Annual Report & Accounts 2013

 

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2013

1. Statement of Accounting Policies
2. Revenue and segmental information
3. Acquisition of subsidiary - prior year
4. Finance income and expense
5. Statutory information

1. Statement of Accounting Policies

Petroceltic International plc (“Petroceltic” or “the Company”) is a company incorporated in Ireland. The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as “the Group”).

The Group and Company financial statements were authorised for issue by the Directors on 15 May 2014. The accounting policies have been applied consistently for all periods presented in these financial statements as set out below.

A. Statement of compliance

As required by AIM and ESM rules and permitted by Company Law, the Group financial statements have been prepared in accordance with IFRS as adopted by the EU. The individual financial statements of the Company (Company financial statements) have been prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the Companies Acts, 1963 to 2013, which permits a Company, that publishes its Company and Group financial statements together, to take advantage of the exemption in Section 148(8) of the Companies Act, 1963, from presenting to its members its Company income statement and related notes that form part of the approved Company financial statements.

The IFRSs adopted by the EU as applied by the Company and Group in the preparation of these financial statements are those that were effective for accounting periods ending on or before 31 December 2013 or which were early adopted as indicated below.

The accounting policies adopted are consistent with those of the previous year except for the following new and amended IFRS and IFRIC interpretations which were adopted by the Group as of 1 January 2013:

  • IFRS 7 Financial Instruments: Disclosures (Amended)
  • IFRS 13 Fair Value Measurement
  • IAS 1 Presentation of Financial Statements (Amended)
  • IAS 12 Income Taxes (Amended)
  • IAS 16 Property, Plant and Equipment (Amended)
  • IAS 19 Employee Benefits (2011)
  • IAS 32 Financial Instruments: Presentation (Amended)
  • IAS 34 Interim Financial Reporting (Amended)

None of these had a significant impact on the results or financial position of the Group for the year ended 31 December 2013.

Forthcoming requirements

A number of new standards or amendments to existing standards as set out below have been published and are mandatory for the Group in future accounting periods. The Group does not plan to adopt these standards early. In due course, the Group’s ongoing assessments to fully assess the extent of the impact of the changes prescribed by these standards on the Group’s accounting policies will be finalised. Our current expectations are as follows:

  • IFRS 9 Financial Instruments (2010) (Effective 1 January 2018): Introduces new requirements for classifying and measuring financial assets, for the classification and measurement of financial liabilities, and carrying over the existing de-recognition requirements for IAS 39 Financial Instruments. The standard could materially change the classification and measurement of the Group’s financial instruments; (not fully EU endorsed).
  • IFRS 10 Consolidation Financial Statements (Effective 1 January 2014): Introduces new principles for determining how an entity should be included in the consolidated financial statements of the parent company. The standard also provides additional guidance to assist in the determination of control where this is difficult to assess. The current assessment is that this standard is not expected to change the classification of entities in which the Group holds interests but this assessment is subject to finalisation.
  • IFRS 11 Joint Arrangements (Effective 1 January 2014): Replaces IAS 31 Interests in Joint Ventures. Requires a party to a joint arrangement to determine the type of joint arrangement in which it is involved by assessing its rights and obligations and then account for those rights and obligations in accordance with that type of joint arrangement. The Group is currently completing an assessment of its arrangements to determine whether they fall to be classified as joint ventures or joint operations under the criteria set out in IFRS 11. Early indications are that the standard will not impact significantly on the Group’s reported financial position in future financial statements.
  • IFRS 12 Disclosure of Interests in Other Entities (Effective 1 January 2014): Requires the extensive disclosure of information that enables users of financial statements to evaluate the nature of, and risks associated with, interests in other entities and the effects of those interests on its financial positions, financial performance and cashflows. No significant impact is anticipated.
  • IAS 27 Separate Financial Statements (Effective 1 January 2014): Now only deals with requirements for separate financial statements. Requirements for consolidated financial statements are now contained in IFRS 10 Consolidated Financial Statements. No significant impact is anticipated.
  • IAS 28 Investments in Associates and Joint Ventures (2011) (Effective 1 January 2014): Accounting for investments in associates and sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. No significant impact is anticipated.
  • IAS 32 Financial Instruments: Presentation (Effective 1 January 2014): Outlines basis for offsetting of financial assets and liabilities. No significant impact is anticipated.

In addition, the IASB’s Annual Improvements Process, together with some minor amendments to other existing standards, are being assessed by the Group.

B. Basis of preparation

The Group and Company financial statements are prepared on the historical cost basis, except for assets acquired under business combinations and derivative instruments, which are carried at fair value, and equity settled share option awards and warrants which are measured at grant date fair value. The accounting policies have been applied consistently by all Group entities. The financial statements are presented in US dollars, rounded to the nearest thousand.

C. Going concern

The Directors have considered carefully the financial position of the Group and, in that context, have reviewed cash flow forecasts for the period to 30 June 2015.

The principal assumptions underlying the forecast are that:

  • the proposed share placement to be announced on 16 May 2014, raises $100m before costs
  • the farm-out of an interest in the Ain Tsila gas condensate development to Sonatrach is completed as anticipated with timely receipt of related consideration
  • production revenues and operating and capital expenditure are in line with commitments and current expectations
  • the Senior Bank Facility continues to operate in accordance with its terms
  • the step up to the Official Lists and associated corporate restructuring are effected as planned

The cash flow forecasts for the period to 30 June 2015 show sufficient cash resources on hand to enable the Group to discharge its debts as they fall due and to continue to develop its business in accordance with its strategy.

On this basis, the Directors are satisfied that it is appropriate to prepare the financial statements on a going concern basis.

D. Accounting judgements and estimates

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

In particular, significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are set out as follows:

Item

Refer to note:

 

 

Impairment testing

10

Depletion

10

Share-based payments

20

Deferred tax

18

Decommissioning provision

17

E. Consolidation

The consolidated financial statements comprise the financial statements of Petroceltic International plc and its subsidiaries for the year ended 31 December 2013.

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. Subsidiaries are fully consolidated from the date that control commences until the date that control ceases. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions are eliminated in preparing the Group financial statements.

F. Business combinations

Business combinations are accounted for using the acquisition method on the date on which control is transferred to the Group. The merger of Petroceltic and Melrose completed on 10 October 2012, with Petroceltic shares issued in exchange for Melrose shares. On Completion, Petroceltic shareholders owned 54% of the enlarged group with Melrose shareholders owning the remainder. Petroceltic was the deemed acquirer in the transaction for the purposes of acquisition accounting under IFRS.

This merger qualified as a business combination and IFRS 3 ‘Business Combinations’ required the transaction to be recorded for financial reporting purposes using the acquisition method. All identifiable assets and liabilities that satisfy the recognition criteria were included in the acquirer’s balance sheet at fair value (purchase price allocation). Fair value is defined in IFRS 3 as ‘the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction’. Costs related to the acquisition, other than those associated with the issue of debt or equity securities were expensed as incurred.

G. Revenue recognition

Revenue from the sale of oil, oil liquids and gas in Egypt and Bulgaria is recognised at the fair value of consideration received or receivable when the significant risks and rewards of ownership are transferred to the buyer and it can be reliably measured. The revenue of the Group in Egypt is calculated under the terms of production sharing agreements between the Group and its partner (a state owned company). Revenue is reported to include income taxes and royalties payable which are settled on the Company’s behalf by the Egyptian authorities. Other revenue represents royalty income. Realised gains and losses arising from cash flow hedges relating to oil and gas pricing are added to or deducted from turnover.

H. Property, plant & equipment and intangible assets

Property, plant and equipment consists of production and development assets in Algeria, Bulgaria and Egypt and a royalty right over certain Kinsale gas fields. Intangible assets comprise exploration and evaluation assets in Bulgaria, Egypt, Italy, Kurdistan Region of Iraq and Romania.

Exploration and evaluation assets

Expenditure incurred prior to obtaining the legal rights to explore an area is written off to the consolidated income statement. Expenditure incurred on the acquisition of a licence interest is initially capitalised on a licence by licence basis based on the fair value of the consideration paid. Exploration and evaluation expenditure incurred, including directly attributable borrowing costs, in the process of determining exploration targets on each licence is also capitalised. This expenditure is held undepleted within the exploration licence asset until such time as the exploration phase on the licence area is complete or commercial reserves have been recognised, subject to any impairment losses recognised. This is in accordance with IFRS 6, ‘Exploration for and Evaluation of Mineral Resources’.

Exploration and evaluation drilling costs are capitalised on a well by well basis within each licence until the success or otherwise of the well has been established. Unless further exploration and evaluation expenditure in the area of the well has been planned and agreed or unless the drilling results indicate that hydrocarbon reserves exist and there is a reasonable prospect that these reserves are commercial, drilling costs are written off on completion of a well.

Depletion

Depletion of development and production assets is calculated on a field or a concession basis as appropriate. The calculation is based on proved and probable reserves using the unit of production method; any changes are recognised prospectively.

Impairment and ceiling test of oil and gas assets

Exploration and evaluation expenditures which are held as intangible assets under IFRS 6 are reviewed at each reporting date for indicators of impairment. If such indicators exist then the assets are tested for impairment by allocating the relevant item to a CGU or a group of CGUs. An impairment test is also carried out before the transfer of costs related to assets which are being transferred to development and production assets following a declaration of commercial reserves. This impairment test is carried out in accordance with IAS 36, ‘Impairment of Assets’, which requires that the impairment be calculated on the basis of a CGU, which in the Group’s case is defined to be a field or a concession, as appropriate.

A review for impairment indicators is also carried out at least annually on the capitalised costs in development and production assets. This is carried out on a field or a concession basis, as appropriate. Under oil industry standard practice this impairment test is calculated on a value in use basis by comparing the net capitalised cost with the net present value of future pre-tax cash flows which are expected to be derived from the field or concession. Key assumptions and estimates in the impairment models relate to commodity prices which are based on commercial reserves and the related cost policies. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Reversals of impairment

An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Jointly controlled operations

Jointly controlled operations are activities where the Group has joint control, established by contractual agreement. From time to time, the Group enters into farm-in and farm-out arrangements that result in jointly controlled assets. In these situations, the Group accounts for only its share of assets, liabilities, income and expenditure relating to the jointly controlled operations.

Non oil and gas assets

Plant and equipment is stated at cost less accumulated depreciation. Subsequent costs are included in an asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group. Non oil and gas plant and equipment is depreciated over its expected useful economic life on a straight-line basis at the following rates:

IT infrastructure: 33.3% straight-line
Furniture & equipment: 10% to 33% straight-line

The residual value and useful lives of plant and equipment are reviewed annually and adjusted if appropriate at each reporting date.

On disposal of property, plant and equipment the cost and related accumulated depreciation are removed from the financial statements and the net amount, less any proceeds, is taken to the consolidated income statement.

Royalty asset

The royalty asset is carried at cost, net of accumulated amortisation. Amortisation is charged in the proportion that the current year’s production bears to the total anticipated production from the start of the financial year to the end of the gas field’s life. Changes in estimated production are accounted for prospectively.

I. Decommissioning provisions

Provisions are made for the decommissioning or abandonment of oil and gas wells and associated infrastructure. A provision is recognised when the Group has an obligation as a result of past events, and it is probable that an outflow of resources will be required to settle the obligation. The amount recognised as a provision is the estimated cost of decommissioning and a corresponding amount is added to the carrying value of the related asset. Changes in the decommissioning cost estimates are dealt with prospectively by recording an adjustment to the provision and a corresponding adjustment to the related asset. The decommissioning provision is reviewed annually.

J. Foreign currency

The Directors have determined that, in accordance with IAS 21, the functional currency of the Company and its subsidiaries is the US dollar. The Group and Company financial statements are presented in dollars and accordingly no foreign currency translation reserve arises.

Foreign currency transactions

Transactions in foreign currencies are translated to the functional currency of Group entities at exchange rates at the dates of the transactions. For practical reasons, this is taken as the monthly average exchange rate where these rates are a reasonable approximation of actual rates. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. Foreign currency differences arising on retranslation are recognised in profit or loss. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date of the transaction. Ordinary share capital denominated in Euro is translated to the functional currency at the date of issue and is not remeasured thereafter.

K. Taxation

Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in other comprehensive income, in which case it is recognised in other comprehensive income.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognised using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: those arising on the initial recognition of goodwill, those arising on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they probably will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

L. Retirement benefit obligations

The Group contributes to defined contribution pension schemes for certain members of staff. Pension scheme costs are accounted for on an accruals basis.

M. Share-based compensation and warrants over shares

The Group issues share options and makes conditional grants of performance shares (PSP shares) as an incentive to certain key management and staff (including Executive Directors). In the Group financial statements, the fair value of share options and PSP shares granted to employees is recognised as an expense with a corresponding credit to the share-based payments reserve. The cost of share-based payments relating to employee share options and PSP shares is borne by subsidiary companies as the employees are employed in the subsidiary. Consequently, the grant date fair value of share options granted to employees under the Company’s option schemes is recognised as an increase in investment in subsidiaries with a corresponding credit to the share-based payments reserve. In the subsidiary company, the cost of share options granted to employees is recognised as an expense with a corresponding credit to the capital contribution reserve.

The fair value is measured at grant date and this is expensed in the consolidated income statement with the charge being spread over the period during which the awards vest. The fair value is measured using a binomial lattice model, taking into account the terms and conditions upon which the options were granted. A discount for market conditions has been applied to the fair values determined by the binomial model based on a Monte Carlo simulation analysis. The options issued are subject to both market based and non-market based vesting conditions. Market conditions are included in the calculation of fair value at the date of the grant. Non-market vesting conditions are not taken into account when estimating the fair value of awards as at grant date; such conditions are taken into account through adjusting the number of equity instruments that are expected to vest. Nil-cost options granted under the PSP are only exercisable if the TSR of Petroceltic’s shares equals or exceeds the median of the peer group TSR over the vesting period, because of the nature of this market performance condition, the Monte Carlo simulation technique has been used to calculate the fair value. This involves simulating one possible path of the TSR for Petroceltic’s shares and possible paths of the TSR of peer group companies. It is then tested to see whether the Company’s TSR has outperformed the peer group. This process is then repeated many thousands of times and the option value is the average value from all the simulations.

The Group has issued warrants in connection with a number of transactions with third parties. Where the fair value of the goods and services provided by the third party as compensation for the warrant issuance is observable, the warrants are measured on that basis. In other instances, the fair value of warrants issued is determined in accordance with IFRS 2 based upon a valuation model.

The proceeds received on exercise of options or warrants, net of any directly attributable transaction costs, will be credited to share capital (nominal value) and share premium when options or share warrants are converted into ordinary shares.

N. Earnings per share

The Group presents basic and diluted earnings per share (“EPS”) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees and warrants.

O. Operating leases

Operating lease payments are recognised as an expense in the consolidated income statement on a straight line basis over the lease term.

P. Financial instruments

(i) Non-derivative financial assets

Cash and cash equivalents

Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short term deposits with an original maturity of three months or less. Bank overdrafts that are repayable on demand and form part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the cash flow statement.

Trade and other receivables

Trade and other receivables are stated at cost less impairment, which approximates fair value given the short-term nature of these assets.

(ii) Non-derivative financial liabilities

The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.

Financial assets and liabilities are offset and the net amount presented in the balance sheet when, and only when, the Group has a legal right to offset the amounts and intends to settle on a net basis. Other financial liabilities comprise loans and borrowings, bank overdrafts, and trade and other payables.

The Group classifies non-derivative financial liabilities into the other financial liabilities category. Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method.

(iii) Derivative financial assets and liabilities

Derivatives are recognised initially at fair value in the balance sheet; attributable transaction costs are recognised in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are recognised immediately in profit or loss.

(iv) Equity financial instruments

Share capital

Ordinary shares are classified as equity instruments. Costs directly attributable to the issue of ordinary shares and share options are recognised as a reduction in equity.

Q. Finance income and costs

Finance income comprises interest income on funds invested and foreign currency gains. Interest income is recognised as it accrues, using the effective interest rate method.

Finance expense comprises interest arising on borrowings calculated using the effective interest rate method, foreign currency losses and unwinding of the discount on provisions. Borrowing costs, which include all directly attributable costs and fees together with the deemed cost of warrants or other equity instruments issued in connection with borrowing, that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the costs of the asset, in accordance with IAS 23 ‘Borrowing Costs’. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale, such as intangible assets during the development period.

R. Segmental information

In accordance with IFRS 8: ‘Operating Segments’, the Group has four principal reportable segments which are the Group’s strategic business units as follows:

  • Algeria: Oil and gas development in Algeria
  • Egypt: Oil and gas production in Egypt
  • Black Sea: Oil and gas exploration and production in Bulgaria and Romania
  • Kurdistan Region of Iraq: Oil and gas exploration in the Kurdistan Region of Iraq

Other operations “Corporate & Other Europe” includes cash resources held by the Group, interest income earned and other operational expenditure incurred by the Group including Italy, Greece and royalty income from certain gas fields in Ireland. These areas are not within the definition of an operating segment.

The chief operating decision maker has been identified as the Executive Directors. The Executive Directors review the Group’s internal reporting in order to assess performance and allocate resources and the Group has determined the operating segments based on this reporting.

The Executive Directors consider the business from a geographic perspective and assess the performance of principal reporting segments based on results from operations. The information provided to the chief operating decision maker is measured in a manner which is consistent with the financial statements.

2. Revenue and segmental information

2013

Algeria

Egypt

Black Sea

Kurdistan

Corporate & Other Europe

Total

 

$’000

$’000

$’000

$’000

$’000

$’000

Revenue

 

 

 

 

 

 

Gas

-

54,855

81,555

-

-

136,410

Oil/condensate/liquids

-

59,828

-

-

-

59,828

Royalty

-

-

-

-

460

460

Total revenue

-

114,683

81,555

-

460

196,698

Depletion and decommissioning

-

(51,966)

(40,095)

-

(46)

(92,107)

Other cost of sales

-

(13,681)

(13,635)

-

-

(27,316)

Gross profit

-

49,036

27,825

-

414

77,275

Administrative expenses*

-

(3,598)

(1,924)

-

(14,343)

(19,865)

Share-based payments expense

-

-

-

-

(5,017)

(5,017)

Exploration costs written off

-

(4,180)

(27,717)

-

(4,807)

(36,704)

Reportable segment result from operating activities

-

41,258

(1,816)

-

(23,753)

15,689

Finance income

 

 

 

 

1,671

1,671

Finance expense

 

 

 

 

(21,837)

(21,837)

Loss before income tax

 

 

 

 

(43,919)

(4,477)

Income tax expense

-

(15,050)

(961)

-

1,655

(14,356)

Loss for the year

 

 

 

 

(42,264)

(18,833)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reportable segment assets

186,538

401,211

191,350

85,643

57,792

922,534

Reportable segment liabilities

(4,206)

(78,486)

(27,495)

(4,273)

(297,215)

(411,675)

 

 

 

 

 

 

 

2012

Algeria

Egypt

Black Sea

Kurdistan

Corporate & Other Europe

Total

 

$’000

$’000

$’000

$’000

$’000

$’000

Revenue

 

 

 

 

 

 

Gas

-

14,088

25,126

-

-

39,214

Oil/condensate/liquids

-

19,765

-

-

-

19,765

Royalty

-

-

-

-

456

456

Total revenue

-

33,853

25,126

-

456

59,435

Depletion and decommissioning

-

(13,439)

(12,247)

-

(98)

(25,784)

Other cost of sales

-

(3,207)

(4,048)

-

-

(7,255)

Gross profit/(loss)

-

17,207

8,831

-

358

26,396

Administrative expenses*

-

(3,361)

(2,038)

-

(13,092)

(18,491)

Share-based payments expense

-

-

-

-

(3,864)

(3,864)

Exploration costs written off

-

(4,603)

-

-

(2,516)

(7,119)

Reportable segment result from operating activities

-

9,243

6,793

-

(19,114)

(3,078)

Finance income

 

 

 

 

2,292

2,292

Finance expense

 

 

 

 

(5,889)

(5,889)

Loss before income tax

 

 

 

 

(22,711)

(6,675)

Income tax expense

-

(5,266)

(540)

-

(7,563)

(13,369)

Loss for the year

 

 

 

 

(30,274)

(20,044)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reportable segment assets

203,077

412,530

191,704

62,854

75,864

946,029

Reportable segment liabilities

(13,479)

(88,957)

(30,245)

(2,199)

(286,474)

(421,354)

 

 

 

 

 

 

 

*Administrative expenses incurred in Algeria, Kurdistan, Romania and Italy have been capitalised within exploration and evaluation assets.

 

Oil and gas revenues are generated in Egypt and Bulgaria. Three of the Group’s customers accounted for more than 10% of revenue in 2013 (2012: two customers). All Egyptian revenue in 2012 and 2013, as set out in the tables above is receivable from EGPC, an Egyptian state owned company. Bulgarian revenues include $45.8m (2012: $24.6m) from Bulgargaz EAD, a Bulgarian state owned company and $35.7m (2012: $.6m) from Agripolychim, an independent chemicals company.

For segmental analysis of capital expenditure see notes 9 and 10.

3. Acquisition of subsidiary - prior year

The merger of Petroceltic International plc and Melrose Resources plc completed on 10 October 2012, with Petroceltic shares issued in exchange for Melrose shares. On completion, Petroceltic shareholders owned 54% of the enlarged group with Melrose shareholders owning the remainder. Petroceltic was the deemed acquirer in the transaction for the purposes of acquisition accounting under IFRS.

Consideration transferred

At completion, Melrose shareholders received 17.6 Petroceltic ordinary shares in exchange for each Melrose ordinary share. In addition, a special dividend of Stg4.7p per Melrose share was paid by Melrose to Melrose Shareholders for a total value of $8.71m. The liability for this amount was included in the Melrose balance sheet at the date of acquisition and was settled subsequently. The fair value of the Petroceltic ordinary shares issued was $222m, and was based on the listed share price of the Company at 10 October 2012 of £0.069 per share with 2,018,830,085 new shares issued.

Fair value of identifiable assets acquired and liabilities assumed

$’000

Intangible assets

27,363

Property, plant and equipment

403,768

Inventories

22,160

Trade receivables

133,643

Other receivables

22,492

Cash and cash equivalents

32,227

Loans and borrowings

(295,000)

Deferred tax liabilities

(54,630)

Decommissioning provision

(23,412)

Trade and other payables

(46,595)

 

222,016

Consideration transferred

 

2,018,830,085 ordinary shares in Petroceltic issued to Melrose shareholders at £0.069 per share

222,950

Other reserves relating to Petroceltic shares held by Melrose Employee Benefit Trust

(934)

Net consideration transferred

222,016

 

 

Property plant and equipment was recognised at fair value on acquisition whereby the value attributed to the acquired assets was independently calculated by a third party taking account of future cash flows relating to each category of asset. The resulting valuation was then risk adjusted in accordance with the Director’s estimate of risk associated with the recovery of that cash flow.

Intangible assets were recognised at fair value on acquisition whereby the value attributed to the acquired assets was calculated taking account of estimated future cash flows on identified prospects. The resulting valuation was then risked in accordance with the Director’s estimate of the chance of success of each prospect. Where a market value was available to assess the fair value of the intangible asset, this was recognised as the fair value of that asset.

The trade receivables comprised gross contractual amounts due of $133.6m, all of which were deemed recoverable and related to the Bulgarian and Egyptian assets. The Directors’ were of the opinion that the fair value of the receivables was not materially different from the acquired value.

The decommissioning provision related to plugging, abandonment and restoration of facilities and well sites. These costs were expected to be incurred between 2013 and 2033.

If new information became available within one year from the acquisition date relating to facts and circumstances that existed at the acquisition date which would result in material adjustments to the above amounts, or require further provisions than those that existed at the acquisition date, then the acquisition accounting would have been revised. The fair value assessments were reviewed in 2013 and no adjustments to the above fair value amounts have been made.

All share option and similar incentive schemes relating to the acquired entity were cancelled at the date of the transaction and no liabilities remain outstanding.

The fair value of the consideration transferred was equal to the fair value of the identifiable assets acquired and liabilities assumed and consequently no goodwill arose on the transaction.

Impact on the prior year Income Statement

In the period from 10 October to 31 December 2012, Melrose contributed revenue of $59m and profit after tax of $4m to the Group’s results. If the acquisition had occurred on 1 January 2012, management estimates that consolidated revenue would have been $254m, and consolidated profit after tax for the year would have been $7m. In determining these amounts, management has assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition had occurred on 1 January 2012.

Impact on prior year Cash Flow Statement

The prior year cash flow statement reflects the activity of the Group for the entire period including the acquisition of the assets and liabilities of Melrose at 10 October 2012 (which are non cash acquisitions with the exception of cash acquired) and the movement on the acquired interests between 10 October and 31 December 2012.

Acquisition related costs - Prior Year

The Group incurred acquisition-related costs of $6.4m related to external legal fees and due diligence costs. These costs were recognised in administrative expenses in the Group’s consolidated income statement. Costs of $0.03m associated with the issue of new shares were netted against share premium.

4. Finance income and expense

2013

2012

 

$’000

$’000

 

 

 

Interest income

1,623

1,734

Foreign currency gain

-

168

Other finance income

-

129

Change in fair value of derivative financial instruments

48

261

Total finance income for the year

1,671

2,292

 

 

 

 

 

 

Interest expense

(14,143)

(4,993)

Foreign currency loss

(940)

-

Amortisation of loan fees

(6,064)

(2,791)

Unwinding of discount on decommissioning provision

(644)

(182)

Other finance expense

(46)

-

Total finance expense for the year *

(21,837)

(7,966)

Interest expense capitalised

-

2,077

Finance expense recognised in profit or loss

(21,837)

(5,889)

 

 

 

Net financing cost

(20,166)

(3,597)

* This includes $3.9m relating to the accelerated amortisation of loan fees under the Bridge Facility that was repaid in May 2013.

 

 

5. Statutory information

2013

2012

 

$’000

$’000

The loss for the financial year is stated after charging:

 

 

(i) Auditor’s remuneration

 

 

- audit services

292

351

- other assurance services

416

424

- tax advisory services

-

32

 

 

 

Amounts paid to the Company’s auditors in respect of services to the Company, other than the audit of the Company’s financial statements, have not been disclosed as the information has been disclosed on a consolidated basis. The auditors’ remuneration for audit services to the Company was $0.06m. Other assurance services provided by the auditors in 2012 and 2013 related primarily to the Melrose transaction and to the deferred step up to the main Stock Exchange listing respectively.

For details of Directors’ emoluments during the year see Directors’ Remuneration Report.

For details of operating leases see note 22.

As permitted by Section 148 (8) of the Companies Act 1963, the Company income statement has not been separately presented in these financial statements. The loss reported in the Company income statement for the year was $69.8m (2012: $27.5m).