Tower Resources Regulatory News (TRP)

 8 May 2018

Tower Resources plc

Preliminary Results to 31 December 2017

Tower Resources plc (the "Company" or "Tower" (TRP.L, TRP LN)), the AIM listed oil and gas company with its focus on Africa, announces its preliminary results for the 12 months ended 31 December 2017.

Highlights:

§ Completion of the sale of Comet Petroleum Limited

§ Placings and subscription raised aggregate gross proceeds of US$3.0 million

§ Open Offer raised gross proceeds of US$245,000

§ Appointment of David M Thomas as Independent Non-Executive Director

§ Commencement of Environmental and Social Impact Assessment required for drilling on Thali license

§ Award of Thali 3D seismic reprocessing contract to DMT Petrologic GmbH.KG

§ Cash balance at year-end of $2.2 million (2016: $790k).

Post-reporting period events:

§ Reprocessing of the Thali 3D seismic dataset has been completed

§ Award of reserve report contract to Oilfield International Ltd in respect of the Thali license

Jeremy Asher, Chairman and Chief Executive Officer of Tower said:

"Our Company has made substantial progress since our last Annual Report in June 2017, and we are looking forward to finalising our Cameroon drilling program and making further progress towards near-term oil production." 

Market Abuse Regulation (MAR) Disclosure

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.

Contacts

CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT

2017 has been a year of change for Tower Resources plc ("Tower" or the "Company"), as well as for our industry. We believe that the gentle recovery in oil prices over the last twelve months is not merely the result of OPEC cuts, but also stems from a growing realisation that the massive reduction in exploration and development activity during the past few years was not sustainable. Global oil demand continues to grow, and as existing fields decline, the potential production gap will not be met by US shale production alone. Larger projects, which had been put on hold, are now being sanctioned, and the smaller end of the oil and gas ecosystem is also now seeing more activity both in the asset market and the equity markets.

Since our last Annual Report in June 2017, we completed the fundraising we signalled at that time, and began the reprocessing of the 3D seismic data over our Thali license offshore Cameroon. We also began the Environmental and Social Impact Assessment ("ESIA") required before we can begin drilling at Thali. At the time of writing, the reprocessing of the data is complete and the quality of the resulting data set is good. Our analysis of the new dataset and conclusions should be complete soon and will be released to the market together with a Competent Person's Report (CPR) in the coming months.

We continue to review drilling options in parallel with completing our technical review of the data and the ESIA, so that we may have a firm drilling plan ready in the third quarter of this year.

Our financial position is much stronger than it was a year ago. It is clear that we will need to raise financing for the well we plan to drill on Thali, before we can drill it. But we believe this can be raised either at the asset level or the corporate level, from various sources, including industry partnering, and within a more flexible timeframe than the deadlines within which we had to operate last year.

Following the November 2017 fundraising, we welcomed David M Thomas to our board of directors. David is a petroleum geologist who spent decades with major firms such as Occidental, Tenneco (now part of BG) and Kuwait Petroleum where he was Chief Geologist, but he has also helped build smaller firms such as Medoil and Orion Energy. His experience is global, but much of it has been earned in Africa where we have our focus, and he is already contributing strongly to our board.

Our objectives for the year ahead include getting our drilling program underway in Thali, planning further work in Cameroon including the pathway to production, agreeing plans to move forward in South Africa and Zambia, and potentially in Namibia, and generally continuing to strengthen our financial position. We look forward to achieving these goals.

SUMMARY AND OPERATIONAL REVIEW

Our strategy continues to be to shift our focus towards lower risk exploration and development within proven basins, best characterised by our 2015 signature of the Thali PSC in the Rio Del Rey basin, offshore Cameroon. We have not abandoned high risk/reward exploration altogether: we still have our licenses in Zambia and South Africa, for example, and we also have a new license under discussion in Namibia. The Thali PSC also has a high reward upside in the deeper zones, which have not yet been tested by past drilling, as Exxon's Zafira discovery to the South-West of our block has demonstrated. We continue to believe that all of our assets are attractive and valuable. But our strategy is to shift the balance of our investment, and to focus our current investment on the lower risk, earlier reward opportunities like Thali, or other appraisal and development opportunities, during this phase of the market cycle.

This strategy requires finding external finance at the asset level for our existing exploration commitments wherever possible, which is why we took the decision some time ago to convert our working interest in the SADR to a royalty interest, and why we are now supporting our partner and operator, NewAge Energy Algoa (Pty) Ltd (50%), in seeking a farm-in partner for our Algoa-Gamtoos block in South Africa. Our financial strategy remains to explore asset-level financing even for assets that we could also finance with our own equity, to achieve the most economically attractive financing for each asset and the best value for shareholders.

As an operator, as in Cameroon and Zambia, we believe that the scale of local operations is also important to create savings and synergies across blocks in the same basin. To some extent this can be achieved and reinforced through good relations with other local operators but controlling multiple blocks oneself is the most obvious way to achieve such synergies (where they can be found) to the benefit of one's host nation, one's partners, and one's investors alike. To this end, we are continuing to discuss a further PSC in Cameroon even while undertaking development of our existing one.

Keeping overhead costs appropriately low, and managing operating costs well, are always important, but especially so in this phase of the market cycle. We have always sought to keep fixed costs down, and total costs flexible, through outsourcing a number of important functions such as our technical-subsurface relationship with EPI Limited, and we have reduced our corporate costs substantially since 2016, as our 2017 figures are beginning to show.

On an operational level, activity has been low in both Zambia and South Africa but will increase in the future, as South Africa has now passed its new Petroleum Law and Zambia's new Petroleum Law is currently navigating parliament. In Cameroon we have been working on the reprocessing of 3D seismic data (completed in April 2018) and the ESIA that needs to be completed before we commence drilling.

The 2017 Annual Report is being printed and expected to be posted to shareholders towards the end of May.

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2017

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2017

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2017

1 The share-based payment reserve has been included within the retained loss reserve and is a non-distributable reserve.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2017

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2017

NOTES TO THE FINANCIAL STATEMENTS

1. Accounting policies

a) General information

Tower Resources plc is a public company incorporated in the United Kingdom under the UK Companies Act. The address of the registered office is 140 Buckingham Palace Road, London, SW1W 9SA. The Company and the Group are engaged in the exploration for oil and gas.

These financial statements are presented in US dollars as this is the currency in which the majority of the Group's expenditures are transacted and the functional currency of the Company.

b) Basis of accounting and adoption of new and revised standards

i New and amended standards adopted by the Group:

No standards adopted this year had a material effect on the Group or Company financial statements.

ii Standards, amendments and interpretations, which are effective for reporting periods beginning after the date of these financial statements which have not been adopted early:

The Directors have not fully assessed the impact of all standards but do not expect them to have a material impact.

c) Going concern

At 31 December 2017 the Group had cash balances of $2.1 million and the Group expects to raise additional funds in 2018/19 in order to maintain sufficient cash resources for its working capital needs and its committed capital expenditure programme for the next twelve months from the date of this report, notably its proposed well in Cameroon. The Directors are confident that they can raise sufficient funds from either capital markets, private investment, farm-outs or asset disposals.

The Directors have a reasonable expectation that the Group has adequate access to resources to continue in operational existence for the foreseeable future and continue to meet, as and when they fall due, its planned and committed exploration and development activities and other liabilities for at least the next twelve months from the date of approval of these financial statements. For this reason the Directors continue to adopt the going concern basis in preparing these financial statements.

However, there can be no guarantee that the required funds will be raised within the necessary timeframes, consequently a material uncertainty exists that may cast doubt on the Group's ability to continue to operate as planned and to be able to meet its commitments and discharge its liabilities in the normal course of business for a period not less than twelve months from the date of this report. The financial statements do not include the adjustments that would result if the Group was unable to continue in operation.

d) Basis of consolidation

The consolidated financial statements incorporate the accounts of the Company and its subsidiaries and have been prepared by using the principles of acquisition accounting ("the purchase method") which includes the results of the subsidiaries from their date of acquisition. Intra-group sales, profits and balances are eliminated fully on consolidation.

The results of subsidiaries acquired or disposed of are included in the consolidated statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

As a Consolidated Statement of Comprehensive Income is published, a separate Statement of Comprehensive Income for the Parent Company has not been published in accordance with section 408 of the Companies Act 2006.

e) Goodwill

Goodwill is the difference between the amount paid on acquisition of subsidiary undertakings and the aggregate fair value of their net assets, of which oil and gas exploration expenditure is the primary asset. Goodwill is capitalised as an intangible asset and in accordance with IFRS3 'Business Combinations' is not amortised but tested for impairment annually and when there are indications that its carrying value is not recoverable. Goodwill is shown at cost less any provision for impairment in value. If a subsidiary undertaking is sold, any unimpaired goodwill arising on its acquisition is reflected in the calculation of any profit or loss on sale.

f) Jointly controlled operations

Jointly controlled operations are arrangements in which the Group holds an interest on a long-term basis which are jointly controlled by the Group and one or more ventures under a contractual arrangement. The Group's exploration, development and production activities are sometimes conducted jointly with other companies in this way. Since these arrangements do not constitute entities in their own right, the consolidated financial statements reflect the relevant proportion of costs, revenues, assets and liabilities applicable to the Group's interests.

g) Oil and Gas Exploration and Evaluation Expenditure

Costs incurred before the acquisition of a license or permit to explore an area are expensed to the income statement.

All exploration and evaluation costs incurred following a license or permit to explore being obtained or acquired on the acquisition of a subsidiary are capitalised in respect of each identifiable project area. These costs are classified as intangible assets and are only carried forward to the extent that they are expected to be recouped through the successful development of the area or where activities in the area have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves (successful efforts).

Costs incurred by Directors' and employees of the parent Company on the exploration activities are recharged to the subsidiaries and capitalised as exploration assets accordingly,

Other costs are written off unless commercial reserves have been established or the determination process has not been completed. Accumulated costs in relation to an abandoned area are written off in full against profit in the year in which the decision to abandon the area is made.

When production commences the accumulated costs for the relevant area of interest are transferred from intangible assets to tangible assets as 'Developed Oil and Gas Assets' and amortised over the life of the area according to the rate of depletion of the economically recoverable costs.

h) Impairment of Oil and Gas Exploration and Evaluation assets

The carrying value of unevaluated areas is assessed when there has been an indication that impairment in value may have occurred. The impairment of unevaluated prospects is assessed based on the Directors' intention with regard to future exploration and development of individual significant areas and the ability to obtain funds to finance such exploration and development.

i) Decommissioning costs

Where a material liability for the removal of production facilities and site restoration at the end of the field life exists, a provision for decommissioning is made. The amount recognised is the present value of estimated future expenditure determined in accordance with local conditions and requirements. An asset of an amount equivalent to the provision is also created and depreciated on a unit of production basis. Changes in estimates are recognised prospectively, with corresponding adjustments to the provision and the associated asset.

j) Property, plant and equipment

Property, plant and equipment is stated at cost less depreciation. Depreciation is provided at rates calculated to write off the cost less estimated residual value of each asset over its expected useful life as follows:

Computers and equipment, fixtures, fittings and equipment: straight line over 4 years

Leasehold and office refurbishment costs: over duration of lease

The assets' residual values and useful lives are reviewed and adjusted if necessary at each year-end. Profits or losses on disposals of plant and equipment are determined by comparing the sale proceeds with the carrying amount and are included in the statement of comprehensive income. Items are reviewed for impairment if and when events indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset's net selling price and value in use.

k) Investments

The Parent Company's investments in subsidiary companies are stated at cost less any provision for impairment and are shown in the Company's Statement of Financial Position.

l) Share-based payments

The Company makes share-based payments to certain Directors, employees and consultants by the issue of share options or warrants. The fair value of these payments is calculated either using the Black Scholes option pricing model or by reference to the fair value of the remuneration settled by way of the grant of such options or warrants. The expense is recognised on a straight-line basis over the period from the date of award to the date of vesting, based on the Company's best estimate of shares that will eventually vest.

m) Foreign currency translation

i Functional and presentational currency

Items included in the financial statements are shown in the currency of the primary economic environment in which the Company operates ("the functional currency") which is considered by the Directors to be the U.S Dollar. The exchange rate at 31 December 2017 was £1 / $ 1.3494 (2016: £1 / $1.2336).

ii Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income.

Transactions in the accounts of individual Group companies are recorded at the rate of exchange ruling on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rates ruling at the year-end. All differences are taken to the statement of comprehensive income.

n) Taxation

i Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible on other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date.

ii Deferred taxation

Deferred income taxes are provided in full, using the liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income taxes are determined using tax rates that have been enacted or substantially enacted and are expected to apply when the related deferred income tax asset is realised or the related deferred income tax liability is settled.

The principal temporary differences arise from depreciation or amortisation charged on assets and tax losses carried forward. Deferred tax assets relating to the carry forward of unused tax losses are recognised to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilised.

o) Financial instruments

The Group's Financial Instruments comprise of cash and cash equivalents, loans and receivables. There are no other categories of financial instrument.

i Cash and cash equivalents

Cash and cash equivalents are carried at cost and comprise cash in hand, cash at bank, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less.

ii Receivables

Receivables are measured at amortised cost unless the time value of money is immaterial. A provision for impairment of receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the assets' carrying amount and the recoverable amount. Provisions for impairment of receivables are included in the statement of comprehensive income.

iii Payables

Payables are recognised initially at fair values and subsequently measured at amortised cost using the effective interest method.

p) Financial liabilities and equity

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the asset of the Group after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received net of direct issue costs.

q) Share capital

Ordinary shares are classified as equity. Proceeds received from the issue of ordinary shares above the nominal value are classified as Share Premium. Costs directly attributable to the issue of new shares are shown in equity as a deduction from the Share Premium account.

r) Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable that the Group would be required to settle that obligation. Provisions are measured at the managements' best estimate of the expenditure required to settle the obligation at the reporting date and are discounted to present value where the effect is material.

s) Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision makers. The chief operating decision makers have been identified as the executive Board members.

2. Critical accounting judgements and key sources of estimation uncertainty

The preparation of financial statements in conformity with International Financial Reporting Standards requires the use of accounting estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Although these estimates are based on managements' best knowledge of current events and actions, actual results ultimately may differ from those estimates. IFRS also require management to exercise its judgement in the process of applying the Group's accounting policies.

The prime areas involving a higher degree of judgement or complexity, where assumptions and estimates are significant to the financial statements, are as follows:

Recoverability of inter-company balances

Determining whether inter-company balances are impaired requires an estimation of whether there are any indications that their carrying values are not recoverable details of which are included in note 13.

Impairment of capitalised exploration and evaluation expenditure

The future recoverability of capitalised exploration and evaluation expenditure is dependent on a number of factors, including whether it successfully recovers the related exploration and evaluation asset through sale. Factors which could impact the future recoverability include the level of proved, probable and inferred resources, future technological changes which could impact the cost of drilling and extraction, future legal changes (including changes to environmental restoration obligations), changes to commodity prices and licence renewal dates and commitments.

To the extent that capitalised exploration and evaluation expenditure is determined to be irrecoverable in the future, this will reduce profits and net assets in the period in which this determination is made. In addition, exploration and evaluation expenditure is capitalised if activities in the area of interest have not yet reached a stage which permits reasonable assessment of the existence or otherwise of economically recoverable reserves. To the extent that it is determined in the future that this capitalised expenditure should be written off, this will reduce profits and net assets in the period in which this determination is made. Details of impairments of capitalised exploration and evaluation expenditure are included in note 12.

VAT receivable

The future ability of the Group to recover UK VAT is currently the subject of a dispute with HMRC and has been appealed to the Tribunal for determination. Whilst the Group believes that it has complied in all material respects with UK VAT legislation, there can be no certainty that it will be successful in its legal appeal against HMRC's decision to withhold future amounts claimed from them. If the Group fails in its appeal against HMRCs decision, it will be deregistered for VAT and unable to recover the VAT charged to it by UK suppliers. This would increase the UK element of its cost base accordingly. The Directors have made the judgement that the certainty over the Group's continued UK VAT registration status cannot be guaranteed and have therefore provided against the VAT payables in note 15.

Capital markets / going concern

The group relies on the UK equities market and the market for equity participations in oil and gas exploration assets in order to raise the funds required to operate as a listed entity and complete the respective work programmes for its oil and gas exploration assets. From time to time general economic and market conditions may deteriorate to a point where it is not possible to raise equity finance to fund exploration projects, nor debt to develop projects.

Additional financing may therefore not be available to the Group restricting the scope of operations, risking both its long-term expansion programme, its obligations under contracts which may be withdrawn or terminated for non-compliance and ultimately the financial stability of the Group to continue as a going concern.

Please see note 1 (c) for a more detailed discussion of going concern matters.

Share-based payment transactions

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined either by using the Black Scholes model or by reference to the value of the fees or remuneration settled by way of granting of warrants. Details of share-based payment transactions are included in note 21.

3. Operating segments

The Group has two reportable operating segments: Africa and Head Office. Non-current assets and operating liabilities are located in Africa, whilst the majority of current assets are carried at Head Office. The Group has not yet commenced production and therefore has no revenue. Each reportable segment adopts the same accounting policies. In compliance with IFRS 8 'Operating Segments' the following table reconciles the operational loss and the assets and liabilities of each reportable segment with the consolidated figures presented in these Financial Statements, together with comparative figures for the year-ended 31 December 2016.

1 Administrative expenses include $nil million (2016: $19.9 million) of intangible exploration and evaluation asset impairments in relation to the Africa segment.

2 Included within total assets of $23.4 million (2016: $21.8 million) are $5.7 million (2016: $5.2 million) Cameroon, $2.8 million (2016: $2.8 million) Zambia and $12.9 million (2016: $12.4 million) South Africa.

3 Carrying amounts of segment assets exclude investments in subsidiaries.

4 Carrying amounts of segment liabilities exclude intra-group financing.

4. Loss from operations

During the year the Company impaired assets totalling $nil (2016: $19.9 million) in accordance with IAS 36 "Impairment of Assets" in South Africa, SADR, Namibia and Kenya. Full details of the impairment are provided in note 12.

5. Employee information

The average monthly number of employees of the Group (including Directors) was:

Group employee costs during the year (including executive Directors) amounted to:

No cash bonuses were paid to Directors or employees during the year.

Key management personnel include executive and non-executive Directors whose remuneration, including non-cash share-based payment charges of $279k (2016: $172k million), was $340k (2016: $1.0 million); see Directors' Report for additional detail.

A portion of the Group's staff costs and associated overheads are expensed as pre-licence expenditure or capitalised where they are directly attributable to on-going capital projects. In 2017 this portion amounted to $59k (2016: $982k).

6. Finance costs

During the period covered by these financial statements the Group incurred costs of $3k (2016: $8k). The Company incurred costs of $2k (2016: $5k).

7. Taxation

8. Deferred tax

At the reporting date the Group had an unrecognised deferred tax asset of $3.3 million (2016: $3.2 million) relating to unused tax losses. No deferred tax asset has been recognised due to the uncertainty of future profit streams against which these losses could be utilised.

9. Parent company income statement

For the year-ended 31 December 2017 the Parent Company incurred a loss of $1.0 million (2016: $24.2 million) including the financing costs of $2k (2016: $5k) referred to in note 6, the share-based payments charge of $160k (2016: $300k) and an impairment provision against the investments in its operating subsidiaries of $598k (2016: $20.0 million). The Company charged finance interest on intercompany loan accounts of $828k (2016: $777k) and fees with respect to the provision of strategic advice and support of $35k (2016: $100k). In accordance with the provisions of Section 408 of the Companies Act 2006, the Parent Company has not presented a statement of comprehensive income.

10. Loss per share

The diluted weighted average number of shares in issue and to be issued is 150,419,536 (2016: 47,930,538). The diluted loss per share has been kept the same as the basic loss per share because the conversion of share options and share warrants would decrease the basic loss per share and is thus anti-dilutive.

11. Property, plant and equipment

12. Intangible Exploration and Evaluation (E&E) assets

During the year the Group capitalised amounts totalling $459k (2016: $3.4 million) with respect to the following assets:

In Cameroon the $430k comprised the costs of running the Cameroon office in addition to some long-lead items associated with the 2018 acquisition of seismic data from SNH and reprocessing activities. The final $1 million signature bonus payment was also made to SNH and this amount had been accrued in the 2016 accounts and capitalised as of the previous balance sheet date.

Activities in Zambia have been limited to licence maintenance while a hiatus remains in-place pending confirmation by Government of the new fiscal regime. In South Africa Rift Petroleum Limited, Tower's wholly owned subsidiary, have been carried by the Operator as part of the agreement made with them subsequent to the withdrawal from the Orange Basin TCP. Tower and the Operator have not yet finalised current costs to date.

In SADR, the Company announced on 25 January 2017 the completion of the sale of its wholly owned subsidiary, Comet Petroleum Limited, to Red Rio Petroleum Ltd for a cash consideration of £1, future contingent payments and an over-riding royalty interest of ten per cent over future production revenue from Comet's assets in SADR. Following this disposal and due to the uncertainty over the precise timing and amount of future royalty cash flows, the decision was made to fully impair the carrying value at 31 December 2016.

On 14 February 2017, the Group dissolved their Ugandan subsidiaries, costs for which had been fully impaired in prior periods.

On 25 August 2017, following the confirmation of the renewal of the Algoa-Gamtoos licence, the Group confirmed the disposal of the Orange-Basin TCP, costs for which had been fully impaired in prior periods.

A summary of the disposals during the year are noted below:

The Group impaired amounts totalling $nil million (2016: $19.9 million) in accordance with IAS 36 "Impairment of Assets":

In accordance with the Group's accounting policies and IFRS 6 the Directors' have reviewed each of the exploration license areas for indications of impairment. Having done so and following the write-downs in 2016 which are noted in the table above, it was concluded that a full impairment review was not deemed necessary, however, it was noted that given the nature of certain of the Group's assets in South Africa and Zambia this is inherently an extremely judgmental exercise because it requires the Directors to place a value on exploration projects that by definition are not in the development stage and are not therefore cash generating units.

The Directors have not provided for any impairment of the Company's investment in the Thali license, because potential transactions discussed with third parties support the Directors' view that the current carrying value is recoverable and future work commitments may indeed ultimately be funded itself depending on the results of the seismic acquisition and reprocessing.

In South Africa on 25 August 2017, Tower's wholly-owned subsidiary, Rift Petroleum Limited ("Rift") and its partner, New African Global Energy SA (Pty) Ltd, agreed to enter the next 1-year phase of the Algoa-Gamtoos licence, the net commitment for which was approximately $150k to Tower for 2018 and is disclosed in note 20.

In the case of the Group's Zambian license, the Directors are continuing to await the review of the country's petroleum law to be completed before the value of the license can be tested in the market. This was delayed following the 2017 elections which have now been completed. Tower have submitted a proposal to the Oil Minister to vary the work programme on the existing license and have received agreement in principle from them. Whilst there is clearly uncertainty the Directors consider based on evidence available on the project that it is worth continuing with the exploration and based on evidence of other interested parties in license blocks similar to that held by Tower that the value of the exploration license is equal to its book value.

The valuations assessed by the Directors have been made on the assumption that sufficient funds will be raised either through share issues, farm outs or disposals to meet the license commitments. A failure to obtain such funds would impact upon the going concern nature of the business as set out in note 1 c) and would also lead to an impairment of the exploration assets.

13. Investment in subsidiaries

Included within loans made to subsidiary undertakings during the year of $2.7 million are amounts of $1.6 million Cameroon (2016: $1.8 million), $81k (2016: $210k) Zambia, $29k (2016: $263k) South Africa, and $379k (2016: $396k) Namibia. Included within the $2.7 million is interest on intercompany loans of $828k (2016: $777k).

The subsidiary undertakings at the year-end are as follows (these undertakings are included in the Group accounts):

14. Trade and other receivables

Included within Group receivables is an amount of $110k (2016: $400k) following the decision by Tower's wholly-owned subsidiary, Rift Petroleum Limited and its partner, New African Global Energy SA (Pty) Ltd ("New Age") not to proceed with an application to convert the TCP for the Orange Basin ultra-deep-water frontier area in South Africa into an exploration right in February 2016. Accordingly, New Age were required to reimburse Rift the sum of $500k, which was paid by Rift as part of its original farm-in agreement in 2013. At 31 December 2017 $100k had been received by the Group from New Age.

15. Trade and other payables

Included within both Group and Company accounts are amounts totalling $965k (2016: receivable $74k) with respect to UK VAT payable. As noted in the interim report and accounts 2017, HMRC have issued assessments totalling £843k excluding interest and penalties with respect to the validity of the Company's UK VAT position. This was appealed and referred to the first-tier tribunal, a hearing date for which has not yet been confirmed but is likely to be in fourth quarter of 2018.

The Company had also identified that certain suppliers had incorrectly charged UK VAT on their fees to the Company. VAT incorrectly charged to the Company totalled £903k. The suppliers concerned had filed letters disclosing this error with HMRC and sought reimbursement. The legal benefit and the handling of these claims have been assigned to the Company, which is engaged in a continuing dialogue with HMRC about these claims and HMRC's earlier assessments. HMRC has agreed not to pursue its claim for £843k while the Company's claim for reimbursement of £903k remains outstanding. Of this £903k, £775k was received from one of the incumbent suppliers in November 2017. The balance of £128k is expected to be received in full over the forthcoming months subject to HMRC confirmation.

The Company firmly believes that it has complied in all material respects with UK VAT legislation. Based on discussions with its advisors, the Company understands that the strength of HMRC's claim over the £843k is subject to legal interpretation, whereas the strength of the Company's claim of £128k against HMRC is not.

Nevertheless, taking into account the uncertainty regarding the appeal on the withholding of the original receivable and the assessment of £843k, and the remaining alternative reimbursement due of £128k, the Company has therefore reduced the net receivable within the accounts to a net payable of £715k ($965k) to reflect only the reimbursement due, and has also made a full provision for the HMRC assessment. The difference has been charged to the Income Statement.

Group creditor payment days are approximately 35 days (2016: 35 days).

16. Non-current liabilities

Non-current liabilities represent a loan from Wilton Petroleum Limited, a wholly owned subsidiary, to the Company.

17. Share capital

In June 2017 the Company placed 18 million shares for cash at 1p raising $234k.

In August 2017, following an Open Offer the Company issued a further 18.8 million shares to existing shareholders at 1p raising $245k.

In November 2017, the Company placed a further 233 million shares at 1p raising $2.8 million net of costs.

The share capital issues during 2016 are summarised as follows:

The shares issued in lieu of fees payable were issued to Directors and the Company's outgoing Nominated Advisor at the placing price of 1p in November 2017.

The share issue costs were in relation to the November 2017 placing in which the Company's current broker / Nominated Advisor and legal advisors agreed to receive some or all of their fees in equity at the placing price of 1p per share.

18. Reserves

Reserves within equity are as follows:

Share capital

Amounts subscribed for share capital at nominal value.

Share premium account

The share premium account represents the amounts received by the Company on the issue of its shares which were in excess of the nominal value of the shares.

Retained losses

Cumulative net gains and losses recognised in the Statement of Comprehensive Income less any amounts reflected directly in other reserves.

19. Financial instruments

Capital risk management and liquidity risk

Capital structure of the Group and Company consists of cash and cash equivalents held for working capital purposes and equity attributable to the equity holders of the Parent, comprising issued capital, reserves and retained losses as disclosed in the Statement of Changes in Equity. The Group and Company uses cash flow models and budgets, which are regularly updated, to monitor liquidity risk.

Significant accounting policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each material class of financial asset, financial liability and equity instrument are disclosed in note 1 to the financial statements.

Due to the short-term nature of these assets and liabilities such values approximate their fair values at 31 December 2017 and 31 December 2016.

Financial risk management objectives

The Group's and Company's objective and policy is to use financial instruments to manage the risk profile of its underlying operations. The Group continually monitors financial risk including oil and gas price risk, interest rate risk, equity price risk, currency translation risk and liquidity risk and takes appropriate measures to ensure such risks are managed in a controlled manner including, where appropriate, through the use of financial derivatives. The Group and Company does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

Interest rate risk management

The Group and Company does not have any outstanding borrowings and hence, the Group and Company is only exposed to interest rate risk on its short-term cash deposits.

Interest rate sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to interest rates at the reporting date and assuming the amount of the balances at the reporting date were outstanding for the whole year.

A 100-basis point change represents management's estimate of a possible change in interest rates at the reporting date. If interest rates had been 100 basis points higher and all other variables were held constant the Group's profits and equity would be impacted as follows:

The Group's exposure to interest rate risk, which is the risk that a financial instrument's value will fluctuate as a result of changes in market interest rates on classes of financial assets and financial liabilities, was as follows:

Foreign currency risk

The Group's and Company's reporting currency is the US dollar, being the currency in which the majority of the Group's revenue and expenditure is transacted. The US dollar is the functional currency of the Company and the majority of its subsidiaries. Less material elements of its management, services and treasury functions are transacted in pounds sterling. The majority of balances are held in US dollars with transfers to pounds sterling and other local currencies as required to meet local needs. The Group does not enter into derivative transactions to manage its foreign currency translation or transaction risk.

At the year-end the Group and Company maintained the following cash reserves:

Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group or Company. The Group and Company reviews the credit risk of the entities that it sells its products to or that it enters into contractual arrangements with and will obtain guarantees and commercial letters of credit as may be considered necessary where risks are significant to the Group or Company.

20. Operating leases and capital commitments

At the reporting date outstanding commitments for minimum operating lease payments fall due as follows:

Operating lease commitments represent payments made by the Group for its office properties which have been relinquished as part of the cost rationalisation in 2017.

The Group is committed to funding the following exploration expenditure commitments as at 31 December 2016:

21. Share-based payments

Options

Details of share options outstanding at 31 December 2017 are as follows:

1 These options vest in the beneficiaries in equal tranches on the first, second and third anniversaries of grant.

The following table shows the interests of the Directors in the share options in issue:

Warrants

Details of warrants outstanding at 31 December 2017 are as follows:

The following table shows the interests of the Directors in the share warrants in issue:

The weighted average exercise price of the share warrants was 1.93p (2016: 452.5p) pence with a weighted average contractual life of 4.9 years (2016: 1.2 years). At 31 December 2017 and 2016 all warrants had fully vested.

In its Statement of Comprehensive Income, the Company recognised share-based payment charges of $447k (2016: $300k)

In compliance with the requirements of IFRS 2 on share-based payments, the fair value of options or warrants granted during the year is calculated using the Black Scholes option pricing model. For this purpose, the volatility applied in calculating the above charge varied between 82% and 143% (2016: 82% and 143%), depending upon the date of grant, and the risk-free interest rate was 0.50% and the Dividend Yield was 0% for 2017 and 2016.

The Company's share price ranged between 0.8p and 2.9p (2016: 2.1p and 28.8p) during the year. The closing price on 31 December 2017 was 0.8p per share. The weighted average exercise price of the share options was 7.0p (2016: 38.0p) with a weighted average contractual life of 3.75 years (2016: 4.38 years). The total number of options vested at the end of the year was 1.6 million (2016: 1.7 million).

22. Related party transactions

The key management of the Group comprises the Directors of the Company. Except as disclosed, there are no transactions with the Directors other than their remuneration and interests in shares, share options and warrants. As noted in the Directors' Report, Pegasus Petroleum Ltd ("Pegasus"), a company owned and controlled by Jeremy Asher, received $295,885 (2016: $nil) in fees for management services. Further information on Directors' remuneration is detailed in the Directors' Report and their total remuneration in each of the categories specified in IAS 24 'Related Party Disclosures' is shown below:

1 Charged by Pegasus Petroleum Limited ("Pegasus"), a company registered in the Channel Islands, to Rift Petroleum Holdings Ltd, a wholly owned subsidiary of Tower Resources plc registered in the Isle of Man. Pegasus is owned and controlled by a family trust of which Jeremy Asher is the settlor and lifetime beneficiary.

23. Control

The Company is under the control of its shareholders and not any one party.

24. Subsequent events

On 2 January 2018, Tower announced that 2,542,372 warrants had been issued in lieu of £15,000 (in aggregate) of Directors fees to Peter Taylor and Graeme Thomson (non-executive directors), and Jeremy Asher (as Chairman) in partial settlement of fees due for the period from 1 Jan 2018 to 31 March 2018, to conserve the Company's working capital.

On 3 April 2018, Tower announced that 2,083,333 warrants were being issued in lieu of £15,000 (in aggregate) of Directors fees to Peter Taylor and Graeme Thomson (non-executive directors), and Jeremy Asher (as Chairman) in partial settlement of fees due for the period from 1 April 2018 to 30 June 2018, to conserve the Company's working capital. The warrants are exercisable at a price of 1.5 pence, which is a premium of 5% to the Company's closing share price on 29 March 2018, and are exercisable for a period of 5 years from the date of issue.