Jersey Oil&gas Regulatory News (JOG)

24 May 2023

Jersey Oil and Gas plc

("Jersey Oil & Gas", "JOG" or the "Company")

Final Results for the Year Ended 31 December 2022

& Annual General Meeting Notice

Jersey Oil & Gas (AIM: JOG), an independent upstream oil and gas company ‎focused on the UK Continental Shelf ("UKCS") region of the North Sea, is pleased to announce its audited financial results for the year ended 31 December 2022 and the date of the forthcoming Annual General Meeting ("AGM").

Highlights

§ In April 2023 JOG executed agreements to farm-out a 50% working interest in the GBA licences to NEO Energy ("NEO") in exchange for various cash payments and the carry of a proportion of the Company's future development expenditure

§ The Company has secured a technically and financially strong partner to move the GBA development forwards into production, with NEO set to become operator of the GBA licences following completion of the transaction

§ In addition to milestone related cash payments associated with the Buchan field development totalling approximately $24 million, the transaction results in the Company being fully carried for its $12.5 million share of costs up to Field Development Plan ("FDP") approval

§ Following FDP approval, JOG will be carried for 12.5% of its 50% share of the Buchan field development costs by NEO (equivalent to a 1.25 carry ratio)

§ With the route to monetisation of the GBA resources established, the Company has the opportunity to deliver long term shareholder value through unlocking the multiple value catalysts that stem from execution of the GBA development programme

§ It is anticipated that the farm-out will be completed around the end of the second quarter of 2023

GBA Development

§ During 2022 the Company was actively engaged with multiple counterparties regarding the planned divestment of an interest in the GBA licences

§ Technical and commercial diligence has been completed on the range of different development options that could be used for future production from the GBA

§ With the introduction of NEO to the GBA, the partnership will work together to finalise selection of the preferred development solution from a short list of attractive options, with first production targeted for 2026

§ Upon selection of the preferred development solution, the project will move into "Front End Engineering & Design" activities along with preparation of the required FDP that is planned for submission to the North Sea Transition Authority ("NSTA") for approval in the first half of 2024

Attractive Outlook

§ The NEO farm-out delivers significant value to the Company, not least by securing a fully funded position through to FDP submission, and additionally unlocks the route to monetisation of the GBA resources

§ JOG will retain a 50% working interest in the GBA following completion of the farm-out (with 12.5% of development costs carried by NEO) and to catalyse further shareholder value, the Company intends to farm-out additional GBA equity such that it ultimately retains a 20-25% fully carried interest in the development

§ Pursuit of the Company's corporate growth strategy, through the execution of accretive acquisitions, remains an important objective

§ The Company is well positioned with a cash balance at the end of 2022 of approximately £6.6 million, which is set to be enhanced by the various milestone payments incorporated into the farm-out transaction terms agreed with NEO

Andrew Benitz, Chief Executive Officer, commented:

"2022 was an instrumental year in securing the future success of the Company. The GBA farm-out process involved extensive interactions with multiple counterparties during the year, culminating in the transaction that was announced in April of this year with NEO Energy. The GBA is a high-quality re-development, which is on track to generate significant value for the Company and its shareholders. With the route for execution of the development programme now firmly established, the Company looks forward to unlocking the many value catalysts that mark the run up to approval of the project and beyond."

Annual General Meeting

The Company also announces that its 2022 Annual Report and Financial Statements together with the AGM Notice and associated Form of Proxy are now available on the Company's website (www.jerseyoilandgas.com) and will be posted today to those shareholders who have elected to receive hardcopy shareholder communications from the Company.

The Company will hold its AGM in respect of its financial year ended 31 December 2022 on 20 June 2023 at 13.00 at the offices of Pinsent Masons LLP, 30 Crown Place, Earl Street, London EC2A 4ES.

Corporate Presentation

An updated corporate presentation has been placed on the Company's website.

Enquiries

Notes to Editors:

Jersey Oil & Gas is a UK E&P company focused on building an upstream oil and gas business in the North Sea. The Company holds a significant acreage position within the Central North Sea referred to as the Greater Buchan Area ("GBA"), which includes operatorship and prior to completion of the announced farm-out to NEO Energy, 100% working interest in Licence P2498 (Blocks 20/5a, 20/5e and 21/1a) that contains the Buchan oil field and J2 oil discovery and an 100% working interest in Licence P2170 (Blocks 20/5b & 21/1d) that contains the Verbier oil discovery and other exploration prospects.

JOG is focused on delivering shareholder value and growth through creative deal-making, operational success and licensing rounds. Its management is convinced that opportunity exists within the UK North Sea to deliver on this strategy and the Company has a solid track-record of tangible success.

Forward-Looking Statements

This announcement may contain certain forward-looking statements that are subject to the usual risk factors and uncertainties associated with an oil and gas business. Whilst the Company believes the expectations reflected herein to be reasonable in light of the information available to it at this time, the actual outcome may be materially different owing to factors beyond the Company's control or otherwise within the Company's control but where, for example, the Company decides on a change of plan or strategy.

All figures quoted in this announcement are in US dollars, unless stated otherwise.

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014 as it forms part of United Kingdom domestic law by virtue of the European Union (Withdrawal) Act 2018, as amended by virtue of the Market Abuse (Amendment) (EU Exit) Regulations 2019.

CHAIRMAN & CHIEF EXECUTIVE OFFICER'S REPORT

GBA Farm-out

In April 2023 we were delighted to announce the farm-out of an interest in our GBA development to NEO Energy ("NEO"). We have agreed terms for NEO to acquire a 50% working interest and operatorship in both licences that cover the GBA, including the Buchan oil field, the Verbier and J2 oil discoveries and various exploration prospects. This transaction unlocks the route to finalising the GBA development solution and monetisation of resources in excess of 100 million barrels of oil equivalent in total. The transaction delivers material value to JOG, including cash milestone payments, funding through to Field Development Plan ("FDP") approval and a minimum 12.5% development expenditure carry to first oil for the 50% interest retained by the Company (a 1.25 carry ratio). NEO is a major UK North Sea operator producing approximately 90,000 barrels of oil equivalent per day and is owned by HitecVision AS, a leading private equity investor focused on Europe's offshore energy industry with approximately $8 billion of assets under management.

Operational Update

Our operational focus during 2022 has been on advancing technical studies on various development solutions in collaboration with infrastructure owners. This included studies such as flow assurance work for assessing tie back options to regional platform infrastructure, the topside modification requirements for the potential receiving infrastructure, and for potential FPSO options. With this work now completed, the Company will be working in partnership with NEO to select the preferred development solution, having already confirmed a short list of attractive options. We also continue to proactively collaborate on potential joint development opportunities with other industry parties who own regional assets that could be tied back to a GBA development.

Low Carbon Development

The GBA development has the exciting potential to be one of the lowest full-cycle carbon development projects in the UK North Sea through the use of existing infrastructure and potential low carbon electrification options. In late 2022, we were pleased to provide letters of support as a potential power user to the offshore wind developers applying for leases in the vicinity of the GBA in the Innovation and Targeted Oil & Gas ("INTOG") offshore wind licence round. Awards were announced in March 2023, with licences granted by Crown Estate Scotland in close proximity to the GBA. Powering the GBA from low carbon wind power can reduce our carbon emissions to less than 2kg of CO2/bbl versus the average in the UK North Sea of 22kg. We will be evaluating the potential to make the GBA development solution that is ultimately selected "electrification ready", so that it can be powered with green energy upon completion of a proximal wind farm.

Licensing Activity

JOG continues to work closely and constructively with the North Sea Transition Authority ("NSTA") on our licence commitments. In keeping with the Company's stated strategy of developing the GBA as an area-wide development plan, we were pleased to receive a licence extension to the Second Term of our P2170 "Verbier" licence, such that it is now aligned with the P2498 "Buchan" licence, with the current term being until the end of August 2023. Following the farm-out to NEO, we are in close consultation with the North Sea Transition Authority to seek an extension on both licences to allow delivery of a Field Development Plan ("FDP").

JOG's Business Development Strategy

At the forefront of our business development plans is to farm-out additional GBA equity such that the Company ultimately retains a 20-25% carried interest in the development. Building a full cycle upstream business focused on the UKCS remains the ultimate goal for JOG and having now announced a farm-out in respect of the GBA development, we will also be seeking to advance our acquisition strategy. We believe the North Sea can be the crucible for the energy transition and that oil and gas companies can lead investment into new energies. We see JOG as being no different to our larger peers such that in addition to upstream asset and corporate opportunities, we are also actively looking at new energy investment opportunities.

Financial Review

The Company's cash position was approximately £6.6 million as of 31 December 2022, well within our forecast. As an oil and gas exploration and development company, JOG had no production revenue during the year and received only a modest amount of interest on its cash deposits.

The loss for the period, before and after tax, was approximately £3.1 million (2021: £4.2 million). Our main expenditure during 2022 related to technical studies on parallel development options for the GBA Development project. Having successfully negotiated the farm-out to NEO, the Company remains appropriately funded as we move forwards towards approval of the Buchan Field Development Plan.

Tax

The Energy Profits Levy (EPL) that was introduced by the UK Government in May 2022 caught the industry off guard, particularly those that have invested and built production portfolios in the UKCS over the past few years. A second change in September 2022 increased the tax rate further to 75% through to March 2028. With no price floor on when this windfall tax would fall away, the industry has no option other than to plan as if it is a permanent tax and consequently this has significantly harmed the industry's borrowing capacity. We believe it is sensible for the Government to provide some guidance on a price floor to facilitate the continuation of vital domestic energy supplies. The silver lining of these changes, however, was the introduction of an investment allowance that is specifically ring fenced to attract capital spend into new investments. A full taxpayer in the North Sea has the ability to secure substantial tax relief through investing into new projects such as the GBA Development. 

Macro Backdrop

A significantly improved macro-economic outlook for the oil and gas sector compared to 2021 ushered in significant profits for the oil majors. The pandemic and the war in Ukraine have masked the underlying issue that is challenging the upstream sector - a looming supply crunch. Our industry has been starved of capital since 2015 and this has led to chronic under investment. The energy transition is underway, and our industry is at the forefront of the challenges that this evolution brings. The approach must be managed appropriately as hydrocarbons currently continue to provide the world with approximately 80% of our daily energy supply. Unfortunately, we are already seeing the inflationary pressures that result from a restricted energy supply and an even more concerning prospect of energy poverty. We need urgent and responsible investment in the upstream sector in order to address the supply shortfall against a backdrop of significantly increasing global demand for energy. It will take time for supply to catch up and strong commodity prices are expected. 

Summary and outlook

We are excited to be starting our journey with NEO, who, in partnership with JOG, will be working to close out the selection of the preferred GBA development solution and take the project through the Front End Engineering and Design ("FEED") phase of activities and on to project sanction, which is targeted for next year. The Company intends to farm-out additional equity in the GBA licences in order to ultimately retain a 20-25% carried interest in the development. Discussions with companies potentially interested in non-operated stakes have been underway as part of the farm-out process and these remain ongoing.

Finally, we would like to extend our gratitude to the JOG team, who have delivered a transformational farm-out for the Company. We are a small team of dedicated professionals and we will use this excellent result as a springboard to grow the long-term value of the business. We also thank our shareholders for the ongoing support they have shown as we have advanced the GBA farm-out process. We were delighted to announce the transaction with NEO and look forward to building upon this success.

Les Thomas,

Non-Executive

Chairman

Andrew Benitz,

Chief Executive Officer

23 May 2023

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2022

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2022

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2022

The following describes the nature and purpose of each reserve within owners' equity:

CONSOLIDATED STATEMENT OF CASH FLOWS

Notes to the Consolidated Financial Statements

For the year ended 31 December 2022

1. General information

Jersey Oil and Gas plc (the "Company") and its subsidiaries (together, the "Group") are involved in the upstream oil and gas business in the UK.

The Company is a public limited company incorporated and domiciled in England & Wales and quoted on AIM, a market operated by London Stock Exchange plc. 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

The consolidated financial statements of Jersey Oil and Gas Plc as of 31 December 2022 and for the year then ended (the "consolidated financial statements") were prepared in accordance with UK-adopted International Accounting Standards in conformity with the requirements of the Companies Act 2006 (the "Companies Act").

The financial statements have been prepared under the historic cost convention, except as disclosed in the accounting policies below. All amounts disclosed in the financial statements and notes have been rounded off to the nearest one thousand pounds unless otherwise stated.

Going Concern

The Group has sufficient resources to meet its liabilities as they fall due for a period of at least 12 months after the date of issue of these financial statements. The Group's main cost commitment; a 50% equity share of Front End Engineering and Design ("FEED") work for the GBA ahead of project sanction will be paid for from 1 April 2023 by the $12.5m Pre sanction farm-in carry agreed with NEO in April 2023. This is forecast to adequately cover the field development sanction work to be carried out over the next 12 months. In addition, any FEED spend above $12.5m and post sanction development costs of the GBA through to first oil are carried at an equity level of 12.5%.

Other work that the Group is undertaking in respect of the GBA licenses and surrounding areas is modest relative to its current cash reserves. The Company's current cash reserves are therefore expected to more than exceed its estimated cash outflows in all reasonable scenarios for at least 12 months following the date of issue of these financial statements. Even in an extreme scenario where the Buchan development did not progress for any unforeseen reason and the future instalment payments were not realised the Group has the flexibility within its cost structure to amend its expenditure profile and continue in business beyond the next 12 months solely from utilisation of its existing cash resources. The directors have also considered the risk associated with contractual arrangements associated with the farm-out and are satisfied that the group is not exposed to any contractual commitments which could impact on the Group's going concern status over the next 12 months. Based on these circumstances, the directors have considered it appropriate to adopt the going concern basis of accounting in preparing the consolidated financial statements.

New and amended standards adopted by the Group. The Group has applied the following amendments for the first time for the annual reporting period commencing 1 January 2022:

· Property, Plant and Equipment: Proceeds before Intended Use - Amendments to IAS 16;

· Annual Improvements to IFRS Standards 2018-2020; and

· Reference to the Conceptual Framework - Amendments to IFRS 3.

The amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods.

New standards and interpretations not yet adopted

Certain new accounting standards, amendments to accounting standards and interpretations have been published that are not mandatory for 31 December 2022 reporting periods and have not been early adopted by the Group. These standards, amendments or interpretations are not expected to have a material impact on the entity in the current or future reporting periods or on foreseeable future transactions.

· Deferred Tax related to Assets and Liabilities arising from a Single Transaction - amendments to IAS 12; and

· Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice Statement 2.

Significant Accounting Judgements and Estimates

The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of 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:

• The assessment of the existence of impairment triggers (note 10).

• The estimation of share-based payment costs (note 19).

Impairments

The Group tests its capitalised exploration licence costs for impairment when indicators, further detailed below under 'Exploration and Evaluation Costs' as set out in IFRS 6, suggest that the carrying amount exceeds the recoverable amount which is inherently judgmental. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount of the Cash Generating Unit is the higher of an asset's fair value less costs of disposal and value in use. The Group assessed that there were no impairment triggers during the year - this included the judgement that there was no trigger arising from future licence expiry as the Group expects its licences concerned to be renewed.

Share-Based Payments

The Group currently has a number of share schemes that give rise to share-based payment charges. The charge to operating profit for these schemes amounted to £1,227,504 (2021: £470,725). Estimates and judgements for determining the fair value of the share options are required. For the purposes of the calculation, a Black- Scholes option pricing model has been used. Based on past experience, it has been assumed that options will be exercised, on average, at the mid-point between vesting and expiring. The share price volatility used in the calculation is based on the actual volatility of the Group's shares since 1 January 2017. The risk-free rate of return is based on the implied yield available on zero coupon gilts with a term remaining equal to the expected lifetime of the options at the date of grant. Estimates are also used when calculating the likelihood of share options vesting given the vesting conditions of time and performance on the options granted.

Basis of Consolidation

(a) Subsidiaries

Subsidiaries are all entities over which the Group has the power to govern their 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 the existence of control where it does not have more than 50% 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.

(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 remeasured 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.

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

Acquisitions, Asset Purchases and Disposals

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. The purchase consideration is allocated to the assets and liabilities purchased on an appropriate basis. Proceeds on disposal (including farm-ins/farm-outs) 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 Income.

Acquisitions of oil and gas properties are accounted for under the purchase method where the acquisitions meet the definition of a business combination. 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 remeasured to fair value at the acquisition date through profit or loss.

Any contingent consideration to be transferred on business combination 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 are recognised in accordance with IFRS 9 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not remeasured, 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.

Exploration and Evaluation Costs

The Group accounts for oil and gas 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. The Group only capitalises costs as intangible assets once the legal right to explore an area has been obtained. The Group assesses the intangible assets for indicators of impairment at each reporting date.

Potential indicators of impairment include but are not limited to:

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

b) substantive expenditure on further exploration for and evaluation of oil and gas reserves in the specific area is neither budgeted nor planned.

c) exploration for and evaluation of oil and gas reserves in the specific area have not led to the discovery of commercially viable quantities of oil and gas reserves and the entity has decided to discontinue such activities in the specific area.

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

The Group analyses the oil and gas assets into cash generating units (CGUs) for impairment and reporting purposes. In the event an impairment trigger is identified the Group performs a full impairment test for the CGU under the requirements of IAS 36 Impairment of assets. An impairment loss is recognised for the amount by which the exploration and evaluation assets' carrying amount exceeds their recoverable amount. The recoverable amount is the higher of the exploration and evaluation assets' fair value less costs of disposal and value in use.

As at 31 December 2022, the carrying value of intangible assets was £24.4m, as per Note 10 'Intangible Assets'. The Group considered other factors which could give rise to an impairment trigger such as commodity prices, licence expiration dates, budgeted spend and movements in estimated recoverable reserves. The Group exercised judgement in determining that the licence agreements will likely be extended by the NSTA. Based on this assessment, no impairment triggers existed in relation to exploration assets as of 31 December 2022.

Cost of Sales

Within the statement of comprehensive income, costs directly associated with generating future revenue are included in cost of sales such as software licences that were used across the asset base. The Group only capitalises costs as intangible assets once the legal right to explore an area has been obtained, any costs incurred prior to the date of acquisition are recognised as cost of sales within the Statement of Comprehensive Income.

Property, Plant and Equipment

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:

Computer & office equipment 3 years

Leases

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

• fixed payments (including in-substance fixed payments), less any lease incentives receivable;

• variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date;

• amounts expected to be payable by the Group under residual value guarantees;

• the exercise price of a purchase option if the Group is reasonably certain to exercise that option; and

• payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.

Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the lessee's incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.

To determine the incremental borrowing rate, the Group where possible, uses recent third-party rates provided by banks or financial institutions as a starting point, adjusted to reflect changes in financing conditions since third party financing was received.

Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

Right-of-use assets are measured at cost comprising the following:

• the amount of the initial measurement of lease liability;

• any lease payments made at or before the commencement date less any lease incentives received;

• any initial direct costs; and

• restoration costs.

Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset's useful life.

Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise any lease with a value of £5,000 or less.

Joint Ventures

The Group participates in joint venture/co-operation agreements with strategic partners, these are classified as joint operations. 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 Income 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's 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 and Company'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 maturity 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 any expected credit loss. The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of 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 Income within administrative expenses. Subsequent recoveries of amounts previously provided for are credited against administrative expenses in the Consolidated Statement of Comprehensive Income.

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

Offsetting of Financial Instruments

Financial assets and financial liabilities are offset, and the net amount is reported in the Consolidated Statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

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.

Current Tax

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where Jersey Oil and Gas Plc and its subsidiaries operate and generate taxable income. We periodically evaluate positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities.

Current tax is payable based upon taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. Any Group liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date.

Foreign Currencies

The functional currency of the Company and its subsidiaries is Sterling. 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 the transaction. Gains and losses arising on retranslation are recognised in the Consolidated Statement of Comprehensive Income for the year.

Employee Benefit Costs

Payments to defined contribution retirement benefit schemes are recognised as an expense when employees have rendered service entitling them to contributions.

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 using the Black-Scholes Model:

• 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.

Contingent Liabilities & Provisions

In accordance with IAS 37, provisions are recognised where a present obligation exists to third parties as a result of a past event, where a future outflow of resources with economic benefits is probable and where a reliable estimate of that outflow can be made. If the criteria for recognising a provision are not met, but the outflow of resources is not remote, such obligations are disclosed in the notes to the consolidated financial statements (see note 18). Contingent liabilities are only recognised if the obligations are more certain, i.e. the outflow of resources with economic benefits has become probable and their amount can be reliably estimated.

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.

3. Segmental reporting

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

The Board considers 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.

The Board is the Group's chief operating decision maker within the meaning of IFRS 8 "Operating Segments".

During 2022 and 2021 the Group had no revenue.

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 it 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 debtor 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.

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.

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 mix needs and suitability dependent upon the development stage of its asset base. Earlier stage assets (pre-production) typically require equity rather than debt given the absence of cash flow to service debt. As the asset mix becomes biased towards production then typically more debt is available. The Group seeks to maintain progress in developing its assets in a timely fashion. Given the Group's current cash position is insufficient to progress its assets to first oil it will be seeking to bring an industry partner into its assets in return for a capital (equity) contribution. This may be in the form of either cash or payment of some or all the Group's development expenditures. Please refer to Note 22, Post Balance Sheet Events, regarding the farm-out agreement with NEO. As the development progresses towards first oil, debt becomes available and will be sought in order to enhance equity returns. As at 31 December 2022 there are no borrowings within the Group (2021: Nil).

The Group monitors its capital structure by reference to 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 borrowings less cash and cash equivalents. Total equity comprises all components of equity.

Maturity analysis of financial assets and liabilities

Financial assets

Financial liabilities

Lease liabilities

5. Employees and Directors

*In addition, there were payments in lieu of notice and loss of office fees of £733,725 in 2021.

** In addition, there were social security costs associated with the payments in lieu of notice and loss 

of office of £49,985 in 2021.

Other pension costs include employee and Group contributions to money purchase pension schemes.

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

The Director's remuneration is shown net of share-based payments.

*In addition, there were payments in lieu of notice and loss of office fees of £733,725 in 2021.

** In addition, there were benefit costs associated with the payments in lieu of notice and loss of office

of £13,197 in 2021.

The average number of Directors to whom retirement benefits were accruing was as follows:

Information regarding the highest paid Director is as follows:

Key management compensation

Key management includes Directors (Executive and Non-Executive) and an adviser to the Board.

The compensation paid or payable to key management for employee services is shown below:

*In addition, there were payments in lieu of notice and loss of office fees of £733,725 and associated

benefit costs of £13,197 in 2021.

6. Net Finance Income

7. Loss Before Tax

The loss before tax is stated after charging/(crediting):

8. Tax

Reconciliation of tax charge

No liability to UK corporation tax arose on ordinary activities for the year ended 31 December 2022, or for the year ended 31 December 2021.

In April 2023, the rate of corporation tax will increase to 25% for profits over £250,000.

The Group has not recognised a deferred tax asset due to the uncertainty over when the tax losses can be utilised. At the year end, the usable tax losses within the Group were approximately £62 million (2021: £57 million).

9. 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.

There is no difference between dilutive and ordinary earnings per share due to there being a loss recorded in the year.

10. Intangible assets

In 2020, the Group acquired an additional 70% working interest in licence P2170 (Verbier) in addition to the existing 18% equity interest and retained 100% working interests in the licences awarded pursuant to the NSTA's 31st SLR (2019), Licence P2498 (Buchan and J2), Licence P2499 (Glenn) and Licence P2497 (Zermatt). The Group was also awarded a 100% working interest in, and operatorship of, part-block 20/5e in the NSTA's 32 Offshore Licensing Round in 2020. Part-block 20/5e is incorporated within Licence P2498 (Buchan & J2) and is located within the Group's existing Greater Buchan Area.

In April 2021, the Group acquired an additional 12% working interest in P2170 following the acquisition of Cieco V&C (UK) Limited (now Jersey V&C Ltd), thereby resulting in the Group owning 100% of this licence which includes the Verbier oil discovery, some 6km from the Buchan oil field. The consideration for the acquisition included a completion payment of £150k and two future milestone payments, details of which can be found in note 18.

Later in 2021, the Group relinquished licences P2497 Block 20/4c (Zermatt) and P2499 Block 21/2a (Glenn). Following undertaking a comprehensive technical and economic evaluation of licences P2497 and P2499 and meetings held with the North Sea Transition Authority ("NSTA"), the NSTA confirmed that it was satisfied that the Phase A Firm Commitments for both licences had been fulfilled. JOG decided not to progress to the next licence phase, which would have required committing to a firm well in each of these two licence areas. Accordingly, the licences automatically ceased and determined at the end of Phase A of their Initial Term on 29 August 2021.

In line with the requirements of IFRS 6, we have considered whether there are any indicators of impairment on the exploration and development assets. Based on our assessment, as at 31 December 2022 there are not deemed to be indicators that the licences are not commercial and the carrying value of £24,372,882 continues to be supported by ongoing exploration and development work on the licence area with no impairments considered necessary. Under IFRS 6, this required a significant judgement to be made confirming that we expect the NSTA to extend our license interests in P2498 and P2170.

11. Property, Plant and Equipment

12. Leases

Amounts Recognised in the Statement of financial position

The liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 January 2019. The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 3%. The borrowing rate applied for 2022 remained at 3% and the leases relate to office space.

A new lease agreement was entered into in September 2021 with a lease end date of September 2023, this was in relation to the London office.

Amounts Recognised in the Statement of comprehensive income

13. Trade and other receivables

14. Cash and cash equivalents

The cash balances are placed with creditworthy financial institutions with a minimum rating of 'A'.

15. Called up share capital

Ordinary shares have a par value of 1p. They entitle the holder to participate in dividends, distributions or other participation in the profits of the Company in proportion to the number of and amounts paid on the shares held.

On a show of hands every holder of ordinary shares present at a meeting, in person or by proxy, is entitled to one vote, and on a poll each share is entitled to one vote.

In 2021, 660,000 ordinary shares were issued to satisfy the exercise of share options which raised £778,357 (gross). 

An oversubscribed placing and subscription of shares raised a further £16.61m (gross) with a total of 10,065,066 ordinary shares issued.

16. Trade and other payables

17. Lease liabilities

18. Contingent Liabilities

(i) 2015 settlement agreement with Athena Consortium: In accordance with a 2015 settlement agreement reached with the Athena Consortium, although Jersey Petroleum Ltd remains a Licensee in the joint venture, any past or future liabilities in respect of its interest can only be satisfied from the Group's share of the revenue that the Athena Oil Field generates and up to 60 per cent. of net disposal proceeds or net petroleum profits from the Group's interest in the P2170 licence which is the only remaining asset still held that was in the Group at the time of the agreement with the Athena Consortium who hold security over this asset. Any future repayments, capped at the unpaid liability associated with the Athena Oil Field, cannot be calculated with any certainty, and any remaining liability still in existence once the Athena Oil Field has been decommissioned will be written off. A payment was made in 2016 to the Athena Consortium in line with this agreement following the farm-out of P2170 (Verbier) to Equinor and the subsequent receipt of monies relating to that farm-out.

(ii)  Equinor UK Limited: During 2020, JOG announced that it had entered into a conditional Sale and Purchase Agreement ("SPA") to acquire operatorship of, and an additional 70% working interest in Licence P2170 (Blocks 20/5b and 21/1d) from Equinor UK Limited ("Equinor"), this transaction completed in May 2020. The consideration for the acquisition consists of two milestone payments, which will be accounted for in line with the cost accumulation model, as opposed to contingent liabilities:

• US$3 million upon sanctioning by the UK's North Sea Transition Authority ("NSTA") of a Field Development Plan ("FDP") in respect of the Verbier Field; and

• US$5 million upon first oil from the Verbier Field.

• The earliest of the milestone payments in respect of the acquisition is not currently anticipated being payable before the start of 2025.

(iii)  ITOCHU Corporation and Japan Oil, Gas and Metals National Corporation: During 2020, JOG announced that it had entered into a conditional Sale and Purchase Agreement ("SPA") to acquire the entire issued share capital of CIECO V&C (UK) Limited, which was owned by ITOCHU Corporation and Japan Oil, Gas and Metals National Corporation, this transaction completed in April 2021. The acquisition was treated as an asset acquisition rather than a business combination due to the nature of the asset acquired. There were no assets or liabilities acquired other than the 12% interest in licence P2170 (Verbier). The consideration for the acquisition includes a completion payment of £150k and two future milestone payments, which are considered contingent liabilities:

• £1.5 million in cash upon consent from the UK's North Sea Transition Authority ("NSTA") for a Field Development Plan ("FDP") in respect of the Verbier discovery in the Upper Jurassic (J62-J64) Burns Sandstone reservoir located on Licence P2170; and

• £1 million in cash payable not later than one year after first oil from all or any part of the area which is the subject of the Field Development Plan.

The earliest of the milestone payments in respect of the acquisition is not currently anticipated being payable before the start of 2025.

19. Share based payments

The Group operates several share options schemes. Options are exercisable at the prices set out in the table below.

Options are forfeited if the employee leaves the Group through resignation or dismissal before the options vest.

Equity settled share-based payments are measured at fair value at the date of grant and expensed on a straight-line basis over the vesting period, based upon the Group's estimate of shares that will eventually vest.

The Group's share option schemes are for Directors, Officers and employees. The charge for the year was £1,227,504 (2021: £470,725) and details of outstanding options are set out in the table below.

The weighted average of the options granted during the year was determined using a Black-Scholes valuation. The significant inputs into the model were the mid-market share price on the day of grant as shown above and an annual risk-free interest rate ranging between 1.10% and 1.30%. The volatility measured at the standard deviation of continuously compounded share returns is based on a statistical analysis of daily share prices from the date of admission to AIM to the date of grant on an annualised basis. The weighted average exercise price for the options granted in 2022 was 230 pence, the weighted average remaining contractual life of the options was 6 years (for all schemes 4 years), the weighted average volatility rates was 114% and the dividend yield was nil. During the year 60,000 share options from the April 2018 issuance expired, these had an exercise price of 310 pence, a further 105,333 share options were forfeited due to the departure of employees, these had a weighted exercise price of 201 pence. There were no share options exercised in the year. The weighted average exercise price for all outstanding options at 31 December 2022 was 199 pence. For details of the schemes and scheme rules, please refer to the Remuneration Report.

20. Related undertakings and ultimate controlling party

The Group and Company do not have an ultimate controlling party or parent Company.

Registered Offices

1. 10 The Triangle, ng2 Business Park, Nottingham, NG2 1AE

2. 6 Rubislaw Terrace, Aberdeen, AB10 1XE

3. First Floor, Tower House, La Route es Nouaux, St Helier, Jersey JE2 4ZJ

21. Notes to the consolidated statement of cash flows

Reconciliation of Loss Before Tax to Cash Used in Operations

Cash and cash equivalents

The amounts disclosed on the consolidated Statement of Cash Flows in respect of Cash and cash equivalents are in respect of these statements of financial position amounts:

Year ended 2022

Year ended 2021

22. Post balance sheet events

On 6 April 2023, Jersey Oil and Gas Plc announced that it has agreed to farm-out a 50% interest in the Greater Buchan Area licences to NEO Energy ("NEO").

In exchange for entering into definitive agreements to divest a 50% working interest and operatorship in the GBA licences to NEO, the Company will receive:

· 12.5% carry of the Buchan field development costs included in the FDP approved by the North Sea Transition Authority ("NSTA"); equivalent to a 1.25 carry ratio

· Carry for JOG's 50% share of the estimated $25 million cost to take the Buchan field through to FDP approval

· $2 million cash payment on completion of the transaction

· $9.4 million cash payment upon finalisation of the GBA development solution

· $12.5 million cash payment on approval of the Buchan FDP by the NSTA

· $5 million cash payment on each FDP approval by the NSTA in respect of the J2 and Verbier oil discoveries

The primary conditions precedent to completing the transaction are receipt of the approvals from the NSTA for the transaction and the associated extension of the Company's two GBA licences. Following completion of the transaction, operatorship of the licences will transfer to NEO.

23. Availability of the annual report 2022

A copy of this report will be made available for inspection at the Company's registered office during normal business hours on any weekday. The Company's registered office is at 10 The Triangle, ng2 Business Park, Nottingham NG2 1AE. A copy can also be downloaded from the Company's website at www.jerseyoilandgas.com. Jersey Oil and Gas Plc is registered in England and Wales, with registration number 7503957.