Petro Matad Regulatory News (MATD)

THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED BY PETRO MATAD LIMITED TO CONSTITUTE INSIDE INFORMATION AS STIPULATED UNDER THE MARKET ABUSE REGULATION (EU) NO. 596/2014 ("MAR"). ON THE PUBLICATION OF THIS ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE ("RIS"), THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.

17 June 2019

Petro Matad Limited

("Petro Matad" or the "Company")

Final results for year ended 31 December 2018

Petro Matad Limited ("Petro Matad" or "the Company"), the AIM quoted Mongolian oil explorer, announces its audited final results for the year ended 31 December 2018. All dollar values are expressed in United States dollars unless otherwise stated.

Operational Highlights

· Drilled two frontier exploration wells, Snow Leopard 1 and Wild Horse 1, in the previously undrilled Valley of the Lakes in central western Mongolia. Operations were completed within the 2018 drilling season and within budget

· Snow Leopard 1 in Block V proved up a working petroleum system in the Taats Basin, high grading nearby prospects as potential follow-up targets for future drilling

· Secured access to 3D seismic data in northern Block XX, completed 2D seismic reprocessing and remapped the prospects close to producing fields in neighbouring Block XIX

· Selected Block XX targets for the 2019 drilling campaign including the Heron 1 well which will appraise a structure already proven to be oil bearing on Block XIX immediately to the north

Post period end

· Contracted two rigs to execute the 2019 drilling campaign. Contracts allow the rigs to be retained for immediate appraisal of any discoveries made

· Three wells will be drilled in Block XX in 2019: Heron 1 and Red Deer 1 are expected to spud in July. Gazelle 1 will follow the drilling of Heron 1. Site construction is now complete at Heron and Gazelle, and is underway at Red Deer

· A fourth well is planned to be drilled in Block V or Block XX, depending on well results

· Applications submitted for two-year PSC extensions (until July 2021) on Block IV and Block V

Financial Highlights

· Two successful equity placings announced in January 2018 and June 2018, raising gross proceeds of $35.1 million to execute the Company's multi-well drilling programme in 2018 and 2019

· The Group's net loss after tax for the twelve months ended 31 December 2018 was $18.4 million (31 December 2017: loss $9.9 million)

· As at 31 December 2018, the Group's cash position was $21.3 million, including Term Deposits (Financial Assets) (31 December 2017: $8.1 million)

· Since the year end, preparations for the 2019 drilling programme have been underway. As at 14 June 2019, the Group's cash position was $16.6 million, including Terms Deposits (Financial Assets)

No dividends have been paid or are proposed in respect of the year ended 31 December 2018 (2017: Nil).

About Petro Matad

Petro Matad is the parent company of a group focussed on oil exploration, as well as future development and production in Mongolia. At the current time, Petro Matad holds 100% working interest and the operatorship of three Production Sharing Contracts with the Government of Mongolia. Block XX has an area of 10,367 square kilometres in the far eastern part of the country, and Blocks IV and V have an area of 29,062 square kilometres and 21,143 square kilometres, respectively, in the central western part of the country.

Petro Matad Limited is incorporated in the Isle of Man under company number 1483V. Its registered office is at Victory House, Prospect Hill, Douglas, Isle of Man, IM1 1EQ.

For more information, please contact:

Annual Report and Accounts

The Company's statutory annual report and accounts will be dispatched electronically to shareholders shortly and will be posted shortly to shareholders who have elected to receive hard copies of the Annual Report. Additional copies of the Annual Report may be requested directly from the Company and an electronic copy is available on the Company's website www.petromatadgroup.com.

Annual General Meeting ("AGM")

A notice of the Company's AGM will be distributed in due course and made available on the Company's website www.petromatadgroup.com.

All Reserves and Resources definitions and estimates shown in this report are based on the 2007 SPE/AAPG/WPC/SPEE Petroleum Resource Management System ("PRMS").

Technical information in this news release has been reviewed by the Company's Exploration Manager, Mr. Jerry Smart, who has recently joined the Petro Matad team. He has 36 years of industry experience in oil and gas exploration and production with LASMO, Eni, Salamander Energy and Ophir Energy. He holds a B.Sc. in Geology from King's College, London.

Glossary

Directors' Statement

Summary

The Company successfully raised funds in two rounds in the first half of 2018 in order to execute a multi-well drilling programme spread over two years (2018 and 2019). In the first placing, in January 2018, a total of 186.6 million new shares were placed with new and existing institutional investors, and certain Directors and senior management of the Company, raising gross proceeds of US$16.8 million at 6.5 pence per share. Petro Matad's major shareholder, Petrovis Matad Inc. was the single largest participant in this raise.

The second raise, in June 2018, resulted in a total of 136.8 million new shares being placed with new and existing institutional investors, and certain Directors and senior management of the Company. The placing was conducted at a price of 10 pence per share and raised gross proceeds of US$18.1 million. 

With funds in hand, the Company moved quickly to complete all necessary permitting and operational preparations for drilling and was able to complete the two wells during the 2018 drilling season. Activities were focused on Blocks IV and V in the previously undrilled Valley of the Lakes Basin of central western Mongolia and involved the drilling of Snow Leopard 1 in Block V and Wild Horse 1 in Block IV, both of which were drilled within budget and without any safety or environmental incidents. While the wells did not discover commercial hydrocarbons, they did provide excellent data to allow the calibration of the geology with the seismic and other data sets in these frontier blocks, which has enhanced the Company's understanding and has helped to formulate plans for the next phase of exploration. The results of Snow Leopard 1 in particular have high graded the potential of prospects defined in Block V which are now the subject of further study to mature them to drillable status.

Having re-established the Company's operating capability in 2018, preparations are in hand for a four well campaign in 2019 focusing initially on Block XX in the east of Mongolia adjacent to oil fields in production.

2018 Review

HSSE

As part of the Board's ongoing process of continual improvement, the Company's Health, Safety, Security and Environmental Management System (HSSE MS) has been fully structured to follow International Association of Oil and Gas Producers (IOGP) guidelines and has been rolled out and implemented within the Company. All incidents are fully investigated, recorded and classified according to IOGP guidelines and learnings are shared through the management review process.

The Company is fully committed to environmental protection and ensures all practical measures are implemented. National and international standards are strictly followed with reference to ISO 14001 as the benchmark.

Both the Company and its sub-contractors followed all prescribed procedures during 2018 operations which were conducted in full legal compliance at all times. Environmental specialists were contracted to undertake base line and environmental impact studies and to generate independent reports on the Company's compliance with environmental policies. There were no environmental incidents during the Company's field activities in 2018.

The Company had no lost time injuries (LTI) and no reportable incidents during the year. The Company has an overall goal of zero LTI and strives to maintain this as part of all activities performed.

Operations

The 2018 work programme was primarily focused on preparation and execution of exploration drilling in Blocks IV and V. The Company also planned to drill in Block XX during the year but delays in securing a rig in advance of the winter drilling shut down resulted in the Block XX programme being postponed until 2019. This additional time before drilling in Block XX allowed for seismic reprocessing, re-mapping and ranking of prospects to be completed ahead of target selection for 2019 drilling.

The 2018 exploration drilling activities began with the spudding in early July of the Snow Leopard 1 well in the Taats Basin in Block V. The well was drilled into granitic basement to a total measured depth of 2,930 metres. No sands were encountered at the shallower of the two primary targets of the well although drilling gases (C1 to C5) and oil in the drilling mud were observed across the interval. The gases are indicative of an active petroleum system in the basin and the oil observed in the mud is suspected to have entered the well from one of the prospect bounding faults which may be acting as a conduit for migrating oil. The deeper objective of the well was encountered in line with the pre-drill depth prognosis with good development of sandstones in an overall gross interval of more than 400 metres. However, no oil or gas shows were observed while drilling through these sediments and subsequent logging confirmed them to be water bearing. The well was plugged and abandoned and the post-well evaluation has confirmed that the well penetrated a thick sequence of organically rich oil prone source rocks of Late Jurassic to Early Cretaceous age. The presence of thick source rocks and an active petroleum system in Snow Leopard 1 has high graded the potential of other prospects in the Taats Basin and the adjacent Tugrug Basin immediately to the east. Of particular interest is the Raptor trend, an inversion anticline with three four-way dip closed culminations approximately 7 km to the south of Snow Leopard 1. Work is underway to mature a prospect on the Raptor trend to the drillable status and to rank it against other targets in the Taats and Tugrug Basins with a view to high grading it for the 2019 programme.

Upon completion of drilling operations at Snow Leopard 1 the contracted Sinopec rig was moved westwards into Block IV and spudded the Wild Horse 1 well in late October. Wild Horse 1 was drilled into granitic basement to a total measured depth of 1,490 metres. In line with the pre-drill prognosis, the well encountered interbedded sands and shales throughout the prospective section from 650 metres to total depth (TD) but no oil shows were observed, and background gas readings were generally low. Basement was encountered several hundred metres shallower than had been prognosed reflecting the frontier nature of the well which was more than 200 km away from any other exploration well. Post-well analyses are ongoing, and a small amount of oil was extracted from well cuttings just above basement suggesting that elsewhere within the Baatsagaan Basin there may be an active source rock although one was not penetrated at the Wild Horse 1 location.

The results of the two wells drilled in 2018 and the post-well analyses have been used to design work programmes for the next exploration phases of Blocks IV and V and these plans have been submitted to MRPAM as part of the PSC extension applications.

The delay in Block XX drilling in 2018 allowed the Company to conduct seismic reprocessing and to secure access to an existing 3D seismic survey, facilitating the re-interpretation and remapping of high graded areas of the Block XX in order to refresh the risk ranking and resource assessments of the prospect inventory. This work has generated a number of attractive prospects, three of which will be targeted in the 2019 Block XX drilling campaign.

Production Sharing Contracts

As the current terms of the Blocks IV and V Production Sharing Contracts (PSCs) expire on 29 July 2019, the Company has applied for two-year extensions in each PSC, which, if approved, will enable the Company to retain the Blocks until 29 July 2021. As cumulative financial expenditure in both Blocks exceeds the cumulative commitments to the end of the current terms, no issues are expected in obtaining the extensions other than agreeing with the regulator the appropriate work programme for the next phases of exploration.

The exploration period of the Block XX PSC runs until July 2020. In the event of commercial success in the 2019 exploration drilling programme, the PSC provides for a relatively quick transition to development and production status and the exploitation phase of the PSC runs for 25 years (extendable by a further ten-year period).

Governance

The Company was pleased to welcome Ms. Shinezaya Batbold to the Board, following the retirement of Ms. Oyungerel Janchiv. Ms. Oyungerel was a founder of the Company, served on the Board for many years and made an invaluable contribution to Petro Matad.

Community Relations

The Company takes its responsibilities in community engagement and relations very seriously. In advance of any work programme activity being undertaken, the Company obtains the necessary approvals from industry regulator, the Mineral Resources and Petroleum Authority of Mongolia (MRPAM) and all other relevant authorities. Company staff participate in joint meetings with the regulator and the local communities to present and discuss planned activities. In addition to meeting local government officials, the socialisation programmes will also normally include town hall meetings where questions from local residents are answered. Company representatives will also meet with nomadic herders who may be in proximity to planned operations. Representatives from the Community Relations team are stationed at site during all operational activities.

A focused programme of community projects is undertaken in areas where operations are conducted, and this is done in cooperation with the local government.

The Company views engagement with local communities as key to conducting safe and successful operations.

2019 Operations and Outlook

To fulfil the multi-well drilling programme for which the Company raised funds in 2018, two drilling rigs have been contracted for the 2019 campaign.

The Company has contracted with DQE International, Mongolia's most experienced and active drilling operator, for its Rig 40105, to drill the Heron 1 and Gazelle 1 wells in the north of Block XX. The contract gives the Company the option to drill an additional well to allow for immediate appraisal of any discovery made during the 2019 drilling programme. Any discovery will be tested using a separate workover rig. DQE's rig was drilling in neighbouring Block XIX up until the end of the last drilling season, so mobilisation is expected to be short and logistically straightforward.

The second rig contract is with Daton Petroleum Engineering and Oilfield Service LLC, for their Rig DXZ1, to drill the Red Deer 1 well in the south of Block XX. The contract gives Petro Matad the option to drill a second well, to either appraise any discovery made in Red Deer 1 or for drilling in Block V in western Mongolia. Any testing operations will be performed by a separate workover rig. Daton's rig was working until the end of 2018 and is currently located approximately 125 km east of the Red Deer location, so mobilisation to Block XX is relatively short.

The Company expects to spud Heron 1 in early July. The well will be drilled to a planned TD of 3,050 metres and will take approximately 40 days to drill and log. The Heron Prospect is the southerly extension of the proven oil-bearing structure drilled by the T19-46-3 discovery well in adjacent Block XIX. The latest mapping based on reprocessed 2D and newly accessed 3D seismic shows the majority of the structure, including the crest of the trap, lying in Block XX. The Heron Prospect is estimated to have mean recoverable prospective resource potential of 25 MMbo. Heron 1 will be located 1.1 km south of the T19-46-3 oil well and is prognosed to encounter the top of the primary reservoir targets at approximately 2,800 metres.

On completion of operations at Heron 1, the rig will immediately move to the Gazelle 1 location. The planned TD of Gazelle 1 is 2,500 metres and the well is expected to take approximately 35 days to drill and log. The Gazelle Prospect is located on the south-western flank of the Tamsag Basin, which is the primary source kitchen charging the Block XIX discoveries. The Gazelle 1 well will be drilled 5 km west of Heron 1 and 4.5 km southwest of the T19-46-1 oil well in Block XIX. The mean prospective recoverable resource assessment for the Gazelle Prospect is 13 MMbo.

The Red Deer 1 well will be drilled with the Daton rig and is expected to spud later in July and is forecast to take 35 days to drill and log. The planned TD of the well is 2,100 metres. The Red Deer 1 well will target a basin centre, fault bounded, structural closure in the southern part of Block XX. The mean prospective recoverable resource assessment for the Red Deer Prospect is 48 MMbo. On completion of drilling and depending on the success of the well, the Company will then take the decision to whether to drill a further well at Red Deer, move the rig to drill a well in Block V, or focus on activities in the north of Block XX.

Running two rigs, with a separate workover rig for any testing operations, should give the Company sufficient time to complete its 2019 drilling campaign before the winter operational shutdown in late Q4 2019.

Acknowledgements

The Directors would like to express their appreciation to the staff of Petro Matad, both technical and non-technical, who have worked with enthusiasm and diligence throughout the year. The Board looks forward to an exciting time ahead with the full commitment of the Petro Matad team. The Board is fully committed to creating shareholder value and would like to express its gratitude to shareholders for their continued support of the Company.

Consolidated Statement of Profit or Loss and Other Comprehensive Income

For the year ended 31 December 2018

The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes.

Consolidated Statement of Financial Position

As at 31 December 2018

The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.

Consolidated Statement of Cash Flows

For the year ended 31 December 2018

The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.

Consolidated Statement of Changes in Equity

For the year ended 31 December 2018

The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.

Notes to the Consolidated Financial Statements

For the year ended 31 December 2018

1 Corporate information

The financial report of Petro Matad Limited (Company) for the year ended 31 December 2018 was authorised for issue in accordance with a resolution of the Directors dated 13 June 2019, which was approved on 14 June 2019.

This financial report presents the consolidated results and financial position of Petro Matad Limited and its subsidiaries (together, the "Group"). The Group's principal activity in the course of the financial year consisted of oil exploration in Mongolia.

Petro Matad Limited (Company) a company incorporated in the Isle of Man on 30 August 2007 has four wholly owned subsidiaries, including Capcorp Mongolia LLC and Petro Matad LLC (both incorporated in Mongolia), as well as Central Asian Petroleum Corporation Limited (Capcorp) and Petromatad Invest Limited (both incorporated in the Cayman Islands). The Company and its subsidiaries are collectively referred to as the "Group".

Petrovis Matad Inc. is a major shareholder of the Company, holding approximately 22.06% of the shareholding at the year end of 2018.

2 Summary of significant accounting policies

(a) Basis of preparation

This financial report complies with International Financial Reporting Standards (IFRS) as adopted by the European Union.

This financial report has been prepared on a historical cost basis, except where otherwise stated. Historical cost is generally based on the fair values of the consideration given in exchange for goods and services. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

· Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

· Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

· Level 3 inputs are unobservable inputs for the asset or liability.

For the purpose of preparing the consolidated financial statements, the Company is a for-profit entity.

(b) Statement of compliance

This general-purpose financial report has been prepared in accordance with the requirements of all applicable IFRS as adopted by the European Union and related Interpretations and other authoritative pronouncements.

(c) Going concern note

The financial statements have been prepared on a going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the ordinary course of business.

The Group generated a loss of $18.44 million (2017: $9.93 million loss) and experienced net cash outflows from operating activities of $19.60 million (2017: $2.47 million outflow). In addition, as outlined in note 18(b) the Group is required to meet minimum exploration commitments in the next 12 months on its PSCs of approximately $9.00 million with further commitments of $11.60 million thereafter.

These conditions indicate a material uncertainty that may cast significant doubt over the Company and the Consolidated Entity's ability to continue as going concerns.

Although the Company is fully funded for its planned 2019 work programme the ability of the Company and the Consolidated Entity to continue as a going concern beyond 2019 is principally dependent upon one or more of the following:

· Negotiating a reduction in Block XX financial commitments;

· Raising additional equity;

· Securing farm-out agreements to fund operations beyond 2019.

On 19 January 2018, the Company announced a $16.8 million fundraise (gross before deduction of broker commissions and fees) through issuance of 127,420,294 shares to new institutional investors and a further 59,167,335 shares to the Company's largest shareholder (Petrovis Matad Inc) and management of the Company.

A second fundraise was announced in June 2018, which resulted in a total of 136,842,892 New Ordinary Shares in Petro Matad Limited being placed with new and existing institutional investors and certain Directors and senior management of the Company. The placing raised gross proceeds of US$18.1 million. 

With the two successful fundraises in 2018, the Company secured financing for not only its planned exploration drilling programme in 2018, but also the planned 2019 programme. The Company continues to evaluate farmout opportunities as conclusion of an agreement that meets the Company's expectations would preserve its cash and enable expansion of the work programme while sharing the risk of exploration with the farminee.

Cumulative expenditures in Block IV to the end of 2018 had exceeded financial obligations for the initial ten-year exploration period ending July 2019, by $6.68 million. An application for a further two-year extension to July 2021 has been lodged with MRPAM, with a proposed new commitment of $1 million for the two-year extended period.

Cumulative expenditures in Block V to the end of 2018 had exceeded financial obligations for the initial ten-year exploration period ending July 2019, by $4.83 million. An application for a further two-year extension to July 2021 has been lodged with MRPAM, with a proposed new commitment of $1 million for the two-year extended period.

Expenditures in Block XX were $20.60 million below cumulative expenditure requirements at the end of 2018. As the 2019 work programme includes three Block XX wells, the outstanding commitment will be substantially reduced by end 2019, to circa $7 million.

The Directors have prepared a cash flow forecast which indicates that the Consolidated Entity will have sufficient cash to meet their working capital requirements for the twelve-month period from the date of signing the financial report.

The Directors are satisfied that they will achieve successful outcomes in relation to the matters set out above and therefore the going concern basis of preparation is appropriate. The financial report has therefore been prepared on the going concern basis, which assumes continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business.

Should the Company and the Consolidated Entity be unable to achieve the matters referred to above, there is a material uncertainty whether the Company and the Consolidated Entity will be able to continue as going concerns beyond 2019 and, therefore, whether it will realise its assets and discharge its liabilities in the normal course of business and at amounts stated in the financial report.

The financial report does not include adjustments relating to the recoverability and classification of recorded asset amounts nor to the amounts and classification of liabilities that might be necessary should the Company and the Consolidated Entity not continue as a going concern.

(d) Application of new and revised Accounting Standards

Accounting Standards that are mandatorily effective for the current reporting period

The Group has adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board (IASB) that are relevant to its operations and effective for an accounting period that begins on or after 1 January 2018.

New and revised Standards and amendments thereof and Interpretations effective for the current year that are relevant to the Group include:

· IFRS 9 Financial Instruments and related amending Standards

· IFRS 15 Revenue from Contracts with Customers and related amending Standards

IFRS 9 Financial Instruments and related amending Standards

In the current year, the Group has applied IFRS 9 Financial Instruments (as amended) and the related consequential amendments to other Accounting Standards that are effective for an annual period that begins on or after 1 January 2018. The transition provisions of IFRS 9 allow an entity not to restate comparatives however there was no material impact on adoption of the standard.

Additionally, the Group adopted consequential amendments to IFRS 7 Financial Instruments: Disclosures.

In summary IFRS 9 introduced new requirements for:

· The classification and measurement of financial assets and financial liabilities,

· Impairment of financial assets, and

· General hedge accounting.

IFRS 15 Revenue from Contracts with Customers and related amending Standards

In the current year, the Group has applied IFRS 15 Revenue from Contracts with Customers (as amended) which is effective for an annual period that begins on or after 1 January 2018. IFRS 15 introduced a 5-step approach to revenue recognition. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios.

There was no material impact on adoption of the standard and no adjustment made to current or prior period amounts.

New Accounting Standards for application in future periods

Accounting Standards issued the IASB that are not yet mandatorily applicable to the Group, together with an assessment of the potential impact of such pronouncement on the Group when adopted in future periods, are disclosed below:

 IFRS 16: Leases (applicable to annual reporting periods beginning on or after 1 January 2019).

When effective, this Standard will replace the current accounting requirements applicable to leases in IAS 17: Leases and related Interpretations. IFRS 16 introduces a single lessee accounting model that eliminates the requirement for leases to be classified as operating or finance leases.

 The main changes introduced by the new Standard are as follows:

· recognition of a right-of-use asset and liability for all leases (excluding short-term leases with less than 12 months of tenure and leases relating to low-value assets);

· depreciation of right-of-use assets in line with IAS 16: Property, Plant and Equipment in profit or loss and unwinding of the liability in principal and interest components;

· inclusion of variable lease payments that depend on an index or a rate in the initial measurement of the lease liability using the index or rate at the commencement date;

· application of a practical expedient to permit a lessee to elect not to separate non-lease components and instead account for all components as a lease; and

· inclusion of additional disclosure requirements. 

The transitional provisions of IFRS 16 allow a lessee to either retrospectively apply the Standard to comparatives in line with IAS 8 or recognise the cumulative effect of retrospective application as an adjustment to opening equity on the date of initial application.

Although the Directors anticipate that the adoption of IFRS 16 will impact the Group's financial statements, it is impracticable at this stage to provide a reasonable estimate of such impact.

(e) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company and its subsidiaries. Control is achieved when the Company:

· has power over the investee;

· is exposed, or has rights, to variable returns from its involvement with the investee; and

· has the ability to use its power to affect its returns.

The Company reassesses whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

The financial statements of the subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist.

A change in the ownership interest of a subsidiary that does not result in a loss of control is accounted for as an equity transaction.

All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered.

(f) Foreign currency translation

Functional and presentation currency

Both the functional and presentation currency of Petro Matad Limited is United States Dollars (USD). The Cayman Island subsidiaries functional currency is USD. The Mongolian subsidiaries' functional currency is Mongolian Tugrugs (MNT) which is then translated to the presentation currency, USD.

Transactions and balances

Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Exchange differences are recognised in profit or loss in the period in which they arise except for:

· Exchange differences on transactions entered into to hedge certain foreign currency risks; and

· Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on disposal or partial disposal on the net investment.

Translation of subsidiaries' functional currency to presentation currency

The results of the Mongolian subsidiaries are translated into USD (presentation currency) as at the date of each transaction. Assets and liabilities are translated at exchange rates prevailing at the reporting date.

Exchange differences resulting from the translation are recognised in other comprehensive income and accumulated in the foreign currency translation reserve in equity.

On consolidation, exchange differences arising from the translation of the net investment in Mongolian subsidiaries are recognised in other comprehensive income and accumulated in the foreign currency translation reserve. If a Mongolian subsidiary was sold, the proportionate share of exchange difference would be transferred out of equity and recognised in profit and loss.

(g) Cash and cash equivalents

Cash and short-term deposits in the statement of financial position comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.

For the purposes of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

(h) Trade and other receivables

Trade receivables, which generally have 30-60 day terms, are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less an allowance for impairment.

Collectability of trade receivables is reviewed on an ongoing basis. An impairment provision is recognised when there is objective evidence that the Group will not be able to collect the receivable. Objective evidence of impairment includes financial difficulties of the debtor, default payments or debts more than 60 days overdue. The amount of the impairment loss is the amount by which the receivable carrying value exceeds the present value of the estimated future cash flows, discounted at the original effective interest rate.

(i) Plant and equipment

Plant and equipment is stated at historical cost less accumulated depreciation and any impairment in value.

Depreciation is calculated on a straight-line basis over the estimated useful life of the asset and is currently estimated to be an average of 6.5 years.

The assets' residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end.

Derecognition

An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal.

(j) Financial instruments

Initial Recognition and Measurement

Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions to the instruments. For Financial assets, this is equivalent to the date that the Company commits itself to either purchase or sell the asset (i.e. trade date accounting is adopted).

Financial instruments are initially measured at fair value plus transaction costs, except where the instruments are classified 'at fair value through profit or loss' in which case transaction costs are expensed to profit or loss immediately. Financial instruments are classified and measured as set out below.

Classification and Subsequent Measurement

Financial instruments are subsequently measure at either fair value, amortised cost using the effective interest rate method or cost. Fair value represents the price that would be received to sell an asset or paid to transfer a liability in orderly transaction between market participants at the measurement date. Where available, quoted prices in an active market are used to determine fair value. In other circumstances, valuation techniques are adopted.

Amortised cost is calculated as (i) the amount at which the financial asset or financial liability is measure at initial recognition; (ii) less principal repayments; (iii) plus or minus the cumulative amortization of the difference, if any, between the amount initially recognised and the maturity amount calculated using the effective interest method; and (iv) less any reduction for impairment.

The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that exactly discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliability predicted, the contractual term) of the financial instrument to the net carry amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense in profit or loss. The Group does not designate any interest in subsidiaries, associates or joint venture entities as being subject to the requirements of accounting standards specifically applicable to financial statements.

 (i) Financial assets at fair value through profit and loss or through other comprehensive Income

Financial assets are classified at 'fair value through profit or loss' or Fair value through Other comprehensive Income' when they are either held for trading for purposes of short term profit taking, derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets are subsequently measured at fair value with changes in carrying value being included in profit or loss if electing to choose 'fair value through profit or loss' or other comprehensive income if electing 'Fair Value through other comprehensive income'.

(ii) Financial Liabilities

The Group's financial liabilities include trade and other payables, loan and borrowings, provisions for cash bonus and other liabilities which include deferred cash consideration and deferred equity consideration for acquisition of subsidiaries & associates.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, and payables, net of directly attributable transaction costs.

Fair value

Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm's length transactions, reference to similar instruments and option pricing models.

Derecognition

Financial assets are derecognised where the contractual rights to receipts of cash flows expire or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risk and benefits associated with the asset. Financial Liabilities are recognised where the related obligations are either discharged, cancelled or expire. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss.

(k) Inventory

Inventories are stated at the lower of cost and net realisable value. Costs of inventories are determined on a first-in-first-out basis. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.

(l) Exploration and evaluation expenditure

Exploration and evaluation expenditure incurred by the Group is expensed separately for each area of interest. The Group's policy is to expense all exploration and evaluation costs funded out of its own resources.

(m) Exploration and evaluation assets

Exploration and evaluation assets arising out of business combinations are capitalised as part of deferred exploration and evaluation assets. Subsequent to acquisition exploration expenditure is expensed in accordance with the Group's accounting policy.

(n) Impairment of tangible and intangible assets other than goodwill

At each reporting date, the Group assesses whether there is any indication that tangible and intangible asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount for each asset or cash generating unit to determine the extent of the impairment loss (if any). Where the carrying amount of an asset (or cash-generating unit) exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount.

Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset, unless the asset's value in use cannot be estimated to be close to its fair value less costs to sell and it does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the assets (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of impairment loss is treated as a revaluation increase.

Impairment review for deferred exploration and evaluation assets are carried out on a project-by-project basis, which each project representing a single cash generating unit. An impairment review is undertaken when indicators of impairment arise, typically when one of the following circumstances apply:

· Unexpected geological occurrences that render the resource uneconomic;

· Title to asset is compromised;

· Variations in prices that render the project uneconomic; or

· Variations in the currency of operation.

(o) Trade and other payables

Trade and other payables are initially recognised at fair value. After initial recognition, trade and other payables are carried at amortised cost and due to their short-term nature are not discounted. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition.

(p) Provisions

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

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. If the effect of the time-value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

(q) Leases

Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments.

Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to profit and loss.

Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term.

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as the lease income.

Operating lease payments are recognised as an expense in profit or loss on a straight-line basis over the lease term.

(r) Contributed equity

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

(s) Revenue

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific criteria must also be met before revenue is recognised:

Interest revenue

Revenue is recognised on an accrual basis using the effective interest method.

(t) Share-based payment transactions

The Group provides to certain key management personnel share-based payments, whereby they render services in exchange for rights over shares (equity-settled transactions).

The cost of these equity-settled transactions is measured by reference to the fair value at the date at which they are granted. The fair value is determined by use of the Black Scholes model.

In determining the fair value of the equity-settled transactions, vesting conditions that are not market conditions are not taken into account.

The cost of equity-settled transactions is recognised as an expense on a straight-line basis, together with a corresponding increase in equity, over the period in which they vest.

The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects:

· the extent to which the vesting period has expired; and

· the number of awards that, in the opinion of the Directors of the Group, will ultimately vest.

This opinion is formed based on the best available information at the reporting date. The impact of the revision of original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.

Where the terms of an equity-settled award are modified, as a minimum, an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph.

(u) Income tax

Current tax

Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the year. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by the reporting date. Current tax for current and prior years is recognised as a liability (or asset) to the extent that it is unpaid (or refundable).

Deferred tax

Deferred tax is accounted for using the comprehensive balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities and the corresponding tax base of those items.

In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities (other than as a result of a business combination) that affects neither taxable income nor accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from goodwill.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the consolidated Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

Current and deferred tax for the year

Current and deferred tax is recognised as an expense or income in the profit or loss, except when it relates to items credited or debited directly to equity/other comprehensive income, in which case the deferred tax is also recognised directly in equity/other comprehensive income, or where it arises from the initial accounting for a business combination, in which case it is taken into account in the determination of goodwill.

(v) Earnings per share

Basic earnings per share is calculated as net profit attributable to owners of the parent, adjusted to exclude any costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element.

Diluted earnings per share is calculated as net profit attributable to owners of the parent, adjusted for:

· Costs of servicing equity (other than dividends);

· The after-tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and

· Other non-discretionary changes in revenues or expenses during the year that would result from the conversion of dilutive potential ordinary shares, divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element.

(w) Significant accounting judgments, estimates and assumptions

In applying the Group's accounting policies management continually evaluates judgments, estimates and assumptions based on experience and other factors, including expectations of future events that may have an impact on the Group. All judgments, estimates and assumptions made are believed to be reasonable based on the most current set of circumstances available to management. Actual results may differ from the judgments, estimates and assumptions.

Any revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both the current and future periods.

The following are the most critical estimates and judgments made by management in applying the accounting policies and have the most significant effect on the amounts recognised in the financial statements.

Share-based payments

The Group measures the cost of equity-settled transactions with Directors and employees at the fair value of the equity instruments at the date at which they are granted. The fair value is determined using a Black Scholes model. One of the inputs into the valuation model is volatility of the underlying share price which is estimated on the historical share price.

Recovery of the exploration and evaluation assets

The ultimate recoupment of the exploration and evaluation assets is dependent upon successful development and commercial exploitation or alternatively the sale of the respective areas of interest at an amount at least equal to book value. At the point that it is determined that any capitalised exploration and evaluation expenditure is not recoverable, it is written off.

Going Concern

The Group assesses the going concern of the Group on a regular basis, reviewing its cash flow requirements, commitments and status of PSC requirements and funding arrangements. Refer to Note 2 (c) for further details.

3 Operating segments

Operating segments have been identified on the basis of internal reports of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segments and to assess their performance.

The chief operating decision maker has been identified as the Board of Directors. On a regular basis, the Board receives financial information on a consolidated basis similar to the financial statements presented in the financial report, to manage and allocate their resources. Based on the information provided to the Board of Directors, the Group has one operating segment and geographical segment, being Mongolia; as such no separate disclosure has been provided.

4 Revenues and expenses

(a) Revenue

(b) Employee benefits expense

Included in employee benefits expense are the following:

(c) Exploration and evaluation expenditure

Exploration and evaluation expenditure relate to the following PSCs:

(d) Other expenses

Included in other expenses are the following:

5 Income tax

Income tax recognised in the statement of profit or loss:

The prima facie income tax benefit on pre-tax accounting loss from continuing operations reconciles to the income tax expense/(benefit) in the financial statements as follows:

(i) The tax rate used in the above reconciliation is the corporate tax rate of 10% payable by Mongolian corporate entities on taxable profits up to 3 billion MNT under Mongolian tax law.

(ii) Petromatad Invest Limited and Capcorp are exempt of Mongolian corporate tax on profits derived from the sale of oil under their PSCs once production commences and are subject to Cayman Islands income tax at a rate of 0%. As a consequence, no provision for Mongolian corporate tax or Cayman Islands current tax or deferred tax has been made in the Company's accounts in relation to them.

Petro Matad Limited is subject to Isle of Man income tax at a rate of 0%. As a consequence, no provision for Isle of Man current tax or deferred tax has been made in the Company's accounts.

6 (Loss)/Earnings per share

The following reflects the loss and share data used in the total operations basic and diluted (loss)/earnings per share computations:

7 Cash and cash equivalents

Cash at bank and in hand earns interest at fixed and floating rates based on prevailing bank rates, and the fair value of the above cash and cash equivalents is $2,111,000 (2017: $5,090,000) due to the short-term nature of the instruments.

Reconciliation from the net gain/(loss) after tax to the net cash flows from operations:

Non-cash investing and financing activities

There were no non-cash investing or financing activities undertaken in the 2018 financial year or prior year, other than the exercise of Awards of $0.574 million (2017: $0.106 million).

8 Trade and other receivables

All amounts are recoverable and are not considered past due or impaired.

9 Prepayments

10 Financial assets

The Group holds term deposits with an average weighted interest rate of 5.4%. The deposits have maturity dates greater than 3 months. None of these assets had been past due or impaired at the end of the reporting period.

11 Inventory

Inventory are mainly consumables, including casing, mud and drilling materials purchased for Block XX.

12 Exploration and evaluation assets

The exploration and evaluation asset arose following the initial acquisition in February 2007 of 50% of Petromatad Invest Limited, together with acquisition on 12 November 2007 of the remaining 50% not already held by the Group, for a consideration of 23,340,000 ordinary shares credited as fully paid up and with an estimated fair value of $0.50 per share, taking into account assets and liabilities acquired on acquisition. This relates to the exploration and evaluation of PSC Block XX.

The ultimate recoupment of exploration and evaluation expenditure is dependent upon successful development and commercial exploitation or alternatively the sale of the respective areas of interest at an amount at least equal to book value.

Management have reviewed for impairment indicators on Block XX and no impairment has been noted.

13 Property, plant and equipment

Reconciliation of carrying amounts at the beginning and end of the year:

The following useful lives are used in the calculation of depreciation:

Plant and equipment - 3 to 10 years

14 Trade and other payables (current)

Trade payables are non-interest bearing and are normally settled within 60-day terms.

15 Issued capital

Movements in ordinary shares on issue:

(a) On 24 March 2017, 197,500 shares were issued to Directors and employees upon exercise of Options under the Group's Plan, with an exercise price per share of GBP0.11.

(b) On 24 March 2017, 75,000 shares were awarded to a Director upon exercise of Options under the Group's Plan, with an exercise price per share of GBP0.0788.

(c) On 24 March 2017, 16,000 shares were awarded to a Director and employees upon exercise of Options under the Group's Plan, with an exercise price per share of GBP0.1975.

(d) On 24 March 2017, 141,000 shares were awarded to employees upon exercise of options under the Group's Plan, with an exercise price per share of GBP0.0888.

(e) On 11 May 2017, the Company issued 2,151,951 commencement shares to Bergen as part of the initial closing under the Private Placement arrangement.

(f) On 11 May 2017, the Company issued 3,500,000 collateral shares to Bergen as part of the initial closing under the Private Placement arrangement.

(g) On 13 June 2017, the Company issued 9,507,963 new ordinary shares to Bergen in relation to the first tranche payment.

(h) On 18 July 2017, the Company issued 13,389,719 new ordinary shares to Bergen in relation to the second tranche payment.

(i) On 1 September 2017, the Company issued 16,784,344 new ordinary shares to Bergen in relation to the issue of a convertible note.

(j) On 9 February 2018, the Company issued 59,167,335 shares through direct subscriptions at a price of GBP0.065 per share.

(k) On 9 February 2018, the Company concluded a placement by issuing 19,708,520 shares at a price of GBP0.065 per share arranged through its broker, Pareto.

(l) On 9 February 2018, the Company concluded a placement by issuing 67,057,398 shares at a price of GBP0.065 per share arranged through its broker, Stifel.

(m) On 9 February 2018, the Company concluded a placement by issuing 40,654,376 shares at a price of GBP0.065 per share arranged through its broker, Stockdale.

(n) On 3 April 2018, 2,598,911 shares were awarded to employees upon exercise of Awards under the Group's Plan, with an exercise price per share of $0.01.

(o) On 16 April 2018, 2,868,065 shares were awarded to Directors and employee upon exercise of Awards under the Group's Plan, with an exercise price per share of $0.01.

(p) On 4 July 2018, the Company issued 1,846,439 shares through direct subscriptions at a price of GBP0.10 per share.

(q) On 4 July 2018, the Company concluded a placement by issuing 13,256,520 shares at a price of GBP0.10 per share arranged through its broker, Pareto.

(r) On 4 July 2018, the Company concluded a placement by issuing 104,701,135 shares at a price of GBP0.10 per share arranged through its broker, Stifel.

(s) On 4 July 2018, the Company concluded a placement by issuing 17,038,798 shares at a price of GBP0.10 per share arranged through its broker, Stockdale.

(t) On 1 November 2018, 40,557 shares were awarded to an employee upon exercise of Awards under the Group's Plan, with an exercise price per share of $0.01.

16 Reserves

A detailed breakdown of the reserves of the Group is as follows:

Nature and purpose of reserves

Merger reserve

The merger reserve arose from the Company's acquisition of Capcorp on 12 November 2007. This transaction is outside the scope of IFRS 3 'Business Combinations' and as such Directors have elected to use UK Accounting Standards FRS 6 'Acquisitions and Mergers'. The difference, if any, between the nominal value of the shares issued plus the fair value of any other consideration, and the nominal value of the shares received in exchange are recorded as a movement on other reserves in the consolidated financial statements.

Equity benefits reserve

The equity benefits reserve is used to record the value of Options and Conditional Share Awards provided to employees and Directors as part of their remuneration, pursuant to the Group's Long-Term Equity Incentive Plan (referred to as "Plan" or "Group's Plan"). Refer to Note 17 for further details of these plans.

Foreign currency translation reserve

The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.

17 Share based payments

(a) Long Term Equity Incentive Plan ("Plan" or "Group's Plan")

The Group provides long term incentives to employees (including Executive Directors), Non-Executive Directors and consultants through the Group's Plan based on the achievement of certain performance criteria. The Plan provides for share awards in the form of Options and Conditional Share Awards. The incentives are awarded at the discretion of the Board, or in the case of Executive Directors, the Remuneration Committee of the Board, who determine the level of award and appropriate vesting, service and performance conditions taking into account market practice and the need to recruit and retain the best people.

Options may be exercised, subject only to continuing service, during such period as the Board may determine. Options have a term of 10 years.

Conditional Share Awards shall vest subject to continuing service and appropriate and challenging service and performance conditions determined by the Remuneration Committee relating to the overall performance of the Group.

Conditional Share Awards based on performance conditions will vest on achievement of the following performance conditions:

· 25% vest on the first discovery of oil on a commercial scale, estimated by management as being by 31 December 2019;

· 25% vest on the first production of oil on a commercial scale, estimated by management as being by 31 December 2021; and

· 50% vest on the Company achieving the sale of 1 million barrels of oil, estimated by management as being by 31 December 2022.

Other Conditional Share Awards have service conditions tied to employment continuity and are available for vesting in three equal annual instalments on various dates.

(b) Option pricing model

The fair value of Options granted is estimated as at the date of grant using the Black Scholes model, taking into account the terms and conditions upon which the Options were granted.

No Options have been issued during 2017 and 2018.

The Company issued 3,900,000 warrants to Bergen Global Opportunity Fund, LP on 8 May 2017. Refer to Note 17 (h).

(c) Movement in Share Options

The weighted average fair value for all options in existence as at 31 December 2018 is 0.82 (2017: 0.62).

(d) Share Options Contractual Life

The weighted average remaining contractual life of outstanding share Options is 2.3 years (2017: 2.8 years).

(e) Conditional Share Awards pricing model

The fair value of Conditional Share Awards granted is estimated as at the date of grant using the Black Scholes model, taking into account the terms and conditions upon which the Awards were granted.

No Awards have been issued during 2017.

The following Table summarizes Conditional Share Awards granted during 2018, along with relevant details in relation to the grant.

 Items (1): Conditional Share Awards vested immediately.

(f) Movement in Conditional Share Awards

The weighted average fair value for all awards in existence as at 31 December 2018 is 0.81 (2017: 0.81)

(g) Conditional Share Awards Contractual Life

The weighted average remaining contractual life of outstanding Conditional Share Awards is 9.5 years (2017: 10.5 years).

(h) Warrants

The Company granted 3,900,000 warrants to Bergen Global Opportunity Fund, LP on 8 May 2017 as consideration for the private placement. These Warrants were valued using the Black-Scholes model with the following inputs:

Expected volatility is based on the historical share price volatility over the past 2 years.

(i) Summary of Share Based Payments

A reconciliation of all share-based payments made during the year is as follows:

18 Commitments and contingencies

(a) Operating lease commitments

Operating leases relate to premises used by the Group in its operations, generally with terms between 2 and 5 years. Some of the operating leases contain options to extend for further periods and an adjustment to bring the lease payments into line with market rates prevailing at that time. The leases do not contain an option to purchase the leased property.

Due to prepayment of rent, the Group has no commitment for office lease in Mongolia as at 31 December 2018.

The Group has committed to warehouse lease in Mongolia in the amount of $7,000 for 2019

(b) Exploration expenditure commitments

Petromatad Invest Limited and Capcorp have minimum spending obligations, under the terms of their PSCs on Blocks IV, V and XX with MRPAM.

The amounts set out below do not include general and administrative expenses.

(c) Contingencies

On 5 August 2016, Shell through its Affiliate company announced it would be withdrawing from Blocks IV and V in West/Central Mongolia. As part of the negotiations leading to formal Mongolian Government approval of the reassignment of interest from Shell's Affiliate to Petro Matad's Affiliate, Shell agreed to a payment of $5 million to be remitted to Petro Matad's Affiliate upon such government approval being received. A condition to the payment by Shell is that the proceeds would be repaid to Shell by Petro Matad in the event a farmout is concluded in future prior to the development of either Block IV or V. There is no certainty that such farmout will be concluded in future in which case funds would not be repaid. The $5 million payment was received on 1 February 2017.

19 Related party disclosures

The immediate parent and ultimate controlling party of the Group is Petro Matad Limited.

The consolidated financial statements include the financial statements of Petro Matad Limited and the subsidiaries listed in the following table:

Subsidiary Details

Capcorp Mongolia LLC was acquired on the 14 August 2006, on incorporation of the Company. Capcorp holds 1,000,000 ordinary shares of MNT150 each.

Petromatad Invest Limited was acquired on 12 November 2007. Petro Matad Limited and Capcorp each hold 25,000 shares of $1 each.

Central Asian Petroleum Corporation Limited was acquired on 12 November 2007. Petro Matad Limited holds 43,340,000 ordinary shares of $0.01 each.

Petro Matad LLC is 100% owned by Petromatad Invest Limited. Petromatad Invest Limited holds 15,000 ordinary shares of MNT10,000 each.

Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note.

Petrovis Matad Inc. is a major shareholder of the Company, holding approximately 22.06% of the shareholding at year end of 2018.

20 Key management personnel

(a) Details of Directors

The names of the Company's Directors, having authority and responsibility for planning, directing and controlling the activities of the Group, in office during 2017 and 2018, are as below:

The Directors were in office until the date of this report and for this entire period unless otherwise stated.

Directors

Oyungerel Janchiv Non-Executive Director Retired 20 September 2018

Enkhmaa Davaanyam Non-Executive Chairperson

Philip Arthur Vingoe Non-Executive Director Retired 10 March 2017

Amarzul Tuul Executive Director Stepped down 11 September 2017

John Rene Henriksen Chief Financial Officer

 Mehmed Ridvan Karpuz Chief Executive Officer Stepped down 15 October 2017

 Timothy Paul Bushell Non-Executive Director Appointed 10 March 2017

 Michael James Buck Chief Executive Officer Appointed 22 November 2017

 Shinezaya Batbold Non-Executive Director Appointed 20 September 2018

(b) Compensation of Directors