Jersey Oil&gas Regulatory News (JOG)

Trap Oil Group plc

("Trapoil" or the "Company" and, together with its subsidiaries, the "Group")

FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014

Trapoil (AIM: TRAP), the independent oil and gas exploration, appraisal and production company focused on the UK Continental Shelf ("UKCS") region of the North Sea, announces its audited results for the year ended 31 December 2014.

Highlights

§ £3.0m paid to fund the drilling of a well on Licence P.1889, Blocks 12/26b and 27 ("Niobe"), planned for June 2015

§ Continued assessment of the possibility that Licence P.1610, Block 13/23a ("Magnolia") may contain an extension of the adjacent Liberator discovery well

§ Awarded Licence P.2170, Block 20/5b ("Cortina") in the Department of Energy & Climate Change's ("DECC's) 28th Seaward Licensing Round

§ Relinquishment of various licence interests considered to be uneconomic, resulting in impairment charges of approximately £12.5m

§ Significant losses incurred on Licence P.1293, Block 14/18b ("Athena"), resulting in an impairment charge of £15.1m

§ Contract with the Athena FPSO provider renegotiated, resulting in a cost reduction but requirement for a payment of US$3.0m by the Company in July 2015

§ Reduction of the Company's overhead base down to £1.3m per annum from £5.1m 2 years ago (2014: £3.5m)

§ Loss (before and after tax) for the year of £44.4m (2013: £10.3m)

Outlook

§ Although we look forward to the drilling of Niobe and despite the overhead reductions achieved, in the absence of additional funding the Group has insufficient resources to continue operating beyond the short term

§ The Board, in conjunction with its advisers, is urgently assessing a number of potential funding alternatives and/or asset sales

§ In the absence of a viable funding solution, the Board considers that it is highly likely that the Company will become insolvent, and appropriate insolvency proceedings, such as administration or liquidation, will consequently need to be commenced

Enquiries:

Chairman's Statement

Introduction

The year ended 31 December 2014 was one of great change for the Company. In the latter part of the year, further to reviewing a number of strategic options with our major shareholders, we announced that operating costs would be reduced to a minimum in order to maintain the Group's existing assets whilst seeking to maximise returns from such assets for our stakeholders. As part of the implementation of this strategy, on 12 August 2014, Simon Bragg stood down as Chairman and I agreed to assume the role of Non-Executive Chairman to oversee the Group's transitioning. In addition, Mark Groves Gidney (Chief Executive Officer) and Paul Collins (Chief Operating Officer) both resigned from the Board with effect from 31 October 2014.

In the subsequent months, we significantly cut the Group's overheads from approximately £3.5m in 2014 to a currently anticipated level of approximately £1.3m for 2015. We also relinquished a number of our exploration licence interests as they reached the end of their scheduled terms, which has accordingly resulted in a significant impairment charge being recognised in our final results for 2014.

We are actively seeking to advance the remainder of the Group's attractive exploration portfolio, which includes a well expected to be drilled on the Niobe prospect during the second quarter of 2015. As set out below, however, such activities have been overshadowed by the significant cash outflows currently being incurred in respect of our interest in the producing Athena oil field, principally a reflection of the depressed oil price.

Financial Results

Our results for the year show revenue of £13.4m (2013: £30.3m) and a loss before tax of £44.4m (2013: £10.3m), principally reflecting the adverse weather conditions experienced on Athena in the first half of the year, downtime to complete the requisite workover in the fourth quarter, a depressed Brent oil price and the abovementioned significant impairment of certain of our licence interests. As at 31 December 2014, total cash reserves (excluding restricted cash) were approximately £7.1m (2013: £16.1m). As at 31 March 2015, the Company's net unrestricted cash reserves amounted to approximately £3.2m. Further details of the changes in our financial position in 2014, and subsequent developments in 2015 to the date of this report, are set out below and in the Finance Director's Report.

Licence Interests

In the fourth quarter of 2014, the Company, alongside the other relevant licence holders, fully funded the expected drilling costs (£10.7m gross; £3.0m net to Trapoil) in relation to a planned well on Licence P.1889, Blocks 12/26b & 27 (the "Niobe prospect"), in respect of which we are currently anticipating a spud date in or around June 2015. We hold a 28 per cent. equity interest (25.5 per cent. paying interest and a 2.5 per cent. carried interest) in this licence.

We continue to assess the possibility that Licence P.1610, Block 13/23a ("Magnolia"), in which we hold a 10 per cent. carried interest, may contain an extension of the Liberator discovery (well 13/23d-8) drilled by Dana Petroleum (E&P) Limited in its adjacent block (Licence P.1987, Block 13/23d). Our P.1610 licence group is currently awaiting delivery of recently acquired speculative seismic data in order to undertake an evaluation of the potential Liberator discovery extension into Block 13/23a before formulating plans for potential appraisal drilling. In the event a decision is made to drill an appraisal well we currently anticipate that such drilling would take place in 2016. 

In May 2014, the Company agreed revised terms with Suncor Energy UK Limited ("Suncor") in respect of the Romeo discovery (Licence P.1666, Block 30/11c) ("Romeo"), whereby the Company assumed a majority ownership position in the licence in return for the extinguishment of Suncor's 5.5 per cent. share of Trapoil's existing carried interest in the Niobe prospect. Trapoil therefore acquired Suncor's entire 50.625 per cent. equity interest in Romeo resulting in a total interest of 73.125 per cent. (including a 2.143 per cent. carried interest). We continue to actively explore means to potentially secure value for our sizeable interest in this licence.

In December 2014, further to our participation in the Department of Energy and Climate Changes' ("DECC's")28th Seaward Licensing Round, we were awarded Licence P.2170, Blocks 20/5b and 21/1d ("Cortina") alongside our consortium partner, CIECO Exploration and Production Limited, with each party holding a 50 per cent. paying interest (Trapoil 60 per cent. working interest of which 10 per cent. is carried). As required under the terms of the licence award, we are currently evaluating recently obtained, reprocessed seismic data over these blocks.

Licence P.1989, Blocks 14/11, 12 & 16 ("Homer") was awarded in October 2012 in DECC's 27th Seaward Licensing Round and Trapoil holds a 50 per cent. working interest of which 5 per cent. is carried. We have recently taken delivery of new 3D seismic data which fulfils our work obligations. The licence has a four year "drill or drop" commitment.

Licence Relinquishments

A number of licence interests in our portfolio reached the end of their term during the reporting period and despite rigorous attempts to farm such licences out, we were obliged to relinquish them in accordance with DECC's licencing terms. The relinquishments included Licence P.1267, Blocks 12/25a & 13/21b ("Surprise & Nutmeg"), Licence P.2026, Block 16/18c ("Savannah"), Licence P.2032, Blocks 21/8c, 9c, 10c, 14a & 15b ("Valleys"), Licence P.1938, Blocks 3/2c, 4c, 7d, 9c, 13b, 14h, 14j, 16/12b, 17c, 211/22b, 27d, 28b & 29e ("Unconventional"). Shortly following the year-end, both Licence P.1768, Blocks 14/14b, 18c & 19c ("Bordeaux/Brule") and Licence P.1556, Block 29/1c ("Orchid") were also relinquished, as again no farm-outs had been secured, and in order to save on licence fees going forward. The total impairment expense associated with such relinquishments amounted to £12.5m (2013: £3.2m).

Athena Oilfield

Our sole producing asset is our 15 per cent. equity interest in the Athena oil field (Licence P.1293, Block 14/18b) ("Athena"). As reported previously, during the first half of the year production from the field was adversely affected by bad weather, which restricted the lifting of crude from the FPSO vessel, and also by pump failures in the P2 production well. In the fourth quarter, a workover was completed on the P4 well, in addition to certain intervention work on the P1 and P3 wells, which resulted in the payment of an additional £2.25m for Trapoil's share of the costs over and above the amount that had originally been budgeted. Following completion of these works, stabilised production flow rates of approximately 4,800 barrels of oil per day ("bopd") (720 bopd net to Trapoil) were established in January 2015. In light of this lower flow rate, the significant drop in global oil prices and the fixed nature of certain of the field's key operating costs, at the then prevailing Brent oil price of approximately US$58/barrel, the field was significantly loss making and incurring a cash outflow of approximately £380,000 per month net to Trapoil.

Accordingly, on 31 March 2015, the Company announced that the Athena partnership group (the "Athena Consortium") had entered into an agreement to amend the terms of its existing contract with BW Offshore (UK) Limited ("BW Offshore"), the provider and operator of the Athena FPSO vessel. Under the terms of the amended contract the Athena Consortium will make a payment of a demobilisation fee (US$3m net to Trapoil) in July 2015 and from June 2015 will share net cashflow from the field with BW Offshore. Both parties have the right to terminate on a 60 day notice period. Whilst the amended contract reduces the Athena Consortium's overall loss exposure and currently anticipated cash outflows going forward to the scheduled expiry of the existing contract's term in June 2016, it necessitates a larger cash outflow in the near term than under the previous contract. Most importantly, at the currently prevailing depressed Brent oil price, the Company's on-going monthly liabilities in respect of Athena will be reduced as a consequence of the amended contract. During March 2015 flow rates were on average approximately 4,600 bopd (690 bopd net to Trapoil) and we continue to work closely with the other consortium members to minimise costs as far as possible going forward.

Overhead Reductions

As part of the abovementioned cost cutting process, we have significantly reduced the number of full time employees and those working on a contracted basis. In February 2015, we also assigned the remaining four year term of our lease at 35 King Street to a third party and moved to alternative, smaller office premises on a lower cost 12 month rental term.

Outlook

Although we look forward to the results from the forthcoming drilling of the Niobe prospect, scheduled for the second quarter of 2015, the Directors consider that despite the significant overhead reductions achieved, the Group is currently under capitalised due to the depressed Brent oil price and consequently significant losses incurred in respect of its 15 per cent. equity interest in Athena representing its sole producing asset. As a result of such losses and the abovementioned demobilisation fee payable to BW Offshore in July 2015, and as set out in more detail in the Finance Director's report, the Group has insufficient financial resources to continue in operation other than in the short term in the absence of additional funding.

The Directors, in conjunction with the Company's advisers, are therefore continuing to urgently assess a number of potential funding sources, including the potential disposal of certain of the Group's licence interests. The Directors believe that the Company currently only has adequate working capital to support its activities until around July 2015 but are comfortable with preparing the financial statements on the going concern basis as there is a reasonable prospect that drilling of Niobe may be successful and, that asset sales may be undertaken, in addition to which the Directors are actively holding conversations to seek additional shareholder support to secure further funding.

The Directors are taking appropriate advice as to the options available to the Company and are cognisant of their obligations to all stakeholders. However, in the event that further funding is not secured in the short term, the Board believes that it is highly likely that the Company will become insolvent, and appropriate insolvency proceedings, such as administration or liquidation, will consequently need to be commenced. A further announcement will be made in due course as appropriate. 

M J Stanton

Non-Executive Chairman

23 April 2015

FINANCE DIRECTOR'S REPORT

Cash Resources and Short-Term Investments

We ended 2014 in a very poor financial position having endured what can only be described as a disastrous year for the Company and its shareholders. As at 31 December 2014 we had just over £7m of cash in the bank having sold our entire holding of IGas Energy plc shares during the year. The Group, however, has a significant drain on its remaining cash reserves as Athena is currently expected to incur further operating losses in 2015, which without an injection of new capital the Group will have insufficient cash to cover, along with extra abandonment liabilities of £4.2m, as well as the Group's annual running costs of approximately £1.3m.

Statement of Comprehensive Loss

2014 saw a significant reduction in our revenues to £13.4m from £30.3m in 2013. Our revenue was largely derived via production from the Athena oil field (Licence P.1293, Block 14/18b) which continued to decline naturally but also suffered from having to be shut in due to poor weather early in the year and experienced a pump failure in the P2 well. Operating costs for the Athena field amounted to £12.9m but we have also had to incur a significant number of impairments in 2014, firstly writing down our investment in Athena at the mid year stage to £2m and then subsequently to zero at the year end, resulting in a total impairment expense of £15.1m. The relinquishment of certain of our exploration and evaluation assets led to additional impairment expenses of £12.5m and, with depreciation and other costs, the Group posted an overall loss of £44.4m for the year compared to a loss of £10.3m in 2013.

Financing & Disposal of Investments

In 2014, we terminated a US$20m senior secured debt facility taken out in January 2013 with G E Capital. Although cancellation fees of US$0.3m were incurred, it was more cost effective to cancel the facility than to pay the on-going facility fees for a facility that had little remaining purpose and restricted ability to actually be drawn upon. The Group also cancelled a swap position taken out with Britannic Trading Limited, a subsidiary of BP International Limited, a requirement of the G E Capital facility under which the Group had entered into certain oil price swap arrangements for a significant proportion of our production from January 2013 through to January 2016.

During 2014 the Group also disposed of all of its shares held as an investment in IGas Energy plc which were all sold at a significant multiple to their current trading value, which resulted in additional cash of £4.1m for the Group. We sold these shares at various prices ranging from just over 70p up to 130p per share at a book loss of £0.2m.

Administrative Expenses

We have undertaken multiple cost cutting exercises since late 2013 to constantly seek to realign our cost base to the future prospects of the Company. We now have a "G&A" cost base of around £1.3m and only two full time employees, a reduction of more than £3.8m in only 18 months. Part of these cost savings arose from moving from a long term lease on our offices in King Street to significantly smaller premises in Gresham Street, which is on a short one year contract. We were able to exit our lease in King Street at a minimal cost to shareholders.

Assets

Our asset portfolio at the year end has seen substantial relinquishments as we have been unsuccessful in farming out any of our assets during the year, despite rigorous attempts to do so. We are now seeking to achieve value from our remaining five non-producing assets being:

1) Licence P.1989, Blocks 14/11, 12 & 16 ("Homer")

2) Licence P.2170, Blocks 20/5b and 21/1d ("Cortina")

3) Licence P.1889, Blocks 12/26b & 27 ("Niobe prospect')

4) Licence P.1610 Block 13/23a ("Magnolia")

5) Licence P.1666, Block 30/11c ("Romeo discovery")

The carrying values of these remaining licences are only supportable if the Group is able to improve its current trading position. Based upon our cash flow forecasts, the Group is currently expected to run out of cash in July 2015 and consequently, the licences could be subject to future impairments, as the Group cannot currently afford to fulfil the operational plans for the various licences. There can be no certainty that we will have any success with farming out or disposing of the remaining portfolio but we are actively reviewing all of our options.

Exceptional Items

During the year there were £15.1m of impairments incurred in respect of our Athena asset as a result of lower performance levels and the substantial reduction in the Brent oil price. We have also had to make a provision of £6.5m relating to our interest in the Athena oil field, which continues to make a loss under the terms of the long term contract currently in place.

The sale of our holding of IGas Energy plc shares resulted in a loss of £0.2m.

Outlook

The Directors consider that the Group remains under capitalised due to the recent collapse in the Brent oil price and the significant losses that are being incurred in respect of our Athena asset. Having significantly reduced the Company's cost base and relinquished assets where it was believed there was little ability to generate value for shareholders, we remain hopeful that our remaining assets might offer near term upside. The work commitments of the Group remain minimal, with only one well at Niobe remaining, being an obligation to DECC, and we have pre-funded our share of approximately £3m for the estimated dry hole costs of this well. 

Despite these measures, the Group currently has insufficient financial resources to continue in operation other than in the short term without further capital, by virtue of our remaining cash reserves being quickly eroded through losses in respect of our producing field, Athena, and also further costs associated with the abandonment of the field due in mid 2015. Abandonment costs for the Athena oil field increased significantly in the year after the Athena consortium reviewed and revised the previous estimates, which saw the costs rise from £36m to £60m. The sharp fall in the oil price and resulting reduction in demand for oil service companies services leads us to believe that there is a high likelihood that the total abandonment costs could, in fact, be lower than this estimate should abandonment take place in the current oil price environment. In the fourth quarter of 2014 we put £3.9m in trust to cover our share of the majority of the net after tax cost of abandonment. In 2015, we currently expect to have to fund a final instalment of around £1.3m.

At present with oil prices in the low US$60 range for Brent the Group will need to rely on its remaining assets in order to be able to satisfy its expected liabilities as they fall due, which may well not provide sufficient value to cover all of our liabilities. As such, the Directors are striving to ensure that we maximise the asset value of the Group and seek to achieve fair value for our remaining assets. The Directors are assessing means of potentially realising value from our existing asset base through the potential sale or farm-out of such assets as well as seeking to mitigate the continued losses from the Athena oil field.

The Niobe exploration prospect, although high risk, with a 20% chance of success, does have the potential to be very valuable to the Group with estimated oil reserves of 20-25 mmbbl. In addition, discussions are being had with a number of parties regarding possible additional funding for the Group.

S J Richardson Brown

Finance Director

23 April 2015

CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS

FOR THE YEAR ENDED 31 DECEMBER 2014

No separate statement of comprehensive loss has been presented as all such gains and losses have been dealt with in the Consolidated Statement of Comprehensive Loss.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2014

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2014

TRAP OIL GROUP PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2014

1. GENERAL INFORMATION

Trap Oil Group plc ("the Company") and its subsidiaries (together, "the Group") are involved in the exploration, development and production of oil and gas reserves from the UK Continental Shelf.

The Company is a public limited company, which is quoted on AIM, a market operated by the London Stock Exchange and incorporated and domiciled in the United Kingdom. The address of its registered office is 10 The Triangle, ng2 Business Park, Nottingham, NG2 1AE.

2. SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

Basis of Accounting

These financial statements have been prepared under the historic cost convention modified for fair values, in accordance with International Financial Reporting Standards and IFRSIC interpretations as adopted by the European Union ("IFRSs") and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

Going Concern

The Directors recognise that the Group has insufficient financial resources to continue in operation beyond the short term in the absence of additional funding. The Directors, in conjunction with the Company's advisers, are therefore continuing to urgently assess a number of potential funding sources, including the potential disposal of certain of the Group's licence interests. The Directors believe that the Company currently only has adequate working capital to support its activities until around July 2015. However, they have prepared the financial statements on the going concern basis because, as explained in the outlook section of the Chairman's and Financial Director's Report, they believe that there is a reasonable future prospect for the Group that drilling on the Niobe prospect will be successful. In addition, the Directors are actively holding conversations to seek additional shareholder support to secure further funding. However, there is uncertainty both as to the commercial viability of the Niobe prospect and the ability to secure further funding. These conditions indicate the existence of a material uncertainty that may cast significant doubt about the Group's ability to continue as a going concern. The financial statements do not include the adjustments that would be necessary if the Group was unable to continue as a going concern.

In the event that further funding is not secured in the short term, the Board believes that it is highly likely that the Company will become insolvent, and appropriate insolvency proceedings, such as administration or liquidation, will consequently need to be commenced.

Changes in Accounting Policy and Disclosures

(a) New and amended standards adopted by the Company

The following standards came into effect during 2014: Financial Instruments (IAS32), Impairment of Assets (IAS36), Financial Instruments: recognition and measurement (IAS39). Each of the new standards is effective for annual periods beginning on or after 1 January 2014. There has been no material impact from the adoption of the new and amended standards on the Corporation's financial statements.

(b) New standards, amendments and interpretations issued but not effective for this accounting year and not early adopted

There are no IFRSs or IFRS IC interpretations that are not yet effective that would be expected to have a material impact on the Company.

Significant Accounting Judgements and Estimates

The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities at the date of the financial statements. If in future such estimates and assumptions, which are based on management's best judgement at the date of the financial statements, deviate from the actual circumstances, the original estimates and assumptions will be modified as appropriate in the period in which the circumstances change. The Group's accounting policies make use of accounting estimates and judgements in the following areas:

· amortisation (note 11),

· impairment (note 11),

· depreciation (note 12),

· decommissioning (note 20), and

· the estimation of share based payment costs (note 21).

These are described in more detail in the relevant accounting policies.

Basis of Consolidation

(a) Subsidiaries

Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. The Group also assesses existence of control where it does not have more than 50 per cent. of the voting power but is able to govern the financial and operating policies by virtue of de-facto control. De-facto control may arise in circumstances where the size of the Group's voting rights relative to the size and dispersion of holdings of other shareholders give the Group the power to govern the financial and operating policies.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date the Group ceases to have control.

The Group applies the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of the acquiree's identifiable net assets.

Acquisition related costs are expensed as incurred.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer's previously held equity interest in the acquiree is re-measured to fair value at the acquisition date through profit or loss.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity.

Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.

Inter-company transactions, balances, income and expenses on transactions between Group companies are eliminated. Profits and losses resulting from inter-company transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

(b) Changes in ownership interests in subsidiaries without change of control

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions - that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

(c) Disposal of subsidiaries

When the Group ceases to have control any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

(d) Associates

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20 per cent. and 50 per cent. of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor's share of the profit or loss of the investee after the date of acquisition. The Group's investment in associates includes goodwill identified on acquisition.

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate.

The Group's share of post-acquisition profits or losses is recognised in the Consolidated Statement of Comprehensive Loss, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income with a corresponding adjustment to the carrying amount of the investment. When the Group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.

Profits and losses resulting from upstream and downstream transactions between the Group and its associates are recognised in the Group's financial statements only to the extent of unrelated investor's interests in the associates. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

Dilution gains and losses arising in investments in associates are recognised in the Consolidated Statement of Comprehensive Loss.

Acquisitions, Asset Purchases and Disposals

Acquisitions of oil and gas properties are accounted for under the purchase method where the business meets the definition of a business combination.

Transactions involving the purchase of an individual field interest, farm-ins, farm-outs, or acquisitions of exploration and evaluation licences for which a development decision has not yet been made that do not qualify as a business combination, are treated as asset purchases. Accordingly, no goodwill or deferred tax arises. Consideration from farm-ins/farm-outs are adequately credited from, or debited to, the asset. The purchase consideration is allocated to the assets and liabilities purchased on an appropriate basis. Proceeds on disposal are applied to the carrying amount of the specific intangible asset or development and production assets disposed of and any surplus is recorded as a gain on disposal in the Consolidated Statement of Comprehensive Loss.

Revenue Recognition

Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured. It is measured at the fair value of consideration received or receivable for the sale of goods.

Revenue derived from the production of hydrocarbons in which the Group has an interest with joint venture partners is recognised on the basis of the Group's working interest in those properties. It is recognised when the significant risks and rewards of ownership have been passed to the buyer.

Revenue from strategic partners on the identification of opportunities for application for a licence to explore further is recognised in the period in which the services are provided or the date a trigger event occurs if this is later.

The Group also receives revenue from the production of hydrocarbons from licences held by the Group that is recognised at the end of each month based upon the quantity and price of oil and gas delivered to the customer.

Exploration and Evaluation Costs

The Group accounts for oil and gas and exploration and evaluation costs using IFRS 6 "Exploration for and Evaluation of Mineral Resources". Such costs are initially capitalised as Intangible Assets and include payments to acquire the legal right to explore, together with the directly related costs of technical services and studies, seismic acquisition, exploratory drilling and testing.

Exploration costs are not amortised prior to the conclusion of appraisal activities.

Exploration costs included in Intangible Assets relating to exploration licences and prospects are carried forward until the existence (or otherwise) of commercial reserves have been determined subject to certain limitations including review for indications of impairment on an individual licence basis. If commercial reserves are discovered, the carrying value, after any impairment loss of the relevant assets, is then reclassified as Property, plant and equipment under Production interests and fields under development. If, however, commercial reserves are not found, the capitalised costs are charged to the Consolidated Statement of Comprehensive Loss. If there are indications of impairment prior to the conclusion of exploration activities, an impairment test is carried out.

Data Licence

Acquired data licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific licence. These costs are amortised over the life of the licence of eight years.

Property, Plant and Equipment

Production Interests and Fields Under Development

Such assets are accumulated generally on a field by field basis and represent the cost of developing the commercial reserves discovered and bringing them into production, together with the exploration costs incurred in finding commercial reserves transferred from Intangible Assets.

The costs also include the acquisition and purchase of such assets, directly attributable overheads and the cost of recognising provisions for future restoration and decommissioning.

Amortisation, Depletion and Impairment of Oil and Gas Assets

All expenditure carried within each field is amortised from the commencement of production on a unit of production basis, which is the ratio of oil and gas production in the period to the estimated quantities of proven and probable reserves at the end of the period plus the production in the period, on a field by field basis. Costs used in the unit of production calculation comprise the net book value of capitalised costs plus the estimated future field development costs to access the related commercial reserves. Changes in the estimates of commercial reserves or future field development costs are dealt with prospectively.

Where there has been a change in economic conditions that indicate a possible impairment in an oil and gas asset, the recoverability of the net book value relating to that field is assessed by comparison with the estimated discounted future cash flows based on management's expectations of future oil and gas prices and future costs. Any impairment identified is charged to the Consolidated Statement of Comprehensive Loss as an exceptional item. Where conditions giving rise to impairment subsequently reverse, the effect of the impairment charge is also reversed as a credit to the Consolidated Statement of Comprehensive Loss, net of any depreciation that would have been charged since the impairment.

Property, plant and equipment is stated at historic purchase cost less accumulated depreciation. Asset lives and residual amounts are reassessed each year. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use.

Depreciation on these assets is calculated on a straight line basis as follows:

Decommissioning and Site Restoration

Provision for decommissioning and site restoration is recognised in full when the related facilities are installed and the field commences production. A corresponding amount equivalent to the provision is also recognised as part of the cost of the related Production Interest. The amount recognised is the estimated cost of decommissioning and site restoration, discounted to its net present value and is reassessed each year in accordance with existing conditions and requirements. Changes in the estimated timing of cost estimates are dealt with as an adjustment to the provision and a corresponding adjustment to the Production interest. The unwinding of the discount on the decommissioning provision is included as a finance cost.

Inventories

Inventory of materials and product inventory supplies are stated at the lower of cost and net realisable value. Cost is determined on the first in, first out method. Inventories of hydrocarbons are stated at the lower of cost and net realisable value.

Joint Ventures

The Group participates in several joint venture agreements with strategic partners, where revenue is derived from annual retainers and success fees in a combination of cash and carried interests. The Group accounts for its share of assets, liabilities, income and expenditure of these joint venture agreements and discloses the details in the appropriate Statement of Financial Position and Statement of Comprehensive Loss headings in the proportion that relates to the Group per the joint venture agreement.

Investments

Fixed asset investments in subsidiaries are stated at cost less accumulated impairment in the Company only Statement of Financial Position and reviewed for impairment if there are any indications that the carrying value may not be recoverable.

Financial Instruments

Financial assets and financial liabilities are recognised in the Group's Statement of Financial Position when the Group becomes party to the contractual provisions of the instrument. The Group does not have any derivative financial instruments.

Cash and cash equivalents include cash in hand and deposits held on call with banks with a maturing of three months or less.

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss will be recognised in the Consolidated Statement of Comprehensive Loss within selling and marketing costs. When a trade receivable is uncollectible, it will be written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against selling and marketing costs in the Consolidated Statement of Comprehensive Loss.

Trade payables are stated initially at fair value and subsequently measured at amortised cost.

Loan notes are stated initially at fair value and subsequently measured at amortised cost of the investment as agreed in the loan instrument.

Available for Sale Investment

Non-derivative financial assets not included in the above categories are classified as available for sale and comprise the Company's investment in entities not qualifying as subsidiaries, associates or jointly controlled entities. They are carried at fair value with changes in fair value recognised directly in a separate component of equity (available for sale reserve). Where there is significant or prolonged decline in the fair value of an available for sale financial asset (which constitutes objective impairment), the full amount of the impairment, including any amount previously charged to equity, is recognised in the Statement of Comprehensive Loss. Purchases and sales of available for sale financial assets are recognised on settlement date with any change in fair value between trade date and settlement date being recognised in the Statement of Comprehensive Loss. On sale, the amount held in the available for sale reserve associated with that asset is removed from equity and recognised in the Statement of Comprehensive Loss.

Onerous Contracts

The group has recognised provisions for liabilities of uncertain onerous contracts. Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received from the contract.

Exceptional Items

Exceptional items are disclosed separately in the financial statements where it is necessary to do so to provide further understanding of the financial performance of the group. They are material items of income or expense that have been shown separately due to the significance of their nature or amount.

Deferred Tax

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. Deferred taxation liabilities are provided, using the liability method, on all taxable temporary differences at the reporting date. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date.

Foreign Currencies

Monetary assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the reporting date. Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of transaction. Gains and losses arising on retranslation are recognised in the Consolidated Statement of Comprehensive Loss for the year.

Employee Benefit Costs

The Group operates a defined contribution pension scheme. Matching contributions are made by the employer and employees up to 10% each of salary and also as part of and in addition to a personal salary sacrifice scheme. Contributions payable are charged to the Statement of Comprehensive Loss in the period to which they relate. No further obligations remain once contributions have been paid.

Share Based Payments

Equity settled share based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. The total amount to be expensed is determined by reference to the fair value of the options granted:

· including any market performance conditions (for example, an entity's share price);

· excluding the impact of any service and non-market performance vesting conditions (for example, profitability, sales growth targets and remaining an employee of the entity over a specified time period); and

· including the impact of any non-vesting conditions (for example, the requirement for employees to save).

The fair value determined at the grant date 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 equity instruments that will eventually vest, with a corresponding increase in equity. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. 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 the equity settled employee benefits reserve.

Equity settled share based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.

Exercise proceeds net of directly attributable costs are credited to share capital and share premium.

Share Capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Where any Group company purchases the Company's equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of taxes) is deducted from equity attributable to the Company's equity holders until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related tax effects, is included in equity attributable to the Company's equity holders.

Segmental Reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the Board of Directors.

3. SEGMENTAL REPORTING

The Directors consider that the Group operates in a single segment, that of oil and gas exploration, appraisal, development and production, in a single geographical location, the North Sea of the United Kingdom and do not consider it appropriate to disaggregate data further from that disclosed.

Revenue from one major customer exceeded 10%, and amounted to £13.4m. In 2013 revenue from one major customer exceeded 10%, and amounted to £30.3m.

4. FINANCIAL RISK MANAGEMENT

The Group's activities expose it to financial risks and its overall risk management programme focuses on minimising potential adverse effects on the financial performance of the Group. The Company's activities are also exposed to risks through its investments in subsidiaries and is accordingly exposed to similar financial and capital risks as the Group.

Risk management is carried out by the Directors and they identify, evaluate and address financial risks in close co-operation with the Group's management. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as mitigating foreign exchange risks and investing excess liquidity.

Credit Risk

The Group's credit risk primarily relates to its trade receivables. Responsibility for managing credit risks lies with the Group's management.

A customer evaluation is typically obtained from an appropriate credit rating agency. Where required, appropriate trade finance instruments such as letters of credit, bonds, guarantees and credit insurance will be used to manage credit risk.

The Group's major customers are typically blue chip companies which have strong credit ratings assigned by international credit rating agencies. Where a customer does not have sufficiently strong credit ratings, alternative forms of security such as the trade finance instruments referred to above may be obtained.

Management review trade receivables across the Group based on receivable days calculations to assess performance. There is significant management focus on receivables that are overdue. Trade receivable days for the Group for the year ended 31 December 2014 were 42 days (2013: 23 days), based on the ratio of Group trade receivables at the end of the year to the amount invoiced during the year to trade receivables.

The Group also has a number of joint venture arrangements where partners have made commitments to fund certain expenditure. Management evaluate the credit risk associated with each contract at the time of signing and continually monitor the credit worthiness of our partners.

Liquidity Risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they become due. The Group manages its liquidity through continuous monitoring of cash flows from operating activities, review of actual capital expenditure programmes, and managing maturity profiles of financial assets and financial liabilities. These activities ensure that the Group has sufficient funds to meet its financial obligations as they become due.

Capital Risk Management

The Group seeks to maintain an optimal capital structure. The Group considers its capital to comprise both equity and net debt.

The Group monitors its capital structure on the basis of its net debt to equity ratio. Net debt to equity ratio is calculated as net debt divided by total equity. Net debt is calculated as borrowing less cash and cash equivalents. Total equity comprises all components of equity.

The ratio of net debt to equity as at 31 December 2014 is Nil (2013: Nil).

Maturity analysis of financial assets and liabilities

Financial Assets

Financial Liabilities

Fair value estimation

Below are analyses of financial instruments carried at fair value, by valuation method. The different levels have been defined as follows;

· Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1)

· Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2)

· Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3)

Financial Assets

Available for sale investment

Financial instruments in Level 1 are measured at fair value. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date.

Post-employment benefits include employee and Company contributions to money purchase pension schemes

5. EMPLOYEES AND DIRECTORS - continued

The average monthly number of employees during the year was as follows:

Key management compensation

Key management includes Directors (Executive and Non-Executive) and the Company Secretary. The compensation paid or payable to key management for employee services is shown below;

6. EXCEPTIONAL ITEMS

The loss on disposal of Lybster in 2013 relates to the disposal of the Lybster asset to Caithness Petroleum Limited. This transaction was outside the normal course of business. In 2014 the Group disposed of all 4,084,198 iGas shares.

9. TAX

Factors affecting the tax charge

Trap Oil Group plc is a trading group but no liability to UK corporation tax arose on the ordinary activities for the year ended 31 December 2014 or for the year ended 31 December 2013 due to the losses incurred.

The tax rate used is the small Company rate on the basis that when the losses are relieved it would be at this rate first. However the effect of the supplementary charge on ring fence profits can increase the effective rate of corporation tax to 62%.

The deferred tax asset has not been recognised in the Statement of Financial Position as it is currently not possible with any degree of certainty to calculate the value of this asset and the time scale over which the asset would be recovered. The Group has corporation tax retained losses at 31 December 2014 of £16m (2013: £9m).

10. LOSS PER SHARE

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

Diluted loss per share is calculated using the weighted average number of shares adjusted to assume the conversion of all dilutive potential ordinary shares. As a loss was recorded for the current and prior year, the issue of potential ordinary shares would have been anti dilutive (see note 21 for share options in place at the end of the year).

11. INTANGIBLE ASSETS

Assets and liabilities related to the exploration and evaluation of mineral resources other than those presented above are as follows:

Cash payments of £1,648,607 (2013: £4,189,222) have been incurred relating to exploration and evaluation activities.

Following completion of geotechnical evaluation activities, certain North Sea licences were declared unsuccessful and certain prospects were declared non-commercial. This resulted in the carrying value of these licences being fully written off to nil with £12.5m being expensed as Cost of Sale in the year to 31 December 2014. An economic assessment of all remaining assets was carried out at 31 December 2014 using Expected Monetary Value models to determine the fair values. Assumptions used in these models are summarised in note 13.

* Impairments relate to the following licences included in Cost of sales in the Consolidated Statement of Comprehensive Loss:

£

12. PROPERTY, PLANT AND EQUIPMENT

The Refund on purchase of Production interest is an adjustment recognised on the completion of the acquisition of the Group's interest in the Athena field. 

For amortisation, depletion and depreciation, the charge for Production interests & fields under development is included within Cost of sales in the Consolidated Statement of Comprehensive Loss and the charge for Computer and office equipment is included in Administrative expenses.

There are numerous uncertainties inherent in estimating reserves and assumptions that, whilst valid at the time of estimation, may change significantly when new information becomes available. Changes in the forecast prices of commodities, exchange rates, production costs or recovery rates may change the economic status of reserves and may, ultimately, result in the reserves being restated. Such changes in reserves could impact on depreciation rates, asset carrying values, and provisions for close down, restoration and environmental clean-up costs.

13. IMPAIRMENTS

During 2014 the Group recorded an impairment charge of £15.1m on the Athena production licence which is included within Exceptional items in the consolidated statement of Comprehensive income. This impairment was driven mainly by the lower oil price leading to a decrease in the asset value.

For the impairment of property, plant and equipment and intangible oil and gas assets, fair value less costs of disposal are determined by discounting the post tax cash flows expected to be generated form oil and gas production net of selling costs taking into account assumptions that market participant would typically use in estimating fair value.

The Company provides for future losses on long-term contracts where it is considered that the contract costs are likely to exceed revenues in future periods. Onerous contract provisions totalling £6.5m have therefore been made for the fully written down Athena production asset.

The following assumptions were used in developing the cash flow model and applied over the expected life of the respective fields.