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 UK VERSION OF 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 ("UK 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.

20 June 2023

Petro Matad Limited

("Petro Matad" or the "Company")

Final results for year ended 31 December 2022

Petro Matad Limited ("Petro Matad" or "the Company"), the AIM quoted Mongolian oil company, announces its audited final results for the year ended 31 December 2022. All monetary values are expressed in United States dollars unless otherwise stated.

2022 Operational Highlights

· The Company continued to push the Mongolian government and authorities to register Block XX Exploitation Area as special purpose land.

· Negotiations with DQE Drilling entered their final stages for a multi-well development drilling contract with the Company securing cost reductions that can make a real difference to project cash flows and asset value.

· Block V project readiness continued with a cost-effective drilling solution found for Velociraptor.

· MRPAM announced an Exploration Licensing round covering 14 blocks in the prospective fairways of the southern half of the country.

· Petro Matad continued to explore opportunities in the Mongolian renewables sector following Board approval to do so.

Current situation

· On Block XX, the Company continues to push government on certification of the Exploitation Area as special purpose land and finally conclude the process. The Ministry of Construction and Urban Development has completed its internal work and has submitted the documentation to all other government ministries for comment prior to submission to Cabinet.

· The Velociraptor-1 exploration well in the Taats Basin of Block V located in central Mongolia spudded on 13 June, targeting an inversion anticline prospect estimated to have 200 million barrels (MMbo) of Mean Prospective Recoverable Resource potential. Encouraging results in the Velociraptor prospect would significantly de-risk two adjacent prospects on the Raptor Trend which together have Mean Prospective Recoverable Resource potential of an additional 375 MMbo.

· The Company raised US$6.6 million through a capital raise that will allow the Company to test the low-cost, high impact Velociraptor exploration prospect, evaluate new areas offered for licencing by the Mongolian government in the 2022/23 tender round and explore renewable energy projects.

· The Company formed a joint venture (JV) with a very active and successful Mongolian renewable energy project developer called SunSteppe Energy ("SunSteppe"). This JV will give the Company an opportunity to compete in Mongolia's growing renewables sector.

2022 Financial Highlights

· As of 31 December 2022, the Group's cash position was $5.1 million (Financial Assets) (31 December 2021: $8.2 million)

· The Group's net loss after tax for the twelve months ended 31 December 2022 was $2.95 million (31 December 2021: loss $2.1 million)

Mike Buck, CEO of Petro Matad, said:

"2022 saw an easing of Covid-19 related delays that had impacted service providers and cross-border activity. We were pleased that we were able to progress our preparations for Heron development, our negotiations with DQE Drilling and to continue our investigations on the Block V Exploration PSC.

This year we hit the ground running and set to work on a capital raise to allow Petro Matad to move ahead with testing the low-cost, high impact Velociraptor exploration prospect and evaluate new areas offered for licencing by the Mongolian government. We have also ventured into the renewable energy sector in Mongolia through the SunSteppe Renewable Energy joint venture which we hope will generate near term opportunities for us and our partner.

We continue to push forward with our 2023 work programme which of course includes urging the government to certify Petro Matad's Block XX Exploitation Area as special purpose land. Meanwhile we are delighted to have spudded Velociraptor-1 which we have wanted to drill for some time. Encouraging results here would significantly de-risk two adjacent prospects on the Raptor Trend which together have a resource potential of an additional 375 MMbo.

I would like to thank our loyal shareholders for their continued support and hope that the recent spudding of the Velociraptor well demonstrates our firm commitment to our work programme. I very much look forward to updating you in the coming months with our progress on multiple workstreams that are now in play."

All Reserves and Resources definitions and estimates shown in this report are based on the 2018 SPE/AAPG/WPC/SPEE Petroleum Resource Management System ("PRMS").

Prospective Recoverable Resources are defined under PRMS as: Those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects.

About Petro Matad

Petro Matad is the parent company of a group focused on oil exploration, as well as future development and production in Mongolia. Currently, Petro Matad holds 100% working interest and the operatorship of two Production Sharing Contracts with the government of Mongolia. Block XX has an area of 218 square kilometres in the far eastern part of the country, and Block V has an area of 7,937 square kilometres in the central 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 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 will be 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.

Directors' Statement 2022

Summary

The easing of Covid-19 travel and border restrictions during 2022 permitted both equipment and services to more freely flow into Mongolia and this allowed the Company to progress the procurement of key equipment for the development of the Heron discovery in the Block XX Exploitation Area. Planning and preparations for first oil were also significantly progressed with more certainty given that the mainly Chinese service companies were also able to commit to offering services again and to engage in substantive contract negotiations. Whilst the Company pursued its procurement and contracting strategy it was however hindered by the continued land access issue such that onsite installation and fabrication activities could not be started while this issue remained outstanding. The land access issue on Block XX remained an obstacle to progress throughout 2022 despite constant pressure applied to central and local government agencies to overcome the conflicts in the land law that have generated this delay. The Company focussed its efforts on being as prepared as it can be so that once the land issue is resolved development activities can be immediately pursued. To that end, the Company and the industry regulator, the Mineral Resources and Petroleum Authority of Mongolia ("MRPAM") discussed with PetroChina Daqing Tamsag, the operator of the adjacent producing fields, various options to process, export and sell Heron crude during the initial phase of development and negotiations on the operational and contractual details are ongoing.

On the Company's central Mongolian exploration acreage, the moratorium on Block V which had been in place through the pandemic was lifted and agreement secured with MRPAM and the Ministry of Mining and Heavy Industry ("MMHI") to extend the Exploration Period under the Production Sharing Contract ("PSC") to July 2024. The Company matured the technical evaluation of the Velociraptor Prospect to drillable status and contracted with Major Drilling to drill an exploration well on this prospect in the 2023 operational window with the full support of the local government, who have granted land access and all other necessary permits. In the event of success or encouragement in the Velociraptor-1 well in 2023, there will be enough time left in the Block V exploration term to gather sufficient data to complete the required technical work in order to secure an exploitation licence. The rig contract with Major Drilling allows for appraisal well drilling in the event that such follow up is required.

The Company continued in its efforts to partner with local and foreign companies on development and exploration activities in Mongolia and supported MRPAM in their marketing efforts for their Exploration licensing round launched at the end of November 2022. The Company has high graded a number of blocks included in the tender round with the expectation of applying for the best areas in order to restock the Company's portfolio. Mongolia offers lengthy exploration periods and the potential to keep financial commitments relatively low, allowing for exploration drilling activity to be discretionary rather than committed upfront.

Plans for entering the renewable energy sector in Mongolia matured with discussions with a well-established local project developer with a proven track record and with excellent relationships within the sector and with the Mongolian Ministry of Energy. The Sunsteppe Renewable Energy joint venture was established with initial funding supplied by Petro Matad and it is working towards developing a number of value additive opportunities to either follow through to production or to secure partners on a promoted basis.

Covid-19

Covid-19 related travel restrictions eased considerably during the early part of 2022 but major border crossings into China remained closed on the Chinese side until the end of the second quarter due to China's continuation of its zero Covid policies. In the middle of the year, China allowed the northerly of the two oil export border crossings at Bayankhoshuu to re-open and oil export from the PetroChina operated fields in Mongolia resumed. The southerly oil export crossing at Bichigt remained closed until the third quarter restricting passage of oil field consumables and equipment although some goods and service crews could be flown in. By year-end 2022 all borders had re-opened and were back to near pre-pandemic activity levels and this situation has normalised through 2023 to date.

Block XX Exploitation Area - Land access

The Company was not able to access the Heron development location during 2022 due to the ongoing land access dispute between central and local governments. This situation has come about due to conflicts in the Mongolian Land Law and local disquiet in Dornod Province in which Block XX is located. This province is home to 95% of Mongolia's current oil production and the local communities in the area feel that they have suffered all the impacts of oil exploitation activities since start up in the late 1990s with little or no benefit. As a result, the local government has been refusing to issue land access permits which the Company requires since central government has not yet declared the Block XX Exploitation Area as Special Purpose land under the Land Law.

The Company has worked tirelessly with MRPAM and MMHI to resolve this issue and the prescribed legal pathway is being pursued by which the registration of the Block XX exploitation licence as Special Purpose land will be requested from the Mongolian Cabinet. This is a lengthy process with overly cumbersome bureaucracy but is now at an advanced stage and we expect the submission to Cabinet to be made shortly. We look forward to resolving this issue and progressing Heron development activities.

2022 Review

HSSE

The Company's Health, Safety, Security and Environmental Management System (HSSE MS) is structured to follow International Association of Oil and Gas Producers (IOGP) best practices.

As per Mongolian national and international best practice, any reported HSSE incidents are fully investigated, recorded, and classified according to IOGP guidelines, and learnings are openly shared through the management review process. The Company is pleased to report that Petro Matad, along with its sub-contractors, followed all Mongolian laws and national standards in all aspects of the 2022 operations and there were no environmental incidents and no lost time incidents nor recordable incidents during the year.

As per Mongolian environmental law, technical restoration of the drilling mud sumps at both the Heron-1 and Gazelle-1 well sites were conducted by a specialist restoration contractor and with the approval of the local authorities. The provincial Handover Committee formally inspected both sites and signed off that the work had been completed in compliance with the relevant regulations.

The Company is fully committed to environmental protection and ensures all practical measures are implemented to fully comply with national and international best practices with reference to ISO 14001 as the benchmark.

Social impact 2022

In 2022 on Block V, within the framework of the billion trees project initiated by the Mongolian President, programmes to supply tree seedlings and irrigation wells were completed in the Baruunbayan-Ulaan (BBU) and Guchin-Us (GU) districts where the Company's 2023 activities will be implemented. In addition, the Company supported a livestock restocking project in BBU to help herders affected by drought conditions and carried out remediation works at the district land fill site. Eco-toilets were installed at district schools and reconstruction of a public service building was also completed.

On Block XX, early in 2022 the Company donated patient control monitors to the Dornod province hospital and medical beds to the Matad district hospital to assist in preventing the spread of Covid-19. In addition, the Company financed the remediation of the Matad land fill site.

Operations

Block XX: The Company continues to target having everything in place to get the Heron-1 well onstream as soon as the land issue is resolved by the government. Pumping, downhole completion and power generation equipment and power control systems are now all in country and ready to be mobilised and installed at Heron-1. Production tanks have been sourced from PetroChina. These second-hand tanks offer a cost-effective solution to achieve rapid production start-up and have passed non-destructive testing to confirm integrity and suitability. They will be relocated to the production site where installation fabrication and electrical work is planned once access to the production site is obtained. The Company and MRPAM discussed with PetroChina Daqing Tamsag, the operator of the Block XIX exploitation area and facilities located immediately north of Block XX, options to process, export and sell Heron crude during the initial phase of the Heron development.

Negotiations with DQE Drilling (DQE), the main provider of drilling services in Mongolia, have continued and a contract for a multi-well development drilling and completion programme is in the final stages of discussion. The contract envisages a reduction in drilling, testing, fracking and completion costs compared to the previous drilling campaign and includes some deferral of costs to allow a portion of the drilling expenditure to be settled from future production revenue. The contract once finalised will require MRPAM approval and discussions have now begun. The cost reductions and payment phasing could significantly improve project cash flows and overall asset value since the largest portion of the Heron development costs are drilling related. 

Block V: On the Block V Exploration PSC area, local government approvals for land access have been secured. This area does not have the same history with the oil industry that Dornod Province has and as such, just as in previous years, thanks to its continued focus on positively engaging with local communities, Petro Matad has been able to secure all necessary permits to work on the land covering the highly prospective Raptor Trend and the Velociraptor prospect. 

A cost-effective drilling solution for Velociraptor has been found using Major Drilling, a contractor that has been in country for many years, has tried and trusted equipment and a mainly Mongolian crew. MMHI's approval of the Company's application to secure a moratorium for 2022 on Block V was critical as it extended the exploration period until July 2024 and so ensures that there will be sufficient time after Velociraptor-1 is drilled to gather enough data and submit the necessary documentation to secure a Block V Exploitation Licence in the event of success. The Major Drilling contract allows for immediate appraisal well drilling in the event the Company chooses to do so.

New Areas: The Company is actively working on detailed technical studies of new exploration acreage where petroleum systems have been proven but also in some frontier areas where little exploration activity has occurred to date. The aim is to re-stock the Company's acreage portfolio to create a balance of production, development, appraisal, near field and high impact frontier exploration.

2022/23 Exploration Licencing Round

MRPAM announced an Exploration Licencing round at the end of November 2022 at an industry event in Singapore covering 14 blocks located in proven hydrocarbon fairways in eastern Mongolia and also in southern and western Mongolia where little or no exploration activity has occurred. The Company supported MRPAM with its marketing efforts and advised on MRPAM's potential attendance at industry conferences in 2023 to further promote the licencing round.

The initial release of 5 of the 14 blocks in the licencing round were located in southeastern Mongolia and share the same stratigraphy and geological history as proven prolific oil basins both in Mongolia and northern China. With its extensive data base, technical expertise and operational experience, Petro Matad has a significant competitive advantage as the country's leading explorer and is participating in the licencing round with a view to acquiring some new PSCs. Contemporaneous with the licencing round the government is reviewing the Petroleum Law, last updated in 2014, and has solicited views from industry operators. The Company has provided detailed feedback highlighting areas that would make Mongolia more attractive to foreign investment.

Renewable Energy Opportunities in Mongolia

Petro Matad continued to explore opportunities in the renewable energy sector in Mongolia through 2022 following Board approval to do so in 2021. Work was done to investigate the technical and commercial drivers of solar, wind and battery storage opportunities and to evaluate local partners. As a result, a solid relationship was established with Sunsteppe Energy, an experienced and well connected local developer with a track record of bringing projects to construction ready status and finding investors for the construction phase. A joint venture has been established between Sunsteppe and Petro Matad and work is now moving forward at pace to generate a number of renewable energy opportunities that have the potential to add value and generate revenue in the near term.

Community Relations

The Company takes its responsibilities in community engagement and community relations very seriously. In advance of any work programme activity being undertaken, the Company ensures that it obtains the necessary approvals from 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 typically 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 to ensure all parties are listened to. Representatives from the Community Relations team are stationed at site during all operational activities.

A focussed programme of community projects is undertaken in areas where operations are conducted, and this is done in cooperation with local government. The Company views engagement with local communities as key to conducting safe and successful operations that will in turn benefit the local area.

Conclusions

During 2022, the Company continued to make progress in establishing itself as the first independent Mongolian oil exploration and production company but remained frustrated in its efforts by the ongoing land access dispute. However, having made good progress with central government, the Company is confident that the land issue will be resolved during 2023. Plans to drill the Velociraptor-1 well on a prospect with mean recoverable resource potential of 200 MMbo were advanced, and the well was scheduled to be drilled in mid-2023. The evaluation of acreage offered in MRPAM's Exploration Licencing round is at an advanced stage with a view to re-stocking the portfolio with prospective acreage and the Company's entry into Mongolia's renewable energy sector shows early signs of promise.

Acknowledgements

The Company is very appreciative of the support and collaboration shown by MRPAM and MMHI and is confident that the long running land issue in Block XX will also soon be solved.

The Directors would like to reiterate their appreciation to the staff of Petro Matad who have continued to work with enthusiasm, diligence, and dedication. Shareholders continued support is also highly appreciated. The Board looks forward to an exciting operational period in 2023. 

Consolidated Statement of Profit or Loss and Other Comprehensive Income

For the year ended 31 December 2022

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 2022

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 2022

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 2022

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 2022

1 Corporate information

The financial report of Petro Matad Limited (Company) for the year ended 31 December 2022 was authorised for issue in accordance with a resolution of the Directors dated 15 June 2023 which was approved on 19 June 2023.

This financial report presents the consolidated results and financial position of Petro Matad Limited and its subsidiaries. 

Petro Matad Limited (Company) incorporated in the Isle of Man on 30 August 2007 has five wholly owned subsidiaries, including Capcorp Mongolia LLC and Petro Matad LLC (both incorporated in Mongolia), Central Asian Petroleum Corporation Limited (Capcorp) and Petromatad Invest Limited (both incorporated in the Cayman Islands) and Petro Matad Singapore Pte Ltd. The Company and its subsidiaries are collectively referred to as the "Group". The Group's principal activity in the course of the financial year consisted of oil exploration and development in Mongolia.

Petrovis Matad Inc. (Petrovis) is a major shareholder of the Company, holding approximately 21.08% of the shareholding at the year end of 2022.

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

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 $2.95 million for year 2022 (2021 Loss: $2.12 million) and experienced net cash outflows from operating activities of $2.73 million (2021 Outflow: $2.38 million). In addition, as outlined in Note 18(b) the Group is required to meet minimum exploration commitments on its Block XX Production Sharing Contract (PSC) of approximately $6.0 million. The Company has reached an agreement with the Mineral Resources and Petroleum Authority of Mongolia (MRPAM) that this underspent minimum exploration commitment can be transferred to and spent on exploration and appraisal activities during the exploitation period. The Company's application for a 25-year Exploitation Licence (EL) for Block XX was approved in July 2021. The Company raised an additional $6.6 million funds in February 2023, which provides sufficient working capital to operate beyond mid 2024 as a going concern, as well as commencing appraisal and production operations at Heron oilfield in Block XX, and drilling a high-graded exploration prospect in Block V.

The Company believes that the current cash balance is sufficient to continue operations until at least July 2024.

Cumulative expenditures to end 2022 in Block V exceed financial commitments by $3.0 million. The Company applied for moratoria on Block V for both 2020 and 2021 which were approved by MRPAM. The Block V PSC exploration term is now due to expire in July 2024.

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

(d)  Application of new and revised Accounting Standards

Accounting Standards that are mandatorily effective for the current reporting year

The Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) that are relevant to its operations and effective for an accounting period that begins on or after 1 January 2020.

The Directors have determined that there is no material impact of the new and revised Standards and Interpretations on the Group and, therefore, no material change is necessary to Group accounting policies.

Standards and Interpretations in issue not yet adopted

At the date of authorisation of the financial statements, the Group has not applied the new and revised Australian Accounting Standards, Interpretations and amendments that have been issued but are not yet effective. Based on a preliminary review of the standards, interpretations and amendments, the Directors do not anticipate a material change to the Group's accounting policies, however further analysis will be performed when the relevant standards are effective.

(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 Islands and Singaporean 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 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 of the asset (i.e. trade date accounting is adopted).

Financial instruments are initially measured at fair value plus transaction costs, except where the instruments is 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 measured 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 measured 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 reliably 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, where 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

The Group as lessee

At inception of a contract, the Group assesses if the contract contains or is a lease. If there is a lease present, a right-of-use asset and a corresponding lease liability are recognised by the Group where the Group is a lessee. However, all contracts that are classified as short-term leases (ie a lease with a remaining lease term of 12 months or less) and leases of low-value assets are recognised as an operating expense on a straight-line basis over the term of the lease.

Initially the lease liability is measured at the present value of the lease payments still to be paid at the commencement date. The lease payments are discounted at the interest rate implicit in the lease. If this rate cannot be readily determined, the Group uses the incremental borrowing rate.

Lease payments included in the measurement of the lease liability are as follows:

· fixed lease payments less any lease incentives;

· variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;

· the amount expected to be payable by the lessee under residual value guarantees;

· the exercise price of purchase options, if the lessee is reasonably certain to exercise the options;

· lease payments under extension options, if the lessee is reasonably certain to exercise the options; and

· payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.

The right-of-use assets comprise the initial measurement of the corresponding lease liability, any lease payments made at or before the commencement date and any initial direct costs. The subsequent measurement of the right-of-use assets is at cost less accumulated depreciation and impairment losses.

Right-of-use assets are depreciated over the lease term or useful life of the underlying asset, whichever is the shortest.

Where a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group anticipates to exercise a purchase option, the specific asset is depreciated over the useful life of the underlying asset.

The Group as lessor

Upon entering into each contract as a lessor, the Group assesses if the lease is a finance or operating lease.

A contract is classified as a finance lease when the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases not within this definition are classified as operating leases.

Rental income received from operating leases is recognised on a straight-line basis over the term of the specific lease.

Initial direct costs incurred in entering into an operating lease (for example, legal cost, costs to set up equipment) are included in the carrying amount of the leased asset and recognised as an expense on a straight-line basis over the lease term.

Rental income due under finance leases are recognised as receivables at the amount of the Group's net investment in the leases. When a contract is determined to include lease and non-lease components, the Group applies IFRS 15 to allocate the consideration under the contract to each component. 

(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 relates 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 6 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 $1,476,000 (2021: $1,162,000) 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 2022 financial year or prior year, other than the exercise of Conditional Share Awards (2021: $0.003).

8 Trade and other receivables

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

Account receivables include the receivable from TDB Capital for expired bond for which the money was received on 4 January 2023.

9 Prepayments

10 Financial assets

The Group holds term deposits with an average weighted interest rate of 2.92%. 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.

During 2020, the Company was focused on providing all necessary documentation to the Mongolian regulator in an effort to obtain approval for its Exploitation Licence application, which would then enable development of its 2019 Heron discovery in the northern area of Block XX. The Exploitation Licence was approved on 5 July 2021, which allows the Company to be able to appraise, develop and produce oil from the area for a 25-year term, extendable by up to 10-years (two times 5-years)

13 Property, plant and equipment and Right-of-Use asset

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 - 2 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 22 July 2021, the Company concluded a placing by issuing 89,988,470 shares at a price of GBP0.035 per share arranged through its nominated adviser, broker and joint book runner for the purposes of the Placing, Shore Capital Stockbrokers.

(b) On 22 July 2021, the Company concluded a placing by issuing 65,252,142 shares at a price of GBP0.035 per share arranged through its joint book runner for the purposes of the Placing, Arden.

(c) On 22 July 2021, the Company concluded a placing by issuing 14,285,714 shares at a price of GBP0.035 per share through a retail offering via Primary Bid.

(d) On 6 August 2021, the Company issued 45,384,218 shares through direct subscriptions at a price of GBP0.035 per share.

(e) On 6 August 2021, the Company issued 2,169,649 shares through Open Offer to shareholders at a price of GBP0.035 per share.

(f) On 20 December 2021, 259,150 shares were allotted to a Director and employees upon exercise of Conditional Share Awards under the Group's Plan, with an exercise price per share of USD0.01.

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 (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, determined by management as being 5 July 2021 upon the award of the Exploitation License;

· 25% vest on the first production of oil on a commercial scale, estimated by management as to be achieved prior to 31 December 2024; and

· 50% vest on the Company achieving the sale of 1 million barrels of oil, estimated by management as being by 31 December 2025.

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 2021 and 2022.

(c) Movement in Share Options

The weighted average fair value for all Options in existence as at 31 December 2022 is 0.05 (2021: 0.19).

(d) Share Options Contractual Life

The weighted average remaining contractual life of outstanding share Options is 0.5 year (2021: 0.7 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 were granted in 2021 and 2022.

(f) Movement in Conditional Share Awards

The weighted average fair value for all Awards in existence as at 31 December 2022 is 0.84 (2021: 0.84)

(g) Conditional Share Awards Contractual Life

The weighted average remaining contractual life of outstanding Conditional Share Awards is 5.5 years (2021: 6.5 years).

(h) 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.