17 May 2021 07:00
17 May 2021
Phoenix Global Resources plc
("Phoenix" or the "Company")
Final Results for the year ended 31 December 2020
Phoenix Global Resources plc (AIM: PGR; BCBA: PGR), the upstream oil and gas company, announces its audited final results for the year ended 31 December 2020.
Summary
· Revenue of US$54.0 million (2019: US$129.4 million)
· Adjusted EBITDA loss of US$7.2 million (2019: Adjusted EBITDA of US$12.6 million)¹
· Operating loss of US$ 219.7 million (2019: loss of US$110.2 million)
· Average daily production in 2020 of 4,549 beopd (2019: 7,023 beopd)²
· 2P reserves at 18.8 MMboe (2019: 29.8 MMboe)
Outlook
Whilst these are truly unprecedented times with disruption on the demand and supply side, the directors believe they are able to leverage this situation and take this opportunity to continue to reduce and optimise its normalised production cost base. The Company is fundamentally focused on unconventional development and has excellent assets in this space and believes it is now better placed to progress the development of these assets, which is the Company's core objective. The directors recognise that significant investment will be required in the coming years to develop these assets and enhance value and acknowledges this may include third party partners and local debt providers in the funding mix to support this development.
Notes:
¹Adjusted EBITDA represents earnings before interest, taxes, depreciation, amortisation and non-recurring expenses
²Excluding production from non-core assets sold
For further information, please contact:
Phoenix Global Resources plc | Pablo Bizzotto, CEO Nigel Duxbury, CFO
| T: +54 11 5258 7500 T: +44 20 3912 2800
|
Shore Capital Nominated Adviser and Joint Broker
| Toby Gibbs David Coaten | T: +44 20 7408 4090 |
Panmure Gordon Joint Broker |
Daniel Norman Atholl Tweedie |
T: +44 20 7886 2500 |
About Phoenix
Phoenix Global Resources is an independent oil and gas exploration and production company focused on Argentina and listed on both the London Stock Exchange (AIM: PGR) and the Buenos Aires Stock Exchange (BCBA: PGR) and offers its investors an opportunity to invest directly into Argentina's Vaca Muerta shale formation and other unconventional resources. The Company has over 0.9 million licenced working interest acres in Argentina (of which approximately 0.7 million are operated), 18.8 million boe of working interest 2P reserves and average working interest production of 4,549 boepd in 2020. Phoenix has significant exposure to the unconventional opportunity in Argentina through its approximately 0.6 million working interest acres with Vaca Muerta and other unconventional potential.
Annual Report
The Company will be posting to shareholders a copy of the audited annual report for the year ended 31 December 2020 on or around 24 May 2021 together with the notice for a General Meeting, to be held at the offices of Phoenix Global Resources at King's House, 10 Haymarket, London SW1Y 4BP at 11.00am on 30 June 2021. The annual report will be made available on the Company's website on the day of its posting
The Company's website is www.phoenixglobalresources.com
CHAIRMAN'S STATEMENT
Whilst the environment continues to be extremely challenging, the directors have taken significant steps to restructure the Company, which the directors believe will put the Company in a stronger position to focus on the continued development of its unconventional assets.
The Company's major shareholder, Mercuria Group Limited ('Mercuria'), continues to be supportive and the directors, whilst exercising a degree of caution, believe the actions taken put the Company on a stronger financial footing, whilst appreciating this position could change very quickly in these uncertain times.
Overview and current operations
2020 was dominated by Covid-19 and its rapid development as a life-threatening global pandemic. Globally, respective governments' response has been one of containment through lock-down, social distancing restrictions, quarantine and self-isolation for substantially all citizens, whilst countries strive to roll out vaccination programs. This has resulted in a significant adverse impact on industrial and commercial activity, which led to the shut-down of the Company's production in April 2020. Consequently, the Company took significant steps to reduce its costs in all areas of the business. Annual general and administration costs were reduced by over 50% and field contracts restructured to reposition the cost base of the Company. The directors believe these cost reduction actions mean the Company is in a better position to produce oil economically at lower oil prices with a positive contribution to cash flow at normalised production levels, which will allow the Company to focus on the continued development of its unconventional assets.
During the year Kevin Dennehy, David Jackson and Javier Alvarez stepped down from the board and we would like to thank them for the significant contributions they have made during their time with the Company.
Our new CEO, Pablo Bizzotto, was appointed in September 2020 and has extensive oil industry experience, particularly in unconventional activities in the Vaca Muerta through his previous role with YPF. With the appointment of Pablo Bizzotto, the Company's prime focus for 2021 and 2022 is the development of its Mata Mora licences and the exploration of its Corralera licences and a new study and execution team has been hired to facilitate these objectives.
The Company has been in discussions with the Neuquen Province to secure an unconventional exploitation concession for its Mata Mora block and an extension of its Corralera licence commitment obligations. Since the year end, the Province has issued a Decree granting a 35-year unconventional exploitation concession over approximately 43,372 acres in the northern part of Mata Mora and extending for 5 years to April 2026 the exploration rights over approximately 11,918 acres in the southern part of Mata Mora. Furthermore, the Province has issued a Decree approving a one-year extension of the exploration rights for the Corralera Noreste and Corralera Sur blocks to April 2022.
The Mata Mora concession involves a pilot phase, with certain works to be completed by March 2026, which includes a capex commitment of US$110 million, consisting of four pads of three horizontal wells each, with an average lateral length of 2,150 metres. The Corralera exploration commitment includes obligations to execute two horizontal wells by April 2022.
The work program planned for 2021 includes the drilling of the first pad of three wells in Mata Mora and the drilling and completion of the two horizontal wells in Corralera with the second pad of three wells in Mata Mora to be drilled and completed in 2022 together with the completion of the first pad of three wells.
Funding
Our major shareholder, Mercuria continues to be supportive of the Company's plans and has extended short-term debt facilities to fund operations. Mercuria has written to the Company stating its intention to continue to provide financial support to the Company in order that it may continue to operate and service its liabilities as they fall due in the next 12 months and also fund the planned work programs. Mercuria has also specifically agreed to not demand repayment of the existing loans (principal and interest) within the next 12 months whilst discussions with the Company to restructure these loans continue. This letter, which by its nature is not legally binding, represents a letter of comfort stating Mercuria's current intention to continue to provide financial support.
The directors believe they will be able to agree the renegotiation of the existing debt with Mercuria and formalise an agreement for new funding and that the Group and Company can continue as a going concern for the foreseeable future. The application of the going concern basis of preparation of the financial statements included in this annual report is based on the letter that has been received from Mercuria and the ongoing discussion with the Mercuria principals. Accordingly, the directors continue to adopt the going concern basis for accounting in preparing the 2020 financial statements.
However, the directors recognise that if financial support over the next 12 months from Mercuria were not to be available and the Company is unable to restructure the existing loan agreements from Mercuria or obtain funding from alternative sources, this gives rise to a material uncertainty that may cast significant doubt on the Group's and Company's ability to continue as a going concern.
Summary
Whilst we have seen Covid-19 restrictions gradually lifting and economic and industrial activity increasing, the situation continues to be fluid and can change very quickly as we have seen with a number of countries experiencing 'second and third waves'.
Argentina continues to experience high inflation and a continuous devaluation of the Peso. The country is in its third straight year of recession. Whilst it announced at the end of August 2020, that 99% of the holders of the country's US$65 billion international bonds had agreed to restructure this debt, giving the country a better chance of recovery, discussions between the Argentine government and the IMF to reschedule US$45 billion of debt are ongoing and the outcome of the 2021 legislative elections in Argentina is uncertain. The current administration continues its intent to provide economic and regulatory support to four key sectors of the economy: agriculture; oil and gas; mining; and intellectual services.
The Company is also conscious of its environmental, social governance responsibilities and developing policies and procedures to reduce emissions and establish goals that minimise the impact on the environment and our stakeholders.
Whilst these are truly unprecedented times with disruption on the demand and supply side, the directors believe they can leverage this situation and take this opportunity to continue to reduce and optimise the Company's normalised production cost base. The Company is fundamentally focused on unconventional development and has excellent assets in this space and believes it is now better placed to progress the development of these assets, which is the Company's core objective. The directors recognise that significant investment will be required in the coming years to develop these assets and enhance value and acknowledges this may include third party partners and local debt providers in the funding mix to support this development.
Sir Michael Rake
Non-executive chairman
17 May 2021
OPERATING REVIEW
Covid-19
Like many other companies in Argentina, Phoenix has been heavily impacted by the Covid-19 outbreak in the country. Quarantine restrictions introduced in late March 2020 and the resulting drop in the demand for oil, saw most refiners suspending the purchase of oil. Following notice from YPF that it was temporarily suspending the purchase of oil, the Company was faced with no option but to shut-down production of crude oil from its operated licences Puesto Rojas, Atamisqui and Tupungato with production of oil from licences operated by third parties reduced significantly. Production has restarted and is expected to continue if demand in Argentina continues to increase, at its operated licences Puesto Rojas, Tupungato and Atamisqui and its non-operated licence Chachahuen, albeit initially at lower levels than before the Covid-19 pandemic. Production has also recently restarted at the Company's non-operated licences Rio Cullen/Las Violetas and Cajon de Los Caballos and the Company restarted production at its operated licence Mata Mora in November 2020. The Company is continuing to follow all recommended procedures regarding Covid-19 and take all the steps necessary to maintain the safety of its employees and contractors.
Operated Assets - Neuquén Province
Mata Mora
The MMox-1002 was successfully reactivated in February 2020 after an extended shut-in designed to provide reservoir surveillance regarding reservoir pressures and future well spacing. Both Mata Mora wells were shut-in during May 2020 as there was no market for the oil being produced and remained shut-in through November 2020. Both wells are now active and in December producing at a combined rate of approximately 630 barrels of oil per day.
Post year-end highlights:
In March 2021, Neuquén Province approved an unconventional exploitation concession for approximately 78% of original Mata Mora's acreage (43,372 acres), for a term of 35 years.
A pilot phase commitment of 12 horizontal wells consisting of four pads of three wells each with an average lateral length of 2,150m with an estimated capital expenditure of US$110 million is planned to be executed within the next five years.
The first pad is being planned and permitted to be drilled in the fourth quarter of 2021. A complete suite of data acquisition is planned in order to characterise the unconventional reservoir and to start working on stimulation design and further well spacing optimisation.
A full field development of 192 horizontal wells is being considered with an estimated potential of 203 MMboe with a total capital investment of US$2,440 million.
The remaining 22% of the original licence is now the new Mata Mora Sur block (11,918 acres), covering a region that involves agricultural activity and San Patricio del Chañar town, and will remain in the exploration phase for a further five years with a commitment of 3D seismic acquisition covering the region.
Corralera Area
The Company was progressing its plans to drill its first well targeting Agrio Formation in the Corralera area until the Covid-19 restrictions resulted in the Company suspending these operations. The well pad location was substantially completed, and the Company evaluated options with GyP and the Neuquen Province regarding the most effective way to fulfil the Company's licence commitment obligations.
Post year-end highlights:
The primary unconventional target has changed from the Agrio to the Vaca Muerta formation based on revised expectation of fluid type given the contrasting thermal maturity, neighbouring well results, and better understanding of landing zones alternatives for the Vaca Muerta formation.
A one-year extension was agreed with GyP (and submitted for provincial approval) for the first exploration period for Corralera Noreste and Corralera Sur to execute the revised two horizontal wells in planning to evaluate Vaca Muerta unconventional oil potential. The proposed wells include the drilling of vertical pilots for data acquisition needed to define the landing zone targets and then the drilling of horizontal sidetracks with 2,000 m of lateral length. A decree approving the extension was issued by the Province on 13 April 2021.
It is expected to drill the committed wells in the third quarter of 2021 and complete them by the first quarter of 2022, with a total investment of US$29 million.
A new office has been inaugurated in the capital city of Neuquén Province to handle the increasing activity that is being planned for this region's assets and increased activity related to exploration and pilot phases of Corralera, Mata Mora, and the additional commitments to delineate the Vaca Muerta play as an unconventional target.
Operated assets - Mendoza Province
After a three-month period of general well shut down, in July 2020 oil sales were re-established, wells were restarted with lower production losses than previously estimated.
The main contracts were revised, such as the ones related with operations and maintenance, oil transport and pulling rigs, allowing an OPEX/boe reduction of 34% (from 26.4 US$/boe to 17.4 US$/boe comparing Q1 2020 and Q4 2020).
Post year-end:
With the objective of identifying and assessing the risks in our facilities and implementing controls to avoid incidents, we are planning to execute a risk assessment at seven facilities in our operated assets (Tupungato oil treatment plant, Tupungato water injection plant, Atamisqui oil treatment plant, Cerro Mollar oil treatment plant, Cerro del Medio Separation unit, Cerro Pencal 1006 battery and Malargüe delivery plant).
Puesto Rojas Area
First quarter activity included a workover of CP-1014 and workover jobs on older wells to maintain production levels. Like other assets, Puesto Rojas was shut-in in April 2020 following notice from YPF that they were suspending oil purchases in Mendoza Province. The field was subsequently re-activated with minimal well damage apart from wells CDM-3004, CDM-3007, CP-1003, PR-53 and CP-1014. Wells CDM-3004, CP1003 and CP1014 have now been remediated but remedial work is still due to be completed on wells CDM-3007 and PR-53, which currently remain offline. Wells CP-1006 and CP-1008 remain shut-in for gas handling limits in the field.
In accordance with decree N° 485/2019, in July 2020 the Company advised the Mendoza Province Direction of Hydrocarbons that it would be exercising its right to extend the 'Pilot Plan' phase until 30 June 2022, in order to continue the Company's planning of a horizontal well in the area, contingent on the results of a new study of the region currently being undertaken. During this period, 12% royalties will be maintained on the production of the unconventional wells.
Post year-end highlights:
Based on the variable results of the Vaca Muerta vertical wells, related with the structural complexity of the area and the variable hydrocarbon quality, an integrated post-mortem study is under execution to define the next steps in the unconventional project.
To date, most of the evaluated structures show at least some amount of compartmentalisation, fault planes, low API oils, or a combination of these factors that negatively affects hydraulic fractures efficiency, well performance, and the ability to execute unconventional 'factory mode' type development. We expect to complete this initial study in the second quarter of 2021.
Rio Atuel
The evaluation of the MLx-1001 drilled in 2019 was completed and based on the results it has been determined not to be commercial and the costs were expensed in the second quarter. No other 2020 physical activity was planned while studies are ongoing of the well results and other subsurface data previously collected.
Due to the constraints generated by the strict quarantine defined by national authorities, in July 2020 a request was made to the Mendoza Province Direction of Hydrocarbons for a one-year extension until 18 December 2021 to execute the committed activity within the third exploration period. The outstanding commitment currently consists of drilling a vertical well in the block. This request for an extension was approved in April 2021.
Four different well locations are under study for the remaining commitment well with environmental impact studies recently completed and approved for all the potential locations. Planning and selection of the well location to be drilled is ongoing with drilling planned for the second half of 2021.
La Paloma
The LP-9 and LP-7 wells were drilled in the La Paloma/Cerro Alquitran area targeting the Grupo Neuquén formation in 2019 and were planned for completion in the first half of 2020 prior to the Covid-19 restrictions, causing us to suspend this activity. The Company is currently evaluating options as to when it is best to complete these wells.
LP-7 and LP-9 completions are still pending. In September 2020, an extension to 30 July 2021 was requested to the authorities in respect of which we are still awaiting a response.
Cerro Doña Juana-Loma Cortaderal
In the context of the commitment fulfilment date of 17 August 2021, the technical and subsurface teams continue to evaluate the characteristics that will determine the scope and the timeframe of the work to be performed in the licence.
Cuyana Basin
Like the Puesto Rojas area, the Company's Cuyana Basin fields of Atamisqui and Tupungato were shut-in in April 2020 following notice from YPF that they were suspending oil purchases in the Mendoza Province. The field was subsequently re-activated with minimal well damage.
NON-OPERATED ASSETS
Chachahuen Area
In the Chachahuen Sur area, the focus for 2020 was to improve the water flooding projects and start a Polymer Pilot Project. However, given the market conditions, most of this work was postponed. At Cerro Morado Este, the focus for 2020 was on the water flooding pilot plan, with three water injection patterns, and performing production facilities improvements. In the first quarter, three workovers were performed on injector wells (ChuS-158; ChuS293 and ChuS-294). At Cerro Morado Este, the focus for 2020 was on the water flooding pilot plan, with three water injection patterns, and performing production facilities improvements. During the first quarter of the year completion of five wells on backlog from 2019 was performed on CMoE-20; CMoE-54; CMoE-61; CMoE-66 and CMoE-67. Since April 2020, activity was reduced to a minimum in this area due to the market situation and Covid-19 restrictions and in May 2020, the Company's share of the production was shut-in due to YPF's notice of suspension of oil purchases. The Company's share of oil production has restarted, with oil initially sold to a different off-taker and subsequently to YPF.
Post year-end highlights:
Four Polymer Injection Units will be installed between the last quarter of 2021 and first quarter of 2022, to begin an Enhanced Oil Recovery project. Also, additional efforts are being made in order to increase water injection in the secondary recovery project, improve the water distribution system, and re-establish water injection in wells currently shut-in due to integrity issues.
The operator continues a legal process to include 104km² of the Chachahuen Sur evaluation area in the Cerro Morado Este concession. This application is currently awaiting the authority's response to the latest administrative appeal filed recently.
Tierra del Fuego Area
In the Terra del Fuego Province the Company has interests in three non-operated assets in the Austral Basin in a joint venture with Roch S.A. and others.
In January 2020, the water cut in the SM.x-1001 increased rapidly to more than 50% of total production and the well was shut-in. In March 2020, a workover job was performed on this well with production tests in the middle and upper Tobifera as part of the further evaluation of the well. A test in the upper Tobifera section, above current productive perforations, showed an average production rate of 1,576 bpd over seven days with lower water cut and production was subsequently restored in this well. However, as of January 2021 the water cut has increased again, and oil production has fallen to below 300 bpd from this well.
Since the second half of 2019, the buoy at the YPF terminal has been out of service and oil production has been trucked to the Chilean ENAP terminal with an increased transportation cost. Following a Covid-19 outbreak at the ENAP terminal, cross-border sales were closed, causing most oil wells to be shut-in. Only gas production continued with a small light associated oil volume. However, the YPF buoy was subsequently repaired in August 2020 and oil production was restarted in late September 2020. Due to reservoir performance concerns and the market situation and Covid-19 restrictions, planned drilling activity and facilities improvements were postponed, leaving only HSE related activities to continue where possible.
FINANCIAL REVIEW
Revenue and gross margin
Revenue for the year was US$54.0 million (2019: US$129.4 million), comprising revenue from oil sales of US$52.2 million (2019: US$114.7 million) and revenue from gas sales of US$1.8 million (2019: US$14.8 million).
The reduction in oil revenue between years resulted from a combination of the shut-in of production due to Covid-19, a reduction in the realised price per barrel and lower sales volumes year-on-year.
The average realised oil sales price in 2020 was US$37.74/bbl, a 21% decline on the average price of US$47.96/bbl in 2019. Realised prices achieved by the Company are indirectly linked to Brent.
The emergence of Covid-19 as a global pandemic and the resulting fall in the demand for oil has had a significant impact on the operations of the Company. The over-supply of crude in the market resulted in YPF, the state-controlled Argentine energy company, giving notice to its customers of the suspension of the purchase of oil until further notice. This resulted in refineries stopping the acceptance of deliveries, leaving the Company with no option but to shut-down production in April 2020.
Crude oil prices dropped to historic lows with the average Brent crude price falling year-on-year by 33%, from an average of US$64/bbl in 2019 to an average of US$43/bbl in 2020.
In May 2020, Argentina's Government issued a decree establishing a fixed realised Medanito price of $45/bbl ('Barril Criollo'), subject to certain conditions, demonstrating the intention of the government to support the industry where possible. This pricing support remained in place until September 2020 when the Brent crude benchmark price exceeded US$45/bbl for 10 consecutive days, which was one of the conditions that would cause the support to expire. It has not been reinstated and prices were subject to the Brent crude benchmark.
Average daily oil sales in the year was 3,776 bopd compared to 6,059 bopd in 2019 (excluding sales from non-core assets sold).
Gas revenues arise mostly in the non-operated segment and declined by US$12.9 million in the year compared to 2019, mainly due to the sale in 2019 of the Santa Cruz Sur asset and a reduction of 40.4% in the realised price from an average of US$3.32/MMcf in 2019 to an average of US$1.98/MMcf in 2020. In addition, the shut-in of some of the gas producing wells on the non-operated assets, Rio Cullen and Las Violetas, due to the impact of Covid-19, resulted in lower volumes produced and sold.
Operating costs
Average operating costs increased year-on-year from US$17.7/boe in 2019 (excluding non-core assets sold) to US$18.7/boe in 2020, primarily due to the reduced production levels resulting in the fixed element of production costs being allocated over lower volumes. However, average operating cost for December 2020 had fallen to US$14.4/boe by the end of 2020 reflecting the impact of the cost reduction programs implemented during the year.
Depreciation decreased by US$24.8 million in the year from US$66.1 million (including depreciation of assets sold of US$9 million) to US$41.3 million 2020, primarily due to the fall in production volumes.
Other operating costs
An exploration expense of US$2.7 million has been recognised in the year, primarily relating to the write-off of the US$2.5 million cost of the Rio Atuel exploratory well.
At the year-end, management's impairment assessment considers potential triggers for impairment including, inter-alia, adverse results from drilling programs, changes in oil and gas prices and other market conditions, cost of future development and licence periods. Following this assessment, the Company has recognised an impairment loss of US$15.2 million relating to the write down of goodwill attributable to our interest in Chachahuen recognised at the time of the business combination in 2017.
In addition, our assessment indicated that the carrying value of certain licences had been potentially impaired and a charge for impairment of US$149.3 million has been recognised, reflective of lower reserves, lower oil price environment and higher discount factor being applied to the DCF calculations (Chachahuen US$17.7 million, Puesto Rojas US$114.7 million, La Paloma US$5.6 million, El Manzano US$8.6 million, Atamisqui US$1.8 million and Cajon Oriental US$0.8 million, Rio Atuel and Vega Grande US$0.1 million).
Furthermore, an additional US$6.6 million charge has been recognised against an asset held for sale.
Finance income and costs
Net finance costs decreased by US$9.3 million to US$15.4 million in 2020 compared to US$24.7 million in 2019. The decrease in cost was primarily driven by the benefit on transfers of US$ into Argentina under the 'contado con liquidacion' mechanism, a reduction in the foreign exchange losses on Peso denominated balances held by the Company and a reduction in other finance costs.
Taxation
A US$38.0 million tax credit was recognised in 2020, compared to a US$21.0 million tax credit in 2019. The increase in the deferred tax credit in the year primarily resulted from the reduction in the book value of fixed assets when compared to the tax-deductible value following the provision for impairment together with the deferred tax benefit of the increase in net operating losses, which the respective companies expect to recover in future periods.
Balance Sheet
At 31 December 2020 the Group had net assets of US$26.1 million, a decrease of US$196.6 million compared to 31 December 2019.
During the year, intangible assets and property, plant and equipment decreased by US$200.5 million primarily due to charges for impairment of US$149.3 million, DD&A of US$41.3 million offset by US$8.1 million of additions, the write down of goodwill of US$15.2 million and the write-off of an unsuccessful exploration well of US$2.8 million.
Current and non-current trade and other receivables decreased from US$39.3 million to US$29.5 million at 31 December 2020 principally due to the lower oil volumes sold at the end of the year. Inventories increased from US$18.2 million to US$18.3 million at 31 December 2020. Net deferred tax liabilities decreased from US$69.1 million to US$33.57 million at 31 December 2020 primarily due to an increase in the deferred tax credit in the year resulting from the reduction in the book value of fixed assets when compared to the tax deductible value following the write down of goodwill and the provision for impairment and the deferred tax credit resulting from the net operating loss for the year. Trade and other payables decreased from US$44.8 million to US$26.2 million at 31 December 2020 due to the reduced costs resulting from the lower oil volumes sold.
Funding status and going concern
Total borrowings in the year increased by US$28.6 million from US$303.6 million at 31 December 2019 to US$332.2 million at 31 December 2020. The increase resulted primarily from the drawdown of an additional US$14.3 million of funds from the revolving convertible credit facility and bridging facility with Mercuria and a total of US$15.2 million of accrued interest. Funds advanced under the credit facilities have been used to satisfy working capital needs.
The Group principally generates cash from its existing conventional oil and gas production operations. Nevertheless, it was formed with the stated intention of undertaking a significant exploration, evaluation and development program focused on the Group's unconventional oil and gas assets in Argentina, including the Vaca Muerta formation.
2020 has been dominated by Covid-19 and its rapid development as a life-threatening global pandemic. Globally, respective governments' response has been one of containment through lock-down, social distancing restrictions, quarantine and self-isolation for substantially all citizens, whilst countries strive to roll out vaccination programs. This has resulted in a significant adverse impact on industrial and commercial activity, which led to the shut-down of the Company's production in April 2020. Consequently, the Company took significant steps to reduce its costs in all areas of the business. The directors believe these cost reduction actions mean the Company is in a better position to produce oil economically at lower oil prices with a positive contribution to cash flow at normalised production levels, which will allow the Company to focus on the continued development of its unconventional assets. This situation is compounded by the political and economic uncertainty in Argentina. The country is in its third straight year of recession and whilst it announced at the end of August 2020 that 99% of the holders of the country's US$65 billion international bonds had agreed to restructure this debt discussions between the Argentine government and the IMF to reschedule US$45 billion of debt are ongoing and the outcome of the 2021 legislative elections in Argentina is uncertain.
Notwithstanding, our major shareholder, Mercuria, continues to be supportive of the Company's plans and continues to extend short-term debt facilities to fund operations. Mercuria has written to the Company stating its intention to continue to provide financial support to the Company in order that it may continue to operate and service its liabilities as they fall due in the next 12 months and also fund the planned work programs. Mercuria has also specifically agreed to not demand repayment of the existing loans (principal and interest) within the next 12 months whilst discussions with the Company to restructure these loans continue. This letter, which by its nature is not legally binding, represents a letter of comfort stating Mercuria's current intention to continue to provide financial support.
The directors believe they will be able to agree the renegotiation of the existing debt with Mercuria and formalise an agreement for new funding and that the Group and Company can continue as a going concern for the foreseeable future. The application of the going concern basis of preparation of the financial statements included in this annual report is based on the letter that has been received from Mercuria and the ongoing discussion with the Mercuria principals. Accordingly, the directors continue to adopt the going concern basis for accounting in preparing the 2020 financial statements.
However, the directors recognise that if financial support over the next 12 months from Mercuria were not to be available and the Company is unable to restructure the existing loan agreements from Mercuria or obtain funding from alternative sources, this gives rise to a material uncertainty that may cast significant doubt on the Group's and Company's ability to continue as a going concern.
At 31 December 2020 the Group had cash and cash equivalents of US$5.4 million (2019: US$11.0 million).
Consolidated Income Statement
For the year ended 31 December 2020
Note | 2020 US$'000 | 2019 US$'000 | |
Revenue | 3 | 54,001 | 129,417 |
Cost of sales | (81,401) | (144,813) | |
Gross loss | (27,400) | (15,396) | |
Selling and distribution expenses | (1,958) | (5,230) | |
Exploration expenses | (2,746) | (4,240) | |
Loss on termination of licences and other impairment charges | (171,129) | (27,753) | |
Loss on sale of non-current assets | (6) | (28,971) | |
Administrative expenses | (14,892) | (27,144) | |
Other operating income/(expenses) | (1,527) | (1,417) | |
Operating loss | (219,658) | (110,151) | |
Finance income | 6,905 | 1,577 | |
Finance costs | (22,276) | (26,247) | |
Loss before taxation | (235,029) | (134,821) | |
Taxation | 38,005 | 21,011 | |
Loss for the year | (197,024) | (113,810) | |
Loss per ordinary share | |||
Basic and diluted loss per share | 7 | (0.07) | (0.04) |
The above Consolidated Income Statement should be read in conjunction with the accompanying notes.
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2020
2020 US$'000 | 2019 US$'000 | |
Loss for the year | (197,024) | (113,810) |
Translation differences | - | - |
Total comprehensive loss for the year | (197,024) | 113,810) |
The above items will not be subsequently reclassified to profit and loss. There are no impairment losses on revalued assets recognised directly in equity.
The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
Consolidated Statement of Financial Position
At 31 December 2020
Note | 2020 US$'000 | 2019 US$'000 | |
Non-current assets | |||
Property, plant and equipment | 4 | 158,357 | 324,249 |
Intangible assets and goodwill | 5 | 211,974 | 246,540 |
Other receivables | 4,124 | 4,744 | |
Deferred tax assets | 20,116 | 18,534 | |
Total non-current assets | 394,571 | 594,067 | |
Current assets | |||
Assets held for sale | 11,965 | 18,208 | |
Inventories | 18,349 | 18,202 | |
Trade and other receivables | 25,399 | 34,527 | |
Cash and cash equivalents | 5,386 | 11,002 | |
Total current assets | 61,099 | 81,939 | |
Total assets | 455,670 | 676,006 | |
Non-current liabilities | |||
Trade and other payables | 299 | 5,370 | |
Borrowings | 6 | 6,641 | 146,751 |
Deferred tax liabilities | 53,682 | 87,636 | |
Provisions | 15,965 | 15,784 | |
Total non-current liabilities | 76,587 | 255,541 | |
Current liabilities | |||
Liabilities held for sale | 447 | 447 | |
Trade and other payables | 25,909 | 39,446 | |
Income tax liability | 920 | 870 | |
Borrowings | 6 | 325,592 | 156,865 |
Provisions | 121 | 120 | |
Total current liabilities | 352,989 | 197,748 | |
Total liabilities | 429,576 | 453,289 | |
Net assets | 26,094 | 222,717 | |
Equity | |||
Share capital and share premium | 457,183 | 456,734 | |
Other reserves | (112,150) | (112,150) | |
Retained deficit | (318,939) | (121,867) | |
Total equity | 26,094 | 222,717 |
The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.
Consolidated Statement of Changes in Equity
For the year ended 31 December 2020
Capital and reserves | Called upshare capital US$'000 | Share premiumUS$'000 | Treasury sharesUS$'000 | Retained (deficit)/earningsUS$'000 | OtherreservesUS$'000 | Total equityUS$'000 |
At 1 January 2019 | 364,175 | 93,023 | - | (8,878) | (112,150) | 336,170 |
Loss for the year | - | - | - | (113,810) | - | (113,810) |
Total comprehensive loss for the year | - | - | - | (113,810) | - | (113,810) |
Purchase of own shares | - | - | (572) | - | - | (572) |
Issue of employee share options | - | - | 108 | (126) | - | (18) |
Cash settlement of employee share options | - | - | - | (154) | - | (154) |
Fair value of share based payments | - | - | - | 971 | - | 971 |
Fair value of warrants | - | - | - | 130 | - | 130 |
At 31 December 2019 | 364,175 | 93,023 | (464) | (121,867) | (112,150) | 222,717 |
Loss for the year | - | - | - | (197,024) | - | (197,024) |
Total comprehensive loss for the year | - | - | - | (197,024) | - | (197,024) |
Issue of employee vested shares | - | - | 449 | (449) | - | - |
Fair value of share based payments | - | - | - | 401 | - | 401 |
At 31 December 2020 | 364,175 | 93,023 | (15) | (318,939) | (112,150) | 26,094 |
Other reserves | MergerreserveUS$'000 | WarrantreserveUS$'000 | Translation reserveUS$'000 | Total other reserves US$'000 |
At 1 January 2019 | (112,000) | 2,105 | (2,255) | (112,150) |
At 31 December 2019 | (112,000) | 2,105 | (2,255) | (112,150) |
At 31 December 2020 | (112,000) | 2,105 | (2,255) | (112,150) |
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
Consolidated Statement of Cash Flows
For the year ended 31 December 2020
2020US$'000 | 2019US$'000 | ||
Cash flows from operating activities | |||
Cash used in operations | (6,318) | (16,280) | |
Income taxes paid | (73) | (144) | |
Net cash outflow from operating activities | (6,391) | (16,424) | |
Cash flows from investing activities | |||
Payments for property, plant and equipment | (4,099) | (46,375) | |
Payments for intangibles | (998) | (38,852) | |
Payments for held for sale assets | (371) | - | |
Proceeds from sale of non-current assets | - | 7,563 | |
Net cash outflow from investing activities | (5,468) | (77,664) | |
Cash flows from financing activities | |||
Proceeds from borrowings | 14,260 | 96,000 | |
Repayment of borrowings | (801) | (8,000) | |
Interest paid | (709) | (1,548) | |
Principle lease payments | (5,327) | (1,419) | |
Net cash inflow from financing activities | 7,423 | 85,033 | |
Net decrease in cash and cash equivalents | (4,436) | (9,055) | |
Cash and cash equivalents at the beginning of the year | 11,002 | 21,085 | |
Effects of exchange rates on cash and cash equivalents | (1,180) | (1,028) | |
Cash and cash equivalents at end of year | 5,386 | 11,002 |
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.
NOTES
1. General information
The financial information set out in this announcement does not comprise the Group's statutory accounts for the years ended 31 December 2020 or 31 December 2019.
The financial information has been extracted from the audited statutory accounts of the Company for the year ended 31 December 2020, which were approved by the directors and authorised for issue on 17 May 2021. The auditors reported on these accounts; the report was unqualified and did not contain a statement under Section 498(2) or Section 498(3) of the Companies Act 2006.
The statutory accounts for the year ended 31 December 2019 have been delivered to the Registrar of Companies and those for the year ended 31 December 2020 will be delivered to the Registrar of Companies in due course.
2. Basis of preparation
These consolidated financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.
The significant accounting policies applied in preparing these consolidated financial statements are set out below. These policies have been consistently applied throughout the period and to each subsidiary of the Group.
The financial statements have been prepared under the historical cost convention except as where stated.
Going concern
The Group generates cash from its existing conventional oil and gas production operations. However, it was formed with the stated intention of undertaking a significant exploration, evaluation and development program focused on the Group's unconventional oil and gas assets in Argentina, including the Vaca Muerta formation, which requires significant investment. To date, the funding required to support these activities has been provided by Mercuria.
2020 has been dominated by Covid-19 and its rapid development as a life-threatening global pandemic. Globally, respective governments' response has been one of containment through lock-down, social distancing restrictions, quarantine and self-isolation for substantially all citizens, whilst countries strive to roll out vaccination programs. This has resulted in a significant adverse impact on industrial and commercial activity, which led to the shut-down of the Company's production in April 2020. Consequently, the Company took significant steps to reduce its costs in all areas of the business. The directors believe these cost reduction actions mean the Company is in a better position to produce oil economically at lower oil prices with a positive contribution to cash flow at normalised production levels, which will allow the Company to focus on the continued development of its unconventional assets. This situation is compounded by the political and economic uncertainty in Argentina. The country is in its third straight year of recession and whilst it announced at the end of August 2020 that 99% of the holders of the country's US$65 billion international bonds had agreed to restructure this debt discussions between the Argentine government and the IMF to reschedule US$45 billion of debt are ongoing and the outcome of the 2021 legislative elections in Argentina is uncertain.
Notwithstanding, our major shareholder, Mercuria continues to be supportive of the Company's plans and continues to extend short-term debt facilities to fund operations. Mercuria has written to the Company stating its intention to continue to provide financial support to the Company in order that it may continue to operate and service its liabilities as they fall due in the next 12 months and also fund the planned work programs. Mercuria has also specifically agreed to not demand repayment of the existing loans (principal and interest) within the next 12 months whilst discussions with the Company to restructure these loans continue. This letter, which by its nature is not legally binding, represents a letter of comfort stating Mercuria's current intention to continue to provide financial support.
The directors believe they will be able to agree the renegotiation of the existing debt with Mercuria and formalise an agreement for new funding and that the Group and Company can continue as a going concern for the foreseeable future. The application of the going concern basis of preparation of the financial statements included in this annual report is based on the letter that has been received from Mercuria and the ongoing discussion with the Mercuria principals. Accordingly, the directors continue to adopt the going concern basis for accounting in preparing the 2020 financial statements.
However, the directors recognise that if financial support over the next 12 months from Mercuria were not to be available and the Company is unable to restructure the existing loan agreements from Mercuria or obtain funding from alternative sources, this gives rise to a material uncertainty that may cast significant doubt on the Group´s and Company´s ability to continue as a going concern.
The financial statements do not include any adjustments that would be required if the Group and Company were unable to continue as a going concern.
3. Segment information
The Group's executive management team comprising the chief executive officer and the chief financial officer has been determined collectively as the chief operating decision maker for the Group. The information reported to the Group's executive management team for the purposes of resource allocation and assessment of segment performance is split between those assets which are operated by the Group and those which are not.
The strategy of the Group is focused on the development of its unconventional operated assets in the Vaca Muerta and other unconventional opportunities in Argentina, while optimising its operated conventional production assets. The Group also participates in joint arrangements as a non-operated partner. Operated and non-operated assets of the Group have therefore been determined to represent the reportable segments of the business. The third segment 'corporate', primarily relates to administrative costs, financing costs and taxation incurred in running the business which are not directly attributable to one of the identified segments.
The Group's executive management primarily uses a measure of earnings before interest, tax, depreciation, loss on termination of licences and other impairment charge and loss on sale of non-current assets ('EBITDA') to assess the performance of the operating segments. However, the executive management team also receives information about segment revenue and capital expenditure on a monthly basis.
2020 | Operated US$'000 | Non-operatedUS$'000 | Corporate US$'000 | Total US$'000 |
Revenue | 24,132 | 29,869 | - | 54,001 |
(Loss)/profit for the year | (155,759) | (49,054) | 7,789 | (197,024) |
Add: Depreciation, depletion and amortisation | 27,569 | 12,149 | 1,628 | 41,346 |
Less: Finance income | - | - | (6,905) | (6,905) |
Add: finance costs | 458 | 306 | 21,512 | 22,276 |
Less: taxation | - | - | (38,005) | (38,005) |
EBITDA | (127,732) | (36,599) | (13,981) | (178,312) |
Non-recurring expenses | ||||
Add: Loss on termination of licences and other impairment charge | 127,501 | 43,628 | - | 171,129 |
Add: Loss on sale of non-current assets | 6 | - | - | 6 |
Adjusted EBITDA | (225) | 7,029 | (13,981) | (7,177) |
Oil revenues | 24,130 | 28,029 | - | 52,159 |
bbls sold | 605,476 | 776,435 | - | 1,381,911 |
Realised price (US$/bbl) | 39.85 | 36.10 | - | 37.74 |
Gas revenues | 2 | 1,840 | - | 1,842 |
MMcf sold | 0.90 | 928.63 | - | 929.53 |
Realised price (US$/MMcf) | 2.22 | 1.98 | - | 1.98 |
Capital expenditure | ||||
Property, plant and equipment | 2,627 | 1,475 | 98 | 4,200 |
Intangible exploration and evaluation assets | 2,934 | 1,015 | - | 3,949 |
Total capital expenditure | 5,561 | 2,490 | 98 | 8,149 |
Total assets | 315,784 | 60,281 | 79,605 | 455,670 |
Total liabilities | (7,010) | (10,885) | (411,681) | (429,576) |
2019 | Operated US$'000 | Non-operated US$'000 | Corporate US$'000 | Total
US$'000 |
Revenue | 49,355 | 80,062 | - | 129,417 |
Loss for the year | (32,952) | (50,611) | (30,247) | (113,810) |
Add: depreciation, depletion and amortisation | 32,470 | 31,954 | 1,633 | 66,057 |
Less: finance income | - | - | (1,577) | (1,577) |
Add: finance costs | 381 | 465 | 25,401 | 26,247 |
Add: taxation | - | - | (21,011) | (21,011) |
EBITDA | (101) | (18,192) | (25,801) | (44,094) |
Non-recurring expenses | ||||
Add: Loss on termination of licences and other impairment charge | 11,938 | 15,815 | - | 27,753 |
Add: Loss on sale of non-current assets | - | 29,041 | (70) | 28,971 |
Adjusted EBITDA* | 11,837 | 26,664 | (25,871) | 12,630 |
Oil revenues | 49,341 | 65,311 | - | 114,652 |
bbls sold | 1,050,157 | 1,340,561 | - | 2,390,718 |
Realised price (US$/bbl) | 46.98 | 48.72 | - | 47.96 |
Gas revenues | 14 | 14,751 | - | 14,765 |
MMcf sold | 5.43 | 4,448.47 | - | 4,453.90 |
Realised price (US$/MMcf) | 2.58 | 3.32 | - | 3.32 |
Capital expenditure | ||||
Property, plant and equipment | 34,630 | 19,015 | 3,774 | 57,419 |
Intangible exploration and evaluation assets | 36,915 | 2,139 | - | 39,054 |
Total capital expenditure | 71,545 | 21,154 | 3,774 | 96,473 |
Total assets | 482,453 | 115,547 | 78,006 | 676,006 |
Total liabilities | (6,774) | (7,786) | (438,729) | (453,289) |
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment | Other assets
US$'000 | Development and production assetsUS$'000 | Assets under construction
US$'000 | Total
US$'000 |
At 1 January 2020 | ||||
Cost | 13,072 | 539,100 | 7,290 | 559,462 |
Accumulated depreciation and impairment | (7,159) | (228,054) | - | (235,213) |
Net book amount | 5,913 | 311,046 | 7,290 | 324,249 |
Year ended 31 December 2020 | ||||
Opening net book amount | 5,913 | 311,046 | 7,290 | 324,249 |
Additions | 19 | 2,398 | 1,783 | 4,200 |
Transfers | - | 107 | (107) | - |
Exploration costs written off | - | (116) | - | (116) |
Depreciation charge | (1,637) | (39,709) | - | (41,346) |
Impairment charge | - | (128,630) | - | (128,630) |
Closing net book amount | 4,295 | 145,096 | 8,966 | 158,357 |
At 31 December 2020 | ||||
Cost | 13,091 | 541,489 | 8,966 | 563,546 |
Accumulated depreciation and impairment | (8,796) | (396,393) | - | (405,189) |
Net book amount | 4,295 | 145,096 | 8,966 | 158,357 |
Additions
Additions to property, plant and equipment in the year ended 31 December 2020 do not include any interest capitalised in respect of qualifying assets (2019: US$0.3 million). The total amount of interest capitalised within property, plant and equipment at 31 December 2020 is US$3.1 million (2019: US$3.1 million).
Exploration costs
Exploration costs written off in 2020 include US$0.1 million related to Laguna El Loro and Chachahuen.
Assets held for sale
Assets held for sale relates to certain non-core development and production assets in the non-operated segment with a net book value of US$12.0 million. An amount of US$0.5 million is also recognised as held for sale in current liabilities in relation to the ARO provision associated with these assets. In 2020 management engaged in an active program for the sale of these assets and expected to conclude discussions with interested parties before the end of the year. However, the Covid-19 pandemic meant these discussions had to be deferred as the Company focused on other priorities. It is still the intention of management to sell these non-core assets and management has now re-engaged with interested parties and is actively pursuing the sale of these assets, which it looking to complete in 2021. For this reason, the Company continues to recognise these assets as assets held for sale but has recognised an impairment of US$6.6 million in 2020 in recognition of management's estimate of the fall in the net realisable value of these assets. The asset is included with non-operated assets in the segment analysis in note 3.
Property, plant and equipment | Other assets
US$'000 | Development and production assetsUS$'000 | Assets under construction
US$'000 | Total
US$'000 |
At 1 January 2019 | ||||
Cost | 9,431 | 694,747 | 6,070 | 710,248 |
Accumulated depreciation and impairment | (5,680) | (338,377) | - | (344,057) |
Net book amount | 3,751 | 356,370 | 6,070 | 366,191 |
Year ended 31 December 2019 | ||||
Opening net book amount | 3,751 | 356,370 | 6,070 | 366,191 |
Additions | 3,990 | 18,078 | 35,351 | 57,419 |
Transfers | - | 34,131 | (34,131) | - |
Transfers from intangible assets | - | 43,287 | - | 43,287 |
Transfers to assets held for sale - cost | (349) | (67,233) | - | (67,582) |
Disposal of assets - cost | - | (126,950) | - | (126,950) |
Termination of licences - cost | - | (53,334) | - | (53,334) |
Exploration costs written off | - | (3,626) | - | (3,626) |
Depreciation charge | (1,788) | (64,269) | - | (66,057) |
Impairment charge | - | (2,500) | - | (2,500) |
Transfers to assets held for sale - accumulated DD&A | 309 | 49,682 | - | 49,991 |
Disposal of assets - accumulated DD&A | - | 89,922 | - | 89,922 |
Termination of licences - accumulated DD&A | - | 37,488 | - | 37,488 |
Closing net book amount | 5,913 | 311,046 | 7,290 | 324,249 |
At 31 December 2019 | ||||
Cost | 13,072 | 539,100 | 7,290 | 559,462 |
Accumulated depreciation and impairment | (7,159) | (228,054) | - | (235,213) |
Net book amount | 5,913 | 311,046 | 7,290 | 324,249 |
Exploration costs
Exploration costs written off in 2019 include US$3.4 million related to the unsuccessful exploration well in the operated segment that was previously being held as suspended.
Termination of licences
In May 2019, the Province of Mendoza issued a decree terminating the concession for the Chañares Herrados block held by the Company's joint venture partner, Chañares Energía S.A., as a result of its failure to fulfil work commitments. The decree took immediate effect and the Company has no intention of participating in the re-tender process. The carrying value of the asset was written off at 31 December 2019, causing a US$15.8 million loss to be realised in the non-operated segment.
Disposals
In November 2019, the Company sold its 70% working interest in the Santa Cruz Sur ('SCS') licences to Echo Energy plc ('Echo'). SCS forms part of the Group's non-operated asset portfolio, being conventional oil production operated by ROCH S.A. On sale, the net non-current assets related to SCS of US$34.2 million were written off to the gain/loss on sale calculation.
Impairment
The Company defines the key indicators of impairment in relation to its oil and gas assets within its accounting policies. When a specific impairment trigger is identified during a period, the Company will complete an impairment review of the associated CGU. There has been no change in the CGU asset classification year-on-year. The Group's accounting policy for long-lived assets gives examples of potential triggers for impairment that management will consider when assessing if a particular asset may be impaired. Climate change is another factor to be considered and this is reflected in the assumptions used to calculate the discount factor, in particular the beta factor and the country risk.
These include:
· Exploration drilling that has not resulted in the discovery of reserves in potentially commercial quantities;
· Changes in oil and gas prices or other market conditions that indicate discoveries may not be commercial;
· The anticipated cost of development indicates that it is unlikely the carrying value of the exploration and evaluation asset will be recovered in full;
· There are no plans to conduct further exploration activities in an area; or
· The exploration licence or concession period has expired or is due to expire.
In 2020, the primary method used in assessing impairment triggers for producing assets, was an economic evaluation based on fair values (level 3) less costs of disposal, using the NPV15 (2019: NPV10) of post-tax cash flows generated from the 2P reserves of producing assets of the associated cash generating unit over the life of the concession. Factors considered in this evaluation include:
· Historic and expected production
· EUR and type curve analysis
· Capex
· Opex
· Discount factors
· Price deck
For exploration assets, management considered risked fair values based on post-tax NPV15 of P3 reserves and contingent resources in conjunction with fair values assessed on a per acreage basis (in 2019 impairment was assessed by comparing book value to its respective NPV12 value). Fair values attributed on a per acreage basis have been assessed by reference to values attributed to precedent transactions by comparing the following characteristics of the Company's licences with comparable characteristics of licences the subject of precedent transactions:
· °API
· %TOC
· Landing zones
· Formation depth
· DFIT (Psi)
· Pressure gradient (Psi/ft)
· Geohazards
Where the calculated fair values are less than the carrying values an impairment test is performed.
Prices used in the assessment were based on an average of prices sourced from various banks and analysts at the year-end increasing from a forecast Brent price of US$50.16/bbl in 2021 to US$66.38/bbl in 2030 and thereafter (2019: US$65/bbl with a 1.5% per annum increase over time).
The impairment assessment review resulted in a pre-tax impairment charge of US$128.6 million (2019: US$2.5 million) in respect of property, plant and equipment, primarily resulting from a revision in reserves associated with one CGU following poor results from a drilling program and changes to the price deck assumptions.
Management also carried out sensitivity analysis to determine the impact of changes in the price and discount factor assumptions. A summary of this sensitivity analysis is included at the end of note 5 below.
5. Intangible assets and goodwill
Exploration and evaluation assets are primarily the Group's licence interests in exploration and evaluation assets located in Argentina. The exploration and evaluation assets consist of both conventional and unconventional oil and gas properties.
Intangible assets | Goodwill
US$'000 | Exploration and evaluation assetsUS$'000 | Total
US$'000 |
At 1 January 2020 | |||
Cost | 260,007 | 215,759 | 475,766 |
Accumulated amortisation and impairment charges | (224,169) | (5,057) | (229,226) |
Net book amount | 35,838 | 210,702 | 246,540 |
Year ended 31 December 2020 | |||
Opening net book amount | 35,838 | 210,702 | 246,540 |
Additions | - | 3,949 | 3,949 |
Exploration cost written off | - | (2,630) | (2,630) |
Impairment charge | (15,223) | (20,662) | (35,885) |
Closing net book amount | 20,615 | 191,359 | 211,974 |
At 31 December 2020 | |||
Cost | 260,007 | 217,078 | 477,085 |
Accumulated amortisation and impairment charges | (239,392) | (25,719) | (265,111) |
Net book amount | 20,615 | 191,359 | 211,974 |
Additions
Additions to intangible assets during the year predominately relate mainly to work programs carried out on the Mata Mora, Corralera and El Manzano concessions.
Intangible assets | Goodwill
US$'000 | Exploration and evaluation assetsUS$'000 | Total
US$'000 |
At 1 January 2019 | |||
Cost | 260,007 | 225,172 | 485,179 |
Accumulated amortisation and impairment charges | (224,169) | - | (224,169) |
Net book amount | 35,838 | 225,172 | 261,010 |
Year ended 31 December 2019 | |||
Opening net book amount | 35,838 | 225,172 | 261,010 |
Additions | - | 39,054 | 39,054 |
Transfers from property, plant and equipment | - | (43,287) | (43,287) |
Transfers to assets held for sale | - | (616) | (616) |
Exploration cost written off | - | (230) | (230) |
Impairment charge | - | (5,057) | (5,057) |
Disposal of assets - cost | - | (4,334) | (4,334) |
Closing net book amount | 35,838 | 210,702 | 246,540 |
At 31 December 2019 | |||
Cost | 260,007 | 215,759 | 475,766 |
Accumulated amortisation and impairment charges | (224,169) | (5,057) | (229,226) |
Net book amount | 35,838 | 210,702 | 246,540 |
Additions
Additions to intangible assets during 2019 related to the conclusion of the drilling of the MMx-1001 well, the drilling of the MMx-1002 well and subsequent flowback and other testing and completion works completed at Mata Mora. Additions also included costs associated with securing the Group's interest in the Corralera Noroeste concession.
The costs associated with the MMx-1001 and MMx-1002 wells were transferred to development and production assets within property, plant and equipment on completion of flowback and determination of commercial reserves. The remaining exploration and evaluation costs associated with the Mata Mora licence will be held as intangibles until the licence area is commercially developed.
Impairment tests for exploration and evaluation assets
Exploration and evaluation assets are subject to impairment testing prior to reclassification as tangible fixed assets where commercially viable reserves are confirmed. Where commercially viable reserves are not encountered at the end of the exploration phase for an area the accumulated exploration costs are written off in the income statement.
Impairment tests for goodwill
Goodwill is monitored by management at the level of the operating segments identified in note 3. A segment level summary of goodwill allocation is presented below.
At acquisition | Operated US$'000 | Non-operatedUS$'000 | Corporate
US$'000 | Total US$'000 |
Chachahuen & Cerro Morado Este | - | 15,223 | - | 15,223 |
Corralera | 16,780 | - | - | 16,780 |
Mata Mora | 3,835 | - | - | 3,835 |
Total goodwill | 20,615 | 15,223 | - | 35,838 |
No goodwill was recognised prior to 2017. All goodwill presented relates to the allocation of technical goodwill arising as a result of accounting for deferred tax on the business combination on 10 August 2017. Goodwill of US$224.2 million that was related to the excess of the purchase consideration given over the fair value of assets acquired and liabilities assumed at the acquisition date was impaired in full on completion of the business combination in 2017.
Impairment
The carrying value of goodwill has been assessed for impairment at the year-end on basis detailed in note 4. Where the calculated fair values are less than the carrying values an impairment test is performed.
The impairment assessment review resulted in an impairment charge of US$15.2 million (2019: US$0 million) in respect of goodwill and US$20.7 million (2019: US$5.1 million) in respect of exploration and evaluation assets.
Sensitivity - Property, plant and equipment and intangible assets
Management carried out sensitivity analysis to determine the impact of changes in the price and discount factor assumptions on the impairment charge recognised on property, plant and equipment (see note 4 above) and intangible assets. A +US$5/bbl/-US$5/bbl per annum price change reduced/increased the total impairment charge by approximately US$16.8 million and US$18.2 million respectively and -5%/+5% per annum change in the discount rate reduced/increased the total impairment charge by approximately US$21.0 million and US$22.9 million respectively.
At year end the goodwill is presented below:
At December 2020 | Operated US$'000 | Non-operatedUS$'000 | Corporate
US$'000 | Total US$'000 |
Corralera | 16,780 | - | - | 16,780 |
Mata Mora | 3,835 | - | - | 3,835 |
Total goodwill | 20,615 | - | - | 20,615 |
6. Borrowings
2020 | 2019 | |||||
Current US$'000 | Non-current US$'000 | Total US$'000 | Current US$'000 | Non-current US$'000 | Total US$'000 | |
Secured | ||||||
Bank loans | 2,598 | 6,641 | 9,239 | 10,055 | - | 10,055 |
Total secured borrowings | 2,598 | 6,641 | 9,239 | 10,055 | - | 10,055 |
Unsecured | ||||||
Bank loans | - | - | - | - | - | - |
Loans from related parties | 322,973 | - | 322,973 | 146,782 | 146,751 | 293,533 |
Other loans | 21 | - | 21 | 28 | - | 28 |
Total unsecured borrowings | 322,994 | - | 322,994 | 146,810 | 146,751 | 293,561 |
Total borrowings | 325,592 | 6,641 | 332,233 | 156,865 | 146,751 | 303,616 |
Secured liabilities and assets pledged as security
Secured liabilities relate to US Dollar denominated loans at an interest rate of Libor + 700 points for Dollar loans and Badlar + 700 points for Peso loans (2019: interest fixed rate of 8.0%). At 31 December 2020 the Group held US$2.7 million loans in Argentine Peso (2019: US$nil).
Loans from related parties
The related party loan at 31 December 2020 relates to a convertible rolling credit facility ('RCF') and non-convertible bridging facility ('BF') provided to the Group by Mercuria Energy Netherlands B.V., a subsidiary of the Mercuria group.
As part of the business combination in 2017, Mercuria advanced a bridging and working capital facility to the Group for the amount of US$160.0 million. In February 2018, US$100.0 million of the facility was converted to equity of the Company at a price of £0.37 per share. At the same time the facility was restructured as a new convertible RCF in the amount of US$160.0 million with an additional US$100.0 million of new funds made available to the Company. In December 2018, Mercuria advanced an additional US$25.0 million as a Facility B element to the RCF. In February 2019, a further US$50.0 million was made available under this Facility B element. The original loan of US$160.0 million became Facility A.
In May 2019, the amended convertible RCF was further extended to add a Facility C commitment of US$40 million. Facility C was extended in November 2019 by an additional US$10.0 million and in March 2020 by an additional US$6 million.
At 31 December 2020, a total facility of US$291.0 million was available to the Company, with a total of US$281.0 million drawn down under the facility, with the undrawn balance of US$10 million made available through the BF, which was subsequently increased to US$11.5 million, with US$11.26 million drawn down at the year end.
All funds drawn down under the RCF and BF bear interest at three-month LIBOR+4%. The RCF provides for a grace period for repayments (interest and principal) from 1 January 2019 to 30 June 2021 with a maturity date of 31 December 2021 amortised in equal quarterly repayment instalments from and including 30 June 2021 until maturity. The BF, principal and interest, is repayable by 30 June 2021. At the year-end US$30.7 million of interest had been capitalised.
Mercuria has the right to convert all or part of the outstanding principal of Facility A into additional new ordinary shares of the Company at a price of £0.45 per share. This conversion right can be exercised at any time from 30 June 2018 until 10 business days prior to the maturity of Facility A. A similar conversion feature exists in relation to Facility B at a price of £0.28 per share exercisable from 30 June 2019 until 10 business days prior to the maturity date and in relation to Facility C at a price of £0.23 per share exercisable from 30 June 2020 until 10 business days prior to the maturity date.
Fair value
Differences identified between the fair values and carrying amounts of borrowings are as follows:
2020 | 2019 | ||||||
Carrying amountUS$'000 | Fair value US$'000 | Carrying amountUS$'000 | Fair value US$'000 |
| |||
Bank loans | 9,239 | 8,981 | 10,055 | 10,018 |
| ||
Other loans | 21 | 21 | 28 | 28 |
| ||
Loans from related parties | 322,973 | 301,844 | 293,533 | 288,668 |
| ||
Total | 332,233 | 310,846 | 303,616 | 298,714 |
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The fair values of non-current borrowings are based on discounted cash flows using a current borrowing rate. They are classified as Level 3 fair values in the fair value hierarchy due to the use of unobservable inputs, including own credit risk.
7. Loss per share
Basic and diluted loss per share | 2020US$ | 2019US$ |
From continuing operations attributable to the ordinary equity holders of the Company | (0.07) | (0.04) |
Total basic loss per share attributable to the ordinary equity holders of the Company | (0.07) | (0.04) |
Basic and diluted loss per share | 2020US$'000 | 2019US$'000 |
Loss attributable to the ordinary equity holders of the Company used in calculating basic earnings per share: | ||
From continuing operations | (197,024) | (113,810) |
(197,024) | (113,810) |
Weighted average number of shares used as the denominator
Number of shares | 2020 '000 | 2019 '000 |
Adjustments for calculation of diluted earnings per share: | ||
At 1 January | 2,785,024 | 2,786,645 |
At 31 December | 2,786,571 | 2,785,024 |
Potential dilutive ordinary shares | 3,386 | 3,989 |
Weighted average number of shares used as the denominator in calculating diluted earnings per share | 2,788,956 | 2,785,791 |
8. Post balance sheet events
Credit facilities
On 31 January 2021, the non-convertible bridging facility provided by Mercuria was increased to US$20 million and subsequently further increased to US$21 million on 30 March 2021, to US$26 million on 12 April 2021, to US$31 million on 19 April 2021 and to US$41 million on 7 May 2021. The convertible facility grace period for repayments (interest and principal) was extended to 30 June 2021 with a loan maturity date of 31 December 2021 with the non-convertible bridging facility, principal and interest, repayable by 30 June 2021.