Annual Report & Accounts 2013

 

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2013

6. Income tax expense
7. Employee data
8. Earnings per share
9. Exploration and evaluation assets
10. Property, plant and equipment

6. Income tax expense

2013

2012

 

$’000

$’000

Current tax expense

 

 

Current year

24,199

16,384

 

 

 

Deferred tax expense

 

 

Origination and reversal of temporary differences

(9,843)

(3,015)

Total income tax expense

14,356

13,369

 

 

 

The difference between the total current tax shown above and the amount calculated by applying the standard rate of Irish corporation tax to the loss before tax is as follows:

Loss before tax

(4,477)

(6,675)

 

 

 

 

Tax credit on Group loss at standard Irish corporation tax rate applicable to the Group of 25%

(1,119)

(1,669)

Effects of:

 

 

(Non chargeable income)/ non deductible expenses

(1,163)

4,255

Other temporary differences

-

(23)

Losses utilised

-

1,062

Deferred tax not recognised (arising primarily on tax losses)

11,852

-

Prior year losses not previously recognised

(980)

-

Tax charge on farm-in contingent consideration not recognised in profit or loss

-

7,562

Effect of differing tax rates in foreign jurisdictions

5,232

365

Tax under provided in prior years

534

1,817

Total tax charge for the year

14,356

13,369

7. Employee data

2013

2012

 

$’000

$’000

Employee costs for the year were as follows:

 

 

 

 

 

Salaries and bonuses

18,932

8,850

Social insurance costs

1,921

1,100

Pension contributions to defined contribution schemes

1,223

576

Cost of share awards in respect of employee service

5,017

3,829

27,093

14,355

 

 

 

 

 

Average number of employees of the Group

2013

2012

 

Number

Number

 

 

 

Operations and exploration

89

31

Finance and administration

78

32

 

167

63

At 31 December 2013, the total number of employees across the Group was 171 (2012: 154).

8. Earnings per share

2013

2012

Basic and diluted loss per ordinary share:

 

 

 

 

 

Loss for the year ($’000)

(18,833)

(20,044)

 

 

 

 

 

 

Number of ordinary shares in issue - start of year

4,388,435,134

2,369,605,049

Shares issued during the year

-

2,018,830,085

Effect of share consolidation of 25:1

(4,212,897,729)

(4,212,897,729)

Shares in issue at end of year

175,537,405

175,537,405

 

 

 

Weighted average number of ordinary shares in issue - basic and diluted (as restated for prior year)

 

Restated to reflect share consolidation of 25:1

175,537,405

112,532,159

 

 

 

Basic loss per ordinary share (cents)

(10.73)

(17.81)

Diluted loss per ordinary share (cents)

(10.73)

(17.81)

The average market value of the Company’s shares which would be used for the purposes of calculating the dilutive effect of share options and warrants was based on quoted market prices for the period in which the options and warrants were outstanding during the reporting period. However, the Group reported a loss for the year and the prior year and therefore the dilutive impact of share options and warrants is to reduce the loss per share and therefore is not dilutive. Consequently, the reported diluted loss per share is the same as the basic loss per share. Share options and warrants in issue as at 31 December 2013 would increase the weighted average number of shares by 7,562 (2012: 657,993) after restatement for 25:1 consolidation.

9. Exploration and evaluation assets

Group

 

Algeria

Egypt

Black Sea

Kurdistan

Other Europe

Total

 

$’000

$’000

$’000

$’000

$’000

$’000

 

 

 

 

 

 

 

At 1 January 2012

295,568

-

-

53,840

11,525

360,933

Acquired as part of business combinations

-

1,500

25,863

-

-

27,363

Additions

8,340

5,601

534

9,009

2,838

26,322

Interest disposed of under farm-out transaction

(131,216)

-

-

-

(38)

(131,254)

Transfer to plant, property and equipment

(172,692)

(257)

-

-

(376)

(173,325)

Unsuccessful exploration costs

-

(4,603)

-

-

-

(4,603)

At 31 December 2012

-

2,241

26,397

62,849

13,949

105,436

At 1 January 2013

-

2,241

26,397

62,849

13,949

105,436

Additions**

-

4,648

23,894

22,794

3,116

54,452

Transfer to plant, property and equipment

-

(1,224)

-

-

-

(1,224)

Unsuccessful exploration costs*

-

(4,180)

(27,718)

-

(1,155)

(33,053)

At 31 December 2013

-

1,485

22,573

85,643

15,910

125,611

 

 

 

 

 

 

 

* Relates to the costs associated with drilling exploration wells which were unsuccessful. Included in this balance was an amount of $11.1m relating to the write off in Romania on the Cobalcescu South-1 well in Block Ex-28, $16.5m relating to the write off in Bulgaria of the Kamchia-1 well; and $3.3m in relation to the Mesaha-1 exploration well in Egypt which was plugged and abandoned in February 2013. Following a technical review of the acreage the Group also relinquished the Casa Sparse, Vercelli and Civitaquana permits in Italy and wrote off an amount of $1.1m.

** Additions include a credit amount of $22.5m (2012: $nil) relating to Romanian cash calls funded by joint venture partners.

 

The Directors have considered the licence, exploration and appraisal costs capitalised in respect of all exploration and evaluation assets, which are carried at historical cost to the Group. These assets have been assessed for impairment, in particular with regard to remaining licence terms, likelihood of licence renewal, requirement for further expenditures and ongoing appraisal for each area, details of which are further described in the Chairman and Chief Executive’s statements. The Directors have considered whether there are any indicators of impairment at 31 December 2013 and note that future realisation of the value of these oil and gas interests is dependent on further successful exploration activities. The Directors formed the view that no write offs or impairment charges; except for those disclosed, are required.

The Directors continue to assess the impact of the environmental legislation in Italy on the carrying value of the Group’s assets of $15.1m, following the Growth Decree (Legislative Decree 83/2012). In light of this new legislation the Group is in discussions with the relevant authorities with the aim of recommencing the appraisal of the BR268 prospect.

10. Property, plant and equipment

Oil and gas development and production assets

Non oil and gas

Total

 

Algeria*

Egypt

Black Sea

Other Europe

assets

Group

$’000

$’000

$’000

$’000

$’000

$’000

 

 

 

 

 

 

 

Cost

 

 

 

 

 

 

At 1 January 2012

-

-

-

-

939

939

Acquired as part of business combinations

-

257,867

144,599

-

1,302

403,768

Additions

-

26,326

375

-

136

26,837

Transfer from intangible assets

172,692

257

-

376

-

173,325

Movement on decommissioning obligations

-

(512)

446

-

-

(66)

At 31 December 2012

172,692

283,938

145,420

376

2,377

604,803

Depletion and depreciation

 

 

 

 

 

 

At 1 January 2012

-

-

-

-

435

435

Depletion

-

13,439

12,247

98

-

25,784

Depreciation

-

-

-

-

405

405

At 31 December 2012

-

13,439

12,247

98

840

26,624

Net book value

 

 

 

 

 

 

At 31 December 2012

172,692

270,499

133,173

278

1,537

578,179

 

 

 

 

 

 

 

Cost

 

 

 

 

 

 

At 1 January 2013

172,692

283,938

145,420

376

2,377

604,803

Additions

11,115

54,132

40,565

-

524

106,336

Transfer from intangible assets

-

1,224

-

-

-

1,224

Movement on decommissioning obligations

(110)

2,096

2,088

-

-

4,074

At 31 December 2013

183,697

341,390

188,073

376

2,901

716,437

Depletion and depreciation

 

 

 

 

 

 

At 1 January 2013

-

13,439

12,247

98

840

26,624

Depletion

-

52,422

39,480

45

-

91,947

Depreciation

-

-

-

-

739

739

Decommissioning charge

-

223

615

-

-

838

At 31 December 2013

-

66,084

52,342

143

1,579

120,148

Net book value

 

 

 

 

 

 

At 31 December 2013

183,697

275,306

135,731

233

1,322

596,289

 

 

 

 

 

 

 

* Property, plant and equipment of the Company relates only to the Algerian asset.

 

Reserves

The volume of recoverable proved plus probable reserves which it is estimated will be recovered from the Group’s oil and gas properties has a direct impact on the calculation of the depletion charge in the development and production assets. This volume has been estimated by the Directors based on evaluations by independent consultants and on evaluations by senior management of the Group as reviewed by independent consultants.

Valuation of oil and gas development and production assets

These assets are reviewed annually for indicators of impairment or more frequently when there is an indication that the CGU may be impaired. The impairment assessment is undertaken by comparing the future discounted cash flows expected to be derived from production of commercial reserves (the value in use) against the carrying value of the asset. The cash flows are long term in nature, up to 20 years, and justified by the period required in order to complete the extraction of the oil and gas reserves. The assumptions involved in impairment measurements include estimates of commercial reserves and production volumes, future oil and gas prices and the level and timing of expenditures, all of which are inherently uncertain.

The net present value of future cash flows expected to be derived from the field/ concession was estimated based on the following pricing and volume assumptions:

Pricing assumptions

2013

2012

 

 

 

Oil (per bbl)

$87.30

$87.30

LPG (per bbl)

$56.75

$56.75

Gas - Egypt (per Mcf)

$2.75

$2.75

Gas - Bulgaria (per Mcf)

$8.50

$8.50

Volume assumptions

 

 

Oil/ liquids (Mbbl)

3,939

4,417

Gas (MMcf)

130,990

156,759

These assumptions reflect current prices received on either the open market or from long term contracts and an assessment of future prices based upon externally available information. No growth in oil or gas prices has been assumed beyond a period of 5 years. Discount rates of 9.0% (2012: 9.0%) in Egypt and 8.0% (2012: 8.0%) in Bulgaria were applied. Key assumptions were also made in respect of the future cost profiles of the ongoing development and production of each field/concession. The estimates used are consistent with detailed field development or production plans which form a core part of the Group’s operating strategy.