. To date, the funding required to
support these activities has been provided by Mercuria.
The Company took significant steps to reduce its costs in all
areas of the business. The directors believe these cost reduction
actions mean the Company is in a better position to produce oil
economically at lower oil prices with a positive contribution to
cash flow, which will allow the Company to focus on the continued
development of its unconventional assets.
Our major shareholder, Mercuria, continues to be supportive of
the Company's plans and continues to extend short-term debt
facilities to fund operations. At the year end, the Company had
drawn down US$348.0 million under these facilities and US$45.4
million of interest had been capitalised. Mercuria has written to
the Company stating its intention to continue t o provide financial
support to the Company in order that it may continue to operate and
service its liabilities as they fall due in the period to 30 June
2023 and fund the planned work programs. Mercuria has also
specifically agreed not to demand repayment of the existing loans
(principal and interest) during this period. This letter, which by
its nature is not legally binding, represents a letter of comfort
stating Mercuria's intention to continue to provide financial
support.
Whilst it has taken more time than anticipated, the Company and
Mercuria are still seeking to restructure the existing facilities,
but do not expect this to be completed until later in the year.
The directors still believe they will be able to agree the
renegotiation of the existing debt with Mercuria and formalise an
agreement for new funding and that the Group and Company can
continue as a going concern for the foreseeable future. The
application of the going concern basis of preparation of the
financial statements included in the Company's Annual Report is
based on the letter that has been received from Mercuria and the
ongoing discussion with the Mercuria principals. Accordingly, the
directors continue to adopt the going concern basis for accounting
in preparing the 2021 financial statements.
However, the directors recognise that if financial support from
Mercuria over the period to 30 June 2023 was not to be available
and the Company is unable to restructure the existing loan
agreements from Mercuria or obtain funding from alternative
sources, this gives rise to a material uncertainty that may cast
significant doubt on the Group's and Company's ability to continue
as a going concern.
The financial statements do not include any adjustments that
would be required if the Group and Company were unable to continue
as a going concern.
3. Segment information
The Group's executive management team comprising the chief
executive officer, the chief financial officer, the chief operating
officer and the business development manager, has been determined
collectively as the chief operating decision makers for the Group.
The information reported to the Group's executive management team
for the purposes of resource allocation and assessment of segment
performance is split between those assets which are operated by the
Group and those which are not.
The strategy of the Group is focused on the development of its
unconventional operated assets in the Vaca Muerta and other
unconventional opportunities in Argentina, while optimising its
operated conventional production assets. The Group also
participates in joint arrangements as a non-operated partner.
Operated and non-operated assets of the Group have therefore been
determined to represent the reportable segments of the business.
The third segment, "corporate", primarily relates to administrative
costs, financing costs, taxation incurred in running the business,
and other activities which are not directly attributable to one of
the identified segments.
The Group's executive management team primarily uses a measure
of earnings before interest, tax, depreciation, loss on termination
of licences and other impairment charge and loss on sale of
non-current assets ('EBITDA') to assess the performance of the
operating segments. However, the executive management team also
receives information about segment revenue and capital expenditure
on a monthly basis.
Operated Non-operated Corporate Total
2021 US$'000 US$'000 US$'000 US$'000
Revenue 35,362 43,008 - 78,370
--------------------- ------------------ ---------------------- ----------------
(Loss)/profit for the year (54,643) 15,146 14,476 (25,021)
--------------------- ------------------ ---------------------- ----------------
Add: Depreciation, depletion
and amortisation 31,708 6,768 1,152 39,628
--------------------- ------------------ ---------------------- ----------------
Less: Finance income - - (54,816) (54,816)
--------------------- ------------------ ---------------------- ----------------
Add/(less): finance costs 110 (94) 25,362 25,378
--------------------- ------------------ ---------------------- ----------------
Less: taxation - - (4,256) (4,256)
--------------------- ------------------ ---------------------- ----------------
EBITDA (22,825) 21,820 (18,082) (19,087)
--------------------- ------------------ ---------------------- ----------------
Non-recurring expenses
--------------------- ------------------ ---------------------- ----------------
Add/(less): Impairment
charge/(reversal) 33,511 (4,629) - 28,882
--------------------- ------------------ ---------------------- ----------------
Less: Loss on the
reclassification
of assets held for sale - 3,653 - 3,653
--------------------- ------------------ ---------------------- ----------------
Less: Gain on sale of
non-current
assets - - (350) (350)
--------------------- ------------------ ---------------------- ----------------
Adjusted EBITDA 10,686 20,844 (18,432) 13,098
--------------------- ------------------ ---------------------- ----------------
Oil revenues 35,362 40,634 - 75,996
--------------------- ------------------ ---------------------- ----------------
bbls sold 713,110 769563 - 1,482,673
--------------------- ------------------ ---------------------- ----------------
Realised price (US$/bbl) 49.59 52.80 - 51.26
--------------------- ------------------ ---------------------- ----------------
Gas revenues - 2,374 - 2,374
--------------------- ------------------ ---------------------- ----------------
MMcf sold - 794 - 794
--------------------- ------------------ ---------------------- ----------------
Realised price (US$/Mcf) - 2.99 - 2.99
--------------------- ------------------ ---------------------- ----------------
Capital expenditure
--------------------- ------------------ ---------------------- ----------------
Property, plant and equipment 12,748 6,653 1,175 20,576
--------------------- ------------------ ---------------------- ----------------
Intangible exploration and
evaluation assets 31,773 51 - 31,824
--------------------- ------------------ ---------------------- ----------------
Total capital expenditure 44,521 6,704 1,175 52,400
--------------------- ------------------ ---------------------- ----------------
Total assets 300,161 66,718 149,883 516,762
--------------------- ------------------ ---------------------- ----------------
Total liabilities (7,208) (16,218) (492,289) (515,715)
--------------------- ------------------ ---------------------- ----------------
Operated Non-operated Corporate Total
2020 US$'000 US$'000 US$'000 US$'000
Revenue 24,132 29,869 - 54,001
------------------ ----------------- ------------------- ------------
Loss/(profit) for the year (155,759) (49,054) 7,789 (197,024)
------------------ ----------------- ------------------- ------------
Add: depreciation, depletion
and amortisation 27,569 12,149 1,628 41,346
------------------ ----------------- ------------------- ------------
Less: finance income - - (6,905) (6,905)
------------------ ----------------- ------------------- ------------
Add: finance costs 458 306 21,512 22,276
------------------ ----------------- ------------------- ------------
Less: taxation - - (38,005) (38,005)
------------------ ----------------- ------------------- ------------
EBITDA (127,732) (36,599) (13,981) (178,312)
------------------ ----------------- ------------------- ------------
Non-recurring expenses
------------------ ----------------- ------------------- ------------
Add: Loss on termination of
licences and other impairment
charge 127,501 43,628 - 171,129
------------------ ----------------- ------------------- ------------
Add: Loss on sale of non-current
assets 6 - - 6
------------------ ----------------- ------------------- ------------
Adjusted EBITDA* (225) 7,029 (13,981) (7,177)
------------------ ----------------- ------------------- ------------
Oil revenues 24,130 28,029 - 52,159
------------------ ----------------- ------------------- ------------
bbls sold 605,476 776,435 - 1,381,911
------------------ ----------------- ------------------- ------------
Realised price (US$/bbl) 39.85 36.10 - 37.74
------------------ ----------------- ------------------- ------------
Gas revenues 2 1,840 - 1,842
------------------ ----------------- ------------------- ------------
MMcf sold 0.90 928.63 - 929.53
------------------ ----------------- ------------------- ------------
Realised price (US$/Mcf) 2.22 1.98 - 1.98
------------------ ----------------- ------------------- ------------
Capital expenditure
------------------ ----------------- ------------------- ------------
Property, plant and equipment 2,627 1,475 98 4,200
------------------ ----------------- ------------------- ------------
Intangible exploration and
evaluation assets 2,934 1,015 - 3,949
------------------ ----------------- ------------------- ------------
Total capital expenditure 5,561 2,490 98 8,149
------------------ ----------------- ------------------- ------------
Total assets 315,784 60,281 79,605 455,670
------------------ ----------------- ------------------- ------------
Total liabilities (7,010) (10,885) (411,681) (429,576)
------------------ ----------------- ------------------- ------------
*Reclassified on basis consistent with 2021 disclosure
There are no intersegment revenues in either year presented. The
majority of oil and gas sales are made to the Argentina state-owned
oil company, YPF.
4. Property, plant and equipment
Development
Other and production Assets under
assets assets construction Total
Property, plant and equipment US$'000 US$'000 US$'000 US$'000
At 1 January 2021
-------------- ---------------- --------------- --------------
Cost 13,091 541,489 8,966 563,546
-------------- ---------------- --------------- --------------
Accumulated depreciation and
impairment (8,796) (396,393) - (405,189)
-------------- ---------------- --------------- --------------
Net book amount 4,295 145,096 8,966 158,357
-------------- ---------------- --------------- --------------
Year ended 31 December 2021
-------------- ---------------- --------------- --------------
Opening net book amount 4,295 145,096 8,966 158,357
-------------- ---------------- --------------- --------------
Additions 1,185 11,686 7,705 20,576
-------------- ---------------- --------------- --------------
Transfers from intangible assets 6,456 32,682 (5,416) 33,722
-------------- ---------------- --------------- --------------
Transfer from held for sale
-cost - 31,073 - 31,073
-------------- ---------------- --------------- --------------
Disposal of assets - cost (878) - - (878)
-------------- ---------------- --------------- --------------
Impairment reversal - 4,629 - 4,629
-------------- ---------------- --------------- --------------
Impairment charge - (31,928) - (31,928)
-------------- ---------------- --------------- --------------
Exploration costs written off - (30) - (30)
-------------- ---------------- --------------- --------------
Depreciation charge (1,148) (38,480) - (39,628)
-------------- ---------------- --------------- --------------
Transfer for held for sale -
accumulated DD&A - (22,493) - (22,493)
-------------- ---------------- --------------- --------------
Disposal of assets - accumulated
DD&A 827 - - 827
-------------- ---------------- --------------- --------------
Closing net book amount 10,737 132,235 11,255 154,227
-------------- ---------------- --------------- --------------
At 31 December 2021
-------------- ---------------- --------------- --------------
Cost 19,877 624,354 11,255 655,486
-------------- ---------------- --------------- --------------
Accumulated depreciation and
impairment (9,140) (492,119) - (501,259)
-------------- ---------------- --------------- --------------
Net book amount 10,737 132,235 11,255 154,227
-------------- ---------------- --------------- --------------
Additions
Additions to property, plant and equipment in the year ended 31
December 2021 did not include any interest capitalised in respect
of qualifying assets (2020:US$nil). The total amount of interest
capitalised within property, plant and equipment at 31 December
2021 is US$3.1 million (2020: US$3.1 million).
Assets held for sale
Assets held for sale were related to certain non-core
development and production assets in the non-operated segment with
a net book value of US$11.5 million.
In 2021, management suspended the process for the active sale of
this asset and as a consequence the criteria for classification as
an asset held for sale are no longer met. At the year end, this
asset is recognised in development and production assets at its
carrying amount adjusted for any depreciation that would have been
recognised if the asset had not been classified as a held for sale
asset. The Group has recognised in the income statement a loss of
US3.7 million on the reclassification of the asset held for
sale.
Development
Other and production Assets under
assets assets construction Total
Property, plant and equipment US$'000 US$'000 US$'000 US$'000
At 1 January 2020
---------------- ---------------- --------------- -----------------
Cost 13,072 539,100 7,290 559,462
---------------- ---------------- --------------- -----------------
Accumulated depreciation and
impairment (7,159) (228,054) - (235,213)
---------------- ---------------- --------------- -----------------
Net book amount 5,913 311,046 7,290 324,249
---------------- ---------------- --------------- -----------------
Year ended 31 December 2020
---------------- ---------------- --------------- -----------------
Opening net book amount 5,913 311,046 7,290 324,249
---------------- ---------------- --------------- -----------------
Additions 19 2,398 1,783 4,200
---------------- ---------------- --------------- -----------------
Transfers - 107 (107) -
---------------- ---------------- --------------- -----------------
Exploration costs written off - (116) - (116)
---------------- ---------------- --------------- -----------------
Depreciation charge (1,637) (39,709) - (41,346)
---------------- ---------------- --------------- -----------------
Impairment charge (128,630) (128,630)
---------------- ---------------- --------------- -----------------
Closing net book amount 4,295 145,096 8,966 158,357
---------------- ---------------- --------------- -----------------
At 31 December 2020
---------------- ---------------- --------------- -----------------
Cost 13,091 541,489 8,966 563,546
---------------- ---------------- --------------- -----------------
Accumulated depreciation and
impairment (8,796) (396,393) - (405,189)
---------------- ---------------- --------------- -----------------
Net book amount 4,295 145,096 8,966 158,357
---------------- ---------------- --------------- -----------------
Impairment
The Company defines the key indicators of impairment in relation
to its oil and gas assets within its accounting policies. When a
specific impairment trigger is identified during a period, the
Company will complete an impairment review of the associated CGU.
There has been no change in the CGU asset classification
year-on-year. The Group's accounting policy for long-lived assets
gives examples of potential triggers for impairment that management
will consider when assessing if a particular asset may be impaired.
Climate change is another factor to be considered and this is
reflected in the assumptions used to calculate the discount factor,
in particular the beta factor and the country risk.
These include:
-- exploration drilling that has not resulted in the discovery
of reserves in potentially commercial quantities;
-- changes in oil and gas prices or other market conditions that
indicate discoveries may not be commercial;
-- the anticipated cost of development indicates that it is
unlikely the carrying value of the exploration and evaluation asset
will be recovered in full;
-- there are no plans to conduct further exploration activities in an area; or
-- the exploration licence or concession period has expired or is due to expire.
In 2021, the primary method used in assessing impairment
triggers for producing assets was an economic evaluation based on
fair values (Level 3) less costs of disposal using the NPV15.5
(2020: NPV15) of post-tax cash flows generated from the 2P reserves
of producing assets of the associated CGU over the life of the
concession. Factors considered in this evaluation include:
-- historical and expected production
-- EUR and type curve analysis
-- capex
-- opex
-- discount factors
-- price deck
For exploration assets, management considered risked fair values
based on post-tax NPV15.5 of P3 reserves and contingent resources
in conjunction with fair values assessed on a per acreage basis (in
2020 impairment was assessed by comparing book value to its
respective post-tax NPV15 value). Fair values attributed on a per
acreage basis have been assessed by reference to values attributed
to precedent transactions by comparing the following
characteristics of the Company's licences with comparable
characteristics of licences the subject of precedent
transactions:
-- deg API
-- %TOC
-- landing zones
-- formation depth
-- DFIT (Psi)
-- pressure gradient (Psi/ft)
-- geohazards
Where the calculated fair values are less than the carrying
values an impairment test is performed.
Prices used in the assessment were based on an average of prices
sourced from various banks and analysts at the year end, increasing
from a forecast Brent price of US$72.23/bbl in 2022 to US$80.00/bbl
in 2034 and thereafter (2020: US$50.16/bbl in 2021 to US$66.38/bbl
in 2030 and thereafter).
In addition, where management believes a reversal of the
conditions that gave rise to the impairment has arisen, an
evaluation will be carried out on the same basis described above to
assess whether a potential reversal of the impairment charge
recognised in prior periods should be recorded.
This assessment identified impairment triggers primarily due to
the revised year end reserves estimates resulting in an impairment
charge of US$28.9 million in respect of property, plant and
equipment and intangible assets (see note 5 below) (2020: US$164.5
million). Impairment charges have been recognised in respect of
Puesto Rojas, La Brea, La Paloma, Cerro Alquitran and Atamisqui,
which were partially offset by the partial reversal of impairment
charges recognised in prior years at Chachahuen.
Management also carried out sensitivity analysis to determine
the impact of changes in the price and discount factor assumptions.
A summary of this sensitivity analysis is included at the end of
note 5 below.
5. Intangible assets and goodwill
Exploration and evaluation assets are primarily the Group's
licence interests in exploration and evaluation assets located in
Argentina. The exploration and evaluation assets consist of both
conventional and unconventional oil and gas properties.
Exploration
and evaluation
Goodwill assets Total
Intangible assets US$'000 US$'000 US$'000
At 1 January 2021
------------ ---------------- -------------
Cost 260,007 217,078 477,085
------------ ---------------- -------------
Accumulated amortisation and impairment
charges (239,392) (25,719) (265,111)
------------ ---------------- -------------
Net book amount 20,615 191,359 211,974
------------ ---------------- -------------
Year ended 31 December 2021
------------ ---------------- -------------
Opening net book amount 20,615 191,359 211,974
------------ ---------------- -------------
Additions - 31,824 31,824
------------ ---------------- -------------
Transfer to property, plant and equipment - (33,722) (33,722)
------------ ---------------- -------------
Exploration cost written off - (55) (55)
------------ ---------------- -------------
Impairment charge - (1,583) (1,583)
------------ ---------------- -------------
Closing net book amount 20,615 187,823 208,438
------------ ---------------- -------------
At 31 December 2021
------------ ---------------- -------------
Cost 260,007 215,125 475,132
------------ ---------------- -------------
Accumulated amortisation and impairment
charges (239,392) (27,302) (266,694)
------------ ---------------- -------------
Net book amount 20,615 187,823 208,438
------------ ---------------- -------------
Additions
Additions to intangible assets during the year relate primarily
to work programs carried out on the Corralera concessions.
Exploration
and evaluation
Goodwill assets Total
Intangible assets US$'000 US$'000 US$'000
At 1 January 2020
----------- ---------------- ------------
Cost 260,007 215,759 475,766
----------- ---------------- ------------
Accumulated amortisation and impairment
charges (224,169) (5,057) (229,226)
----------- ---------------- ------------
Net book amount 35,838 210,702 246,540
----------- ---------------- ------------
Year ended 31 December 2020
----------- ---------------- ------------
Opening net book amount 35,838 210,702 246,540
----------- ---------------- ------------
Additions - 3,949 3,949
----------- ---------------- ------------
Exploration cost written off - (2,630) (2,630)
----------- ---------------- ------------
Impairment charge (15,223) (20,662) (35,885)
----------- ---------------- ------------
Closing net book amount 20,615 191,359 211,974
----------- ---------------- ------------
At 31 December 2020
----------- ---------------- ------------
Cost 260,007 217,078 477,085
----------- ---------------- ------------
Accumulated amortisation and impairment
charges (239,392) (25,719) (265,111)
----------- ---------------- ------------
Net book amount 20,615 191,359 211,974
----------- ---------------- ------------
Impairment tests for exploration and evaluation assets
Exploration and evaluation assets are subject to impairment
testing prior to reclassification as tangible fixed assets where
commercially viable reserves are confirmed. Where commercially
viable reserves are not encountered at the end of the exploration
phase for an area the accumulated exploration costs are written off
in the income statement. See note 4 above.
Impairment tests for goodwill
Goodwill is monitored by management at the level of the
operating segments identified in note 3. A segment level summary of
goodwill allocation is presented below.
Operated Non-operated Corporate Total
At December 2021 US$'000 US$'000 US$'000 US$'000
Corralera 16,780 - - 16,780
--------- ------------- ---------- ---------
Mata Mora 3,835 - - 3,835
--------- ------------- ---------- ---------
Total goodwill 20,615 - - 20,615
--------- ------------- ---------- ---------
No goodwill was recognised prior to 2017. All goodwill presented
relates to the allocation of technical goodwill arising as a result
of accounting for deferred tax on the business combination on 10
August 2017. Goodwill of US$224.2 million that was related to the
excess of the purchase consideration given over the fair value of
assets acquired and liabilities assumed at the acquisition date was
impaired in full on completion of the business combination in
2017.
Impairment
The carrying value of goodwill has been assessed for impairment
at the year end on the basis detailed in note 4. Where the
calculated fair values are less than the carrying values an
impairment test is performed.
The impairment assessment review resulted in no impairment
charge (2020: US$15.2 million) in respect of goodwill.
Management carried out a sensitivity analysis to determine the
impact of changes in the price and discount factor assumptions on
the impairment charge recognised on property, plant and equipment
(see note 4 above) and intangible assets. A +US$5/bbl/-US$5/bbl per
annum price change reduced/increased the total impairment charge by
approximately US$4.2 million and US$4.2 million respectively and
-5%/+5% per annum change in the discount rate reduced/increased the
total impairment charge by approximately US$15.5 million and
US$11.2 million respectively.
6. Borrowings
2021 2020
Current Non-current Total Current Non-current Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
----------- ------------ ---------- ------------ ------------ ---------
Secured
----------- ------------ ---------- ------------ ------------ ---------
Bank loans 6,289 - 6,289 2,598 6,641 9,239
----------- ------------ ---------- ------------ ------------ ---------
Total secured borrowings 6,289 - 6,289 2,598 6,641 9,239
----------- ------------ ---------- ------------ ------------ ---------
Unsecured
----------- ------------ ---------- ------------ ------------ ---------
Loans from related parties 393,452 - 393,452 322,973 - 322,973
----------- ------------ ---------- ------------ ------------ ---------
Other loans 18 - 18 21 - 21
----------- ------------ ---------- ------------ ------------ ---------
Total unsecured borrowings 393,470 - 393,470 322,994 - 322,994
----------- ------------ ---------- ------------ ------------ ---------
Total borrowings 399,759 - 399,759 325,592 6,641 332,233
----------- ------------ ---------- ------------ ------------ ---------
Secured liabilities and assets pledged as security
Secured liabilities relate to US Dollar denominated loans at an
interest rate of LIBOR + 700 points for Dollar loans, subject to a
minimum rate of 8% per annum and BADLAR + 700 points for Peso loans
(2020: interest rate of LIBOR + 700 points for Dollar loans with no
minimum and BADLAR + 700 points for Peso loans). At 31 December
2021 the Group held US$1.7 million loans in Argentine Peso (2020:
US$2.7 million).
Loans from related parties
The related party loan at 31 December 2021 relates to a
convertible rolling credit facility ('RCF') and non-convertible
bridging facility ("BF") provided to the Group by Mercuria Energy
Netherlands B.V., a subsidiary of the Mercuria group.
As part of the business combination in 2017, Mercuria advanced a
bridging and working capital facility to the Group for the amount
of US$160.0 million. In February 2018, US$100.0 million of the
facility was converted to equity of the Company at a price of
GBP0.37 per share. At the same time the facility was restructured
as a new convertible RCF in the amount of US$160.0 million
(Facility A) with an additional US$100.0 million of new funds made
available to the Company. In December 2018, Mercuria made available
an additional US$25.0 million under Facility B, which in February
2019 was increased to US$75.0 million. In May 2019, Mercuria made
available an additional US$40.0 million under Facility C, which in
November 2019 was increased to US$50.0 million and in March 2020 to
US$56.0 million.
At 31 December 2021, a total facility of US$291.0 million was
available to the Company under the RCF, with a total of US$281.0
million drawn down under the facility, with the undrawn balance of
US$10.0 million made available through the BF, which was
subsequently increased to US$67.5 million, with US$67.0 million
drawn down at the year end.
All funds drawn down under the RCF and BF bear interest at US$
LIBOR + 4%. The RCF provides for an interest payment grace period
from 1 January 2019 to 30 September 2022 with a first repayment and
maturity date of 31 December 2022. The BF provides for a repayment
date (principal and interest) and maturity date of 31 December
2022. At the year end US$45.4 million of interest had been
capitalised.
Mercuria has the right to convert all or part of the outstanding
principal of Facility A, Facility B and Facility C into additional
new ordinary shares of the Company at a price of GBP0.45, GBP0.28
and GBP0.23 per share respectively. These conversion rights can be
exercised at any time up to 10 business days prior to the maturity
date.
Fair value
Differences identified between the fair values and carrying
amounts of borrowings are as follows:
2021 2020
Carrying Fair Carrying Fair
amount value amount value
US$'000 US$'000 US$'000 US$'000
------------- ----------- -----------
Bank loans 6,289 6,199 9,239 8,981
------------- --------- ----------- -----------
Other loans 18 18 21 21
------------- --------- ----------- -----------
Loans from related parties 393,452 382,528 322,973 301,844
------------- --------- ----------- -----------
Total 399,759 388,745 332,233 310,846
------------- --------- ----------- -----------
The fair values of non-current borrowings are based on
discounted cash flows using a current borrowing rate. They are
classified as Level 3 fair values in the fair value hierarchy due
to the use of unobservable inputs, including own credit risk.
7. Loss per share
2021 2020
Basic and diluted loss per share US$ US$
From continuing operations attributable to the ordinary
equity holders of the Company (0.01) (0.07)
------- -------
Total basic loss per share attributable to the ordinary
equity holders of the Company (0.01) (0.07)
------- -------
2021 2020
Basic and diluted loss per share US$'000 US$'000
Loss attributable to the ordinary equity holders of
the Company used in calculating basic earnings per
share:
--------- ----------
From continuing operations (25,021) (197,024)
--------- ----------
(25,021) (197,024)
--------- ----------
Weighted average number of shares used as the denominator
2021 2020
Number of shares '000 '000
Adjustments for calculation of diluted earnings per
share:
---------- ----------
At 1 January 2,786,571 2,785,024
---------- ----------
At 31 December 2,786,571 2,786,571
---------- ----------
Potential dilutive ordinary shares 7,435 3,386
---------- ----------
Weighted average number of shares used as the denominator
in calculating diluted earnings per share 2,794,006 2,788,956
---------- ----------
8. Post balance sheet events
Credit facilities
On 9 March 2022, the non-convertible bridging facility provided
by Mercuria was increased to US$97.5 million. The convertible
facility grace period was extended to 30 September 2022 and the
first repayment date and maturity date extended to 31 December
2022. The non-convertible bridging facility (principal and
interest) maturity date was extended to 31 December 2022.
Licences
On 9 April 2022, the Company, received from Gas y Petróleo del
Neuquén S.A. ("GyP") a notice of GyP's willingness to relinquish
the licences over the areas La Tropilla, Aguada de Castro I &
II and Santo Domingo in which it is the Company's joint venture
partner. Management considers that the unconventional prospectivity
of these areas has a "high risk/low reward and has agreed to the
relinquishment.
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END
FR UNOVRUAUVUAR
(END) Dow Jones Newswires
May 27, 2022 02:00 ET (06:00 GMT)
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