Trinity Regulatory News (TRIN)

Dissemination of a Regulatory Announcement that contains inside information according to

REGULATION (EU) No 596/2014 (MAR).

Trinity Exploration & Production plc

 ("Trinity" or "the Company" or "the Group")

Interim ResultsProfitable growth and debt free

Trinity, the independent E&P company focused on Trinidad & Tobago ("T&T"), announces its unaudited interim results for the six month period ended 30th June 2018 ("H1 2018" or "the period").

This was a transformative period for the Company, including the recommencement of drilling activity and continued production growth delivering an uplift in cash generation. In addition, the post period-end saw the Company raise gross proceeds of USD 20.0 million ("the Fundraising") which has significantly strengthened the balance sheet, leaving it debt free and with the cash resources available to continue to profitably grow production and returns.

H1 2018 Highlights

Notes:

1. Realised price: Actual price received for crude oil sales per barrel ("bbl")

2. Adjusted EBITDA: See Note 18 for the calculation of Adjusted EBITDA. Per bbl figures refer to production over the period.

3. Group operating break-even: The realised price/bbl for which the Adjusted EBITDA/bbl for the Group is equal to zero. See Appendix 1 - Trading Summary Table

4. Pro Forma net cash/ (debt): See Post Funding Pro Forma Balance Sheet Extract

H1 2018 Highlights

Operational

· H1 2018 average production of 2,771 bopd (H1 2017: 2,397 bopd), representing a 16% increase over the corresponding period last year, underpinned by:

- Drilling of 2 new onshore wells. Both drilled efficiently and cost effectively on a turnkey basis.

- 7 recompletions ("RCPs") (H1 2017: 5).

- Base production maintenance through a continuous campaign of 62 workovers ("WO") and reactivations (H1 2017: 44).

Financial

· Balance sheet significantly strengthened from a net debt position (USD 1.2 million) at 30th June 2017 to a pro-forma net cash position of USD 19.0 million at 30th June 2018 (adjusted for the post period end Fundraise and debt repayments).

· Adjusted EBITDA increased 58% to USD 9.3 million (H1 2017: USD 5.9 million) and Adjusted EBITDA/bbl improved to USD 18.6/bbl (H1 2017: USD 13.6/bbl), with the increased oil price and production growth leveraging off a relatively fixed operating cost base.

· Maintained a group operating break-even price below USD 30.0/bbl (H1 2018: USD 28.5/bbl).

· Operating cash flow increased to USD 5.0 million (H1 2017: USD 1.7 million).

· Capital expenditure for the period amounted to USD 4.4 million (H1 2017: USD 0.7 million), comprising mainly of new wells, RCPs and continued infrastructure investment.

· Accelerated the repayment of outstanding debt to the Board of Inland Revenue ("BIR") and Ministry of Energy and Energy Industries ("MEEI") (together, "the T&T State Creditors") with total payment over the period of USD 3.3 million. All remaining amounts were repaid in July 2018.

Post Period End Highlights

Corporate

o Funded and Debt Free

· In July 2018 the Company raised gross proceeds of USD 20.0 million through the Fundraising:

- USD 6.4 million of the Fundraising comprised non-cash rollover by holders of 88% of the Convertible Loan Notes ("CLNs") electing to convert the value of their CLNs into new ordinary shares at the issue price.

- The Company has subsequently repaid, in full, the outstanding debt of USD 2.6 million to the T&T State Creditors as well as the remaining USD 0.9 million of CLNs which were outstanding.

- The Fundraising will enable the Company to accelerate its onshore drilling programme and production, with a planned 8-10 wells per year. The free cash flow which the Company expects to generate will enable it to self-fund new onshore drilling activity from 2020 onward while continuing double-digit annual production growth as it develops its low risk onshore assets.

o East Coast Asset Development

· The Company has continued to revise the Trintes drilling plan and rework the TGAL Field Development Plan ("FDP"), which offers a significant opportunity to deliver a step-change in production levels in the medium term.

· The Petroleum Company of Trinidad and Tobago ("Petrotrin") Restructuring Update

· On 28th August 2018 Petrotrin announced its intention to discontinue refining operations to focus on its upstream exploration and production activities. The Company does not expect this decision to impact the ongoing Sales Agreements with Petrotrin for Trinity's crude oil production, which it anticipates will be consolidated with Petrotrin and others' output and exported as it has been on previous occasions when the refinery had been shut down.

Operational Look Ahead

o Recommencement of drilling activity

· Signed a turnkey agreement with external drilling contractor for a 6 well onshore campaign, bringing the total for 2018 to at least 8 wells. The first well was spudded in August 2018.

· The production impact of this drilling programme will be realised towards the end of Q4 2018 into Q1 2019.

o Routine production activity

· H2 2018 work programme will continue with; RCPs, routine WOs, reactivations and swabbing.

· An offshore RCP will be undertaken in the Trintes field, which will be the first offshore RCP that Trinity will be doing since assuming operatorship in 2013. 

Bruce A. I. Dingwall CBE, Executive Chairman of Trinity, commented:

"With a return to new infill drilling in H1 2018 alongside a continuing programme of RCPs, WOs, swabbing and reactivation activities, Trinity was able to reset its base production at a higher level. In H2 2018, post the fundraise and the settlement of all outstanding debt, we have established a stable, well-funded platform with significant reserves and resources and an established growth trajectory which is ideally positioned to continue growing production, cash flow and shareholder value. With peer leading break-evens and plans to increase production we can grow profitability in the short-term whilst working up a further step-change from future developments.

"The acceleration of our onshore drilling programme has allowed Trinity to position itself to deliver double digit production growth year-on-year, generate significant cash flow and will facilitate self-funded new onshore drilling activity from 2020 onwards whilst selectively pursuing other value accretive opportunities.

"On behalf of the Board I must thank all our staff and our key suppliers in Trinidad for their hard work and support which has allowed Trinity to focus on profitable growth whilst maintaining a safe working environment. 2018 has been pivotal to Trinity thus far and the Board would additionally like to take this opportunity to thank existing shareholders and other stakeholders for their support and welcome new shareholders as we move forward debt free and strongly positioned to take advantage of future opportunities in the changing environment in Trinidad & Tobago"

The Interim Results report is available for download on the Group's website www.trinityexploration.com.

Enquiries

Competent Person's Statement

All reserves and resources related information contained in this announcement has been reviewed and approved by Graham Stuart, Trinity's Technical Adviser, who has 36 years of relevant global experience in the oil industry. Mr. Stuart holds a BSC (Hons) in Geology.

About Trinity (www.trinityexploration.com) 

Trinity is an independent oil and gas exploration and production company focused solely on Trinidad & Tobago. Trinity operates producing and development assets both onshore and offshore, in the shallow waters off the West and East Coasts of Trinidad. Trinity's portfolio includes current production, significant near-term production growth opportunities from low risk developments and multiple exploration prospects with the potential to deliver meaningful reserves/resources growth. Trinity operates all of its 9 licences and, across all of the Group's assets, management's estimate of 2P reserves as at the end of 2017 was 23.2 mmbbls. Group 2C contingent resources are estimated to be 24.0 mmbbls. The Group's overall 2P plus 2C volumes are therefore 47.2 mmbbls.

Trinity is listed on the AIM market of the London Stock Exchange under the ticker TRIN.

Disclaimer

This document contains certain forward-looking statements that are subject to the usual risk factors and uncertainties associated with the oil exploration and production business. Whilst the Group believes the expectation reflected herein to be reasonable in light of the information available to it at this time, the actual outcome may be materially different owing to macroeconomic factors either beyond the Group's control or otherwise within the Group's control.

OPERATIONAL REVIEW

During H1 2018, the Company continued to build on the momentum achieved in 2017 through the continuation of the RCP programme and drilling of 2 onshore wells, thereby delivering 16% year-on-year production growth. The H2 2018 activity set of low cost, high return activities will include; RCPs, WOs, reactivations and swabbing activities and the addition of a 6-well onshore drilling programme. 

Onshore operations

· H1 2018 average net production was 1,530 bopd (H1 2017: 1,278 bopd). The 20% increase was as a result of the 2 Infill wells drilled and continued performance from the ongoing RCP (7) and base maintenance WOs and reactivations (45) (H1 2017: 5 RCPs, 34 WOs and 4 reactivations).

· H2 2018 planned work programme anticipates:

- 6 infill wells which will allow a rebasing of production levels

- Continued RCPs and ongoing base management via; WOs, reactivations and swabbing across all fields.

East Coast operations

· H1 2018 average production was 1,046 bopd (H1 2017: 909 bopd). The 15% increase in production was due to a WO and reactivation campaign which commenced in 2017 and continued with 13 WOs during H1 2018 (H1 2017 5).

· H2 2018 work programme will include the first RCP offshore since the restructuring in addition to the programme of routine WOs and reactivations. 

· Trinity continues to invest in maintaining production levels via better generator maintenance strategies, continued pump optimisation and review of alternative artificial lift technologies to augment production rates.

West Coast operations

· H1 2018 average net production was 195 bopd (H1 2017: 210 bopd). The 7% decrease in production was largely the result of natural production decline. 

· H2 2018 planned work programme will include WOs on key wells to maintain production levels along with the continuation of asset integrity related projects.

FINANCIAL REVIEW

Income Statement Analysis

Operating Revenues

Operating revenues of USD 30.1 million (H1 2017: USD 20.2 million). The USD 9.9 million increase was as a result of an increase in average realised crude prices and increased production.

Operating Expenses

Operating expenses of USD (27.5) million (H1 2017: USD (18.2) million) comprised of the following:

· Royalties of USD (10.0) million (H1 2017: USD (5.9) million)

· Production costs ("OPEX") of USD (8.3) million (H1 2017: USD (6.7) million)

· DD&A charges of USD (4.7) million (H1 2017: USD (3.6) million)

· G&A expenditure of USD (2.9) million (H1 2017: USD (1.6) million), including USD (0.3) million non-cash share option expenses (H1 2017: nil)

· Other expenses of USD (1.6) million (H1 2017: 0.4) relate to fair value adjustment on the oil price derivative. During H1 2018 the Group paid USD 0.6 million in relation to the oil price derivative, with the fair value adjustment also allowing for the ongoing exposure for the remainder of 2018.

Operating Profit before Exceptional Items

The operating profit (before exceptional items) for the period amounted to USD 2.6 million (H1 2016: USD 1.9 million) and was mainly driven by an increase in crude oil prices and increased production. 

Exceptional items

Exceptional items of USD 11.6 million (H1 2017: USD 25.1 million) relate to a revaluation of the embedded call option associated with the CLNs, which is a non cash gain. The embedded call option associated with the CLN was revalued as at 30th June 2018 which resulted in a fair value gain arising on the financial instrument. This gain was eliminated when the CLNs were converted or repaid subsequent to the period end, and as such will not occur in the 2018 full year results.

Supplementary Petroleum Tax ("SPT") and Property Tax

The Group incurred SPT of USD 3.7 million in H1 2018 (H1 2017: nil), on account of the realised oil price exceeding USD 50.0/bbl throughout the six month period. The 2016 and 2017 property taxes which had been accrued in the 2017 financial results were reversed in H1 2018 following the assent to the Property Tax Amendment Act 2018 by the Government of Trinidad and Tobago on 8th June 2018, resulting in a USD 0.9 million reduction in the accrual for other taxes in the period.

Net Finance Cost

Finance costs for the period totalled USD (1.3) million (H1 2017: USD (1.2) million), made up of:

· Unwinding of the discount rate on the decommissioning provision of USD (0.8) million (H1 2017: USD (0.8) million)

· Accrued interest on CLN USD (0.4) million (H1 2017: USD (0.3) million)

· Interest on loan - nil (H1 2017: USD (0.1) million)

· Interest unwind on the liabilities at fair value USD (0.1) million (H1 2017: USD (0.0) million)

Taxation

Taxation credit for the period was USD 5.7 million (H1 2017: USD (2.5) million charge) which is mainly made up of:

· Recognition of deferred tax assets of USD 5.8 million (H1 2017: de-recognition USD (2.8) million)

· Decrease in deferred tax liability of USD (0.0) million (H1 2017: USD 0.4 million)

· Unemployment Levy of USD (0.1) million (H1 2017: USD (0.1) million)

As at 30th June 2018, the Group had unrecognised tax losses of USD 213.0 million which have no expiry date.

Total Comprehensive Income

Total Comprehensive Income for the period was USD 15.9 million (H1 2017: 23.8 million)

Cash Flow Analysis

Opening Cash Balance

Trinity began the year with an initial cash balance of USD 11.8 million (2017: USD 7.6 million).

Net cash inflow from operating activities

Cash inflow from operating activities was USD 5.0 million (H1 2017: USD 1.7 million). H1 2018 included:

· Operating activities resulting in an adjusted profit before tax of USD 5.7 million (H1 2017: USD 4.2 million)

· Changes in working capital comprising of a net decrease of USD (0.7) million (H1 2017: USD (2.5) million) excluding changes in working capital relating to the Restructuring of USD (3.3) million (H1 2017: USD (7.2) million)

· Taxation paid USD (0.1) million (H1 2017: nil)

Cash outflow; change in working capital relating to the Restructuring

Working capital cash outflows relating to the Restructuring amounted to USD (3.3) million (H1 2017: USD (7.2) million) comprising:

· USD (3.3) million (H1 2017: USD (3.3) million) in quarterly payments to T&T State Creditors

· No payments to Unsecured Creditors were incurred in H1 2018 (H1 2017: USD (3.9) million)

Cash outflow from investing activities

Trinity incurred capital expenditures mainly on production related capex on its onshore assets and infrastructure capex on its East Coast assets totaling USD (4.4) million in aggregate (H1 2017: USD (0.7) million)

Net cash inflow from financing activities

No financing activities occurred in H1 2018 (H1 2017: USD 10.0 million)

Closing Cash Balance

Trinity's cash balance at 30th June 2018 was USD 9.1 million (H1 2017: USD 11.5 million)

Post Funding Pro Forma Balance Sheet Extract

Incorporating the post period end net proceeds from the Fundraising and subsequent debt repayments the like-for-like pro forma would be a net cash position of USD 19.0 million (2017: USD 1.2 million net debt position) based on Management's view. The turnaround from the net debt position on a year-on-year basis to a net cash position was a result of the July 2018 USD 20.0 million Fundraising and settlement of all remaining debts owed to T&T State Creditors and CLN holders which strengthened the Group's Statement of Financial Position as follows:

i. Increase in cash and cash equivalents from USD 9.1 million to USD 18.0 million. This took into consideration the following cash movements post the period end:

· USD 13.6 million cash proceeds from issue of new ordinary shares

· USD (2.6) million repayment to T&T State Creditors

· USD (1.2) million cost of raising equity

· USD (0.9) million paid to CLN holders

ii. Expunged the Derivative Financial Asset of USD 11.6 million. Following redemption of the CLN the early call option was extinguished and so the Derivative Financial Asset has been expunged from the Pro Forma Balance Sheet.

iii. CLN redemption and repayment - USD 6.4 million of the principal and interest were converted into new ordinary shares (this USD 6.4 million is the non-cash component of the USD 20.0 million Fundraising). The remaining USD 0.9 million of CLNs were redeemed via a cash payment in August 2018.

iv. Full and final repayment to T&T State Creditors of USD 2.6 million which occurred in July 2018.

Notes:

1. Shows half year pro forma balance sheet position post Fundraise and debt repayment

2. States the Face Value of the CLN and MEEI liabilities as opposed to amortised cost stated in the Financials

3. Non-Current Liabilities excludes Deferred Tax Liability & Provision for other liabilities

4. Current Liabilities excludes Provision for other liabilities

APPENDIX 1: TRADING SUMMARY

A summary of realised price, production, operating break-evens, Opex and G&A expenditure metrics is set out below:

Trading Summary Table

STATEMENT OF DIRECTORS' RESPONSIBILITY

The Directors confirm that this condensed consolidated interim financial information has been prepared in accordance with International Accounting Standards ("IAS") 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

· an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

· the management report, which is incorporated into the directors' report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

· material related party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

A list of the current Directors is maintained on the Trinity Exploration & Production plc website www.trinityexploration.com.

By order of the Board

Bruce A. I. Dingwall, CBE

Executive Chairman

Trinity Exploration & Production plc

Notes to the Condensed Consolidated Financial Statements for the period ended 30th June 2018

1 Background and Accounting Policies

Background

Trinity Exploration & Production plc ("Trinity") is incorporated and registered in England and trades on the Alternative Investment Market ("AIM"), a market operated by London Stock Exchange plc. Trinity ("the Company") and its subsidiaries (together "the Group") are involved in the exploration, development and production of oil reserves in Trinidad.

Basis of Preparation

These condensed interim financial statements for the six months ended 30th June 2018 have been prepared in accordance with IAS 34, 'Interim financial reporting', as adopted by the European Union ("EU"), on a going concern basis. The condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 31st December 2017, which have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU.

The results for the six months ended 30th June 2018, and as at 30th June 2017 are unaudited and do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31st December 2017 were approved by the Board of Directors and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified.

Going Concern

In making their going concern assessment, the Board of Directors have considered the Group's budget and cash flow forecasts taken together with the announcement on 25th June 2018, whereby the Group announced its intention to raise $20.0 million to accelerate growth and fully repay all outstanding debt to the T&T State Creditors and the CLNs.

Subsequent to the period end, the Fundraising completed and the proceeds were used to repay in full the outstanding debt to the Board of Inland Revenue of Trinidad and Tobago ("BIR") and the Ministry of Energy and Energy Industries of Trinidad & Tobago ("MEEI"), as well as all outstanding amounts under the CLNs. The proceeds will also enable the Group to rapidly accelerate its onshore drilling programme and production, with a planned 8-10 wells per year and to allow revision of the Trintes drilling plan and the TGAL Field Development Plan with the Company's East Coast Assets offering a significant opportunity to deliver a step-change in production levels in the medium term.

Following completion of the fundraising in July, the Group repaid the remaining outstanding debt to the BIR and the MEEI amounting to $2.6 million in aggregate. In addition on 15th August 2018, payment was made to settle the remaining debt to holders of the CLNs, amounting to $0.9 million. The holders of CLNs with a value (including accrued interest) of approximately $6.4 million had agreed to convert the value of their CLNs into new ordinary shares pursuant to the Subscription. The Group has thereby completed the full repayment of all outstanding debt and has sufficient capital resources to progress its accelerated drilling programme. For these reasons, the Board of Directors have a reasonable expectation that the Group has adequate resources to continue operational existence for the foreseeable future and the Group therefore continues to adopt the going concern basis of preparing the financial statements.

Accounting policies 

The accounting policies adopted are consistent with those of the previous financial year, as set out in the consolidated financial statements for the year ended 31st December 2017, except for income taxes in the interim periods which are accrued using the tax rate that would be applicable to the expected total annual profit and loss and the other policies outlined below. The business is not affected by seasonality.

There are no IFRS or IFRS Interpretations Committee ("IFRIC") interpretations that are effective for the first time for the financial year beginning on or after 1st January 2018 that would be expected to have a material impact on the Group. The Company has adopted IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments effective 1st January 2018. Adoption of these standards has not materially affected the way the Group accounts for its revenues or financial instruments. However, the Company will be including the new disclosures required by IFRS 15 from the 2018 year end onwards.

Estimates 

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

In preparing these condensed interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the Condensed Consolidated Financial Statements for the year ended 31st December 2017.

Non-current assets (or disposal Groups) held for sale

Non-current assets (or disposal Groups) classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal Groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continued use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal Group) is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Compound Financial Instruments

Compound financial instruments issued by the Group comprise CLNs that can be converted to share capital at the option of the holder, and the number of shares to be issued does not vary with changes in their fair value. Under the terms of the CLNs each holder could after the second anniversary of the issue date serve a Conversion Notice whereby the principal amount plus the outstanding interest could be converted into new fully paid ordinary shares at a Conversion Price of $0.08125. However, the Company had the option to redeem the CLNs in certain circumstances within two years of their issue ("the Two Year Call Option") as described in note 14.

Trinity engaged a specialist valuation team to value the derivative relating to the CLN. The embedded derivative was described as the difference between:

- The actual bond issued

- A hypothetical bond without the Group having the option to call the bond early.

The main driver of the valuation compares the redemption value of the bond to the projected conversion value in January 2019. The calculation anticipates that without the early call option Trinity would call the bond on the earliest date, which would in turn trigger investors to convert the bond at this date.

The liability component of a compound financial instrument is recognised initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognised initially at the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortised cost using the effective interest rate method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition except on conversion or expiry.

Derivative financial Instruments and hedging activities

The Company has not applied hedge accounting and all derivatives are measured at fair value through profit and loss.

Financial assets at fair value through profit or loss financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if expected to be settled within 12 months, otherwise they are classified as non-current.

In June 2018 a third party was engaged to conduct a valuation of the derivative financial instruments held namely the embedded derivative relating to the Two Year Call Option within the CLN and the Zero cost collar oil derivative. The valuation methodology used were as follows:

Embedded derivative: In order to estimate the value of the Two Year Call Option at the valuation date, the settlement price of the Note (cash and equity settlement combined) was compared with the value of the CLN with the original terms (i.e. if the two year restriction until January 2019 existed for the whole Note). In estimating the value of the CLNs, an income approach framework and a binomial lattice model was utilised. This model is an implementation by MATLAB of the Tsiveriotis and Fernandes convertible bond model.

Zero cost collar: The oil derivative was modelled as a combination of a Call leg and a Put leg. The Put leg was based on a long position on a strip of oil put options while the Call leg was a short position on a strip of oil call options, all expiring on each month end until the termination date of the instrument. Market data included futures prices and implied volatilities from Bloomberg and interest rates from S&P Capital IQ. The two legs of Asian options utilised a modified Black-76 formula with Turnbull and Wakeman approximation (1991).

2 Financial risk management 

Financial risk factors

The Group's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group's overall risk management program seeks to minimise potential adverse effects on the Group's financial performance

The condensed interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group's annual financial statements for 2017, which can be found at www.trinityexploration.com.

Zero Collar oil derivative:

On 6th November 2017 a Zero Cost Collar was entered into effective 1st January 2018. The derivative is a combination of a long position on a strip of oil put options and a short position on a strip of oil call options (from Management's perspective). The key terms are summarized below:

· Trade Date - 6th November 2017

· Effective Date - 1st January 2018

· Notional quantity - 25,000 US barrels per month

· Option Type and Style - Monthly Asian Put (Arithmetic average of all settlement prices in a month)

· Strike Price per unit - $45 per US barrel for the put options and $59.8 per US barrel for the call options

· Commodity-OIL WTI

· Exercise Dates - End of each month until 31st December 2018

The introduction of the collar is one of management's tool used to mitigate risks. There is no other change in the risk management department or in any risk management policies since the year end.

Liquidity risk

Compared to year end, there were changes in the contractual undiscounted cash out flows for certain financial liabilities as follows:

- Zero cost collar put in place - Effective January 2018 the zero cost collar oil derivative was effective. The strike price per unit was $45.0 per US barrel for the put options and $59.8 per US barrel for the call options.

Fair value estimation

The table below analyses financial instruments carried at fair value, by valuation method.

The different levels have been defined as follows:

- Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1).

- Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2).

- Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).

The following table presents the Group's financial assets and liabilities that are measured at fair value at 30th June 2018.

Fair value measurements using observable inputs (Level 2)

For measuring the zero cost collar at fair value through the profit or loss, an assessment of oil price movement and volatility at 30th June 2018 was performed valuing the instrument at $1.7 million which was determined as follows:

Group's valuation processes

The Group's finance department includes a team that performs the valuations of financial assets required for financial reporting purposes, including Level 3 fair values. This team reports directly to the Chief Financial Officer ("CFO") who in turn reports to the Audit Committee ("AC"). Discussions of valuation processes and results are held between the CFO, AC and the valuation team at least twice per year, in line with the Group's interim reporting dates. The Group has engaged an external valuation specialist in conducting the valuations on the embedded derivative and zero cost collar.

3 Operating segment information

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the steering committee that makes strategic decisions. Management have considered the requirements of IFRS 8, in regard to the determination of operating segments, and concluded that the Group has only one significant operating segment being the production, development and exploration and extraction of hydrocarbons in Trinidad.

All revenue is generated from sales to one customer in Trinidad & Tobago: The Petroleum Company of Trinidad & Tobago ("Petrotrin"). All non-current assets of the Group are located in Trinidad & Tobago.

4 Exceptional Items

Items that are material either because of their size, their nature, or that are non-recurring are considered as exceptional items and are presented within the line items to which they best relate. During the current period, exceptional items as detailed below have been included in the Condensed Consolidated Statement of Comprehensive Income. An analysis of the amounts presented as exceptional items in these financial statements are highlighted below.

Exceptional items during the current year:

Fair Value Gain on the valuation of the early call option associated with the CLN - ($11.6 million): In June 2018 a valuation of the embedded Two Year Call Option associated with the CLN was completed. The valuation resulted in a gain of $11.6 million for the Two Year Call Option as at the valuation date of 30th June 2018. See additional details in note 11.

5 Other Taxes

The Property Tax Amendment Act 2018 was assented to on 8th June 2018 by the Government of Trinidad and Tobago. The Act effectively waived the obligation to pay Property Tax ("PT") up to December 2017. PT accrued for the years 2016 and 2017 of $1.1 million, has been reversed at the end of June 2018.

6 Taxation Charge/ (Credit)

The Group has a deferred tax asset of $9.9 million on its Condensed Consolidated Statement of Financial Position which it expects to recover in more than 12 months based on the expected taxable profits generated by Group companies.

The Taxation payable has been split between current and non-current and represents the principal balance owed to the BIR.

7 Finance Cost

8 Property, Plant and Equipment

9 Intangible Assets

Computer Software: New accounting software purchased in 2017.

Exploration and evaluation assets: Costs related to the TGAL exploration well and field development plan.

10 Trade and Other Receivables