PGR.L Regulatory News (PGR)

14 September 2021

Phoenix Global Resources plc

('Phoenix' or 'the Company')

UNAUDITED INTERIM RESULTS FOR THE SIX-MONTH PERIOD TO 30 JUNE 2021

Phoenix Global Resources (AIM: PGR; BCBA: PGR) announces its unaudited interim results for the six-month period ended 30 June 2021.

Operational highlights

· 35 year unconventional exploitation concession over 43,372 acres in Mata Mora granted

· Exploration rights over 11,918 acres in Mata Mora extended for 5 years

· Average daily production of 4,863 boepd (H1 2020: 4,369 boepd)

· Site preparation for the two horizontal wells in Corralera completed

· Drilling rig for first Corralera horizontal well mobilised

· Successful pulling interventions at Tupungato and Atamisqui

2021 interim results summary

· Revenues of US$36.1 million (H1 2020: US$24.9 million)

· Realised oil price of US$ 47.03/bbl (H1 2020: US$39.19/bbl)

· Operating loss of US$ 16.04 million (H1 2020: loss of US$ 50.8 million)

· EBITDA gain of US$ 7.23 million (H1 2020: US$34.5 million loss)

· Adjusted EBITDA gain of US$ 7.06 million (H1 2020: US$11.6 million loss)

Overview and outlook

Whilst Covid-19 continues to make the environment extremely challenging, the benefits of the impact of the cost reductions and corporate restructure that we implemented last year are reflected in the results for the six-month period to 30 June 2021.

The Company's major shareholder, Mercuria, continues to be supportive and the Board believes the Company is now on a sounder financial footing to enable it to focus on the development of its unconventional assets.

During the period the Neuquen Province issued a Decree granting the Company 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 Company's 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 programs for 2021 and 2022 include the drilling and completion of the two horizontal wells in Corralera and the drilling and completion of two pads each of three wells in Mata Mora. We have completed the site preparation at both locations in Corralera and the drilling rig for the drilling of the first well has been mobilised.

The Board will continue to provide updates on these drilling programs as they progress and hopes this will provide a platform for the further development of these assets, whilst recognising that significant investment will be required to fully exploit these assets and acknowledges that funding from third parties, other than Mercuria, may be required to achieve this.

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.

The Company's website is www.phoenixglobalresources.com

Operations Review

OPERATED AREAS

Mata Mora

Our two Mata Mora wells, MMox-1001 and MMox-1002, continue to produce at our predicted post 2020 shut-in type curve rates. If needed, interventions are planned for Q4 to run velocity strings and given normal expected reservoir pressure decline, we are anticipating installing artificial lift on the wells sometime later this year.

Field development plans are also continuing and site preparation for pads 2 and 3 began in Q3. After completing drilling activity at Corralera, the drilling rig will be moved to Mata Mora where we plan to drill a total of 6 wells (3 wells per pad) with an average lateral lengths of 2,150 metres and between 29 and 33 frac stages. A vertical well is also planned to obtain geological data. We expect to complete the first pad by May 2022 and the second pad by July 2022.

Plans for the building of facilities are being developed to avoid gas flaring and avoid the delivery of production by truck through the use of midstream facilities.

Corralera

The Company has progressed its plans to drill two wells in the Corralera area and site preparation at both locations (Corralera North East ("CONE") and Corralera South ("COSU")) has been completed. Conductor wells have been drilled and a H&P-230 drilling rig has been moved to the CONE site location and drilling operations on well CoNe.x-1 have started with the drilling of the vertical well to a target depth of 2,960 metres. After the collection and logging of geological information, the vertical well will be abandoned and a sidetrack will be performed to drill a 2,000 metre lateral length horizontal well, with 29 frac stages. We expect the initial results from this well to be available by the end of November. After CONE we plan to drill the well in COSU and expect to start drilling activities at COSU in mid-October and again plan to drill a horizontal section with 29 frac stages. We expect initial production results to be available by late January 2022. The geological information from the vertical wells will enable us to define the petrophysical parameters of the rock to enable us to determine the best navigation horizons for the lateral sections. We plan to rent facilities to optimise the deployment of allocated capital expenditure and the technical team is working on plans to reduce the flaring and the venting of natural gas in line with the Company's zero flaring targets.

Tupungato-Refugio and Atamisqui

In the first half of the year 13 pulling interventions were completed with outstanding results. The production during Q1 was below budget but since April oil production has been above budget. General maintenance work and some minor jobs were also carried out at the Tupungato water injection plant.

A well risk analysis was performed on well T-48 and the conclusion reached that the well should be abandoned. Due to the condition of the wellhead a specialised team was hired to perform remediation jobs. The well is now in a secure condition and the abandonment is planned for Q1 2022. A critical tanks inspection and reparation campaign was started in May and a well swabbing campaign is planned to start in September. Subsurface modelling was started in June 2021, as no comprehensive modelling has been carried out for over 40 years. A static model has been completed and some opportunities for implementing secondary recovery have been identified and the possibility of tertiary recovery is under analysis. A dynamic model is now being developed with the support of an external consultant.

Puesto Rojas

The drop in production primarily relates to a higher rate of decline from the wells producing from the Agrio and Vaca Muerta, with only 5 wells currently producing from the 12 wells drilled in the last campaign. Based on the variable results from these Agrio and Vaca Muerta vertical wells, management continues to evaluate unconventional prospectivity in this area, which it expects to complete by the end of the year.

A five well pulling campaign was conducted during the first half of 2021. Three wells produced very good results but the other two wells require jobs that were not originally planned and for this reason further work on these wells has been postponed. Some issues relating to fluids compatibility were detected in wells producing from the Vaca Muerta formation and an analysis of this situation is being carried out. A comprehensive review of over 100 shut-in wells is being carried out and to date, two wells have been put back into production.

Rio Atuel

In November 2021, we expect to drill an exploratory well, Picunches.x-1, in the Rio Atuel licence in the Mendoza Province, which we expect to complete by the end of the year. Pampa Energia has a minority non-operating interest of 33% in this licence. The main target is the Huitrin formation, but the Agrio and Vaca morta formations will also be analysed. This well will fulfill our commitments under the licence with the Mendoza Province. Five further possible targets have also been identified.

La Paloma

In 2019, two wells, LP-9 and LP-7, were drilled in the La Paloma/Cerro Alquitran area targeting the Grupo Neuquén formation. After analyzing the reservoir conditions, the Company has decided not to complete these wells due to lack of petrophysical conditions and current local regulatory restraints, which prohibit fracking in the area.

NON-OPERATED AREAS

Chachahuen

In the Chachahuen Sur area, the focus in 2021 has been to improve the water flooding projects and start a polymer pilot project. A plan to reduce production losses has also been prepared, which will require the building of a gas and oil pipeline from Chachahuen to the Puesto Hernandez field. Injection water quality issues have been identified and the operator is currently preparing a plan that will be implemented before the tertiary recovery pilot project begins.

At Cerro Morado Este, we have focused on the reduction of production losses. This will require an alternative route for fluid evacuation due to flooding of current routes when it rains. A remediation of "Bateria 1" at the Chachahuen field is also being carried out and a tertiary recovery pilot project is planned for 2022.

The Chachahuen licence is operated by YPF.

Tierra del Fuego

The San Martin wells continue to produce with the water cut rate in line with expectations. The operator has proposed the drilling of an extra well in an independent reservoir compartment. Alternatives for production evacuation are also being analysed in the event delivery through the YPF buoy is disrupted and Total's facilities have been identified as a possible option.

H1 2021 production

Total production (net WI)

Average total daily working interest production volumes in H1, Q1 and Q2 2021 compared to full year 2020 and Q4 2020:

Financial review

Income Statement

Revenue and gross loss

Revenue for the period was US$36.14 million (H1 2020: US$24.9 million), comprising revenue from oil sales of US$35.1 million (H1 2020: US$23.9 million) and revenue from gas sales of US$1.1 million (H1 2020: US$1.0 million).

The increase in oil revenue between periods resulted primarily from the shut-in of production due to Covid-19 in H1 2020 and an increase in the realised price per barrel in the period.

The average realised oil sales price in H1 2021 was US$47.03/bbl, a 20% increase on the average price of US$39.19/bbl in H1 2020. 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 had a significant impact on the operations of the Company during H1 2020. 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.

The increase in average daily oil production in H1 2021 to 4,258 bopd from 3,546 bopd in H1 2020 reflects the impact of pulling and other activities and also the impact of the 2020 shut-down.

Gas revenue in the period was US$1.1 million compared to US$1.0 million in the comparative period last year. Realised gas prices increased from an average of US$2.13/MMcf in H1 2020 to an average of US$2.99 /MMcf in H1 2021 due to under supply in the gas market.

Operating costs in H1 2021 decreased to US$15.01/boe compared to US$26.3/boe in H1 2020, primarily due to increased production levels resulting in the fixed element of production costs being allocated over larger volumes.

Depreciation increased US$7.1 million in the period from US$16.2 million in H1 2020 to US$23.3 million in H1 2021. This increase is due, primarily to larger production volumes.

Other operating costs

No significant exploration expense was recognised in the period. An exploration expense of US$2.7 million was recognised in H1 2020, which related primarily to the write-off of the US$2.5 million cost of the Rio Atuel exploratory well.

Finance income and costs

Net finance income in H1 2021 was US$12.2 million compared to net finance costs of US$11.3 million in H1 2020. This gain was driven by the benefit on transfers of US$ 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$9.8 million tax expense was recognised in H1 2021, compared to a US$6.7 million tax benefit in H1 2020. This resulted from an increase in the deferred tax liability in the period primarily arising from a reduction in the book values of fixed assets when compared to the tax-deductible values and an increase in the tax rates to 35% (2020: 25%).

Balance Sheet

At 30 June 2021 the Group had net assets of US$ 12.5 million, a decrease of US$13.6 million compared to 31 December 2020. During the period, intangible assets and property, plant and equipment decreased by US$13.6 million primarily due to DD&A of US$23.3 million, offset by US$9.7 million of additions.

Variances were also observed in the working capital balances when compared to 31 December 2020. Trade and other receivables decreased by US$0.9 million to US$24.5 million at 30 June 2021. Inventories increased by US$0.9 million to US$19.2 million at 30 June 2021. Deferred tax assets increased by US$ 7.3 million to US$27.4 million at 30 June 2021 primarily due to an increase in tax rates from 25% to 35%. Trade and other payables declined by US$4.1 million to US$22.1 million at 30 June 2021 due to a reduction in costs.

Funding status and going concern

At 30 June 2021 the Group had cash on hand of US$50.0 million (31 December 2020: US$5.4 million). Total borrowings in the period increased by US$36.4 million from US$332.2 million at 31 December 2020 to US$368.6 million at 30 June 2021. The increase resulted primarily from the drawdown of an additional US$29.6 million of funds from the bridging facility in place with Mercuria and the capitalisation of US$7.1 million of accrued interest. Funds advanced under the credit facilities have been used to satisfy working capital needs and work programs.

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 programme focused on the Group's unconventional oil and gas assets in Argentina, including the Vaca Muerta formation.

Our major shareholder, Mercuria, continues to be supportive and has provided the Company with a letter stating its intention to continue providing 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 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 loan agreements continue.

The directors believe they will be able to agree the restructure 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 this interim condensed consolidated financial information is based on the letter that has been received from Mercuria and the ongoing discussions with the Mercuria principals. Accordingly, the directors continue to adopt the going concern basis for accounting in preparing these 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 with 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 condensed consolidated financial information contained in this interim report does not include any adjustments that would be required if the Group and Company were unable to continue as a going concern.

At 30 June 2021 the Group had cash and cash equivalents of US$50.0 million (2020: US$5.4 million).

On behalf of the Board

Sir Michael Rake

Chairman

14 September 2021  

Unaudited consolidated income statement

For the period ended

The above unaudited consolidated income statement should be read in conjunction with the accompanying notes. 

Unaudited consolidated statement of comprehensive income

For the period ended

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 unaudited consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

Unaudited consolidated statement of financial position

At

The above unaudited consolidated statement of financial position should be read in conjunction with the accompanying notes. 

Unaudited consolidated statement of changes in equity

For the period ended

The above statement of consolidated changes in equity should be read in conjunction with the accompanying notes.

Unaudited consolidated statement of cash flows

For the period ended

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

Unaudited notes to the unaudited consolidated financial information

1. Basis of preparation

General information

The Company is a Public Limited Company incorporated in England and Wales and is domiciled in the United Kingdom. The Registered Office address is 1st Floor, 62 Buckingham Gate, London SW1E 6AJ. The Company is quoted on the AIM market of the London Stock Exchange and maintains a secondary listing on the Buenos Aires Stock Exchange.

The principal activities of the Company and its subsidiaries (together the "Group") are the exploration for and the development and production of oil and gas in Argentina.

Basis of preparation

The unaudited condensed consolidated interim financial information for the six-months ended 30 June 2021 contained in this interim report has been prepared in accordance with UK-adopted International Accounting Standard 34 'Interim Financial Reporting' and the AIM Rules for Companies. This unaudited condensed consolidated financial information should be read in conjunction with the Group's annual consolidated financial statements for the year ended 31 December 2020, which were prepared in accordance with international financial reporting standards in conformity with the requirements of the Companies Act 2006. In preparing those annual consolidated financial statements, the directors also elected to comply with international financial reporting standards issued by the International Accounting Standards Board (IFRSs as issued by the IASB).

In the year to 31 December 2021 the annual financial statements will be prepared in accordance with IFRS as adopted by the UK Endorsement Board and that this change in basis of preparation is required by UK company law for the purposes of financial reporting as a result of the UK's exit from the EU on 31 January 2020 and the cessation of the transition period on 31 December 2020.

This change does not constitute a change in accounting policy but rather a change in framework which is required to ground the use of IFRS in company law. There is no impact on recognition, measurement or disclosure between the two frameworks in the period reported.

The financial information for the period ended 30 June 2021 contained within this unaudited condensed consolidated financial interim report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The information for 2020 within was derived from the statutory accounts for the year ended 31 December 2020, a copy of which has been delivered to the Registrar of Companies. The auditors' report on these accounts was unqualified but did include a reference to the adequacy of the disclosures made concerning the Group's and Company's ability to continue as a going concern. The Group had not completed the renegotiation of its current debt repayments to Mercuria, who is a majority shareholder of the Group, and the funding plans for FY2021 and FY2022 had not yet been agreed. The ultimate form of the funding could be significantly different to what is currently being discussed with Mercuria. This situation could lead to a lack of future funding for capital and operating expenditures. The auditors' report did not contain a statement under sections 498 (2) or (3) of the Companies Act 2006.The annual financial statements for the year ended 31 December 2020 are available on the Company's website at www.phoenixglobalresources.com.

The Group's business activities, together with factors likely to affect its future development, performance and position are set out in the operations and financial review sections of this report.

The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the financial review section.

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 programme focused on the Group´s unconventional oil and gas assets in Argentina, including the Vaca Muerta formation, which requires significant investments. To date, the funding required to support the activities of the Group has been provided by Mercuria Energy Group.

Our major shareholder, Mercuria continues to be supportive and has provided the Company with a letter 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 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 loan agreements continue.

The directors believe they will be able to agree the restructure 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 this interim condensed consolidated financial information is based on the letter that has been received from Mercuria and the ongoing discussions with the Mercuria principals. Accordingly, the directors continue to adopt the going concern basis for accounting in preparing these 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 with 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 condensed consolidated financial information contained in this interim report does not include any adjustments that would be required if the Group and Company were unable to continue as a going concern.

Estimates and judgements

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing the condensed consolidated financial information, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2020.

Principal risks and uncertainties

In preparing the condensed consolidated financial information management is required to consider the principal risks and uncertainties facing the Group. In management's opinion the principal risks and uncertainties facing the Group are unchanged since the preparation of the consolidated financial statements for the year ended 31 December 2020. Those risks and uncertainties, together with management's response to them are described in the Risk Review section of the Annual Report and Accounts 2020.

Accounting policies

The accounting policies applied in this condensed consolidated financial interim report are consistent with those applied in preparing the financial statements for the year ended 31 December 2020.

2. Segment information

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 ('Adjusted 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.

There are no intersegment revenues in either period presented. The majority of oil and gas sales are made to the Argentina state-owned oil company, YPF.

3. Total revenue

4. Cost of sales

5. Property, plant and equipment

Additions to property, plant and equipment in the period ended 30 June 2021 include US$ nil of interest capitalised in respect of qualifying assets (H1 2020: US$nil). The total amount of interest capitalised within property, plant and equipment at 30 June 2021 is US$3.1 million (2020: US$3.1 million).

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. Since the review carried out at the end of 2020, no further specific impairment triggers have been identified.

At the end of H1 2020 our assessment review identified an impairment trigger and indicated that our Chachahuen interest was potentially impaired, as a result primarily of the lower oil price environment and a provision for impairment of US$6.9 million was recognised in H1 2020.

6. Intangible assets

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.

Additions to intangible assets during the period relate primarily to the Mata Mora licence.

Additions to intangible assets during the period relate primarily to Corralera.

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. No significant exploration expense was recognised in the period. Exploration costs written off in H1 2020 include US$2.5 million, which related primarily to the write-off of an unsuccessful exploration well at Rio Atuel.

Impairment tests for goodwill

Goodwill is monitored by management at the level of the operating segments identified in note 2. At the end of H1 2020, our impairment assessment review resulted in an impairment charge of US$15.2 million. Since this review and the review carried out at the end of 2020, no further specific impairment triggers have been identified.

A segment level summary of the goodwill allocation is presented below.

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 that completed on 10 August 2017.

7. Borrowings

Secured liabilities and assets pledged as security

Secured liabilities relate to US Dollar and Peso denominated loans at an interest rate of Libor + 700 points for Dollar loans and Badlar + 700 points for Peso loans. At 30 June 2021 the Group held US$ 2.4 million loans in Argentine Peso (2020: US$2.7 million).

Loans from related parties

The related party loan at 30 June 2021 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 Energy Group Limited ('Mercuria').

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 original Mercuria 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 of the RCF. 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$6.0.

At 30 June 2021, US$281.0 million was drawn down under the RCF with the undrawn balance of US$10 million made available through the BF, which was subsequently increased to US$42.5 million, of which US$40.8 million was drawn down at the period end.

All funds drawn down under the RCF and BF bear interest at US$ LIBOR+4%. The RCF provides for a grace period for repayments (interest and principal) from 1 January 2019 to 30 September 2021 with a maturity date of 31 December 2021 amortised in equal quarterly repayment instalments from and including 30 September 2021 until maturity. The BF, principal and interest, is repayable by 30 September 2021. At the period-end US$37.8 million of interest had been capitalised under the RCF and BF loans.

Under the RCF, 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.

8. Income tax expense

Reconciliation of income tax expense to notional tax charge calculated using corporate tax rate:

The corporate income tax rate in Argentina in 2021 is 30% (2020: 30%) and applies to profits earned and losses suffered in the period to 30 June 2021.

Under the December 2017 tax reform plan implemented by the Argentina tax authorities, (the Administration Federal de Ingresos Publicos or "AFIP"), the corporate income tax rate was to be further reduced to 25% for years ending 31 December 2020 and forward. In December 2019 however, new tax reforms were implemented by the incoming government under Law 27,541. Under the new legislation, it was established that the reduced corporate rate of 25% would not be applicable until the year ending 31 December 2021 and forward.

An additional tax rate of 7% is applied to dividends when the corporate income tax rate is 30%. This additional dividend tax will be increased to 13% when the corporate tax rate is reduced to 25% in 2021.

On June 16, 2021, the Law 27,630 makes some amendments of the income tax rates applicable as from fiscal year 2021. The main relevant change is the introduction of progressive tax rates based on the accumulated net profit, according the following: i) on accumulated net profits up to AR$5 million, a rate of 25%; (ii) for accumulated net profits between AR$5 million and AR$50 million, a fixed amount of AR$1.2 million plus a rate 30% on the excess over AR$5 million; (iii) on net profits in excess of AR$50 million, a fixed amount of AR$14 million plus a rate of 35% the excess over AR$ 50 million. The amounts set forth above will be adjusted annually, with effect from 1 January 2022, by reference to the annual movement in the Consumer Price Index. Dividends will be taxed in all cases at 7%.

Deferred tax balance estimations have been calculated based on these amended tax rates.

9. Deferred tax balances

Argentina tax law does not contain the concept of tax groups and therefore deferred tax assets and liabilities cannot be offset between and among companies registered in Argentina and falling under the control of the same shareholder. Outside of Argentina, the Group does not have sufficient concentration of subsidiaries in a single tax jurisdiction to warrant seeking tax group status to allow the offset of assets and liabilities.

Deferred tax assets and liabilities are calculated at the rate of 35% (2020: 25% or 30%) taking into consideration the expected time of recovery and net tax profits.

Deferred tax assets

Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

The Company did not recognise deferred income tax assets of US$1,3 million (2020: US$6.8 million) in respect of tax losses amounting to US$4.6 million (2020: US$22.6 million) as there is insufficient evidence that the potential assets will be recovered.

Assessed tax losses amounting to US$27.0 million (2020: US$19.8 million) will expire between 2023 to 2026 (2020: 2023 to 2025).

The timeframe for expected recovery or settlement of deferred tax assets is as follows:

Deferred tax liabilities

The balance comprises temporary differences attributable to:

Argentine tax law has introduced provisions for inflationary adjustments to be made for tax purposes in the event that the increases in the 36-month cumulative CPI index for the preceding closing year exceed 100%, considering for the first three periods assessed a increase in excess of 55% in 2018, 30% in 2019 or 15% in 2020. Where an inflationary adjustment for tax is triggered, the law requires an adjustment to taxes in the period with one sixth of the calculated value booked to current income taxes in the period and the remaining five sixths included within deferred tax and recognised through current tax in equal parts in the following five years.

During the period an amount of US$1.1 million (FY20: US$ 1.5 million) has been included in current taxes, with an additional US$6.3 million (FY20: US$ 9.4 million) included within other deferred tax assets in relation to this adjustment.

The above presentation of deferred tax assets and liabilities is prepared showing the aggregate of the gross asset and liability position on a company-by-company basis.

Deferred tax assets and liabilities presented in the balance sheet reflect the offset of deferred tax assets and liabilities where permissible. The deferred tax assets and liabilities, after legal offset, are shown in the table below.

10. Cash generated from/(used in) operations

11. Adjusted EBITDA

The adjusted EBITDA is calculated as follows:

12. Events occurring after the reporting period

No events occurred after the reporting period requiring disclosure.

Translation

This document is the English original in the event of any discrepancy between the original English document and the Spanish translation, the English original shall prevail.

- ENDS -