Annual Report & Accounts 2013

 

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2013

16. Loans and borrowings
17. Provisions
18. Deferred tax
19. Share capital
20. Share-based payments: Share options and warrants

16. Loans and borrowings

Group

Company

 

2013

2012

2013

2012

 

$’000

$’000

$’000

$’000

Amounts falling due within one year

 

 

 

 

Bank loan

45,750

50,000

45,750

-

 

 

 

 

 

Amounts falling due after one year

 

 

 

 

Bank loan

241,446

226,234

241,446

-

 

 

 

 

 

 

287,196

276,234

287,196

-

 

 

 

 

 

The Group and Company’s interest-bearing loans and borrowings are measured at amortised cost. On 12 April 2013, the Group signed a financing agreement for up to $500m with a syndicate of international banks including mandated lead arrangers HSBC, the IFC (a member of the World Bank Group), Nedbank and Standard Chartered Bank and a facility amendment agreement was signed in April 2013. This replaced the $300m bridge facility provided exclusively by HSBC in 2012. The financing has two tranches: tranche A is a revolving senior Reserve Based Lending tranche of up to $375m; tranche B is a Development Financing Tranche of up to $125m. Availability under Tranche A was $300m at 31 December, with no amounts available under tranche B at that time pending completion of security arrangements. Both tranches have an initial 5 year term and are extendable by 2 years, subject to lender consent. Amounts falling due within one year are the amounts projected to be repaid during 2014 in accordance with the terms of the facility. This facility is secured over the assets of the Group and contains representations and warranties, covenants and events of default typical for a loan facility of this nature.

17. Provisions

Group

Company

 

Non current

Current

Non current

Decommissioning provisions

$’000

$’000

$’000

 

 

 

 

At 1 January 2012

6,082

-

6,012

Acquired as part of business combination

23,147

265

-

Increase in provision for the year

267

-

-

Changes in estimate

(2,874)

-

(2,542)

Unwinding of discount

182

-

69

Utilised in the year

(71)

-

-

At 31 December 2012

26,733

265

3,539

 

 

 

 

At 1 January 2013

26,733

265

3,539

Additions

144

606

-

Utilised in the year

(1,549)

-

-

Changes in estimate

3,280

-

(110)

Unwinding of discount

644

-

140

At 31 December 2013

29,252

871

3,569

 

 

 

 

These provisions relate to the best estimates of costs expected to be incurred on the decommissioning of Algerian, Bulgarian and Egyptian wells and are expected to be incurred between 2014 and 2033 (2012: 2013 and 2032). The provision at 31 December 2013 represents the present value of the estimated cost, using existing technology at current prices (which are adjusted for estimated inflation), of decommissioning the Group’s oil and gas wells and production facilities in Algeria, Bulgaria and Egypt. The discount factor used reflects an applicable risk free rate, taking into account the currency in which the provision will be settled. The discount factor used in 2013 was 3% (2012: 2%).

18. Deferred tax

Deferred tax assets and liabilities are attributable to the following:

Assets

Liabilities

Net

 

2013

2012

2013

2012

2013

2012

 

$’000

$’000

$’000

$’000

$’000

$’000

Group

 

 

 

 

 

 

Property, plant and equipment

-

-

(515)

(1,944)

(515)

(1,944)

Acquisition of exploration and development rights

-

-

(44,600)

(50,792)

(44,600)

(50,792)

Provisions

1,343

1,121

-

-

1,343

1,121

Tax losses carried forward

2,000

-

-

-

2,000

-

Tax assets/(liabilities)

3,343

1,121

(45,115)

(52,736)

(41,772)

(51,615)

Set-off of tax (liabilities)/assets

(1,343)

(1,121)

1,343

1,121

-

-

Net tax assets/(liabilities)

2,000

-

(43,772)

(51,615)

(41,772)

(51,615)

 

 

 

 

 

 

 

Company

 

 

 

 

 

 

Tax losses carried forward

2,000

-

-

-

2,000

-

Net tax assets/(liabilities)

2,000

-

-

-

2,000

-

 

 

 

 

 

 

 

Movement in deferred tax during the year

1 Jan 2012

Deferred tax

Recognised

31 Dec 2012

Recognised

31 Dec 2013

 

 

on acquisition

in income

 

in income

 

Group

$’000

$’000

$’000

$’000

$’000

$’000

Property, plant and equipment

-

(2,183)

239

(1,944)

1,429

(515)

Acquisition of mineral rights

-

(53,518)

2,726

(50,792)

6,192

(44,600)

Provisions

-

1,071

50

1,121

222

1,343

Tax losses carried forward

-

-

-

-

2,000

2,000

Net tax liabilities

-

(54,630)

3,015

(51,615)

9,843

(41,772)

 

 

 

 

 

 

 

Company

 

 

 

 

 

 

Tax losses carried forward

-

-

-

-

2,000

2,000

Net tax assets/(liabilities)

-

-

-

-

2,000

2,000

 

 

 

 

 

 

 

Unrecognised deferred tax assets and liabilities

Group

Deferred tax assets not recognised in the Group, all of which relate to unrecognised tax losses, amounted to $28.1m (2012: $14.2m).

Company

Unrecognised deferred tax assets in the Company as at 31 December 2013, all of which related to unrecognised tax losses, amounted to $7.1m (2012: $5.0m).

19. Share capital

2013

2012

 

Authorised

 

 

 

400,000,000 Ordinary shares of €0.3125

 

125,000,000

125,000,000

200,000,000 Deferred shares of €0.114276427

 

22,855,285

22,855,285

 

147,855,285

147,855,285

 

 

 

 

 

 

 

 

Issued, called up and fully paid

Ordinary share capital

Share premium

No of shares

$’000

$’000

 

 

 

 

At 1 January 2012

2,369,605,049

54,754

355,921

Shares issued during the year

2,018,830,085

32,495

190,423

Share-based payment charge for warrants

-

-

(54)

At 31 December 2012

4,388,435,134

87,249

546,290

 

 

 

 

At 1 January 2013

4,388,435,134

87,249

546,290

Effect of share consolidation of 25:1

(4,212,897,729)

-

-

At 31 December 2013

175,537,405

87,249

546,290

On 7 June 2013, the ordinary share capital of the Company was consolidated on the basis of one new consolidated share for every 25 shares existing. The number of ordinary shares in issue was reduced from 4,388,435,134 to 175,537,405.

At year end, Directors hold 24% (2012: 24%) of ordinary shares and 26% (2012: 24%) assuming that all outstanding share options vest and are exercised. The maximum number of share options which can be outstanding is 10% of issued share capital.

20. Share-based payments: Share options and warrants

Group share schemes

The Group has made awards to employees under a number of share based payments arrangements, the ‘2004 Incentive Scheme’, the ‘2009 Incentive Scheme’, the ‘2013 Share Option Plan’; and the ‘2013 Performance Share Plan’. All awards made are equity-settled share-based payments as defined in IFRS 2. This standard requires that a recognised valuation method be employed to determine the fair value of awards. The fair value of awards has been arrived at through applying a binomial lattice model, with a discount for market conditions applied to the fair value determined by this model based on a Monte Carlo simulator analysis. Under the 2004 and 2009 Schemes, options awarded may only be exercised if predetermined growth rates in the Company’s share price are achieved. In 2013, two further share option schemes were established, the PSP ‘Performance Share Plan’ and the SOP ‘Share Option Plan’. The PSP scheme is open to Executive Directors and senior management with the SOP scheme being open to certain Petroceltic staff.

PSP Scheme: Nil cost options were granted on 16 September 2013 and 2 December 2013 with respective expiration dates of 16 March 2017 and 2 June 2017. Awards are exercisable only if the total shareholder return (“TSR”), the combination of any share price increase and any dividends paid, of Petroceltic’s shares equals or exceeds the median of a peer group TSR of comparable listed entities over the vesting period. 25% vesting is achieved for median TSR and 100% vesting is achieved for upper quartile TSR performance. There is straight line vesting between median and upper quartile. The TSR is compared with a number of Peer Group companies over the three-year performance period. No part of the Award will vest unless the Group’s performance is at or above the median of the Peer Group and the whole of it will vest if it is above the upper quartile. A scheme member will be able to exercise their Award to acquire Shares, to the extent it has vested, at any time during the six-month period following the third anniversary of the Grant Date (the “Normal Vesting Date”). The Award expires at the end of that six-month period.

SOP Scheme: Awards were granted on 16 September 2013. Awards are exercisable at any time after the third anniversary of the grant date until the Option expires on the seventh anniversary of the grant date or the tenth anniversary in the case of UK based employees under an Inland Revenue approved scheme. The exercise price established based on the market price at the date of grant was Stg151.7p.

In 2011 and 2012, the Group issued warrants to Macquarie in lieu of arrangement and facility fees. The related loan facility was repaid in full on 13 February 2012. As at that date, warrants to acquire a total of 2,362,792 (pre consolidation 59,069,802) shares in the Company had been issued to Macquarie. All warrants were priced on the dates of individual issuance at prices from Stg113p to Stg206p based on the volume weighted average price during the five business days preceding each issuance. Under the facility:

  • 1.6 million of these warrants fall within the scope of IFRS 2 Share-based Payment and were recognised over the term of the facility. These costs were included within borrowing costs capitalised as part of the exploration and evaluation assets with the corresponding credit to the share based payment reserve.
  • A further 762,792 warrants were issued in 2012, based on the amount and timing of drawings. The commitment to issue a variable number of warrants is a derivative financial liability for accounting purposes and is subject to measurement initially and subsequently at fair value. The initial fair value of the liability was offset against the carrying value of the loan on drawdown and was recognised over the term of the loan on an effective interest rate basis. This amount, together with interest payable, was included in borrowing costs capitalised as part of the exploration and evaluation assets during the term of the facility. Subsequent changes in the fair value of the derivative liability are recognised within finance income and expense in profit or loss. In 2013 an amount of $48,085 (2012: $0.3m) is recognised as finance income due to a movement in the fair value of the warrants.

In January 2014, Macquarie exercised their subscription rights relating to the first tranche of 600,000 warrants granted to them in October 2011 at a subscription price of Stg113p. The Total Received Ordinary Shares (‘TROS’) amounted to 240,845 and the aggregate nominal value paid in consideration of these shares was €75,264. These new shares were admitted to trading on the AIM and ESM exchanges on 14 January 2014.

The share-based payment charge for the year is as follows:

Group

2013

2012

 

$’000

$’000

 

 

 

Charge relating to employees

5,017

3,829

Charge relating to warrants

-

35

Charge recorded in the consolidated income statement

5,017

3,864

Charge recorded in share premium

-

54

Charge recognised as part of borrowing costs and capitalised

-

1,096

Total share-based payment charge

5,017

5,014

The movement on outstanding share options and issued warrants during the year was as follows:

2013

2013

2012

2012

 

Number of options/ warrants

Weighted average exercise price Stg pence per share

Number of options/ warrants*

Weighted average exercise price Stg pence per share

 

 

 

 

 

Outstanding at start of year

14,373,327

190.26

8,429,494

203.75

Granted during the year- SOP options

687,227

151.70

5,268,000

169.50

Granted during the year- PSP options

2,540,851

-

-

-

Lapsed during the year- options*

(1,014,341)

226.02

-

-

Granted during the year- warrants

-

-

1,049,100

198.48

Lapsed during the year- warrants

-

-

(373,267)

225.00

Outstanding at end of year

16,587,064

157.33

14,373,327

190.26

 

 

 

 

 

Of which:

 

 

 

 

Exercisable at year end

2,720,117

157.31

1,744,012

125.45

The prior year comparative amounts have been adjusted to reflect the 25:1 share consolidation.

The value of share options which lapsed during the year was $2.06m, this has been recognised as a debit to the share based payment reserve and a credit to retained earnings. There were no options exercised during the year.

The assumptions used to determine the fair value of options granted were as follows:

2013

2012

 

 

 

Weighted average share price of all options at date of grant (Stg pence)

190.0p

175p

Average exercise price (Stg pence)

163.4p

200p

Average expected volatility (%)

60.58%

61.34%

Average expected term to exercise (years)

4

4

Average risk free rate (%)

1.4%

1.6%

Expected dividend yield

0%

0%

The resulting fair values were:

 

 

Weighted average fair value of PSP nil cost options granted during the year (Stg pence)

109p

-

Weighted average fair value of other options granted during the year (Stg pence)

72p

64p

The market-based vesting conditions in the 2004 Incentive Scheme require the share price of the Company to increase from the market value at grant date by 10% (standard options) or 20% (super options) per annum, compounded year on year from the effective date of grant to the exercise date. The market-based vesting conditions in the 2009 Incentive Scheme require the share price of the Company to achieve or exceed a figure which is 30% greater than the exercise price.

Expected share price volatility was determined by taking account of historical daily share price movements over the three years prior to grant date.

The average expected term to exercise used in the models is based on the Directors’ best estimate, taking account of behavioural conditions, forfeiture and historical experience.

The risk free rate has been determined from market yields for German government bonds with outstanding terms equal to the average expected term to exercise for each relevant grant.

At 31 December 2013, the following options and warrants over ordinary shares were outstanding:

Number

Type

Exercise price (Stg pence)

Exercise period

 

 

 

 

2004 Incentive scheme

 

 

 

422,535

Options

429*

Up to 25 March 2014**

40,000

Options

346*

Up to 30 July 2014

796,000

Options

160

Up to 25 August 2015

 

 

 

 

2009 Incentive scheme

 

 

 

843,200

Options

222.5

Up to 14 July 2016

1,652,000

Options

285

Up to 10 June 2018

652,000

Options

110

Up to 3 October 2018

1,567,800

Options

197.5

Up to 21 December 2018

260,000

Options

285

Up to 19 September 2019

236,000

Options

222.5

Up to 19 September 2019

4,526,659

Options

169.5

Up to 6 November 2019

 

 

 

 

2013 Incentive Scheme

 

 

 

Performance Share Plan

 

 

 

2,369,422

Options

-

Up to 16 March 2017

171,429

Options

-

Up to 2 June 2017

 

 

 

Share Option Plan

 

 

 

288,121

Options

151.7

Up to 16 September 2020

399,106

Options

151.7

Up to 16 September 2023

 

 

 

 

Warrants

 

 

 

600,000***

Warrants

113

Up to 31 December 2015

600,000

Warrants

140.25

Up to 31 December 2015

113,692

Warrants

171.5

Up to 31 December 2015

316,841

Warrants

195

Up to 31 December 2015

400,000

Warrants

195

Up to 31 December 2015

332,259

Warrants

206

Up to 31 December 2015

 

 

 

 

*These options were granted in Euro; the exercise price shown reflects the Sterling equivalent at grant date rates.

**These options expired on 25 March 2014.

*** These warrants were exercised in January 2013.