UK Oil & Gas
Plc
("UKOG" or the
"Company")
Annual
Review and Accounts for the year ended 30 September 2023
UK Oil & Gas Plc (AIM: UKOG)
is pleased to announce its full year results for the full year
ended 30 September 2023. A copy of the full annual report has been
posted to shareholders. A copy of the full annual report will also
be made available on the Company's website:
www.ukogplc.com
STRATEGIC REPORT FOR THE YEAR ENDED 30 September
2023
OUR BUSINESS
UK Oil & Gas Plc ("UKOG" or
the "Company") aims to build a sustainable oil and gas production
base that can help deliver its new UK hydrogen storage business as
part of the UK's transition to Net Zero and which will act as a
springboard to further worldwide growth opportunities in the
hydrogen space.
In May 2022, the Company's
wholly-owned subsidiary, UK Energy Storage Ltd ("UKEn"), signed an
Agreement to Lease with Portland Port Limited covering two sites at
the former Royal Navy port in Dorset, with the intent to develop,
subject to new planning consent and securing necessary development
finance, a planned integrated Energy-Hub, centred around
hydrogen-ready gas storage and a future green hydrogen generation
capability.
The government's newly announced
one year acceleration of the first hydrogen storage allocation
round to Q3 2024 against the prior Q3/Q4 2025 timeline, also
necessitates the Company to accelerate its Portland project
schedule. In order to prepare and submit a bid for an allocation
award, the round's timetable necessitates an acceleration of
specific conceptual design, pre-FEED and environmental/ecology
works during 2024. The Company is also in discussion with several
significant potential international investors with regard to their
participation in the Company's hydrogen storage project.
Our current oil and gas
operational focus is on the UK and Turkey onshore sectors. UKOG has
operated safely and environmentally responsibly in the UK since
2013.
Our current UK onshore portfolio
consists of direct and indirect interests in five oil & gas
exploration, appraisal, development and production assets, all
situated within the Weald and Purbeck-Wight Basins of southern
England. We are the largest acreage holder in the south of England,
with assets covering 489 gross km².
We hold majority interests in
the Horse Hill oil field and Loxley gas
discovery in Surrey, together with a significant position in the
Kimmeridge Limestone (KL) oil deposit or "play".
Our UK oil & gas portfolio
contains a good balance of low-risk production, appraisal and
development assets as well as upside exploration assets within both
the Kimmeridge Limestone and Portland conventional
plays.
Our portfolio in Turkey consists
of a 50% non-operated working interest in
the 305 km² Resan licence in southeast
Turkey, containing the potentially significant undeveloped
Basur-Resan oil discovery plus further exploration prospects. This
project is assessed to contain significantly greater discovered oil
volumes than any of our UK projects and, if successful, offers
potentially transformational growth for the Company.
In order to move our business
forwards, we maintain a high level of operational activity,
conducting near-continuous drilling, flow testing and production
operations since May 2017.
Our portfolio, notably Loxley and
our hydrogen storage portfolio in the UK, has the potential to
generate significant returns for the Company and its
shareholders.
OUR STRATEGY
UKOG aims to build a diverse,
sustainable and self-funding energy business which has the
following strategic objectives:
Oil and Gas:
1. Find and Develop Low-Cost and Long-life
Assets
- Continuing to invest in
new and existing near-term production assets both domestically and
internationally is a key priority.
- New assets added to the
Company's portfolio must demonstrate potential self-funding
capacity in the near term. Once in production, revenues from these
assets will provide free cash flow to re-invest and deliver
shareholder returns.
2. Resource and Reserve
Growth
- Building our
recoverable resources, reserves and future production through
targeted and disciplined high-impact exploration, appraisal
projects and acquisitions, both in UK and increasingly
abroad.
3. Balance Risk and
Reward
- Maximising value by
ground floor or early entry where possible. Judicious use of
farmouts to provide operational funding. Maximising return on
investment by actively considering divestment after an asset has
been de-risked, where appropriate.
Hydrogen and Renewables:
1. Hydrogen
- Investigate potential
sites for hydrogen generation, storage and hydrogen battery
concept.
- Focus initially on the
UK, with international expansion if successful or if commercially
viable opportunities arise.
- Ground floor
operated entry through planning permission stages, with possible
subsequent strategic partnerships/JV arrangements with large
infrastructure players.
- Strategic partnerships
with sector technology specialists.
2. UK Energy Diversification - Reduce
Carbon Footprint of Company's Existing Petroleum Producing
Sites
- Where viable,
implement geothermal and/or solar energy cogeneration plus battery
storage from existing wells/sites.
- Where viable, add new
standalone geothermal and battery storage for grid/heat
export.
- Investigate replacement
of diesel powered off grid mobile generation.
3. Find and Develop New Stand-alone
Energy-Hub Projects
- Ground floor entry,
either operated or as joint venture partner.
- UK initial focus,
international expansion if successful or commercially viable
opportunities arise.
Targeted Portfolio Management:
Continuously review and upgrade
our portfolio to either acquire or divest further stakes in
existing assets. We also look to acquire assets at any stage in the
life cycle and are not limited by geography, where we can create
significant value for shareholders.
UKOG shares this vision and
strategy through internal dialogue with employees and externally
with shareholders and stakeholders via public announcements and
dissemination of information through our website and the Annual
Report and Accounts.
STATEMENT FROM THE CHAIRMAN
The resilience of the UKOG team
has been illustrated during this period by their steadfast refusal
to buckle to challenges in the courts. The Company's victory in the
Court of Appeal against legal limbo over their 100%-owned hydrogen
feedstock project at Loxley was both emphatic and hugely
welcome.
UKOG began the Loxley journey in
early 2019 with a public meeting in Dunsfold village hall and
Surrey County Council twice refused the proposal for the Loxley
site in June and November 2020. As the years rolled by, the local
protest group and the borough council kept being given another
chance, offering up claim after claim.
It eventually required a number of
senior judges to rule in favour of UKOG and there is no room
for a further appeal and therefore the case is finally
settled.
The gas discovery at Loxley was
never going involve fracking, it was never going to cause a danger
to local residents or road users, and it was never going to be a
threat to local businesses. But it is going to play its part in the
future hydrogen economy, fully supporting the government's British
Energy Security strategy.
UKOG's chief executive made it
clear on several occasions that as soon as the field has been
depleted of natural gas, the vision was for it to be repurposed to
store around 1 billion cubic metres of hydrogen.
Hydrogen storage is a major part
of the Company's future thanks to its wholly-owned subsidiary,
UKEn, who plan to develop salt caverns at Portland Port in Dorset
and elsewhere in the UK. Based on intriguing conversations with
major infrastructure players, I believe the UKEn business has
massive potential for growth.
Our loyal shareholders will
hopefully be rewarded as soon as the Portland Port development
consent application has been submitted in due course.
Nicholas Mardon Taylor
Non-Executive Chairman
CHIEF EXECUTIVE'S STATEMENT
The Portland Dorset hydrogen storage project
continues to provide very positive news from
Government and potential investors for our wholly-owned subsidiary,
UKEn. We remain excited to be at the leading edge of this new and
developing major infrastructure sector and continue to build
towards making an application for Revenue Support in the UK's first
Hydrogen Storage Allocation Round, currently scheduled to open in
Q3 2024.
Success in this, or even a
subsequent second allocation round, would provide the project with
a sovereign guaranteed revenue stream that would, via the provision
of a storage floor price, guarantee full pay back of the project's
capital costs, currently estimated at c. £1 billion, its fixed
operating costs, plus a modest return on capital employed over the
15-year support period. Revenue Support also has the major benefit
of creating a substantive terminal value at the end of the 15-year
support contract, giving a 15-30+ year remaining operating life
unburdened by capital costs. The Government's support model also
provides an upside incentive in that storage prices above the floor
price will be shared between the operator and
Government.
We also plan to conduct and
complete further detailed engineering studies and the submission of
a Nationally
Significant Infrastructure Project planning application. UKEn has
also identified further hydrogen storage sites, one in Dorset and
one in East Yorkshire which we are also intending to pursue and
secure Revenue Support for in future allocation rounds.
The facility in Dorset at the
former Royal Naval port, will see the development of 19 man-made
salt caverns (a proven and safe technology used in the UK and
globally since the 1970s) to play a major part in the UK realising
a future powered by home-grown renewable energy.
During the reporting period and
post-period I have enjoyed one-on-one meetings with the three key
figures from the Department for Energy Security and Net Zero
("DESNZ"), Secretary of State Claire Coutinho, Lord Callanan,
Minister for Energy Efficiency and Green Finance and Graham Stuart,
Minister for Energy Security and Net Zero. We have also liaised
closely with DESNZ and the Company has enjoyed an influential role
in helping to design a Hydrogen Storage Business Model that forms
the centrepiece of the Government's Revenue Support
scheme.
With input from our and our peers'
lobbying and efforts over the past few years, the government now
fully supports hydrogen storage, and the October 2023 Energy Act
includes the necessary mechanisms to implement contracts for
sovereign guaranteed revenue support in the hydrogen storage
sector. The support provides a critical element to underpin and
remove much of the business risk needed to attract substantive
private investment into this completely new sector. The
Government's publication of the Revenue Support scheme has created
much interest in the investment sector and has directly enabled me
to enter positive discussions with a
number of major potential funders and infrastructure
players.
UKEn is an active member of the
Solent Cluster partnership of organisations who wish to collaborate
to decarbonise the Solent region and beyond. Our vision is that our
Portland hydrogen storage would provide the key enabler for the
decarbonisation of the region including ExxonMobil's Fawley
Refinery.
Portland Port is ideally situated
for the construction of large salt caverns as it overlies a
450-metre thick, high quality rock salt or halite section of
Triassic age. Halite deposits with sufficient thickness to
accommodate significant caverns are confined to only three areas of
mainland Great Britain and are found in Dorset, Cheshire and along
the north-east Yorkshire coast.
Loxley gas discovery (100% owned and
operated)
The conventional gas and hydrogen
feedstock project at Loxley could also play a significant role in
the UK's future hydrogen economy. That's why the post-period news
from the Court of Appeal in January 2024, that it had upheld the
project's planning consent and refused permission for any further
appeal was so welcome.
The best news is that the Court's
decision is final and consequently Loxley's planning permission will
remain in full force and effect for its full term.
The order made by the Right
Honourable Lord Justice Stuart-Smith has upheld the Honourable
Mrs Justice Steyn DBE's High Court order dated 20 July 2023 refusing permission to
appeal. Both the Court of Appeal and High Court orders state that
an appeal would have no real prospect of success.
UKOG has consistently stated that
Loxley can play its part in the government's Hydrogen and British
Energy Security strategies via the supply of its gas as feedstock
for reformation into clean burning hydrogen in the Solent Cluster.
Once the field has been depleted of natural gas, Loxley can also be
repurposed to store around 1 billion cubic
metres of
hydrogen, which is around a tenth of National Grid's mid-case
Future Energy Scenarios forecast of required hydrogen storage by
2035.
In February 2023, RPS Energy
Consultants completed a Competent Person's Report illustrating the
potential economic value of Loxley - up to £124 million net UKOG
mid-case 2C post-tax net present value (at 10% discount rate). We
are in discussions with several interested parties to farm out an
interest in the project in return for a full carry in the drilling
and testing of Loxley-1.
The North Sea Transition Authority
("NSTA") has granted its consent to a modified PEDL234 Retention
Area work programme ("RAWP"). The revision permits UKOG to focus
licence activities entirely upon the acceleration of the appraisal
campaign at Loxley. The Company has agreed to commence the
Loxley-1 appraisal well by 30th June 2025 to retain
the full 300 square km PEDL234 Licence and confirm the commercial
viability of the discovery.
If successful, the Company has
also agreed to submit a Field Development Plan for NSTA consent by
the end of 2026.
Horse Hill (85.635% operated interest)
The oil field continues to produce
and we welcomed the news that the NSTA has granted a one-year
extension to the PEDL137 retention area work programme to 30
September 2025, fully corresponding to the farmin programme agreed
with Pennpetro Energy Plc, comprising one new production well,
HH-3, plus a 12 km² 3D seismic survey. In addition to the new HH-3
infill well, we see room for another crestal production well, HH-4
to be drilled to further boost production if HH-3 is
successful.
As a necessary precursor to
its planned Horse Hill-2z Portland formation water
reinjection project, UKOG finished work on the installation of
three shallow groundwater monitoring boreholes in February last
year, seeking to improve the field's net earnings by approximately
£250,000 per annum by eliminating the substantive costs of
tankering and disposing of produced saline formation water at
distant third-party sites.
This removal will reduce the
field's overall carbon footprint and maintain reservoir pressure. A
three-month baseline monitoring period sampling of the boreholes,
which terminate within the impermeable Weald Clay formation, found
no obvious groundwater immediately beneath the site.
The new boreholes are fully in
keeping with current environmental standards and practices and
demonstrates UKOG's responsible attitude towards ensuring the area
beneath the site remains as well protected as possible.
Similarly, we were pleased to
announce that the continued profitability of Horse Hill enabled the
field's operator, Horse Hill Developments Limited ("HHDL"), to make
a payment of approximately £675,000 to the Company, representing
partial repayment of certain historic shareholder loans. The
Company holds an effective 85.635% interest in the field and
surrounding PEDL137 licence and a 77.9% direct shareholding in
HHDL.
The Company and our legal counsel
remain convinced that planning consent at Horse Hill was granted
entirely lawfully. In June last year, opponents took their legal
action to the Supreme Court to challenge Surrey County Council's
oil production consent. To date five judges and the Court of Appeal
have dismissed the appellants claim.
Pinarova-1, Turkey (50% non-operated
interest)
Testing operations in Turkey at
Pinarova-1, operated by our partners Aladdin Middle East, were
temporarily suspended in late May 2023 in order to access larger
and more powerful 7-inch perforating guns, capable of fully
penetrating Pinarova's 9⅝-inch casing and cement.
The decision resulted from
analysis of downhole pressure gauge data from testing operations,
which indicated that the 4.5-inch perforating guns used were unable
to establish direct contact with the formation through the casing
and cement.
In December all the required
explosives permits for the deployment of the new perforating guns
were finally secured by the service provider, PSI.
Following the successful reperforating and extensive swab testing, we
mutually concluded with AME that, in the absence of commercial
rates of hydrocarbons, no further testing will take
place.
Given the prior recovery of mobile
light 42° API oil
from the mud pit in September 2023, oil shows, strong oil odours at
surface over a 12-hour drilling period and the associated shot-hole
oil seep with geochemically identical oil, we were disappointed
that Pinarova-1 had not met our joint expectations.
Costs for the operations were kept
to a minimum throughout.
Further to this, an impairment
charge of £0.4m has been recognised in respect of this
asset.
Other assets
Our application to extend the
planning permission for Broadford Bridge (UKOG 100%) was turned
down by West Sussex County Council post-period in March 2024. We
still want to assess the viability of using the site and the
Broadford Bridge-1z well to harness geothermal heat and power. The
Company will further consider its position and has six months in
which to lodge an appeal should it so decide.
In March 2023, a Competent
Person's Report was completed on the Horndean field in Hampshire by
Texas-based DeGolyer & MacNaughton, a globally recognised
oil and gas reserve estimation and valuations consultancy.
UKOG's net share of Horndean production revenues
was £297,000 for calendar year 2023, with net earnings after costs
of £140,000.
We were also encouraged that the
Avington Joint Operating Committee had agreed to restart oil
production at the field (UKOG holds a 5%
non-operated interest). Prior to its 2017
shut-in, the field had produced 0.276 million barrels of an
estimated mid case of 59 million barrels of original oil in
place.
Funding
The Company secured a £2 million
facility with RiverFort Global Opportunities PCC Ltd and YA II PN
Ltd as working capital for key activities in Turkey, Loxley, Horse
Hill and Portland Port. In January 2024, the Company successfully
raised gross proceeds of £0.75 million by means of a placing of new
ordinary shares at a price of 0.02 pence per share.
In March 2024, further to the
General Meeting, where all the resolutions successfully passed, the
Company completed the share reorganisation to consolidate the
32,539,926,104 ordinary shares of £0.0000001 each in the capital of
the Company on a 10:1 ratio into 3,253,992,610 ordinary shares of
£0.000001 each. The Directors were also granted with authority to
allot and issue shares and grant rights to subscribe for shares for
approximately 50% of the Company's ordinary share
capital.
Stephen Sanderson
Chief Executive
For further information, please contact:
UK Oil & Gas
Plc
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Stephen Sanderson / Allen D
Howard
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Tel: 01483 941493
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WH Ireland
Ltd (Nominated Adviser and
Broker)
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James Joyce / James Bavister / Andrew de Andrade
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Tel: 020 7220 1666
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Communications
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Brian Alexander
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Tel: 01483 941493
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Qualified Person's
Statement
Matt Cartwright, UKOG's Commercial
Director, who has 40 years of relevant experience in the global oil
industry, has approved the information contained in this
announcement. Mr Cartwright is a Chartered Engineer and member
of the Society of Petroleum Engineers.
The information contained
within this announcement is deemed to constitute inside information
as stipulated under the retained EU law version of the Market Abuse
Regulation (EU) No. 596/2014 (the "UK MAR") which is part of UK law
by virtue of the European Union (Withdrawal) Act 2018. The
information is disclosed in accordance with the Company's
obligations under Article 17 of the UK MAR. Upon the publication of
this announcement, this inside information is now considered to be
in the public domain.
PRINCIPAL RISKS AND
UNCERTAINTIES
UKOG continuously monitors its
risk exposures and reports its review to the board of directors
("The Board"). The Board reviews these risks and focuses on
ensuring effective systems of internal financial and non-financial
controls are in place and maintained.
Key Risk Areas
The high-risk areas surrounding
our existing business is tabulated below; the key areas are
Strategic, Operational and Financial.
Risk
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Mitigation
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Magnitude and likelihood
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Strategic risks
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Exposure to political risk, We operate in and may seek new opportunities in countries,
regions and cities where political, economic and social transition
may take place. Political instability, changes to the regulatory or
taxation environment, international trade disputes and barriers to
free trade, international sanctions, expropriation or
nationalisation of property, civil strife, strikes, insurrections,
acts of terrorism, acts of war and public health situations
(including any future epidemic or pandemic) may disrupt or curtail
our operations or development activities and could affect the
ability of UKOG to deliver to its Strategy
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Through industry associations and
direct contact, the Company engages with Government and other
appropriate organisations to ensure the Company is kept abreast of
expected potential changes and takes an active role in making
appropriate representations.
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Magnitude - Low to Moderate
Likelihood - Low to Moderate
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Operational risks
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Permitting risk, planning,
environmental, licensing and other permitting risks associated with
our operations particularly with exploration drilling
operations.
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During the period the Company
faced several challenges in obtianing all the required permits.
This is despite UKOG's compliance with
regulations, proactive engagement with regulators, communities and
the expertise and experience of the management teams. We believe
this is because of changing priorities within the United Kingdom
and the Company has sought to further diversify this risk by
seeking investments outside the United Kingdom
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Magnitude - Moderate
Likelihood - Moderate to
High
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Exploration risk, the Company
fails to locate and explore hydrocarbon-bearing prospects that have
the potential to deliver commercially, e.g. key wells are dry or
less successful than anticipated
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Analysis of available technical
information to determine the work programme. Risk-sharing
arrangements entered to reduce downside risk
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Magnitude- Moderate
Likelihood - Moderate
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Oil production, oil is not
produced in the anticipated quantities from the Group's assets, or
it cannot be produced economically
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Analysis of available technical
information to improve our understanding of the reservoir and
continue to review cost structure to target low production
costs
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Magnitude - Low
Likelihood - Low to
Moderate
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Price and markets, our
financial performance is impacted by fluctuating prices of oil, gas
and refined products. Oil, gas and product prices are subject to
international supply and demand and margins can be volatile.
Political developments, increased supply from new oil and gas or
alternative low carbon energy sources, technological change, global
economic conditions, public health situations.
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During the prior reporting period
the Group entered into production at the Horse Hill assets. The
Group determined that given its stage of development the costs of
hedging would be prohibitive. The Group will keep this under
review. At this point the Group continues to review costs where
appropriate.
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Magnitude - Moderate
Likelihood - Moderate to
High
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Loss of key staff
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Provide and maintain competitive
remuneration packages to attract the right calibre of staff. Build
a strong and unified team
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Magnitude- Moderate
Likelihood - Low
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Financial risks
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Liquidity risk, exposure
through its operations to liquidity risks.
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The Board regularly reviews UKOG's
cash flow forecast and the availability or adequacy of its current
facilities to meet UKOG's cash flow requirements
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Magnitude- Moderate
Likelihood - Moderate
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OPERATIONAL REVIEW
OIL AND GAS ASSETS
Loxley, Broadford Bridge, PEDL234 (UKOG (234)
100%)
RPS Energy issued a Competent
Person's Report ("CPR") illustrating the potential economic value
of the Loxley gas discovery, located near Dunsfold in Surrey. 31
billion cubic feet of 2C Contingent Resources were estimated to be
in the PEDL234 licence. The CPR
demonstrates that the NPV10 of Loxley's 2C recoverable gas ranges
from £123.7 million net to UKOG, assuming a gas price of
£1.86/therm, the UK gas price on 31st December 2022, the
effective date of the CPR, and £86.5 million net to UKOG utilising
RPS' proprietary gas price forecast.
Following the conclusion of the
discharge of conditions with Surrey County Council, UKOG will be in
a position to commence site construction ready for the drilling of
Loxley-1z in the second half of 2024. Prior to commencing
operations UKOG will look to de-risk by the introduction of farm in
partners for the project.
SGN (southern England's gas
distribution pipeline network operator) has confirmed that their
Local Transmission System ("LTS") can accept all the potential
future gas production from the Loxley gas discovery. SGN's capacity
thus provides a clear route to the wider gas market and the
monetisation of Loxley's gas. A study of the Loxley pipeline
connection into the LTS has confirmed its feasibility. It is
proposed that Loxley gas will be sold into the national grid as
feedstock for blue hydrogen projects supporting the UK transition
to net zero.
The Company submitted a further
application for a two-year planning permission extension to West
Sussex County Council's Planning Committee for its Broadford
Bridge-1z Kimmeridge oil discovery. Post-period this application
was refused and we are considering our position.
Commercial discussions continue
with CeraPhi Energy regarding potential for a geothermal energy
agriculture project incorporating the Broadford Bridge
asset.
Horse Hill Oil Field, PEDL137 and PEDL246 (UKOG
85.635%)
The field and surrounding licences
are operated by UKOG's subsidiary company HHDL in which UKOG has
77.9% ownership. The Licensees are HHDL (65% interest) and UKOG
(137/246) Ltd (35% interest).
In March 2023 HHDL and UKOG
(137/246) executed a conditional binding term sheet with Pennpetro
Energy ("PPP"), whereby PPP will farm into
Horse Hill on an incremental production basis via funding the
acquisition of a targeted 3D seismic campaign and the drilling of
the next infill production well, Horse Hill-3 ("HH-3").
Farm out highlights:
· PPP
to fund 100% of a new crestal infill production well, HH-3, to be
spudded after the completion of a PPP 100% funded ~12 square km
high-definition 3D seismic survey (the Farmout Programme), subject
to an aggregate cap of £4.6 million.
· Upon
Farmout Programme completion, PPP will earn a 49% share of any oil
production from HH-3. PPP will also earn an aggregate 49%
non-operated licences interest, comprised of an initial 7% on 3D
seismic completion and a further 42% interest upon HH-3
completion.
· UKOG
and HHDL will retain 100% ownership and rights to all oil
production and revenues from Horse Hill-1 ("HH-1"). UKOG will
remain as the Horse Hill and licences operator.
· The
assignment of the aggregate 49% licences interest to PPP is subject
to PPP providing the necessary funds to drill HH-3 and complete the
Farmout Programme within six months from the completion of the 3D
seismic which is at its discretion.
· Subject to farmout completion, UKOG's interest in HH-1
production will remain at 85.635% and its net interest in any HH-3
production and the Licences will be 43.67%.
· The
farmout to PPP is subject to the completion of a formal Farmout
Agreement between the Parties, formal consent by each Parties'
respective boards, the full consent of all HHDL's shareholders and
regulatory consent from the North Sea Transition Authority for any
Licences interest assignment.
· Post
Farmout Completion, each Licences
participant will bear and pay cash calls pro rata to their
respective interest in the Licences.
Three groundwater monitoring
boreholes were constructed, and baseline monitored for a period of
three months in preparation for water reinjection via a recompleted
well Horse Hill-2z. All permit pre-operational conditions have now
been submitted to the Environment Agency for discharge in line with
the permit requirements.
NSTA have extended the Horse Hill
RAWP to September 2025. The RAWP is in line with the Farmout
Programme agreed with PPP.
As of end-December over 199,000
bbl of Brent quality crude had been produced and exported from the
Kimmeridge and Portland pools.
Turkey, Basur-Resan Licence (UKOG 50%)
The Basur-Resan anticline
containing the Basur-1 oil discovery is located within the
surrounding 305 km² Resan M47-b1, b2 licence in SE Turkey, in which
UKOG's wholly owned subsidiary, UKOG Turkey Ltd, holds a 50%
non-operated interest.
Our partner and licence operator,
Aladdin Middle East ("AME"), advised us that our Resan licence area
was unaffected by the severe earthquakes in February 2023, being
located some distance away from the fault zone and the earthquake
epicentre.
Abu Dhabi based BGP completed the
2D seismic processing. Interpretation and geological mapping of the
processed data have also been completed.
UKOG and AME constructed the
Pinarova-1 well pad and access road in March 2023. The well reached
total depth of 600 metres in April.
Following acquisition of cased and
open hole logs, flow testing was carried out over the 9⅝ inch cased
hole zone corresponding to the oil odour and live oil to surface.
No flow or injectivity within the cased hole test zone was observed
and down hole pressure gauge and casing collar locator data
confirmed that the small available 4.5-inch perforating guns had
likely been of insufficient power and/or proximity to the casing
wall to penetrate 9⅝ inch casing and cement to provide full contact
with the formation.
Consequently, AME and the Company
jointly decided to suspend testing operations pending access to
larger, more powerful, 7-inch perforating guns, capable of fully
penetrating Pinarova's 9 ⅝-inch casing and cement.
The 7-inch guns were sourced from
outside the country and road and well site repairs completed.
Reperforation and testing operations were successfully completed
including full communication with the formation, but in the absence
of commercial rates of hydrocarbons it was agreed with AME that no
further testing will take place. Further to this, an impairment
charge of £0.4m has been recognised in respect of this
asset.
UKOG and AME will now jointly
assess future prospectivity within the Resan Licence.
Horndean Oil Field (UKOG 10%)
UKOG's second producing field is
Horndean located in Hampshire. Star Energy, the Horndean oil field
operator, advised that the surface beam pumps in the field have
been replaced with new surface pumps. This resulted in Horndean oil
production in 2023 being more than 20% above 2022 production.
Operating costs were also 6% below budget in 2023.
Avington Oil Field (UKOG 5%)
Star Energy, the Avington oil
field operator, advised that the field is being prepared to restart
production. Avington ceased production in late 2017 due to high
operating costs. However, with higher oil prices and all regulatory
approvals in place, the joint venturers have agreed to restart
production from the field. A workover of the Avington-3z well is
being scheduled, followed by surface facilities
modifications.
HYDROGEN STORAGE ASSET
Portland Energy Hub (UKEn 100%)
UKOG, through its wholly owned
subsidiary UKEn, made a highly strategic
entry into the UK hydrogen storage business via our legal agreement
for a very large gas storage facility on the Isle of Portland. We
intend to create a hydrogen energy hub centred on salt cavern
storage at the former Royal Navy port in Dorset.
Planning approval was granted in
2008 for a 1 billion cubic metres methane gas storage project
utilising salt caverns, but, in line with the move to a hydrogen
economy, UKEn's development will involve hydrogen storage and is
also intended to incorporate in due course green hydrogen
production via electrolysis using offshore wind power.
The commercial and legal terms of
an Agreement to Lease were negotiated and executed with the
landowner, Portland Port Ltd.
Since execution of the agreement,
UKEn has:
· Carried out site activities to confirm ground
conditions.
· Pursued the lease of the required subsurface mining and
mineral rights with The Crown Estate.
· Initiated planning and other regulatory activities, with a
detailed review of planning requirements, the Development Consent
Order process and related activities such as approvals required for
the pipelines and other ancillaries.
· Prepared an overall work programme and budget to achieve the
DCO and reach FID.
· Met
with key stakeholders, such as Claire Coutinho, Secretary of State
for Energy Security and Net Zero, Graham Stuart MP, Minister of
State for Energy Security, Richard Drax, South Dorset MP, Matt
Prosser, Chief Executive of Dorset Council and Lord
Callanan, Minister for Energy Efficiency
and Green Finance.
· Worked closely with the Department of Energy Security and Net
Zero (DESNZ) on the development of their business model for
hydrogen storage, as announced in December.
Technical reviews and studies are
being completed, including an update of the original salt cavern
design basis, conceptual design, plus overall development cost
estimation and sensitivities/optimisations.
Kris Bone
Matt Cartwright
Operations Director
Commercial Director
March 2024
March 2024
FINANCIAL REVIEW
In the reporting period we managed
to successfully raise capital to provide the Group with a source of
general working capital and help deliver the Group
strategy.
Income Statement
Revenues for the year from sales
of oil amounted to £1.5 million (2022: £1.8 million). This decrease
was largely driven by an oil production decrease at Horse Hill, via
HH-1. For more detail please refer to the Operational update.
Depletion, Depreciation and Amortisation costs amounted to £0.2
million (2022: £0.8 million), reflecting the production from Horse
Hill during the year and updated reserves used for calculation of
depletion. Other Cost of Sales increased to £1.0 million (2022:
£0.7 million). The Group recorded a gross profit for the year of
£0.3 million (2022: profit £0.3 million). Following an impairment
review carried out as at 30 September 2023, the net present value
of the Horse Hill-1 well was determined to be higher than its
recorded book value, and it was therefore determined that no
impairment of oil and gas assets was recognised in 2023.
The Directors have also assessed
the fair value of the exploration & evaluation assets as at 30
September 2023. Following reperforating and extensive swab testing
at Pinarova-1 by the operator, it was mutually concluded that, in
the absence of commercial rates of hydrocarbons, no further testing
will be performed. Therefore, the exploration and evaluation assets
associated with Pinarova-1 at 30 September 2023 were impaired by
£0.4m.
An Operating loss for the year of
£3.5 million was recorded (2022: £5.3 million).
Finance costs amounted to £0.6
million (2022: £0.2 million), relating primarily to convertible
loan finance costs and unwinding of discounts on decommissioning
provisions.
Balance Sheet
During the financial year to 30
September 2023, non-current assets increased to £36.9 million
(2022: £35.9 million). This included mainly capital expenditure on
exploration and evaluation assets and the increase was primarily
due to the hydrogen storage project in the UK. The exploration and
evaluation assets associated with Pinarova-1 at 30 September 2023
were impaired by £0.4m. Cash and cash equivalents totalled £1.9
million at the year-end (2022: £4.6 million) which allowed
liquidity to be successfully maintained.
Cash Flow and Financing
The net cash outflow from
operating activities during the reporting period was £2.9 million
(2022: cash outflow of £2.0 million). The increased outflow is
primarily attributable to working capital movements and
reduced operating cash flows from Horse Hill in the year to
30 September 2023, due to lower oil prices and production. UKOG
raised £1.9 million during the reporting period via the convertible
loan, which was used primarily to fund investing
activities.
The Company secured a £2 million
facility with RiverFort Global Opportunities PCC Ltd and YA II PN
Ltd as working capital for key activities in Turkey, Loxley, Horse
Hill and Portland Port. In January 2024, the Company successfully
raised gross proceeds of £0.75 million by means of a placing of new
ordinary shares at a price of 0.02 pence per share.
In March 2024, the Company
completed the share reorganisation and the total voting rights in
the Company are now 3,253,992,610 ordinary shares of £0.000001
each.
Going Concern
The Directors note the losses and
cash outflows that the Group has made for the year ended 30
September 2023. The Directors have prepared cash flow forecasts for
the period to 31 March 2025, which take into account anticipated
production and costs, the forward curve of Brent crude oil,
expected revenue streams and external funding.
The forecasts prepared demonstrate
that the Group will have sufficient cash funds available to allow
it to continue in business for a period of at least 12 months from
the date of approval of these financial statements. Notwithstanding
the Company's current cash balance and contractual expenditure
commitments, the Board are cognisant of any possible unforeseen
events outside of its control on the Group. Whilst some of these
events are contingent (farm-in to the Horse Hill Oil Field), the
Company, if required, will take actions to address any cash
constraints by seeking to raise capital through equity or debt.
Whilst there can be no certainty that sufficient funding can be
obtained in the timescales required, the Directors are confident of
their ability to raise capital, which is supported by successful
capital placements in the past.
For these reasons the Directors
adopt the going concern basis in the preparation of the Financial
Statements however confirm that there remains a material
uncertainty that may cause significant doubt over the going concern
nature of the Group.
The independent auditor's report
also refers to material uncertainty related to going
concern.
RESERVES AND RESOURCES
Total aggregate net discovered 2C
(mid case) contingent resources and 2P (mid case) reserves now
stand at 23.4 mmboe.
HH-1 production remains in
contingent resource category, as the company requires more data to
establish the long-term decline trend of the well. The company now
holds the Environment Agency Production Permit. Once the company
gets sufficient data it intends to review the HH-1 production
decline and attribute reserves to HH-1, thus transferring them from
Contingent Resources to Reserves category.
Discovered prospective resources
(i.e., undiscovered but drill ready within identified exploration
prospects) have reduced compared to last year due to the
relinquishment of PEDL331.
Table 1: Recoverable Reserves mmbbl: Producing Fields, Gross
and Net (as of 31 December 2023)
Asset
|
UKOG % Interest
|
Gross
mmbbl
|
Net Attributable
mmbbl
|
Operator
|
1P
|
2P
|
3P
|
1P
|
2P
|
3P
|
Horndean 1
|
10
|
0.93
|
1.06
|
1.19
|
0.09
|
0.11
|
0.12
|
Star
Energy
|
TOTAL
(mmbbl)²
|
|
|
|
|
0.09
|
0.11
|
0.12
|
|
Notes:
1. DeGolyer and MacNaughton
("D&M") for Star Energy Jan 2024, 2. Horse Hill reserve volumes
await external CP verification following 12 months of stable
production history, see text above.
Table 2: Contingent Resources mmbbl/mmboe (i.e., discovered
and drill ready recoverable volumes)
Asset
|
Licence
|
UKOG
%
|
Gross
mmbbl/mmboe
|
Net
Attributable
mmbbl/mmboe
|
Operator
|
1C
|
2C
|
3C
|
mean
|
1C
|
2C
|
3C
|
mean
|
Turkey, Basur-Resan 4
|
M47
b1,
b2
|
50
|
14.9
|
30.5
|
67.0
|
37.2
|
7.5
|
15.3
|
33.5
|
18.6
|
AME
|
Horse-Hill Portland 1
|
PEDL137
|
85.64
|
0.4
|
1.4
|
3.5
|
1.8
|
0.4
|
1.2
|
3.0
|
1.5
|
HHDL
|
Horse-Hill Kimmeridge 6
|
PEDL137
|
85.64
|
0.4
|
1.6
|
6.1
|
2.7
|
0.3
|
1.4
|
5.2
|
2.3
|
HHDL
|
Loxley
Gas 3 ,5
|
PEDL234
|
100
|
2.8
|
5.3
|
9.1
|
5.8
|
2.8
|
5.3
|
9.1
|
5.8
|
UKOG
|
Avington 2
|
PEDL070
|
5
|
0.6
|
0.8
|
1.1
|
0.8
|
0.03
|
0.04
|
0.05
|
0.04
|
Star
Energy
|
Horndean 2
|
PL211
|
10
|
0.3
|
0.8
|
1.3
|
0.8
|
0.03
|
0.08
|
0.13
|
0.08
|
Star
Energy
|
TOTAL
mmboe
|
|
|
|
|
|
|
11.0
|
23.3
|
51.0
|
28.3
|
|
Notes:
1. Xodus June 2018 CPR figures
revised for actual Portland production to end Dec 2023, estimates
for Horse Hill are deterministic based upon per well
recoveries, 2. D&M for Star Energy Jan
2024, estimates for Horndean and Avington are deterministic, not
probabilistic, 3. RPS CPR February 2023, probabilistic based upon
range of recovery factors, 4. Xodus June 2020, probabilistic based
upon range of recovery factors, 5. 1
million bbl oil equivalent (mmboe) = 5.8 bcf, 6. RPS Jun
2019.
Table 3: Prospective Resources (i.e., exploration, drill
ready but as yet undiscovered recoverable
volumes)
Asset
|
Licence
|
UKOG %
|
Gross
mmbbl
|
Net Attributable
mmbbl
|
Low
|
Best
|
High
|
Mean
|
Low
|
Best
|
High
|
Mean
|
Turkey, Prospect A
1
|
M47
b1,b2
|
50
|
4.0
|
8.7
|
17.0
|
9.9
|
2.0
|
4.4
|
8.5
|
5.0
|
TOTAL
|
|
|
|
|
|
|
2.0
|
4.4
|
8.5
|
5.0
|
Notes:
1. Xodus
June 2020
HEALTH, SAFETY AND THE ENVIRONMENT
UKOG is committed to providing, so
far as is reasonably practicable, a quality working environment
that is safe and one that poses no risks to the health and safety
of our employees, contractors, the local community and
stakeholders.
The health & safety of
employees and the public, and the protection of the environment are
core business objectives of UKOG. They rank equally with the
company's other business objectives.
Health, safety and environmental
("HSE") risks associated with the business practices of UKOG are
addressed through the effective implementation of our HSE Policy,
which is designed to ensure that every person who works for UKOG is
responsible for ensuring that health and safety is managed in all
aspects of our business.
The Company's HSE aspirations are:
"get it right, first time, every time with no accidents, no harm to
people, the ecology and the environment".
To achieve the identified
objectives, we will ensure that all necessary and reasonable
resources are made available. We will confirm that objectives are
being met by reviewing and reporting on performance and auditing
the implementation and operation of UKOG's HSE Management
System.
Our full HSE framework is
available on our website: http://www.ukogplc.com/page.php?pID=101
Health & safety review
UKOG, under our operating
subsidiary HHDL, has continued production activities at Horse
Hill.
Planning conditions were
discharged and groundwater water monitoring boreholes were
installed at Horse Hill. Baseline monitoring was completed during
2023 and the groundwater monitoring boreholes will be routinely
monitored during field life to demonstrate full environmental
permit compliance. Environment Agency ("EA") permit pre-operational
conditions, to allow for produced water re-injection, were
submitted to the regulator for discharge during the reporting
period.
There were no lost time injuries
or environmental incidents on any of UKOG's sites or at AME's
Pinarova well site in Turkey during the reporting period or post
period. The lost time injury frequency was also zero.
The EA and Health and Safety
Executive made a number of site visits, linked to Horse Hill well
operations and production equipment.
UKOG continues to maintain good
housekeeping standards on its sites. The Company continuously
monitors all its live operations for noise, ensuring noise from its
sites is kept to a minimum and is compliant with the levels set by
the relevant site planning approval. UKOG only utilises service
companies that can demonstrate commitment to our HSE
standards.
Community engagement
Any complaints received are
reviewed and responded to. Communication links are in place with
the residents close to our sites, who can call UKOG at any
time.
The Company meets and communicates
regularly with local police to give operational updates where
necessary.
Route to development
UKOG operates within a highly
regulated industry, led by the NSTA, a Government agency reporting
to DESNZ, who among other things are responsible for checking a
company's financial and operational competency before issuing a
Petroleum Exploration and Development Licence ("PEDL") and other
regulatory approvals.
Once a potential site has been
identified, UKOG must secure landowner consent and a land lease to
operate on the land, before the EA assess any risk to groundwater
and air quality, as well as the arrangements for waste
management.
In parallel with seeking EA
permits, discussions with local planning authorities begin. They in
turn seek the views of the local community and statutory
consultees. The Health and Safety Executive also regulates and
monitors all onshore oil & gas exploration and production
activities.
DIRECTORS' SECTION 172
STATEMENT
The following disclosure describes
how the Directors have had regard to the matters set out in section
172(1)(a) to (f) and forms the Directors' statement required under
section 414CZA of The Companies Act 2006. This new reporting
requirement is made in accordance with the new corporate governance
requirements identified in The Companies (Miscellaneous Reporting)
Regulations 2018, which apply to company reporting on financial
years starting on or after 1 January 2019.
The matters set out in section
172(1) (a) to (f) are that a Director must act in the way they
consider, in good faith, would be most likely to promote the
success of the Company for the benefit of its members as a whole,
and in doing so have regard (amongst other matters) to:
• the likely
consequences of any decisions in the long term;
• the interests
of the company's employees;
• the need to
foster the company's business relationships with
suppliers/customers and others;
• the impact of
the company's operations on the community and
environment;
• the company's
reputation for high standards of business conduct; and
• the need to
act fairly between members of the company.
As set out above in the Strategic
Report the Board remains focused on providing for shareholders
through the long term success of the Company. The means by which
this is achieved is set out further below.
Likely Consequences of any Decisions in the Long
Term
The Chairman's Statement, the
Chief Executive Officer's Commentary and the Strategic Review set
out the Company's strategy. In applying this strategy, particularly
in seeking new projects and developing current ones to deliver
reserves and resource growth. The Board assesses the long term
future of our projects and investments with a view to shareholder
return. The approach to general strategy and risk management
strategy of the group is set out in the Statement of Compliance
with the QCA Code of Practice (Principles 1 and 4).
Interest of Employees
The Group has a very limited
number of employees and all have direct access to the Executive
Directors on a daily basis and to the Chairman, if necessary. The
Group has a formal Employees' Policy manual which includes
processes for confidential report and whistleblowing.
Need to Foster the Company's Business Relationships with
Suppliers/Customers and Others
The Group continuously interacts
with a variety of suppliers and customers important to its success.
The Group strives to strike the right balance between engagement
and communication. Furthermore, the Company works within the
limitations of what can be disclosed to the various stakeholders
with regards to maintaining confidentiality of market and/or
commercially sensitive information. Our suppliers are fundamental
to ensuring that the Group can execute its development and
production strategy on time and on budget. Using quality suppliers
ensures that as a business we meet the high standards of
performance that we expect of ourselves and vendor partners. Our
management team work closely with our suppliers, via one on one
meetings and where possible supplier site visits and facility
reviews to ensure our suppliers are able to meet our
requirements.
Impact of the Company's Operations on the Community and
Environment
The Group takes its responsibility
within the community and wider environment seriously. Its approach
to its social responsibilities is set out in the Statement of
Compliance with the QCA Code of Practice (Principle 3).
The Desirability of the Company Maintaining a Reputation for
High Standards of Business Conduct
The Directors are committed to
high standards of business conduct and governance and have adopted
the QCA Code of Practice. Where there is a need to seek advice on
particular issues, the Board will consult with its lawyers and
nominated advisers to ensure that its reputation for good business
conduct is maintained.
The Need to Act Fairly Between Members of the
Company
The Board's approach to
shareholder communication is set out in the Statement of Compliance
with the QCA Code of Practice (Principle 2). The Company aims to
keep shareholders fully informed of significant developments in the
Group's progress. Information is disseminated through Stock
Exchange announcements, website updates and, where appropriate,
video-casts.
During 2020 the Company issued
numerous stock exchange announcements on operational issues. All
information is made available to all shareholders at the same time
and no individual shareholder, or group of shareholders, is given
preferential treatment.
CORPORATE GOVERNANCE
Introduction to Governance
The Directors recognise that good
corporate governance is a key foundation for the long-term success
of the Company. As the Company is listed on the AIM market of the
London Stock Exchange and is subject to the continuing requirements
of the AIM Rules. The Board has therefore adopted the principles
set out in the Corporate Governance Code for small and midsized
companies published by the Quoted Companies Alliance ("QCA Code").
The principles are listed below with an explanation of how the
Company applies each principle, and the reasons for any aspect of
non-compliance.
1. Establish a strategy and business model which promote
long- term value for shareholders
UK Oil & Gas Plc provides
shareholders with a full discussion of corporate strategy within
our Annual Report. A dedicated section explains how we will
establish long term shareholder value.
The Company is focused around 3
key strategic goals: Increase production and recovery from its
existing asset portfolio, grow the asset portfolio through select
onshore development and appraisal projects, actively manage costs
and risks through operational and management control of the entire
process of exploring, appraising and developing its
assets.
The Management team actively
evaluates projects that simultaneously de-risk the current
portfolio and create long-term shareholder value. Projects are
evaluated based on many characteristics to mitigate risk to our
current activities they include but are not limited to alignment
with the Company's core competencies, geography, time horizon and
value creation. Further, a core component of the Company's
activities includes an active dialogue with our legal and
legislative advisors to ensure the Company remains up to date on
current legislation, policy and compliance issues.
Key business challenges and how
they may be mitigated are detailed in the Strategic
Report.
2. Seek to understand and meet shareholder needs and
expectations
UKOG encourages two-way
communication with institutional and private investors. The
Company's major shareholders maintain an active dialogue to and
ensure that their views are communicated fully to the Board. Where
voting decisions are not in line with the company's expectations
the Board will engage with those shareholders to understand and
address any issues. The Company Secretary is the main point of
contact for such matters.
The Company seeks out appropriate
platforms to communicate to a broad audience its current
activities, strategic goals and broad view of the sector and other
related issues. This includes but is not limited to media
interviews, website videos in -person investor presentations and
written content.
Communication to all stakeholders
is the direct responsibility of the Senior Management team.
Managers work directly with professionals to ensure all inquiries
(through established channels for this specific purpose such as
email or phone) are addressed in a timely matter. And that the
Company communicates with clarity on its proprietary internet
platforms. Senior management routinely provides interviews to local
media, and business reporters in support of the company's
activities. The Board routinely reviews the Company communication
policy and programmes to ensure the quality communication with all
stakeholders.
3. Take into account wider stakeholder and social
responsibilities and their implications for long-term
success
In all endeavours, the Company
gives due consideration to the impact on its neighbours. The
Company seeks out methodologies, processes and expertise in order
to address the concerns of the non-investment community. As such,
it actively identifies the bespoke needs of local communities and
their respective planners.
For example, the company provides
for local hotlines and establishes community liaison groups to
address local questions and concerns.
UKOG seeks to maintain positive
relationships within the communities we operate. As such, UKOG is
dedicated to ensuring:
• Open and honest
dialogue;
• Engagement with stakeholders at
all stages of development;
• Proactively address local
concerns;
• Actively minimise impact on our
neighbours; and
• Adherence to a strict health and
safety code of conduct
As a responsible OGA approved and
EA permitted UK operator, UKOG is committed to utilising industry
best practices and achieving the highest standards of environmental
management and safety.
Our operations:
• Continuously assess and monitor
environmental impact;
• Promote internally and across
our industry best practices for environmental management and
safety; and
• Constant attention to
maintaining our exemplary track record of safe oil & gas
production.
For more information please refer
to the Annual Report as well as the Community section within the
Company's corporate website.
4. Embed effective risk management, considering both
opportunities and threats, throughout the
organisation
Risk Management in the Annual
Report details risks to the business, how these are mitigated and
the change in the identified risk over the last reporting
period.
The Board considers risk to the
business at every Board meeting (at least 4 meetings are held each
year) and the risk register is updated at each meeting. The Company
formally reviews and documents the principal risks to the business
at least annually.
Both the Board and senior managers
are responsible for reviewing and evaluating risk and the Executive
Directors meet at least monthly to review ongoing trading
performance, discuss budgets and forecasts and new risks associated
with ongoing trading.
5. Maintain the Board as a well-functioning, balanced team
led by the chair
Oversight of UKOG is performed by
the Company's Board of Directors. Allen Howard, the Non-Executive
Chairman, is responsible for the running of the Board and Stephen
Sanderson, the Chief Executive, has executive responsibility for
running the Company's business and implementing Company strategy.
All Directors receive regular and timely information regarding the
Company's operational and financial performance.
Relevant information is circulated
to the Directors in advance of meetings. In addition, minutes of
the meetings of the Directors of the UK subsidiaries are circulated
to the Board. All Directors have direct access to the advice and
services of the Company Secretary and are able to take independent
professional advice in the furtherance of the duties, if necessary,
at the company's expense.
The Board comprises two Executive
Directors and two Non-Executive Directors with a mix of significant
industry and business experience within public companies. The Board
considers that all Non-Executive Directors bring an independent
judgement to bear. All Directors must commit the required time and
attention to thoroughly fulfil their duties.
The Board has a formal schedule of
matters reserved to it and is supported by the Audit, Remuneration,
Nomination and AIM Rules compliance committee. The Schedule of
Matters Reserved and Committee Terms of Reference are available on
the Company's website and can be accessed on the Corporate
Governance page of the website.
6. Ensure that between them the Directors have the necessary
up-to-date experience, skills and capabilities
The Nomination Committee will
determine the composition of the Board of the Company and
appointment of senior employees. It will develop succession plans
as necessary and report to the Directors. Where new Board
appointments are considered the search for candidates is conducted,
and appointments are made, on merit, against objective criteria and
with due regard for the benefits of diversity on the Board,
including gender.
The Company Secretary supports the
Chairman in addressing the training and development needs of
Directors.
As a small company, all members of
the Board share responsibility for all Board functions. As such the
Board will from time to time engage outside consultants to provide
an independent assessment.
7. Evaluate Board performance based on clear and relevant
objectives, seeking continuous improvement
The Board intends to carry out an
internal evaluation on individual Directors on an ad-hoc basis in
the form of peer reviews and appraisals. The individual reviews and
appraisals are used to identify group and individual targets which
are reviewed and assessed at the end of the financial
year.
8. Promote a corporate culture that is based on ethical
values and behaviours
The Company is committed to
maintaining and promoting high standards of business integrity.
Company values, which incorporate the principles of corporate
social responsibilities (CSR) and sustainability, guide the
Company's relationships with clients, employees and the communities
and environment in which we operate. The Company's approach to
sustainability addresses both our environmental and social impacts,
supporting the Company's vision to remain an employer of choice,
while meeting client demands for socially responsible
partners.
Company policy strictly adheres to
local laws and customs while complying with international laws and
regulations. These policies have been integral in the way group
companies have done business in the past and will continue to play
a central role in influencing the Group's practice in the
future.
The ethical values of UKOG
including health, safety, environmental, social and community and
relationships, are set out in the Annual Report.
9. Maintain governance structures and processes that are fit
for purpose and support good decision-making by the
Board
The Company has adopted a model
code for directors' dealings and persons discharging managerial
responsibilities appropriate for an AIM company, considering the
requirements of the Market Abuse Regulations "MAR"), and take
reasonable steps to ensure compliance is also applicable to the
Company's employees (AIM Rule 21 in relation to directors'
dealings).
The Corporate Governance Statement
details the company's governance structures, the role and
responsibilities of each director. Details and members of the Audit
Committee, Remuneration Committee, Nomination Committee and AIM
Rules compliance committee can be found in the Annual
Report.
10. Communicate how the company is governed and is performing
by maintaining a dialogue with shareholders and other relevant
stakeholders
The Company encourages two- way
communication with both its institutional and private investors and
responds quickly to all queries received. The Chief Executive talks
regularly with the Company's major shareholders and ensures that
their views are communicated fully to the Board.
The Board recognises the AGM as an
important opportunity to meet private shareholders. The Directors
are available to listen to the views of shareholders informally
immediately following the AGM.
To the extent that voting
decisions are not in line with expectations, the Board will engage
with shareholders to understand and address any issues.
In addition to the investor
relations activities carried out by the Company as set out above,
and other relevant disclosures included on this Investor Relations
section of the Company's website, reports on the activities of each
of the Committees during the year will be set out in the Annual
Report.
While building a strong governance
framework we also try to ensure that we take a proportionate
approach and that our processes remain fit for purpose as well as
embedded within the culture of our organisation. We continue to
evolve our approach and make ongoing improvements as part of
building a successful and sustainable company.
Board of Directors
The Board consists of a team of
experienced multidisciplinary members who are committed to
delivering shareholder value.
(i)
Nicholas Mardon Taylor, Non-Executive Chairman
Nicholas Mardon Taylor served as the
Chief Financial Officer of Hurricane Energy PLC from May 2012 until
January 2016. He has worked in the oil industry for over 35 years,
his first involvement in the North Sea being in the early licensing
rounds. He was with Hurricane from 2005 to January 2016 when he was
the Company's first CFO and was subsequently responsible for the
Company's Environmental Management System.
(ii)
Stephen Sanderson, Chief Executive
Stephen Sanderson joined UK Oil
& Gas Plc in September 2014. He was appointed Executive
Chairman and Chief Executive in July 2015 and in August 2018 ceded
his role as Executive Chairman as part of improvements in corporate
governance. A highly experienced petroleum geologist, oil industry
veteran and upstream energy business leader, with over 30 years
operating experience, Stephen is a proven oil finder and has been
instrumental in the discovery of more than 12 commercial
conventional fields, including the Norwegian Smorbuk-Midgaard field
complex.
Stephen held a variety of senior
management roles for ARCO (which was acquired by BP in 2000),
Wintershall AG (a subsidiary of German chemical giant BASF) and
three junior start-ups. He created and ran successful new
exploration businesses in Africa, Europe and South America. He has
significant technical and commercial expertise in the petroleum
systems of Africa, the North Sea, Norway, onshore UK & Europe,
South America, the South Atlantic, Middle East, Asia, India,
Australia and the USA. He is a graduate and Associate of the Royal
School of Mines, Imperial College, London, a Fellow of the
Geological Society of London and a member of the American
Association of Petroleum Geologists.
(iii)
Allen D Howard, Executive Director
Allen Howard was Senior Vice
President of Houston-based Premier Oilfield Laboratories, having
been Chief Operating Officer of well analysis experts Nutech. Allen
also held senior positions with Schlumberger. He holds a degree in
Chemical Engineering from Texas Tech University and an MBA from
Mays Business School in Texas. Allen was appointed as Non-Executive
Chairman for UKOG in August 2018, before taking up his current
Executive role at the beginning of 2022.
(iv)
Kiran Morzaria, Non-Executive Director
Kiran Morzaria holds a Bachelor of
Engineering (Industrial Geology) from the Camborne School of Mines
and an MBA (Finance) from CASS Business School. He has extensive
experience in the mineral resource industry working in both
operational and management roles. Mr Morzaria spent the first four
years of his career in exploration, mining and civil engineering.
He then obtained his MBA and became the Finance Director of
Vatukoula Gold Mines Plc for seven years. He has served as a
director of a number of public companies in both an executive and
non-executive capacity; he is a non-executive director of European
Metals Holdings Ltd and the Chief Executive Officer for Cadence
Minerals Plc. Mr Morzaria previously served in an Executive
capacity as the Finance Director of UKOG, transitioning to his
current Non-Executive position at the beginning of
2022.
Board and Committee Membership
Member
|
Board Title
|
Audit Committee Title
|
Remuneration Committee
Title
|
Stephen Sanderson
|
Chief Executive
|
|
|
Allen D Howard
|
Executive Director
|
|
|
Nicholas Mardon Taylor
|
Non-Executive Chairman
|
Member
|
Member
|
Kiran Morzaria
|
Non-Executive Director
|
Chairman
|
Chairman
|
The Board and its
Committees
The Board of the Company consists of
two Executive Directors and two Non-Executive Directors. The
Non-Executive Directors are not considered independent under the
QCA Code as they hold options and/or shares in the Company.
However, the Board considers that the Non-Executive Directors are
independent of management under all other measures and are able to
exercise independence of judgement.
With effect from 1 January 2022 the
board was restructured. Kiran Morzaria stepped down as Finance
Director and became a Non-Executive Director. Allen Howard moved
from Non-Executive Chairman to become an Executive Director of the
Company on a part-time basis. Nicholas Mardon Taylor became the
Non-Executive Chairman.
The Board is responsible for
formulating, reviewing and approving the Company's strategy,
financial activities and operating performance. Day-to-day
management is devolved to the executive directors, who are charged
with consulting the Board on all significant financial and
operational matters. The Board retains ultimate accountability for
governance and is responsible for monitoring the activities of the
executive team.
The roles of Chairman and Chief
Executive are split in accordance with best practice. The Chairman
has the responsibility of ensuring that the Board discharges its
responsibilities. The Chairman is also responsible for the
leadership and effective working of the Board, for setting the
Board agenda, and ensuring that Directors receive accurate, timely
and clear information. No one individual has unfettered powers of
decision.
The Chief Executive has the overall
responsibility for creating, planning, implementing, and
integrating the strategic direction of the Company. This includes
responsibility for all components and departments of the business.
The Chief Executive ensures that the organisation's leadership
maintains constant awareness of both the external and internal
competitive landscape, opportunities for expansion, customer base,
markets, new industry developments and standards.
The Board met regularly during the
year. Tabulated below is the attendance of Board Members during the
reporting period.
Board Member
|
Meetings attended (out of a total
possible)
|
Nicholas Mardon Taylor
|
5/5
|
Stephen Sanderson
|
5/5
|
Allen D Howard
|
5/5
|
Kiran Morzaria
|
5/5
|
Audit Committee
The audit committee consists of
Kiran Morzaria (Chairman) and Nicholas Mardon Taylor. Prior to 1
January 2022 the audit committee consisted of Nicholas Mardon
Taylor (Chairman) and Allen D Howard. The Audit Committee met once
during the year.
Board member
|
Meetings attended (out of a total
possible)
|
Kiran Morzaria
|
1/1
|
Nicholas Mardon Taylor
|
1/1
|
The principal duties and
responsibilities of the Audit Committee include:
· Overseeing the Company's financial reporting disclosure
process; this includes the choice of appropriate accounting
policies
· Monitoring the Company's internal financial controls and
assess their adequacy
· Reviewing key estimates, judgements and assumptions applied
by management in preparing published financial
statements
· Annually assessing the auditor's independence and
objectivity
· Making recommendations in relation to the appointment,
re-appointment and removal of the company's external
auditor
Remuneration Committee
The Remuneration Committee consists
of Kiran Morzaria (Chairman) and Nicholas Mardon Taylor. Prior to 1
January 2022 the Remuneration Committee consisted of Nicholas
Mardon Taylor (Chairman) and Allen D Howard. The Remuneration
Committee met once during the year.
Board member
|
Meetings attended (out of a total
possible)
|
Kiran Morzaria
|
1/1
|
Nicholas Mardon Taylor
|
1/1
|
The principal duties and
responsibilities of the Remuneration Committee include:
· Setting the remuneration policy for all Executive
Directors
· Recommending and monitoring the level and structure of
remuneration for senior management
· Approving the design of, and determining targets for,
performance related pay schemes operated by the company and approve
the total annual payments made under such schemes
· Reviewing the design of all share incentive plans for
approval by the board and shareholders
None of the Committee members have
any personal financial interest (other than as shareholders and
option holders), conflicts of interest arising from
cross-directorships or day-to-day involvement in the running of the
business. No director plays a part in any financial decision about
his or her own remuneration.
Internal controls
The Board is responsible for
establishing and maintaining the Company's system of internal
controls and reviewing its effectiveness. The procedures that
include financial, operational, health and safety, compliance
matters and risk management are reviewed on an ongoing
basis.
The Company's internal control
procedures include the following:
· Board approval for all significant projects, including
corporate transactions and major capital projects;
· The
Board receives and reviews regular reports covering both the
technical progress of projects and the Company's financial affairs
to facilitate its control;
· There is a comprehensive budgeting and planning system for
all items of expenditure with an annual budget approved by the
Board;
· The
Company has in place internal control and risk management systems
in relation to the Company's financial reporting process and the
Company's process for preparing consolidated accounts. These
systems include policies and procedures to ensure that adequate
accounting records are maintained, and transactions are recorded
accurately and fairly to permit the preparation of consolidated
financial statements in accordance with UK-Adopted IAS;
and
· The
Audit Committee reviews draft annual and interim reports before
recommending their publication to the Board. The Audit Committee
discusses with the Chief Financial Officer and external auditors
the significant accounting policies, estimates and judgements
applied in preparing these reports.
The internal control system can only
provide reasonable and not absolute assurance against material
misstatement or loss. The Board has considered the need for a
separate internal audit function but, bearing in mind the present
size and composition of the Company, does not consider it necessary
at the current time.
UK Bribery Act
UK Oil & Gas Plc has
reviewed the appropriate policies and procedures to ensure
compliance with the UK Bribery Act. The Company continues actively
to promote good practice throughout the Company and has initiated a
rolling programme of anti-bribery and corruption training for all
relevant employees.
Relations with
shareholders
Communications with shareholders are
considered important by the Directors. The primary contact with
shareholders, investors and analysts is the Chief Executive. Other
senior management, however, regularly speak to investors and
analysts during the year.
Company circulars and press releases
have also been issued throughout the year for the purpose of
keeping investors informed about the Company's progress and in
accordance with AIM regulations.
The Company also maintains a website
(www.ukogplc.com) which is regularly updated and contains a wide
range of information about the Company.
DIRECTORS' REMUNERATION
REPORT
This report explains our
remuneration policy for Directors and sets out how decisions
regarding Directors' pay for the period under review have been
taken.
Directors' remuneration
policy
The Company's policy is to maintain
levels of remuneration sufficient to attract, motivate and retain
senior executives.
Executive Director's remuneration
currently consists of basic salary, pensions, annual bonus (based
on annually set targets) and long-term incentives (to reward long
term performance).
The Company seeks to strike an
appropriate balance between fixed and performance-related reward so
that the total remuneration package is structured to align a
significant proportion to the achievement of performance targets,
reinforcing a clear link between pay and performance. The
performance targets for staff, senior executives and the Executive
Directors are each aligned to the key drivers of the business
strategy, thereby creating a strong alignment of interest between
staff, Executive Directors and shareholders.
The Remuneration Committee will
continue to review the Company's remuneration policy and make
amendments, as and when necessary, to ensure it remains fit for
purpose and continues to drive high levels of executive performance
and remains both affordable and competitive in the
market.
Remit of the Remuneration
Committee
The remit of the Remuneration
Committee is provided in the Corporate Governance
section.
Share price movements during the
year
The share price range during the
year was £0.00033 to £0.0012 (2022: £0.00077 to
£0.0017).
Current arrangement in financial
year (audited)
Executive Directors are employed
under rolling contracts with notice periods of 12 months or less
from the Company. Non-Executive Directors are employed under
rolling contracts with notice period of three months, under which
they are not entitled to any pension, benefits or
bonuses.
During the years ended 30 September
2023 and 2022 the Directors occupied the following Board positions:
Nicholas Mardon Taylor (Non-Executive Chairman), Stephen Sanderson
(Chief Executive Officer), Allen D Howard (Executive Director),
Kiran Morzaria (Non-Executive Director), The Directors' emoluments
for the year were as follows:
Year ended 30 September
2023
Director
|
Board Position*
|
Salary
£'000
|
Bonus
£'000
|
Pension
£'000
|
Share
Based Payments
£'000
|
Benefits
in
Kind
£'000
|
Total
£'000
|
Nicholas Mardon Taylor
|
Non-Executive Chairman
|
61
|
-
|
-
|
-
|
-
|
61
|
Stephen Sanderson
|
Chief Executive
|
337
|
-
|
1
|
-
|
-
|
338
|
Allen D Howard
|
Executive Director
|
82
|
-
|
-
|
-
|
-
|
82
|
Kiran Morzaria
|
Non-Executive Director
|
27
|
-
|
-
|
-
|
-
|
27
|
Total Directors
|
|
507
|
-
|
1
|
-
|
-
|
508
|
Year ended 30 September
2022
Director
|
Board Position*
|
Salary
£'000
|
Bonus
£'000
|
Pension
£'000
|
Share
Based Payments
£'000
|
Benefits
in
Kind
£'000
|
Total
£'000
|
Nicholas Mardon Taylor
|
Non-Executive Director
|
56
|
-
|
-
|
-
|
-
|
56
|
|
Stephen Sanderson
|
Chief Executive
|
311
|
-
|
1
|
-
|
-
|
312
|
|
Allen D Howard
|
Non-Executive Chairman
|
72
|
-
|
-
|
-
|
-
|
72
|
|
Kiran Morzaria**
|
Finance Director
|
55
|
-
|
1
|
-
|
-
|
56
|
|
Total Directors
|
|
494
|
-
|
2
|
-
|
-
|
496
|
|
* Board positions listed are the
positions which were occupied at the end of the financial year
being reported. The Board was restructured with effect from 1
January 2022, as detailed within the Corporate Governance
section.
** includes remuneration of Kiran
Morzaria as Finance Director for the year ended 30 September
2022
As at 30 September 2023, the
outstanding long-term incentives, in the form of options, held by
the Directors who served during the period are set out in the table
below.
Share options
|
At 1
October 2022
No. million
|
Issued
during the year
No. million
|
lapsed /
exercised during the year
No. million
|
At 30
September 2023
No. million
|
Exercise
price
|
Date
from which exercisable
|
Expiry
date
|
Stephen Sanderson
|
25
|
-
|
-
|
25
|
0.0130
|
27/09/2020
|
25/09/2024
|
Total
|
25
|
-
|
(25)
|
25
|
|
|
|
Share options
|
At 1
October 2022
No. million
|
Issued
during the year
No. million
|
lapsed /
exercised during the year
No. million
|
At 30
September 2023
No. million
|
Exercise
price
|
Date
from which exercisable
|
Expiry
date
|
Kiran Morzaria
|
6.5
|
-
|
-
|
6.5
|
0.0130
|
27/09/2020
|
25/09/2024
|
Total
|
6.5
|
-
|
(20)
|
6.5
|
|
|
|
Share options
|
At 1
October 2022
No. million
|
Issued
during the year
No. million
|
lapsed /
exercised during the year
No. million
|
At 30
September 2023
No. million
|
Exercise
price
|
Date
from which exercisable
|
Expiry
date
|
Allen Howard
|
5
|
-
|
-
|
5
|
0.0130
|
27/09/2020
|
25/09/2024
|
Total
|
5
|
-
|
(10)
|
5
|
|
|
|
Share options
|
At 1
October 2022
No. million
|
Issued
during the year
No. million
|
lapsed /
exercised during the year
No. million
|
At 30
September 2023
No. million
|
Exercise
price
|
Date
from which exercisable
|
Expiry
date
|
Nicholas Mardon Taylor
|
4
|
-
|
-
|
4
|
0.0130
|
27/09/2020
|
25/09/2024
|
Total
|
4
|
-
|
-
|
4
|
|
|
|
Report of the Directors
The Directors present their annual
report together with the audited consolidated financial statements
of the Group for the year ended
30 September 2023.
Business review and future
developments
A review of business activities in
the year and future developments is outlined in the Chief
Executive's Statement, the Statement from the Chairman, and the
Operational Review.
Principal activity and business
review
The principal activity of the Group
is exploring for, appraising and developing oil & gas
assets.
Results and dividends
Loss on ordinary activities of the
Group amounted to £4,069,000 (2022: loss of £5,622,000). The
Directors do not recommend the payment of a dividend (2022: £nil).
The Company has no plans to adopt a dividend policy in the
immediate future.
Principal risks and
uncertainties
Information of the principal risks
and uncertainties facing the Group is included in the Principal
Risks and Uncertainties section of the Strategic Report.
Financial risk management
objectives and policies
The Group's principal financial
instruments are trade receivables, trade payables, cash at bank,
and borrowings. The main purpose of these financial instruments is
to fund the Group's operations.
It is, and has been throughout the
period under review, the Group's policy that no trading in
financial instruments shall be undertaken. The main risk arising
from the Group's financial instruments is liquidity risk. The Board
reviews and agrees policies for managing this risk and this is
summarised below.
Liquidity risk
The Group's objective is to maintain
a balance between continuity of funding and flexibility through the
use of equity and its cash resources. Further details of this are
provided in the principal accounting policies, headed 'going
concern'.
Key Performance Indicators
("KPIs")
KPIs adopted by the Group are
detailed in the KPIs section of the Strategic Report.
Going concern
The Directors note the losses and
cash outflows that the Group has made for the year ended 30
September 2023. The Directors have prepared cash flow forecasts for
the period to 31 March 2025, which take into account anticipated
production and costs, the forward curve of Brent crude oil,
expected revenue streams and external funding.
The forecasts prepared demonstrate
that the Group will have sufficient cash funds available to allow
it to continue in business for a period of at least 12 months from
the date of approval of these financial statements. Notwithstanding
the Company's current cash balance and contractual expenditure
commitments, the Board are cognisant of any possible unforeseen
events outside of its control on the Group. Whilst some of these
events are contingent (farm-in to the Horse Hill Oil Field), the
Company, if required, will take actions to address any cash
constraints by seeking to raise capital through equity or debt.
Whilst there can be no certainty that sufficient funding can be
obtained in the timescales required, the Directors are confident of
their ability to raise capital, which is supported by successful
capital placements in the past.
For these reasons the Directors
adopt the going concern basis in the preparation of the Financial
Statements however confirm that there remains a material
uncertainty that may cause significant doubt over the going concern
nature of the Group.
Independent auditor's report also
refers to material uncertainty related to going concern.
Events after the reporting
period
Events after the Reporting Period
are outlined in Note 24 to the Financial Statements.
Corporate governance
Information in relation to the
Corporate Governance of the Group is contained within the Corporate
Governance Section of the Strategic Report.
Suppliers' payment
policy
The Group's policy is to agree terms
and conditions with suppliers in advance; payment is then made in
accordance with the agreement provided the supplier has met the
terms and conditions. Suppliers are typically paid within 30 days
of issue of invoice.
Charitable contributions
During the year the Group made
charitable donations amounting to £Nil (2022 - £Nil).
Substantial shareholdings
update
As at 31 December 2023, the Company
had been notified of the following substantial shareholdings in its
ordinary share capital:
Shareholder
|
Number of Ordinary
Shares
|
Holding %
|
Hargreaves Lansdown (Nominees)
Limited
|
7,251,717,353
|
30.44%
|
Interactive Investor Services
Nominees Limited
|
3,907,456,689
|
16.40%
|
HSDL Nominees Limited
|
2,910,372,218
|
12.22%
|
Barclays Direct Investing Nominees
Limited
|
1,782,317,013
|
7.48%
|
IG Markets
|
997,943,140
|
4.19%
|
Current Board and directors'
interests
Nicholas Mardon
Taylor Non-Executive
Chairman
Stephen
Sanderson
Chief Executive
Allen D
Howard
Executive Director
Kiran
Morzaria
Non-Executive Director
The directors hold options to
purchase new ordinary shares in the Company, details of which are
specified in the Remuneration Report on pages 25 to 26. In
addition, Stephen Sanderson holds 12,457,310 ordinary shares in the
Company and Kiran Morzaria holds 4,508,178 ordinary shares in the
Company.
Auditor
PKF Littlejohn LLP has expressed
their willingness to continue in office as auditor and a resolution
to reappoint PKF Littlejohn LLP as auditor will be proposed at the
forthcoming Annual General Meeting ("AGM").
Annual General Meeting
Notice of the forthcoming Annual
General Meeting will be provided separately.
Statement of directors'
responsibilities
The Directors are responsible for
preparing the annual report and financial statements in accordance
with applicable law and regulations.
Company law requires the Directors
to prepare Financial Statements for each financial year. Under that
law the Directors have elected to prepare the Group and Parent
Company financial statements in accordance with UK-adopted
international accounting standards in conformity with the
requirements of the Companies Act 2006. Under Company law the
Directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of
affairs of the Group and Company and of the profit or loss of the
Group for that period. These financial statements have been
prepared in accordance with:
· UK-adopted international accounting standards and
· the
requirements of the Companies Act 2006.
In preparing these financial
statements, the Directors are required to:
· Select suitable accounting policies and then apply them
consistently;
· Make
judgements and estimates that are reasonable and
prudent;
· Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group will continue
in business.
The Directors are responsible for
keeping adequate accounting records that are sufficient to show and
explain the Company's transactions and disclose with reasonable
accuracy at any time the financial position of the Group and
Company and enable them to ensure that the financial statements
comply with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Group and Company and hence for
taking reasonable steps for the prevention and detection of fraud
and other irregularities.
The Directors are responsible for
the maintenance and integrity of the corporate and financial
information included on the Company's website. Legislation in the
United Kingdom governing the preparation and dissemination of the
financial statements may differ from legislation in other
jurisdictions. The Company's website is maintained in accordance
with AIM Rule 26.
Statement as to disclosure of
information to the auditor
As at the date of this report the
serving directors confirm that:
· So
far as each Director is aware, there is no relevant audit
information of which the Group's auditors are unaware,
and
· They
have taken all the steps that they ought to have taken as Directors
in order to make themselves aware of any relevant audit information
and to establish that the Group's auditor are aware of that
information.
On behalf of the board
Stephen Sanderson
Director
28 March 2024
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF UK OIL &
GAS PLC
Opinion
We have audited the financial
statements of UK Oil & Gas Plc (the 'parent company') and its
subsidiaries (the 'group') for the year ended 30 September 2023
which comprise the Consolidated Statement of Comprehensive Income,
the Consolidated and Parent company Statements of Financial
Position, the Consolidated and Parent company Statements of Changes
in Equity, the Consolidated and Parent company Statements of Cash
Flows and notes to the financial statements, including significant
accounting policies. The financial reporting framework that has
been applied in their preparation is applicable law and UK-adopted
international accounting standards and as regards the parent
company financial statements, as applied in accordance with the
provisions of the Companies Act 2006.
In our opinion:
· the
financial statements give a true and fair view of the state of the
group's and of the parent company's affairs as at 30 September 2023
and of the group's loss for the year then ended;
· the
group financial statements have been properly prepared in
accordance with UK-adopted international accounting
standards;
· the
parent company financial statements have been properly prepared in
accordance with UK-adopted international accounting standards and
as applied in accordance with the provisions of the Companies Act
2006; and
· the
financial statements have been prepared in accordance with the
requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in
accordance with International Standards on Auditing (UK) (ISAs
(UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor's responsibilities
for the audit of the financial statements section of our report. We
are independent of the group and parent company in accordance with
the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the FRC's Ethical
Standard as applied to listed entities, and we have fulfilled our
other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our
opinion.
Material uncertainty related to going
concern
We draw attention to note 2b in
the financial statements, which indicates that the group will
require additional funding in the coming twelve months to meet
their ongoing cash requirements. Whilst the directors anticipate
that such funding may be obtained from a number of sources, there
can be no certainty that such sources of funding are obtained in
the timeframes necessary. As stated in note 2b, these events or
conditions, along with the other matters as set forth in note 2b,
indicate that a material uncertainty exists that may cast
significant doubt on the company's ability to continue as a going
concern. Our opinion is not modified in respect of this
matter.
In auditing the financial
statements, we have concluded that the director's use of the going
concern basis of accounting in the preparation of the financial
statements is appropriate. Our evaluation of the directors'
assessment of the group's and parent company's ability to continue
to adopt the going concern basis of accounting included a review of
budgets and cash flow forecasts covering a period of at least 12
months from the date of approval of the financial statements,
including challenge of management on the basis of preparation,
together with ascertaining the most recent cash position of the
group and company, and identifying subsequent events impacting the
going concern position.
Our responsibilities and the
responsibilities of the directors with respect to going concern are
described in the relevant sections of this report.
Our application of materiality
For the purposes of determining
whether the financial statements are free from material
misstatement, we define materiality as a magnitude of misstatement
that makes it probable that the economic decisions of a reasonable
knowledgeable person, relying on the financial statements, would be
charged or influenced. We also determine a level of performance
materiality which we use to assess the extent of testing needed to
reduce to an appropriately low level the probability that the
aggregate of uncorrected and undetected misstatements exceed
materiality for the financial statements as a whole.
Materiality for the group
financial statements was set at £666,000 (2022: £783,000). This was
calculated based on 2% of net assets (2022: 2% of net assets). Net
assets was used as the benchmark for the basis of materiality being
the key area of relevance to stakeholders in assessing the
financial performance of the group in its early years of production
and exploration. The same basis for the calculation of materiality
for the Parent company financial statements was used, however
restricted to £665,999 (2022: £782,999), to ensure a level below
that of group materiality as required by ISA (UK) 600.
We also determine a level of
performance materiality which we use to assess the extent of
testing needed to reduce to an appropriately low level probability
that the aggregate of uncorrected and undetected misstatements
exceeds materiality for the financial statements as a whole.
Performance materiality for the group and Parent company was set at
£432,900 (2022: £508,950) and £432,899 (2022: £508,949)
respectively, being 65% of materiality for the financial statements
as a whole.
We agreed to report to those
charged with governance all corrected and uncorrected misstatements
we identified through our audit with a value in excess of £33,300
for both the group and Parent company. We also agreed to report any
other audit misstatements below that threshold that we believe
warranted reporting on qualitative grounds.
Our approach to the audit
The scope of our audit was
influenced by our application of materiality. The quantitative and
qualitative thresholds for materiality determine the scope of our
audit and the nature, timing and extent of our audit
procedures.
As part of our planning, we
assessed all components of the group for their significance under
ISA (UK) 600 in order to determine the scope of the work to be
performed. Those entities of the group which were considered to be
significant components, being UK Oil & Gas plc, Horse Hill
Developments Limited and UKOG (234) Limited, were subject to full
scope audit procedures, and those considered to be material, being
UKOG (137/246) Holdings Limited, UKOG (137/246) Ltd, UKOG Turkey
Limited and UK Energy Storage Limited were subject to audit
procedures on significant and identified risk areas and material
balances only, in accordance with ISA (UK) 600. Procedures were
then performed to address the risks identified and for the most
significant assessed risks of material misstatement, the procedures
are outlined below in the key audit matters section of this report.
The remaining components were subject to analytical review
procedures.
We did not rely on the work of any
component auditors.
Key audit matters
Key audit matters are those
matters that, in our professional judgment, were of most
significance in our audit of the financial statements of the
current period and include the most significant assessed risks of
material misstatement (whether or not due to fraud) we identified,
including those which had the greatest effect on: the overall audit
strategy, the allocation of resources in the audit; and directing
the efforts of the engagement team. These matters were addressed in
the context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
Key Audit Matter
|
How our scope addressed this
matter
|
Carrying value and correct
classification of exploration and evaluation assets (Note
11)
|
|
The group accounts for exploration
and evaluation (E&E) costs in accordance with the requirements
of IFRS 6 - Exploration for and evaluation of mineral resources.
Costs such as exploration licences, leasehold land and property
acquisition costs and costs directly associated with exploration
activities are capitalised as exploration and evaluation intangible
assets. There is a risk that the exploration and evaluation assets
are incorrectly valued or need to be impaired.
If no future activity is planned,
the licence has been relinquished or has expired, or where
development is likely to proceed but there are indications that the
E&E asset costs are unlikely to be recovered in full, the
carrying value may be impaired and require being written off to the
income statement.
This risk is classed as a KAM
given that management's review for indicators of impairment may be
subject to significant judgements and estimates and is one of the
most significant balances on the statement of financial
position.
|
Our work in this area
included:
· Vouching a sample of additions in the period to supporting
documentation and ensuring they have been capitalised in line with
the requirements of IFRS 6;
· A
review of management's indicators of impairment review and
performing an independent assessment to ascertain whether
indicators of impairment exist under IFRS 6. Including challenging
estimates and assumptions made by management;
· Obtaining and reviewing latest Competent Person's Reports, as
well as any other relevant technical reports, and considering the
impact of any key findings on the indicators of impairment
review;
· Assessing whether good title to the licences in place remains
and whether they are valid for the period under review;
· Reviewing the terms of the licenses to identify any
stipulations and assessing whether these have been met;
and
· Ensuring disclosures made in the financial statements in
relation to critical accounting estimates and judgments are
adequate and in line with our understanding of the group and its
activities.
|
Carrying value of producing assets
(Note 12)
|
|
The group carries an amount of
producing assets on its statement of financial position. Management
reviews the group's producing assets annually to determine whether
any indication of impairment exists. Where indicators exist, a
formal estimate of the recoverable amount is made, which requires
the use of key assumptions and judgements such as long-term oil
prices, foreign exchange rates, discount rates, reserves,
production profiles and capital expenditure all of which are
subject to risk and uncertainty.
There exists a risk of material
misstatement around the carrying value of the producing assets, as
to whether any impairment is required.
This is classed as a KAM given
that management's valuation workings are subject to significant
judgements and estimates.
|
Our work in this area
included:
· A
critical assessment of managements impairment review of the
carrying value of the producing assets, including management's net
present value workings, and challenging key assumptions made
including the discount rate, forecasted oil price, production
levels and reserves estimates;
· A
review of the unit of production method of depletion and performing
a recalculation thereto;
· Verifying the mathematical accuracy of the calculations
prepared by management; and
· Physically verifying a sample of assets to supporting
existence and assessing he appropriate classification.
|
Carrying value of investments -
company only (Note 13)
|
|
The Company holds an investment in
a Joint venture investment in Turkey and investments in the Group
subsidiaries. At each reporting period, the directors carry out an
impairment review of the company's investment in subsidiaries and
joint venture applying the same assumptions used for the impairment
review of oil and gas properties and the exploration assets within
those entities.
There is a risk that these
investments are not fairly stated and require an impairment should
there be corresponding impairments in the underlying oil and gas
properties and exploration assets.
This risk is classed as a KAM
given that management's valuation and classification of investments
are subject to significant judgements and estimates.
|
Our work in this area
included:
· Reviewing valuation and/or impairment workings, including
testing key inputs to supporting documentation and challenging
estimates and assumptions made by management;
· Agreeing investment holdings to supporting documentation to
support the ownership;
· Agreeing capitalisation of intercompany loans to supporting
documentation;
· Considering the recoverability of investments by reference to
underlying net asset values; and
· Ensuring disclosures made in the financial statements in
relation to critical accounting judgements are adequate.
|
Other information
The other information comprises
the information included in the annual report, other than the
financial statements and our auditor's report thereon. The
directors are responsible for the other information contained
within the annual report. Our opinion on the group and parent
company financial statements does not cover the other information
and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing
so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the course of the audit, or otherwise appears to be
materially misstated. If we identify such material inconsistencies
or apparent material misstatements, we are required to determine
whether this gives rise to a material misstatement in the financial
statements themselves. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact.
We have nothing to report in this
regard.
Opinions on other matters prescribed by the Companies Act
2006
In our opinion, based on the work
undertaken in the course of the audit:
· the
information given in the strategic report and the directors' report
for the financial year for which the financial statements are
prepared is consistent with the financial statements;
and
· the
strategic report and the directors' report have been prepared in
accordance with applicable legal requirements.
Matters on which we are required to report by
exception
In the light of the knowledge and
understanding of the group and the parent company and their
environment obtained in the course of the audit, we have not
identified material misstatements in the strategic report or the
directors' report.
We have nothing to report in
respect of the following matters in relation to which the Companies
Act 2006 requires us to report to you if, in our
opinion:
· adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
· the
parent company financial statements are not in agreement with the
accounting records and returns; or
· certain disclosures of directors' remuneration specified by
law are not made; or
· we
have not received all the information and explanations we require
for our audit.
Responsibilities of directors
As explained more fully in the
directors' responsibilities statement, the directors are
responsible for the preparation of the group and parent company
financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the group and parent
company financial statements, the directors are responsible for
assessing the group and the parent company's ability to continue as
a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting
unless the directors either intend to liquidate the group or the
parent company or to cease operations, or have no realistic
alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain
reasonable assurance about whether the financial statements as a
whole are free from material misstatement, whether due to fraud or
error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of
these financial statements.
Irregularities, including fraud,
are instances of non-compliance with laws and regulations. We
design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of
irregularities, including fraud. The extent to which our procedures
are capable of detecting irregularities, including fraud is
detailed below:
· We
obtained an understanding of the group and Parent company and the
sector in which they operate to identify laws and regulations that
could reasonably be expected to have a direct effect on the
financial statements. We obtained our understanding in this regard
through discussions with management, industry research and
application of cumulative audit knowledge and experience of the
sector.
· We
determined the principal laws and regulations relevant to the group
and Parent company in this regard to be those arising
from:
o Companies Act 2006
o UK adopted International Accounting Standards
o Employment Law
o Bribery Act 2010
o Tax legislation
o Health and Safety legislation
o Environmental law
· We
designed our audit procedures to ensure the audit team considered
whether there were any indications of non-compliance by the group
and Parent company with those laws and regulations. These
procedures included, but were not limited to:
o enquiries of management
o review of RNS announcements
o review of board and other committee minutes
o review of legal correspondence
· We
also identified the risks of material misstatement of the financial
statements due to fraud. We considered, in addition to the
non-rebuttable presumption of a risk of fraud arising from
management override of controls, that the potential for management
bias was identified in relation to the impairment of the carrying
value of exploration and evaluation assets, oil and gas assets and
investments in subsidiaries. We addressed this by challenging the
assumptions and judgements made by management when auditing them.
We did not identify any significant fraud risks.
· As
in all of our audits, we addressed the risk of fraud arising from
management override of controls by performing audit procedures
which included, but were not limited to: the testing of
journals; reviewing accounting estimates for evidence of
bias; and evaluating the business rationale of any significant
transactions that are unusual or outside the normal course of
business.
Because of the inherent
limitations of an audit, there is a risk that we will not detect
all irregularities, including those leading to a material
misstatement in the financial statements or non-compliance with
regulation. This risk increases the more that compliance with a law
or regulation is removed from the events and transactions reflected
in the financial statements, as we will be less likely to become
aware of instances of non-compliance. The risk is also greater
regarding irregularities occurring due to fraud rather than error,
as fraud involves intentional concealment, forgery, collusion,
omission or misrepresentation.
A further description of our
responsibilities for the audit of the financial statements is
located on the Financial Reporting Council's website at:
www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor's report.
Use of our report
This report is made solely to the
company's members, as a body, in accordance with Chapter 3 of Part
16 of the Companies Act 2006. Our audit work has been undertaken so
that we might state to the company's members those matters we are
required to state to them in an auditor's report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone, other than the company and the
company's members as a body, for our audit work, for this report,
or for the opinions we have formed.
Daniel Hutson (Senior Statutory Auditor)
15 Westferry Circus
For and on behalf of PKF Littlejohn
LLP
Canary Wharf
Statutory Auditor
London E14 4HD
28 March 2024
Financial Statements
Consolidated statement of
comprehensive income
for year ended 30 September 2023
|
Notes
|
30 Sep
2023
£'000
|
30 Sep
2022
£'000
|
REVENUE
|
6
|
1,538
|
1,780
|
Cost of
sales
|
|
|
|
Depletion, Depreciation and
Amortisation
|
|
(244)
|
(769)
|
Other Cost of Sales
|
|
(1,019)
|
(701)
|
Gross
profit
|
|
275
|
310
|
Operating
expenses
|
|
|
|
Administrative expenses
|
|
(3,320)
|
(2,643)
|
Impairment of oil and gas
assets
|
12
|
-
|
(2,890)
|
Impairment of E&E
assets
|
11
|
(402)
|
(100)
|
Foreign exchange losses
|
|
(33)
|
(65)
|
Operating loss
|
5
|
(3,480)
|
(5,388)
|
Finance Cost
|
8
|
(589)
|
(234)
|
Loss before taxation
|
|
(4,069)
|
(5,622)
|
Taxation
|
9
|
|
-
|
-
|
Retained loss for the
year
|
|
|
(4,069)
|
(5,622)
|
Retained loss attributable to
|
|
|
|
|
Equity holders of the
Parent
|
|
|
(3,777)
|
(4,870)
|
Non-Controlling
Interests
|
|
|
(292)
|
(752)
|
|
|
|
(4,069)
|
(5,622)
|
There are no other comprehensive
income or expenses during the two reported periods to
disclose.
All operations are
continuing.
|
Note
|
Pence
|
Pence
|
Earnings per share
|
|
|
|
Basic and diluted
|
10
|
(0.02)
|
(0.04)
|
The accompanying accounting policies
and notes form an integral part of these financial
statements.
Consolidated statement of financial
position
as at 30 September 2023
|
Notes
|
30 Sep
2023
£'000
|
30 Sep
2022
£'000
|
ASSETS
|
|
|
|
Non-current assets
|
|
|
|
Exploration & evaluation
assets
|
11
|
33,201
|
32,155
|
Oil & Gas
properties
|
12
|
2,276
|
2,199
|
Property, Plant &
Equipment
|
12
|
1,439
|
1,563
|
Total non-current assets
|
|
36,916
|
35,922
|
Current assets
|
|
|
|
Inventory
|
14
|
18
|
3
|
Trade and other
receivables
|
15
|
754
|
748
|
Cash and cash
equivalents
|
16
|
1,868
|
4,595
|
Total current assets
|
|
2,640
|
5,346
|
Total assets
|
|
39,556
|
41,269
|
LIABILITIES
|
|
|
|
Current liabilities
|
|
|
|
Trade and other
payables
|
17
|
(635)
|
(801)
|
Borrowings
|
18
|
(4,784)
|
(3,114)
|
Total current liabilities
|
|
(5,419)
|
(3,915)
|
Non-current Liabilities
|
|
|
|
Provisions
|
19
|
(1,451)
|
(1,442)
|
Total non-current liabilities
|
|
(1,451)
|
(1,442)
|
Total liabilities
|
|
(6,869)
|
(5,355)
|
Net Assets
|
|
32,687
|
35,912
|
Equity
|
|
|
|
Share capital
|
20
|
13,808
|
13,693
|
Share premium account
|
|
110,915
|
110,480
|
Share based payment
reserve
|
21
|
2,039
|
1,745
|
Accumulated losses
|
|
(92,753)
|
(88,976)
|
|
|
34,009
|
36,942
|
Non-controlling
interest
|
|
(1,322)
|
(1,030)
|
Total shareholders' equity
|
|
32,687
|
35,912
|
These financial statements were
approved by the Board of Directors on 28 March 2024 and are signed
on its behalf by:
Stephen
Sanderson
Director
The accompanying accounting policies
and notes form an integral part of these financial
statements.
Company statement of financial
position
as at 30 September 2023
|
Notes
|
2023
£'000
|
2022
£'000
|
ASSETS
|
|
|
|
Non-current assets
|
|
|
|
Exploration & evaluation
assets
|
11
|
1,166
|
841
|
Investment in subsidiary
companies
|
13
|
26,242
|
26,242
|
Property, Plant and
Equipment
|
12
|
1,412
|
1,505
|
Total non-current assets
|
|
28,820
|
28,588
|
Current assets
|
|
|
|
Trade and other
receivables
|
15
|
172
|
229
|
Intercompany balances
|
15
|
13,157
|
24,753
|
Cash and cash
equivalents
|
16
|
497
|
3,634
|
Total current assets
|
|
13,826
|
28,616
|
TOTAL ASSETS
|
|
42,646
|
57,204
|
LIABILITIES
|
|
|
|
Current liabilities
|
|
|
|
Trade and other
payables
|
17
|
(254)
|
(341)
|
Borrowings
|
|
(1,540)
|
-
|
Total Current Liabilities
|
|
(1,794)
|
(341)
|
TOTAL LIABILITIES
|
|
(1,794)
|
(341)
|
Net Assets
|
|
40,852
|
56,863
|
Shareholders' Equity
|
|
|
|
Share capital
|
20
|
13,808
|
13,693
|
Share premium account
|
|
110,915
|
110,480
|
Share based payment
reserve
|
|
2,039
|
1,745
|
Accumulated losses
|
|
(85,910)
|
(69,055)
|
Total shareholders' equity
|
|
40,852
|
56,863
|
As permitted by section 408 of the
Companies Act 2006, the profit and loss account of the parent
company has not been separately presented in these accounts. The
parent company loss for the year was £16,757,000 (2021: loss
£1,716,000).
These financial statements were
approved by the Board of Directors on 28 March 2024 and are signed
on its behalf by:
Stephen
Sanderson
Director
Registered number:
05299925
The accompanying accounting policies
and notes form an integral part of these financial
statements.
Consolidated statement of changes
in equity
for the year ended 30 September 2023
|
Share
capital
£'000
|
Share
premium
£'000
|
Share
based payment reserve
£'000
|
Accumulated losses
£'000
|
Total
£'000
|
Non-controlling Interests
£'000
|
Total
£'000
|
Balance at 30 September 2021
|
13,208
|
107,097
|
2,056
|
(84,580)
|
37,780
|
(278)
|
37,503
|
Loss for the year
|
-
|
-
|
-
|
(4,870)
|
(4,870)
|
(752)
|
(5,622)
|
Total comprehensive income
|
-
|
-
|
-
|
(4,870)
|
(4,870)
|
(752)
|
(5,622)
|
Issue of shares
|
485
|
3,764
|
-
|
-
|
4,249
|
-
|
4,249
|
Cost of share issue
|
-
|
(381)
|
163
|
-
|
(218)
|
-
|
(218)
|
Share options expired
|
-
|
-
|
(474)
|
474
|
-
|
-
|
-
|
Total transactions with
owners
|
485
|
3,383
|
(311)
|
474
|
4,031
|
-
|
4,031
|
Balance at 30 September 2022
|
13,693
|
110,480
|
1,745
|
(88,976)
|
36,942
|
(1,030)
|
35,912
|
Loss for the year
|
-
|
-
|
-
|
(3,777)
|
(3,777)
|
(292)
|
(4,069)
|
Total comprehensive income
|
-
|
-
|
-
|
(3,777)
|
(3,777)
|
(292)
|
(4,069)
|
Loan conversion
|
115
|
435
|
-
|
-
|
550
|
-
|
550
|
Warrants issued
|
-
|
-
|
294
|
-
|
294
|
-
|
294
|
Total transactions with
owners
|
115
|
435
|
294
|
|
844
|
-
|
844
|
Balance at 30 September 2023
|
13,808
|
110,915
|
2,039
|
(92,753)
|
34,009
|
(1,322)
|
32,687
|
Company statement of changes in
equity
for the year ended 30 September 2023
|
Share
capital
£'000
|
Share
premium
£'000
|
Share
based payment reserve
£'000
|
Accumulated losses
£'000
|
Total
£'000
|
Balance at 30 September 2021
|
13,208
|
107,097
|
2,056
|
(67,813)
|
54,548
|
Loss for the year
|
|
|
|
(1,716)
|
(1,716)
|
Total comprehensive income
|
|
|
|
(1,716)
|
(1,716)
|
Issue of shares
|
485
|
3,764
|
-
|
-
|
4,249
|
Cost of share issue
|
-
|
(381)
|
163
|
-
|
(218)
|
Share options expired
|
-
|
-
|
(474)
|
474
|
-
|
Total transactions with
owners
|
485
|
3,383
|
(311)
|
474
|
4,031
|
Balance at 30 September 2022
|
13,693
|
110,480
|
1,745
|
(69,055)
|
56,863
|
Loss for the year
|
|
|
|
(16,757)
|
(16,757)
|
Total comprehensive income
|
|
|
|
(16,757)
|
(16,757)
|
Loan conversion
|
115
|
435
|
-
|
-
|
550
|
Warrants issued
|
-
|
-
|
294
|
-
|
294
|
Total transactions with
owners
|
115
|
435
|
294
|
-
|
844
|
Balance at 30 September 2023
|
13,808
|
110,915
|
2,039
|
(85,910)
|
40,852
|
Consolidated statement of cash
flow
for the year ended 30 September 2023
|
2023
£'000
|
2022
£'000
|
Cash flows from operating activities
|
|
|
Loss before tax
|
(4,069)
|
(5,622)
|
Depletion &
impairment
|
244
|
3,659
|
Impairment of E&E
assets
|
402
|
100
|
Movement in provisions
|
(8)
|
146
|
Inventories
|
(15)
|
(1)
|
Increase in Trade & other
receivables
|
(6)
|
(205)
|
Decrease in Trade & other
payables
|
(167)
|
(268)
|
Finance cost
|
683
|
233
|
Net cash outflow from operating activities
|
(2,936)
|
(1,958)
|
Cash flows from investing activities
|
|
|
Expenditures on exploration &
evaluation assets
|
(1,448)
|
(2,079)
|
Expenditures on oil & gas
properties
|
(225)
|
(98)
|
Expenditures on plant, property
& equipment
|
-
|
(39)
|
Net cash outflow from investing activities
|
(1,673)
|
(2,216)
|
Cash flows from financing activities
|
|
|
Proceeds from issue of share
capital
|
-
|
4,250
|
Share issue costs
|
-
|
(208)
|
Proceeds from loan
|
1,882
|
-
|
Net cash inflow from financing activities
|
1,882
|
4,042
|
Net change in cash and cash equivalents
|
(2,726)
|
(132)
|
Cash and cash equivalents at
beginning of the period
|
4,595
|
4,727
|
Cash and cash equivalents at end of the
period
|
1,868
|
4,595
|
Company statement of cash flow
for the year ended 30 September 2023
|
2023
£'000
|
2022
£'000
|
Cash flows from operating activities
|
|
|
Loss before tax
|
(16,757)
|
(1,716)
|
Depletion &
impairment
|
14,690
|
132
|
Decrease in trade & other
receivables
|
136
|
79
|
(Decrease)/increase in trade &
other payables
|
(71)
|
15
|
Interest income
|
(724)
|
(142)
|
Finance cost
|
502
|
10
|
Net cash (outflow) from operating
activities
|
(2,224)
|
(1,622)
|
Cash flows from investing activities
|
|
|
Expenditures on property, plant
& equipment
|
(2)
|
(14)
|
Loan advanced to
subsidiary
|
(2,792)
|
(2,918)
|
Net cash (outflow) from investing
activities
|
(2,794)
|
(2,932)
|
Cash flows from financing activities
|
|
|
Proceeds from issue of share
capital
|
-
|
4,250
|
Share issue costs
|
-
|
(208)
|
Proceeds from loan
|
1,882
|
-
|
Net cash inflow from financing activities
|
1,882
|
4,042
|
Net change in cash and cash equivalents
|
(3,137)
|
(512)
|
Cash and cash equivalents at
beginning of the period
|
3,634
|
4,146
|
Cash and cash equivalents at end of the
period
|
497
|
3,634
|
Notes to the Financial
Statements
|
1. Corporate
information
The consolidated financial
statements of UK Oil & Gas Plc (the Company) and its
subsidiaries (collectively, the Group), for the year ended 30
September 2023 were authorised for issue by the directors on 28
March 2024. UK Oil & Gas Plc (the Company & parent) is a
public limited company incorporated in England and Wales under the
UK Companies Act and listed on the Alternative Investment Market
(AIM). The registered office is located at The Broadgate Tower, 20
Primrose Street, London EC2A 2EW.
The Group is principally engaged in
oil production and oil & gas exploration and evaluation (see
Note 4). Information on the Group's structure is provided in Note
13 and information on other related parties is provided in Note
25.
2. Principal accounting
policies
a) Basis of
preparation
The consolidated financial
statements of the UK Oil & Gas Plc (the Company) and
subsidiaries (the Group) have been prepared in accordance with UK-
Adopted International Accounting Standards in conformity with the
requirements of the Companies Act 2006 as they apply to the Group
for the year ended 30 September 2023.
The accounting policies have been
applied consistently throughout the preparation of these financial
statements, the financial report is presented in Pound Sterling (£)
and all values are rounded to the nearest thousand pounds (£'000)
unless otherwise stated. The consolidated financial statements
provide comparative information in respect of the previous
period.
Subsidiary undertakings exempt from
audit
UK Oil & Gas Plc has guaranteed
the liabilities of the subsidiaries listed below under section 479A
of the Companies Act 2006 in respect of the year ended 30 September
2023.
· UKOG
(234) Ltd - 07055133
· UKOG
(GB) Limited - 04050227
· UKOG
Solent Limited - 0500092
· UKOG
Weald Limited - 04881234
· UKOG
(137/246) Holdings Ltd - 09010542
· UKOG
(137/246) Ltd - 06807023
· UK
Oil & Gas Investments Ltd - 11252712
· UKOG
(Turkey) Ltd - 10212262
· UK
Geothermal Ltd - 13386906
· UK
Energy Storage Ltd - 14108327
New and amended standards and
interpretations
There is no material impact on the
financial statements following the adoption of new standards and
interpretations.
New
and amended standards, and interpretations issued and effective for
the financial year beginning 1 October 2022
There were no new standards,
amendments or interpretations effective for the first time for
periods beginning on or after 1 October 2022 that had a material
effect on the Group or Company financial statements.
New
standards, amendments and interpretations in issue but not yet
effective
At the date of approval of these
financial statements, the following standards and interpretations
which have not been applied in these financial statements were in
issue but not yet effective:
· Amendments to IAS 1 Presentation of Financial Statements:
Classification of Liabilities as Current or Non-current and
Amendments to IAS 1: Classification of Liabilities as Current or
Non-current - Deferral of Effective Date - effective 1 January
2024
· Amendments to IAS 1 Presentation of Financial Statements and
IFRS Practice Statement 2: Disclosure of Accounting Policies -
effective 1 January 2024
· Amendments to IFRS 16 Leases effective 1 January
2024
The Directors do not expect that the
adoption of these standards will have a material impact on the
financial information of the Group and Company in future
periods.
b) Going concern
The Directors note the losses and
cash outflows that the Group has made for the year ended 30
September 2023. The Directors have prepared cash flow forecasts for
the period to 31 March 2025, which take into account anticipated
production and costs, the forward curve of Brent crude oil,
expected revenue streams and external funding.
The forecasts prepared demonstrate
that the Group will have sufficient cash funds available to allow
it to continue in business for a period of at least 12 months from
the date of approval of these financial statements. Notwithstanding
the Company's current cash balance and contractual expenditure
commitments, the Board are cognisant of any possible unforeseen
events outside of its control on the Group. Whilst some of these
events are contingent (farm-in to the Horse Hill Oil Field), the
Company, if required, will take actions to address any cash
constraints by seeking to raise capital through equity or debt.
Whilst there can be no certainty that sufficient funding can be
obtained in the timescales required, the Directors are confident of
their ability to raise capital, which is supported by successful
capital placements in the past.
For these reasons the Directors
adopt the going concern basis in the preparation of the Financial
Statements however confirm that there remains a material
uncertainty that may cause significant doubt over the going concern
nature of the Group.
Independent auditor's report also
refers to material uncertainty related to going concern.
c) Basis of
consolidation
Subsidiaries are all entities
(including structured entities) over which the Group has control.
The Group controls an entity when the Group is exposed to, or has
rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power over
the entity. Subsidiaries are fully consolidated from the date on
which control is transferred to the Group. They are deconsolidated
from the date that control ceases. All intercompany transactions
and balances between Group companies, including unrealised profits
arising from them, are eliminated in full.
At 30 September 2023, the Group
comprised the Company and entities controlled by UK Oil & Gas
Plc (its subsidiaries) (note 13).
d) Business
combinations
The acquisition method of accounting
is used to account for all business combinations, regardless of
whether equity instruments or other assets are acquired. The
consideration transferred for the acquisition of a subsidiary
comprises the:
· fair
values of the assets transferred
· liabilities incurred to the former owners of the acquired
business
· equity interests issued by the group
· fair
value of any asset or liability resulting from a contingent
consideration arrangement, and
· fair
value of any pre-existing equity interest in the
subsidiary.
Identifiable assets acquired and
liabilities and contingent liabilities assumed in a business
combination are, with limited exceptions, measured initially at
their fair values at the acquisition date. The group recognises any
non-controlling interest in the acquired entity on an
acquisition-by-acquisition basis either at fair value or at the
non-controlling interest's proportionate share of the acquired
entity's net identifiable assets. Acquisition-related costs are
expensed as incurred.
e) Joint arrangements
Some of the Group's licence
interests are held jointly with others under arrangements whereby
unincorporated and jointly controlled ventures are used to explore,
evaluate and ultimately develop and produce from its oil & gas
interests. The Group's share of assets, liabilities, income and
expenditure of these joint operations, have been classified in the
appropriate balance sheet and income statement headings, except
where its share of such amounts remain the responsibility of
another party in accordance with the terms of carried
interests.
When the Group, acting as an
operator or manager of a joint arrangement, receives reimbursement
of direct costs recharged to the joint arrangement, such recharges
represent reimbursements of costs that the operator incurred as an
agent for the joint arrangement and therefore have no effect on
profit or loss.
f) Revenue
Revenue comprises the invoiced value
of goods and services supplied by the Group, excluding value added
tax and trade discounts. Revenue is recognised when control passes
to the customer and there is no unfulfilled obligation that could
affect the customer's acceptance of the goods. In the case of oil
and petroleum products, this generally occurs when the product is
physically transferred into a vessel, pipe or other delivery
mechanism.
Revenue from the production of oil,
from fields in which the Group has an interest with other
producers, is recognised based on the Group's working interest and
the terms of the relevant production sharing contracts. Differences
between oil lifted and sold and the Group's share of production are
not significant.
g) Non-current assets
(i)
Intangible exploration and evaluation assets
The Group accounts for exploration
and evaluation costs in accordance with the requirements of IFRS 6
Exploration for and Evaluation of Mineral Resources as
follows:
· Pre-licence costs (costs incurred prior to obtaining the
legal rights to explore an area) are expensed immediately to the
Income Statement.
· Exploration licence and leasehold land and property
acquisition costs are capitalised in intangible assets.
· Licence costs paid in connection with a right to explore in
an existing exploration area are capitalised and amortised over the
term of the permit.
· Costs directly associated with an exploration well are
capitalised as exploration and evaluation intangible assets until
the drilling of the well is complete and the results have been
evaluated. These costs include directly attributable employee
remuneration, materials and consumables, drilling (including coring
and sampling), evaluation of technical feasibility and commercial
viability (including appraisal drilling and production
testing).
Exploration and evaluation assets
are assessed for impairment at each reporting date, before
reclassification and whenever facts and circumstances suggest that
they may be impaired. If no future activity is planned, the licence
has been relinquished or has expired, or where development is
likely to proceed but there are indications that the exploration
and evaluation asset costs are unlikely to be recovered in full
either by development or through sale, the carrying value of the
asset is written off to the Income Statement.
(ii)
Property, plant and equipment - oil & gas
properties
Oil & gas properties are stated
at cost, less accumulated depreciation and accumulated impairment
losses.
The initial cost of an asset
comprises its purchase price or construction cost, any costs
directly attributable to bringing the asset into operation, the
initial estimate of the decommissioning obligation and, for
qualifying assets (where relevant), borrowing costs. The purchase
price or construction cost is the aggregate amount paid and the
fair value of any other consideration given to acquire the asset.
The capitalised value of any associated finance lease is also
included within property, plant and equipment.
Oil & gas properties are
depreciated/amortised on a unit-of-production basis over the total
proved developed and undeveloped reserves of the field concerned.
The unit-of-production rate calculation for the
depreciation/amortisation of field development costs takes into
account expenditures incurred to date, together with sanctioned
future development expenditure.
The Group's interests in oil &
gas properties are assessed for indicators of impairment including
events or changes in circumstances which indicate that the carrying
value of an asset may not be recoverable. Any impairment in value
is charged to the Income Statement.
(iii)
Other property, plant and equipment
Other property, plant and equipment
is stated at cost to the Group less accumulated depreciation. These
assets are generally depreciated on a straight-line basis over
their estimated useful lives, depending on the type of
asset.
(iv)
Decommissioning assets
A decommissioning asset is
recognised in the appropriate category of the Group's non-current
assets (intangible exploration and evaluation assets and property,
plant and equipment) depending on the underlying accounting
treatment for the operations or asset leading to the associated
decommissioning provision. The asset is assessed for impairment as
necessary and otherwise depleted on a straight-line basis over the
estimated period to future removal of production facilities or site
restoration.
h) Decommissioning
provisions
A provision for decommissioning is
recognised where a liability for the removal of production
facilities or site restoration exists. Provisions are measured at
the present value of the amount expected to be required to settle
the obligation using a pre-tax rate that reflects current market
assessments of the time value of money and the risks specific to
the obligation. The increase in the provision due to the passage of
time is recognised as interest expense.
i) Segmental
information
An operating segment is a
distinguishable component of the Group that is involved in oil
production, oil exploration or related activities, within a
particular economic environment, which is subject to risks and
rewards that are different from those of other segments.
Operating segments are reported in a
manner consistent with internal reporting provided to the chief
operating decision-maker. The chief operating decision-maker, who
is responsible for allocating resources and assessing performance
of the operating segments, has been identified as the Board of
Directors of the Company.
j) Financial
instruments
(i)
Financial assets
Financial assets are divided into
the following categories: loans and receivables and
available-for-sale financial assets. Financial assets are assigned
to the different categories by management on initial recognition,
depending on the purpose for which they were acquired, and are
recognised when the Group becomes party to contractual
arrangements. Both loans and receivables and available for sale
financial assets are initially recorded at fair value.
Loans and receivables are
non-derivative financial assets with fixed or determinable payments
that are not quoted in an active market. Trade receivables, most
other receivables and cash and cash equivalents fall into this
category of financial assets. Loans and receivables are measured
subsequent to initial recognition at amortised cost using the
effective interest method, less provision for impairment. Any
change in their value through impairment or reversal of impairment
is recognised in the income statement.
Cash and cash equivalents comprise
cash on hand and short term deposits. Any interest earned is
classified as interest income within finance income.
A financial asset is derecognised
only where the contractual rights to the cash flows from the asset
expire or the financial asset is transferred, and that transfer
qualifies for derecognition. A financial asset is transferred if
the contractual rights to receive the cash flows of the asset have
been transferred or the Group retains the contractual rights to
receive the cash flows of the asset but assumes a contractual
obligation to pay the cash flows to one or more
recipients.
A financial asset that is
transferred qualifies for derecognition if the Group transfers
substantially all the risks and rewards of ownership of the asset,
or if the Group neither retains nor transfers substantially all the
risks and rewards of ownership but does transfer control of that
asset.
(ii)
Financial liabilities
Financial liabilities are
obligations to pay cash or other financial assets and are
recognised when the Group becomes a party to the contractual
provisions of the instrument.
All financial liabilities initially
recognised at fair value less transaction costs and thereafter
carried at amortised cost using the effective interest method, with
interest-related charges recognised as an expense in finance cost
in the income statement. A financial liability is derecognised only
when the obligation is extinguished, that is, when the obligation
is discharged or cancelled or expires.
(iii)
Impairment of financial assets
At the end of each reporting period,
a provision is made if there is sufficient evidence that a
financial asset or group of financial assets has been
impaired. Provision against trade receivables is made when
there is objective evidence that the Group will not be able to
collect all amounts due to it in accordance with the original terms
of those receivables. The amount of the write-down is determined as
the difference between the asset's carrying amount and the present
value of estimated future cash flows.
k) Inventories
Inventories are stated at the lower
of cost and net realisable value. The cost of materials is the
purchase cost, determined on first-in, first-out basis. The cost of
crude oil and refined products is the purchase cost, the cost of
refining, including the appropriate proportion of depreciation,
depletion and amortisation and overheads based on normal operating
capacity, determined on a weighted average basis. The net
realisable value of crude oil and refined products is based on the
estimated selling price in the ordinary course of business, less
the estimated costs of completion and the estimated costs necessary
to make the sale.
l) Taxation
The tax charge includes both current
and deferred tax.
Current tax assets and liabilities
are measured at the amount expected to be paid to or received from
the tax authorities, calculated using tax rates that have been
enacted or substantively enacted by the balance sheet date. Taxable
profits or losses differ from the reported profit or loss before
taxation in the Income Statement as it excludes items that are
taxable or deductible in different periods, as well as items that
are never deductible or taxable.
Deferred income taxes are calculated
using the liability method on temporary differences. Deferred tax
is generally provided on the difference between the carrying
amounts of assets and liabilities and their tax bases. However,
deferred tax is not provided on the initial recognition of
goodwill, nor on the initial recognition of an asset or liability
unless the related transaction is a business combination or affects
tax or accounting profit.
Deferred tax on temporary
differences associated with shares in subsidiaries and joint
ventures is not provided if reversal of these temporary differences
can be controlled by the Company and it is probable that reversal
will not occur in the foreseeable future. In addition, tax losses
available to be carried forward as well as other income tax credits
to the Company are assessed for recognition as deferred tax
assets.
Deferred tax liabilities are
provided in full, with no discounting. Deferred tax assets are
recognised to the extent that it is probable that the underlying
deductible temporary differences will be able to be offset against
future taxable income. Deferred tax assets and liabilities are
calculated at tax rates that are expected to apply to their
respective period of realisation, provided they are enacted or
substantively enacted at the balance sheet date.
Changes in deferred tax assets or
liabilities are recognised as a component of tax expense in the
income statement, except where they relate to items that are
charged or credited directly to equity in which case the related
deferred tax is also charged or credited directly to
equity.
m) Share-based
payments
The Group operates a number of
equity-settled, share-based compensation plans, under which the
entity receives services from employees as consideration for equity
instruments (options) of the Company. The fair value of the
employee services received in exchange for the grant of the options
is recognised as an expense. The total amount to be expensed is
determined by reference to the fair value of the options
granted:
· Including any market performance conditions;
· Excluding the impact of any service and non-market
performance vesting conditions (for example, profitability or sales
growth targets, or remaining an employee of the entity over a
specified time period; and,
· Including the impact of any non-vesting conditions (for
example, the requirement for employees to save).
Non-market vesting conditions are
included in assumptions about the number of options that are
expected to vest. The total expense is recognised over the vesting
period, which is the period over which all of the specified vesting
conditions are to be satisfied.
In addition, in some circumstances,
employees may provide services in advance of the grant date, and
therefore the grant-date fair value is estimated for the purposes
of recognising the expense during the period between service
commencement period and grant date.
At the end of each reporting period,
the entity revises its estimates of the number of options that are
expected to vest based on the non-market vesting conditions. It
recognises the impact of the revision to original estimates, if
any, in profit or loss, with a corresponding adjustment to
equity.
When the options are exercised, the
Company issues new shares. The proceeds received, net of any
directly attributable transaction costs, are credited to share
capital (nominal value) and share premium.
n) Equity
Equity comprises the
following:
· "Share capital" representing the nominal value of equity
shares.
· "Share premium" representing the excess over nominal value of
the fair value of consideration received for equity shares, net of
expenses of the share issue.
· "Share based payment reserve" represents the value of equity
benefits provided to employees and directors as part of their
remuneration and provided to consultants and advisors hired by the
Group from time to time as part of the consideration
paid.
· "Accumulated losses " represents retained and
(losses).
o) Foreign currencies
The consolidated financial
statements are presented in UK pound sterling, the functional
currency of the Group. Transactions in other currencies are
translated at the exchange rate ruling at the date of the
transaction. Monetary assets and liabilities in foreign currencies
are translated at the rates of exchange ruling at the balance sheet
date. Non-monetary items that are measured at historical cost in a
foreign currency are translated at the exchange rate at the date of
the transaction. Non-monetary items that are measured at fair value
in a foreign currency are translated using the exchange rates at
the date when the fair value was determined.
Any exchange differences arising on
the settlement of monetary items or on translating monetary items
at rates different from those at which they were initially recorded
are recognised in the profit or loss in the period in which they
arise. Exchange differences on non-monetary items are recognised in
other comprehensive income to the extent that they relate to a gain
or loss on that non-monetary item taken to other comprehensive
income, otherwise such gains and losses are recognised in the
income statement. The Group and Company's functional currency and
presentational currency is Sterling.
3. Significant accounting
judgements, estimates and assumptions
The preparation of the Group's
consolidated financial statements requires management to make
judgements, estimates and assumptions that affect the reported
amounts of revenues, expenses during the reporting period, and
reported amounts of assets and liabilities, and the disclosure of
contingent liabilities at the date of the consolidated financial
statements. Estimates and assumptions are continuously evaluated
and are based on management's experience and other factors,
including expectations of future events that are believed to be
reasonable under the circumstances. However, actual outcomes can
differ from these estimates.
In particular, the Group has
identified the following areas where significant judgements,
estimates and assumptions are required, and where if actual results
were to differ, this could materially affect the financial position
of financial results reported in a future period. Further
information on each of these areas and how they impact the various
accounting policies are described below and also in the relevant
notes to the financial statements.
Judgements
(i) Estimates and
assumptions
The key assumptions concerning the
future and other key sources of estimation uncertainty at the
reporting date that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within
the next financial year, are described below. The Group based its
assumptions and estimates on parameters available when the
consolidated financial statements were prepared. Existing
circumstances and assumptions about future developments, however,
may change due to market change or circumstances arising beyond the
control of the Group. Such changes are reflected in the assumptions
when they occur.
(ii) Hydrocarbon reserve and
resource estimates
The Group estimates and reports
hydrocarbon reserves in line with the principles contained in the
SPE Petroleum Resources Management Reporting System (PRMS)
framework. As the economic assumptions used may change and as
additional geological information is obtained during the operation
of a field, estimates of recoverable reserves may
change.
The volume of proved and probable
oil & gas reserves is an estimate that affects the unit of
production depreciation of producing oil & gas property, plant
and equipment as well as being a significant estimate affecting
decommissioning provisions, impairment calculations and the
valuation of oil & gas properties in business combinations.
Contingent resources affect the valuation of exploration and
exploration assets acquired in business combinations and the
estimation of the recoverable value of those assets in impairment
tests. Proved and probable reserves and contingent resources are
estimated using standard recognised evaluation techniques.
Estimates are reviewed at least annually and are regularly
estimated by independent consultants. Future development costs are
estimated taking into account the level of development required to
produce the reserves by reference to operators, where applicable,
and internal engineers.
The current long-term Brent oil
price assumption used in the estimation of reserves is US$78/bbl.
The carrying amount of oil & gas development and production
assets at 30 September 2023 is shown in the reserves
report.
(iii) Recoverable value of
intangible exploration and evaluation assets and
goodwill
The Group has capitalised intangible
exploration and evaluation assets in accordance with IFRS 6.
Significant judgement is required to determine whether it continues
to be appropriate to carry these costs on the balance sheet and
whether the assets have been impaired.
The key areas in which management
have applied judgement include the Group's intention to proceed
with a future work programme for a prospect or licence, the
likelihood of licence and planning permission renewal, plans for
relinquishment, assessment of results from wells or geological or
geophysical studies, and the assessment of whether the carrying
value of the exploration and evaluation assets is unlikely to be
recovered in full from successful development or by
sale.
Goodwill is assessed in each
reporting period to determine whether there is any
impairment.
In both the above areas, the
assessments include estimates and assumptions such as long-term oil
prices, foreign exchange rates, discount rates, reserves,
production profiles and capital expenditure, all of which are
subject to risk and uncertainty. It is possible therefore that
changes in these estimates may impact the recoverable values of
goodwill and exploration and evaluation assets.
Details of the Group's intangible
exploration and evaluation assets and goodwill are disclosed in
Note 11 to the financial statements.
(iv) Recoverable value of
property, plant and equipment
Management reviews the Group's
reported property, plant and equipment each reporting period to
determine whether any indication of impairment exists. Where an
indicator of impairment exists, a formal estimate of the
recoverable amount is made, which requires the use of key
assumptions and judgements such as long-term oil prices, foreign
exchange rates, discount rates, reserves, production profiles and
capital expenditure, all of which are subject to risk and
uncertainty.
Details of the Group's property,
plant and equipment are disclosed in Note 12 to the financial
statements.
(v) Decommissioning
costs
The estimated cost of
decommissioning at the end of the producing lives of fields is
periodically reviewed and is based on forecast prices and
technology at the balance sheet date which are provided by
technical teams. Provision is made for the estimated cost using a
discounted cash flow method and a risk free rate of return. Details
of the Group's decommissioning provisions are disclosed in Note 19
to the financial statements.
4. Segmental reporting
All of the Group's assets and
operations are located in the United Kingdom and Turkey. For
management purposes, the Group is organised into business units
based on the main types of activities and has three reportable
segments, as follows:
· Oil
production: includes producing business activities
· Oil
exploration and evaluation: includes non-producing
activities.
· Head
Office, corporate and administrative, including parent company
activities.
The Board of Directors monitors the
operating results of its business units separately for the purpose
of making decisions about resource allocation and performance
assessment. Segment performance is evaluated based on operating
profit or loss and is measured consistently with operating profit
or loss in the consolidated financial statements. However, the
Group's financing (including finance costs and finance income) and
income taxes are managed on a group basis and are not allocated to
operating segments.
The accounting policies used by the
Group in reporting segments internally are the same as those used
in the financial statements.
Revenues of £1,538,000 are derived
from a single external customer. These revenues are attributed to
the oil production segment.
Year ended 30 September
2023
Group
|
Oil
production
£'000
|
Oil
exploration &
evaluation
£'000
|
Corporate &
administrative
£'000
|
Consolidated
£'000
|
REVENUE
|
|
|
|
|
External Customers
|
1,538
|
-
|
-
|
1,538
|
Total revenue
|
1,538
|
-
|
-
|
1,538
|
Results
|
|
|
|
|
Depreciation, Depletion &
Amortisation
|
(98)
|
(49)
|
(98)
|
(244)
|
Write offs &
Impairment
|
-
|
(402)
|
-
|
(402)
|
Finance costs
|
(135)
|
(92)
|
(505)
|
(731)
|
Loss before taxation
|
(779)
|
(630)
|
(2,881)
|
(4,069)
|
Taxation
|
-
|
-
|
-
|
-
|
Loss after taxation
|
(779)
|
(672)
|
(2,618)
|
(4,069)
|
Segment assets
|
1,036
|
4,675
|
33,846
|
39,556
|
Segment liabilities
|
(3,049)
|
(2,021)
|
(1,798)
|
(6,868)
|
Other disclosures:
|
|
|
|
|
Capital expenditure
(1)
|
225
|
1,448
|
-
|
1,673
|
(1) Capital expenditure consists of
capitalised exploration expenditure, development expenditure,
additions to oil & gas properties and to other intangible
assets including expenditure on assets from the acquisition of
subsidiaries.
Year ended 30 September
2022
Group
|
Oil
production
£'000
|
Oil
exploration &
evaluation
£'000
|
Corporate &
administrative
£'000
|
Consolidated
£'000
|
REVENUE
|
|
|
|
|
External Customers
|
1,780
|
-
|
-
|
1,780
|
Total revenue
|
1,780
|
-
|
-
|
1,780
|
Results
|
|
|
|
|
Depreciation, Depletion &
Amortisation
|
(542)
|
(292)
|
(133)
|
(610)
|
Write offs &
Impairment
|
(2,890)
|
(100)
|
-
|
(2,990)
|
Finance costs
|
(74)
|
(128)
|
(10)
|
(211)
|
Loss before taxation
|
(42)
|
(669)
|
(1,755)
|
(2,466)
|
Taxation
|
-
|
-
|
-
|
-
|
Loss after taxation
|
(42)
|
(669)
|
(1,755)
|
(2,466)
|
Segment assets
|
5,015
|
5,499
|
33,890
|
41,267
|
Segment liabilities
|
(3,004)
|
(2,007)
|
(344)
|
(5,355)
|
Other disclosures:
|
|
|
|
|
Capital expenditure
(1)
|
98
|
1,841
|
39
|
1,978
|
(1) Capital expenditure consists of
capitalised exploration expenditure, development expenditure,
additions to oil & gas properties and to other intangible
assets including expenditure on assets from the acquisition of
subsidiaries.
5. Operating loss
Group
|
2023
£'000
|
2022
£'000
|
Operating (loss) is stated after charging:
|
|
|
Directors' remuneration - fees
& salaries
|
508
|
471
|
Employee Benefit Trust
charge
|
7
|
7
|
Auditors' remuneration
|
|
|
Audit-related assurance
services
|
85
|
71
|
Non-audit services
|
30
|
|
Depletion of oil & gas
properties
|
23
|
470
|
6. Revenue
The Group has recognised the
following amounts relating to revenue in the statement of
comprehensive income:
Group
|
2023
£'000
|
2022
£'000
|
Revenue from contracts with
customers
|
1,538
|
1,780
|
Total
|
1,538
|
1,780
|
All revenue is derived from sales of
oil from one geographic location and is recognised at a point in
time.
7. Directors and
employees
The Company employed the services of
an average of 14 employees in the year (2022: 14). Remuneration in
respect of these employees was:
Group
|
2023
£'000
|
2022
£'000
|
Employment costs, including
Directors, during the year:
|
|
|
Wages and salaries
|
1,799
|
1,628
|
Social security costs
|
233
|
216
|
Employee pension costs
|
13
|
13
|
Benefits in kind
|
15
|
10
|
Total
|
2,060
|
1,867
|
Employee pension costs payable at
the end of the year amounted to £2,000 (2022: £2,000).
Average number of persons,
including Executive Directors employed
|
2023
No.
|
2022
No.
|
Administration
|
8
|
8
|
Operations
|
6
|
6
|
Total
|
14
|
14
|
Directors' remuneration
|
2023
£'000
|
2022
£'000
|
Stephen Sanderson
|
338
|
312
|
Kiran Morzaria
|
27
|
56
|
Allen Howard
|
82
|
72
|
Nicholas Mardon Taylor
|
61
|
56
|
Total
|
508
|
496
|
Year ended 30 September
2023
2023
|
Fees
and
salaries
£'000
|
Bonuses
£'000
|
Pension
£'000
|
Benefits
in Kind
£'000
|
Share
based payments (*)
£'000
|
Total
£'000
|
Stephen Sanderson
|
337
|
-
|
1
|
-
|
-
|
338
|
Kiran Morzaria
|
27
|
-
|
-
|
-
|
-
|
27
|
Allen Howard
|
82
|
-
|
-
|
-
|
-
|
82
|
Nicholas Mardon Taylor
|
61
|
-
|
-
|
-
|
-
|
61
|
Total
|
507
|
-
|
1
|
-
|
-
|
508
|
2022
|
Fees
and
salaries
£'000
|
Bonuses
£'000
|
Pension
£'000
|
Benefits
in Kind
£'000
|
Share
based payments (*)
£'000
|
Total
£'000
|
Stephen Sanderson
|
311
|
-
|
1
|
-
|
-
|
312
|
Kiran Morzaria
|
55
|
-
|
1
|
-
|
-
|
56
|
Allen Howard
|
72
|
-
|
-
|
-
|
-
|
72
|
Nicholas Mardon Taylor
|
56
|
-
|
-
|
-
|
-
|
56
|
Total
|
494
|
-
|
2
|
-
|
-
|
496
|
* Share based payments are non-cash
remuneration by way of the issue of share options in the
company.
8. Finance costs
|
2023
£'000
|
2022
£'000
|
Loan interest due to
non-controlling interests
|
139
|
26
|
Interest income
|
31
|
|
Unwind discount on decommissioning
provision (note 19)
|
128
|
198
|
Change in estimate of
decommissioning liability
|
(68)
|
-
|
Convertible loan fees
|
502
|
10
|
Total - Finance costs
|
589
|
234
|
9. Income tax
There is no tax credit on the loss
for the current or prior year. The tax assessed for the year
differs from the standard rate of corporation tax in the UK as
follows:
|
2023
£'000
|
2022
£'000
|
Loss for the year before
tax
|
(4,069)
|
(5,622)
|
Tax rate 40% (30% for ring-fenced
activities plus 10% ring fence supplement)
|
40%
|
40%
|
Expected tax credit
|
(1,628)
|
(2,249)
|
Tax adjustment for non-deductible
expenditure
|
322
|
192
|
Tax impact of capital
allowances
|
(10)
|
(8)
|
Adjustment in respect of prior
periods
|
-
|
-
|
Impact of losses taxed at
different rates
|
699
|
454
|
Tax impact of losses carried
forward
|
130
|
1,464
|
Other movements
|
487
|
147
|
Total - Actual tax expense
|
-
|
-
|
The Group estimated carried forward
tax losses are £20,313,000 (2022: £16,421,000), none of which are
recognised as a deferred tax asset.
Deferred tax assets have not been
recognised in respect of the unprovided deferred taxation items
because it is not probable that future taxable profit will be
available to utilise these deductible temporary
differences.
10. Earnings per share
The calculation of the basic loss
per share is calculated by dividing the consolidated loss
attributable to the equity holders of the Company by the weighted
average number of ordinary shares in issue during the
year.
Group
|
2023
£'000
|
2022
£'000
|
Loss attributable to ordinary
shareholders
|
(3,777)
|
(4,870)
|
Group
|
2023
No.
|
2022
No.
|
Weighted average number of
ordinary shares for calculating basic loss per share
|
22,241,911,627
|
16,605,573,760
|
Group
|
2023
Pence
|
2022
Pence
|
Basic and diluted loss per
share
|
(0.02)
|
(0.04)
|
As inclusion of the potential
ordinary shares would result in a decrease in the earnings per
share they are considered to be anti-dilutive, as such, a diluted
earnings per share is not included. The potential amount of
dilutive shares is 435,125,816, which represents outstanding
options and warrants.
11. Intangible assets
|
Group
|
Cost & Net Book
Value
|
Exploration &
evaluation costs
£'000
|
Decommissioning
asset
£'000
|
|
Total
£'000
|
As at 30 September 2021
|
30,420
|
95
|
|
30,515
|
Additions
|
1,835
|
-
|
|
1,835
|
Exploration Write offs &
Amortisation
|
(100)
|
(95)
|
|
(195)
|
As at 30 September 2022
|
32,155
|
-
|
|
32,155
|
Additions
|
1,448
|
-
|
|
1,448
|
Impairment of E&E
assets
|
(402)
|
-
|
|
(402)
|
As at 30 September 2023
|
33,201
|
-
|
|
33,201
|
|
Company
|
Cost & Net Book
Value
|
Exploration &
evaluation costs
£'000
|
As at 30 September 2021
|
823
|
Additions
|
18
|
Exploration Write offs &
Amortisation
|
-
|
As at 30 September 2022
|
841
|
Additions
|
325
|
Exploration Write offs &
Amortisation
|
-
|
As at 30 September 2023
|
1,166
|
The Directors have assessed the
carrying value of the exploration & evaluation assets as at 30
September 2023. The Directors have determined that the potential
value of the Horse Hill development to be £19.3 million, which
takes into account drilling of four additional wells in the field,
and supports the value of intangible assets of Horse
Hill.
Exploration and evaluation activity
involves the search for hydrocarbon resources, the determination of
technical feasibility and the assessment of commercial viability of
an identified resource. Additions during the year reflect the
associated exploration and evaluation activities.
At this point the Company is still
assessing the potential of the remaining assets and will continue
to develop and evaluate these assets in the coming year. Since
their acquisition dates there has been no further material changes
to the Licence areas. The directors therefore consider that no
further impairment is required at 30 September 2023.
Joint operations
UKOG's wholly owned subsidiary UKOG
Turkey Ltd signed a participation agreement and joint operating
agreement with AME in 2021, to take a 50% non-operated working
interest in the 305 km² Resan M47-b1, b2 licence in Turkey.
Together with AME, the business is working towards finalising the
design and delivery of a successful first appraisal well aimed at
establishing the commerciality of the aerially extensive and as yet
undeveloped Basur-Resan oil discovery contained within the
licence.
Subsequently to the year-end,
following reperforating and extensive swab testing at Pinarova-1 by
the operator, it was mutually concluded that, in the absence of
commercial rates of hydrocarbons, no further testing will be
performed. Therefore, the Exploration & evaluation assets
associated with Pinarova-1 at 30 September 2023 (£402K) were
impaired.
12. Oil & gas
properties
Group
|
Oil
& gas properties
2023
|
Decommissioning asset
2023
|
Property, plant & equipment
2023
|
Total
2023
|
Total
2022
|
Cost
|
|
|
|
|
|
As at 1 October
|
17,260
|
460
|
2,236
|
19,956
|
19,819
|
Transfers
|
-
|
-
|
-
|
-
|
-
|
Additions
|
220
|
-
|
5
|
225
|
137
|
Change in estimate
|
-
|
(75)
|
-
|
(75)
|
-
|
As at 30 September
|
17,481
|
385
|
2,241
|
20,106
|
19,956
|
Depletion & impairment
|
|
|
|
|
|
As at 1 October
|
(15,499)
|
(23)
|
(673)
|
(16,195)
|
(12,657)
|
Impairment
|
-
|
-
|
-
|
-
|
(2,890)
|
Depletion charge
|
(32)
|
(36)
|
(128)
|
(244)
|
(648)
|
As at 30 September
|
(15,531)
|
(59)
|
(801)
|
(16,391)
|
(16,195)
|
Carrying value
|
|
|
|
|
|
As at 30 September
|
1,950
|
326
|
1,439
|
3,715
|
3,761
|
Impairment review
The Directors have carried out an
impairment review of oil and gas assets of HH-1 well (£0.8m) as at
30 September 2023 which is included into oil and gas properties of
£2m per the above. The Directors determined that the net present
value of the HH-1 well was £1.4 million and therefore determined
that HH-1 should not be impaired. The net present value utilised an
internally generated depletion curve that was independently
reviewed. Costs were based on current costs less any anticipated
savings. A long-term average Brent oil price of US$78/bbl was used
being the Brent curve until 2031 and then kept flat at $75/bbl. A
discount rate of 2.79% was based on a Capital Asset Pricing Model
analysis being the weighted average costs of capital of Horse Hill
Developments Ltd, the holding company of the assets under
review.
Based on current production and
future forecasts at Horndean, the Directors determined that for oil
and gas properties of associated asset (£1.5m) no impairment
was deemed necessary.
Property, plant & equipment
(Company)
Company
|
2023
£'000
|
2022
£'000
|
Cost
|
|
|
As at 1 October
|
1,824
|
1,819
|
Additions
|
5
|
5
|
As at 30 September
|
1,829
|
1,824
|
Depletion & impairment
|
|
|
As at 1 October
|
(319)
|
(187)
|
Depletion charge
|
(97)
|
(132)
|
As at 30 September
|
(416)
|
(319)
|
Carrying value
|
|
|
As at 30 September
|
1,412
|
1,505
|
13. Investment in
subsidiaries
Company
|
2023
£'000
|
2022
£'000
|
Cost and net book amount
|
|
|
At 1 October
|
26,242
|
26,242
|
At 30 September
|
26,242
|
26,242
|
The Directors carried out an
impairment review of the Company's Investment in its subsidiaries
as at 30 September 2023 and determined that no impairment was
required. In the opinion of the Directors the carrying value of the
investments is supported by their underlying net assets of the
Group's subsidiaries or the net present value.
The Company holds more than 50 per
cent of the share capital of the following companies as at 30
September 2023:
Company
|
Country of Registration
|
Proportion held
|
Functional Currency
|
Nature of business
|
UKOG (GB) Limited
|
UK
|
100%
|
GB£
|
Oil production
|
UKOG (234) Limited
|
UK
|
100%
|
GB£
|
Oil exploration
|
Horse Hill Developments
Ltd
|
UK
|
77.9%
|
GB£
|
Oil production
|
UKOG (137/246) Holdings
Ltd
|
UK
|
100%
|
GB£
|
Holding Company
|
UKOG (137/246) Ltd
|
UK
|
100%
|
GB£
|
Oil exploration
|
UKOG (Turkey) Ltd
|
UK
|
100%
|
GB£
|
Oil exploration
|
UK Energy Storage Ltd
|
UK
|
100%
|
GB£
|
Energy storage
|
UK Oil & Gas Investments
Limited
|
UK
|
100%
|
GB£
|
Dormant
|
UK Geothermal Limited
|
UK
|
100%
|
GB£
|
Dormant
|
The registered address of each of
these subsidiaries can be found on the website of Companies
House.
All subsidiary undertakings are
included in the consolidated financial statements. The proportion
of the voting rights in the subsidiary undertaking held directly by
the parent company do not differ from the proportion of the
ordinary shares held. The following companies are taking an
exception from the audit of the financial statements as per S479A
of the Companies Act; UKOG (GB) Limited (04050227), UKOG (234) Ltd
(07055133), UKOG (137/246) Holdings Ltd (09010542), UKOG (Turkey)
Ltd (10212262), UK Oil & Gas Investments Limited (11252712), UK
Geothermal Limited (13386906), UKOG (137/246) Limited (06807023 ),
UK Energy Storage Ltd (14108327).
14. Inventory
Group
|
2023
£'000
|
2022
£'000
|
Inventories - Crude Oil
|
18
|
3
|
Total
|
18
|
3
|
15. Trade and other
receivables
|
Group
|
Company
|
|
2023
£'000
|
2022
£'000
|
2023
£'000
|
2022
£'000
|
Trade debtors
|
187
|
217
|
4
|
24
|
Other debtors
|
208
|
228
|
64
|
77
|
Loans to subsidiary
companies
|
-
|
-
|
13,157
|
24,753
|
Prepayments and accrued
income
|
359
|
303
|
104
|
128
|
Total
|
754
|
748
|
13,329
|
24,982
|
The Directors consider that the
carrying amount of trade and other receivables approximates to
their fair value. Trade receivables are amounts due from customers
for goods sold in the ordinary course of business. They are
generally due for settlement within 30 days and are therefore all
classified as current.
The Directors carried out an
impairment review of the loans to subsidiary companies and
determined that an impairment charge of £14.7m is required in
respect of the loan owed by Horse Hill Developments Limited.
The analysis was based on the expected values of Horse
Hill Developments Limited and the carrying value of investments and
loan recorded in the Company.
16. Cash and cash
equivalents
|
Group
|
Company
|
|
2023
£'000
|
2022
£'000
|
2023
£'000
|
2022
£'000
|
Cash at bank and in
hand
|
1,868
|
4,595
|
497
|
3,634
|
Total
|
1,868
|
4,595
|
497
|
3,634
|
17. Trade and other
payables
|
Group
|
Company
|
|
2023
£'000
|
2022
£'000
|
2023
£'000
|
2022
£'000
|
Trade creditors
|
383
|
564
|
74
|
165
|
Other creditors
|
64
|
63
|
64
|
63
|
Accruals and deferred
income
|
188
|
174
|
116
|
113
|
Total
|
635
|
801
|
254
|
341
|
The Directors consider that the
carrying amount of trade and other payables approximates to their
fair value.
18. Borrowings
|
Group
|
Company
|
Borrowings
|
2023
£'000
|
2022
£'000
|
2023
£'000
|
2022
£'000
|
Convertible Loan notes
|
1,540
|
|
1,540
|
|
Loans payable to Non-Controlling
Interests
|
3,244
|
3,114
|
-
|
-
|
Total
|
4,784
|
3,114
|
1,540
|
-
|
On 27 June 2023, the Company secured a £3 million committed funding facility
with RiverFort Global Opportunities PCC Ltd and YA II PN Ltd
("Investors").
Facility Summary:
· £2
million
· Further advance of up to £1 million by mutual
consent,
· 0%
interest, repayable 18 months after each advance,
· Company retains a right to repay any outstanding amount of
the Loan prior to the expiry of the term, subject to a repayment
fee of 10% of the outstanding balance,
· Company can raise cash via equity as it may see fit during
the Loan's term.
In addition, as disclosed in the Note
21, 1,125,895,598 warrants were issued
during the year to note holders. On the drawdown date the note
holders were granted warrants to subscribe for ordinary shares.
Each note holder was granted such number of warrants as is equal to
33% (in aggregate) of the relevant advance divided by the
applicable reference price for that advance. In respect of the
first tranche the note holders were granted 1,125,895,598 warrants.
The warrants are exercisable at a premium of 140% of the 5-day
average VWAP prior to the relevant drawdown for a period of 36
months from the relevant date of grant.
Loan discharge terms:
As part of the package the Company
issued to the note holders ordinary shares ("Equity Shares"),
which represent between approximately 37% and 51% of the value of
the First Tranche, or 1.3 billion new ordinary shares, dependent on
whether the shares are valued at the Variable Price or Fixed Price,
definitions of which are stated below. The Loan may, at the sole
discretion of the note holders, be repaid by first applying the Equity Shares or, provided all Equity
Shares have been applied, by converting the Loan into new ordinary
shares in the Company. The price at which
the Loan may be discharged either by applying the Equity Shares or
converting the Loan is the lower of:
· the
Variable Price, being equivalent to 100% (i.e., zero discount) of
the Company's lowest daily volume weighted average price ("VWAP")
in the 15 trading days preceding the conversion date or the date
the Equity Shares are applied to discharge the Loan; or
· the
Fixed Price, being the lower of either a 35% premium to a Reference
Price being the average of the 5 daily VWAPs prior to the
date of the relevant Loan drawdown (i.e., 135% of the Reference
Price) or the lowest price at which the Company has issued equity
in a fundraising whilst the loan is outstanding.
The Company retains a right to
repay any outstanding amount of the Loan prior to the expiry of the
term, subject to a repayment fee of 10% of the outstanding
balance,
Any Equity Shares unsold at the
end of the loan term or on early repayment shall be sold by the
Investors and the net proceeds repaid to the Company.
All Investor share transactions
are subject to:
· an
orderly market provision that provides that the maximum number of
shares which can be traded by the Investors or any of their
affiliates in any calendar month shall be such number of shares
which is equal to twenty (20) per cent of the number of shares of
the Company that have traded during the previous calendar month (as
confirmed by the reports available by Bloomberg or their
equivalent);
· neither the Investors nor any of their affiliates shall hold
any net short position with respect to the equity of UKOG during
the Loan term; and
· Investors will exercise any share voting rights in support of
any resolutions proposed by the Company.
The principal amount of each
Advance is deemed to have been established with an accrued premium
of 4.5% on the relevant drawdown date (i.e., a fee of 4.5% is
incurred on each drawdown which will be added to the principal sum
to be repaid). At 30 September 2023, the
outstanding loan balance was £1.5m.
At 30 September 2023, the
outstanding loan balances owed to HHDL's shareholders were; Alba
Mineral Resources PLC (Alba) £2.1 million (2022: £2.54 million),
Doriemus PLC (Doremius) £0.6 million (2022: £0.57 million) and UK
Oil & Gas Plc £17.43 million (2022: £16.59 million). The loans
are payable on determination by the Board of HHDL. The loans
currently attract an interest rate equivalent to the Bank of
England base rate.
19. Provisions -
decommissioning
Group
|
2023
£'000
|
2022
£'000
|
As at 1 October
|
1,442
|
1,376
|
Change of estimate
|
(119)
|
(65)
|
Release
|
-
|
-
|
Unwind discount
|
128
|
131
|
As at 30 September
|
1,451
|
1,442
|
The amount provided for at 30
September 2023 represents the Group's share of decommissioning
liabilities in respect of the producing Horndean and non-producing
Avington fields, the producing site at Horse Hill and the Broadford
Bridge drilling site.
The Company makes full provision for
the future cost of decommissioning oil production facilities and
pipelines on a discounted basis upon the installation of those
facilities. The decommissioning provision represents the present
value of decommissioning costs relating to oil & gas
properties.
These provisions have been created
based on the Company's internal estimates. Assumptions used include
an average group-wide discount rate of 10.0% and an annual
inflation rate of 3.0% applied to future decommissioning costs.
Assumptions based on the current economic environment have been
made, which management believes are a reasonable basis upon which
to estimate the future liability. These estimates are reviewed
regularly to take into account any material changes to the
assumptions.
However, actual decommissioning
costs will ultimately depend upon future market prices for the
necessary decommissioning works required which will reflect market
conditions at the relevant time. Furthermore, the timing of
decommissioning is likely to depend on when the fields cease to
produce at economically viable rates. This, in turn, will depend
upon future oil & gas prices, which are inherently
uncertain.
20. Share capital
Ordinary Shares
|
Number
of
ordinary shares
|
Nominal
Value
£
|
Total
Value
£'000
|
Issued at 30 September 2021
|
16,239,233,251
|
0.0001
|
1,624
|
On 1 August 2022, for acquisition
at 0.0875p per share
|
1,428,571,428
|
0.0001
|
142
|
On 16 September 2022, for
acquisition at 0.0875p per share
|
3,428,571,425
|
0.0001
|
343
|
Issued at 30 September 2022
|
21,096,376,104
|
0.0001
|
2,109
|
On 28 June 2023, for
conversion
|
1,145,535,523
|
0.0001
|
115
|
Issued at 30 September 2023
|
22,241,911,627
|
0.0001
|
2,224
|
Deferred shares
The Company has in existence at 30
September 2023 and 2022, 1,158,385,352,229 deferred shares of
0.001p. These deferred shares do not carry voting
rights.
Total Ordinary and Deferred
shares
The issued share capital as at 30
September 2023 is as follows:
|
Number
of
shares
|
Nominal
Value
£
|
Total
Value
£'000
|
Ordinary shares
|
22,241,911,627
|
0.0001
|
2,224
|
Deferred shares
|
1,158,385,352,229
|
0.00001
|
11,584
|
Total
|
|
|
13,808
|
21. Share based
payments
Share options
No options were granted during the
year (2022: nil).
As at 30 September 2023 the options
in issue were:
Exercise price
|
Expiry date
|
Options
in issue
30 September 2022
|
1.13p
|
25 September 2024
|
121,500,000
|
Total
|
|
121,500,000
|
Weighted average remaining
contractual life of options outstanding at end of period is 12
months.
No options were exercised, and no
options were cancelled during the year (2022: none exercised, none
cancelled). 17,500,000 options lapsed during 2023
(2022:117,000,000). £472,000 in 2022 was transferred via equity to
retained earnings on the lapse of options during the
year.
Warrants
As of 30 September 2023, 1,505
million warrants were in issue (2022: 421,982,958).
1,125,895,598 warrants were issued
during the year to note holders as disclosed in the Note 18.
On the drawdown date the note holders were granted warrants to
subscribe for ordinary shares. Each note holder was granted such
number of warrants as is equal to 33% (in aggregate) of the
relevant advance divided by the applicable reference price for that
advance. In respect of the first tranche the note holders were
granted 1,125,895,598 warrants. The warrants are exercisable at a
premium of 140% of the 5-day average VWAP prior to the relevant
drawdown for a period of 36 months from the relevant date of grant.
The fair value of the warrants was determined as £294,597 and the
associated charge has been booked as finance cost.
No warrants lapsed during the year
(2022: nil). No warrants were exercised during the year (2022:
nil).
Employee Benefit Trust
The Company established an employee
benefit trust called the UK Oil & Gas Employee Benefit Trust
(EBT) on 29 September 2014, to implement the use of the Company's
existing share incentive plan over 10% of the Company's issued
share capital from time to time in as efficient a manner as
possible for the beneficiaries of that plan. The EBT is a
discretionary trust for the benefit of directors, employees and
consultants of the Company. The shares held in the EBT are intended
to be used to satisfy future awards made by the Company's
Remuneration Committee under the share incentive scheme.
The EBT did not subscribe to shares
during the year to 30 September 2023 (2022: nil). The balance of
ordinary shares held by the EBT on 30 September 2023 was
250,000,000 (2022: 250,000,000). Awards of Ordinary Shares to
beneficiaries by the EBT will be subject to appropriate vesting and
other performance conditions, in line with normal market practice,
which will be set by the Remuneration Committee.
Details of share options granted
during the year to Directors, consultants & employees over the
ordinary shares are as follows:
Share options
|
At 1
October 2022
No. Million
|
Issued
during
the year
No. Million
|
Lapsed /
exercised during the year
No. Million
|
At 30
September 2023
No. Million
|
Exercise
price
£
|
Date
from which exercisable
|
Expiry
date
|
Allen Howard
|
5
|
-
|
-
|
5
|
0.0113
|
27/09/2019
|
25/09/2024
|
Kiran Morzaria
|
6.5
|
-
|
-
|
6.5
|
0.0113
|
27/09/2019
|
25/09/2024
|
Stephen Sanderson
|
25
|
-
|
-
|
25
|
0.0113
|
27/09/2019
|
25/09/2024
|
Nicholas Mardon Taylor
|
4
|
-
|
-
|
4
|
0.0113
|
27/09/2019
|
25/09/2024
|
|
40.5
|
-
|
-
|
40.5
|
|
|
|
Consultants &
employees
|
17.5
|
-
|
(17.5)
|
-
|
0.0160
|
13/04/2018
|
12/04/2023
|
Consultants &
employees
|
81
|
-
|
-
|
81
|
0.0113
|
27/09/2019
|
25/09/2024
|
Total
|
139
|
-
|
(17.5)
|
121.5
|
|
|
|
Share options
|
At 1
October 2021
No. Million
|
Issued
during
the year
No. Million
|
Lapsed /
exercised during the year
No. Million
|
At 30
September 2022
No. Million
|
Exercise
price
£
|
Date
from which exercisable
|
Expiry
date
|
Allen Howard
|
10
|
-
|
(10)
|
-
|
0.0115
|
25/05/2017
|
24/05/2022
|
Allen Howard
|
5
|
-
|
-
|
5
|
0.0113
|
27/09/2019
|
25/09/2024
|
Kiran Morzaria
|
20
|
-
|
(20)
|
-
|
0.0115
|
25/05/2017
|
24/05/2022
|
Kiran Morzaria
|
6.5
|
-
|
-
|
6.5
|
0.0113
|
27/09/2019
|
25/09/2024
|
Stephen Sanderson
|
25
|
-
|
(25)
|
-
|
0.0115
|
25/05/2017
|
24/05/2022
|
Stephen Sanderson
|
25
|
-
|
-
|
25
|
0.0113
|
27/09/2019
|
25/09/2024
|
Nicholas Mardon Taylor
|
4
|
-
|
-
|
4
|
0.0113
|
27/09/2019
|
25/09/2024
|
|
95.5
|
-
|
(55)
|
40.5
|
|
|
|
Consultants
|
62
|
-
|
(62)
|
-
|
0.0115
|
25/05/2017
|
24/05/2022
|
Consultants &
employees
|
17.5
|
-
|
-
|
17.5
|
0.0160
|
13/04/2018
|
12/04/2023
|
Consultants &
employees
|
81
|
-
|
-
|
81
|
0.0113
|
27/09/2019
|
25/09/2024
|
Total
|
256
|
-
|
(117)
|
139
|
|
|
|
The share price range during the
year was £0.00033 to £0.0012 (2022: £0.00077 to
£0.0017).
The disclosure of Weighted Average
Exercise Prices and a Weighted Average Contractual Life analysis is
not viewed as informative because of the minimal variation of
options currently in issue, and therefore has accordingly not been
disclosed.
For those options granted where IFRS
2 "Share-Based Payment" is applicable, the fair values were
calculated using the Black-Scholes model. The inputs into the model
were as follows:
|
Risk
free rate
|
Share
price volatility
|
Expected
life
|
Share
price at date of grant
|
13 April 2018 (0.4p)
|
0.8%
|
128.9%
|
1.72
years
|
£0.015
|
13 April 2018 (1.6p)
|
0.9%
|
128.9%
|
5
years
|
£0.015
|
27 September 2019
(1.13p)
|
0.4%
|
63.13%
|
5
years
|
£0.011
|
Expected volatility was determined
by calculating the historical volatility of the Company's share
price for 12 months prior to the date of grant. The expected life
used in the model has been adjusted, based on management's best
estimate, for the effects of non-transferability, exercise
restrictions and behavioural considerations. The Company recognised
total expenses of £nil (2022: £nil) relating to equity-settled
share-based payment transactions during the year, and £nil (2022:
£nil) was transferred via equity to retained earnings on the
exercising or lapse of options during the year.
Details of warrants granted during
the year to consultants over the ordinary shares are as
follows:
Warrants
|
At 1
October 2022
No. Million
|
Issued
during
the year
No. Million
|
Lapsed /
exercised during the year
No. Million
|
At 30
September 2023
No. Million
|
Exercise
price
£
|
Date
from which exercisable
|
Expiry
date
|
Consultants
|
-
|
1,125
|
-
|
1,125
|
0.0105
|
28/06/2023
|
28/06/2026
|
Consultants
|
5
|
-
|
(5)
|
-
|
0.0115
|
04/11/2019
|
04/11/2022
|
Consultants
|
12
|
-
|
(12)
|
-
|
0.0085
|
29/11/2019
|
29/11/2022
|
Consultants
|
8
|
-
|
(8)
|
-
|
0.0020
|
24/05/2020
|
24/05/2023
|
Consultants
|
138
|
-
|
-
|
138
|
0.0016
|
02/07/2021
|
01/07/2024
|
Consultants
|
-
|
-
|
-
|
71
|
0.0009
|
01/08/2022
|
01/08/2025
|
Consultants
|
-
|
-
|
-
|
171
|
0.0009
|
09/09/2022
|
09/09/2025
|
Total
|
180
|
1,125
|
(25)
|
1,505
|
|
|
|
22. Financial instruments and risk
analysis
Financial assets by
category
The categories of financial asset,
all included initially measured at fair value and subsequently
carried at amortised cost in the balance sheet and the headings in
which they are included are as follows:
Current assets - Group
|
2023
£'000
|
2022
£'000
|
Inventory
|
18
|
3
|
Trade and other
receivables
|
754
|
748
|
Cash and cash
equivalents
|
1,868
|
4,595
|
Total
|
2,640
|
5,346
|
Current assets -
Company
|
2023
£'000
|
2022
£'000
|
Trade and other
receivables
|
172
|
229
|
Intercompany balances
|
13,157
|
24,753
|
Cash and cash
equivalents
|
497
|
3,634
|
Total
|
13,826
|
28,616
|
Financial liabilities by
category
The categories of financial
liability all included at fair value and subsequently carried at
amortised cost in the balance sheet and the headings in which they
are included are as follows:
Current liabilities -
Group
|
2023
£'000
|
2022
£'000
|
Trade and other
payables
|
635
|
799
|
Borrowings
|
4,784
|
3,114
|
Total
|
5,419
|
3,913
|
Current liabilities -
Company
|
2023
£'000
|
2022
£'000
|
Trade and other
payables
|
258
|
341
|
Borrowings
|
1,540
|
-
|
Total
|
1,798
|
341
|
|
|
|
|
The group is exposed to market risk
through its use of financial instruments and specifically to credit
risk, and liquidity risk which result from both its operating and
investing activities. The group's risk management is coordinated at
its head office, in close co-operation with the board of Directors,
and focuses on actively securing the group's short to medium term
cash flows by minimising the exposure to financial
markets.
Long term financial investments are
managed to generate lasting returns. The group does not actively
engage in the trading of financial assets for speculative purposes,
nor does it write options. The most significant financial risks to
which the group is exposed to are described below.
Interest rate
sensitivity
The group is not substantially
exposed to interest rate sensitivity, other than in relation to
interest bearing bank accounts.
Credit risk analysis
The group's exposure to credit risk
is limited to the carrying amount of trade receivables and cash at
bank. The group continuously monitors defaults of customers and
other counterparties, identified either individually or by Company,
and incorporates this information into its credit risk controls.
Where available at reasonable cost, external credit ratings and/or
reports on customers and other counterparties are obtained and
used.
The group's policy is to deal only
with creditworthy counterparties. Group management considers that
trade receivables that are not impaired for each of the reporting
dates under review are of good credit quality, including those that
are past due. None of the group's financial assets are secured by
collateral or other credit enhancements. The credit risk for liquid
funds and other short-term financial assets is considered
negligible since the counterparties are reputable banks with high
quality external credit ratings.
Liquidity risk analysis
The majority of the Group's
liabilities are contractually due within one year. The loan due
from Horse Hill Developments Limited to Alba and Doriemus is
payable on determination by the Board of Horse Hill Developments
Limited.
The convertible loan at 30 September
2023 was £1.5m and is repaid through a conversion
mechanism.
The group's continued future
operations depend on the ability to raise sufficient working
capital through the issue of equity share capital or debt
financing. The Directors are confident that adequate funding will
be forthcoming with which to finance operations. Controls over
expenditure are carefully managed.
Capital management
policies
The group's capital management
objectives are to:
· Ensure the group's ability to continue as a going
concern;
· Provide a return to shareholders; and
· To
provide capital for the purpose of strengthening the Group's risk
management capability.
The Group actively and regularly
reviews and manages its capital structure, to ensure an optimal
capital structure, and equity holder returns, taking into
consideration the future capital requirements of the Group and
capital efficiency, prevailing and projected profitability,
projected operating cash flows, projected capital expenditures and
projected strategic investment opportunities. Management regards
total equity as capital and reserves, for capital management
purposes.
Commodity price risk
The Group is exposed to the risk of
fluctuations in prevailing market commodity prices on the mix of
oil & gas products it produces. The Group's policy is to manage
these risks through the use of contract-based prices with
customers.
Commodity Price
Sensitivity
The table below summarises the
impact on profit before tax for changes in commodity prices. The
analysis is based on the assumption that the crude oil price moves
10% resulting in a change of US$ 7.80/bbl (2022: US$ 8.90/bbl),
with all other variables held constant. Reasonably possible
movements in commodity prices were determined based on a review of
the last two years' historical prices and economic forecasters'
expectations.
Increase/decrease in crude oil
prices
|
Effect
on profit before tax for the year ended
30 September 2023 Increase/(Decrease)
£'000
|
Effect
on profit before tax for the year ended
30 September 2022 Increase/(Decrease)
£'000
|
Increase US$ 7.80 /bbl (2022: US$
8.90/bbl)
|
128
|
146
|
Decrease US$ 7.80 /bbl (2022: US$
8.90/bbl)
|
(128)
|
(146)
|
Currency risk
The Group has no significant
monetary assets or liabilities that are denominated in a foreign
currency. The Group is exposed to currency risk, with the price of
Brent Crude Oil being denominated in US$. The current exposure is
not seen as material, with the current level of revenue being
generated therefrom. The Board will continue to monitor this risk
as the operations and/or revenues increase.
23. Commitments & contingent
liabilities
Ongoing exploration expenditure is
required to maintain title to the Group's exploration permits. No
provision has been made in the financial statements for these
amounts as the expenditure is expected to be fulfilled in the
normal course of the operations of the Group. As at 30 September
2023, the Group had no further material commitments (2022:
none).
24. Events after the reporting
date
On 3 November 2023, the Company
delivered to Investors the first and second tranches of ordinary
shares in relation to the first cash sum received of £2m gross.
These shares can be converted at the Investors' discretion to repay
the loan. The Loan's first tranche of 1,300,000,000 has been
converted by the Investors at an average price of 0.0504 pence per
share. Investors can elect to convert the second tranche of
1,424,487,652 Equity Shares at the lower of the Variable Price or
the Fixed Price. Following Admission, the total voting rights
in the Company were 23,820,863,756 ordinary shares.
In December 2023, further to its
announcement of 28 March 2023, the Company's relevant subsidiaries
and Pennpetro Energy Plc ("PPP") have agreed to extend the
conditional binding Horse Hill farm-in term sheet until 30 June
2024, whereby PPP will farm-in to the Horse Hill Oil Field on an
incremental production only basis by paying 100% of both a 12 km²
3D seismic survey and a new crestal production well, Horse Hill-3
("HH-3"). The farmin remains subject to the completion of the
formal farmin agreement and necessary regulatory consents. The
Company currently holds an effective 85.635% interest in Horse Hill
and the surrounding PEDL137 and PEDL246 licences.
On 10 January 2024, the Company
delivered to Investors a third tranche of ordinary shares. The
Loan's fourth tranche of 1,424,487,652 shares were converted at the
Variable Price, being an average of 0.025 pence per share,
equivalent to 100% of the Company's lowest daily volume weighted
average price ("VWAP") in the 15 trading days preceding the
conversion date or the date the equity shares are applied to
discharge the loan. Following Admission, the total voting rights in
the Company were 24,908,513,710 ordinary shares.
On 12 January 2024, the Company
successfully raised gross proceeds of £0.75 million by means of a
placing at a price of 0.02 pence per share. The Placing
is primarily in response to the government's newly announced
acceleration of the first hydrogen storage allocation round, now
scheduled to commence in Q3 2024 vs the prior Q3/Q4 2025 timeline.
As the Company intends to submit a bid for an allocation award for
its material hydrogen storage project in Portland, Dorset, the
round's timetable now necessitates an acceleration of specific
unbudgeted studies/works during 2024. The Company is also in
discussion with a significant international trading house with
regard to its participation in the Company's hydrogen storage
project. The Placing's proceeds will also provide the Company with
a further source of general working capital to progress its
existing UK/Turkey projects.
On 23 January 2024, the Company
delivered to Investors a fourth tranche of ordinary shares. The
Loan's fourth tranche of 876,412,394 shares were converted at the
Variable Price, being an average of 0.0175 pence per share,
equivalent to 100% of the Company's lowest daily volume weighted
average price ("VWAP") in the 15 trading days preceding the
conversion date or the date the equity shares are applied to
discharge the loan. Following Admission, the total voting rights in
the Company were 29,534,926,104 ordinary shares.
On 5 March 2024, further to the
General Meeting, where all the resolutions successfully passed, the
Company completed the share reorganisation to consolidate the
32,539,926,104 ordinary shares of £0.0000001 each in the capital of
the Company on a 10:1 ratio into 3,253,992,610 ordinary shares of
£0.000001 each. The Directors were also granted with authority to
allot and issue shares and grant rights to subscribe for shares for
approximately 50% of the Company's ordinary share
capital.
On 13 March 2024, the Company
delivered to RiverFort Global Opportunities PCC Limited and YA II
PN Ltd ("Investors") a tranche of 206,965,282 ordinary shares (the
number of shares quoted after the capital reorganisation). Future
conversion of these shares will further reduce the principal
balance of the £2 million gross first cash sum received below the
prior £0.66 million figure announced on 23 January 2024.
25. Related party
transactions
Transactions with related
parties
UK Oil & Gas Plc paid a
subscription fee for membership with United Kingdom Onshore Oil
& Gas (UKOOG) during the year. UKOOG represent the onshore oil
and gas industry and wider supply chain and provides the Company
with general industry advice and representation. Stephen Sanderson,
UKOG's Chief Executive, is a Director of UKOOG and, as a result,
the subscription fee for membership is considered a related party
transaction. During the year the Company paid £30,000 for its
membership with UKOOG (2022: £30,000).
Remuneration of key management
personnel
The remuneration of the directors,
and other key management personnel of the Company, is set out below
in aggregate for each of the categories specified in IAS24 Related
Party Disclosures. Further details in respect of the remuneration
of the directors can be found within the Directors Remuneration
Report on page 28.
|
2023
£'000
|
2022
£'000
|
Short-term employee
benefits
|
508
|
496
|
Total
|
508
|
496
|
26. Ultimate controlling
party
In the opinion of the Directors
there is no controlling party.
Company registration
number
|
05299925
|
Registered office
|
The Broadgate Tower 8th Floor
20 Primrose Street
London EC2A 2EW
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Directors
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Nicholas Mardon Taylor
Stephen Sanderson
Allen Howard
Kiran Morzaria
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Secretary
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Kiran Morzaria
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Auditors
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PKF Littlejohn LLP
Chartered Accountants
Registered Auditor
15 Westferry Circus
Canary Wharf
London E14 4HD
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Nominated Adviser
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WH Ireland Limited
24 Martin Lane
London EC4R 0DR
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Solicitors
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Hill Dickinson
The Broadgate Tower 8th Floor
20 Primrose Street
London EC2A 2EW
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Registrars
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Share Registrars Limited
The Courtyard
17 West Street, Farnham
Surrey GU9 7DR
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