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ROCKROSE ENERGY PLC

ANNUAL REPORT AND FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

Company Registration No. 09665181

ROCKROSE ENERGY PLC

CONTENTS

STRATEGIC REPORT 3

REMUNERATION REPORT 6

DIRECTORS' REPORT 12

INDEPENDENT AUDITORS' REPORT 19

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 25

CONSOLIDATED STATEMENT OF FINANCIAL POSITION 26

COMPANY STATEMENT OF FINANCIAL POSITION 27

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 28

COMPANY STATEMENT OF CHANGES IN EQUITY 29

CONSOLIDATED STATEMENT OF CASH FLOWS 30

COMPANY STATEMENT OF CASH FLOWS 31

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 32

ROCKROSE ENERGY PLC

STRATEGIC REPORT

The Directors present their Strategic Report on RockRose Energy PLC ('the Company' or together with its subsidiaries, 'the Group') for the year ended 31 December 2017.

The Group's strategy, business and future developments

2017 was a year of delivery for RockRose Energy PLC. Having initially floated with a standard listing on the London Stock Exchange in 2016, the objective was to acquire assets and build out the business. These objectives have been achieved with three acquisitions closed, adding material production and reserves, upside potential and a strong balance sheet.

The objectives of the Group remain to build a significant non-operated business in the North Sea that has a cost base that is appropriate in a challenging oil price environment. The acquisitions of Idemitsu Petroleum UK Ltd ('Idemitsu'), Sojitz Energy Project Limited ('Sojitz') and Egerton Energy Ventures Limited ('Egerton') that were completed in December 2017 provide a basis for these objectives. The Board and wider management team continue to evaluate other acquisition opportunities with the target of total production around 10-12,000 boepd within a year.

Since agreeing the three acquisitions in the course of the last year, we have been examining both the upside opportunities presented by the portfolio and the timings and costs related to decommissioning. We are particularly encouraged by the potential of the Tain discovery and the infill opportunities in the Repsol operated Blake Channel and Flank areas. To this end we have commissioned ERC Equipoise to look at the potential within the Blake field and also within the Tain satellite discovery. We have also commissioned Crondall Energy to look at floating production, storage and offloading options for the Blake and Ross fields. This is being done with a view to extending field life beyond the currently anticipated 2024 and allow for the delivery of other discovered hydrocarbons in the area. Since the acquisitions, targeted dates for decommissioning on all of our other assets have been extended by at least a year.

The Group did not have any hedging arrangements in place during the reporting period but has now instigated a hedging strategy where between 40% and 60% of the next twelve months oil production will be hedged. To date, this has been achieved at an average oil price in excess of $67.90 per barrel.

As at 31 December 2017 cash and cash equivalents and restricted cash on the balance sheet stood at $120,291,000 (details of cash and cash equivalents are given in note 16, and details of restricted cash are given in note 17). Please see the table below for the breakdown:

On completion of the Idemitsu transaction there was a large cash balance which arose from the completion adjustment. RockRose as part of its stewardship of the fields become party to various decommissioning security agreements, which resulted in restricted cash balances being placed with the trustees under the terms of these agreements. The amount placed in restricted cash will continue to vary over the time they are in place, which will depend on certain assumptions, for example the oil price and cessation of production.

The net gain for the Group from business combinations was $79,851,000 including a gain on the Idemitsu acquisition of $87,825,000, partly offset by recognition of goodwill and subsequent write off of $7,974,000 in relation to the Sojitz and Egerton acquisitions. In relation to these write offs, the Directors believe that tax assets acquired in these transactions, while currently not able to be recognised under IFRS 3, may subsequently contribute value to the Group as we expand the portfolio to allow the Group to utilise these tax losses. The non-recognition of the tax assets, in particular, is detailed in note 8. In determining the fair value of the oil and gas assets acquired in the Idemitsu transaction it was noted that, based on an updated competent person's report and latest operator information, the economic life of the Ross and Blake fields has been extended from 2019 to 2024, which had not been reflected in the Idemitsu financial accounts prior to acquisition. We have valued these assets using the following commodity prices: $56/bbl for 2018, $58/bbl for 2019 and $59/bbl for 2020, all of which compare conservatively to the current oil price of around $70 to $75. Management's long term view is that Brent crude oil prices will return to $80 per barrel in nominal terms by 2030. This resulted in an increase in recoverable reserves and therefore an increase in the fair value of these assets. Latest operator estimates have also been used for the valuation of decommissioning provisions, resulting in a reduction in provisions from their previous book values. The combination of these two items resulted in the large gain on acquisition.

RockRose Energy PLC would like to thank our joint venture partners and particularly the operators of our assets for their responsible stewardship during 2017 particularly in relation to adherence to HSE policies and minimising our environmental impact.

In summary, we have made significant progress in delivering the stated strategy for the Group. We have acquired assets that are generating cash, created a strong balance sheet and have significant upside potential.

ROCKROSE ENERGY PLC

STRATEGIC REPORT (CONTINUED)

Principal risks and uncertainties

The principal risks and uncertainties of the Group relate to the following:

a) Reserves discovery, development and project delivery - Exploration activities in the Group's licence interests have, given the nature of the exploration activities, inherent uncertainty with respect to whether commercially viable and technically feasible hydrocarbon reserves will be found or can be recovered.

b) Operational performance - The Group's production volumes (and therefore revenue) are dependent on the performance of its producing assets. The Group's producing assets are subject to operational risks including no critical spare equipment or plant availability during the required plant maintenance or shutdowns; asset integrity and health, safety, security and environment incidents; and low reserves recovery from the field and exposure to natural hazards such as extreme weather events. These risks are partially managed by the experience of the operators, which are companies with relevant technical knowledge, skills and resources.

c) Commodity prices - The Group's results are sensitive to crude oil and natural gas prices which are dependent on a number of factors including world supply and demand. See note 23 for a sensitivity analysis and potential exposure.

d) Decommissioning cost estimates and timing - The Group's assets values in use are sensitive to changes in the decommissioning cost estimates. Any increase in the cost estimates would result in an increased decommissioning provision and could trigger an enhanced cash cost exposure in future.

e) Fluctuations in exchange rates - The Group's statement of comprehensive income, statement of financial position and statement of cash flows are reported in US dollars and may be affected by fluctuations in exchange rates for British Pound Sterling and Euro. See note 23 for a sensitivity analysis and potential exposure. 

f) Credit - The challenging credit environment during recent years has highlighted the importance of governance and management of credit risk. The Group's exposure to credit risk takes the form of a loss that would be recognised if counterparties, who are our customers as shown in note 23, failed to, or are unable to, meet their payment obligations. See note 23 for a sensitivity analysis and potential exposure.

Going concern

The Directors have considered the application of the going concern basis of accounting and are satisfied that for the foreseeable future the Group will continue in operational existence and will have adequate resources to meet its liabilities as they fall due. The Directors continue to adopt the going concern basis of accounting in preparing the financial statements.

Key performance indicators

The Directors are of the opinion that the following constitutes the Company's key performance indicators:

§ Revenue

§ Lifting cost per barrel of oil

§ Barrels of oil equivalent produced per day (boepd)

The Group's revenue has increased to $7,436,000 in 2017 (2016: $nil).

The lifting cost per barrel includes direct operating costs, tariffs and insurances and excludes depreciation, depletion and amortisation of oil and gas assets. The lifting cost was $38 per barrel in 2017 (2016: $nil).

The Group's profit before tax was $74,074,000 compared with a loss of $1,894,000 in 2016. The increase relates to a net gain recognised on acquisition of RockRose UKCS4 Limited (formerly Idemitsu Petroleum UK Ltd) on 8 December 2017, partly offset by impairments of goodwill recorded on other acquisitions. The accounting for these acquisitions is further explained in note 2 to the financial statements.

ROCKROSE ENERGY PLC

STRATEGIC REPORT (CONTINUED)

Financial risk management

The Directors have established relevant objectives and policies for managing financial risks to enable the Group to achieve its long term shareholder value growth targets within a prudent risk management framework. These objectives and policies are regularly reviewed.

The principal financial risks, to which the Group is exposed, are described in note 23.

Cash forecasts identifying the liquidity requirements of the Group are produced frequently and reviewed regularly to ensure that there is sufficient financial capacity to meet its immediate and future needs.

Andrew Austin 

On behalf of the Board

30 April 2018

ROCKROSE ENERGY PLC

REMUNERATION REPORT

Chairman's Statement

The Directors are pleased to present their Annual Report on remuneration for 2017. During 2017, the Company formed a Remuneration Committee the aim of which is to set clear objectives for each individual Executive Director and Executive team member relating to Company KPIs plus individual and strategic targets taking into account where an individual has particular influence and responsibility. The Remuneration Committee is comprised of John Morrow and Richard Benmore. During the year the Executive Chairman's salary was increased to £385,000 (2016: £145,000) and the non-executive directors' salaries increased to £50,000 (2016: £35,000) to reflect the level of remuneration for comparable roles in similar sized companies. The Committee has decided that it is not appropriate to set specific targets for 2018 as the Company is still in an active acquisition mode and wishes the Executive team to evaluate and pursue further opportunities throughout the year. Due to the nature and complexity of acquisition negotiations, the Committee has decided that it is not appropriate to set specific targets. The three directors are also shareholders of the company and Andrew Austin has been incentivised with share options to provide some alignment with the medium term objectives of the Company.

Directors' remuneration policy

The Company's policy is to maintain levels of remuneration sufficient to attract, motivate and retain senior executives of the highest calibre who can deliver growth in shareholder value. Executive Director's remuneration currently consists of basic salary and benefits. An annual bonus, and long term incentives will be introduced in line with the Company's expansion. The Company will seek to strike an appropriate balance between fixed and performance-related reward so that the total remuneration package is structured to align a significant proportion to the achievement of performance targets, reinforcing a clear link between pay and performance. The performance targets for staff, senior executives and the Executive Directors will be aligned to the key drivers of the business strategy, thereby creating a strong alignment of interest between staff, Executive Directors and shareholders.

The Remuneration Committee will continue to review the Company's remuneration policy and make amendments, as and when necessary, to ensure it remains fit for purpose and continues to drive high levels of executive performance and remains both affordable and competitive in the market.

The policy, as outlined below, obtained 100% shareholder approval of the votes cast at the AGM held on 29 June 2017.

Policy Table

Element of reward -Base Salary

ROCKROSE ENERGY PLC

REMUNERATION REPORT (CONTINUED)

Element of reward - Other benefits

Element of reward - Annual Bonus

ROCKROSE ENERGY PLC

REMUNERATION REPORT (CONTINUED)

Element of reward - Long Term Incentive Plan (LTIP)

Notes on Table

The Remuneration Committee may make minor amendments to the Policy set out above for regulatory, exchange control, tax or administrative purposes or to take account of a change in legislation without obtaining shareholder approval for that amendment. Any major changes will be put to a shareholder vote at the next AGM or an EGM.

Policy on payment for loss of office

In the event that the employment of an Executive Director is terminated, any compensation payable will be determined in accordance with the terms of the service contract between the Company and the employee, as well as the rules of any incentive plans. Notice periods are set at up to a maximum of twelve months by either party.

The Company considers a variety of factors when considering leaving arrangements for an Executive Director, including individual and business performance, the obligation for the Director to mitigate loss (for example by gaining new employment) and other relevant circumstances (e.g. ill health).

If the Executive Director's employment is terminated by the Company, the Executive Director may receive a time pro-rated bonus to the period worked subject to performance in that period, subject to the Remuneration Committee's discretion.

ROCKROSE ENERGY PLC

REMUNERATION REPORT (CONTINUED)

The treatment of outstanding share awards is governed by the relevant share plan rules. The following table summarises the leaver provisions of share plans under which Executive Directors may currently hold awards.

Recruitment policy

In determining remuneration for new appointments to the Board, the Board will consider all relevant factors including, but not limited to, the calibre of the individual and their existing package, the external market and the existing arrangements for the Company's current Executive Directors, with a view that any arrangements offered are in the best interests of the Company and shareholders and without paying any more than is necessary.

Where the new appointment is replacing a previous Executive Director, salaries and total remuneration opportunity may be higher or lower than the previous incumbent. If the appointee is expected to develop into the role, the Board may decide to appoint the new Executive Director to the Board at a lower than typical salary. Larger increases (above those of the wider company) may be awarded over a period of time to move closer to the market level as their experience develops.

Benefits and other elements of remuneration will normally be limited to those outlined in the remuneration policy table above. However, additional benefits may be provided by the Company where the Board considers it reasonable and necessary to do so.

It is expected that the structure and quantum of the variable pay elements would reflect those set out in the policy table above. However, the Board recognises that, as an independent oil and gas company, it is competing with global firms for its talent. As a result, the Board considers it important that the recruitment policy has sufficient flexibility in order to attract the calibre of individual that the Company requires to grow a successful business. The Company recognises that in many cases, an external appointee may forfeit significant cash bonuses and/or share awards from a prior employer. The Board believes that it needs the ability to compensate new hires for bonuses and/ or incentive awards lost on joining the Company. The Board will use its discretion in settling any such compensation, which will be decided on a case-by-case basis, provided that in no event shall such compensation exceed the value of compensation forfeited by the external appointee, as confirmed by the appointee in a written agreement with the Company.

ROCKROSE ENERGY PLC

REMUNERATION REPORT (CONTINUED)

Annual report on Directors' Remuneration (audited)

Andrew Austin is currently the only Executive Director and is employed under a service agreement, which is capable of termination, by either party giving twelve months notice in writing. The Non-executive Directors are employed under rolling contracts with notice periods of six months, under which they are not entitled to any pension, benefits or bonuses.

Directors' emoluments for the period were as follows:

12 months ended 31 December 2017

The above amounts have been calculated by translating the GBP amounts to USD at the average rate for the year of $1.29 (eighteen months ended 31 December 2016 $1.41).

At the discretion of the Remuneration Committee, Andrew Austin was paid a bonus of $496,201 in recognition of progress made by the Group during 2017, representing a bonus of 100% of base salary.

None of the directors have a prospective right to a defined benefit pension.

Benefits provided to Andrew Austin are the provision of medical insurance for himself and his family and benefits provided to Richard Benmore are the provision of medical insurance for himself and his wife.

Unapproved Share Option Plan

1. The share price on date of the initial grant was 50p based on the admission price of 50p.

2. The share price on date of the second grant was £1.50 based on the placing price on the issue of new shares.

The option is to acquire up to 10% of the issued share capital. As at the initial date of the grant this was 1,000,000 shares and increased by a further 533,333 shares with the additional placement in July 2017 but it may increase to include any further issue of shares after the date of grant subject to the earlier of;

§ the date falling on the third anniversary of admission

§ the market capitalisation of the Company first becomes or exceeds £100 million.

*The shares shall vest in three tranches of 33% on the third anniversary of grant, 33% on the fourth anniversary of grant and 34% on the fifth anniversary of grant, subject to a completion of at least one acquisition resulting in the market capitalisation of the Company increasing by at least 500% (the starting measure being the price at admission of 50p per share), save as to they may become 100% exercisable in the event of a takeover or liquidation (Rule 11 of the plan).

The expense to the income statement for the period was $242,000 (2016: $95,000).

ROCKROSE ENERGY PLC

REMUNERATION REPORT (CONTINUED)

The Directors' interests for disclosure purposes are as follows (audited):

Executive Chairman's pay verses Shareholder Return

Below is a graph comparing total shareholder return of the Company compared to the FTSE Oil and Gas Producers index from January 2016 (when the Company was admitted to the London Stock Exchange) to December 2017. The Executive Chairman's remuneration is shown below:

Payments to past directors (audited)

In the period there were no payments to past directors.

Payments for loss of office (audited)

No payments were made to directors for loss of office in the period.

The comparison of the Executive Chairman's pay increase versus the average pay increase and the relative importance of spend on pay has not been disclosed as the Company only had one employee at the beginning of the year and although additional employees were added during the second half of the year a comparison would be misleading.

John Morrow 

By order of the Board

30 April 2018

ROCKROSE ENERGY PLC

DIRECTORS' REPORT

The Directors present the audited consolidated financial statements of the Group for the year ended 31 December 2017.

Principal activities and status

The Group's principal area of activity is the acquisition of companies or businesses in the upstream oil and gas and power sector.

A review of the business and the future developments of the Group are presented within the Strategic Report.

Dividends

Profit on ordinary activities of the Group after taxation amounted to $74,074,000 (2016: Loss $1,894,000). As disclosed in note 27, subsequent to the statement of financial position date, a return of capital of £1.50 per share was approved by shareholders at an Extraordinary General Meeting on 14 February 2018. The tax treatment of this return of capital on the shareholders of the Company are subject to the tax laws or practices in England and Wales. Shareholders should seek their own specialist advice and contact the Company should they require further information. The Directors do not recommend the payment of any further dividends (2016: $nil).

Political donations

The Group made no political donations during the period.

Post balance sheet events

Events after the reporting period are outlined in note 27 to the financial statements.

Directors

The Directors of the Company who were in office during the year and up to the date of signing the financial statements were:

Andrew Austin

Richard Benmore

John Morrow

Unless otherwise determined by the Company by ordinary resolution, the number of directors (other than any alternate directors) shall not be less than two, but there shall be no maximum number of directors.

Subject to the Articles and the Companies Act, the Company may by ordinary resolution appoint a person who is willing to act as a director and the Board shall have power at any time to appoint any person who is willing to act as a director, in both cases either to fill a vacancy or as an addition to the existing Board.

At every annual general meeting any director who:

(i) has been appointed by the Directors since the last annual general meeting; or

(ii) was not appointed or reappointed at one of the preceding two annual general meetings must retire from office and may offer themselves for reappointment by the shareholders by ordinary resolution.

In accordance with the above, all Directors will offer themselves for reappointment at the upcoming AGM to be held before 30 June 2018.

Directors' indemnities and insurance

Subject to the conditions set out in the Companies Act 2006, the Company has arranged appropriate Directors and officers insurance to indemnify the Directors and officers against liability in respect of proceedings brought by third parties. Such provision remains in force at the date of this report.

The Company indemnifies the Directors against actions they undertake or fail to undertake as Directors or officers of any group company, to the extent permissible for such indemnities to meet the test of a qualifying third party indemnity provision as provided for by the Companies Act 2006. The nature and extent of the indemnities is as described in Section 143 of the Company's Articles of Association as adopted on 15 November 2016. These provisions remained in force throughout the period and remain in place at the date of this report.

Acquisitions

Three acquisitions completed in December 2017 as described in note 2.

ROCKROSE ENERGY PLC

DIRECTORS' REPORT (CONTINUED)

Presentation currency

The presentation currency of the Group has changed from British Pounds Sterling to United States Dollars ("USD"). The change occurred following the acquisition of RockRose UKCS4 Limited (formerly Idemitsu Petroleum UK Ltd) which holds the majority of the Group's activities, and whose functional and presentational currency is USD. All comparative balances have been restated in USD. The balances in the 31 December 2016 statement of financial position have been translated at the closing rate of 1.23 as at 31 December 2016, while 2016 balances in the statement of comprehensive income have been translated at the average rate for 18 months ending 31 December 2016 of 1.41.

Principal risks and uncertainties

The principal risks and uncertainties associated with the Group's business are described in Strategic Report on page 4.

Financial risk management objectives and policies

The Group's financial risk management objectives and policies are described in note 23.

Substantial shareholdings

As at 30 April 2018, in addition to the Directors' interests as set out in the Remuneration Report, the Company had received notification from the following institutions and individuals of interests in excess of 3 per cent of the Company's issued Ordinary Shares with voting rights:

The Company is not a close company as defined in the Income and Corporation Taxes Act 1988. The Company is incorporated, domiciled and registered in England and Wales.

AGM Notice

Notice of the forthcoming Annual General Meeting will be advised separately.

ROCKROSE ENERGY PLC

DIRECTORS' REPORT (CONTINUED)

Corporate governance

In order to implement its business strategy, the Company has adopted a corporate governance structure which is fit for purpose for this stage of the Company's life cycle. This includes a three-member board, with two independent Non-executive Directors and an Executive team of Managing Director and Finance Director. During the year the Company formed Remuneration, Nomination, Audit and Risk and Health, Safety and Environmental Committees. The Board has established the corporate governance values of the Company and has overall responsibility for setting the Company's strategic aims, defining the business plan and strategy and managing the financial and operational resources of the Company. Overall supervision, acquisition, divestment and other strategic decisions are considered and determined by the Board. The Board held four meetings in the period to 31 December 2017. Andrew Austin, in addition to acting as Chairman, in conjunction with the Executive team is charged with day-to-day responsibility for the implementation of the Company's strategy. The Executive team is supported by the wider team and external service providers as required. The Board intends to comply, so far as it is practicable, with certain Main Principles of the UK Corporate Governance Code. Since incorporation compliance with the provisions of the Model Code is being undertaken on a voluntary basis, as the Company does not have a premium listing on the London Stock Exchange. As at the date of this document, the Board has voluntarily adopted the Model Code for Directors' dealings contained in the Listing Rules of the UK Listing Authority.

The Board will be responsible for taking all proper and reasonable steps to ensure compliance with the Model Code by the Directors. The FCA will not have the authority to (and will not) monitor the Company's voluntary compliance with the Model Code, nor to impose sanctions in respect of any failure by the Company to comply.

The Board now has four separate Committees each chaired by a Director as follows:

Audit and Risk Committee

The Committee was formed on 29 June 2017 and comprises only Non-executive Directors; being chaired by Richard Benmore and having as its other member John Morrow, Meetings are aligned with the Group's financial reporting calendar the committee met twice in the year ended 31 December 2017. The Executive Chairman, Finance Director and Managing Director are invited to attend each meeting of the Committee and participated in all of the meetings during the period. The external auditors are also invited to attend meetings of the Committee as appropriate and also meet the Committee without the presence of management at least annually.

The Risk and Disclosure Committee operates as part of the Audit Committee and reviews the operational risks that face the business and monitor and report upon the Company's obligations under the Disclosure Guidance and Transparency Rules.

Audit Committee membership

Meetings attended

Committee member (out of a total possible)

Richard Benmore (Chairman) 2/2

John Morrow 2/2

Summary of the Committee's responsibilities

The Committee's responsibilities include the following:

• The Committee reviews reports from management and the Group's auditors relating to the Group's Annual Report and Accounts and the interim results announcements. The Committee advises the Board on whether the Annual Report and interim announcement are fair, balanced and understandable and provide the information necessary for RockRose stakeholders to assess performance against the Group's strategy;

• The Committee reviews compliance with legal requirements, accounting standards and the Listing Rules and on ensuring that effective systems of internal financial and non-financial controls (including for the management of risk and whistle-blowing) are maintained. However, the ultimate responsibility for reviewing and approving the annual report and accounts remains with the Board of Directors;

• The Committee keeps under review the external auditor's independence and considers the nature, scope, and results of the auditor's work and develops policy on and reviews (reserving the right to approve) any non-audit services that are provided by the external auditors. The Committee is responsible for making recommendations to the Board of Directors on their appointment and remuneration.

ROCKROSE ENERGY PLC

DIRECTORS' REPORT (CONTINUED)

Remuneration Committee

The Committee was formed on 29 June 2017 and comprises only Non-executive Directors, being chaired by John Morrow and having as its other member Richard Benmore. The Committee met twice in the year ended 31 December 2017. The Executive Chairman is invited to attend meetings. In accordance with the Committee's terms of reference, no Director may participate in discussions relating to their own terms and conditions of service or remuneration.

Remuneration Committee membership

Meetings attended

Committee member (out of a total possible)

John Morrow (Chairman) 2/2

Richard Benmore 2/2

Summary of the Committee's responsibilities

The Committee's responsibilities include the following:

· Making recommendations to the Board of Directors on the Company's policy on the remuneration of the Executive Chairman, Executive Directors and other Senior Executives (as are delegated to the Committee to consider);

· Determining, within agreed terms of reference, the remainder of the remuneration packages for each of them, including pension rights, bonus arrangements, any compensation payments and the implementation of executive incentive schemes;

· Monitoring the level and structure of remuneration for Senior Management;

· Reviewing the design of share incentive plans for approval by the Board and determining the policy on annual awards to Executive Directors and Senior Executives;

· Reviewing progress made against performance targets and agreeing incentive awards; and

· Setting clear objectives for each individual Director relating to Company KPIs including individual and strategic targets.

Key areas of focus in the year ended 31 December 2017

The Committee's particular areas of focus during the year were as follows:

· Decide on the level of remuneration for the Directors' and Executive Chairman's bonus;

· Review of remuneration of the Managing Director and Finance Director.

Nomination Committee

The Nomination Committee was formed on 29 June 2017 and is chaired by the Executive Chairman, Andrew Austin, and its other member is Richard Benmore. The Committee meets as required during the year.

Nomination Committee membership

Meetings attended

Committee member (out of a total possible)

Andrew Austin (Chairman) 2/2

Richard Benmore 2/2

Summary of the Committee's responsibilities

The Committee's responsibilities include the following:

· Considering the size, structure and composition of the Board of Directors, retirements and appointments of additional and replacement Directors and making appropriate recommendations to the Board of Directors;

· Making recommendations to the Board regarding membership of the Audit and Remuneration Committees; and

· Ensuring that plans are in place for orderly succession to the Board of Directors and senior management positions, so as to maintain an appropriate balance of skills and experience within the Group and the Board of Directors.

Key areas of focus in the year ended 31 December 2017

The principal activities of the Committee during the year were as follows:

· Succession planning was reviewed in the year and work in this area will continue in 2018.

ROCKROSE ENERGY PLC

DIRECTORS' REPORT (CONTINUED)

Health, Safety, Security and Environmental Committee

The Health, Safety, Security and Environmental Committee was formed on 22 December 2017 and is chaired by John Morrow and its other members are Andrew Austin and Richard Benmore. The Committee will meet as required during 2018 and in future years.

The committee was formed at the end of the year so no meetings were held during the year.

Summary of the Committee's responsibilities

The Committee's responsibilities include the following:

· Ensuring that employees are provided with a safe and secure place to work;

· Ensuring that the Group is complying with the latest statutory requirements;

· Ensuring that operators are complying with latest health, safety and environmental directives; and

· Ensuring that the Company's IT systems are secure and protected from cyber-attack.

Internal control

The Board acknowledges that it is responsible for establishing and maintaining the Group's system of internal controls and reviewing its effectiveness. The procedures that include, inter alia, financial, operational, health & safety, compliance matters and risk management (as detailed in the Strategic Report) are reviewed on an ongoing basis.

The Group's internal control procedures include the following:

· Board approval for all significant projects, including corporate transactions and major capital projects;

· The Board receives and reviews regular reports covering both the technical progress of projects and the Group's financial affairs to facilitate its control;

· There is a comprehensive budgeting and planning system for all items of expenditure with an annual budget approved by the Board. Risk assessment and evaluation is an integral part of the annual planning cycle;

· The Group has in place internal control and risk management systems in relation to the Group's financial reporting process and the Group's process for preparing consolidated financial statements. These systems include policies and procedures to ensure that adequate accounting records are maintained and transactions are recorded accurately and fairly to permit the preparation of consolidated financial statements in accordance with IFRS; and

· The Audit Committee reviews draft annual and interim reports before recommending their publication to the Board. The Audit Committee discusses with the Executive team external auditors the significant accounting policies, estimates and judgements applied in preparing these reports.

The internal control system can only provide reasonable and not absolute assurance against material misstatement or loss. The Board has considered the need for a separate internal audit function but, bearing in mind the present size and composition of the Group, does not consider it necessary at the current time.

UK Bribery Act

RockRose has reviewed the appropriate policies and procedures to ensure compliance with the UK Bribery Act. The Company continues actively to promote good practice throughout the Group and has initiated a rolling programme of anti-bribery and corruption training for all relevant employees.

Relations with shareholders

Communications with shareholders and bondholders are considered important by the Directors. The primary contact with shareholders, investors and analysts is the Executive Chairman. Company circulars and press releases have also been issued throughout the year for the purpose of keeping investors informed about the Group's progress.

The Company also maintains a website (www.rockroseenergy.com) that is regularly updated and contains a wide range of information about the Group.

ROCKROSE ENERGY PLC

DIRECTORS' REPORT (CONTINUED)

Employment policy

It is the policy of the Group to operate a fair employment policy. No employee or job applicant is less favourably treated than another on the grounds of their sex, sexual orientation, age, marital status, religion, race, nationality, ethnic or national origin, colour or disability and all appointments and promotions are determined solely on merit. The Directors encourage employees to be aware of all issues affecting the Group and place considerable emphasis on employees sharing in its success.

This report was approved by the Board of Directors on 30 April 2018 and signed on its behalf by

Andrew Austin 

30 April 2018 

ROCKROSE ENERGY PLC

STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

Company law requires the Directors to prepare financial statements for each financial period. Under that law the directors have prepared the Group and Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group and Company for that period. In preparing the financial statements, the directors are required to:

· select suitable accounting policies and then apply them consistently;

· state whether applicable IFRSs as adopted by the European Union have been followed for the Group financial statements and IFRSs as adopted by the European Union have been followed for the company financial statements, subject to any material departures disclosed and explained in the financial statements;

· make judgements and accounting estimates that are reasonable and prudent; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

The Directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the Group and Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Company's performance, business model and strategy.

Each of the Directors, whose names and functions are listed in the Directors' Report confirm that, to the best of their knowledge:

· the Company financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and loss of the Company;

· the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and loss of the Group; and

· the Strategic Report includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that it faces.

In the case of each director in office at the date the Directors' Report is approved:

· so far as the Director is aware, there is no relevant audit information of which the Group and Company's auditors are unaware; and

· they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the Group and Company's auditors are aware of that information.

By order of the Board,

____________________

Andrew Austin 

By order of the Board

30 April 2018

Independent auditors' report to the members of Rockrose Energy PLC (Company Registration No. 02552901)

Report on the audit of the financial statements

In our opinion, Rockrose Energy PLC's group financial statements and company financial statements (the "financial statements"):

· give a true and fair view of the state of the group's and of the company's affairs as at 31 December 2017 and of the group's profit and the group's and the company's cash flows for the year then ended;

· have been properly prepared in accordance with IFRSs as adopted by the European Union and, as regards the company's financial statements, as applied in accordance with the provisions of the Companies Act 2006; and

· have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation.

We have audited the financial statements, included within the Annual Report and Financial Statements (the "Annual Report"), which comprise: the consolidated and company statements of financial position as at 31 December 2017; the consolidated statement of comprehensive income, the consolidated and company statements of cash flows, and the consolidated and company statements of changes in equity for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies.

Our opinion is consistent with our reporting to the Audit Committee.

We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors' responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC's Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC's Ethical Standard were not provided to the group or the company.

Other than those disclosed in note 4 to the financial statements, we have provided no non-audit services to the group or the company in the period from 1 January 2017 to 31 December 2017.

Overview

Independent auditors' report to the members of Rockrose Energy PLC (Company Registration No. 02552901)

The scope of our audit

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain.

We gained an understanding of the legal and regulatory framework applicable to the group and the industry in which it operates, and considered the risk of acts by the group which were contrary to applicable laws and regulations, including fraud. We designed audit procedures at a group and significant component level to respond to the risk, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. We focused on laws and regulations that could give rise to a material misstatement in the group and company financial statements, including, but not limited to, the Companies Act 2006, the Listing Rules and UK tax legislation. Our tests included, but were not limited to, enquiries of management and review of minutes of meetings of the Board of Directors. There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it.

We did not identify any key audit matters relating to irregularities, including fraud. As in all of our audits we also addressed the risk of management override of internal controls, including testing journals and evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud.

Key audit matters

Key audit matters are those matters that, in the auditors' professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We determined that there were no key audit matters applicable to the parent company to communicate in our report. This is not a complete list of all risks identified by our audit.

Independent auditors' report to the members of Rockrose Energy PLC (Company Registration No. 02552901)

Independent auditors' report to the members of Rockrose Energy PLC (Company Registration No. 02552901)

How we tailored the audit scope

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the group and the company, the accounting processes and controls, and the industry in which they operate.

As discussed in the Key Audit Matters section above, in 2017 the group completed the acquisitions of three separate companies: Egerton Energy Ventures Limited, Sojitz Energy Project Limited and Idemitsu Petroleum UK Ltd. The acquired entities were subsequently renamed Rockrose (UKCS2) Limited, Rockrose (UKCS3) Limited and Rockrose (UKCS4) Limited respectively. 

These acquisitions have contributed materially to the group's balance sheet in the 2017 financial statements, with the assets and liabilities acquired in these business combinations accounted for at fair value. We performed full scope audit procedures over the financial information of Rockrose (UKCS4) Limited, which had an effective date of acquisition of 30 November 2017. We also performed audit procedures over the balance sheets of Rockrose (UKCS2) Limited and Rockrose (UKCS3) Limited, which were acquired effective 31 December 2017. Separately, we audited the fair value adjustments to the book values of the acquired entities. We also performed a full scope audit of Rockrose Energy PLC's company only financial information. 

Together this ensured 100% of assets and 100% of revenues were in scope for testing. All audit procedures were performed by the UK engagement team. 

Materiality

The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of materiality allocated across components was between $291,000 to $1,090,000.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above $85,000 (Group audit) (2016: $635) and $20,000 (Company audit) (2016: $635) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.

Independent auditors' report to the members of Rockrose Energy PLC (Company Registration No. 02552901)

We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when:

· the directors' use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

· the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group's and company's ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group's and company's ability to continue as a going concern.

The other information comprises all of the information in the Annual Report other than the financial statements and our auditors' report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.

With respect to the Strategic Report and Directors' Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included.

Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006 and ISAs (UK) require us also to report certain opinions and matters as described below.

Responsibilities for the financial statements and the audit

Responsibilities of the directors for the financial statements

As explained more fully in the Statement of Directors' Responsibilities set out on page 18, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group's and the company's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the company or to cease operations, or have no realistic alternative but to do so.

Independent auditors' report to the members of Rockrose Energy PLC (Company Registration No. 02552901)

Auditors' responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors' report.

Use of this report

This report, including the opinions, has been prepared for and only for the company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Under the Companies Act 2006 we are required to report to you if, in our opinion:

· we have not received all the information and explanations we require for our audit; or

· adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches not visited by us; or

· certain disclosures of directors' remuneration specified by law are not made; or

· the company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns.

We have no exceptions to report arising from this responsibility.

Following the recommendation of the audit committee, we were appointed by the directors on 24 March 2016 to audit the financial statements for the 18 month period ended 31 December 2016 and subsequent financial periods. The period of total uninterrupted engagement is 2 years, covering the period ended 31 December 2016 and the year ended 31 December 2017.

Richard Spilsbury (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants and Statutory Auditors

London

30 April 2018

ROCKROSE ENERGY PLC

Company Registration No. 09665181

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2017

All results have been derived from continuing operations.

The notes on pages 32 to 60 form an integral part of these financial statements.

*All comparative balances presented throughout these financial statements have been restated in USD following the change to the Group's presentational currency in 2017.

ROCKROSE ENERGY PLC

Company Registration No. 09665181

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2017

These financial statements on pages 25 to 60 were approved by the Board of Directors on 30 April 2018 and were signed on its behalf by:

Andrew Austin 

The notes on pages 32 to 60 form part of these financial statements.

ROCKROSE ENERGY PLC

Company Registration No. 09665181

COMPANY STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2017

The company loss for the year was $12,164,000 (2016: $2,009,000).

These financial statements on pages 25 to 60 were approved by the board of Directors on 30 April 2018 and were signed on its behalf by:

Andrew Austin 

The notes on pages 32 to 60 form part of these financial statements.

ROCKROSE ENERGY PLC

Company Registration No. 09665181

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD ENDED 31 DECEMBER 2017

The notes on pages 32 to 60 form part of these financial statements.

ROCKROSE ENERGY PLC

Company Registration No. 09665181

COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD ENDED 31 DECEMBER 2017

The notes on pages 32 to 60 form part of these financial statements.

ROCKROSE ENERGY PLC

Company Registration No. 09665181

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE PERIOD ENDED 31 DECEMBER 2017

The notes on pages 32 to 60 form part of these financial statements. 

ROCKROSE ENERGY PLC

Company Registration No. 09665181

COMPANY STATEMENT OF CASH FLOWS

FOR THE PERIOD ENDED 31 DECEMBER 2017

The Company prepares its statement of cash flows using the indirect method. The notes on pages 32 to 60 form part of these financial statements.

ROCKROSE ENERGY PLC

Company Registration No. 09665181

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

1. Principal accounting policies

General information

RockRose Energy PLC ('the Company' or together with its subsidiaries, 'the Group') has been formed to make acquisitions of companies or businesses in the upstream oil and gas and power sector.

The Company is a public limited company incorporated on 1 July 2015, which is listed on the London Stock Exchange and incorporated and domiciled in England and Wales.

The address of its registered office is Dashwood House, 69 Old Broad Street, London, EC2M 1QS.

Basis of preparation

The consolidated financial statements are for the year ended 31 December 2017. These financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') and IFRIC interpretations endorsed by the European Union ('EU') and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared on the historical cost basis. Historical cost is generally based on fair value of the consideration given in exchange of goods and services. These consolidated financial statements (the 'financial statements') have been prepared and approved by the Directors on 30 April 2018 and signed on their behalf by Andrew Austin.

The accounting policies have been applied consistently throughout the preparation of these financial statements. All activities of the Company are carried out in the UK Continental Shelf. These financial statements are presented in United States Dollars (US$'s) and the values in the financial statements are rounded to thousands (US$'000).

Adoption of new standards and interpretations

New standards, amendments and interpretations

The following new standards, amendments or interpretations, effective for the first time for the financial year beginning on or after 1 January 2017, have had no material impact on the Group or parent company.

New standards, amendments and interpretations not yet adopted

The following new and revised Standards and Interpretations will be adopted by the Company in the years stated.

Based on their assessment to date, the directors also do not expect any material impact on transition to IFRS 9 and IFRS 15 from 1 January 2018. The Directors' assessment of the impact of transitioning to IFRS 16 from 1 January 2019 is ongoing.

Basis of consolidation

Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date on which that control ceases.

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of the acquiree, and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of the acquiree's identifiable net assets.

ROCKROSE ENERGY PLC

Company Registration No. 09665181

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2017

1. Principal accounting policies (continued)

Basis of consolidation (continued)

Acquisition related costs are expensed as incurred.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer's previously held equity interest in the acquiree is remeasured to fair value at the acquisition date; any gains or losses arising from such remeasurement are recognised in profit or loss.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39, either in profit or loss or as a change to other comprehensive income.

Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated. Where necessary, amounts reported by subsidiaries have been adjusted to conform to the Group's accounting policies.

The Group applies IFRS 11 to all joint arrangements. Under IFRS 11, investments in joint arrangements are classified as either joint operations or joint ventures, depending on the contractual rights and obligations of each investor. The Group has assessed the nature of its joint arrangements and determined them to be joint ventures. Joint ventures are accounted for using the equity method.

Segmental reporting

The Group has one segment which is the production of oil and gas.

Revenue and other income

Revenue excludes value added tax and represents the sales value of the Company's share of oil and gas production lifted during the year and includes tariff income. The Company recognises revenue when the amount can be reliably measured and it is probable that future economic benefits will flow to the entity. Revenue associated with sales of crude oil and petroleum products including natural gas is recorded when title passes to the customer. Revenue from production of natural gas and oil in which the Company has interest with other joint venture parties is recognised based on the Company's working interest and the terms of the relevant petroleum production licences. In all cases, this is deemed to be on a lifting basis. All other revenue is recognised when title passes to the customers.

Financing income and costs

Financing costs comprise interest payable, finance charges on shares classified as liabilities and finance leases, unwinding of the discount on provisions, and net foreign exchange losses that are recognised in the statement of comprehensive income (see foreign currency accounting policy). Financing income comprises interest receivable on funds invested, dividend income, and net foreign exchange gains.

Interest income and interest payable are recognised in profit or loss as they accrue, using the effective interest method. Dividend income is recognised in the statement of comprehensive income on the date the entity's right to receive payments is established.

Leases

Rentals under operating leases are charged to the statement of comprehensive income on a straight line basis over the lease term.

ROCKROSE ENERGY PLC

Company Registration No. 09665181

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2017

1. Principal accounting policies (continued)

Foreign currencies

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which each entity operates ('the functional currency').Transactions in foreign currencies are translated to the entity's functional currency at the foreign exchange rates at the date of the transactions. Foreign exchange gains and losses resulting from the settlement of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges. All entities in the Group have a functional currency of USD apart from RockRose Energy PLC which continues to have a GBP functional currency.

The results and financial position of all of the Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

a) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

b) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of each transaction); and

c) all resulting exchange differences are recognised in other comprehensive income.

Taxation

Tax on the profit/ (loss) for the year comprises current and deferred tax. Tax is recognised in the statement of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the statement of financial position date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the statement of financial position date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised.

Investments in subsidiaries

Investments in subsidiaries in the Company statement of financial position are accounted for at cost less accumulated impairment losses. Investments are reviewed for indicators of impairment at least annually.

 Joint arrangements

The Group's licence interests are held jointly with others under arrangements whereby unincorporated and jointly controlled ventures are used to explore, evaluate and ultimately develop and produce from its oil and gas interests. Accordingly, the Group accounts for its share of assets, liabilities, income and expenditure of these joint operations, classified in the appropriate balance sheet and income statement headings.

ROCKROSE ENERGY PLC

Company Registration No. 09665181

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2017

1. Principal accounting policies (continued)

Exploration, evaluation and producing assets

Pre-licence acquisition costs are recognised in the statement of comprehensive income when incurred. Costs incurred after licences have been obtained, such as geological and geophysical surveys, drilling and commercial appraisal costs are capitalised as exploration and evaluation (E&E) assets as tangible or intangible depending on the nature of the asset. E&E assets within intangible assets are not amortised.

The Company applies the successful efforts method of accounting for exploration expenditure. E&E assets shall no longer be classified as such when the technical feasibility and commercial viability of extracting oil and gas resources are demonstrable.

Once the technical feasibility and commercial viability has been demonstrated, then the carrying value of the E&E assets is reclassified as a development and production (D&P) asset and classified as 'oil and gas' assets within property, plant and equipment. The E&E assets shall be assessed annually for impairment using indicators in accordance with IFRS 6 'Exploration for and Evaluation of Mineral Resources'. If technically feasible or commercially viable reserves are not discovered, the impairment is recognised on E&E assets in the statement of comprehensive income.

The assets transferred to D&P assets are depreciated once the asset commences production. D&P assets are depreciated using the unit of production method based on the proved and probable reserves of those fields. Changes in these estimates are dealt with prospectively.

General and administration costs are expensed as incurred.

Other intangible assets

Other intangible assets that are acquired by the Company are stated at cost less accumulated amortisation and impairment losses. Amortisation is charged to the statement of comprehensive income on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life are systematically tested for impairment at each statement of financial position date. Other intangible assets are amortised from the date they are available for use.

The Company acquired software which is depreciated at 33% using the straight-line method.

Depletion and Amortisation on producing oil and gas assets

All expenditure carried within each O&G asset is amortised from the commencement of production on a unit of production basis, which is the ratio of oil and gas production in the period to the estimated quantities of commercial reserves at the end of the period plus the production in the period, generally on a field-by-field basis. Costs used in the unit of production calculation comprise the net book value of capitalised costs plus the estimated future field development costs, audited in the annual reserves report.

Changes in the estimates of commercial reserves or future field development costs are dealt with prospectively.

Administrative assets

The Company acquired various administrative assets including fixtures and fittings, computer equipment and leasehold improvements. These assets are recorded in the statement of the financial position at cost less accumulated depreciation. Depreciation is provided to write off the cost less the estimated residual value of the tangible fixed asset.

Depreciation is provided at the following annual rates on a reducing balance method:

Depreciation is provided on Leasehold improvements on a straight line basis:

ROCKROSE ENERGY PLC

Company Registration No. 09665181

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2017

1. Principal accounting policies (continued)

Impairments of Producing and Development assets

The carrying amounts of the Company's assets are reviewed at each statement of financial position date to determine whether there is any indication of impairment; an asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. If any such indication exists, the asset's recoverable amount is estimated. An impairment loss is recognised whenever the carrying amounts of an asset or its cash generating unit exceed its recoverable amount. Impairment losses are recognised in the statement of comprehensive income. The recoverable amount of assets is the higher of fair value less cost to sell and value in use. Value in use is determined as the amount of estimated risk adjusted and discounted future cash flows. For this purpose, assets are grouped into cash generating units (CGUs) based on separately identifiable and largely independent cash inflows. Estimates of future cash flows used in the evaluation of impairment of assets are made using management forecasts including assumptions for commodity prices, market supply and demand, and in the case of oil and gas properties, expected production volumes. The latter takes into account assessments of field and reservoir performance and includes expectations about proved and probable volumes, which are risk-weighted utilising geological, production, recovery and economic projections. Cash flow estimates are risk adjusted to reflect local conditions as appropriate and discounted at a rate that reflects a market return and the risks of the cash generating units.

Crude oil under and over lift

Crude oil under/over lift is classified under debtors or creditors as appropriate, and valued at the year-end oil price. Liabilities arising from lifting more than the Company's share of the joint venture's petroleum production (over lifting) are valued at the market price and booked under 'Current liabilities'. Under lifting is valued at the market price and booked under 'Current assets'.

Inventory

Inventories are stated at the lower of cost and net realisable value. The net realisable value of crude oil is based on the estimated selling price in the ordinary course of business which is spot price on the date of statement of financial position.

Employee benefit trust

The assets and liabilities of the Employee Benefit Trust ('EBT') are consolidated by the Group, as the Group exercises control over the Trust as defined in IFRS 10. Shares in the Company held by the trust are consolidated as a deduction from equity and treated as treasury shares.

Share based payments

Under the Share Option Plan, the Employee Benefit Trust subscribes for ordinary shares in the Company. The EBT owns a portion of the share equivalent to the subscription price. Any employee who received an award under the plan owns any value in the share in excess of the subscription price. Awards vest over three to five years and are subject to performance criteria. The fair value of awards granted is recognised as an employee expense with a corresponding increase in equity.

The fair value is measured at grant date, using an appropriate pricing model taking into account the terms and conditions upon which the award was granted, and is spread over the period during which the awards vest. The amount recognised as an expense is adjusted to reflect the actual number of share awards that vest in the same period. At each balance sheet date, the Company revises its estimates of the number of options that are expected to vest. The Company recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.

ROCKROSE ENERGY PLC

Company Registration No. 09665181

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2017

1. Principal accounting policies (continued)

Cash and cash equivalents

Cash and cash equivalents comprise cash in hand and bank balances. Cash equivalents are short- term, highly liquid investments that are readily convertible to known amounts of cash, which are subject to an insignificant risk of changes in value and have a maturity of three months or less.

Restricted cash

Restricted cash balances are amounts deposited with trustees under the terms of various decommissioning security agreements. As these amounts are adjusted for on an annual basis or utilised as decommissioning occurs they are not readily convertible and are therefore classed as restricted.

Non-derivative financial instruments

Financial assets

Initial recognition

Financial assets within the scope of IAS 39 'Financial instruments; recognition and measurement' are classified as financial assets at fair value through profit or loss, loans and receivables, held to maturity investments, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

Financial assets are recognised initially at fair value.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognised on the trade date, i.e., the date that the Company commits to purchase or sell the asset.

The Company's financial assets include cash and trade and other receivables.

Subsequent measurement

The subsequent measurement of financial assets depends on their classification as follows:

Trade and other receivables

Trade and other receivables that are created by the Company by way of providing goods directly to a debtor are carried at the original invoice amount. Trade and other receivables are recognised initially at fair value less any impairment losses.

A credit risk provision for trade and other receivables is established if there is objective evidence that the Company will not be able to collect all amounts due. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of all cash flows, including amounts recoverable from guarantees and collateral, discounted based on the original effective interest rate of the originated receivables at inception.

If the amount of the impairment subsequently decreases due to an event occurring after the write-down, the release of the provision is credited to Other Income.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, deposits with a maturity of three months or less, and other short term highly liquid investments that are readily convertible to known amounts of cash.

Financial liabilities

Initial recognition

Financial liabilities within the scope of IAS 39 'Financial instruments: recognition and measurement' are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

The Company determines the classification of its financial liabilities at initial recognition.

The Company's financial liabilities include trade and other payables and loans and borrowings.

ROCKROSE ENERGY PLC

Company Registration No. 09665181

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2017

1. Principal accounting policies (continued)

Non-derivative financial instruments (continued)

Subsequent measurement

The subsequent measurement of financial liabilities depends on their classification. Trade payables that are created by the Company are carried at the original invoice amount.

Trade and other payables

Trade and other payables are recognised initially at fair value.

Loans and borrowings

Loans and borrowings are recognised initially at fair values plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest rate method.

Share capital

Ordinary shares are classified as equity. The Company's share capital currently consists of ordinary shares. Any transaction costs associated with the issuing of shares are deducted from equity to the extent they are incremental costs directly attributable to the equity transaction.

Provisions

Provisions are recognised when the Company has present obligation (legal and constructive) as a result of a past event, it is probable that the Company will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the statement of financial position date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying values amount is the present value of those cash flows.

Specific provisions recognition policies are listed below:

Decommissioning and restoration provision

Provisions are recognised for the future decommissioning and restoration of hydrocarbon production facilities and pipelines at the end of their economic lives. The estimated cost is recognised initially as part of property, plant & equipment and depreciated over the life of the proved and probable reserves on a unit-of-production basis. Any changes in the estimates of costs to be incurred on proved and probable reserves or in the rate of production will therefore impact net income, over the remaining economic life of the oil and gas assets.

Estimates of the amounts of provisions recognised are based on current legal and constructive requirements, technology and price levels. Because actual outflows can differ from estimates due to changes in laws, regulations, public expectations, technology, prices and conditions, and can take place many years in the future, the carrying amounts of provisions are regularly reviewed and adjusted to take account of such changes.

All decommissioning and restoration provisions are denominated in GBP which are revalued to USD based on latest FX forward rates on a bi-annual basis. Any resulting forex exchange movements are recognised within the related property, plant and equipment decommissioning asset balance, unless the decommissioning assets have previously been impaired and forex exchange movements would therefore be recognised in the statement of comprehensive income.

ROCKROSE ENERGY PLC

Company Registration No. 09665181

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2017

1. Principal accounting policies (continued)

Significant accounting judgements and key sources of estimation uncertainty

In the application of the Company's accounting policies, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources.

The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an annual basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The following are the critical judgements and estimates that the Directors have made in the process of applying the Company's accounting policies and that have the most effect on the amounts recognised in the financial statements.

Fair value of assets and liabilities acquired in business combinations

Following the acquisitions of Idemitsu Petroleum UK Ltd ('Idemitsu'), Sojitz Energy Project Limited ('Sojitz') and Egerton Energy Ventures Limited ('Egerton) the Company has been required to make estimates regarding the fair value of assets and liabilities of the businesses acquired, under IFRS 3 Business combinations. The fair values calculated are provisional. The main areas of judgement taken by the Directors, and the key sources of estimation uncertainty, concern the valuation of property, plant and equipment ('PPE'), decommissioning liabilities, intangible exploration assets (Tain prospect in Idemitsu), contingent liabilities and the value of any tax losses acquired. Further information on these key judgements have been set out in points a) to e) below.

a) Valuation of PPE including estimation of commercial reserves quantities

Commercial reserves are proven and probable oil and gas reserves, which are defined as the estimated quantities of crude oil, natural gas and natural gas liquids which geological, geophysical and engineering data demonstrate with a specified degree of certainty to be recoverable in future years from known reservoirs and which are considered commercial reserves.

The Company obtains annual reports on the commercial reserves from independent reserve auditors for its largest fields. The reserves used in the valuation of PPE have a 50 per cent statistical probability that the actual quantity of recoverable reserves will be more than the amounts estimated as proven and probable reserves and a 50 per cent statistical probability that it will be less. The fields which were covered by the reserves auditor as at 31 December 2017 were Ross, Blake, Nelson and Howe (all acquired in the Idemitsu transaction).

The calculation of value in use, used to value the acquired PPE, is sensitive to the following:

i) Production volume

The estimated future production volumes are based on the Group's evaluation of the fields which is reviewed and verified by the third party reserves auditor as at 31 December 2017 for certain fields as outlined above. For other acquired assets, production volume estimates are based on the latest available forecasts from operators.

ii) Commodity prices

The oil price assumptions adopted by management are $56/bbl for 2018, $58/bbl for 2019 and $59/bbl for 2020. Management's long term view is that Brent crude oil prices will return to $80 per barrel in nominal terms by 2030, with small annual increases assumed each year from 2021 to 2030. Gas prices are assumed to be flat at $6/Mscf over the remaining life of fields. 

iii) Discount rate

The Company estimates value in use through a discounted cash flow model using a pre-tax (nominal) discount rate of 12%. This discount rate is derived from management's assessment of an appropriate market rate of return and the relevant business risks associated with specific producing fields (CGUs) and corporate level risk exposure for the Company.

ROCKROSE ENERGY PLC

Company Registration No. 09665181

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2017

1. Principal accounting policies (continued)

Estimation of the commercial reserves uncertainty (continued)

iv) Inflation rate

An assumed inflation rate of 3% has been applied to the discounted cash flows. Management believes that this is a reasonable estimate for the medium term and is aligned with current uncertainty driven from Brexit.

v) Foreign exchange rate

The rate of foreign exchange between US$ and GBP was volatile during the year due to ongoing economic uncertainty concerning Brexit. Management has used the forward curve for the exchange rate from 2018 through to 2024 with a range from 1.26 to 1.41. From 2025 to 2028 the exchange rate assumption sees a rise from $1.40 to 1.55 and is then a flat 1.55 from 2029 onwards.

vi) Operating and capital expenditures

The forecast operating costs and capital expenditures are based on the Group's evaluation of the fields which are reviewed by the third party reserves auditor and outlined in the reserves audit report as at 31 December 2017. For fields not subject to reserves audits, costs were based on latest operator estimates.

b) Decommissioning Provision

The fair value of decommissioning provisions for each of the acquired fields was determined based on latest operator estimates, which management consider to be the most reliable estimates of costs likely to be incurred. Cost estimates were inflated using a rate of 3% consistent with the PPE valuation discussed above. The estimated costs of decommissioning were discounted to present value terms using rates of between 3.52% and 4.55%, taking into account the estimated life of the underlying field with appropriate adjustment for a risk premium specific to the liability.

c) Exploration prospects

The Tain exploration prospect was fair valued using the same assumptions mentioned for PPE above and risked accordingly. By applying an appropriate discount to take into account the risks associated with development of the prospect, management estimate that the fair value of Tain assets is equivalent to their book value on acquisition date.

d) Contingent liability

Following the acquisition of Idemitsu, the Group inherited a contingent liability relating to a potential mismeasurement of liquids transported through the Forties pipeline system. As negotiations are still ongoing management have estimated the potential liability based on current information available and determined that this estimate is the fair value of the contingent liability.

e) Tax losses

Tax losses were acquired with both the Idemitsu and Sojitz acquisitions. Management has determined that due to the uncertainty regarding the utilisation of these acquired losses they will not be recognised as part of the business combination accounting. Therefore the recognition of deferred tax assets on acquisition of Idemitsu has been restricted to the value of previously made tax payments by Idemitsu that future decommissioning costs can be carried back against.

Carrying value of oil and gas producing and development assets

Property, Plant and Equipment was fair valued as it was acquired in business combinations as mentioned above. No triggers for impairment were identified on acquired Idemitsu assets between the date of acquisition and 31 December 2017. The effective date for the Sojitz and Egerton acquisitions was 31 December 2017.

Presumption of going concern

The Consolidated results reflects the strengthening financial position of the Group following the acquisitions. The net current asset position of $113,852 (2016: $2,708,000) indicates the Group has available financial resources to meet any future obligations at the Group level. The Directors have prepared cash flow forecasts for the period to 30 June 2019 which indicates the Group will be cash generative, subject to certain operational and economic assumptions.

These factors demonstrate that the Group has sufficient cash funds available to allow it to continue in business for a period of at least twelve months from the date of approval of these financial statements. Accordingly, the financial statements have been prepared on a going concern basis.

ROCKROSE ENERGY PLC

Company Registration No. 09665181

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2017

2. Business combinations

Acquisition of Idemitsu Petroleum UK Ltd.

The Group completed the acquisition of 100 percent of the entire share capital of Idemitsu Petroleum UK Ltd on 8 December 2017 for cash consideration of $30.4 million. For accounting puposes the effective date of the transaction has been determined as 30 November 2017. The entity was subsequently renamed RockRose (UKCS4) Limited. Through the business combination, the Group acquired the following producing licence interests:

*Subsequent to acquisition, part of the cash acquired became restricted under various decommissioning security agreements as described in note 17.

ROCKROSE ENERGY PLC

Company Registration No. 09665181

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2017

2. Business combinations (continued)

The gain on acquisition of Idemitsu is largely attributable to the extension of the economic life of the Ross and Blake fields to 2024 and alignment of decommissioning cost estimates to latest operator forecasts. The fair value of PPE acquired is attributable to the Ross, Blake, Nelson and Howe fields and is based on a discounted cash flow analysis as outlined in Note 1 (Significant accounting judgments and key sources of estimation uncertainty).

Other fields acquired were deemed to have nil value.

The impact on the fair value of PPE of changes to key assumptions such as production, oil and gas prices and discount rate have been shown below:

Acquisition of Sojitz Energy Project Limited

The Group completed the acquisition of 100 percent of the entire share capital of Sojitz Energy Project Limited on 21 December 2017 for cash consideration of $2.5 million. The entity was renamed RockRose (UKCS3) Limited. Through the business combination, the Group acquired the following licence interests:

ROCKROSE ENERGY PLC

Company Registration No. 09665181

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2017

2. Business combinations (continued)

The increase in fair value of PPE is largely based on an assumed extension to the field life for the Tors field to 2026, based on the latest operator estimate, which depends on an extension to the economic life of the Trent platform which services this field.

The impact on the fair value of PPE of changes to key assumptions such as production, gas price and discount rate have been shown below:

Acquisition of Egerton Energy Ventures Limited

The Group completed the acquisition of 100 percent of the entire share capital of Egerton Energy Ventures Limited on 21 December 2017 for cash consideration paid to the Group by the seller of $1.4 million. The entity was renamed RockRose (UKCS2) Limited. Through the business combination, the Group acquired the following licence interests:

The net gain for the Group from above business combinations was $79,851,000 including a gain on the Idemitsu acquisition of $87,825,000, partly offset by recognition of goodwill and subsequent write offs of $7,974,000 in relation to the Sojitz and Egerton acquisitions. In relation to these goodwill write offs, the Directors believe that tax assets acquired in these transactions, while currently not able to be recognised under IFRS 3, may subsequently contribute value to the Group. 

ROCKROSE ENERGY PLC

Company Registration No. 09665181

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2017

3. Revenue

4. Operating profit / (loss)

Included in the statement of comprehensive income are the following:

ROCKROSE ENERGY PLC

Company Registration No. 09665181

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2017

5. Directors and employees

The average number of employees employed by the Company, including Directors, was 6 (Eighteen months period ended 31 December 2016: 1).

Directors' remuneration

The total remuneration of $1,375,000 (Eighteen months period ended 31 December 2016: $311,000) relates to three Directors who provided qualifying services to the Company during the year. The highest paid Director's remuneration amounts to $1,242,000 (Eighteen months period ended 31 December 2016: $307,000). See note 25 for the breakdown of compensation of key management personnel. 

6. Finance income

7. Finance costs

ROCKROSE ENERGY PLC

Company Registration No. 09665181

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2017

8. Income tax

No current and deferred taxes have been recognised in the consolidated statement of comprehensive income during the year (2016: nil).

A reconciliation between tax income and the product of accounting profit multiplied by the combined UK ring fence corporation tax and supplementary charge rate of 40.0% (2016: 40.0%) for the year ended 31 December is as follows:

Recognised in the statement of comprehensive income

The Group has ring fenced trading tax losses carried forward of $307,578,000 (2016: $1,527,000).The recognition of deferred tax assets on trading losses and future decommissioning costs is limited to the amount of potential historical tax refunds that are available as a result of decommissioning costs carry back. 

ROCKROSE ENERGY PLC

Company Registration No. 09665181

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2017

9. (Loss)/Earnings per share

Basic earnings / (loss) per share amounts are calculated by dividing the profit / (loss) for the period by the weighted average number of shares outstanding during the period. The weighted average number of shares excludes those shares held as treasury shares. The basic and diluted earnings / (loss) per share are the same as there are no instruments that have a dilutive effect on earnings. There have been no transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of authorisation of these financial statements other than those detailed in note 27.

*Adjusted basic and diluted earnings/(loss) per share are calculated by dividing the profit / (loss) for the period by the weighted average number of shares outstanding, after removing net gain attributable to the acquisitions of Idemitsu Petroleum UK Ltd, Sojitz Energy Project Limited and Egerton Energy Ventures Limited.

ROCKROSE ENERGY PLC

Company Registration No. 09665181

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2017

10. Intangible assets

The amounts for intangible exploration and evaluation assets represent active exploration projects expenditure. These expenditure amounts are capitalised on the balance sheet unless an impairment has arisen under IFRS 6 when expenditure is recognised in the statement of comprehensive income. The outcome of on-going exploration, and therefore whether the carrying value of exploration and evaluation assets will ultimately be recovered, is inherently uncertain. The Tain license expires during 2018 but management expects that the joint venture will submit an application to renew the license and is confident that the application will be granted.

Goodwill related to acquisitions, and subsequent impairment loss, has been explained in note 2.

ROCKROSE ENERGY PLC

Company Registration No. 09665181

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2017

11. Property, plant and equipment

The oil and gas assets consist of producing and development assets and decommissioning assets in accordance with IAS 16 'Property, Plant and Equipment'.

 The administrative assets consist of fixture and fittings, computer equipment and leasehold improvements, these assets were acquired as part of the acquisition of Idemitsu Petroleum UK Ltd.

The decommissioning assets carrying value of $8,439,037 (2016: $nil) relates to capitalized decommissioning provisions on producing assets.

All producing oil and gas fields acquired have been accounted for as a business combination as described in note 2.

In assessing whether any impairment is required to the carrying value of assets, their carrying value is compared with their recoverable amount. The cash generating unit (CGU) assessed for impairment is generally the field, or group if fields where these are economically dependent. The recoverable amount is the higher of the asset's fair value less costs to sell or value in use. See note 1 for further details of the accounting policy on impairment. No indicators of impairment were identified for the Group's oil & gas assets as at 31 December 2017.

ROCKROSE ENERGY PLC

Company Registration No. 09665181

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2017

12. Investments in subsidiaries

Investments in all subsidiaries relates to the following subsidiaries:

\* These subsidiaries are wholly owned subsidiaries of RockRose UKCS4 Limited

Registered address for the Group and all its subsidiaries is c/o Cooley Services Limited, Dashwood House, 69 Old Broad Street, London EC2M 1QS.

13. Deferred tax assets and liabilities

The recognised deferred tax asset has been restricted to the value of previously made tax payments by the Company's subsidiaries that decommissioning costs can be carried back against. The deferred tax on decommissioning costs of $230,784,000 (2016: $nil) and tax losses of $271,159,000 (2016: $1,527,000) are unrecognized due to uncertainty associated with future tax capacity of the business.

Additionally, a deferred tax asset on small field allowances of $16,275,000 (2016: $nil) has not been recognised as the recognition of deferred tax assets on decommissioning costs will displace the field allowances once the decommissioning costs are incurred.

ROCKROSE ENERGY PLC

Company Registration No. 09665181

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2017

14. Inventory

The carrying value of the Company's inventories as stated above is based on the fair value in accordance with the accounting policy.

15. Trade and other receivables

All trade and other receivables are due within one year from the statement of financial position date.

The carrying value of the Company's trade and other receivables as stated above is considered to be a reasonable approximation of the fair value. None of the above trade receivables were considered past due or impaired as of 31 December 2017 (2016: $nil).

16. Cash and cash equivalents

Cash equivalents comprise highly liquid investments with maturities of three months or less. Interest rates earned on these deposits are floating rates based on daily bank deposit rates.

Short-term deposits are made from varying periods of between one day and three months depending on the immediate cash requirements of the Company, and earn interest at the respective short-term deposit rates.

The fair values of cash and cash equivalents are the same as the above book values.

ROCKROSE ENERGY PLC

Company Registration No. 09665181

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2017

17. Restricted cash

Restricted cash balances are amounts deposited with trustees under the terms of various decommissioning security agreements in place on certain fields in which the Group has an interest.

The fair value of restricted cash is the same as the above book values.

18. Trade and other payables

All current trade and other payables are due within one year from the statement of financial position date including non-interest bearing intercompany balances. The carrying value of the trade and other payables as stated above is considered to be a reasonable approximation of the fair value. All trade and other payables are settled within three months of invoice date. Accruals include joint venture accruals of $5.7 million.

ROCKROSE ENERGY PLC

Company Registration No. 09665181

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2017

19. Provisions for liabilities and other charges

The estimated cost of decommissioning at the end of the producing lives of the fields is reviewed annually and engineering estimates and reports are updated periodically. Provision is made for the estimated cost of decommissioning at the statement of financial position date for the Company's share of the overall costs. Cost estimates have been discounted at an average discount rate of 3.9% (2016: n/a). The timing of spend is based on the economic cut off point for the producing assets. The movement in the year, after acquisitions in business combinations described in note 2, represents changes in foreign exchange rates as all cash outflows are nominated in GBP. Provisions acquired in business combinations have been calculated based on latest operator cost estimates. The payment dates are uncertain and are currently anticipated to be between 2018 and 2037 for the relevant producing fields, with the Group's current assessment of cessation of production on producing fields included in a table below.

The other provision in the Group balance sheet relates to a dilapidation provision for office premises. 

ROCKROSE ENERGY PLC

Company Registration No. 09665181

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2017

20. Group and Company share capital

On incorporation, 1 July 2015, 1,200,000 ordinary shares of 5p at a price of 12.5p each were issued (equivalent to 300,000 shares at a price of 50p - £150,000). The payment for the ordinary shares of £150,000 was not made on incorporation but was made on 18 December 2015. On 5 August 2015, a special resolution was passed to consolidate every four ordinary shares of 5p each into one ordinary share of 20p.18 December 2015, a further 900,000 ordinary shares of 20p each were issued at a price of 50p per share. On 22 December 2015 the Company entered into a loan agreement with Appleby Trust (Jersey) Limited pursuant to which the Company agreed to lend £600,000 to the EBT for the purpose of subscribing for the 1,200,000 Placing Shares already issued. On 12 January 2016 the Company issued 8,800,000 new ordinary shares at a price of 50p per share amounting to gross proceeds of £4,400,000. On the 6 July 2017 the Company issued 5,333,334 new ordinary shares at a price of £1.50 per share amounting to gross proceeds of £8,000,001.

21. Reserves

Share premium

The share premium account represents the premium arising on the issue of shares net of issue costs.

Accumulated losses

Accumulated losses represents cumulative profits and losses net of dividends and other adjustments.

Treasury shares

Under the terms of the Company's share option plan outlined in note 16, an Employee Benefit Trust (EBT) subscribed for ordinary shares in the Company. The Trust is administered by Appleby Trust (Jersey) Limited. The trustee can distribute shares at its discretion directly to beneficiaries upon the recommendation of the board. All administrative costs associated with the EBT are met by the Company. The EBT owns the shares to be distributed at the discretion of the trustees and the employee owns any value in the shares in excess of the subscription price.

On 22 December 2015, the Company placed 1,200,000 shares into the EBT. The market price of the shares was £0.125 each, and the market value was £150,000. The shares were placed pre-IPO.

On 16 August 2016, the EBT acquired a further 347,000 shares. The market price of the shares was £0.45 each, and the market value was £156,150.

At 31 December 2017 the EBT jointly owned 1,547,000, with a nominal value of £309,400, representing 15.47% of the allotted share capital of the Company. Subsequently, as per note 27, 1,533,333 of these shares were utilised for the exercise of the options granted to Andrew Austin and the loan to the EBT was extinguished.

ROCKROSE ENERGY PLC

Company Registration No. 09665181

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2017

22. Share based payments

Share option

The Company commenced the operation of a Share Option Plan ("the plan") during December 2015. The plan is an equity incentive scheme.

The board of directors Remuneration Committee oversees the plan, approves the subscription price of awards under the plan and any criteria to be satisfied before exercise is permitted, and monitors the effectiveness of the plan as an incentive.

Under the plan, the options outstanding to Directors are as follows:

No options vested during the year and no options were exercisable at the year end. However, following approval by the Remuneration Committee on 14 February 2018, Andrew Austin exercised his option to acquire 1,533,333 ordinary shares of nominal value 20p in the capital of the Company ('Ordinary shares') on terms of his option award per the tables above.

The assessed fair value at the grant date is determined using the binomial model. The vesting conditions are that the share price is at least £3.00; that there is continuous employment to the date of exercise; that there has been an acquisition resulting in a 500% increase in the market capitalisation of the Company; that there are no negative regulatory findings and that the options holder' and those acting in concert with him do not own more than 29.99% of the Company's issued capital after exercise. The binomial model valuation does not incorporate non-market based vesting conditions. 33% of the total share options are exercisable three years from the grant date ("three year options"); 33% of the total share options are exercisable four years from the grant date ("four year options"), and 34% of the total share options are exercisable five years from the grant date ("five year options"). The cost of awards under the plan is recognised over the vesting period of the award. The expense for share options granted in 2017 was $242,000 (Eighteen months period ended 31 December 2016: $95,000).

ROCKROSE ENERGY PLC

Company Registration No. 09665181

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2017

23. Financial instruments

The Group's financial instruments comprise trade and other receivables, trade and other payables, and cash and cash equivalents but excluding under and over lift.

Financial risk factors and capital risk management

The fair values of the Group's financial instruments are materially the same as their carrying amounts.

The Group's financial instruments expose it to a variety of financial risks: market risk, credit risk, interest risk and liquidity risk.

a) Market risk

Commodity price risk

The Group held no financial instruments as at 31 December 2017 that are affected by commodity price but the Group is nonetheless exposed to movements in oil prices. Revenue from gas sales is not significant.

The table below illustrates the impact on profit before tax of changes of commodity prices. The impact on equity is the same.

* This represents the contribution from RockRose UKCS4 Limited since acquisition date of 30 November 2017.

Foreign exchange risk

The Group is exposed to foreign exchange risk arising from currency exposures, primarily with respect to GBP. Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity's functional currency.

The following foreign exchange rates were applied:

ROCKROSE ENERGY PLC

Company Registration No. 09665181

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2017

23. Financial instruments (continued)

a) Market risk (continued)

As at 31 December 2017, various statements of financial position line items were denominated in foreign currencies and the impact due to foreign exchange movement of an increase or decrease in exchange rate is shown below:

The Group's exposure to foreign currency risk was as follows based on the following nominal amounts:

Sensitivity analysis

The foreign exchange movement risk for the Group is not material as all liabilities to suppliers and amounts owed to fellow subsidiary undertakings are relatively small and payment is made within 30 days.

b) Credit risk

Credit risk arises from cash and cash equivalents, as well as credit exposures on trade and other receivables. The credit risk of the Company's trade and other receivables is assessed through credit ratings of relevant customers.

See listing below:

The Group only trades with recognised creditworthy third parties. The exposure risk arises from default of the counter party, with a maximum exposure equal to the carrying amount as at the statement of financial position date. The maximum exposure to credit risk at the reporting date was $13,244,000 (2016: $nil).

c) Interest rate risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due.

Management monitors the Company's liquidity reserve (comprising cash and cash equivalents) through comparison to expected cash flow and budgets.

ROCKROSE ENERGY PLC

Company Registration No. 09665181

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2017

23. Financial instruments (continued)

c) Interest rate risk (continued)

The following are the contractual maturities of financial liabilities including estimated interest payments for loan from the group undertakings:

Capital risk management

The Group's objectives when managing capital are to safeguard the Company's ability to continue as a going concern in order to provide returns for shareholders as described in Strategic Report.

24. Commitments and contingent liabilities

Capital commitments

In respect of its interest in joint ventures, the Group is committed to the following as at 31 December 2017:

§ Capital expenditure of $6 million (2016: $nil) on Producing & Development assets;

§ Decommissioning costs of $7 million (2016: $nil).

Operating lease commitments