Final Audited Results for 2020 and Notice of AGM
26 April 2021
United Oil & Gas PLC ("United" or the "Company")
Final audited results for the year ended 31 December 2020,
Shareholder call and Notice of AGM
United Oil & Gas PLC (AIM: "UOG"), the growing oil and gas company with a portfolio of production, development, exploration and appraisal assets, is pleased to announce its audited results for the year ended 31 December 2020.
A shareholder call hosted by management will take place at 12.00pm BST today. Should investors wish to participate in the event, please click this link to register https://bit.ly/2S9mfow . A confirmation email with details of the dialling in process will be sent to your email address. A presentation and the 2020 Annual Report will be made available today on www.uogplc.com
Brian Larkin, Chief Executive Officer commented:
"2020 was a landmark year for United Oil and Gas, building on strong foundations to position ourselves as a full-cycle oil and gas company with strong production, diverse assets, an exceptional board and clearly defined avenues to deliver further material growth. These were significant achievements despite one of the toughest years for our sector and wider markets caused by the COVID-19 pandemic."
"Building on this success is key for all at United Oil and Gas and we look forward to driving further activity and material growth in 2021 and beyond."
2020 Highlights:
Strategic - Completion of transformational acquisition, strengthening the Board and shareholder base
· Rockhopper Egypt acquisition completed following Egyptian Government approval including successful equity placing and re-admission of the enlarged Group to AIM
· Significant strengthening of the Board with the appointment of Ms Iman Hill and Tom Hickey as non-executive directors
· Establishment of Environmental, Social and Governance (ESG) Board Committee in September 2020 to drive forward the Group's commitment to operating responsibly
· Welcomed new institutional investors as a result of the successful placing of Rockhopper Exploration plc's 18.3% shareholding
Operational - Sustained low-cost production and reserves growth across portfolio
· Strong operational performance of Egyptian assets
o Group working interest production averaged 2,195 boepd *
o Success at the ASH-2 and ES-5 Development Wells increased working interest production from 1,709 boepd on 1st March 2020 to 2,389 boepd on 31st December 2020
o Independent reserves report by Gaffney, Cline & Associates from the end of 2020 indicates a 24 % increase in Abu Sennan Gross 2P Reserves to 16.8 Mmboe, representing a 198 % reserves replacement ratio.
o Completion of ASH and Al Jahraa gas pipelines increasing environmental efficiency of the Abu Sennan licence and contributing an additional 312 boepd to United
· High impact Jamaican exploration assets secured and progressed during the period
o 100% equity stake and operatorship of the Walton Morant Licence in Jamaica along with 18- month extension secured.
o Prospective resources report on Jamaica by Gaffney Cline & Associates showing unrisked mean prospective resource potential of over 2.4 billion barrels assigned across 11 prospects and leads1
· New licence awards in the UK North Sea with of Blocks 15/18e and 15/19c containing the Maria, Brochel and Maol Discoveries in the UK's 32nd offshore licensing round.
Financial -Revenues delivering positive operating cashflow and profits
· Group Revenues of $9.1m*2
· Profit for the year of $0.85m
· Average realised oil price of $37.76/bbl and average realised gas price of $2.63/mmbtu*2
· Cash operating cost $5.77/boe2
· Cash capital expenditure $2.5m
· Cash generated from operation activities $4.8m
· Cash balance at 31 December 2020 $2.2m
* From completion of the Rockhopper Egypt acquisition to period end, 28th February 2020 to 31 st December 2020
1 Summation made by UOG management based on the GaffneyCline analysis
2 22% interest net of government take
Post Year-end:
· Significant success at the ASH-3 Development Well which encountered 27.5m of net pay and tested at 7,720 boepd on 64/64 choke and 4,140 boepd on 30/64 choke
· Discovery at the ASD-1X Exploration well, which encountered a total of at least 22m net pay interpreted across a number of reservoirs
2021 Guidance:
· Group working interest production year to date ahead of expectations; full year guidance raised to 2,500 to 2,700 boepd.
· Success of the ASH-3 and ASD-1X wells in early 2021 is likely to lead to a reserves uplift
· Group Capital Expenditure is forecast to be $6.0m, fully funded from existing assets
o c. $5.4m to be invested in Egypt with three firm wells following the addition of the AJ-8 well to the programme offset by savings on ASH-3 and AD1-X, five workovers, and facilities upgrades
o c. $0.6m to be invested in our Jamaican, Italian and UK assets
Outlook:
· Cash generation is expected to continue strongly throughout 2021 in line with increased production and pricing, particularly in the second half of the year as the capital expenditure associated with the drilling campaign is phased almost entirely in the first half
· The formal farm-out campaign for the Walton Morant licence in Jamaica commenced earlier this month and, following on from the Prospective resources report on Jamaica by Gaffney Cline & Associates, management look forward to discussing this opportunity with prospective partners.
· The Crown disposal milestone payment of $2.85m from Hibiscus, payable on approval of the Marigold development plan by the by the UK's Oil and Gas Authority, is currently expected to be received in the second quarter of 2021.
· Our portfolio provides a platform for organic growth but also a base from which we can consider further growth opportunities in 2021 and beyond.
Annual General Meeting
In light of the Coronavirus (COVID-19) pandemic and the UK Government's measures to restrict travel and public gatherings of more than two people who do not live together, it will not be possible to hold the AGM in its usual format. The meeting will be held at 128 Lower Baggot Street, Dublin 02 A430, Ireland at 12:00 a.m. on 28 May 2021. This year's AGM will be organised as a closed meeting. Shareholders must not attend the AGM in person and anyone seeking to attend in person will be refused entry. The AGM Notice and Form or Proxy will be posted to Shareholders and will be available from today on www.uogplc.com . The Company will make arrangements for a quorum to be present to transact the formal business of the meeting as set out in the notice of the AGM.
Extracts from the Annual Report are set out below. The financial information set out below does not constitute the Company's statutory accounts for the periods ended 31 December 2020 or 31 December 2019 but it is derived from those accounts. Statutory accounts for 31 December 2019 have been delivered to the Registrar of Companies and those for 31 December 2020 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts, their reports were unqualified and did not contain statements under section 498(2) or (3) of the Companies Act 2006.
The Company encourages shareholders to vote on the resolutions or to appoint the Chairman of the AGM as a proxy to vote on their behalf. Shareholders can vote on the resolutions using an online portal, following the procedure below.
· Visiting www.shareregistrars.uk.com and following the online instructions. Through the website shareholders will be able to access the Registrars' Portal, on which they will be able to register to be able to vote. For security reasons, registration is a two-stage authentication process. Once registered, shareholders will be able to vote online via the platform.
· Shareholders can submit their completed Form of Proxy electronically by emailing the same to voting@shareregistrars.uk.com
· Completing and returning the Form of Proxy to the Company's Registrars, Share Registrars Limited, The Courtyard, 17 West Street, Farnham, Surrey GU9 7DR no later than 48 hours before the Annual General Meeting
In the event that further disruption to the AGM becomes unavoidable or there are any changes to the current AGM arrangements, the Company will announce any changes to the meeting (such as timing or venue) as soon as reasonably practicably through a Regulatory Information Service and the Company's website.
Pursuant to Rule 20 of the AIM Rules for Companies, copies of both the Annual Report and the Notice will shortly be available for inspection at www.uogplc.com .
This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014 as it forms part of UK Domestic Law by virtue of the European Union (Withdrawal) Act 2018 ("UK MAR").
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CHAIRMAN'S STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2020
Dear Shareholders, Introduction I am very pleased to report that 2020 was one of the most important and transformational years for the Group. United is now a full cycle oil and gas company with a portfolio of production, development, exploration and appraisal assets that underpin our growth ambitions. Our performance during an extremely challenging year has been exemplary and gives the Board and I great confidence about the capability of our team, our assets and our planned strategy for future growth. Key activities in 2020 The year began with completion of the Rockhopper Egypt acquisition, including a successful equity placing, and the re-admission of the enlarged group to AIM. The drilling success that was achieved at ASH-2 at the end of 2019, was followed by further success at ES-5, increasing our production and reserves, validating our original assessment of the significant upside potential of the assets. Our technical team continue to play a very important role in working closely with the operator in maximising the returns from these assets and their potential. As part of the transaction, the seller Rockhopper Exploration plc acquired an 18.3% interest in the Group which was then very successfully placed later in the year with new institutional investors. In August, as a result of determined efforts on the part of our executives, the Group was awarded operatorship and 100% ownership of the high impact Walton Morant exploration licence in Jamaica and secured an extension to the exploration phase, allowing more time to evaluate the prospectivity of the licence and to seek potential joint venture partners. The Group was also awarded further blocks containing discoveries in the UK's latest offshore licensing round. Business development opportunities across the full cycle continued to be offered to and assessed by the team in the course of 2020, and a number of such opportunities are still under consideration. However, only the most attractive ones consistent with our strategy will be taken forward. Strengthening of our Board and governance As the Company has grown, we have recognised the need for an increased range of skills, experience and diversity among the non-executive directors to support and challenge management in the execution of United's strategy. We believe we have more than achieved this as a result of the appointments during the period of Iman Hill and Tom Hickey, both bring considerable additional technical, operational, financial and commercial experience to the Board. Further, to drive forward our commitment to operating sustainably, the Board established an Environmental, Social and Governance Committee, chaired by Iman, and also appointed Tom to chair the Audit Committee whilst I remain chair of the Remuneration Committee and the AIM Rules Compliance Committee. In addition to these changes, we approved a Remuneration Policy for executive remuneration (which is summarised later in this Report) and made other changes to Board committee composition to improve Board governance and oversight. Finally, Alberto Cattaruzza, who had been a director of United since our re-listing in 2017 and Stewart MacDonald, who joined the board following completion of the Rockhopper Egypt acquisition, stepped down from their roles in the Company. I would like to thank them both again for their valuable service as directors. Strategy Our strategy remains clear; continue to grow our full cycle portfolio of low-risk production, development and exploration assets (as we have in Egypt, Italy and the UK) complemented by a few higher risk, low-cost and high impact exploration opportunities. In addition, we see opportunity to deliver value to shareholders through timely portfolio management as well as through our technical expertise and our drilling operations. Financial Results for 2020 2020 was the first year in which we received revenues, leading I am very pleased to report to a profit after tax of $0.85m. With our production and revenues continuing strongly, and with cash operating costs in 2020 of $5.77 per boe, we entered 2021 with an asset base resilient to low oil prices and with a strong balance sheet. Post Year End There has been further drilling success since the year end with the ASH-3 wellbeing successfully drilled, tested and brought into production and the announcement of an exploration discovery on the ASD-1X exploration well. The ASH Field continues to outperform our estimates, further demonstrating the significant growth potential of our Egyptian assets. Impact to the Company of COVID-19 The human and economic impact of the COVID-19 pandemic continues to be very significant. The priority of the Group remains the health and wellbeing of our employees and wider stakeholders and we are glad to report that all of our employees are safe and well. In common with every company in the oil and gas industry, and indeed in all other areas of business, the Company's activities have been affected by COVID-19 uncertainty. However, there has been no impact on our operations in Egypt and the production and transport of oil and gas has continued uninterrupted. Dialogue with shareholders Shareholders views on the Company, its strategy, remuneration policy and indeed all aspects of our business and operations are very important to the Board and we welcome every opportunity to engage. However, appreciating that physical meetings are not possible at the moment we would be very happy to hear from you in whatever manner suits you best. I can be reached via the Company Secretary at info@uogplc.com Conclusion 2020 was another very successful year for the company in the development and pursuit of our strategy and I would like to record my thanks to our executives and staff for their continued commitment and energy throughout the year, which was an especially challenging period, given the COVID -19 pandemic and commodity price fluctuations. We look forward very positively to the year ahead. We have a balanced full cycle portfolio, the cash flow to fund our business and exciting new opportunities under review. Graham Martin Chairman
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2020
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet as at 31 December 2020
The financial statements were approved by the Board of Directors and authorised for their issue on 23 April 2021 and were signed on its behalf by:
Brian Larkin Chief Executive Officer Consolidated Statement of Changes in Equity
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER
Notes to the Consolidated Financial Statements
1. Segmental reporting
Operating segments
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources, assessing the performance of the operating segment and making strategic decision, has been identified as the Board of Directors.
The Group operates in four geographic areas - the UK, Europe and greater Mediterranean, Latin America and Egypt. The Group's revenue from external customers and information about its non-current assets (other than financial instruments, investments accounted for using the equity method, deferred tax assets and post-employment benefit assets) by geographical location are detailed below.
2. Cost of sales
3. Operating Profit/(loss)
4. Disposal of Crown asset in prior period
On 12 December 2019, United announced the completion of the sale of its 95% share in the North Sea Blocks 12/18d and 15/19b (licence P2366) to Anasuria Hibiscus UK limited. The disposal was of the aforementioned licence only, and the UOG Crown Limited subsidiary company is retained in the group.
Under the deal for this disposal of the Crown licence, United received $950,000 in 2019 on completion, with a further receivable of $2,850,000 which is contingent upon approval of an FDP, the latter amount being reflected in current receivables in the balance sheet. In the event of non-payment of the latter amount, the Group would retain ownership of the licence asset.
Having acquired the licence in 2018 and incurred costs on a work programme, some in-house technical work, and the costs of disposal the Group reported a profit on disposal before tax in its 2019 Income Statement of $2,881,976.
5. Directors and employees
The aggregate payroll costs of the employees, including Executive Directors and Non-Executive directors, were as follows:
Average monthly number of persons employed by the Group during the year was as follows:
Key management personnel are identified as the Executive Directors.
No share warrants have been exercised by any of the directors.
6. Finance income and expense
7. Taxation
The Group has accumulated tax losses of approximately $8m (2019: $4m). No deferred tax asset was recognised in respect of these accumulated tax losses as there is insufficient evidence that the amount will be recovered in future years.
8. Earnings / (loss) per share
The Group has issued share warrants and options over Ordinary shares which could potentially dilute basic earnings per share in the future. Further details are given in note 17.
Basic earnings / (loss) per share is calculated by dividing the profit / (loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.
Basic and diluted earnings / (loss) per share
The profit / (loss) and weighted average number of ordinary shares used in the calculation of basic earnings / (loss) per share are as follows:
9. Subsidiaries
Details of the Group's subsidiaries in 2020 are as follows:
*held indirectly by United Oil & Gas Plc
10. Intangible assets
At 31 December 2020 the Group's E&E carrying values of $7.9m related to our exploration prospects in Abu Sennan in Egypt, gas development Selva asset in Italy, our high impact exploration activity in Jamaica, and the UK North Sea and Wessex basin exploration/development work programmes. During the year we completed the acquisition of Rockhopper Egypt Pty which came with a portfolio of exploration prospects and commitments, successfully applied and were awarded the Maria field in the OGA 32nd North Sea licencing round, gained full 100% operatorship of our Jamaican high impact exploration licence after Tullow Jamaica Limited relinquished their 80% share, and have made the decision to write down remaining expenditure on the Colter wells after they were relinquished in January 2021.
Our Italian development at the Selva field continued to make progress in 2020. Factoring in the impact of Covid-19, we are now targeting first production by mid- 2022. Formal technical environmental approval from the Italian Environmental Ministry was granted in January 2020 and preliminary work has commenced on the development programme preparing for first gas. Testing has previously indicated rates of 150,000scm/day with UOG's economic interest being 20%. At the Balance Sheet date $2,659,922 had been capitalised for our Italian asset.
In August 2020, the Group was assigned Tullow Jamaica Ltd.'s 80% equity in the Walton Morant licence meaning United now operate 100%. The initial exploration period was extended until 31 January 2022 when an initial drill-or-drop decision is required. The Group has commenced a work programme to further de-risk the high-graded Colibri prospect and perform detailed interpretation of the numerous follow-on targets. This work will have an impact on the continuing farm-down process. As at 31 December 2020 the Group are carrying $3,602,178 for Jamaica in its Intangibles assets.
In the UK North Sea, Licence P2519, containing two blocks including the Palaeocene Maria discovery, was acquired in the OGA's 32nd licensing round which is only 10KM from our previously awarded acreage in the 31st licencing round. Together with the awards in the 31st round United has an exciting work programme in place and costs to date on the balance sheet of $214,082 are capitalised. The work programme continues on the Waddock Cross development with current capitalised costs at yearend of $565,241. In the Wessex Basin United decided with its partners to relinquish the PEDL licences, effective 31 January 2021. As a result, costs remaining capitalised of $37,161 were written down.
A key achievement in 2020 was the completion of the acquisition of Rockhopper Egypt Pty Limited which came with valuable exploration licences. Several exploration opportunities and prospects exist within the Abu Sennan licence and an exploration commitment ASD 1X well was drilled during early 2021 leading to a discovery. As at the Balance Sheet date United had $842,024 capitalised as E&E in UOG Egypt Pty Limited.
Management reviews the intangible exploration assets for indications of impairment at each balance sheet date based on IFRS 6 criteria. Commercial reserves have not yet been established and the evaluation and exploration work is ongoing. The Directors believe the only impairment indicators relate to Colter (as described above) and have impaired all associated costs to date accordingly, with all remaining assets described continuing to be carried at cost.
11. Property, plant and equipment
Depreciation is recognised within administrative expenses.
12. Business combinations
On 28 February 2020, the Company announced that it had completed the acquisition of 100% of the equity share capital of UOG Egypt Pty Ltd (formerly Rockhopper Egypt Pty Ltd). from Rockhopper Exploration plc ("Rockhopper"). The acquisition was transformational for the Group delivering a solid production base and transitioning the company to a full cycle E&P company.
The Acquisition, which had an effective date of 1 January 2019, included a 22% non-operating interest in the producing Abu Sennan concession, onshore Egypt. The consideration payable to Rockhopper for the Acquisition was US$16 million which was funded by: · the issue to Rockhopper of 114,503,817 Consideration Shares at 3 pence per Ordinary Share representing 18.5% of the Company's Enlarged Ordinary Share Capital, · a pre-payment financing structure of US$8 million provided by BP ('the BP Facility') and · the issue of 150,616,669 Placing Shares at 3 pence per share with certain existing and new investors and 8,419,498 Subscription Shares also at 3 pence per share.
No goodwill has been recognised on the acquisition because the fair value of the identifiable net assets was the same as the fair value of the consideration transferred, as shown in the table below.
The fair value of acquired receivables was equal to the contractual amounts receivable and all cash flows were collected.
Post-acquisition contribution
The acquisition of UOG Egypt contributed $9,053,657 revenue and $2,136,680 profit to the Group's results for the year acquired.
If UOG Egypt had been acquired on 1 January 2020, revenue of the Group for the year would have been $11,192,276 and profit for the year would have been $5,754,327
13. Inventory
14. Trade and other receivables
The Directors consider that the carrying values of trade and other receivables are approximate to their fair values.
No expected credit losses exist in relation to the Group's receivables as at 31 December 2020 (2019: $nil).
Accrued Income relates to two months Oil & Gas invoices for the Abu Sennan producing assets in Egypt under the receivable terms of the agreement with EGPC.
Prepayments and deposits relate to monies paid in advance in relation to the Rockhopper acquisition completed after the balance sheet date, and 2 months advance rent on the office.
Crown disposal proceeds due are being carried at the full value expected to be received (see note 3).
15. Cash and cash equivalents
At 31 December 2020 and 2019 all significant cash and cash equivalents were deposited in creditworthy financial institutions in UK, Ireland and Egypt.
16. Share capital and share premium
Allotted, issued, and fully paid:
As regards income and capital distributions, all categories of shares rank pari passu as if the same constituted one class of share.
17. Share-based payments
Options
Details of the number of share options and the weighted average exercise price (WAEP) outstanding during the year are as follows:
The fair values of share options issued in the current financial year were calculated using the Black Scholes model as follows:
Expected volatility was determined based on the historic volatility of the Company's shares for a period averaging 1 year. 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 Group recognised total expenses of $267,766 (2019: $126,772) in the income statement in relation to share options accounted for as equity-settled share-based payment transactions during the year.
Warrants
Details of the number of share warrants and the weighted average exercise price (WAEP) outstanding during the year are as follows:
The fair values of share warrants issued or extended in the current financial year were calculated using the Black Scholes model as follows:
Expected volatility was determined based on the historic volatility of a comparable company's shares for a period averaging 1 year. 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 Group recognised total expenses of $62,516 (2019: $nil) in relation to share warrants accounted for as equity-settled share-based payment transactions during the year in relation. These were recognised as follows:
$62,516 (2019: $nil) as a deduction from share premium related to share warrants accounted for as equity-settled share-based payment transactions during the year.
18. Trade and other payables
19. Deferred shares
On 12 October 2015, the Company issued 30,000 Deferred Shares of £1 for £30,000 to the founder, which have an entitlement to a non-cumulative annual dividend at a fixed rate of 0.1 per cent of their nominal value. The Deferred Shares have no voting rights attached to them and may be redeemed in their entirety by the Company for an aggregate redemption payment of £1.
20. Leases
Right of use assets The Group used leasing arrangements relating to property, plant and equipment. As the Group has the right of use of the asset for the duration of the lease arrangement, a "right of use" asset is recognised within property, plant and equipment.
When a lease begins, a liability and right of use asset are recognised based on the present value of future lease payments.
Lease liabilities
21. Borrowings and derivatives
Amounts payable on borrowings held by the Group falling due within one year and in more than one year are:
The assets of the Group are held as security against the loan.
Summary of borrowing arrangements:
In February 2020, the Group entered into a prepaid commodity swap arrangement for $8 million to part-finance the acquisition of Rockhopper Egypt Pty Ltd. The funds will be repaid through 30 monthly repayments which are structured as a fixed notional amount with variations based on movements in oil prices. Due to the price structure, the arrangement includes an embedded derivative (a forward contract). For financial reporting purposes, this must be separately accounted for at fair value at each balance sheet date. The balance of proceeds that did not relate to the derivative were treated as the opening carrying amount of the loan which will then be measured at amortised cost over its life, with finance charges recognised to give an even return over the loan life and repayments of capital allocated appropriately.
As at 31 December 2020, a fair value gain has been recognised (as finance income) as a result of oil price movements in the period and on forward price rates.
During the year modifications were agreed to the loan whereby there was a three-month period where payments were suspended and the deferred amounts will be rolled into payments in the final 12 months of the loan.
Further put option hedging contracts were entered into in the second half of the year to manage oil price risk . Each of these contracts is a standalone derivative and those that were outstanding at the end of the year were measured at fair value, with gains and losses in the income statement. Some arrangements are still in place, extending to June 2021.
The valuations of the host debt and derivative on initial recognition and valuation of the remaining embedded derivative as at 31 December 2020 were undertaken using data provided by independent third parties.
The fair value of the contracts has been estimated using a valuation technique that maximises the use of observable market inputs. These are classified as Level 2 in the fair value hierarchy (see note 22). Reconciliation of liabilities arising from financing activities 2020
Fair value movements are recognised in finance income (see note 6).
22. Financial instruments
Classification of financial instruments
The fair value hierarchy groups financial assets and liabilities into three levels based on the significance of inputs used in measuring the fair value of the financial assets and liabilities. The fair value hierarchy has the following levels:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The level within which the financial asset or liability is classified is determined based on the lowest level of significant input to the fair value measurement.
The only financial instruments measured at fair value in the balance sheet are the embedded derivatives and standalone derivatives which are classified as Level 2 according to the above definitions. There were no transfers in or out of Level 2 in the year.
There are no financial instruments classified at Level 1 or Level 3 in the years presented.
The tables below set out the Group's accounting classification of each class of its financial assets and liabilities.
All of the above financial assets' carrying values are approximate to their fair values, as at 31 December 2020 and 2019.
Financial liabilities
In the view of management, all of the above financial liabilities' carrying values approximate to their fair values as at 31 December 2020 and 2019.
Fair value measurements
This note provides information about how the Group determines fair values of various financial assets and financial liabilities.
Fair value of financial assets and financial liabilities that are not measured at fair value on a recurring basis
The directors consider that the carrying amounts of financial assets and financial liabilities recognised in the consolidated financial statements approximate their fair values (due to their nature and short times to maturity).
Fair value of financial liabilities that are measured at fair value on a recurring basis
The fair value of derivative financial instruments has been estimated using a valuation technique that maximises the use of observable market inputs. .
23. Financial instrument risk exposure and management
The Group's operations expose it to degrees of financial risk that include liquidity risk, credit risk, interest rate risk.
This note describes the Group's objectives, policies and process for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented in notes 14,15,18,20,21,22 and 24
Liquidity risk
Liquidity risk is dealt with in note 24 of these financial statements.
Credit risk
The Group's credit risk is primarily attributable to its cash balances.
The credit risk on liquid funds is limited because the third parties are large international banks with a minimum investment grade credit rating.
The Group's total credit risk amounts to the total of other receivables and cash and cash equivalents. Credit assessments are routinely reviewed on all of the Group's joint venture partners and other counterparties.
Interest rate risk
The Group's only exposure to interest rate risk is the interest received on the cash held on deposit, which is immaterial. The Group's borrowings outstanding at 31 December 2020 are structured in such a way that the notional interest charge is fixed and therefore there is no interest rate risk. There were no borrowings as at 31 December 2019.
Price risk The Group manages its exposure to commodity price risk on an ongoing basis. As described in note 12, the loan for the acquisition of Rockhopper Egypt also involved a derivative arrangement to manage the exposure arising from having the loan payments based on oil quantities rather than a fixed cash price. Further arrangements were initiated and closed during the reporting period, and others remain outstanding and will be settled based on contract timing into 2021. The combined put and call arrangements provide the Group with protection against price movements on either side of a protected corridor.
Foreign exchange risk
The Group is exposed to foreign exchange movements on monetary assets and liabilities denominated in currencies other than USD. The Group's transactions are carried out in GBP, EUR and USD. Equity funding transactions are carried out in GBP. Operational transactions are carried out predominantly in USD but also in GBP and EUR.
The monetary assets and liabilities denominated in currencies other than USD are relatively immaterial (see notes 14 and 15) and transactional risk is considered manageable.
The Group does not hold material non-domestic balances and currently does not consider it necessary to take any action to mitigate foreign exchange risk due to the immateriality of that risk.
24. Liquidity risk
Prudent liquidity risk management includes maintaining sufficient cash balances to ensure the Group can meet liabilities as they fall due.
In managing liquidity risk, the main objective of the Group is therefore to ensure that it has the ability to pay all of its liabilities as they fall due. The Group monitors its levels of working capital to ensure that it can meet its debt repayments as they fall due. The table below shows the undiscounted cash flows on the Company's / Group's financial liabilities as at 31 December 2020 and 2019, on the basis of their earliest possible contractual maturity.
25. Capital management
The Group's capital management objectives are: · To provide long-term returns to shareholders · To ensure the Group's ability to continue as a going concern
The Group defines and monitors capital on the basis of the carrying amount of equity plus borrowings less cash and cash equivalents as presented on the face of the balance sheet and as follows:
The Board of Directors monitors the level of capital as compared to the Group's commitments and adjusts the level of capital as is determined to be necessary by issuing new shares. The Group is not subject to any externally imposed capital requirements.
These policies have not changed in the year. The Directors believe that they have been able to meet their objectives in managing the capital of the Group.
26. Related party transactions
Key management personnel are identified as the Executive Directors, and their remuneration is disclosed in note 5.
27. Financial commitments As at 31 December 2020, the Group's commitments comprise their producing assets and exploration expenditure in Egypt, exploration expenditure interests in Waddock Cross, Crown, and the Walton-Morant licence, and development expenditure in Italy. These commitments have been summarised below:
28. Ultimate controlling party
The directors do not consider there to be an ultimate controlling party.
29. Events after the balance sheet date - to complete closer to sign off
1. ASH 3 Well Test Update On the 23 of February 2021 the company announced an update on the testing of the ASH-3 development well in the Abu Sennan concession, onshore Egypt. The ASH-3 well was spudded on 4 of January 2021, reached a total depth of 4.087 metres on the 8 February 2021 which was ahead of schedule and under budget. Gross hydrocarbons indicates a column of 59m in the primary AEB reservoir target, 27.5m of which is estimated to be net pay. The well was immediately brought onstream through the existing ASH facilities and is producing at an average of over 4,000 boepd (880 boepd net) since coming onstream on 5 March 2021, of which United holds a 22% non-operating interest. 2. Discovery at ASD-1X Well, Abu Sennan Concession, Egypt On the 6 of April United announced the preliminary results of the ASD 1X exploration well discovery, which encountered a total of at least 22m net oil pay across a number of reservoirs. Well testing is ongoing, and if successful, will be followed by an application to Egyptian General Petroleum Company ('EGPC') for a development lease over this new discovery. The ASD-1X exploration well, located 12KM to the north-east of the producing Al Jahraa Field, safely reached Total Depth (TD) of 3,750 MD on 30 March 2021, several days ahead of schedule and under-budget.
Glossary Non-IFRS measures The Group uses certain measures of performance that are not specifically defined under IFRS or other generally accepted accounting principles. Cash-operating costs per barrel Cash operating costs are defined as cost of sales less depreciation, depletion and amortisation, production based taxes, movements in inventories and certain other immaterial cost of sales. Cash operating costs are then divided by barrels of oil equivalent produced to demonstrate the cash cost incurred to producing oil and gas from the Group's producing assets.
EBITDAX EBITDAX is earnings from continuing activities before interest, tax, depreciation, amortisation, reversal of impairment, and exploration expenditure and exceptional items in the current year.
For more information, please visit the Company's website at www.uogplc.com or contact:
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Notes to Editors
United Oil & Gas is a high growth oil and gas company with a portfolio of low-risk, cash generative production and development assets across Egypt, UK, Italy and a high impact exploration licence in Jamaica.
The Company is led by an experienced management team with a strong track record of growing full cycle businesses and partnered with established industry players and well positioned to deliver future growth through portfolio optimisation and targeted acquisitions.
United Oil & Gas is listed on the AIM market of the London Stock Exchange. For further information on United Oil and Gas please visit https://www.uogplc.com/
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