Mosman Oil Gas Regulatory News (MSMN)

31 March 2020

Mosman Oil and Gas Limited

("Mosman" or the "Company")

Unaudited Half Year Report

Mosman Oil and Gas Limited (AIM: MSMN) the oil exploration, development and production company, announces its unaudited results for the six months ended 31 December 2019, which have been reviewed by the appointed auditors.

Operations Review

Strategy

Mosman's 2019 objective was to identify opportunities which will provide operating cash flow and have further development upside, in conjunction with adding value to the Company's existing exploration permits. The practical aspects of that strategy were updated with the decision to focus on the East Texas region, with emphasis on the Stanley and Greater Stanley projects, and disposing of the Arkoma and Welch projects once there is more certainty in the markets. The Company has steadily increased production and is positioned for growth. However, events of early 2020 mean that growth objectives will now have to be constrained to manage cash flow, and costs have been further reduced. With current oil prices, the outlook for the next year will be challenging particularly if the oil price remains low as the likely financial impact on Mosman will be significant. Accordingly, the Board has been conservative in the impairment tests and reduced the book value of certain assets.

Results

The unaudited results for the six months reflect the earlier decisions of the Board and it is pleasing to see revenue almost double to $998,369 and Gross Profit increased almost eight-fold to $571,937 compared to the previous December six monthly period.

Mosman has been working hard to become cash flow positive at an overall corporate level and also become profitable. Mosman was close to achieving its objectives recording a loss for the period before impairment costs of $178,782.

Including impairment costs of $4,142,016, the loss for the period was $4,320,798.

Post 31 December Events

Despite the pleasing financial result to 31 December, Mosman cannot operate in a vacuum and very recent events associated with COVID-19, as well as the collapse in the oil price have caused extreme market turbulence and will fundamentally affect ongoing operations. Accordingly, the Directors have acted quickly and have implemented several steps designed to further reduce costs and secure the Company's long-term future.

Part of that review was examining the carrying value of all assets, and that led directly to the $4,142,016 Impairment Expense. The USA production assets were impaired by $2,760,720, and the Australian exploration assets were impaired by $1,381,296. The impairment is designed to reflect a potential change in the assets carrying value due to the oil price collapse.

Producing Projects in USA

Mosman has Working Interests in onshore producing projects located in the USA. These projects and Mosman's working interests before royalties (WI) are:

Production Summary for the six months ending 31 December 2019

Net Production attributable to Mosman for the six months was 13,253 boe, an increase of c13% which follows the c81% increase in the six months to June 2019.

Production Details

Further details are outlined below:

* Figures for five months of the period only as Mosman is awaiting December figures for Arkoma

**Strawn project was sold in June 2019

Additional Prospective Projects in USA

In addition, a Working Interest is owned in additional projects, including Challenger, Champion and the Greater Stanley area that was recently acquired and has some production.

Acquisition and Development

A total of $510,526 was expended on acquisition costs and development expenditure during the period. Development expenditure during the period included workovers and repairs that were identified to increase production and develop individual assets.

Australian Exploration

Up until recently Mosman was continuing to progress the exploration portfolio in Australia and maintains its interest in the 100% owned granted permits EP 145 and one application (EPA 155).

On ground activities have recently been restricted.

Corporate

Funding

Mosman will continue to raise funds as required to expand its operations and production and support its current operations, within the limits of the capital markets.

There were no shares issued during the period. On 14 February 2020, the Company announced an equity placing and a subscription which is disclosed in Subsequent Events below.

Norseman Capital Ltd ("Norseman") (previously Gem International Resources Inc)

Mosman continues to hold its shareholding in Norseman and notes that it is now admitted to trade on the NEX Board of the Toronto Stock Exchange (TSX).

The current Board of Norseman (which includes Mosman's Executive Chairman) have recently overseen the relisting, a small capital raising and the settlement of most creditors.

Norseman is considering potential business opportunities, but in the current climate it is extremely difficult to predict the chance of completion, or the timetable.

Blackstone Oil and Gas LLC ('Blackstone')

Blackstone was previously Mosman's strategic partner and a co-investor in the Strawn and Arkoma projects. That arrangement has now ceased. Blackstone became indebted to Mosman for certain amounts due in respect of those projects. Payment has not been forthcoming despite various commitments made by Blackstone.

Mosman commenced legal action against Blackstone to recover amounts due under a promissory note. Mosman has now successfully obtained a Court judgement of c USD 171,000. The next step is for Blackstone's assets to be auctioned off with Mosman receiving the proceeds of the asset sales. The amount received will be dependent on the auction proceeds. Mosman will evaluate its alternatives for recovery of the balance of funds due from Blackstone (c USD 146,000 in addition to the promissory note).

Due to the uncertainty caused by recent events amounts owing by Blackstone have been substantially impaired

Subsequent Events

In February 2020, the Company raised $585,138 (before expenses) by placing 200,000,000 shares at a price of 0.15p per share, together with one warrant to subscribe for one share at an exercise price of 0.23p with a term of 12 months per placing share.

In addition, two Directors of Mosman, John Barr and Andy Carrol indicated their intent to subscribe for $120,000 on the same terms and conditions.

Subsequent to the end of the period, the combined global events of a collapse in the oil price and the spread of Covid-19, have affected all stock markets and most countries. It is extremely difficult to predict the outcome of these matters. The Company has taken action to reduce costs, and all operations have been reviewed. These matters were announced on 24 March 2020 and included a focus on reducing operating costs and preserving the Company's cash resources.

Other than the above, there were no significant events subsequent to the date of statement of financial position. 

Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income

For The Half Year Ended 31 December 2019

All amounts are in Australian Dollars

The accompanying notes form part of these consolidated financial statements. 

Condensed Consolidated Statement of Financial Position

As at 31 December 2019

All amounts are in Australian Dollars

The accompanying notes form part of these consolidated financial statements.

Condensed Consolidated Statement of Changes in Equity

For the Half Year Ended 31 December 2019

All amounts are in Australian Dollars

These accompanying notes form part of these consolidated financial statements  

Condensed Consolidated Statement of Cash Flows

For the Half Year Ended 31 December 2019

All amounts are in Australian Dollars

The accompanying notes from part of these consolidated financial statements

Condensed Notes to the Financial Statements

For the Half-Year Ended 31 December 2019

All amounts are Australian Dollars

1. Summary of Significant Accounting Policies

Statement of Compliance

The half-year financial report is a general purpose financial report prepared in accordance with the Corporations Act 2001 and AASB 134 'Interim Financial Reporting'. Compliance with AASB 134 ensures compliance with International Financial Reporting Standard IAS34 'Interim Financial Reporting'. The half-year report does not include notes of the type normally included in an annual financial report and should be read in conjunction with the most recent annual financial report.

Basis of preparation

The condensed consolidated financial statements have been prepared on the basis of historical cost, except for the revaluation of certain non-current assets and financial instruments. Cost is based on the fair values of the consideration given in exchange for assets. All amounts presented in Australian dollars, unless otherwise noted.

The accounting policies and methods of computation adopted in the preparation of the half-year financial report are consistent with those adopted and disclosed in the Group's 2019 annual financial report for the financial year ended 30 June 2019, except for the impact of the Standards and Interpretations described below. These accounting policies are consistent with Australian Accounting Standards and with International Financial Reporting Standards (IFRS).

Going ConcernThe condensed consolidated financial statements have been prepared on the going concern basis, which contemplates continuity of normal business activities and the realisation of assets and the discharge of liabilities in the normal course of business.

The directors have considered the funding and operational status of the business in arriving at their assessment of going concern and believe that the going concern basis of preparation is appropriate, based upon the following:

· Current cash and cash equivalents on hand;

· The ability to further vary cash flow depending upon the achievement of certain milestones within the business plan and;

· The ability of the Company to obtain funding through various sources, including debt and equity.

Exploration and Evaluation Costs

Exploration and evaluation expenditure incurred is accumulated in respect of each identifiable area of interest. These costs are carried forward in respect of an area for which the rights to tenure are current and that has not at reporting date reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in, or relating to, the area of interest are continuing.

Impairment of Exploration and Evaluation Assets

The ultimate recoupment of the value of exploration and evaluation assets is dependent on the successful development and commercial exploitation, or alternatively, sale, of the exploration and evaluation assets.

Impairment tests are carried out when there are indicators of impairment in order to identify whether the asset carrying values exceed their recoverable amounts. There is significant estimation and judgement in determining the inputs and assumptions used in determining the recoverable amounts.

Condensed Notes to the Financial Statements

For the Half-Year Ended 31 December 2019

All amounts are Australian Dollars

1. Summary of Significant Accounting Policies (Continued)

The key areas of judgement and estimation include:

· Recent exploration and evaluation results and resource estimates;

· Environmental issues that may impact on the underlying tenements; and

· Fundamental economic factors that have an impact on the operations and carrying values of assets and liabilities.

Revenue Reporting

Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances, rebates and amounts collected on behalf of third parties.

The group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group's activities as described below. The group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

Interest revenue is recognised using the effective interest rate method, which, for floating rate financial assets, is the rate inherent in the instrument.

Oil and Gas assets

The cost of oil and gas producing assets and capitalised expenditure on oil and gas assets under development are accounted for separately and are stated at cost less accumulated amortisation and impairment losses. Costs include expenditure that is directly attributable to the acquisition or construction of the item as well as past exploration and evaluation costs.

When an oil and gas asset commences production, costs carried forward are amortised on a units of production basis over the life of the economically recoverable reserves. Changes in factors such as estimates of economically recoverable reserves that affect amortisation calculations do not give rise to prior financial period adjustments and are dealt with on a prospective basis.

Segment Reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance.

New standards and interpretations

AASB 16: Leases

The consolidated group has adopted AASB 16 from 1 July 2019.

The adoption of this new Standard has resulted in the Group recognising a right-of-use asset and related lease liability in connection with all current leases except for those identified as low-value or having a remaining lease term of less than 12 months from the date of initial application.

On 31 December 2019, the Group did not have any non-low value operating leases with lease terms longer than 12 months. As a result, the adoption of AASB 16 did not have any effect on the Group's opening balances at 1 July 2019.

Condensed Notes to the Financial Statements

For the Half-Year Ended 31 December 2019

All amounts are Australian Dollars

1. The $208,791 decrease in the receivable comprises of $209,000 impairment of the loan, less $209 of foreign exchange gains.

1. This loan was repaid in full in February 2020;

2. The $138,843 decrease in the receivable comprises of $187,904 impairment of the loan, less $49,061 of interest and reimbursements due.

Condensed Notes to the Financial Statements

For the Half-Year Ended 31 December 2019

All amounts are Australian Dollars

Condensed Notes to the Financial Statements

For the Half-Year Ended 31 December 2019

All amounts are Australian Dollars

14 Segment Information

The Group has identified its operating segments based on the internal reports that are reviewed and used by the board to make decisions about resources to be allocated to the segments and assess their performance.

Operating segments are identified by the board based on the Oil and Gas projects in Australia the United States. Discrete financial information about each project is reported to the board on a regular basis.

The reportable segments are based on aggregated operating segments determined by the similarity of the economic characteristics, the nature of the activities and the regulatory environment in which those segments operate.

The Group has three reportable segments based on the geographical areas of the mineral resource and exploration activities in Australia, the United States. Unallocated results, assets and liabilities represent corporate amounts that are not core to the reportable segments.

Condensed Notes to the Financial Statements

For the Half-Year Ended 31 December 2019

All amounts are Australian Dollars

14 Segment Information (continued)

Condensed Notes to the Financial Statements

For the Half-Year Ended 31 December 2019

All amounts are Australian Dollars

Condensed Notes to the Financial Statements

For the Half-Year Ended 31 December 2019

All amounts are Australian Dollars

16 Expenditure Commitments

(a) Exploration

The Company has certain obligations to perform minimum exploration work on Oil and Gas tenements held. These obligations may vary over time, depending on the Company's exploration programs and priorities. At 31 December 2019, the Company has estimated the monetary value of the total exploration commitments for the next 12 months are as follows:

1 An extension to the work program condition has been granted until 21 August 2020, when there will be a commitment for completion of 100km of 2D seismic surveys, seismic processing and interpretation and well planning. If the Company has not fulfilled the above obligations, a negotiation with the Northern Territory Department of Primary Industry and Resources may be commenced to extend the period for completion, or the permit relinquished. There can be no certainty that an extension may be granted.

(b) Capital Commitments

The Company had no capital commitments at 31 December 2019 (2018 - $Nil).

17 Subsequent Events

In February 2020 the Company raised $585,138 (before expenses) by placing 200,000,000 shares at a price of 0.15p per share, together with one warrant to subscribe for one share at an exercise price of 0.23p with a term of 12 months per placing share.

In addition, two Directors indicated their intent to subscribe for $120,000 on the same terms and conditions.

Subsequent to the end of the period the global events of a collapse in the oil price and the spread of Covid-19 have affected most countries. It is extremely difficult to predict the outcome of these matters. The company has taken action to reduce costs, and all operations have been reviewed. These matters were announced on 24 March 2020.

Other than the above, there were no significant events subsequent to the date of statement of financial position.

18 Dividends

No dividends have been paid or proposed during the half year ended 31 December 2019.

Enquiries:

Updates on the Company's activities are regularly posted on its website: www.mosmanoilandgas.com