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Nautilus Marine Serv (NAUT)

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Thursday 09 March, 2017

Nautilus Marine Serv

Final Results

RNS Number : 9332Y
Nautilus Marine Services PLC
09 March 2017
 

 

Immediate Release                                                                  9 March 2017                                                                             

NAUTILUS MARINE SERVICES PLC

(FORMERLY GLOBAL ENERGY DEVELOPMENT PLC)

(the "Group" or "Nautilus")

 

AUDITED FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2016

 

Nautilus (AIM:  NAUT), the Group that is focused on investing in and providing marine offshore services to the energy sector, today announces its audited final results for the year ended 31 December 2016 (the "Period").  

 

Highlights:

-     Fundamental change of the business has been completed with its first acquisition of offshore service vessels

 

-     The Group's new strategy is to acquire or invest in offshore energy assets and commercialised niche technologies in the currently distressed market in order to position itself as specialised service provider

 

-     The Group has moved its business focus away from the exploration and production of oil reserves in Colombia

 

Anna Williams, Director of Strategy and Business Development of Nautilus, commented: "2017 turns the page for the Group to a new strategy and a new name. We have sufficient strength and working capital to survive the downturn in the offshore services market in 2017 while we execute our strategy of acquiring assets and commercialized niche technologies in order to position ourselves as a specialised service provider with a competitive advantage. In addition, we will continue to build the team of qualified offshore operations personnel. We have accumulated a database of possible targets which are currently being prioritised for action this year to create long term value for shareholders.''

 

Enquiries:

Nautilus Marine Services PLC

 

Anna Williams, Director of Strategy and Business Development

+1 817 424 2424, ext 110

[email protected]

 

www.nautilusmarineplc.com

 

 

 

finnCap Ltd

 

Christopher Raggett/Scott Mathieson/Kate Bannatyne (Corporate Finance)

020 7220 0500

Emily Morris (Corporate Broking)

 

 

 

Abchurch

 

Tim Thompson/Rebecca Clube

020 7398 7700

[email protected]

 

 

Notes to Editors:

 

Nautilus Marine Services PLC (AIM: NAUT) is an AIM-listed company. Nautilus is focused on the energy services sector with particular interest in offshore services and assets. Nautilus makes investments in offshore service assets and related technology, which may be placed into service when market conditions allow for profitable contracts. Currently the Company is taking advantage of distressed market conditions to accelerate investments in offshore service vessels and applied technology, and subsequently integrate, assess, enhance and operate these assets to realise value in the future.

 

 

Forward-looking statements

 

This release may include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this release and include, but are not limited to, statements regarding the Group's intentions, beliefs or current expectations concerning, among other things, the Group's results of operations, financial position, liquidity, prospects, growth, strategies and expectations of the industry. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Forward-looking statements are not guarantees of future performance and the development of the markets and the industry in which the Group operates may differ materially from those described in, or suggested by, any forward-looking statements contained in this release. In addition, even if the development of the markets and the industry in which the Group operates are consistent with the forward-looking statements contained in this release, those developments may not be indicative of developments in subsequent periods. A number of factors could cause developments to differ materially from those expressed or implied by the forward-looking statements including, without limitation, general economic and business conditions, industry trends, competition, commodity prices, changes in law or regulation, currency fluctuations (including the US dollar), the Group's ability to recover its reserves or develop new reserves, changes in its business strategy, political and economic uncertainty. Save as required by law, the Company is under no obligation to update the information contained in this release.

 

Past performance cannot be relied on as a guide to future performance.

 

 

 

 

Chairman's Statement and Review of Operations

 

Change in Strategy

 

2017 is a year of change.  In February 2017, the Group completed its fundamental change of business with the closing of the transactions to acquire subsea service vessels and changed its name to Nautilus Marine Services PLC.  These acquisitions were effected through the purchase of the entire issued share capital of certain vessel-owning companies.  All vessels are located at the Group's docking facility in Louisiana, USA with access to the Gulf of Mexico.  The purchase of these vessels was the first step in the Group's new strategy to acquire and invest in assets and technology in the currently-distressed offshore services sector.  

 

The offshore sector services multiple industries including telecom and renewables, but primarily the focus has been on the transportation of equipment, technology or divers to offshore facilities, wells and pipelines for the energy industry.   Like the energy industry, over the past few years the subsea sector has seen a dramatic decline in demand for its services for both operational as well as capital activities.  Much of this work, such as inspection, repair and maintenance of existing offshore assets as well as the development of new production, has not disappeared so much as it has been delayed by offshore energy companies until a sustained recovery in oil prices and demand occurs.  Current industry specialists predict that utilisation and demand for offshore services could continue to remain low or further decline throughout 2017.  With this past decline in demand for offshore services and with the predictions for continued short term decline, the Group believes a window of time exists for buying opportunities.  The Group intends to use this time for viable investment, consolidation and technology opportunities to take advantage of distressed market conditions.  

 

With this new strategy, the Group has shifted its business focus away from the exploration, development and production of oil reserves in Colombia, South America.  The Group continues to hold its two Association Contracts in Colombia but is actively seeking possible alternatives for this investment.  In the meanwhile, the Group is continuing to preserve its contract acreage in Colombia by maintaining its ongoing environmental, social and safety requirements. 

 

Acquisitions

 

During 2016 as the Group was vetting energy-based strategic opportunities, we were presented with the opportunity to gain access into the global offshore services sector through an initial entry into the Gulf of Mexico with the purchase of offshore service vessels and equipment.  After completing due diligence, a leading global maritime firm was engaged by the Group to independently appraise the fair market value of the vessels and equipment.  In addition, the fair market value of the convertible notes was independently appraised by an international accounting firm.  Subsequently, the Group pursued the negotiation and compilation of the share purchase agreements along with the required regulatory documents and advisor review during late 2016.

 

In February 2017 following approval from our shareholders at the general meeting, the Group closed the two transactions to cumulatively receive:

 

·     New capital cash of $10.5 million; and

·     Vessels and equipment with a fair market value of $13.6 million

 

in exchange for:

 

·     Deeply discounted convertible notes with a fair market value of $16.1 million; and

·     Forgiveness of $8 million of the outstanding principal amount of an existing note receivable. 

 

The three series of convertible notes (Series A, B and C) have ten, twelve and fifteen year terms, respectively, and are convertible into shares of the Group.  Only the Series A notes are payable in cash upon maturity, if not converted.  The Series B and C notes are payable in cash or shares at maturity at the option of the Group, if not already converted.  Interest is payable only upon maturity or conversion and does not compound.  All three series of convertible notes contain the right for the Group to force conversion if the Group's average share price equals or exceeds 110 per cent. of the conversion price for a period of ten consecutive business days.

 

Two of the sellers in the transactions, Everest Hill Group Inc. ("Everest") and Mr. Alan Quasha, represent related-parties to the Group, but the remaining parties to the transactions, McLarty Capital Partners and Caleura Limited, are non-related parties.  These transactions represented an opportunity for the Group to acquire offshore service assets at reduced prices, to raise new capital for future acquisitions and to diversify the existing shareholder base with non-related parties if the notes are converted into shares of the Group in the future.

 

The Group has built a database of offshore service prospects and is advancing efforts on the assessment of these opportunities. In addition, the Group intends to integrate, assess and possibly enhance the current vessels and equipment from these transactions alongside other current market opportunities as part of its overall global offshore investment strategy.  Through the recent leasing of top-level docking facilities, the Group has adequate space to maintain its assets with access to the Gulf Coast.

 

Management is currently evaluating the accounting treatment to be applied to these two post reporting date transactions.

 

2016 Financials

 

During 2016, the Group increased its holdings in the note receivable from Everest ("Everest Loan Note") by loaning an additional $2 million principal amount to Everest and acquiring HKN Inc.'s rights to their outstanding principal amount of $2 million of the Everest Loan Note.  As a result, the Group became the sole lender of the amended Everest Loan Note which had a principal balance of $12 million at 31 December 2016.  Also during the year, the Group ultimately extended the maturity date of the Everest Loan Note to 15 January 2017 and granted forbearance in respect of any non-payment default in expectation of the closing of the transactions as discussed above.  Upon completion of these transactions in February 2017, the Group amended the terms of the Everest Loan Note (of which a principal balance of $4 million currently remains outstanding). The new terms of the amended Everest Loan Note include a reduced interest charge of 8 per cent. per annum, payable quarterly in arrears, and an extended maturity date of 15 September 2018 (subject to acceleration).

 

The Group increased its decommissioning provision estimates during 2016 related to its Colombian Association Contracts for both current and long-term remediation projects.  These increases to decommissioning liabilities were partially offset by payments made for environmental and social projects during the year. 

 

Accounts receivable for the Group (related to discontinued operations) decreased during the year due to the write-off of disallowed tax credits on a tax refund due from the tax authorities in Peru.  The anticipated tax refund was related to VAT charged on invoices for oil and gas activities related to the Group's Block 95 contract in Peru which was sold during 2012.  Upon the Group's request for a refund, the taxing authority in Peru commenced an audit of the refund claim which was completed during 2016.  A partial VAT refund was issued to the Group's wholly-owned Peruvian subsidiary, and the remainder of the receivable was written-off during the year. 

 

Turnover from the Company's sole producing well in Colombia decreased to $178 thousand (2015: $365 thousand) yielding lifted volumes of 7,287 barrels of oil ("bbls") (2015: 11,240 bbls) and an average realised sales price of $24.42/bbl (2015: $32.46/bbl) during 2016.  Costs of sales decreased to $602 thousand during the year (2015: $978 thousand) as a result of lower production volumes and decreased maintenance activities.  Gross loss decreased to $424 thousand compared to $613 thousand for the prior year.

 

Administrative expenses increased to $6.1 million during 2016 compared to $4.5 million for the prior year.  Approximately $1.2 million of this increase related to non-recurring, third-party advisor, legal and appraisal costs associated with work performed for the transactions described above.  The remaining increase in administrative costs was primarily related to consulting and research costs for the Group's evaluation of other acquisition opportunities along with executive search fees for the Group's new Director of Operations. 

 

Finance income increased significantly to $1.2 million during 2016 compared to $440 thousand for the prior year as a result of the monthly interest income earned from the Everest Loan Note outstanding during all of 2016. 

 

During 2016, the Group recorded an impairment charge of $703 thousand related to its Colombian properties as a result of increased decommissioning and remediation estimates along with the decision to perform some of these projects earlier than originally anticipated.

 

Tax expense for 2016 was $197 thousand as compared to an overall tax benefit of $2.1 million for the prior year.  Tax expense for 2016 was comprised of the CREE and wealth taxes related to our Colombian subsidiaries.  The prior year tax benefit was primarily due to a net decrease in Colombian deferred tax liabilities.

 

Lastly, the Group recognised a $147 thousand loss from discontinued operations during 2016 from the disallowed tax credits on a tax refund due from the tax authorities in Peru related to the Group's Block 95 contract in Peru which was sold during 2012.  The income from discontinued operations of $1.0 million during the prior year was related to tax and purchase price adjustments on the Group's sale of certain of its Colombian properties through the sale of its wholly-owned subsidiary which was finalised during 2015.

 

Conclusion

 

2017 turns the page for the Group to a new strategy along with a new name.  Nautilus has sufficient financial strength and working capital to survive a continued downturn in the offshore services market in 2017 while we execute our strategy to acquire additional opportunities to take advantage of distressed market conditions.   In addition, we are seeking to enhance our offshore operations personnel and expertise in the Group from the available personnel currently in the market.  We have accumulated a database of possible targets which are currently being prioritised for action this year in order to create long-term value for our shareholders.

 

Mikel Faulkner

Chairman

8 March 2017

 

 

 

PRIMARY FINANCIAL STATEMENTS

Consolidated Statement of Comprehensive Income
For the year ended 31 December 2016

 

 

2016

$'000

2015

$'000

Continuing Operations

 

 

Revenue

 178

 365

Cost of sales

(602)

(978)

Gross loss

(424)

(613)

Other income

-

8

Administrative expenses

(6,102)

(4,478)

Share-based expense

 (10)

 (14)

Exchange rate expense

(113)

(59)

Impairment loss

(703)

(21,813)

Operating loss from continuing operations

 (7,352)

 (26,969)

Finance income

1,242

440

Finance and other expense

(173)

(196)

Loss before taxation from continuing operations

(6,283)

(26,725)

Tax (expense) / benefit

(197)

2,114

Loss from continuing operations, net of tax

(6,480)

(24,611)

(Loss) / income from discontinued operations, net of tax

(147)

1,047

Total comprehensive loss for the year attributable to the equity owners of the parent

(6,627)

(23,564)

Loss per share for continuing operations attributable to the equity owners of the parent

 

 

- Basic

 $(0.18)

 $(0.68)

- Diluted

 $(0.18)

 $(0.68)

(Loss) / earnings per share for discontinued operations attributable to the equity owners of the parent

 

 

- Basic

 $(0.00)

 $0.03

- Diluted

 $(0.00)

 $0.03

Total loss per share attributable to the equity owners of the parent

 

 

- Basic

 $(0.18)

 $(0.65)

- Diluted

 $(0.18)

 $(0.65)

 

Figures in thousands except for per share information.

 

 

Consolidated Statement of Financial Position
As at 31 December 2016

 

2016

$'000

2015

$'000

(Restated)

Assets

 

 

 

Non-current assets

 

 

 

Intangible assets

 

144

93

Other non-current assets

 

888

862

Property, plant and equipment

 

 21

 145

Total non-current assets

1,053

           1,100

Current assets

 

 

Inventories

 

259

246

Note receivable

 

12,060

8,040

Trade and other receivables

 

66

339

Prepayments and other assets

 

283

169

Cash and cash equivalents

 

16,446

 

25,608

 

Total current assets

29,114

34,402

Total assets

 30,167

 35,502

Liabilities

 

 

Non-current liabilities

 

 

 

Deferred tax liabilities (net)

 

-

(6)

Long-term provisions

 

(2,161)

(2,005)

Total non-current liabilities

(2,161)

(2,011)

Current liabilities

 

 

Trade and other payables

 

(1,306)

(932)

Short-term provisions

 

(948)

(184)

Corporate and equity tax liability

 

(116)

(122)

Total current liabilities

(2,370)

(1,238)

Total liabilities

(4,531)

(3,249)

Net assets

25,636

32,253

Capital and reserves attributable to equity holders of the parent

 

 

Share capital

 

 608

 608

Share premium account

 

 27,139

 27,139

Capital reserve

 

 51,855

 51,855

Retained deficit

 

(53,966)

 

(47,349)

 

Total equity

25,636

32,253

 

 

 

 

 

Consolidated Statement of Cash Flows
For the year ended 31 December 2016

 

 

 

 

 

2016

$'000

2015

$'000

Cash flows from operating activities

 

 

Cash used by operations

 (6,137)

 (5,108)

Tax paid (continuing and discontinued operations)

 (201)

 (586)

Net cash used in operating activities

(6,338)

(5,694)

Cash flows from investing activities

 

 

Interest income from note receivable

1,182

240

Commission income from note receivable

40

160

Placement of note receivable

(4,000)

(8,000)

Proceeds from sale of asset

 39

 _

Purchase price adjustments for sale of subsidiary

-

(1,161)

Cost paid for sale of subsidiary

-

(1,000)

Interest received

-

8

Purchase of intangible assets and property, plant and equipment

     (85)

     (98)

Net cash used in investing activities

 (2,824)

 (9,851)

 (9,162)

 (15,545)

Cash and cash equivalents at beginning of year

 25,608

 41,153

Cash and cash equivalents at the end of year

 16,446

 25,608

 

 

 

 

 

Consolidated Statement of Changes in Equity

For the year ended 31 December 2016

 

 

 

Share

capital

$'000

Share

premium

$'000

Capital

reserve

$'000

Retained

losses

$'000

Total

equity

$'000

At 1 January 2015

 608

 27,139

 51,855

 (23,802)

 55,800

Total comprehensive loss for the year attributable to equity owners of the parent

 -

 -

 -

 (23,564)

(23,564)

Share-based payment - options equity settled

 -

 -

 -

17

17

At 1 January 2016

 608

 27,139

 51,855

 (47,349)

32,253

Total comprehensive loss for the year attributable to equity owners of the parent

 -

 -

 -

 (6,627)

(6,627)

Share-based payment - options equity settled

 -

 -

 -

10

10

At 31 December 2016

 608

 27,139

 51,855

 (53,966)

25,636

 

 

 

 

ABRIDGED NOTES TO THE PRIMARY FINANCIAL STATEMENTS

For the twelve months ended 31 December 2016

 

1. Accounting Policies

 

Basis of preparation

The financial statements of the Group for the twelve months ended 31 December 2016 and 2015 have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRS) issued by the International Accounting Standards Board (IASB) as adopted by European Union.

 

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2016 or 2015 as defined by section 435 of the Companies Act 2006 but is derived from those accounts.  Statutory accounts for 2015 have been delivered to the registrar of companies, and those for 2016 will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified, and (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006 in respect of the accounts.

 

Certain prior year amounts in the statement of financial position have be reclassified to conform with current year presentation for purposes of comparability. Short-term provisions of $184 thousand previously included within trade and other payables at 31 December 2015 have been presented separately in the current period due to the materiality of the provision at 31 December 2016.  In addition, prepaid taxes of $5 thousand previously recorded within trade and other receivables as of 31 December 2015 have been reclassified to prepayments and other assets in order to be presented with items of similar nature. Lastly, prepaid taxes of $862 thousand previously recorded within prepaid and other assets and corporate and equity tax liability as of 31 December 2015 have been reclassified to other non-current assets for comparability as a result of their non-current nature.

 

2.  Reconciliation of loss before taxation to net cash flow from operations

 

2016

2015

 

$'000

$'000

Continuing operations

 

 

Loss before tax

           (6,283)

         (26,725)

Adjustments for:

 

 

Depreciation of property, plant & equipment

                113

         78

Amortisation of intangible assets

-

4

Other income

-

(8)

Loss on sale of assets

1

-

Impairment charge

       703

          21,813

Share based expense

                10

                14

Provision for uncollectible accounts

4

-

Finance income

              (1,222)

 (440)

Finance cost

              172

              196

Operating cash flow before movements in working capital

             (6,502)

          (5,068)

 

 

 

Decrease in inventories

                 (13)

44

Increase in trade and other receivables

                (44)

              (569)

Increase / (decrease) in trade and other payables

                438

              (159)

Cash used from continuing operations

             (6,121)

             (5,752)

 

 

 

 

 

 

 

 

Discontinued operations

 

 

Loss before tax

              (147)

              -

Adjustments for:

 

 

Provision for uncollectible accounts

                 131

                 -

Income (loss) on sale of subsidiary

           -

             1,047

Operating cash flow before movements in working capital

              (16)

             1,047

Increase in trade and other receivables

             (5)

             -

Increase / (decrease) in trade and other payables

              5

              (403)

Cash (used in) generated from discontinued operations

(16)

            644

Cash used in operations

              (6,137)

           (5,108)

 

The Statement of Cash Flows contains the following elements related to discontinued operations:

 

 

2016

2015

 

$'000

$'000

 

Net cash generated from operating activities

             -

             108

Net cash used in investing activities

-

             (87)

Net cash used in financing activities

                -

                -

Total

-

               21

 

 

3. (Loss) / earnings per share (EPS)

Basic earnings per share amounts are calculated by dividing the (loss) / profit for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.  Diluted (loss) / earnings per share are calculated by dividing the (loss) / profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding at the end of the year, plus the weighted average number of shares that would be issued on the conversion of dilutive potential ordinary shares into ordinary shares. The calculation of the dilutive potential ordinary shares related to employee and Director Share option plans includes only those options with exercise prices below the average share trading price for each period.

 

 

 

 

 

2016

$'000

2015

$'000

Loss from continuing operations after taxation

(6,480)

(24,611)

(Loss)/ profit from discontinued operations after taxation

(147)

1,047

Net loss attributable to equity holders

(6,627)

(23,564)

Loss per share for continuing operations

 

 

- Basic

$(0.18)

$(0.68)

- Diluted

$(0.18)

$(0.68)

(Loss) / earnings per share for discontinued operations

 

 

- Basic

$(0.00)

$0.03

- Diluted

$(0.00)

$0.03

Total loss per share

 

 

- Basic

$(0.18)

$(0.65)

- Diluted

$(0.18)

$(0.65)

Basic weighted average number of shares

 36,112,187

 36,112,187

Dilutive potential ordinary shares

 

 

Employee and Director share option plans

-

-

Diluted weighted average number of shares

36,112,187

36,112,187

The calculation of the diluted EPS assumes all criteria giving rise to the dilution of the EPS are achieved and all outstanding share options with exercise prices lower than the average period share price are exercised.

 

4. Operating loss from continuing operations

Loss from continuing operations is stated after charging / (crediting):

 

2016

$'000

2015

$'000

Depletion, depreciation and amortisation (included in cost of sales):

 

 

Other property plant and equipment

113

82

Other cost of sales

489

896

Employee costs

2,819

2,892

Share-based payment - options - equity-settled

10

17

Share-based payment - cash-settled

-

(3)

Net foreign currency losses

113

59

Auditors' remuneration

297

172

Other administrative costs1

2,986

1,414

Total cost of sales, administrative and other operating costs

6,827

5,529

1 Other administrative costs in 2016 include $1.04 million related to due diligence and advisory costs related to the transaction (see note 11).

 

During the year, the Group obtained the following services from the Group's auditors at costs as detailed below:

 

Analysis of auditors' remuneration

 

2016

$'000

2015

$'000

Principal Auditors

 

 

Audit Services

 

 

                Statutory audit

71

37

                Review of interim report

13

12

Non-audit Services

 

 

                Transaction-related due diligence services1

                Other services (tax)

 

Other Auditors

 

 

129

 

5

 

 

-

 

6

                Audit of subsidiaries pursuant to legislation

12

24

                Other services (tax)

67

93

Total auditors' remuneration

297

172

1 See note 11 for additional information regarding the transaction.

 

 

5. Employee costs

Group employee costs (including Executive Directors) during the year amounted to:

 

 

2016

$'000

2015

$'000

Wages and salaries

2,382

2,614

Social security costs and other payroll taxes

199

145

Insurances and other benefits

179

133

Company contributions to defined contribution plan

59

-

Share-based payment - cash-settled

-

(3)

Share-based payments - options - equity-settled

10

17

Total employee costs

2,829

2,906

 

The average number of Group employees (including Executive Directors) was:

 

2016

2015

Technical and operations

7

7

Management and administrative

13

9

Total Group employees

20

16

The employee costs and number of employees above do not include contract and casual labour in field operations which are charged directly to operating expense as incurred. These employees are not on the Group's payroll and are contracted through third parties.

 

 

Directors' remuneration

 

Salary

$'000

Benefits

$'000

Bonus

$'000

Fees

$'000

Total

2016

$'000

Total

2015

$'000

Executives

 

 

 

 

 

 

Mikel Faulkner

245

-

12

 -

246

7643

Non-executives1

 

 

 

 

 

 

Alan Henderson

 -

 -

 -

 74

74

74

David Quint

 -

 -

 -

74

74

74

Zac Phillips

-

-

-

74

74

74

Total

245

-

12

222

468

986

1 The non-executive fees were paid in Pounds Sterling of the amount £47.5 thousand each (2015: £47.5 thousand).

2 This consists of a bonus amount of $1 thousand paid in 2016.

3 This included bonus amounts of $350 thousand paid following the 2014 sale of the discontinued subsidiary (CEDCO) and a performance bonus of $150 thousand for 2015.

 

Compensation paid to key management personnel including Directors and Executive Directors:

 

2016

$'000

2015

$'000

Non-executive Director fees

222

222

Compensation and benefits paid to key management personnel:

 

 

                Compensation paid

837

696

                Performance bonuses

13

7301

                Health and life insurances

30

43

  Company contributions to defined contribution plan

-

11

                Company contributions to payroll taxation

48

46

Share-based payment - cash-settled

-

(3)

Share-based payments - options - equity-settled

9

17

Total

1,159

1,762

In accordance with IAS 24, at 31 December 2016, there were no amounts due to or from key management personnel (2015: nil).

1 This included bonus amounts paid following the 2014 sale of the discontinued subsidiary (CEDCO).

 

6. Finance income

 

2016

$'000

2015

$'000

Income on note receivable and others

1,242

440

 

7. Finance and other expense

 

2016

$'000

2015

$'000

Unwinding of discount on decommissioning provision

172

196

Loss on sale of assets

1

-

Total finance and other expenses

173

196

 

8. Note receivable

 

 

2016

$'000

2015

$'000

 

Note receivable

 

 12,000

 8,000

 

Accrued interest receivable

 

60

40

 

Total note receivable and accrued interest receivable as at 31 December

 

 12,060

 8,040

 

Cash received for interest income

 

1,182

240

 

Cash received for commission

 

40

160

 

 

On 15 September 2015, the Group and HKN, Inc. ("HKN") (collectively as "Co-Lenders") entered into a secured, short-term financing note agreement ("Note Receivable") with Everest Hill Energy Group Ltd. ("Everest") for the principal amount of $10 million.  Everest is an affiliated company of the Quasha family trusts which also have an interest in Lyford Investments, Inc., an existing shareholder of the Group.  HKN Inc, ("HKN"), the Group's principal shareholder, Lyford Investments, Inc. and its parties acting in concert with it are interested in 22,567,016 shares of the Group, representing 62.49 per cent of the issued share capital of the Company.  By virtue of these holdings, entry into this Note Receivable constituted a related party transaction.

 

Under the Note Receivable, the Group participated as a Co-Lender by loaning $8.0 million and HKN participated by loaning $2.0 million of the principal amount to Everest.  The Note Receivable is secured by all of Everest's and its subsidiaries' holdings of the Group and HKN.  The Group serves as the collateral agent for the Co-Lenders.  The Note Receivable is subject to an interest charge of 12 per cent per annum, payable monthly in arrears, with the principal amount being repayable in full on 15 March 2016. Everest paid to the Group a 2 per cent transaction fee of $160 thousand in September 2015 upon the closing of the Note Receivable.

 

On 29 February 2016, the Co-Lenders amended the Note Receivable (the "Amendment") with Everest.  Under the Amendment, the Group loaned an additional $2.0 million principal amount to Everest and extended the maturity date six months to 15 September 2016.  In addition, the Group was granted right of first refusal to purchase certain offshore oil service vessels owned by Everest and its affiliates. Everest paid to the Group a 2 per cent transaction fee of $40 thousand upon the closing of the Amendment.

 

On 9 September 2016, the Co-Lenders extended the maturity date of the amended Note Receivable by thirty days to 15 October 2016. On 14 October 2016, the Co-Lenders extended the maturity date thirty days from 15 October 2016 to 15 November 2016. On 28 October 2016, the Group acquired HKN's rights of their outstanding principal amount of $2.0 million in respect of the Note Receivable and as a result the Group is now the sole lender of the Note Receivable with collateral remaining in place and securing the obligation. On 14 November 2016, the Group extended the maturity date to 15 January 2017. The Note Receivable continues to be subject to an interest charge of 12 per cent per annum, payable monthly in arrears.

 

The Note Receivable was further amended on 8 February 2017 as a result of the completion of Transaction A (as defined and detailed in note 11), which extended the maturity date to 15 September 2018.

 

9. Decommissioning and environmental provisions

 

    Long-term provisions

 

2016

$'000

2015

$'000

Decommissioning liability at start of year, non-current1

2,005

 2,092

Unwinding of discount

172

193

Reclassification to short-term provisions2

(555)

-

Increase (decrease) in provision3

539 

(280) 

Decommissioning liability at end of year, non-current

 2,161

 2,005

Environmental provision at start of year, non-curent4

  -

 35

Reclassification to trade and other payables - current

 

 (35) 

Environmental provision at end of year, non-current

 -

 -

Total long-term provision

 2,161

 2,005

 

 Short-term provisions

 

2016

$'000

2015

$'000

(Restated)

Decommissioning liability at start of year, current1

               -

-

Reclassification from long-term provisions2

555

-

Increase in provision3

255 

-

Decommissioning liability at end of year, current

 810

-

Environmental provision- current, at start of year4

  184

- 

Increase (decrease) in provision

  (46) 

 184 

Environmental provision-current, at end of year

 138

184

Total short-term provision

 948

 184

 

 

1 The decommissioning provision represents the present value of decommissioning costs for existing assets in the Group's oil operations, which are expected to be incurred between 2017 and 2024. These provisions have been generated based on the Group's internal estimates, and where available, studies and analyses from external sources. Assumptions, based on the current economic environment, have been made which management believes are a reasonable basis upon which to estimate the future liability. These estimates are included within short-term and long-term provisions within the statement of financial position and are reviewed periodically to take into account any material changes to those assumptions.

2 During 2016, the Group made the decision to perform a portion of its remediation obligations related to the Bocachico and Bolivar Contract Areas in Colombia during the upcoming year rather than upon expiration of the contracts. This decision was made in order to take advantage of lower oilfield service pricing during depressed industry conditions in Colombia and to also reduce future environmental obligations.  This decision resulted in the reclassification from long-term to short-term provisions of $555 thousand during 2016.

3Decommissioning cost estimates increased during 2016 as a result of performing long-term obligations earlier than expected and bringing them to present value and identifying additional requirements for the final decommissioning for both Contract Areas. Overall cost estimates for the decommissioning of the Group's wells in Colombia declined during 2015, based on the overall decline in the oil industry in Colombia and assessment of the scope of work at the time.  However, actual decommissioning costs will ultimately depend upon future market prices for the necessary decommissioning work required at the time assets are decommissioned and abandoned. Furthermore, the timing of decommissioning is likely to depend on when the fields cease to produce at economically viable rates, which in turn is dependent upon future oil and gas prices that are inherently uncertain.

4The environmental provision represents the creation of an environmental investment reserve to reflect a liability under Colombian law for certain exploration and producing contracts requiring the Group to perform additional reinvestment in the amount of 1 per cent of specified investment activity to provide for the recovery, conservation, preservation, and monitoring of the hydrographic basin of the exploration areas and obligations to perform social contract requirements. For the 1 per cent reinvestment obligation, a provision is provided and an amount equal to the provision is recognised within the cost of the respective asset and amortised on a unit of production basis. Changes in estimates are recognised prospectively, with corresponding adjustments to the provisions and the associated fixed asset. Changes in estimate of other environmental and social obligations are recognised in cost of sales.

 

10. Related party disclosures

HKN and its parties in concert are major shareholders of the Group. During 2016, the Group and HKN (collectively as "Co-Lenders") continued to hold a Note Receivable with Everest. During 2016, the Group extended an addition $2 million to Everest and acquired HKN's rights of their outstanding principal amount of $2 million in respect of the Note Receivable. As a result, the Group is now the sole lender of the Note Receivable with collateral remaining in place and securing the obligation. On 14 November 2016, the Group extended the maturity date to 15 January 2017. The Note Receivable was further amended on 8 February 2017 as a result of the completion of Transaction A (as detailed in note 11). Please see note 8 for information on the Note Receivable.

 

During 2016, the Group purchased $22 thousand in furniture and computer equipment from HKN. In addition, the Group sold $39 thousand in furniture and computer equipment to HKN, resulting in a loss on the sale of $1 thousand.

 

Also during 2015, the Group entered into a Shared Services Agreement with HKN to allow employees to provide or cause to be provided certain contract services, if and when as needed.  The Group paid $32 thousand and $49 thousand to HKN for contract services for due diligence purposes during the year ended 31 December 2016 and 2015, respectively. 

 

During 2017, the Group also completed the acquisition of offshore subsea vessel-owning companies through two separate transactions from Everest and other related parties. See note 11 for additional information.

 

11. Post reporting date event

 

On 16 January 2017, the Group announced the proposed acquisition of offshore subsea vessel-owning companies through two separate transactions. Shareholders approved the resolution to complete these transactions on 8 February 2017, and the Group's shares were re-admitted to the AIM, a market operated by the London Stock Exchange, as Nautilus Marine Services PLC (LSE-AIM: "NAUT").  Previously, the Company's shares had been traded on the AIM since March 2002 as Global Energy Development PLC (LSE-AIM: "GED"). The Group's principal activity is now the acquisition of offshore service vessels and technology and the provision of offshore oil services. As such, the Group will have an additional operating segment in 2017, which will comprise of offshore service investments and operations.

 

Included within administrative expenses for the year ended 31 December 2016 are $1.2 million in non-recurring transaction related expenses, of which $82 thousand are directly attributable to the vessels. Management is currently evaluating the accounting treatment to be applied to these two post reporting date transactions, which are described below:

 

Transaction A: The Group acquired three offshore service vessels through the acquisition of vessel-owning companies from Everest, a related party, in exchange for: (i) forgiveness of $8 million of the outstanding principal amount of the Note Receivable; (ii) the amendment of the terms of the Note Receivable to reduce the interest rate from 12 per cent to 8 per cent and to extend the maturity date from 15 January 2017 to 15 September 2018; and (iii) contingent additional consideration equal to the lower of $5 million or 75 per cent of the net cash inflows attributable to the three vessels for the period of eighteen months following completion of their acquisition by the Group. Part of the existing collateral under the Note Receivable, comprising Everest's and its affiliates' shareholdings in HKN, which is a substantial shareholder in the Company, will remain in place. Please see note 8 for further information on the Note Receivable.

 

Transaction B: The Group acquired i) a barge vessel through the acquisition of Everest Vessel Holdings, LLC from a related-party, Alan Quasha, HKN's Chairman of the Board, and ii) eight offshore service vessels along with related subsea dive equipment through the acquisition of a vessel-owning company, Maritime Finance, LLC, owned by McLarty Capital Partners ("MCP") and Caleura Limited. As consideration, the Group issued three series of convertible loan notes: Series A Convertible Loan Notes, Series B Convertible Loan Notes and Series C Convertible Loan Notes. In addition to the acquired vessels and equipment, the Group will receive $10.5 million in cash from MCP, Caleura Limited and Everest from the convertible note issuances. A schedule of the cash subscription and issuances of the three series of convertible loan notes is as follows:

 

 

 

Date

Cash Subscription

Total Note Issuances

 

At Completion (9 February 2017)

 

$3 million

 

Series A: $3.0 million

Series B: $1.38 million

Series C: $3.12 million

 

31 March 2017

$7 million

Series A: $7.0 million

Series B: $3.22 million

Series C: $7.28 million

 

15 April 2017

$500 thousand

Series A: $500 thousand

Series B: $1.5 million

Series C: $4.6 million

 

 

 

In February 2017, the Group received cash of $3 million in exchange for the subscription of the first tranche of notes in accordance with the schedule above.

 

A summary of the terms of the convertible loan notes are as follows:

 

 

 

Convertible Loan Note

Term:

A

B

C

Principal Amount:

$10.5 million

$6.1 million

$15.0 million

 

Maturity Date:

1 January 2027 (unless converted to Ordinary Shares before then). Payments on maturity are to be settled in cash.

1 January 2029 (unless converted to Ordinary Share before then). Payments on maturity are to be settled in cash or satisfied in whole or in part by the issue of Ordinary Shares at the option of the Company.

1 January 2032 (unless converted to Ordinary Shares before then). Payments on maturity to be settled in cash or satisfied in whole or in part by the issue of Ordinary Shares at the option of the Company.

 

Interest:

Non-compounding interest will be payable upon maturity or conversion (calculated on a 360-day calendar year) at 8 per cent.

Non-compounding interest will be payable upon maturity or conversion (calculated on a 360-day calendar year) at 6 per cent., payable in cash or satisfied by the issue of Ordinary Shares at the option of the Company.

Non-compounding interest will be payable upon maturity or conversion (calculated on a 360-day calendar year) at 6 per cent., payable in cash or satisfied by the issue of Ordinary Shares at the option of the Company.

 

Conversion Price:

The outstanding principal amount will be convertible into Ordinary Shares at 50 pence per share, subject to adjustment in certain circumstances.

The outstanding principal amount will be convertible into Ordinary Shares at 160 pence per share, subject to adjustment in certain circumstances.

The outstanding principal amount will be convertible into Ordinary Shares at 225 pence per share, subject to adjustment in certain circumstances.

 

 

 

A holder of convertible loan notes may convert any amount of the outstanding principal amount and (in the case of the Convertible B Loan Notes and Convertible C Loan Notes only) any unpaid and accrued interest of the Convertible Loan Notes into Ordinary Shares at the Applicable Conversion Price at any time following thirty days from the issue of the relevant Convertible Loan Notes with a 20-day notice to the Group. All three series of convertible loan notes contain the right for the Group to force conversion if the Group's average share price equals or exceeds 110 per cent. of the conversion price for a period of ten consecutive business days. Furthermore, the Group may redeem each issue of convertible loan notes any time after issuance at their nominal value with a 10-day notice to the note holder.


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