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Phoenix Global Res (PGR)

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Friday 27 May, 2022

Phoenix Global Res

Final Results

RNS Number : 9836M
Phoenix Global Resources PLC
27 May 2022
 

 

27 May 2022

 

Phoenix Global Resources plc

 

("Phoenix" or the "Company")

 

Final Results for the year ended 31 December 2021

 

Phoenix Global Resources plc (AIM: PGR; BCBA: PGR), the upstream oil and gas company, announces its audited final results for the year ended 31 December 2021.

 

Summary

· Revenue of US$78.4 million (2020: US$54.0 million)

· Adjusted EBITDA US$13.1 million (2020: Adjusted EBITDA loss of US$7.2 million)¹

· Cash generated from operations US$49.6 million (2020: cash used in operations US$6.3 million)

· Operating loss of US$58.7 million (2020: loss of US$219.7 million)

· Average daily sales in 2021 of 4,425 beopd (2020: 3,776 boepd)²

· 2P reserves at 54.0MMboe (2020: 18.8MMboe)

 

Outlook

Whilst we have seen Covid-19 restrictions gradually lifting and economic and industrial activity increasing, the conflict in Ukraine has negatively changed the global economic outlook. Argentina continues to experience high inflation and a continuous devaluation of the Peso. The country is in its fourth straight year of recession. However, t he action taken by the Company to reduce its costs in all areas of the business is reflected in the significant change in cash generated from operations of US$49.6 million in 2021 compared to cash used in operations of US$6.4 million in 2020 and also reflects the more favourable pricing environment. The year end reserves, prepared by independent reservoir engineers, showed a significant increase in 2P reserves compared with prior year, primarily due to a significant increase in the 2P reserves at Mata Mora. The Company is fundamentally focused on unconventional development and has good assets in this space but recognises that significant investment will be required in the coming years to develop these and enhance value and acknowledges this is subject to being able to access funding to support these activities, which may include third party partners and local debt providers in the funding mix.

 

Notes:

¹Adjusted EBITDA represents earnings before interest, taxes, depreciation, amortisation and non-recurring expenses

²Excluding production from non-core assets sold

 

For further information, please contact:

 

Phoenix Global Resources plc

Pablo Bizzotto, CEO

Nigel Duxbury, CFO

 

T: +54 11 5258 7500

T: +44 20 3912 2800

 

 

Shore Capital

Nominated Adviser and Joint Broker

 

Toby Gibbs

David Coaten

T: +44 20 7408 4090

 

Panmure Gordon

Joint Broker

 

John Prior

Atholl Tweedie

 

T: +44 20 7886 2500

 

About Phoenix

Phoenix Global Resources is an independent oil and gas exploration and production company focused on Argentina and listed on both the London Stock Exchange (AIM: PGR) and the Buenos Aires Stock Exchange (BCBA: PGR) and offers its investors an opportunity to invest directly into Argentina's Vaca Muerta shale formation and other unconventional resources.  The Company has over 0.8 million licenced working interest acres in Argentina (of which approximately 0.7 million are operated), 54.0 million boe of working interest 2P reserves and average working interest production of 4,553 boepd in 2021. Phoenix has significant exposure to the unconventional opportunity in Argentina through its approximately 0.4 million working interest acres with Vaca Muerta and other unconventional potential.

 

Annual Report

The Company will be posting to shareholders a copy of the audited annual report for the year ended 31 December 2021 on or around 6 June 2022 together with the notice for a General Meeting, to be held at the offices of Phoenix Global Resources at 1st Floor, 62 Buckingham Gate, London SW1E 6AJ at 9.00am on 30 June 2021. The annual report will be made available on the Company's website on the day of its posting.

 

The Company's website is www.phoenixglobalresources.com



 

CHAIRMAN'S STATEMENT

Whilst the environment continues to be challenging, the steps taken by the Company to reduce its costs has put it in a stronger position to focus on the continued development of its unconventional assets. Our prime focus is Mata Mora, which the board believes is the Company's main driver to unlocking value.

The Company's major shareholder, Mercuria Group Limited ('Mercuria'), continues to be supportive and the directors, whilst exercising a degree of caution, believe the Company has a cost base from which it can leverage its interests in its unconventional assets, whilst appreciating this position could change very quickly in these uncertain times.

 

Overview and current operations

2020 was dominated by Covid-19 and its rapid development as a life-threatening global pandemic. Globally, respective governments' responses were one of containment through lockdown, social distancing restrictions, quarantine and self-isolation for substantially all citizens, whilst countries rolled out vaccination programs. In 2021 we saw restrictions gradually lifting and economic and industrial activity increasing.

 

The global economic recovery has progressed more strongly than anticipated a year ago, but it is becoming increasingly imbalanced, as lower income economies struggle to keep up where vaccination rates are low and the conflict in Ukraine has negatively changed the global economy, harming growth and putting upward pressure on inflation when it is already high.

 

The economic situation in Argentina has deteriorated significantly with the key economic indicators reflecting this situation and whilst the environment continues to be extremely challenging, the Company is in a stronger position to produce proven, developed and producing reserves economically at lower prices with a positive contribution to cash flow and allow it to focus on the continued development of its unconventional assets. The action taken by the Company to reduce its costs in all areas of the business is reflected in the significant change in cash generated from operations of US$49.6 million in 2021 compared to cash used in operations of US$6.4 million in 2020 and also reflects the more favourable pricing environment. 

 

However, whilst the economic and political uncertainty in Argentina continues, Argentina held discussions with the International Monetary Fund ('IMF') to restructure the country's US$45 billion of debt. At the end of January 2022 President Fernandez's government announced that it had reached an "understanding" with the IMF on key policies that would allow the country to reach a new financing agreement to restructure this debt. In April 2022, Argentina's senate approved the agreement reached with the IMF, which has now been approved by the executive board of the IMF, which should help to reduce some of the economic uncertainty.

 

Furthermore, the strong international economic sanctions on trade with Russia have resulted in a significant escalation in energy prices, with Brent increasing from a year end price of US$77/bbl to US$113/bbl at 6 May 2022.

 

Whilst Argentina uses a locally set oil price to shield local industry from international price swings, which limits the benefit the Company receives from international price increases, the Company, subject to permit approval, is now able to export some of its production to take advantage of the favourable international prices.

 

During 2021, the Neuquén P rovince issued a decree granting the Company a 35 year unconventional exploitation concession over approximately 43,372 acres in the northern part of Mata Mora and extending the exploration rights over approximately 11,918 acres in the southern part of Mata Mora for 5 years to April 2026. The Province also issued a decree approving a one year extension of the Company's exploration rights for the Corralera Noreste and Corralera Sur blocks to April 2022. The Company is currently in discussion with the Province to further extend the exploration periods of these licences.

 

The Mata Mora concession involves a pilot phase with certain works to be completed by March 2026, which includes a capex commitment of US$110 million, consisting of four pads of three horizontal wells each, with an average lateral length of 2,150 metres. The Corralera exploration commitment includes obligations to execute two horizontal wells by April 2022, which have been completed.

 

The unconventional work programs for 2022 include the testing and evaluation of the well in Corralera North East, the completion, testing and evaluation of the well in Corralera Sur, the drilling and completion of pads 2 and 3 (each of three wells) and the drilling and completion of three additional wells on pad 1, all in Mata Mora North.

 

The year end, reserves prepared by independent reservoir engineers, showed a significant increase in 2P reserves compared with prior year. This increase is primarily due to a significant increase in the 2P reserves at Mata Mora that was partly offset by a decrease in the 2P reserves at Puesto Rojas.

 

Funding

Our major shareholder, Mercuria, continues to be supportive of the Company's plans and has extended short-term debt facilities to fund operations. At the year end, the Company had drawn down US$348.0 million under these facilities and US$45.4 million of interest had been capitalised. Mercuria has written to the Company stating its intention to continue t o provide financial support to the Company in order that it may continue to operate and service its liabilities as they fall due in the period to 30 June 2023 and fund the planned work programs. Mercuria has also specifically agreed to not demand repayment of the existing loans (principal and interest) during this period. This letter, which by its nature is not legally binding, represents a letter of comfort stating Mercuria's current intention to continue to provide financial support.

 

Whilst it has taken more time than anticipated, the Company and Mercuria are still seeking to restructure the existing facilities, but do not expect this to be completed until later in the year. The directors still believe they will be able to agree the renegotiation of the existing debt with Mercuria and formalise an agreement for new funding and that the Group and Company can continue as a going concern for the foreseeable future. The application of the going concern basis of preparation of the financial statements included in the Company's Annual Report is based on the letter that has been received from Mercuria and the ongoing discussion with the Mercuria principals. Accordingly, the directors continue to adopt the going concern basis for accounting in preparing the 2021 financial statements.

 

However, the directors recognise that if financial support over the period to 30 June 2023 was not to be available and the Company is unable to restructure the existing loan agreements from Mercuria or obtain funding from alternative sources, this gives rise to a material uncertainty that may cast significant doubt on the Group's and Company's ability to continue as a going concern.

 

Summary

Whilst we have seen Covid-19 restrictions gradually lifting and economic and industrial activity increasing, the conflict in Ukraine has negatively changed the global economic outlook.

 

Argentina continues to experience high inflation and a continuous devaluation of the Peso. The country is in its fourth straight year of recession. Whilst agreement has been reached between the Argentine government and the IMF to restructure the country's US$45 billion of debt, the underlying economic indicators are not encouraging. Notwithstanding, t he current administration continues its intent to provide economic and regulatory support to four key sectors of the economy: agriculture; oil and gas; mining; and intellectual services.

 

The Company is also conscious of its environmental, social governance responsibilities and developing policies and procedures to reduce emissions and establish goals that minimise the impact on the environment and our stakeholders.

 

The Company is fundamentally focused on unconventional development and has good assets in this space but recognises that significant investment will be required in the coming years to develop these and enhance value and acknowledges this is subject to being able to access funding to support these activities, which may include third-party partners and local debt providers in the funding mix.

 

 

Sir Michael Rake

Non-executive chairman

27 May 2022



 

OPERATING REVIEW

Overview

Phoenix Global Resources seeks to add value to its operation by optimising the use of deployed capital, continuously looking for new profitable opportunities and achieving levels of operative excellence in a friendly and harmonious way taking into account personnel, local communities and the environment.

 

The Company is focused on reducing the production decline of mature fields and generating new development opportunities, whilst delivering profitable growth combined with our expanding unconventional exploration and development projects.

 

The operations team has extensive experience in conventional and unconventional oil and gas operations with a continuing focus on delivering safe, ethical and reliable operations.

 

During the first and second quarter the Company focused on the planning for the 2021 and 2022 work programs and in the third quarter, the Company began exploration activities in Vaca Muerta, in the Corralera areas, in the northern part of the Neuquén basin. Two horizontal and multi-fractured wells with a branch length of 2,000 metres and 2,130 metres respectively were drilled and completed. The initial results from these activities are currently under evaluation.

 

The drilling rig was then moved to the Mata Mora field, located in the central part of the Neuquén basin close to the hot shale developments, to start drilling the 12 well program pursuant to the pilot plan commitment under the unconventional exploitation concession awarded in 2021.

 

In late 2021, the Company also drilled the Picunche vertical exploratory well in the Rio Atuel field, Malargüe, which will be completed in Q2 2022.

 

In all cases, the targeted operating metrics were achieved in the drilling and completion activities, which were completed on time and in line with budget.

 

Our growth plan is based on the development of an inventory of approximately 170 wells in Mata Mora Norte, our flagship project in Vaca Muerta, whilst maintaining the highest efficiency and safety standards.

 

The Company has also carried out work to optimise production from our conventional fields. Production decline was reduced in the Tupungato and Atamisqui fields, whilst maintaining operating cost levels and high HSE standards.

 

During the year the Company also developed an export channel for some of our production, allowing us to take advantage of higher international prices.

 

Our health, safety and environment policy demonstrates our commitment to personnel and the environment, which we consider to be an integral part of our operations. The Company embraces the communities in which we operate and as part of our ongoing commitment to sustainable development, we encourage local involvement and seek to create significant long-term benefits in the communities close to our operations. Our main initiatives include institutional support, education, training, welfare and emergency aid. These activities are part of an approach that defines the way in which we interact with our various stakeholders.

 

Total proven reserves as of 31 December 2021 reached 26.4 MMboe, an increase of 210% compared with 31 December 2020. The proven reserves replacement ratio was 882%, whilst the replacement ratio of total oil reserves was 950%. The increase was driven primarily by the addition of new unconventional well locations at Mata Mora and secondary recovery programs at Chachahuen. 2C contingent resources fell by 81% partly due to the migration of resources into reserves and partly due to the removal of 2C contingent resources associated with the negative assessment of unconventional prospectivity at Puesto Rojas and the reclassification of contingent resources at Corralera from 2C to 3C.  

 

Production in 2021 was at a level consistent with 2020, reflecting the benefits of the work undertaken to reduce the production decline of mature fields, particularly given no new production was included.

 

During 2021, operating costs were 4% lower than 2020, despite the extra work carried out to maximise assets lives, which included the review of more than 15 field service contracts leading to a restructured and more flexible cost base.

 

NEUQUÉN BASIN

In the Neuquén basin, the Company has interests in 11 operated assets and 4 non-operated assets including Mata Mora and Corralera.

 

Operated Assets

Mata Mora

During the year the Neuquén P rovince issued a decree granting the Company a 35 year unconventional exploitation concession over approximately 43,372 acres in the northern part of Mata Mora and extending the exploration rights over approximately 11,918 acres in the southern part of Mata Mora for 5 years to April 2026.

 

The Mata Mora exploitation concession involves a pilot phase with certain works to be completed by March 2026, which includes a capex commitment of US$110 million, consisting of four pads of three horizontal wells each, with an average lateral length of 2,150 metres.

 

The Company commenced the drilling activity for pad 2 during the year, which consists of three wells with 2,600 metre horizontal lateral lengths and 37 frac stages and has, after the year end, finished drilling three vertical sections, to depths of 2,314 metres, 2,280 metres and 2,316 metres and three horizontal branches navigating the Vaca Muerta formation. Completion activities have commenced and are due to be finished at the end of May 2022 with flowback testing due to start soon thereafter.

 

The Company has now started the pad 3 drilling program.

 

The early production facilities are under construction and works are being carried out on the oil and gas treatment and measurement stations and flowline tie-ins to oil and gas evacuation pipelines are being installed. This will enable the Company to avoid flaring in line with the Company's sustainability goals.

 

The Mata Mora exploration concession (Mata Mora Sur) covers a region that involves agricultural activity and the San Patricio del Chañar town and will remain in the exploration phase for a further five years with a 3D seismic acquisition commitment.

 

Corralera

The primary unconventional target has changed from the Agrio to the Vaca Muerta formation based on revised expectation of fluid type given the contrasting thermal maturity, neighbouring well results and better understanding of landing zone alternatives for the Vaca Muerta formation.

 

During the year, the Province issued a decree approving a one year extension of the Company's exploration rights for the Corralera Noreste and Corralera Sur blocks to April 2022. The Company is currently in discussions with the Province to further extend the exploration periods of these licences.

 

In Corralera Noreste, the Company has finished the drilling of a vertical exploration well to a depth of 2,970 metres and its horizontal branch with a 2,000 metre lateral length and 29 frac stages, navigating the Vaca Muerta formation. The initial flowback testing has been completed, which produced high volumes of water and low volumes of oil with a high presence of CO₂. The well is currently shut in for well testing with pressure build up, isotope sampling and tracer analysis currently being carried out.

 

In Corralera Sur, the Company has completed the drilling of a vertical exploration well to a depth of 3,639 metres and its horizontal branch with a 2,134 metre lateral length and 30 frac stages, navigating the Vaca Muerta formation. The initial flowback testing has been completed, which produced high volumes of water and low volumes of oil with a high presence of CO₂. Water and gas samples have been taken to run laboratory analysis to understand their origins.

 

Rio Atuel

The Company has executed the drilling and completion activities of a conventional vertical exploration well. The well was drilled to a depth of 2,131 metres penetrating the Huitrin and Chachao formations. After stimulating the well, oil in the two formations has been tested. Initial flow rates are in line with expectations with a low water cut. The well is currently in production and under initial evaluation, which is expected to be completed in Q2 2022.

 

La Paloma - Cerro Alquitran

In 2019, the LP-9 and LP-7 wells were drilled in the La Paloma/Cerro Alquitran area targeting the Grupo Neuquén formation. The Company has decided to not complete these wells and is currently evaluating its options.

 

Puesto Rojas - Cerro Mollar - La Brea

The drop in production primarily relates to a higher rate of decline from the wells producing from the Agrio and Vaca Muerta formations, with only 5 wells currently producing from the 12 wells drilled in the last campaign. Based on the variable results from these Agrio and Vaca Muerta vertical wells and following a detailed evaluation carried out by management, it has concluded that the unconventional prospectivity in this area has a "high risk/low reward" and management is currently evaluating its options.

 

Cerro Doña Juana-Loma Cortaderal

Due to the Covid-19 pandemic, the Company was granted an extension to August 2022 to fulfil its commitments.  The Company is currently seeking approval from the Mendoza Province to perform an expanded geochemical sampling to satisfy the pending commitments. A decision from the Province is still pending.  

 

El Manzano

A local company, Venoil, has now been appointed the operator for this field and it plans to restart production from several wells in Q2 2022. 

 

La Tropilla - Santo Domingo - Aguada de Castro

A detailed evaluation has been carried out by the sub-surface team and it has concluded that the unconventional prospectivity in this area has a "high risk/low reward" and management is currently evaluating its options.

 

Non-operated assets

Chachahuen - Cerro Morado Este

In the Chachahuen Sur area, the focus in 2021 has been to improve the water flooding projects and start a polymer pilot project. A plan to reduce production losses has also been prepared, which will require the building of a gas and oil pipeline from Chachahuen to the Puesto Hernandez field. Injection water quality issues have been identified and the operator is currently preparing a plan that will be implemented before the tertiary recovery pilot project begins.

 

At Cerro Morado Este, we have focused on the reduction of production losses. This will require an alternative route for fluid evacuation due to flooding of current routes when it rains. A remediation of "Bateria 1" at the Chachahuen field is also being carried out and a tertiary recovery pilot project is planned for 2022.

 

Nine vertical pilot wells have been drilled, which are planned to be connected in Q2 2022 as part of the delineation program for this large area.

 

The Chachahuen licence is operated by YPF.

 

Cajon de los Caballos

A detailed evaluation has been carried out by the sub-surface team and it has concluded that the unconventional prospectivity in this area has a "high risk/low reward" and management is currently evaluating its options.

 

The licence is operated by Roch.

 

CUYANA BASIN

In the Mendoza Province, the Company has interests in two operated assets in the Cuyana basin. A brief summary of these assets is provided below.

 

Operated assets

Tupungato - Atamisqui

In the first half of the year 13 pulling interventions were completed with results exceeding expectations. The production during Q1 was below budget but since April 2021 oil production has been above budget. General maintenance work and some minor jobs were also carried out at the Tupungato water injection plant.

 

A well risk analysis was performed on well T-48 and management concluded that the well should be abandoned. Due to the condition of the wellhead a specialised team was hired to perform remediation jobs. The well is now in a secure condition and the abandonment is planned for later this year. A critical tanks inspection and reparation campaign was started in May 2021 and a well swabbing campaign was started in September 2021. Sub-surface modelling was started in June 2021, as no comprehensive modelling has been carried out for over 40 years. A static model has been completed and some opportunities for implementing secondary recovery have been identified and the possibility of tertiary recovery is under analysis. A dynamic model is now being developed with the support of an external consultant.

AUSTRAL BASIN

In the Terra del Fuego Province the Company has interests in three non-operated assets in the Austral basin in a joint venture with Roch S.A. and others.

 

Non-operated assets

Rio Cullen - Angostura - Las Violetas

The San Martin wells continue to produce with the water cut rate in line with expectations. The operator has proposed the drilling of an extra well in an independent reservoir compartment. Alternatives for production evacuation are also being analysed in the event delivery through the YPF buoy is disrupted and Total's facilities have been identified as a possible option.



 

FINANCIAL REVIEW

Revenue and gross margin

Revenue for the year was US$78.4 million (2020: US$54.0 million), comprising revenue from oil sales of US$76.0 million (2020: US$52.2 million) and revenue from gas sales of US$2.4 million (2020: US$1.8 million).

The increase in oil revenue year-on-year resulted primarily from an increase in the average realised oil price per barrel and higher sale volumes.

 

The average realised oil sales price in 2021 was US$51.26/bbl, a 36% increase on the average price of US$37.74/bbl in 2020. Realised prices achieved by the Company are indirectly linked to Brent.

 

Crude oil prices increased during the year with the average Brent crude price increasing year-on-year by 42%, from an average of US$43/bbl in 2020 to an average of US$61/bbl in 2021. Local Argentine oil prices do not fully track international prices as local price controls limit the benefit of rising international prices. However, the Company in the future expects a gradual increase in local prices, reducing the gap between local and international prices.

 

Average daily oil sales in the year were 4,062 bopd compared with 3,776 bopd in 2020.

 

Gas revenues arise primarily in the non-operated segment and increased by US$0.5 million in the year compared with 2020, mainly due to an increase of 51% in the realised price from an average of US$1.98/Mcf in 2020 to an average of US$2.99/Mcf in 2021. This increase was partially offset by a 15% reduction in sales volumes from 930 MMcf in 2020 to 794 MMcf in 2021.  

 

Operating costs

Average operating costs (excluding depreciation) were 4% lower than 2020 at US$17.9/boe.

Depreciation decreased by US$1.7 million in the year from US$41.3 million in 2020 to US$39.6 million in 2021, primarily due to the revised year end reserves estimates and the 2021 capex program.

Other costs

At the year end, management's impairment assessment considers potential triggers for impairment including, inter-alia, adverse results from drilling programs, changes in oil and gas prices and other market conditions, cost of future development and licence periods.

 

Potential triggers were identified, leading to an impairment assessment, which was primarily based on the revised year end reserves estimates resulting in an impairment charge of US$28.9 million. Impairment charges have been recognised in respect of Puesto Rojas, La Brea, La Paloma, Cerro Alquitran and Atamisqui, which were partially offset by the partial reversal of impairment charges recognised in prior years at Chachahuen. Furthermore, an additional US$3.7 million charge has been recognised in relation to the reclassification of an asset previously held for sale. See note 4.

 

Finance income and costs

In the current year the Group recognised net finance income of US$29.4 million compared to net finance costs of US$15.4 million in 2020. In 2021 this was primarily driven by the benefit on transfers of US Dollars into Argentina under the 'contado con liquidacion' mechanism.

 

Taxation

A US$4.3 million tax credit was recognised in 2021, compared with a US$38.0 million tax credit in 2020. This resulted primarily from deferred tax adjustments relating to additions and impairment provisions and the deferred tax benefit of the increase in net operating losses, which the respective companies expect to recover in future periods.

 

Balance sheet

At 31 December 2021, the Group had net assets of US$1.1 million, a decrease of US$25.1 million compared with 31 December 2020.

 

During the year, intangible assets and property, plant and equipment decreased by US$7.7 million primarily due to charges for impairment of US$28.9 million, DD&A of US$39.6 million offset by US$52.4 million of additions and the reclassification of assets held for sale of US$8.6 million.

 

Current and non-current trade and other receivables increased from US$29.5 million to US$41.9 million at 31 December 2021 primarily due to the increase in advance payments for capex programs. Inventories increased from US$18.3 million to US$20.1 million at 31 December 2021. Net deferred tax liabilities decreased from US$33.6 million to US$28.3 million at 31 December 2021 primarily due to an increase in deferred tax assets associated with tax losses. Trade and other payables increased from US$26.2 million to US$39.2 million at 31 December 2021 due to the increase in creditors associated with the ongoing capex programs.

Funding status and going concern

Total borrowings in the year increased by US$67.6 million, from US$332.2 million at 31 December 2020 to US$399.8 million at 31 December 2021. The increase resulted primarily from the drawdown of an additional US$55.7 million of funds from the revolving convertible credit facility and bridging facility with Mercuria and an increase in accrued interest of US$14.7 million. Funds advanced under the credit facilities have been used to fund the ongoing work programs. This increase in funding was partially offset by the part repayment of local Argentine debt.

 

Our major shareholder, Mercuria, continues to be supportive of the Company's plans and has extended short-term debt facilities to fund operations. At the year end, the Company had drawn down US$348.0 million under these facilities and US$45.4 million of interest had been capitalised. Mercuria has written to the Company stating its intention to continue t o provide financial support to the Company in order that it may continue to operate and service its liabilities as they fall due in the period to 30 June 2023 and fund the planned work programs. Mercuria has also specifically agreed to not demand repayment of the existing loans (principal and interest) during this period. This letter, which by its nature is not legally binding, represents a letter of comfort stating Mercuria's current intention to continue to provide financial support.

 

Whilst it has taken more time than anticipated, the Company and Mercuria are still seeking to restructure the existing facilities, but do not expect this to be completed until later in the year. The directors still believe they will be able to agree the renegotiation of the existing debt with Mercuria and formalise an agreement for new funding and that the Group and Company can continue as a going concern for the foreseeable future. The application of the going concern basis of preparation of the financial statements included in the Company's Annual Report is based on the letter that has been received from Mercuria and the ongoing discussion with the Mercuria principals. Accordingly, the directors continue to adopt the going concern basis for accounting in preparing the 2021 financial statements.

 

However, the directors recognise that if financial support over the period to 30 June 2023 was not to be available and the Company is unable to restructure the existing loan agreements with Mercuria or obtain funding from alternative sources, this gives rise to a material uncertainty that may cast significant doubt on the Group's and Company's ability to continue as a going concern.

 

At 31 December 2021, the Group had cash and cash equivalents of US$66.3 million (2020: US$5.4 million).



 

Consolidated income statement

For the year ended 31 December 2021


Note

2021

US$'000

2020

US$'000

Revenue

3

  78,370

  54,001

Cost of sales


  (81,472)

(81,401)

Gross loss


  (3,102)

 (27,400)



 


Selling and distribution expenses


  (3,840)

  (1,958)

Exploration expenses


  (704)

  (2,746)

Impairment charges

4,5

  (28,882)

(171,129)

Gain/(loss) on sale of non-current assets


  350 

  (6)

Administrative expenses


  (16,967)

(14,892)

Loss on the reclassification of assets held for sale

4

(3,653)

-

Other operating expenses


  (1,917)

  (1,527)

Operating loss


  (58,715)

(219,658)



 


Finance income


  54,816 

  6,905 

Finance costs


  (25,378)

(22,276)

Loss before taxation


  (29,277)

(235,029)



 


Taxation


  4,256 

  38,005

Loss for the year


  (25,021)

(197,024)

 


 


Loss per ordinary share


 


Basic and diluted loss per share

7

  (0.01)

  (0.07)

 

The above consolidated income statement should be read in conjunction with the accompanying notes.

 



 

Consolidated statement of comprehensive income

For the year ended 31 December 2021

 


2021

US$'000

2020

US$'000

Loss for the year

  (25,021)

(197,024)

Translation differences

-

Total comprehensive loss for the year

  (25,021)

(197,024)

 

There are no impairment losses on revalued assets recognised directly in equity.

 

The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.



 

Consolidated statement of financial position

At 31 December 2021


Note

2021

US$'000

2020

US$'000

Non-current assets

 

 

 

Property, plant and equipment

4

  154,227

 158,357

Intangible assets and goodwill

5

  208,438

 211,974

Other receivables


  6,698

  4,124

Deferred tax assets


  25,777

  20,116

Total non-current assets


  395,140

 394,571



 


Current assets


 


Assets held for sale

4

-

  11,965

Inventories


  20,112

  18,349

Trade and other receivables


  35,245

  25,399

Cash and cash equivalents


  66,265

  5,386

Total current assets


  121,622

  61,099

Total assets


  516,762

 455,670



 


Non-current liabilities


 


Trade and other payables


  381

  299

Borrowings

6

  6,641

Deferred tax liabilities


  54,117

  53,682

Provisions


  19,286

  15,965

Total non-current liabilities


  73,784

  76,587



 


Current liabilities


 


Liabilities held for sale


-

  447

Trade and other payables


  38,817

  25,909

Income tax liability


  2,217

  920

Borrowings

6

  399,759

 325,592

Provisions


  1,138

  121

Total current liabilities


  441,931

  352,989

Total liabilities


  515,715

 429,576

Net assets


  1,047

  26,094



 


Equity


 


Share capital and share premium


  457,194

  457,183

Other reserves


 (112,150)

(112,150)

Retained deficit


 (343,997)

 (318,939)

Total equity


  1,047

  26,094

 

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.



 

Consolidated statement of changes in equity

For the year ended 31 December 2021

 

Capital and reserves

Called up
share capital US$'000

Share premium
US$'000

Treasury shares
US$'000

Retained (deficit)/
earnings
US$'000

Other
reserves
US$'000

Total equity
US$'000

At 1 January 2020

 364,175 

  93,023 

(464)

(121,867)

(112,150)

222,717

Loss for the year

-

-

-

(197,024)

-

(197,024)

Total comprehensive loss for the year

-

-

-

(197,024)

-

(197,024)

Issue of employee vested shares

-

-

449

(449)

-

-

Fair value of share-based payments

-

-

-

401

-

401

At 31 December 2020

364,175

93,023

(15)

(318,939)

(112,150)

26,094

Loss for the year

-

-

-

  (25,021)

-

 (25,021)

Total comprehensive loss for the year

-

-

-

  (25,021)

-

  (25,021)

Cash settlement of vested share awards

-

-

  -

  (165)

 -

  (165)

Fair value adjustment

-

-

11

-

-

11

Fair value of share-based payments

-

-

-

  128 

-

  128 

At 31 December 2021

364,175

93,023

  (4)

  (343,997)

 (112,150)

  1,047 

 

Other reserves

Merger¹
reserve
US$'000

Warrant²
reserve
US$'000

Translation³ reserve
US$'000

Total other reserves US$'000

At 1 January 2020

(112,000)

2,105

(2,255)

(112,150)

At 31 December 2020

(112,000)

2,105

(2,255)

(112,150)

At 31 December 2021

(112,000)

2,105

(2,255)

(112,150)

¹The merger reserve is a non-distributable capital reserve arising from the issue and allotment of shares at a price higher than the nominal value of the shares and issued to satisfy purchase considerations

²The warrant reserve results from the valuation attributed to warrants granted

³The translation reserve results from exchange differences arising from the translation of the assets and liabilities of the Group's operations into the presentation currency at exchange rates prevailing on the balance sheet date and income and expense items at the average exchange rates for the year

 

The above statement of consolidated changes in equity should be read in conjunction with the accompanying.



 

Consolidated statement of cash flows

For the year ended 31 December 2021

 


2021
US$'000

2020
US$'000

Cash flows from operating activities


 


Cash generated from/(used in) operations


  49,637 

  (6,318)

Income taxes paid


  (84)

  (73)

Net cash inflow/(outflow) from operating activities


  49,553 

  (6,391)



 


Cash flows from investing activities


 


Payments for property, plant and equipment


  (15,297)

  (4,099)

Payments for intangibles


  (21,827)

  (998)

Payments for held for sale assets


  (887)

  (371)

Proceeds from sale of non-current assets


  401 

  - 

Net cash outflow from investing activities


  (37,610)

  (5,468)



 


Cash flows from financing activities


 




 


Proceeds from borrowings


55,740

14,260

Repayment of borrowings


  (2,433)

  (801)

Interest paid


  (1,595)

  (709)

Principal lease payments


  (198)

  (5,327)

Net cash inflow from financing activities


  51,514 

  7,423 



 


Net increase/(decrease) in cash and cash equivalents


  63,457 

  (4,436)

Cash and cash equivalents at the beginning of the year


  5,386 

  11,002

Effects of exchange rates on cash and cash equivalents


  (2,578)

  (1,180)

Cash and cash equivalents at end of year


  66,265 

  5,386 

Non-cash financing activities


  15,814 

15,867

 

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

 



 

Notes to the consolidated financial statements

 

1. General information

The financial information set out in this announcement does not comprise the Group's statutory accounts for the years ended 31 December 2021 or 31 December 2020.

 

The financial information has been extracted from the audited statutory accounts of the Company for the year ended 31 December 2021, which were approved by the directors and authorised for issue on 27 May 2021. The auditors reported on these accounts; the report was unqualified and did not contain a statement under Section 498(2) or Section 498(3) of the Companies Act 2006.

 

The statutory accounts for the year ended 31 December 2020 have been delivered to the Registrar of Companies and those for the year ended 31 December 2021 will be delivered to the Registrar of Companies in due course.

 

2. Basis of preparation

On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted International Accounting Standards, with future changes being subject to endorsement by the UK Endorsement Board. The Company transitioned to UK-adopted International Accounting Standards in its consolidated financial statements on 1 January 2021. This change constitutes a change in accounting framework. However, there is no impact on recognition, measurement or disclosure in the period reported as a result of the change in framework. These consolidated financial statements have been prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.

 

The significant accounting policies applied in preparing these consolidated financial statements are set out below. These policies have been consistently applied throughout the year and to each subsidiary of the Group.

 

The financial statements have been prepared under the historical cost convention except as where stated.

 

Going concern

The Group generates cash from its existing conventional oil and gas production operations. However, it was formed with the stated intention of undertaking a significant exploration, evaluation and development program focused on the Group's unconventional oil and gas assets in Argentina, including the Vaca Muerta formation, which requires significant investment. To date, the funding required to support these activities has been provided by Mercuria.

 

The Company took significant steps to reduce its costs in all areas of the business. The directors believe these cost reduction actions mean the Company is in a better position to produce oil economically at lower oil prices with a positive contribution to cash flow, which will allow the Company to focus on the continued development of its unconventional assets.

 

Our major shareholder, Mercuria, continues to be supportive of the Company's plans and continues to extend short-term debt facilities to fund operations. At the year end, the Company had drawn down US$348.0 million under these facilities and US$45.4 million of interest had been capitalised. Mercuria has written to the Company stating its intention to continue t o provide financial support to the Company in order that it may continue to operate and service its liabilities as they fall due in the period to 30 June 2023 and fund the planned work programs. Mercuria has also specifically agreed not to demand repayment of the existing loans (principal and interest) during this period.  This letter, which by its nature is not legally binding, represents a letter of comfort stating Mercuria's intention to continue to provide financial support.

 

Whilst it has taken more time than anticipated, the Company and Mercuria are still seeking to restructure the existing facilities, but do not expect this to be completed until later in the year.

 

The directors still believe they will be able to agree the renegotiation of the existing debt with Mercuria and formalise an agreement for new funding and that the Group and Company can continue as a going concern for the foreseeable future. The application of the going concern basis of preparation of the financial statements included in the Company's Annual Report is based on the letter that has been received from Mercuria and the ongoing discussion with the Mercuria principals. Accordingly, the directors continue to adopt the going concern basis for accounting in preparing the 2021 financial statements.

 

However, the directors recognise that if financial support from Mercuria over the period to 30 June 2023 was not to be available and the Company is unable to restructure the existing loan agreements from Mercuria or obtain funding from alternative sources, this gives rise to a material uncertainty that may cast significant doubt on the Group's and Company's ability to continue as a going concern.

 

The financial statements do not include any adjustments that would be required if the Group and Company were unable to continue as a going concern.

 

3. Segment information

The Group's executive management team comprising the chief executive officer, the chief financial officer, the chief operating officer and the business development manager, has been determined collectively as the chief operating decision makers for the Group. The information reported to the Group's executive management team for the purposes of resource allocation and assessment of segment performance is split between those assets which are operated by the Group and those which are not.

 

The strategy of the Group is focused on the development of its unconventional operated assets in the Vaca Muerta and other unconventional opportunities in Argentina, while optimising its operated conventional production assets. The Group also participates in joint arrangements as a non-operated partner. Operated and non-operated assets of the Group have therefore been determined to represent the reportable segments of the business. The third segment, "corporate", primarily relates to administrative costs, financing costs, taxation incurred in running the business, and other activities which are not directly attributable to one of the identified segments.

 

The Group's executive management team primarily uses a measure of earnings before interest, tax, depreciation, loss on termination of licences and other impairment charge and loss on sale of non-current assets ('EBITDA') to assess the performance of the operating segments. However, the executive management team also receives information about segment revenue and capital expenditure on a monthly basis.

 

2021

Operated

US$'000

Non-operated
US$'000

Corporate

US$'000

Total

US$'000

Revenue

  35,362

  43,008

-

  78,370

(Loss)/profit for the year

  (54,643)

  15,146 

  14,476 

  (25,021)

Add: Depreciation, depletion and amortisation

  31,708

  6,768

  1,152

  39,628

Less: Finance income

-

  (54,816)

  (54,816)

Add/(less): finance costs

  110

  (94)

  25,362 

  25,378 

Less: taxation

  - 

  - 

  (4,256)

  (4,256)

EBITDA

  (22,825)

  21,820 

  (18,082)

  (19,087)

Non-recurring expenses

 

 

 

 

Add/(less): Impairment charge/(reversal)

  33,511

(4,629)

  28,882

Less: Loss on the reclassification of assets held for sale

-

  3,653

-

  3,653

Less: Gain on sale of non-current assets

  - 

  - 

  (350)

  (350)

Adjusted EBITDA

  10,686

  20,844

  (18,432)

  13,098 





 

Oil revenues

35,362

40,634

-

75,996

bbls sold

  713,110

  769563

-

  1,482,673

Realised price (US$/bbl)

  49.59

  52.80

  - 

 51.26


 

 


 

Gas revenues

-

2,374

-

2,374

MMcf sold

  794

  794

Realised price (US$/Mcf)

-

  2.99

-

  2.99



 


 

Capital expenditure




 

Property, plant and equipment

  12,748

  6,653

  1,175

  20,576

Intangible exploration and evaluation assets

  31,773

  51

  - 

  31,824

Total capital expenditure

  44,521

  6,704

  1,175

  52,400

Total assets

  300,161

  66,718

  149,883

  516,762

Total liabilities

  (7,208)

  (16,218)

 (492,289)

(515,715)

 

2020

Operated

US$'000

Non-operated

US$'000

Corporate

US$'000

 

Total

US$'000

Revenue

  24,132

  29,869

  - 

  54,001 

Loss/(profit) for the year

 (155,759)

  (49,054)

  7,789 

 (197,024)

Add: depreciation, depletion and amortisation

  27,569

  12,149

  1,628

  41,346 

Less: finance income

-

-

(6,905)

(6,905)

Add: finance costs

  458

  306

  21,512 

22,276 

Less: taxation

-

-

  (38,005)

(38,005)

EBITDA

 (127,732)

  (36,599)

  (13,981)

(178,312)

Non-recurring expenses

 

 

 

 

Add: Loss on termination of licences and other impairment charge

127,501

43,628

-

171,129

Add: Loss on sale of non-current assets

6

-

-

6

Adjusted EBITDA*

(225)

7,029

(13,981)

(7,177)





 

Oil revenues

  24,130

  28,029

  - 

  52,159 

bbls sold

  605,476

  776,435

  - 

1,381,911

Realised price (US$/bbl)

  39.85

  36.10

  37.74 





 

Gas revenues

  2

  1,840

-

  1,842 

MMcf sold

  0.90

  928.63

-

929.53 

Realised price (US$/Mcf)

  2.22

  1.98

-

  1.98 





 

Capital expenditure




 

Property, plant and equipment

  2,627

  1,475

  98

  4,200 

Intangible exploration and evaluation assets

  2,934

  1,015

  3,949 

Total capital expenditure

  5,561

  2,490

  98

  8,149 

Total assets

315,784

60,281

79,605

455,670

Total liabilities

(7,010)

(10,885)

(411,681)

(429,576)

*Reclassified on basis consistent with 2021 disclosure

 

There are no intersegment revenues in either year presented. The majority of oil and gas sales are made to the Argentina state-owned oil company, YPF.

 

4. Property, plant and equipment

 

Property, plant and equipment

Other assets
US$'000

Development and production assets
US$'000

Assets under construction US$'000

Total
US$'000

At 1 January 2021

 

 

 

 

Cost

13,091 

  541,489 

  8,966 

  563,546 

Accumulated depreciation and impairment

  (8,796)

 (396,393)

 (405,189)

Net book amount

  4,295 

  145,096 

  8,966 

  158,357 






Year ended 31 December 2021





Opening net book amount

  4,295 

  145,096 

  8,966 

158,357 

Additions

  1,185 

  11,686 

  7,705 

  20,576 

Transfers from intangible assets

  6,456 

  32,682 

  (5,416)

  33,722 

Transfer from held for sale -cost

-

  31,073 

-

  31,073 

Disposal of assets - cost

  (878)

-

-

  (878)

Impairment reversal

-

  4,629 

-

  4,629 

Impairment charge

-

  (31,928)

-

  (31,928)

Exploration costs written off

  - 

  (30)

  - 

  (30)

Depreciation charge

  (1,148)

  (38,480)

  (39,628)

Transfer for held for sale - accumulated DD&A

-

  (22,493)

-

  (22,493)

Disposal of assets - accumulated DD&A

  827 

  827 

Closing net book amount

  10,737 

  132,235 

  11,255 

  154,227 






At 31 December 2021





Cost

  19,877 

  624,354 

  11,255 

  655,486 

Accumulated depreciation and impairment

  (9,140)

 (492,119)

 (501,259)

Net book amount

  10,737 

  132,235 

  11,255 

  154,227 

 

Additions

Additions to property, plant and equipment in the year ended 31 December 2021 did not include any interest capitalised in respect of qualifying assets (2020:US$nil). The total amount of interest capitalised within property, plant and equipment at 31 December 2021 is US$3.1 million (2020: US$3.1 million).

 

Assets held for sale

Assets held for sale were related to certain non-core development and production assets in the non-operated segment with a net book value of US$11.5 million.

 

In 2021, management suspended the process for the active sale of this asset and as a consequence the criteria for classification as an asset held for sale are no longer met. At the year end, this asset is recognised in development and production assets at its carrying amount adjusted for any depreciation that would have been recognised if the asset had not been classified as a held for sale asset. The Group has recognised in the income statement a loss of US3.7 million on the reclassification of the asset held for sale.

 

Property, plant and equipment

Other assets
US$'000

Development and production assets
US$'000

Assets under construction US$'000

Total
US$'000

At 1 January 2020

 

 

 

 

Cost

13,072

539,100

7,290

559,462

Accumulated depreciation and impairment

(7,159)

(228,054)

-

(235,213)

Net book amount

5,913

311,046

7,290

324,249






Year ended 31 December 2020





Opening net book amount

  5,913 

  311,046 

  7,290 

  324,249 

Additions

  19 

  2,398 

  1,783 

  4,200 

Transfers

  - 

  107 

  (107)

  - 

Exploration costs written off

-

(116)

-

(116)

Depreciation charge

  (1,637)

  (39,709)

  - 

  (41,346)

Impairment charge


 (128,630)


(128,630)

Closing net book amount

  4,295 

  145,096 

  8,966 

  158,357 






At 31 December 2020





Cost

  13,091 

  541,489 

  8,966 

  563,546 

Accumulated depreciation and impairment

  (8,796)

 (396,393)

(405,189)

Net book amount

  4,295 

  145,096 

  8,966 

  158,357 

 

Impairment

The Company defines the key indicators of impairment in relation to its oil and gas assets within its accounting policies. When a specific impairment trigger is identified during a period, the Company will complete an impairment review of the associated CGU. There has been no change in the CGU asset classification year-on-year. The Group's accounting policy for long-lived assets gives examples of potential triggers for impairment that management will consider when assessing if a particular asset may be impaired. Climate change is another factor to be considered and this is reflected in the assumptions used to calculate the discount factor, in particular the beta factor and the country risk.

 

These include:

 

· exploration drilling that has not resulted in the discovery of reserves in potentially commercial quantities;

· changes in oil and gas prices or other market conditions that indicate discoveries may not be commercial;

· the anticipated cost of development indicates that it is unlikely the carrying value of the exploration and evaluation asset will be recovered in full;

· there are no plans to conduct further exploration activities in an area; or

· the exploration licence or concession period has expired or is due to expire.

 

In 2021, the primary method used in assessing impairment triggers for producing assets was an economic evaluation based on fair values (Level 3) less costs of disposal using the NPV15.5 (2020: NPV15) of post-tax cash flows generated from the 2P reserves of producing assets of the associated CGU over the life of the concession. Factors considered in this evaluation include:

 

· historical and expected production

· EUR and type curve analysis

· capex

· opex

· discount factors

· price deck

 

For exploration assets, management considered risked fair values based on post-tax NPV15.5 of P3 reserves and contingent resources in conjunction with fair values assessed on a per acreage basis (in 2020 impairment was assessed by comparing book value to its respective post-tax NPV15 value). Fair values attributed on a per acreage basis have been assessed by reference to values attributed to precedent transactions by comparing the following characteristics of the Company's licences with comparable characteristics of licences the subject of precedent transactions:

 

· ° API

· %TOC

· landing zones

· formation depth

· DFIT (Psi)

· pressure gradient (Psi/ft)

· geohazards

 

Where the calculated fair values are less than the carrying values an impairment test is performed.

 

Prices used in the assessment were based on an average of prices sourced from various banks and analysts at the year end, increasing from a forecast Brent price of US$72.23/bbl in 2022 to US$80.00/bbl in 2034 and thereafter (2020: US$50.16/bbl in 2021 to US$66.38/bbl in 2030 and thereafter).

 

In addition, where management believes a reversal of the conditions that gave rise to the impairment has arisen, an evaluation will be carried out on the same basis described above to assess whether a potential reversal of the impairment charge recognised in prior periods should be recorded.

 

This assessment identified impairment triggers primarily due to the revised year end reserves estimates resulting in an impairment charge of US$28.9 million in respect of property, plant and equipment and intangible assets (see note 5 below) (2020: US$164.5 million). Impairment charges have been recognised in respect of Puesto Rojas, La Brea, La Paloma, Cerro Alquitran and Atamisqui, which were partially offset by the partial reversal of impairment charges recognised in prior years at Chachahuen.

 

Management also carried out sensitivity analysis to determine the impact of changes in the price and discount factor assumptions. A summary of this sensitivity analysis is included at the end of note 5 below.

 

5. Intangible assets and goodwill

Exploration and evaluation assets are primarily the Group's licence interests in exploration and evaluation assets located in Argentina. The exploration and evaluation assets consist of both conventional and unconventional oil and gas properties.

 

Intangible assets

Goodwill US$'000

Exploration and evaluation assets
US$'000

Total
US$'000

At 1 January 2021

 

 

 

Cost

  260,007 

  217,078 

  477,085 

Accumulated amortisation and impairment charges

 (239,392)

  (25,719)

 (265,111)

Net book amount

  20,615 

  191,359 

  211,974 





Year ended 31 December 2021




Opening net book amount

  20,615 

  191,359 

  211,974 

Additions

-

  31,824 

  31,824 

Transfer to property, plant and equipment

-

  (33,722)

  (33,722)

Exploration cost written off

-

(55)

(55)

Impairment charge

-

  (1,583)

  (1,583)

Closing net book amount

 20,615

  187,823 

  208,438 





At 31 December 2021




Cost

  260,007 

  215,125 

  475,132 

Accumulated amortisation and impairment charges

  (239,392)

  (27,302)

  (266,694)

Net book amount

  20,615 

  187,823 

  208,438 

 

Additions

Additions to intangible assets during the year relate primarily to work programs carried out on the Corralera concessions.

 

Intangible assets

Goodwill US$'000

Exploration and evaluation assets
US$'000

Total
US$'000

At 1 January 2020

 

 

 

Cost

260,007

  215,759 

  475,766 

Accumulated amortisation and impairment charges

(224,169)

  (5,057)

  (229,226)

Net book amount

35,838

  210,702 

  246,540 





Year ended 31 December 2020




Opening net book amount

35,838

  210,702 

  246,540 

Additions

-

  3,949 

  3,949 

Exploration cost written off

-

(2,630)

  (2,630) 

Impairment charge

  (15,223)

(20,662)

  (35,885) 

Closing net book amount

  20,615 

  191,359 

  211,974 





At 31 December 2020




Cost

260,007

  217,078 

  477,085 

Accumulated amortisation and impairment charges

  (239,392)

  (25,719)

  (265,111)

Net book amount

20,615

191,359

211,974

 

Impairment tests for exploration and evaluation assets

Exploration and evaluation assets are subject to impairment testing prior to reclassification as tangible fixed assets where commercially viable reserves are confirmed. Where commercially viable reserves are not encountered at the end of the exploration phase for an area the accumulated exploration costs are written off in the income statement. See note 4 above.

 

Impairment tests for goodwill

Goodwill is monitored by management at the level of the operating segments identified in note 3. A segment level summary of goodwill allocation is presented below.

 

At December 2021

Operated
US$'000

Non-operated
US$'000

Corporate US$'000

Total
US$'000

Corralera

16,780

-

-

16,780

Mata Mora

3,835

-

-

3,835

Total goodwill

20,615

-

-

20,615

 

No goodwill was recognised prior to 2017. All goodwill presented relates to the allocation of technical goodwill arising as a result of accounting for deferred tax on the business combination on 10 August 2017. Goodwill of US$224.2 million that was related to the excess of the purchase consideration given over the fair value of assets acquired and liabilities assumed at the acquisition date was impaired in full on completion of the business combination in 2017.

 

Impairment

The carrying value of goodwill has been assessed for impairment at the year end on the basis detailed in note 4. Where the calculated fair values are less than the carrying values an impairment test is performed.

 

The impairment assessment review resulted in no impairment charge (2020: US$15.2 million) in respect of goodwill.

 

Management carried out a sensitivity analysis to determine the impact of changes in the price and discount factor assumptions on the impairment charge recognised on property, plant and equipment (see note 4 above) and intangible assets. A +US$5/bbl/-US$5/bbl per annum price change reduced/increased the total impairment charge by approximately US$4.2 million and US$4.2 million respectively and -5%/+5% per annum change in the discount rate reduced/increased the total impairment charge by approximately US$15.5 million and US$11.2 million respectively.

 

6. Borrowings

 


2021

2020


Current
US$'000

Non-current US$'000

Total
US$'000

Current
US$'000

Non-current US$'000

Total
US$'000

Secured

 

 

 




Bank loans

  6,289

  6,289 

  2,598 

  6,641 

9,239 

Total secured borrowings

  6,289

  6,289 

  2,598 

  6,641 

 9,239 


 

 

 




Unsecured

 

 

 




Loans from related parties

393,452

393,452 

322,973 

322,973 

Other loans

  18

  18 

  21 

  21 

Total unsecured borrowings

393,470

393,470 

322,994 

322,994 

Total borrowings

399,759

399,759 

325,592 

  6,641 

332,233 

 

Secured liabilities and assets pledged as security

Secured liabilities relate to US Dollar denominated loans at an interest rate of LIBOR + 700 points for Dollar loans, subject to a minimum rate of 8% per annum and BADLAR + 700 points for Peso loans (2020: interest rate of LIBOR + 700 points for Dollar loans with no minimum and BADLAR + 700 points for Peso loans). At 31 December 2021 the Group held US$1.7 million loans in Argentine Peso (2020: US$2.7 million).

 

Loans from related parties

The related party loan at 31 December 2021 relates to a convertible rolling credit facility ('RCF') and non-convertible bridging facility ("BF") provided to the Group by Mercuria Energy Netherlands B.V., a subsidiary of the Mercuria group.

 

As part of the business combination in 2017, Mercuria advanced a bridging and working capital facility to the Group for the amount of US$160.0 million. In February 2018, US$100.0 million of the facility was converted to equity of the Company at a price of £0.37 per share. At the same time the facility was restructured as a new convertible RCF in the amount of US$160.0 million (Facility A) with an additional US$100.0 million of new funds made available to the Company. In December 2018, Mercuria made available an additional US$25.0 million under Facility B, which in February 2019 was increased to US$75.0 million. In May 2019, Mercuria made available an additional US$40.0 million under Facility C, which in November 2019 was increased to US$50.0 million and in March 2020 to US$56.0 million.

 

At 31 December 2021, a total facility of US$291.0 million was available to the Company under the RCF, with a total of US$281.0 million drawn down under the facility, with the undrawn balance of US$10.0 million made available through the BF, which was subsequently increased to US$67.5 million, with US$67.0 million drawn down at the year end.

 

All funds drawn down under the RCF and BF bear interest at US$ LIBOR + 4%. The RCF provides for an interest payment grace period from 1 January 2019 to 30 September 2022 with a first repayment and maturity date of 31 December 2022. The BF provides for a repayment date (principal and interest) and maturity date of 31 December 2022. At the year end US$45.4 million of interest had been capitalised.

 

Mercuria has the right to convert all or part of the outstanding principal of Facility A, Facility B and Facility C into additional new ordinary shares of the Company at a price of £0.45, £0.28 and £0.23 per share respectively. These conversion rights can be exercised at any time up to 10 business days prior to the maturity date.

 

Fair value

Differences identified between the fair values and carrying amounts of borrowings are as follows:

 


2021

2020


Carrying amount
US$'000

Fair value US$'000

Carrying amount
US$'000

Fair value US$'000

Bank loans

  6,289

6,199

  9,239 

  8,981 

Other loans

  18

18

  21 

  21 

Loans from related parties

  393,452

382,528

322,973 

301,844 

Total

  399,759 

388,745 

332,233 

310,846 

 

The fair values of non-current borrowings are based on discounted cash flows using a current borrowing rate. They are classified as Level 3 fair values in the fair value hierarchy due to the use of unobservable inputs, including own credit risk.

 

7. Loss per share

 

Basic and diluted loss per share

2021
US$

2020
US$

From continuing operations attributable to the ordinary equity holders of the Company

(0.01)

(0.07)

Total basic loss per share attributable to the ordinary equity holders of the Company

(0.01)

(0.07)

 

Basic and diluted loss per share

2021
US$'000

2020
US$'000

Loss attributable to the ordinary equity holders of the Company used in calculating basic earnings per share:

 


From continuing operations

(25,021)

(197,024)


(25,021)

(197,024)

 

Weighted average number of shares used as the denominator

Number of shares

2021

'000

2020

'000

Adjustments for calculation of diluted earnings per share:

 


At 1 January

2,786,571

2,785,024

At 31 December

2,786,571

2,786,571

Potential dilutive ordinary shares

7,435

3,386

Weighted average number of shares used as the denominator in calculating diluted earnings per share

2,794,006

2,788,956

 

8. Post balance sheet events

Credit facilities

On 9 March 2022, the non-convertible bridging facility provided by Mercuria was increased to US$97.5 million. The convertible facility grace period was extended to 30 September 2022 and the first repayment date and maturity date extended to 31 December 2022. The non-convertible bridging facility (principal and interest) maturity date was extended to 31 December 2022.

 

Licences

On 9 April 2022, the Company, received from Gas y Petróleo del Neuquén S.A. ("GyP") a notice of GyP's willingness to relinquish the licences over the areas La Tropilla, Aguada de Castro I & II and Santo Domingo in which it is the Company's joint venture partner. Management considers that the unconventional prospectivity of these areas has a "high risk/low reward and has agreed to the relinquishment.

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