Nighthawk Energy Regulatory News (HAWK)

2 June 2016

 NIGHTHAWK ENERGY PLC

("Nighthawk" or "the Company")

Final Results for the year ended 31 December 2015

Nighthawk, the US focused oil development and production company (AIM: HAWK and OTCQX: NHEGY), announces its final results for the year ended 31 December 2015.

Operational Highlights

· Sales volumes

o Gross oil sales for 2015 of 653,431 bbls; 536,972 bbls net to Nighthawk's net revenue interest1 (2014: 703,414 gross bbls, 575,275 net bbls)

o Gross daily oil sales for 2015 averaged 1,791 bbls/day; 1,471 bbls day net (2014: 1,927 gross bbls, 1,576 net bbls)

· Conditional approval for new water flood project in existing production areas

Financial Highlights

· Group revenues decreased 38% to US$29.6 million in 2015 from US$47.5 million in 2014, mainly due to the 50.7% decrease in the per barrel price received during 2015, partially mitigated by the effect of US$7.8 million of gains resulting from oil price swaps settled during the year

· Normalised EBITDA2 for 2015 of US$14.5 million or US$ 22.17 per gross barrel sold as compared to US$27.6 million or US$39.20 per gross barrel sold for 2014

· Cost reduction program successfully implemented

· Non-cash impairment (exceptional administrative expenses) of $75.1 million, principally attributable to: $38.5 million of exploration costs included in intangible assets, and $36.1 million to property, plant and equipment, resulting in net loss after tax of US$ 70.3 million (2014: net loss US$ 3.9m)

· Waivers of debt non-compliance obtained until 10 June 2016. Negotiations with bankers ongoing regarding renegotiation of bank facilities

The audited report and accounts for the year ended 31 December 2015, approved on 1 June 2016, will be available on the Company's website at www.nighthawkenergy.com later today and will shortly be posted to Shareholders, as applicable, together with the notice of Annual General Meeting, to be held on 30 June 2016, and Form of Proxy.

The financial information in this announcement does not constitute the Company's complete statutory financial statements for the year ended 31 December 2015 or 2014 within the meaning of section 434 of the Companies Act 2006, but is extracted from those financial statements. References to 'financial statements' in this announcement should not be considered to refer to the complete statutory financial statements. The Group's Auditor has reported on those financial statements; its reports were unqualified, but did contain an emphasis of matter paragraph in respect of the material uncertainty in respect of the going concern disclosure set out in Note 2.

The Auditor's Report did not contain statements under sections 498(2) or (3) of the Companies Act 2006. The emphasis of matter is set out below:

Emphasis of matter - Going concern

The audited statutory financial statements include an emphasis of matter (without modification of the audit opinion) concerning the group's ability to continue as a going concern. The group's cash flow forecasts indicate that its ability to meet its liabilities as they fall due for next 12 months is dependent upon successfully renegotiating the Commonwealth Bank of Australia ("CBA") existing loan facility on terms acceptable to the Company or securing alternative funding. Whilst the Directors are confident that the loan facility can be renegotiated or alternative funding secured, the outcomes of these negotiations are unknown. These conditions indicate the existence of a material uncertainty which may cast significant doubt as to the group's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the group was unable to continue as a going concern.

Notes and Definitions:

1. Net revenue interest (NRI) - Nighthawk's share of oil, gas, and associated hydrocarbons produced, saved, and marketed, after satisfaction of all royalties, overriding royalties, or other similar burdens on or measured by production of oil, gas, and associated hydrocarbons

2. Normalised EBITDA is operating profit adjusted for depreciation, amortisation, and contribution from test revenue, together with exceptional expenses.

"Group" Nighthawk Energy plc and its subsidiaries

"Parent Company" Nighthawk Energy plc

Enquiries:

Chairman's Statement

(all amounts in US$)

As I write this letter to shareholders, WTI oil prices are near $48 per barrel, the highest levels in almost a year. When prices first collapsed in late 2014, we expected prices to remain low for 6-12 months. Now, 18 months into the down cycle, it is clear that countries like Saudi Arabia, Iran and Russia have been making decisions based on factors other than just economics. However, the cuts in supply in the US and Canada, along with temporary disruptions in some countries, have now brought supply and demand more in balance and for the first time in months, there is more of a neutral, slightly bullish sentiment developing in the market.

Fortunately, we had begun the year with significant hedges in place, at prices that ranged from $49-$75 per barrel. These hedges helped mitigate the effect of the decline in oil prices during the year. Our hedging program contributed $7.8 million to revenue during 2015. In addition, our actual production was higher than originally projected due to cost effective workovers and production enhancement projects we pursued, which altered the decline behaviour of the producing wells. We also continued to focus on cost reductions throughout our organization. During the year, we have reduced our oil transportation from approximately $11 per barrel to less than $5 per barrel today. We also consolidated our financial functions in the US, substantially reducing our UK costs, we reduced head count in our Denver staff, we cut salaries for the entire Denver team and we made across the board cuts in spending resulting in an expected reduction of approximately $1.8 million in recurring annual administrative costs going into 2016.

As we entered 2015, we established a conservative capital budget, with drilling limited to our newly created Monarch Joint Development Area ("JDA") and workover and up-hole production enhancement projects. As prices remained low other than a short period in April and May, we deferred our drilling, raised $10 million from shareholders and reduced both our trade payable and commercial debt balances with a reduction of $4 million in early January 2016.

In our 2015 capital budget, Nighthawk had planned to drill six wells in areas that indicated structural fields. Unfortunately, the five wells we drilled in late 2015, four in the Monarch JDA and one in Arikaree Creek area, resulted in little success. We tested potential in other zones, primarily the Pennsylvanian, which included the Atoka zone. Based on the drilling and tests results, and taking into account the current oil price environment, only two of the wells were completed. In these two wells, we believe there exists untested, up-hole potential based upon hydrocarbon shows during drilling.

Although the drilling results were disappointing, the results in the Monarch JDA have not totally condemned this acreage. However, with oil prices projected to stay low through 2016, we have decreased our capital budget and do not plan any drilling beyond our existing two commitment wells.

On a positive note, the Nighthawk team recognized the potential of an enhanced oil recovery (water flood) project in our existing Arikaree Creek field. In October 2015, we submitted the application for the project and through the end of the year, worked with the Colorado Oil and Gas Conservation Commission's (COGCC) regulatory staff. In March 2016, we received conditional approval to proceed with the project. Preliminary estimates of the potential upside indicates that a 20%-25% additional recovery of the original oil in place could be achieved. In April 2016, we introduced a pilot program for the water flood project, covering the southern portion of the Arikaree Creek structure. For the pilot program, it is estimated that the recovery could result in an additional 1-2 million barrels of total oil being produced. We believe we have met all the requirements of the conditional approval from the COGCC, and we anticipate the pilot program to be operational in the fourth quarter of 2016.

The water flood project is the kind of project oil and gas companies want to implement in a recovering oil market. As we have disclosed previously, production is expected to substantially increase and to remain higher than otherwise possible for most of the life of the project. One of the key drivers of this project is that it requires minimal capital to implement which based upon current estimates is expected to be less than $3 million.

In a related matter, we have been negotiating with our banking partner on an extension of terms. They have been supportive of the water flood project and see the upside that it can provide. The Company believes that with obtaining the approval by 80% of the non-cost bearing owners, the likelihood of this project being ultimately approved in early June 2016 is substantially enhanced. We are working with the bank on new terms that will allow this project to move forward and we hope to have those new terms in place around the time the project is approved.

I would like to thank the shareholders, the Board and the entire staff for their support through what has been a very tough year for Nighthawk. As I said above, for the first time in months, we see some reason for optimism in oil pricing. While, we do not expect prices to reach $70 in the next 18 months, we do believe they could trade more often in the $45-$60 range. When you consider our relatively low operating cost structure, our operating margins almost double at $60 WTI pricing as compared to the pricing we experienced in 2015.

As we continue to work through arrangements with the bank, implement the water flood pilot project and hopefully enjoy better pricing in the next year, our future results should improve substantially. We exit the year with a good bit of cautious optimism.

Rick McCullough

Executive Chairman

Chief Financial Officer's Statement

(all amounts are shown in US$)

Financial highlights

The following information relates to the accounts of Nighthawk Energy plc and its wholly-owned subsidiaries, collectively the "Group" or the "Company".

Fiscal 2015 was a challenging year for the Group and the oil and gas industry as a whole. Oil prices declined significantly during the year which resulted in decreased revenues, increased impairments of assets and a net loss for the year ended 31 December 2015. Following is a summary of the key results for the year.

Financial Results

Loss for the year

The Group reported a net loss of $70.3 million for the year ended 31 December 2015 as compared to a net loss of $3.9 million for the year ended 31 December 2014. The increase to the net loss was due primarily to reduced sales revenues resulting from the significant decrease in oil prices during the year as well as an increase to non-cash impairments of $75.1 million for the year ended 31 December 2015. Non-cash impairments were $20.3 million for the year ended 31 December 2014. A portion of the non-cash impairments resulted from the Group having drilled five wells that did not result in commercial economic reserves. As a result, the costs to drill and complete these wells were written off as of 31 December 2015 and totalled $5.2 million. In addition, an impairment charge of $28.9 million has been taken representing impairment of certain production wells which arises due to the reduction in the spot and forward oil price assumptions used in estimating the future discounted cash flows for each well. The Group also assessed the recoverability of its undeveloped assets based upon factors such as market conditions, current spot and forward prices of oil, and future exploration and development plans. Due primarily to the significant reduction in oil prices and no current plans to pursue an aggressive drilling program, an additional $40.5 million was written off or impaired relating to the undeveloped assets as at 31 December 2015. An additional $0.5 million was recorded as impairments for costs incurred during the current period for wells which had been fully impaired in prior periods.

Of the total impairment of $75.1 million, $38.5 million was attributable to exploration costs included in intangible assets and a $36.1 million was attributable to property, plant and equipment. Of the total impairment for property, plant and equipment, $11.5 million was related to leasehold land, $10.2 million was related to plant and equipment and $14.4 million related to production assets. The reminder of $0.5 million was attributable to costs incurred on wells previously fully impaired.

Normalised EBITDA

Normalised EBITDA ("NEBITDA") is presented to provide an analysis of the Group's operations, excluding certain non-cash related items. NEBITDA is defined as operating profit or loss adjusted for interest, income taxes, depreciation, amortisation, test revenue contribution adjustments, and exceptional administrative expenses. For the year ended 31 December 2015 NEBITDA was $14.5 million, compared to $27.6 million for the year ended 31 December 2014. This decline in NEBITDA reflected the precipitous decline in the price of crude oil and a decrease in production volumes, partially mitigated by the Group's commodity derivatives. NEBITDA per gross and net barrel sold was $22.17/bbl and $26.98/bbl for the year ended 31 December 2015, respectively, as compared to $39.20/bbl and $47.93/bbl, respectively, for the year ended 31 December 2014.

 The following calculation reconciles the net loss under IFRS to NEBITDA for 2015 and 2014.

The following table provides the consolidated income statement to arrive at normalised operating profit and NEBITDA.

1. Normalised operating profit is operating profit adjusted for exceptional administrative expenses.

Production

The results of the Groups production as shown in the following table:

The decline in net sales volumes of 38,303 or 6.7% is indicative of normal depletion of the Groups reserves offset by the workover and production enhancement projects performed in 2015.

Revenues

The following is a comparative summary of net oil sales volumes, prices and revenues, including the impact of commodity derivative settlements:

The $25.5 million or 54.0% decline in oil revenues is the result of the 6.7% decrease in produced volumes (previously discussed) and a $41.69 or 50.7% per barrel decline in the price received. The Group, in order to mitigate the effect of volatile oil markets, actively enters into various hedging instruments. As shown above, the Group realised $7.8 million of gains resulting from oil price swaps settled during the year.

Costs

The following is a comparative summary of cost of sales:

With the economic decline in the oil and gas industry, the Group has negotiated concessions with suppliers and service providers resulting in a reduction to lease operating costs per barrel despite a decrease in sales volumes. There have also been corresponding reductions to severance taxes, contribution from test revenue, and production profit shares and royalties. Depreciation has increased as a result of a decline to the reserve base which has been adversely impacted by a decline in oil prices and the corresponding reduction in well economics.

Dividends

The Directors do not recommend the payment of a dividend for the year ended 31 December 2015.

Cash flow, investment and liquidity

The following is a comparative summary of cash flow from operating, investing and financing activities:

Cash flows from operating activities

For the year ended 31 December 2015, cash flow from operating activities was $16.7 million as compared to cash flows of $28.2 million for the year ended 31 December 2014 reflecting the decrease in NEBITDA discussed above.

 Net Cash flow from investing activities

For the year ended 31 December 2015, net cash flow used in investing activities was $26.4 million and comprised principally of capital expenditures in the drilling and completion of new wells. For the year ended 31 December 2014, net cash flow used in investing activities was $40.8 million. The decline in spending in 2015 as compared to 2014 of 35.3% was a result of reduced acreage acquisitions and drilling activities commensurate with the decline in economics within the oil and gas industry.

Net cash flow from financing activities

For the year ended 31 December 2015, net cash from financing activities during the year totalled $10.7 million and comprised principally of $16.7 million (year ended 31 December 2014: $27.9 million) raised via debt facilities offset by $3.0 million in debt repayments and $3.1 million in interest payments. For the year ended 31 December 2014, net cash flow from financing activities totalled $15.9 million and was comprised of proceeds from debt facilities, offset by $10.0 million in debt repayments and $2.8 million in interest payments.

On 14 August 2015, the Company issued $10.0 million (£6.4 million) of nominal value, unsecured convertible loan notes carrying zero coupon over a period up to March 2019, held by both related parties and unrelated parties. The loan notes are convertible by holders at any time, into such number of ordinary shares as is calculated by dividing the nominal value of notes to be converted by 3 pence, at any time up to and including the redemption date. At 31 December 2015, the loan is convertible into 213,333,333 shares of the Group.

In September 2014, the Group entered into a senior secured reserves based lending ("RBL") facility with Commonwealth Bank of Australia ("CBA") with an initial RBL facility amount of up to $100.0 million. Under this RBL facility, the initial borrowing base was $35.0 million, subject to regular redeterminations based upon factors including, but not limited to, petroleum reserves and oil prices. The available borrowing base was subject to a $5.0 million withholding by the bank such that the Group at all times maintains a minimum liquidity requirement, effectively setting the net borrowing base at $30.0 million.

During 2014, the Group drew $23.0 million under the RBL, including $1.1 million of transaction costs. During the first half of 2015, the Group drew an additional $7.0 million to the maximum net borrowing base of $30.0 million. Due to falling oil prices in the second half of the year, on 2 November 2015, CBA decreased the net borrowing base to $27.0 million, resulting in a net borrowing base deficit of $3 million. Under the terms of the RBL, the net borrowing base deficit was required to be repaid in three equal payments of $1.0 million at the beginning of December 2015, January 2016 and February 2016, to reduce the outstanding balance to the new net borrowing base. Simultaneously, the RBL facility was amended to include, among other provisions, a $5.0 million minimum liquidity requirement and the elimination of the $5.0 million withholding on the borrowing base amount.

In connection with negotiations to obtain waivers for certain covenant non-compliance, the Group paid the total $3.0 million net borrowing base deficit prior to 31 December 2015, resulting in an outstanding balance as at 31 December 2015 of $27.0 million. Certain requirements and covenants at 31 December 2015 were not in compliance with the loan agreement including the minimum hedging maintenance requirement and the leverage covenant. These non-compliance items were waived by CBA as of year-end with a period of grace until 9 January 2016

On 8 January 2016, the Group completed additional negotiations with CBA that included a reduction to the net borrowing base from $27.0 million to $23.0 million, the current outstanding balance. As part of the negotiations for waiver extension and additional debt amendments, the Group was required to pay an additional $4.0 million to reduce the outstanding balance to the reduced net borrowing base amount. The RBL facility covenants were amended to revise the leverage ratio and eliminate the minimum liquidity requirement.

At the end of the first quarter of 2016, CBA notified the Group that the borrowing base had been further reduced from $23.0 million to $13.0 million. CBA has provided waivers to allow them and the Group to explore options that would result in resolution of the deficiency, including modification to the existing RBL facility or securing alternative sources of capital to partially or fully extinguish the existing RBL facility. The Group has received additional waivers of non-compliance through 10 June 2016, as of the date of these financial statements. Due to the limited nature of the waivers, the entire outstanding balance under the RBL has been classified as a current liability in the accompanying financial statements. Management is confident that a mutually beneficial agreement can be reached with CBA on the RBL.

From the initial draw on the RBL in September 2014, the Group used a portion of the proceeds to repay $10.0 million of debt provided by major shareholders and the remaining portion to fund activities around the exploration and development of oil reserves.

As part of entering into the RBL, the maturities for all existing debt instruments at that time were extended to March 2019 or later, together with extensions to the related warrants.

At 31 December 2015, the Group held cash balances of $6.0 million as compared to $5.0 million at 31 December 2014.

Hedging

As part of managing the Group's liquidity position, during 2014, the Group commenced a commodity hedging program in order to provide more certainty around future operational cash flows and liquidity. As at 31 December 2015, the Group held the following oil commodity derivative hedge positions:

Note: All commodity derivative hedge prices are WTI NYMEX, averaged across the total contracts for swap contracts.

For the commodity hedging activities entered into during 2014 and the first half of 2015, the Group elected to apply IFRS hedge accounting in respect of the Group's commodity derivative hedge positions. Hedge accounting mitigates the profit and loss volatility through the income statement that can arise through the use of derivatives. The Group's oil commodity derivative hedges were designated as cash flow hedges and, accordingly, subject to remaining effective, much of the derivative volatility arising from mark-to-market positions on open contracts at period ends will be recorded as an equity movement in the cash flow hedge reserve rather than through the income statement. On utilisation of the oil swaps when the oil sales take place, the amounts held in equity are recycled to revenue. In the third quarter of 2015, the Company entered into one swap contract that is accounted for as a mark-to-market hedge instrument through profit or loss.

Shareholders' equity

As at 31 December 2015 there were 964,076,330 ordinary shares of 0.25 pence each in issue. Additionally, as at 31 December 2015, a total of up to 652,383,333 new ordinary shares may be issued pursuant to the exercise of share options, warrants or convertible loan notes.

Cautionary Statement

This announcement contains certain judgements/assumptions and forward-looking statements and assumptions that are subject to the normal risks and uncertainties associated with the exploration, development and production of hydrocarbons. Whilst the Directors believe that expectations reflected throughout this announcement are reasonable based on the information available at the time of approval of this announcement, actual outcomes and results may be materially different due to factors either beyond the Group's reasonable control or within the Group's control but, for example, following a change in project plans or corporate strategy. Therefore absolute reliance should not be placed on these judgements/assumptions and forward-looking statements.

Kurtis Hooley

Chief Financial Officer

Consolidated Income Statement

for the year ended 31 December 2015

(all amounts shown in US$)

Consolidated Statement of Comprehensive Income and Expenditure

for the year ended 31 December 2015

(all amounts shown in US$)

Consolidated Balance Sheet

as at 31 December 2015

(all amounts shown in US$)

Consolidated Statement of Changes in Equity

for the year ended 31 December 2015

(all amounts shown in US$)

Consolidated Cash Flow Statement

for the year ended 31 December 2014

(all amounts shown in US$)

 Notes to the Consolidated Financial Statements

Year ended 31 December 2015

all amounts are shown in US$

1. General Information

Nighthawk Energy PLC (the "Parent") is a company incorporated in the United Kingdom, under the Companies Act 2006.

The financial information in this announcement does not constitute the Company's complete statutory financial statements for the year ended 31 December 2015 or 2014 within the meaning of section 434 of the Companies Act 2006, but is extracted from those financial statements. References to 'financial statements' in this announcement should not be considered to refer to the complete statutory financial statements. The Group's Auditor has reported on those financial statements; its reports were unqualified, but did contain an emphasis of matter paragraph in 2015 in respect of the material uncertainty in respect of the going concern disclosure set out in note 2. The Auditor's Report did not contain statements under sections 498(2) or (3) of the Companies Act 2006.

2. Significant accounting policies

Basis of accounting

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU Regulations and applied in accordance with those provisions of the Companies Act 2006 applicable to companies reporting under IFRS.

The financial statements have been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for the assets at the date of transaction. The principal accounting policies adopted are set out below.

The principal accounting policies set out below have been consistently applied to all periods presented.

Certain reclassifications have been made to the 2014 amounts to conform to the 2015 presentation. None of these reclassifications resulted in changes to profit or loss.

Going Concern

The Directors have reviewed cash forecasts, the current operations of the Group and plans for the next 12 months and consider that the use of the going concern basis of accounting and preparation of the financial statements is appropriate but, there are material uncertainties related to events or conditions that may cast significant doubt about the ability of the Group to continue as a going concern. Currently, the Group is meeting its day-to-day financial responsibilities and oil prices are trending upward. Successful implementation of the water flood project is expected to provide adequate cash flow for the foreseeable future to meet operating cash flow requirements, although the COGCC approval of the water flood project is not certain. The Directors note there is a material liquidity risk related to the Company's outstanding loan with Commonwealth Bank of Australia ("CBA") given non-compliance with certain covenants and the reduction in the borrowing base from $23.0 million to $13.0million in Q1 2016 which created a $10.0 million borrowing base deficiency. As of the date of approval of these financial statements, the Company has obtained a waiver from CBA of existing non-conformity to the loan provisions and covenants through to 10 June 2016. As part of the existing waiver, CBA has agreed to temporarily waive the current requirement to pay approximately $6.7 million of amounts due based upon the outstanding borrowing base deficiency of $10.0 million, with the remaining $3.3 million due 28 June 2016. However, the Company's ability to meet its liabilities as they fall due for next 12 months is dependent upon successfully renegotiating the existing loan facility on terms acceptable to the Company or securing alternative funding. The Company and CBA are attempting to renegotiate the existing loan document and current amounts payable and whilst the Directors are confident that the borrowings can be renegotiated or alternative funding secured, the outcomes of these negotiations are unknown.

The financial statements do not include the adjustments that would result if the Company was unable to continue as a going concern.

2. Significant accounting policies continued 

Basis of Consolidation

Where the company has control over an investee, it is classified as a subsidiary. The company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

The consolidated financial statements present the results of the Group as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full. Intra-Group transactions with subsidiaries are eliminated on consolidation. Transactions, balances, income and expenses with Joint Operations are eliminated to the extent of the Group's interest in these entities.

In accordance with the exemption in IFRS 1, where merger accounting has been used prior to the transition date the accounting method has not been restated.

Any difference between the nominal value of the shares acquired by the Company and those issued by the Company to acquire these shares is accounted for as merger reserve.

Segmental Reporting

The Group has only one operating segment: the production of, exploration for and investment in hydrocarbons in one geographical area, the United States of America.

New and amended IFRS standards in interpretations

No new or revised Standards and Interpretations have been adopted during the year.

At the date of authorisation of these financial statements, the following Standards and interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the European Union) (standards not expected to have any impact on the Group are not included):

The Directors do not expect that the adoption of the Standards and Interpretations listed above will have a material impact on the financial statements of the Group in future periods.

Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of these standards until a detailed review has been completed.

Joint Operations

The Group participates in Joint Operations, which involve the joint control of assets used in the Group's oil and gas exploration and producing activities.

2. Significant accounting policies continued

The Group accounts for its share of assets, liabilities, income and expenditure of Joint Operations in which it holds an interest, classified in the appropriate Balance Sheet and Income Statement headings.

Details of the Group's interests in unincorporated Joint Operations are given in Note 14.

Revenues

Sales revenue represents the sales value of the Group oil liftings in the year. Oil revenue is recognised when it can be reasonable measured and the risks and rewards of ownership have transferred substantially to the buyer, which occurs at transfer of the hydrocarbons from the Group's facilities to the purchaser's tanker or infrastructure. Revenue is measured at the Group's share of fair value of the consideration received or receivable and represents amounts receivable for oil products in the normal course of business, net discounts and sales related taxes. Royalty interests are recognised on an accruals basis, in accordance with the substance of the relevant agreement.

Oil and gas assets - exploration and evaluation assets (intangibles)

The Group follows a successful efforts based accounting policy for oil and gas assets. During the geological and geophysical exploration phase, expenditures are charged against income as incurred. Once the legal right to explore has been acquired, expenditures directly associated with exploration and evaluation are capitalised as intangible assets and are reviewed at each reporting date to confirm that there is no indication of impairment and that drilling is still underway or is planned. If no future exploration or development activity is planned in the licence area, the exploration licence and leasehold property acquisition costs are written off. Pre-licencing expenditures on oil and gas assets are recognised as an expense within the income statement when incurred.

Oil and gas assets - development and production assets (property, plant and equipment)

Once a well or project is commercially feasible and technically viable, which in practice is when results indicate that hydrocarbon reserves exist in adequate quantity and there is reasonable evidence that the reserves are commercially viable, the carrying values of the associated exploration licence and property acquisition costs and the related cost of exploration wells are transferred to development oil and gas properties after an impairment test. Development and production assets are accumulated generally on a well-by-well basis and represent the cost of developing the commercial reserves discovered and bringing them into production. The cost of development and production assets also includes the cost of acquisitions and purchases of such assets, directly attributable overheads, finance costs capitalised, and the cost of recognising provisions for future restoration and decommissioning. If a drilled well does not show commercially viable reserves, the capitalized costs are written off upon completion of the well.

Property, Plant and Equipment

Property, plant and equipment are stated at historical cost less depreciation and recognised impairment losses. Cost includes expenditure that is directly attributable to the acquisition or construction of these items.

Subsequent costs are included in the asset's carrying amount only when it is probable that future economic benefits associated with the item will flow to the Group and the costs can be measured reliably. All other costs, including repairs and maintenance costs, are charged to the income statement in the period in which they are incurred.

Depreciation is provided on all property, plant and equipment and is calculated on a straight-line basis or unit of production basis as follows:

Depreciation of producing assets

The net book values of producing assets are depreciated on a well-by-well basis using the unit-of-production method by reference to the ratio of production in the year and the related economic commercial reserves of the well, taking into account future development expenditures necessary to bring those reserves into production.

2. Significant accounting policies continued

Where property, plant and equipment has been acquired for the purposes of exploration, and technical feasibility of the project has yet to be established, the depreciation on the property, plant and equipment is added back to the cost of the intangible assets within exploration costs.

The gain or loss arising on disposal or scrapping of an asset is determined as the difference between the sales proceeds, net of selling costs, and the carrying amount of the asset and is recognised in the income statement.

Impairment of development and production assets

An impairment test is performed whenever events and circumstances arising during the development or production phase indicate that the carrying value of a development or production asset may exceed its recoverable amount, but not less frequently than twice a year. The carrying value is compared against the expected recoverable amount of the asset, generally by reference to the present value of the future net cash flows expected to be derived from production of commercial reserves. The cash flows are discounted using a pre-tax discounted rate adjusted for risks specific to the assets. The cash generating unit applied for impairment test purposes is generally at the well level, except that a number of individual well interests may be grouped as a single cash generating unit where the cash inflows of each well are interdependent, as in a unit. Commercial reserves consist of proved and probable oil, which are defined as the estimated quantities of crude oil where geological, geophysical and engineering data has demonstrated, with a specified degree of certainty, to be recoverable in future years from known reservoirs and which are considered commercially viable. There should be at least a 50% statistical probability that the actual quantity of recoverable reserves will be equal to or more than the amount estimated as proved and probable reserves. Any impairment identified is charged to the income statement. Where conditions giving rise to impairment subsequently reverse, the effect of the impairment charge is also reversed as a credit to the income statement, net of any depreciation that would have been charged since the impairment.

Impairment of Exploration costs

The Group's intangible exploration cost assets are assessed for impairment when facts and circumstances suggest that the carrying amount of the exploration cost assets may exceed the assets recoverable amount. In accordance with IFRS 6, the Group firstly considers the following facts and circumstances in their assessment of whether the Group's exploration and appraisal assets may be impaired:

• Whether the period for which the Group has the right to explore in a specific area has expired during the period or will expire in the near future, and is not expected to be renewed;

• Whether substantive expenditure on further exploration for and appraisal of mineral resources in a specific area is neither budgeted nor planned;

• Whether exploration for and evaluation of oil in a specific area has not led to the discovery of commercially viable quantities of oil and the Group has decided to discontinue such activities in the specific area; and

• Whether sufficient data exists to indicate that although a development in a specific area is likely to proceed, the carrying amount of the exploration and evaluation assets is unlikely to be recovered in full from successful development or by sale.

If any such facts or circumstances are noted, the Group, as a next step, performs an impairment test in accordance with the provisions of IAS 36 as set out above.

Asset Retirement Obligation

An asset retirement obligation provision for plugging, abandonment and reclamation costs has been included within the exploration costs intangible assets and production assets and within liabilities based on management's assessment of asset retirement costs that will be incurred at the end of each project's life. The estimated current date cash flows are adjusted for inflation and are discounted at a risk free rate. The cash flows used in the provision are risk adjusted.

Cash and Cash Equivalents

Cash and cash equivalents comprise cash on hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.

2. Significant accounting policies continued

Inventories

Inventories are stated at the lower of cost and net realisable value. Costs of inventories are determined on a first-in-first-out basis. Cost comprises direct materials, and where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price less all estimated costs of completion and costs necessary to make the sale.

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material).

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

Contingent consideration

The Group is party to a deferred contingent consideration agreement in respect of its acquisition of an addition 25% working interest in the Jolly Ranch and Smoky Hill Project in 2012, under which the Group acquired operatorship of the joint operation and increased its interest from 50% to 75%. The Group initially recorded the fair value of the deferred contingent consideration as part of the acquisition and the obligation is classified as a provision and subsequently carried at the best estimate of the payment that will be required to settle the obligation. Subsequent changes in fair value are recorded in profit or loss.

Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all of the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Rentals payable under operating leases are charged to income on a straight-line basis over the term of the lease.

Foreign Currency

For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in US Dollars, which is the reporting currency for the consolidated financial statements. The functional currency of the Group's subsidiaries is United States dollars. Foreign currency transactions by Group companies are recorded in their functional currencies at the exchange rate at the date of the transaction. Monetary assets and liabilities have been translated at rates in effect at the balance sheet date, with any exchange adjustments being charged or credited to the Income Statement.

The Parent Company's functional currency is the British Pound Sterling. On consolidation, the assets and liabilities of the Parent Company are translated into the Group's reporting currency at the exchange rate at the balance sheet date and the income and expenditure account items are translated at the average rate for the reporting period. The exchange difference arising on the translation from functional currency to presentational currency of the Parent Company is classified as other comprehensive income and is accumulated within equity as a translation reserve.

Taxation

Current Taxation

Current tax for each taxable entity in the Group is based on the statutory tax rate enacted or substantively enacted at the balance sheet date and includes adjustments to taxes payable or recoverable in respect of previous periods.

2. Significant accounting policies continued

Taxes that arise from production are recorded as cost of sales and accrue as production arises. A deferred tax asset is recorded when there is sufficient certainty that production taxes paid will give rise to tax deductions in future periods.

Deferred Taxation

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax laws and rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited in other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.

Financial Instruments

Financial assets and financial liabilities are recognised on the Balance Sheet when the Group becomes a party to the contractual provisions of the instrument.

Trade and other receivables

Trade receivables are measured on initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest method. A provision is established when there is objective evidence that the Group will not be able to collect all amounts due. The amount of any provision is recognised in the income statement.

Trade and other payables

Trade and other payables are initially recorded at fair value and subsequently measured at amortised cost using the effective interest rate method.

Borrowings and equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement. Borrowings are initially recorded at fair value and subsequently measured at amortised cost using the effective interest method. If the terms of borrowings are modified, the Group determines whether the modification represents a substantial modification under IFRS. A modification is considered substantial if the discounted present value of the cash flows under the new terms, including any fees paid, net of any fees received and discounted using the original effective interest rate, is at least 10% different from the discounted present value of the remaining cash flows of the original financial liability. Borrowings that are considered to be substantially modified are derecognised and transaction costs associated with such loan modifications, are written off to the income statement. Transaction costs arising from modifications of borrowings that do not qualify as substantially modified are deducted from the liability and amortised prospectively through the effective interest rate method.

Royalty or profit share interests issued with loans are recorded at fair value through profit or loss, unless the royalty terminates upon disposal of the wells or a change in control, when such events form part of the Group's strategy. In such circumstances the royalty is recorded on an accrual basis as production arises.

An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

2. Significant accounting policies continued 

Compound instruments

The component parts of compound instruments (convertible notes and loans with detachable warrants) issued by the Company are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. A conversion option that will be settled by the exchange of a fixed amount of cash for a fixed number of the Company's own equity instruments is an equity instrument.

At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible instruments. This amount is subsequently recorded as a liability on an amortised cost basis using the effective interest method until extinguished upon conversion or at the instrument's maturity date.

The conversion option or detachable warrant classified as equity is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognised and included in equity, net of income tax effects, and is not subsequently re-measured. No gain or loss is recognised in profit or loss upon conversion or expiration of the conversion option.

Transaction costs that relate to the issue of the compound instruments are allocated to the liability and equity components in proportion to the fair value of the debt and equity components. Transaction costs relating to the equity component are recognised directly in equity. Transaction costs relating to the liability component are included in the carrying amount of the liability component and are amortised over the lives of the compound instruments using the effective interest method.

If the terms of a compound financial instrument are modified the Group determines whether the modification represents a substantial modification under IFRS. A modification is considered substantial if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective interest rate, is at least 10% different from the discounted present value of the remaining cash flows of the original financial instrument. Compound financial instruments that are considered to be substantially modified are derecognised and transaction costs incurred as part of the loan modifications are recorded to the income statement and equity accounts in proportion to the relative fair values of the debt and equity component at extinguishment. If the transaction costs can be specifically attributed to the new instrument, the portion attributable to the debt component is amortised prospectively through the effective interest rate.

Incremental fair value changes arising from the modification of warrants originally issued as part the compound financial instrument are considered to represent transaction costs and are determined using the Black-Scholes valuation model.

Derivative financial instruments

The Group enters into derivative financial instruments in the form of oil price swaps and costless collars to manage its exposure to oil price risk. Derivatives are initially recognised at fair value at the date the derivative contracts are entered into and are subsequently re-measured to their fair value at the end of each reporting period. Fair value is determined inclusive of adjustments for the Group's own credit risk and the credit risk of counterparty to the derivative. The resulting gain or loss is recognised in profit or loss immediately, unless the instrument has been designated as a hedging instrument.

2. Significant accounting policies continued

Hedge accounting

The Group designates certain hedging instruments, which are derivatives, in respect of commodity price risk, as cash flow hedges. At the inception of the hedge relationship, the Group documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. The Group enters into such derivatives to manage the risk associated with oil price fluctuations and therefore the impact of credit risk adjustments are excluded from the hedging relationship. Furthermore, at the inception of the hedge and on an on-going basis, the Group documents whether the hedging instrument is highly effective in offsetting cash flows of the hedged item attributable to the hedged risk. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated in a cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss. The portion of the change in fair value of the derivative attributable to credit risk adjustments is recognised immediately in profit and loss. Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged volumes affects profit or loss, and recorded in the same line as the recognised hedge item.

Hedge accounting is discontinued when the Group revokes the hedging relationship; when the hedging instrument expires or is sold, terminated or exercised; or when it no longer qualifies for hedge accounting. Any gain or loss recognised in other comprehensive income and accumulated in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognised immediately in profit or loss.

Finance expenses

Interest is recognised using the effective interest method which calculates the amortised cost of a financial liability and allocates the interest expense over the relevant period. The effective interest rate is the rate that discounts estimated future cash payments, through the expected life of the financial liability to the net carrying amount of the financial liability.,

Share-Based Payments

Equity settled share-based payments are measured at the fair value of the equity instruments at the date of grant. The fair value includes the effect of non-market-based vesting conditions. Details regarding the determination of the fair value of equity settled share-based transactions are set out in Note 23.

The fair value determined at the date of grant of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the number of equity instruments that will eventually vest. At each balance sheet date, the Group revises its estimate of the number of the equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves. Where an equity-settled award is forfeited, the cumulative charge expensed up to the date of forfeiture is credited to the Income Statement.

Warrants

Share warrants have been issued in lieu of interest on certain convertible loans in the prior years; as such the associated cost of these is accounted for as a finance cost.

The fair value of the warrants is measured at the grant date. The Black Scholes valuation model is used to assess the fair value, taking into account the terms and conditions attached to the warrants. The finance costs recorded are measured by reference to the fair value of warrants.

2. Significant accounting policies continued

Share warrants are recognised as an increase in equity immediately on issue as warrants vest immediately. The expense associated with the share warrants is recognised in accordance with the substance of the transaction, either as an immediate expense in the income statement or as a transaction cost associated with the issue or extension of loan notes.

Employment Benefits

Provision is made in the financial statements for all employee benefits. Liabilities for wages and salaries, including non-monetary benefit and annual leave obliged to be settled within 12 months of the balance sheet date, are recognised as accrued liabilities.

The Group's contributions to defined contribution pension plans are charged to the income statements in the period to which the contributions relate.

3. Critical accounting judgements and estimates

In the application of the Group's accounting policies, which are described in Note 2, the Directors and management are required to make critical accounting judgments and assumptions. The assumptions are based on historical experience and other factors that are considered to be relevant.

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the prevailing circumstances.

The following are the critical judgements that the Directors have made in the process of applying the Group's accounting policies, and that have the most significant effect on the amounts recognised in the financial statements.

Exploration and Evaluation Costs

The Group's accounting policy leads to the capitalisation of tangible (Note 13) and intangible (Note 12) fixed assets, where it is considered likely that the amount capitalized will be recoverable by future exploitation, sale or, alternatively, where the activities have not reached a stage which permits a reasonable assessment of the existence of reserves. This requires management to make estimates and assumptions as to the future events and circumstances, especially in relation to whether an economically viable extraction operation can be established. Such estimates are subject to change and following initial capitalisation, should it become apparent that recovery of the expenditure is unlikely, the relevant capitalised amount will be written off to the Income Statement.

Judgment is further required in determining the date at which exploration assets achieve commercial production and commence depreciation. In forming that assessment, the Group considers factors such as the availability of economically recoverable reserves and the production rates delivered by wells.

Carrying value of exploration, development and producing properties

Management reviews intangible exploration cost assets (Note 12) for indicators of impairment under IFRS 6 at the end of each reporting period. This review of assets for potential indicators of impairment requires judgment including whether renewal of licences is planned, interpretation of the results of exploration activity and the extent to which the Group plans to continue substantive expenditure on the assets. In determining whether substantive expenditure remains in the Group's plan, management considers factors including future oil prices, plans to develop or renew leases and future drilling plans. If impairment indicators exist the assets are tested for impairment and carried at the lower of the estimated recoverable amount and net book value.

3. Critical accounting judgements and estimates continued

The carrying value of development and producing oil and gas assets (Note 13) is subject to judgement as to their recoverable value. The calculation of recoverable value requires estimates of future cash flows within complex value-in-use models. At each balance sheet date the Directors review the carrying amounts of the Group's development and producing properties to determine whether there is any indication that those assets have suffered an impairment loss.

For development and producing oil and gas properties, the following are examples of the indicators used:

• A significant and unexpected decline in the asset's market value or likely future revenue;

• A significant change in the asset's reserves assessment;

• Significant changes in the technological, market, economic or legal environments for the asset; or

• Evidence is available to indicate obsolescence or physical damage of an asset, or that it is underperforming expectations.

The assessment of impairment indicators requires the exercise of judgement. If an impairment indicator exists, then the recoverable amounts of the cash-generating units and/or individual assets are determined based on the higher of value-in-use and fair values less costs of disposal calculations. These require the use of estimates and assumptions, such as: future oil prices, life of field/well, discount rates, operating costs, future capital requirements, exploration potential, recompletion potential, oil reserves and operating performance.

The key estimates were as follows:

· Oil prices - determined based on the market WTI forward curve as at year end, together with a discount to reflect the terms of sales contracts.

· Oil reserve quantities - determined based on estimated economically recoverable reserves, including recompletion wells, based on external and internal competent person assessments.

· Production Costs-costs incurred to produce oil

· Transportation costs

· Discount rate - pre-tax discount rate specific to the risks associated with the assets determined at 12%.

· Capital development costs

In addition, wells which have been plugged and abandoned during the year, or wells for which a decision has been taken during the year to plug and abandon the well, have been impaired.

These estimates and assumptions are subject to risk and uncertainty. Therefore, there is a possibility that changes in circumstances will impact these projections, which may impact the recoverable amount of assets and/or Cash Generating Units (CGUs).

The Group has recorded an impairment of $75.1 million in 2015 as compared to $20.3 million in 2014, in respect of exploration costs and property, plant and equipment as detailed in Note 9. A 10% decrease in realised oil prices would increase the impairment by $0.4 million. An increase in the discount rate to 15% would increase impairment by $0.1 million. Whilst sensitive to these inputs, the Directors consider the inputs used to be appropriate best estimates.

Reserve Estimates

Reserves are estimates of the amount of oil that can be economically and legally extracted from the Group's properties. In order to calculate the reserves, estimates and assumptions are required about a range of geological, technical and economic factors, including those detailed above.

3. Critical accounting judgements and estimates continued

Estimating the quantity and/or grade of reserves requires the size, shape and depth of fields to be determined by analysing geological data such as drilling samples. This process may require complex and difficult geological judgements and calculations to interpret the data.

Given that economic assumptions used to estimate reserves may change from year to year, and because additional geological data is generated during the course of operations, estimates of reserves may change from year to year.

Changes in reported reserves may affect the Group's financial results and financial position in a number of ways, including the following:

• Asset carrying values, detailed in Notes 12 and 13, may be affected by possible impairment due to adverse changes in estimated future cash flows and the commercial viability of reserves.

• Depreciation, depletion and amortisation (detailed in Note 5) that is charged in the Income Statement may change where such charges are determined by the units of production basis, or where the useful economic lives of assets change.

· Provisions for plug and abandonment of wells may change as a result of changes in the timing of such plugging and abandonment.

Judgments associated with debt finance

During the year, the Group obtained a new loan as detailed in Note 19. The accounting required judgments and estimates are set out in that note but included the valuation of conversion rights associated with the debt.

Estimation of contingent consideration

The estimation of a value attributable to the contingent consideration, that forms part of the acquisition of additional working interest completed in January 2012, is a key source of estimation uncertainty.

Management has considered the key calculation inputs and scenarios and has used their best judgment of risk-weighted possible outcomes to estimate the value included in these financial statements. These factors included consideration of the probability of the consideration becoming due, the expected value of any such payment under the terms of the agreements, and the current existing lease prices.

The estimated value as per the acquisition agreement for this contingent consideration is $333,500. Refer to Note 30 for details.

Derivative valuations

The Group's oil swaps and costless collars are carried at fair value. The fair value is determined based on mark-to-market valuations provided by third parties, which in turn is dependent on estimates regarding risk free discount rates and oil prices. Additionally, when material, the mark-to-market valuations are adjusted for credit risk associated with the Group and counterparty which are determined based on credit spreads applicable to the Group and the counterparty. Refer to Note 17 for details.

4. Revenue

An analysis of the Group's revenue is as follows:

5. Operating (loss) / profit

The operating (loss)/profit before taxation for the years has been arrived at after charging:

6. Auditor's remuneration

The analysis of auditor's remuneration is as follows:

7. Staff Costs

The aggregate payroll costs of the employees, including both management and executive Directors, were as follows:

Average number of persons employed by the Group during the year was as follows:

The number of Directors during 2015 and 2014, accruing benefits under money purchase pension scheme arrangements was two.

During the year Steve Gutteridge, who retired from the Board of Directors on 30 September 2014, exercised share options to acquire 1,700,000 ordinary shares. During 2014, 1,100,000 were exercised by Chuck Wilson, COO and Director.

Details of each director's remuneration and share options granted are included in the Remuneration Report.

The gain during the financial year on exercised options for the highest paid director was $nil.

8. Finance Costs

Finance costs include certain non-cash transactions in respect of effective interest rate charges and losses on loan rescheduling.

9. Exceptional administrative expenses

During the year, the Group drilled five wells that did not result in commercial economic reserves. As a result, the costs to drill and complete these wells were written off as of 31 December 2015 and totalled $5.2 million. In addition, an impairment charge of $28.9 million has been taken to the income statement and represents an impairment of certain wells which mainly arises due to the reduction in the spot and forward oil price assumptions used in estimating the future discounted cash flows for each well. The Group assessed the recoverability of its undeveloped assets based upon factors such as market conditions, current spot and forward prices of oil, and future exploration and development plans. Due primarily to the significant reduction in oil prices, and with no plans to pursue an aggressive drilling program, $40.5 million was written off or impaired as at 31 December 2015. Of the total impairment of $75.1 million, $38.5 million was attributable to exploration costs included in intangible assets, and $11.5 million, $10.2 million and $14.4 million were attributable to leasehold land, plant and equipment and production assets, respectively, or a total of $36.1 million included in property, plant and equipment. An additional $0.5 million was recorded as impairments for costs incurred during the current period for wells which had been fully impaired in prior periods.

During 2014, the Group plugged and abandoned a total of seven wells. The associated assets were fully impaired as at 31 December 2014 resulting in an exceptional charge to the income statement of $6.7 million. An additional impairment charge of $13.6 million was also taken to the income statement at 31 December 2014, of which $12.7 million represented a partial impairment of certain wells which arose primarily due to the reduction in the spot and forward oil price assumptions used in estimating the future discounted cash flows for each well. The balance of $0.9 million related to the full impairment of legacy field infrastructure deemed to have no value.

During the year, the Group released $2.7 million of the contingent consideration provision. Refer to Note 30.

10. Taxation

The Parent Company is subject to taxation in the United Kingdom at an estimated rate 20.25% for 2015 and 21.5% in 2014, and the Group's subsidiaries are subject to taxation in the United States at an estimated rate of 38.00% for 2015 and 2014.

As of 31 December 2015, there was a current tax credit of $394,858 arising in the US in the financial year. At 31 December 2014, the group recorded a $230,445 charge. No tax charge arose in the UK for either 2015 or 2014.

The reasons for the differences between the actual tax charge for the year and the standard rate of corporation tax in the United Kingdom applied to profits / (losses) for the year are as follows:

The main UK Corporation tax rate from 1 April 2014 of 21% was reduced to 20% from 1 April 2015, resulting in an effective corporation tax rate of 20.25% for the year. A number of changes to the UK Corporation tax system were announced in March 2012 Budget Statement. The Finance Act 2013 which was substantially enacted on 2 July 2013 includes legislation reducing the main rate of corporation tax from 24% to 23% from 1 April 2013 and further reducing the main rate of corporation tax from 23% to 21% from 1 April 2014 and to 20% from 1 April 2015.

No deferred tax asset has been recognised at 31 December 2015 and 2014, for the net operating loss carry forwards of $163.6 million and $94.6 million, respectively, which are available under US tax statutes, due to uncertainty over the timing of future profits as well as the fact that the Group's ability to utilise some of these tax losses is restricted under Section 382 of the Internal Revenue Code to an amount of $0.4 million per annum. The unrecognized taxable losses in the U.S. can be carried forward for U.S. Federal and Colorado State income tax purposes for up to 20 years. These losses, if not utilized, will expire in the years 2026 through 2033.

A deferred tax asset in respect of $ 20,417,083 at 31 December 2015 and $15,502,898 at 31 December 2014 of taxable losses available in the UK has not been recognised due to the uncertainty over timing of future profits. The taxable losses available in the UK can be carried forward indefinitely.

11. Loss Per Share

Loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

The Group has 652,383,333 potentially dilutive shares in issue, in respect of options to acquire 45,350,000 shares of the Group, warrants to acquire 130,000,000 shares of the Group and conversion rights to acquire 477,033,333 shares of the Group. Due to the Group's reported losses share options and warrants were not taken into account when determining the weighted average number of ordinary shares in issue during the year as the options and warrants were anti-dilutive. Subsequent to the balance sheet date, no shares were issued.

The loss and weighted average number of ordinary shares used in the calculation of basic and diluted net loss per share are as follows:

12. Intangible Assets

Management reviews each exploration project for indication of impairment at each balance sheet date based on IFRS 6 criteria. Indicators of impairment were considered which included leases being allowed to expire, decisions to abandon certain wells and the estimated fair value less cost to sell of the underlying assets.

Due to these indicators being present at 1 December 2015, and the resultant impairment test, impairments have been recorded during the current financial period. Consequentially, certain full and partial impairments, as appropriate, of the remaining values have been recognised, as disclosed in Note 9.

13. Property, Plant and Equipment