United Oil&gas Regulatory News (UOG)

29 May 2020

United Oil & Gas PLC ("United" or the "Company") 

Final audited results for the year ended 31 December 2019,

Shareholder call and Notice of AGM

United Oil & Gas Plc, the AIM-listed oil and gas exploration, development and production company, is pleased to announce its audited results for the year ended 31 December 2019.

2019 highlights:

· Successful acquisition of Rockhopper Egypt and its 22% interest in the Abu Sennan concession onshore Egypt 

· Continued progress in securing the environmental and legal permitting for the Selva gas development project in Italy with the objective of first gas in early 2021

· Significant profit realised from the divestment of the Crown discovery, following value enhancing input from the United technical team

· Award of licences in highly prospective area in North Sea in UK 31st Licencing Round

· Significant strengthening of the United Executive team and Board with the appointment of David Quirke as Chief Financial Officer

Post Year-end:

· Acquisition of Rockhopper Egypt finalised in February 2020

· Since the completion of the acquisition, the Abu Sennan asset has performed strongly

o The ASH-2 well has continued to outperform expectations, with current gross production from the well remaining above 3,000 bopd. Plans are now in place for further development of the gas at the ASH field, with this project due for completion before the end of 2020

o Gas from Al Jahraa was brought onstream in March, adding an average 650 boepd gross, and reducing flaring on the asset

o Results from the ES-5 development well, which spudded in February, are expected to be announced shortly

· All Egyptian production, including new gas supply, has positive operational cashflow even at current low market prices

o Low operating costs at Abu Sennan of around $6.5/bbl provide solid operating margins even at low price levels

o The Company's pre-payment facility with BP provides downside price protection by effectively hedging 6,600 bbls of oil per month at $60/bbl until September 2022

o c.20% of United's net production is gas which is sold under fixed contract that is relatively insensitive to oil-price changes

· Discussions are being initiated with Jamaican Government to agree a path forward for the transformative Walton Morant licence

· In line with the completion of the Rockhopper acquisition, United has recently completed a strategic review of its licences to ensure optimal use of resources. Accordingly, the Company will seek to divest non-core assets and maintain a focus on Mediterranean (Italy, Egypt), Jamaican and North Sea assets

· In response to Covid-19, the Company has proactively moved to defer non-committed capital expenditure and dramatically reduce corporate budgets with savings of $500,000 delivered across the business. In addition, three of the four wells planned for 2020 in Egypt have now been deferred until market conditions improve, providing further net Capex savings of over $2m to United

CEO, Brian Larkin, reported:

"I am pleased with the significant progress that the Company has made throughout 2019. At the beginning of the year we outlined our intention to complete a transformative acquisition and to build a full cycle oil and gas company. We have achieved both goals with the Rockhopper acquisition, which has already exceeded expectations. In addition to the continued drilling success on the licence, which has seen production grow rapidly and contribute positive cashflow despite the current pricing environment, we are glad to have built new partnerships with BP and Rockhopper.

Beyond the Rockhopper deal we have made excellent progress across our portfolio. We have delivered shareholder value through operations, geological assessment and through acquisition and divestment.

Covid-19 has caused unprecedented disruption to our world and to our industry. United's management has acted quickly to protect our business and to ensure that our strategy is appropriate to these circumstances. While we are currently adopting a prudent approach, this is with the objective of ensuring that we maintain a pipeline of opportunities for future development and emerge from this challenging time in a position to take advantage of opportunities which may arise."

Annual General Meeting

In light of the Coronavirus (COVID-19) pandemic and the UK Government's measures to restrict travel and public gatherings of more than two people who do not live together, it will not be possible to hold the AGM in its usual format. The meeting will be held at 9 Upper Pembroke Street, Dublin 02 KR83, Ireland at 11:00 a.m. on 29 June 2020. This year's AGM will be organised as a closed meeting. Shareholders must not attend the AGM in person and anyone seeking to attend in person will be refused entry. The Company will make arrangements for a quorum to be present to transact the formal business of the meeting as set out in the notice of the AGM.

Extracts from the Annual Report are set out below. The financial information set out below does not constitute the Company's statutory accounts for the periods ended 31 December 2019 or 31 December 2018 but it is derived from those accounts. Statutory accounts for 31 December 2018 have been delivered to the Registrar of Companies and those for 31 December 2019 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts, their reports were unqualified and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

The Company encourages shareholders to vote on the resolutions or to appoint the Chairman of the AGM as a proxy to vote on their behalf. Shareholders can vote on the resolutions using an online portal, following the procedure below.

· Visiting www.shareregistrars.uk.com and following the online instructions. Through the website shareholders will be able to access the Registrars' Portal, on which they will be able to register to be able to vote. For security reasons, registration is a two-stage authentication process. Once registered, shareholders will be able to vote online via the platform.

· Shareholders can submit their completed Form of Proxy electronically by emailing the same to voting@shareregistrars.uk.com

· Completing and returning the Form of Proxy to the Company's Registrars, Share Registrars Limited, The Courtyard, 17 West Street, Farnham, Surrey GU9 7DR no later than 48 hours before the Annual General Meeting

In the event that further disruption to the AGM becomes unavoidable or there are any changes to the current AGM arrangements, the Company will announce any changes to the meeting (such as timing or venue) as soon as reasonably practicably through a Regulatory Information Service and the Company's website.

Pursuant to Rule 20 of the AIM Rules for Companies, copies of both the Annual Report and the Notice will shortly be available for inspection at www.uogplc.com. 

Shareholder call

In order to allow shareholders the opportunity to engage with the Company, United will be holding a shareholder call ahead of the AGM. This call will take place on 25 June 2020 at 11.00 a.m. Shareholders are invited to submit questions in advance to investor.relations@uogplc.com. The leadership team will give an update on the Company and run through a corporate presentation as well as answering shareholder questions. Dial in details for the call will be posted on the Company's website and via a Regulatory Information Service.

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

For more information please visit the Company's website at www.uogplc.com or contact: 

Notes to Editors

United Oil & Gas plc (UOG) is an AIM-traded company. United is a rapidly-growing full-cycle oil and gas company with focus on low-risk production and development projects in Egypt, Italy, and the UK, and high-impact exploration in Jamaica.

CHAIRMAN'S STATEMENT

FORE THE YEAR ENDED 31 DECEMBER 2019

Dear shareholders,

Introduction

Building on the momentum of 2018, I am pleased to report that in 2019 and early 2020 we have made great strides towards our aim of becoming a full cycle oil and gas company with a strong and diversified portfolio of exploration, development and production assets. This was achieved in the course of another very active period for our small but highly skilled and experienced executive management team and staff.

Strengthening of Executive Team

We were delighted to welcome David Quirke to the executive team as CFO and to the Board in early 2019. His arrival has enhanced what was an already highly advanced 'deal-making' expertise within the business. David made an immediate impact and played a key role in the acquisition and financing of the Rockhopper Egypt assets discussed below. I am now very pleased that our executive team have the fully complementary skills and experience to allow us to deliver on our strategy and growth potential.

Strategy

Our strategy remains clear: it is focussed on building a full cycle portfolio of low risk production, development and exploration assets (as we now have in Egypt, Italy and the UK) complemented by a few higher risk but high impact exploration opportunities (as we have in Jamaica and are in discussions regarding elsewhere). We are committed to a dynamic approach to portfolio management and see opportunity to deliver value to shareholders through our technical expertise as well as through drilling operations. In pursuit of this strategy we continue to seek opportunities when appropriate, and to sell or withdraw from less fitting or promising assets, or when we can realise an immediate gain. 2019 was a very active year in the pursuit of that strategy as outlined below.

Key activities in 2019

2019 was dominated by the acquisition of Rockhopper Egypt and its 22% interest in the Abu Sennan concession onshore Egypt. Such acquisitions are complicated and involve many hurdles which must be overcome, each with the potential to end the deal. Our management team built and carefully managed relationships with the vendor, licence partners, financing partner, new and existing shareholders and with the Government and regulatory authorities in Egypt. Each of these stakeholders played a role in the process and it was only through the tireless work and considerable skill of our Executive team that this deal was delivered. I am particularly proud that United Oil & Gas Plc ("United" or "Company") secured this asset in the face of competition from larger and longer established bidders.

The merit of targeting this asset has been conclusively proven since the deal was announced, with a series of positive announcements, significantly enhancing the value of our new asset. Production at the licence has greatly exceeded expectations and will provide an important revenue source for the future development of our company.

In Italy, throughout 2019 we continued to pursue the various permissions required for our Selva gas development project with the objective of first gas in late 2020, leading to a further significant revenue stream for the company. The approval process was on track during 2019 and into H1 2020 but with the COVID-19 crisis affecting Italy, more seriously than most countries, progress has now inevitably slowed. While disappointing, the delay and associated cost deferral will help sustain our cash reserves in the current low-price environment.

In the UK, we divested our Crown discovery, successfully monetising that asset and delivering early value to shareholders. We were also awarded further interesting blocks in the 31st licensing round which we are continuing to review.

The Colter well was drilled in the early part of last year. While the well made a new discovery at Colter South, the originally targeted structure did not meet our expectations. Little work was done in the year on our Wessex Basin portfolio, and with our focus now on the Egypt assets and more prospective opportunities elsewhere, we have taken the decision to begin the process to divest those assets.

Elsewhere, we remain committed to progressing our Jamaica asset and while the operator has now taken the decision to withdraw from the licence, we are optimistic about its potential and are in discussions with the Government to agree a path forward.

There was limited activity in the year on our interest in Benin and since the year end, as part of our portfolio rationalisation, we have taken the decision not to progress our option there.

Business development opportunities across the full cycle continued to be offered to and assessed by the team in the course of 2019. These were put through a rigorous review process and only the most attractive ones consistent with our strategy were taken forward. However, while there were a number of such opportunities still in our pipeline as we entered 2020, these will only be pursued as and when the current industry challenges are overcome.

AIM Listing and capital raising

In March 2019 the company's shares were admitted to trading on the AIM market of the London Stock Exchange. While this was an onerous exercise in terms of both costs and management time, we believe that the move will prove to have been in the best interests of the company. It will lead to lower costs going forward and will assist us in undertaking with speed the type of value-adding transactions we look for to significantly grow our business.

In February 2020, as part of the financing for the Rockhopper Egypt assets, we raised £4.8 million at 3p with certain existing and new investors. We are very grateful for the support shown to the company by our existing shareholders in approving that fundraising, and of course by our new shareholders who we welcome to the company and I hope to meet in due course.

Financial Results for 2019

As expected at this stage in the company's history with no cash flow from operations during 2019, the company made a loss for the year. This loss of $2,139,075 comprises administrative expenditure in support of the company's activities, exploration costs written off (principally the Colter well), and costs associated with new ventures and evaluating acquisition opportunities. The costs of our AIM listing, the Egypt acquisition including a Reverse Takeover process as well as the corporate expenses associated with being a listed company, were also included.

Key events since year end

At the end of February 2020, we completed the acquisition of the Rockhopper Egypt assets. Since the effective date of the acquisition the performance of these assets has been stellar, and they are providing positive operational cash flow even at current low prices.

Impact to the Company of COVID-19 and Oil Price uncertainty

The human and economic impact of the COVID-19 pandemic has been very significant. The priority of the Company remains the health and wellbeing of our employees and wider stakeholders. At this point in time, we are glad to report that all of our employees are safe and well and continuing to work from home.

Proactive measures taken by United and its partners to reduce near-term Capex commitments during current oil-price uncertainty and the impact of Covid-19

· Deferral of Italian Capex improves cash flow and moves expected first gas slightly to H1 2021

· Deferral of Egyptian Capex reduces 2020 infill campaign from 4 wells to 1 well, significantly reducing gross 2020 Capex estimates. Further optimisation of the Capex and Opex budgets is being considered.

· Completion of post-Egyptian-acquisition licence review sees divestment plans for selected non-core assets in the Wessex Basin and a decision not to exercise the farm-in option in Benin

· Substantial cut in administrative expenditure resulting in further cost savings

There has been no impact on our operations in Egypt and the production and transport of oil and gas has continued uninterrupted. In Italy we expect the impact of COVID-19 to cause a slight delay in approvals for the Selva gas development project and now expect to deliver first gas in H1 2021.

In addition to this the Company's pre-payment facility with BP provides downside price protection by effectively hedging 6,600 bbls per month of production at $60/bbl. Coupled with this, c. 20% of United's net production is gas which is sold under a fixed contract that is relatively insensitive to oil-price changes. The low operating costs of Abu Sennan of ~ $6.50/bbl provide solid operating margins even at current oil price levels.

Conclusion

2019 was another very successful year for the company in the development and pursuit of our strategy and I would like to record my thanks to our executives and staff for their continued commitment and energy throughout the year.

Despite the challenges now facing our industry in 2020 with the rapid and unexpected oil price decline, and now the effects of COVID-19, I believe we are well placed to weather the storm and emerge from these crises with a balanced full cycle portfolio, the cash flow to fund our business and some exciting new opportunities under review.

Graham Martin

Chairman

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2019

Consolidated Statement of Comprehensive Income

Consolidated Balance Sheet as at 31 December 2019

The financial statements were approved by the Board of Directors and authorised for their issue on 28 May 2020 and were signed on its behalf by:

Brian Larkin

Chief Executive Officer

Registered number: 09624969 

Consolidated Statement of Changes in Equity

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER

Notes to the consolidated financial statements

Principal Accounting Policies

Company information

United Oil & Gas plc is a public limited company incorporated and domiciled in the United Kingdom.

Basis of preparation

The consolidated financial statements of United Oil & Gas plc and its subsidiaries (together "the Group" or "United Oil & Gas") have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union, IFRIC interpretations, and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

IFRS is subject to amendment and interpretation by the IASB and the IFRS Interpretations Committee, and there is an on-going process of review and endorsement by the European Commission. These accounting policies comply with each IFRS that is mandatory for accounting periods ending on 31 December 2019.

The principal accounting policies set out below have been consistently applied to all periods presented.

Basis of consolidation

The financial statements for the year ended 31 December 2019 incorporate the results of United Oil & Gas plc ("the Company") and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

All intra-Group transactions, balances, income and expenses are eliminated in full on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Going Concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman's Statement and the Strategic Report.

The Directors' recent forecasts demonstrate that the Group will meet its day-to-day working capital and financial commitments over the forecast period (being at least 12 months from the date the financial statements were approved) from the cash held on deposit and planned oil and gas revenue from Abu Sennan in 2020, as further opportunities arise and the portfolio continues to grow in line with group strategy. This base case forecast is inclusive of the lower oil prices that are forecast well into 2021, primarily as a result of the global oil supply and demand dynamics and the COVID-19 pandemic. The Group has been able to defer a significant portion of the budgeted capital expenditure programme for 2020 and taken other measures to reduce the running costs of the business, which combined will protect the Group cashflows. Management have also considered some additional downside scenarios including a case where a significant contingent consideration receipt relating to the Crown disposal due in late 2020 is not received within the forecast period, and if realised would place doubt on the ability to fund the business for 12 months from the current cash reserves and projected oil and gas revenues from Egypt. Some mitigating actions have been considered in the event that the downside scenario was realised and include further divestment of the portfolio, potential restructuring of debt arrangements and a further equity raise.

The Group has sufficient funding to meet planned financial commitments in relation to operational activities and a level of contingency, and as a result the directors continue to adopt the going concern basis of accounting in preparing the financial statements. However, in the downside scenario discussed, and without the successful implementation of mitigating actions, a material uncertainty does exist that may affect the ability of the company to continue as a going concern. The consolidated financial statements have not been adjusted for the scenario where the Group is not a going concern.

Foreign currency

Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the year-end date. All differences are taken to the Income Statement.

Assets and liabilities of subsidiaries that have a functional currency different from the presentation currency (US dollar), if any, are translated at the closing rate at the date of each balance sheet presented. Income and expenses are translated at average exchange rates. All resulting exchange differences are recognised in other comprehensive income (loss), if any.

The Group has taken the decision to change its presentation currency to USD. This has been accounted for retrospectively as a change in accounting policy. In making this change in presentation currency, the Company followed the requirements set out in IAS 21, The Effects of Change in Foreign Exchange Rates. In accordance with IAS 21, the change in presentational currency is applied retrospectively and financial statements for the previous financial periods have therefore been translated into the new presentation currency.

Finance income and costs

Interest is recognised using the effective interest method which calculates the amortised cost of a financial asset or liability and allocates the interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial asset or liability to the net carrying amount of the financial asset or liability.

Exploration and evaluation assets

The group accounts for oil and gas expenditure under the full cost method of accounting.

Costs (other than payments to acquire the legal right to explore) incurred prior to acquiring the rights to explore are charged directly to the profit and loss account. All costs incurred after the rights to explore an area have been obtained, such as geological, geophysical, data costs and other direct costs of exploration and appraisal are accumulated and capitalised as intangible exploration and evaluation ("E&E") assets.

E&E costs are not amortised prior to the conclusion of appraisal activities. At the completion of appraisal activities if technical feasibility is demonstrated and commercial reserves are discovered, then following development sanction, the carrying value of the relevant E&E asset will be reclassified as a development and production asset within tangible fixed assets.

If after completion of appraisal activities in an area, it is not possible to determine technical feasibility or commercial viability, then the costs of such unsuccessful exploration and evaluation are written off to the profit and loss account. The costs associated with any wells which are abandoned are fully amortised when the abandonment decision is taken.

Development and production assets, are accumulated generally on a field by-field basis and represent the costs of developing the commercial reserves discovered and bringing them into production, together with the E&E expenditures incurred in finding commercial reserves which have been transferred from intangible E&E assets.

The net book values of development and production assets are depreciated generally on a field-by-field basis using the unit of production method based on the commercial proven and probable reserves. Assets are not depreciated until production commences.

Other intangible assets

Other intangible assets acquired separately from a business combination are capitalised at cost.

Intangible assets are amortised on a straight-line basis over their useful lives as follows:

Computer software 33%

The carrying value of intangible assets is assessed annually and any impairment is charged to the income statement.

Property, plant and equipment

Property, plant and equipment are stated at cost less depreciation. Depreciation is provided on a straight-line basis at rates calculated to write off the cost less the estimated residual value of each asset over its expected useful economic life. The residual value is the estimated amount that would currently be obtained from disposal of the asset if the asset were already of the age and in the condition expected at the end of its useful life.

The annual rate of depreciation for each class of depreciable asset is:

Computer equipment 33%

The carrying value of property plant and equipment is assessed annually and any impairment is charged to the income statement.

Impairment of non-financial assets

At each balance sheet date, the Directors review the carrying amounts of the Group's tangible and intangible assets, other than goodwill, to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. If the recoverable amount of a cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit.

An impairment loss is recognised as an expense immediately.

An impairment loss recognised for goodwill is not reversed in subsequent periods.

Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset or cash-generating unit in prior periods. A reversal of an impairment loss is recognised in the Income Statement immediately.

Financial instruments

Recognition and derecognition

Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument.

Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred.

A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.

Classification and initial measurement of financial assets

Except for those trade receivables that do not contain a significant financing component and are measured at the transaction price in accordance with IFRS 15, all financial assets are initially measured at fair value adjusted for transaction costs (where applicable).

Financial assets are classified into the following categories:

· amortised cost

· fair value through profit or loss (FVTPL)

· fair value through other comprehensive income (FVOCI).

In the periods presented the Group does not have any financial assets categorised as FVOCI or FVTPL.

The classification is determined by both:

· the entity's business model for managing the financial asset

· the contractual cash flow characteristics of the financial asset.

Subsequent measurement of financial assets

Financial assets at amortised cost

Financial assets are measured at amortised cost if the assets meet the following conditions:

· they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows

· the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding

After initial recognition, these are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial. The Group's cash and cash equivalents, trade and other receivables fall into this category of financial instruments.

Impairment of Financial Assets

In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model to be applied. The expected credit loss model requires the Group to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets.

IFRS 9 requires the Group to recognise a loss allowance for expected credit losses on trade receivables.

In particular, IFRS 9 requires the Group to measure the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses (ECL) if the credit risk on that financial instrument has increased significantly since initial recognition, or if the financial instrument is a purchased or originated credit‑impaired financial asset. However, if the credit risk on a financial instrument has not increased significantly since initial recognition, the Group is required to measure the loss allowance for that financial instrument at an amount equal to 12 months ECL.

Classification and measurement of financial liabilities

The Group's financial liabilities include trade and other payables.

Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the Group designated a financial liability at fair value through profit or loss.

Subsequently, financial liabilities are measured at amortised cost using the effective interest method except for contingent consideration designated at FVTPL, which is carried subsequently at fair value with gains or losses recognised in profit or loss.

All interest-related charges and, if applicable, changes in an instrument's fair value that are reported in profit or loss are included within finance costs or finance income.

Cash and cash equivalents

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

Leases

The Group has applied IFRS 16 using the modified retrospective approach and therefore comparative information has not been restated and is presented under IAS 17. The details of accounting policies under both IAS 17 and IFRS 16 are presented separately below.

Policy applicable from 1 January 2019

The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the lessee uses its incremental borrowing rate.

The lease liability is presented as a separate line in the balance sheet.

The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.

The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:

· The lease term has changed in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.

· The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).

· A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification.

The right-of-use assets comprise the initial measurement of the corresponding lease liability, prepayments made on the lease at or before the commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.

Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset.

The depreciation starts at the commencement date of the lease.

Policy applicable prior to 1 January 2019

Operating leases

Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an "operating lease") amounts payable under the lease are charged to the income statement on a straight-line basis over the lease term.

Taxation

Current taxation for each taxable entity in the Group is based on the local taxable income at the local statutory tax rate enacted or substantively enacted at the balance sheet date and includes adjustments to tax payable or recoverable in respect of previous periods.

Deferred taxation

Deferred taxation is calculated using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, if the deferred tax arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised, or the deferred tax liability is settled.

Deferred tax liabilities are provided in full.

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

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the Income Statement, except where they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred tax assets and liabilities relate to taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

Share-based payments

Where share-based payments (warrants and options) have been granted, IFRS 2 has been applied whereby the fair value of the share-based payments is measured at the grant date and spread over the period during which they vest. A valuation model is used to assess the fair value, taking into account the terms and conditions attached to the share-based payments. The fair value at grant date is determined including the effect of market-based vesting conditions, to the extent such vesting conditions have a material impact.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the holders become fully entitled to the award ("the vesting date").

The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest.

Where the terms of an equity-settled award are modified, the minimum expense recognised is the expense as if the terms had not been modified. An additional expense is recognised for any modification, which increases the total fair value of the share-based payment arrangement or is otherwise beneficial to the employee, as measured at the date of modification.

Where an equity-settled award (share options) is cancelled, it is treated as if it had vested on the date of cancellation if it had not yet fully vested, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

Where an equity-settled award is forfeited, the cumulative charge expensed up to the date of forfeiture is credited to the Income Statement. Upon expiry of an equity-settled award, the cumulative charge expensed is transferred from the Share-based payment reserve to retained earnings.

Equity

Equity comprises the following:

· "Share capital" represents amounts subscribed for shares at nominal value.

· "Share premium" represents amounts subscribed for share capital, net of issue costs, in excess of nominal value.

· "Share-based payment reserve" represents the accumulated value of share-based payments.

· "Retained earnings" represents the accumulated profits and losses attributable to equity shareholders.

· "Translation reserve" represents the exchange differences arising from the translation of the financial statements of subsidiaries into the Group's presentational currency.

· "Merger reserve" represents amounts arising from statutory merger relief arising on business combinations.

New and amended International Financial Reporting Standards adopted by the Group

The Group has adopted the following standards, amendments to standards and interpretations which are effective for the first time this year. The impact is shown below:

IFRS 16 introduces new or amended requirements with respect to lease accounting. It introduces significant changes to lessee accounting by removing the distinction between operating and finance leases and requiring all leases (subject to exemptions) to be recognised giving a right of use asset and lease liability in the balance sheet, with the statement of comprehensive income reflecting depreciation of the right of use asset and the interest charge on the lease liability.

The adoption of this new Standard has resulted in the Group recognising a right-of-use asset and related lease liability in connection with the former operating lease.

The new Standard has been applied using the modified retrospective approach, with right of use asset and corresponding liability recognised as an adjustment in the current period. At this date, the Group has also elected to measure the right-of-use assets at an amount equal to the lease liability adjusted for any prepaid or accrued lease payments that existed at the date of transition. Prior periods have not been restated.

The Group has elected not to include initial direct costs in the measurement of the right-of-use asset for operating leases in existence at the date of initial application of IFRS 16, being 1 January 2019.

Instead of performing an impairment review on the right-of-use assets at the date of initial application, the Group has relied on its historic assessment as to whether leases were onerous immediately before the date of initial application of IFRS 16.

The impact of the implementation of this standard is set out below:

· Recognition of lease liabilities and right of use assets, the initial impact of which is an increase in property, plant and equipment and in total liabilities.

· A new finance expense due to the lease finance charge

· Increased annual depreciation of property, plant and equipment for the duration of the leases

· Elimination of the former operating lease rental expense

International Financial Reporting Standards in issue but not yet effective

At the date of authorisation of the consolidated financial statements, the IASB and IFRS Interpretations Committee have issued standards, interpretations and amendments which are applicable to the Group.

Whilst these standards and interpretations are not effective for, and have not been applied in the preparation of these consolidated financial statements, the following could have a material impact on the Group's financial statements going forward:

New / revised International Financial Reporting Standards which are not considered to potentially have a material impact on the Group's financial statements going forwards have been excluded from the above.

Management anticipates that all relevant pronouncements will be adopted in the Group's accounting policies for the first period beginning after the effective date of the pronouncement. New standards, interpretations and amendments not listed above are not expected to have a material impact on the Group's financial statements.

Critical accounting judgements and key sources of estimation uncertainty

The preparation of financial statements in conformity with generally accepted accounting practice requires management to make estimates and judgements that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period.

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The following are the significant judgements used in applying the accounting policies of the Group that have the most significant effect on the financial statements:

Impairment of exploration licenses

Management reviews intangible exploration assets for indicators of impairment under IFRS 6 - Exploration for and Evaluation of Mineral Resources at the end of each reporting period. This review of assets for potential indicators of impairment requires judgement including whether renewal of licences is planned, interpretation of the results of exploration activity and the extent to which the Group plans to continue substantive expenditure on the assets. In determining whether substantive expenditure remains in the Group's plan, management considers factors including future oil prices, plans to develop or renew licences and future exploration plans. If impairment indicators exist the assets are tested for impairment and carried at the lower of the estimated recoverable amount and net book value.

During the year, a decision was taken to impair the Colter intangible exploration asset. Management did not consider there to be any indicators of impairment in the remaining intangible exploration assets at any reporting date presented.

Fair value of consideration in relation to Crown Disposal

Management have applied judgement in determining the consideration recognised for the Crown disposal in accordance with IFRS 5, including a receivable for contingent consideration of $2.85m. In the event of non-payment of the contingent consideration the Group would retain the asset which has been attributed a fair value of $3.8m as a result of the disposal deal.

Notes to the Consolidated Financial Statements

1. Segmental reporting

Operating segments

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, assessing the performance of the operating segment and making strategic decision, has been identified as the Board of Directors. The Board of Directors consider that the Group has only one operating segment at corporate level, being the exploration and evaluation of oil and gas prospects, therefore no additional segmental information is presented.

The Group operates in three geographic areas - the UK, Europe and greater Mediterranean and Latin America. The Group's revenue from external customers and information about its non-current assets (other than financial instruments, investments accounted for using the equity method, deferred tax assets and post-employment benefit assets) by geographical location are detailed below.

2. Operating loss

3. Disposal of Crown asset

On 12 December 2019, United announced the completion of the sale of its 95% share in the North Sea Blocks 12/18d and 15/19b (licence P2366) to Anasuria Hibiscus UK limited. The disposal was of the aforementioned licence only, and the UOG Crown Limited subsidiary company is retained in the group.

Under the deal for this disposal of the Crown licence (intangible asset disposal - see note 8), United received $950,000 in 2019 on completion, with a further receivable of $2,850,000 due in 2020 which is contingent upon approval of an FDP, the latter amount being reflected in current receivables in the balance sheet. In the event of non-payment of the latter amount, ownership of the licence asset would return to the Group.

Having acquired the licence in 2018 and incurred costs of $918,024 in the interim period on a work programme, some in-house technical work, and the costs of disposal the Group is reporting a profit on disposal before tax in its 2019 Income Statement of $2,881,976.

4. Directors and employees

The aggregate payroll costs of the employees, including both management and Executive Directors, were as follows:

Average monthly number of persons employed by the Group during the year was as follows:

Key management personnel are identified as the Executive Directors.

No share warrants have been exercised by any of the directors, nor have any payments of pensions contributions been made on behalf of directors in any of the periods presented.

5. Taxation

The Group has accumulated tax losses of approximately $4m (2018: $2m). No deferred tax asset was recognised in respect of these accumulated tax losses as there is insufficient evidence that the amount will be recovered in future years.

6. Loss per share

The Group has issued share warrants and options over Ordinary shares which could potentially dilute basic earnings per share in the future. Further details are given in note 13.

Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

Due to the losses incurred during the year, a diluted loss per share has not been calculated as this would serve to reduce the basic loss per share. There were 93,329,853 (2018: 93,329,853) share warrants and options outstanding at the end of the year that could potentially dilute basic earnings per share in the future.

Basic and diluted loss per share

The loss and weighted average number of ordinary shares used in the calculation of basic loss per share are as follows:

7. Subsidiaries

Details of the Group's subsidiaries in 2019 are as follows:

*held indirectly by United Oil & Gas

8. Intangible assets

At 31 December 2019 the group's E&E carrying values of $5.6m related to our development Selva asset in Italy, our high impact exploration activity in Jamaica, and the UK North Sea and Wessex basin exploration/development work programmes. During the year we divested the Crown Discovery in the North Sea, and after evaluating a number of commercialization options, have made the decision to write off the expenditure on the Colter wells.

Our Italian development at the Selva field continued to make progress in 2019. Factoring in the impact of Covid-19, we are now targeting first production in early 2021. Formal technical environmental approval from the Italian Environmental Ministry was granted in January 2020 and preliminary work has commenced on the development programme preparing for first gas. Testing has previously indicated rates of 150,000scm/day with UOG's economic interest being 20%. At the Balance Sheet date $2,335,135 had been capitalised for our Italian asset.

In Jamaica work continued in 2019 on the processing of 3D seismic data acquired during the previous year, adding further prospectivity to the numerous structures already identified in the licence. Further resources and funds were also spent during 2019 on a joint-venture farm out process, led by the operator to seek partners to participate in drilling an exploration well. This generated significant interest, but the current market conditions have proven a challenging environment in which to complete a farm-down of such a frontier wildcat opportunity. A 6-month extension to the initial Exploration Period was granted in January 2020, giving the Joint Venture until the 31st July before a drill-or-drop decision is required. United has indicated to the Jamaican authorities that it wishes to explore options for continuing to progress what United believe to be a transformative licence beyond the 31 July deadline, and discussions to this end have been initiated positively with the Government. As at 31 December UOG are carrying $2,764,170 for Jamaica in its Intangibles number.

In the UK, United has had an interesting year. In the North Sea, Licence P2480, containing four blocks, was acquired in the OGA's 31st licensing round, whilst the divestment of Licence P2366, containing the Crown discovery was completed for a significant profit. In the Wessex Basin, the Colter well (98/11a-6) and its sidetrack have been fully impaired, whilst the work programme continues on the Waddock Cross development.

A key achievement of the year was the divestment of the Crown licence to Anasuria Hibiscus UK Limited for an initial $4m of which United have a 95% share. This sale required the net off of costs incurred from the work programme and some disposal costs, amounting to $792,033 in total. With the addition of the 31st round licences in Q3 of 2019 the company is carrying a small value of $33,884 on its North Sea assets, with a work programme to ramp up in 2020/2021 on the P2480 licence, which includes the Zeta prospect.

In the PL090 licence, work continues with some independent reservoir modelling after the seismic completion in 2018 and at the Balance Sheet date the company is carrying $481,336 in capitalised costs in this licence.

In licence P1918 the Colter Well and side-track were drilled in Q1 of 2019. Despite some encouraging signs and positive CPR indicators of a structure that could hold up to 24 MMstb in an upside case, the company has decided to impair its costs in full, amounting to $2,158,649. This decision was made as after evaluating numerous scenarios, it was determined that to make further progress towards development, further investment in 3D seismic acquisition and an appraisal well would be required. The company's view is that such investment would be more profitably deployed elsewhere.

Management review the intangible exploration assets for indications of impairment at each balance sheet date based on IFRS 6 criteria. Commercial reserves have not yet been established and the evaluation and exploration work is ongoing. The Directors believe the only impairment indicators relate to Colter (as described above) and have impaired all associated costs to date accordingly, with all remaining assets described continuing to be carried at cost.

9. Property, plant and equipment

Depreciation is recognised within administrative expenses.

10. Trade and other receivables

The Directors consider that the carrying values of trade and other receivables are approximate to their fair values.

No expected credit losses exist in relation to the Group's receivables as at 31 December 2019 (2018: £nil).

Prepayments and deposits relate to monies paid in advance in relation to the Rockhopper acquisition completed after the balance sheet date, and 2 months advance rent on the office.

Crown disposal proceeds due are being carried at the full value of the ascertainable contingent consideration expected to be received (see note 3).

11. Cash and cash equivalents

At 31 December 2019 and 2018 all significant cash and cash equivalents were deposited in the UK and Ireland with large international banks.

12. Share capital, share premium and merger reserve

Allotted, issued, and fully paid:

As regards income and capital distributions, all categories of shares rank pari passu as if the same constituted one class of share.

13. Share-based payments

Options

Details of the number of share options and the weighted average exercise price (WAEP) outstanding during the year are as follows:

The fair values of share options issued in the current financial year were calculated using the Black Scholes model as follows:

Expected volatility was determined based on the historic volatility of the Company's shares for a period averaging 1 year. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

The Group recognised total expenses of $126,772 in the income statement in relation to share options accounted for as equity-settled share-based payment transactions during the year in relation (2018: $65,062).

Warrants

Details of the number of share warrants and the weighted average exercise price (WAEP) outstanding during the year are as follows:

The fair values of share warrants issued or extended in the current financial year were calculated using the Black Scholes model as follows:

Expected volatility was determined based on the historic volatility of a comparable company's shares for a period averaging 1 year. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

The Group recognised total expenses of $nil in relation to share warrants accounted for as equity-settled share-based payment transactions during the year in relation (2018: $799,829). These were recognised as follows:

$nil (2018: $799,829) as a deduction from share premium related to share warrants accounted for as equity-settled share-based payment transactions during the year.

14. Trade and other payables

15. Deferred shares

On 12 October 2015, the Company issued 30,000 Deferred Shares of £1 for £30,000 to the Founder, which have an entitlement to a non-cumulative annual dividend at a fixed rate of 0.1 per cent of their nominal value. The Deferred Shares have no voting rights attached to them, and may be redeemed in their entirety by the Company for an aggregate redemption payment of £1.

16. Leases

Disclosure required by IFRS 16

Right of use assets

The Group used leasing arrangements relating to property, plant and equipment. As the Group has the right of use of the asset for the duration of the lease arrangement, a "right of use" asset is recognised within property, plant and equipment.

When a lease begins, a liability and right of use asset are recognised based on the present value of future lease payments.

Lease liabilities

Disclosure required by IAS 17

Operating leases

Minimum lease payments under non-cancellable operating leases fall due as follows:

During 2018, $nil was recognised as an expense in the income statement in relation to operating leases.

17. Financial instruments

Categories of financial instruments

The tables below set out the Group's accounting classification of each class of its financial assets and liabilities.

All of the above financial assets' carrying values are approximate to their fair values, as at 31 December 2019 and 2018.

In the view of management, all of the above financial liabilities' carrying values approximate to their fair values as at 31 December 2019 and 2018.

Fair value measurements

This note provides information about how the Group determines fair values of various financial assets and financial liabilities.

Fair value of financial assets and financial liabilities that are not measured at fair value on a recurring basis

The directors consider that the carrying amounts of financial assets and financial liabilities recognised in the consolidated financial statements approximate their fair values (due to their nature and short times to maturity).

18. Financial instrument risk exposure and management

The Group's operations expose it to degrees of financial risk that include liquidity risk, credit risk, interest rate risk.

This note describes the Group's objectives, policies and process for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented in notes 10, 11, 14, 15, 16, 17 and 19.

Liquidity risk

Liquidity risk is dealt with in note 19 of these financial statements.

Credit risk

The Group's credit risk is primarily attributable to its cash balances.

The credit risk on liquid funds is limited because the third parties are large international banks with a minimum investment grade credit rating.

The Group's total credit risk amounts to the total of other receivables and cash and cash equivalents. Credit assessments are routinely reviewed on all of the Group's joint venture partners and other counterparties.

Interest rate risk

The Group's only exposure to interest rate risk is the interest received on the cash held on deposit, which is immaterial. The Group does not have any borrowings as at 31 December 2019.

Foreign exchange risk

The Group is exposed to foreign exchange movements on monetary assets and liabilities denominated in currencies other than USD. The Group's transactions are carried out in GBP, EUR and USD. Equity funding transactions are carried out in GBP. Operational transactions are carried out predominantly in USD but also in GBP and EUR.

The monetary assets and liabilities denominated in currencies other than USD are e relatively immaterial (see notes 10 and 11) and transactional risk is considered manageable.

The Group does not hold material non-domestic balances and currently does not consider it necessary to take any action to mitigate foreign exchange risk due to the immateriality of that risk.

19. Liquidity risk

Prudent liquidity risk management includes maintaining sufficient cash balances to ensure the Group can meet liabilities as they fall due.

In managing liquidity risk, the main objective of the Group is therefore to ensure that it has the ability to pay all of its liabilities as they fall due. The Group monitors its levels of working capital to ensure that it can meet its debt repayments as they fall due. The table below shows the undiscounted cash flows on the Company's / Group's financial liabilities as at 31 December 2019 and 2018, on the basis of their earliest possible contractual maturity.