Source - RNS
RNS Number : 8681M
Sound Energy PLC
19 September 2019
 

 

19 September 2019

 

Sound Energy plc

("Sound Energy" or the "Company")

 

HALF YEARLY REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2019

 

Sound Energy, the Morocco focused upstream gas company, announces its unaudited half year report for the six months ended 30 June 2019.

 

 

OPERATIONAL AND CORPORATE HIGHLIGHTS

 

·      Initiation of marketing process of Eastern Moroccan licences

 

·      Completion of interpretation of seismic data for Eastern Moroccan licences

 

·      Preparation for 2D seismic for Sidi Moktar

  

 

FINANCIAL SUMMARY

 

·      Structural reduction in administrative expenses going forward

 

·      Cash balances as at 30 June 2019 of £11.1 million

 

·      Equity placing to raise £2.4 million at 10 pence per ordinary share completed in June 2019

 

Statement from the Chairman and Chief Executive Officer

 

The first half of 2019 was an incredibly active, if from an exploration perspective, rather disappointing period for the Company as it safely completed the first two wells of its 2018/19 Eastern Morocco exploration campaign on budget but without having achieved commercial gas flow rates. The Company subsequently went on to initiate a process to explore monetisation options in respect of its Eastern Morocco portfolio. The Eastern Morocco portfolio marketing process is ongoing and the Board continues to expect the marketing process to conclude prior to the end of 2019.

 

Exploration Drilling Programme

 

Following the completion of the TE-10 exploration well in December 2018 and following analysis of the well logs and well results which indicated the presence of a potential gross reservoir interval between a measured depth ("MD") of 1899m MD and 2009m MD, along with the recovery of an unstimulated gas sample to surface, the Company began planning to conduct an unstimulated and stimulated well test over the reservoir interval in early 2019. Following mobilisation of key equipment, the TE-10 well test was safely completed within schedule and within budget, further underlining the Company's operational capabilities.

 

Unfortunately, following stimulation, the well did not achieve a commercial gas flow rate and the decision was taken to end the well test and suspend the well after the installation of a downhole pressure gauge.

 

Following the test at the TE-10 well, the Company has taken an impairment charge of £6.5 million against the Company's intangible assets during the period.

 

The Company remains confident in the potential of its Eastern Moroccan portfolio which, following the drilling of five wells and the interpretation of new seismic data acquired by the Company, continues to contain a number of high impact opportunities and plays, including the existing Tendrara Production Concession and the TE-5 Horst discovery it contains and additional exploration potential in the TAGI and Palaeozoic formations across multiple leads and prospects.

 

Tendrara TE-5 Development

 

During the period the Company continued to make progress in advancing the development of the Tendrara TE-5 discovery, including the continuation of Front End Engineering & Design by the Enagas-led consortium together with the progression of the Moroccan environmental permitting process and has continued to progress discussions in relation to a gas sales agreement ("GSA") for offtake from the Tendrara Production Concession. The GSA is a critical element required to support project sanction. The Company has to date received a non-binding GSA offer from Morocco's Office National de l'Electricité et de l'Eau Potable ("ONEE") and negotiations on the terms of a GSA continue.

 

Structural Cost Reductions

 

The Company continues to manage its cash resources prudently and accordingly, having paused its operational programme, the Company initiated a structural cost reduction programme aimed at materially reducing the Company's ongoing operating expenditure during the period, including reductions in staff numbers and staff costs. Whilst these actions did not deliver a reduction in administrative costs during the period under review, the actions that have been and are being implemented are expected to deliver an annualised reduction in general and administrative expenses of over 50% from end 2019.

Sidi Moktar

 

The Company continues to view its Sidi Moktar licences as an exciting opportunity to explore for high impact prospectivity within the pre-salt Triassic and Palaeozoic plays in the underexplored Essaouira Basin in Southern Morocco. An Environmental Impact Assessment for the proposed seismic programme was initiated and the Company continues to pursue discussions for a potential farm-down of its interest ahead of the programme commencing.

 

Italy Disposal

 

Following the disposal of the Company's Italian licence portfolio, work has continued with the new owners on the restoration of the Badile land, to which the Company retains its economic rights to receive the proceeds from a future sale.

 

Corporate

 

In June, the Company successfully completed an equity placing of US$3 million (before expenses) to strengthen the Company's cash position as it continues to explore monetisation options for its Eastern Morocco portfolio. The Company remains well positioned for the second half of 2019 with a 30 June 2019 cash balance of £11.1 million.

 

Simon Davies

Non-Executive Chairman

 

James Parsons

Chief Executive Officer

 

For further information please contact:

 

Vigo Communications - PR Adviser

Patrick d'Ancona

Chris McMahon 

 

Tel: 44 (0)20 7390 0230

Sound Energy

James Parsons, Chief Executive Officer 

JJ Traynor, Chief Financial Officer

[email protected]

 

 

 

Cenkos Securities - Nominated Adviser

Azhic Basirov

David Jones

Ben Jeynes 

 

Tel: 44 (0)20 7397 8900

RBC - Joint Broker

Matthew Coakes

Martin Copeland

 

Tel: 44 (0)20 7653 4000

Macquarie Capital (Europe) Limited - Joint Broker

Alex Reynolds

Nick Stamp

Tel: 44 (0)20 3031 2000

 

 

  

Condensed Interim Consolidated Income Statement

 

Notes

Six months ended

30 June 2019

Unaudited £'000s

Six months ended

 30 June 2018

Unaudited  £'000s

Year

ended

 31 Dec

2018

Audited
£'000s

Continuing operations

 

 

 

 

Exploration costs

 

(6,494)

-

(4,058)

Gross loss

 

(6,494)

-

(4,058)

Administrative expenses

 

(3,995)

(4,077)

(8,857)

Group operating loss from continuing operations

 

(10,489)

(4,077)

(12,915)

Finance revenue

 

57

35

233

Foreign exchange gain

 

116

1,885

3,387

Other (losses

 

 

 

 

- derivative financial instruments

 

-

(80)

(80)

External interest costs

 

(1,151)

(1,195)

(2,374)

Loss for period from continuing operations before taxation

 

(11,467)

(3,432)

(11,749)

Tax credit/(expense)

 

-

-

-

Profit/(loss) for period from continuing operations after taxation

 

(11,467)

(3,432)

(11,749)

 

 

 

 

 

Discontinued operations

 

 

 

 

Profit from discontinued operations

10

-

5,236

4,953

Total profit/(loss) for the period

 

(11,467)

1,804

(6,796)

 

 

 

 

 

Other comprehensive (loss)/income

 

 

 

 

Items that may be subsequently be reclassified
to profit and loss account:

 

 

 

 

Foreign currency translation income

 

349

2,872

7,614

Total comprehensive profit/(loss) for
the period attributable to equity holders
of the parent

 

(11,118)

4,676

818

 

 

 

 

 

 

 

Pence

Pence

Pence

Basic and diluted profit/(loss) per share for the period from continuing and discontinued operations attributable to equity holders of the parent

3

(1.08)

0.17

(0.66)

Basic and diluted loss per share for the period from continuing operations attributable to equity holders of the parent

3

(1.08)

(0.34)

(1.14)

 

Condensed Interim Consolidated Balance Sheet

As at 30 June 2019

 

Notes

30 June
2019

Unaudited

£'000s

 30 June 2018

Unaudited

£'000s

 31 Dec

2018

Audited

 £'000s

Non-current assets

 

 

 

 

Property, plant and equipment

4

152,844

680

151,005

Intangible assets

5

30,996

170,585

32,008

Interest in Badile land

10

985

-

1,618

 

 

184,825

171,265

184,631

Current assets

 

 

 

 

Inventories

 

1,020

602

929

Other receivables

6

1,963

8,235

3,365

Prepayments

 

126

227

178

Cash and short term deposits

 

11,091

14,664

20,536

 

 

14,200

23,728

25,008

Total assets

 

199,025

194,993

209,639

Current liabilities

 

 

 

 

Trade and other payables

 

6,243

5,925

10,068

Lease liabilities

8

181

-

-

 

 

6,424

5,925

10,068

Non-current liabilities

 

 

 

 

Lease liabilities

8

151

-

-

Loans and borrowings

7

21,337

19,290

20,476

 

 

21,488

19,290

20,476

Total liabilities

 

27,912

25,215

30,544

Net assets

 

171,113

169,778

179,095

Capital and reserves

 

 

 

 

Share capital and share premium

 

24,835

10,974

22,600

Warrant reserve

 

4,090

4,090

4,090

Foreign currency reserve

 

2,512

(2,579)

2,163

Accumulated surplus

 

139,676

157,293

150,242

Total equity

 

171,113

169,778

179,095

 

Condensed Interim Consolidated Statement of Changes in Equity

 

Share

capital

£'000s

Share

premium

£'000s

Accumulated

surplus/
(deficit)

£'000s

Warrant

reserve

£'000s

Foreign currency

reserves

£'000s

Total

equity

£'000s

At 1 January 2019

10,551

12,049

150,242

4,090

2,163

179,095

Total loss for the period

-

-

(11,467)

-

-

(11,467)

Other comprehensive income

-

-

-

-

349

349

Total comprehensive income for the period

-

-

(11,467)

-

349

(11,118)

Issue of share capital

245

2,228

-

-

-

2,473

Share issue costs

-

(238)

-

-

-

(238)

Share based payments

-

-

901

-

-

901

At 30 June 2019 (unaudited)

10,796

14,039

139,676

4,090

2,512

171,113

 

At 1 January 2018

10,159

277,670

(115,508)

4,090

(3,918)

172,493

Total loss for the year

-

-

(6,796)

-

-

(6,796)

Other comprehensive loss

-

-

-

-

7,614

7,614

Total comprehensive loss

-

-

(6,796)

-

7,614

818

Issue of share capital

392

12,687

-

-

-

13,079

Share issue costs

-

(570)

-

-

-

(570)

Reclassification to profit and loss account on Italy divestment

-

-

-

-

(1,533)

(1,533)

Reclassification on share premium account cancellation

-

(277,738)

277,738

-

-

-

Distribution to shareholders on Italy divestment

-

-

(7,994)

-

-

(7,994)

Share based payments

-

-

2,802

-

-

2,802

At 31 December 2018

10,551

12,049

150,242

4,090

2,163

179,095

 

 

Share

capital

£'000s

Share

premium

£'000s

Shares

 to be issued

 £'000s

Accumulated

deficit

£'000s

Warrant

reserve

£'000s

Foreign currency

reserves

£'000s

Total

equity

£'000s

At 1 January 2018

10,159

277,670

-

(115,508)

4,090

(3,918)

172,493

Total loss for the period

-

-

-

1,804

-

-

1,804

Other comprehensive income

-

-

-

-

-

2,872

2,872

Total comprehensive income for the period

-

-

-

1,804

-

2,872

4,676

Reclassification to profit and loss account on Italy divestment

-

-

-

-

-

(1,533)

(1,533)

Reclassification on share premium account cancellation

-

(277,738)

-

277,738

-

-

-

Distribution to shareholders on Italy divestment

-

-

-

(7,994)

-

-

(7,994)

Issue of share capital

41

842

-

-

-

-

883

Share based payments

-

-

-

1,253

-

-

1,253

At 30 June 2018 (unaudited)

10,200

774

-

157,293

4,090

(2,579)

169,778

 

Condensed Interim Consolidated Cash Flow Statement

 

 

Six months

ended

30 June 2019 Unaudited £'000s

Six months

ended

30 June

2018 Unaudited £'000s

Year

ended

31 Dec

2018

Audited

£'000s

Cash flow from operating activities

 

 

 

 

Cash flow from operations

 

(6,591)

(1,202)

(281)

Interest received

 

57

61

259

Net cash flow from operating activities

 

(6,534)

(1,141)

(22)

Cash flow from investing activities

 

 

 

 

Capital expenditure and disposals

 

(963)

(382)

(937)

Exploration expenditure

 

(4,351)

(3,122)

(8,855)

Disposed of Italian operations

 

761

(2,655)

(2,655)

Net cash flow from investing activities

 

(4,553)

(6,159)

(12,447)

Cash flow from financing activities

Net proceeds from equity issue

 

2,235

607

12,218

Interest payments

 

(627)

(634)

(1,274)

Lease payments

 

(83)

-

-

Net cash flow from financing activities

 

1,525

(27)

10,944

Net decrease in cash and cash equivalents

 

(9,562)

(7,327)

(1,525)

Net foreign exchange difference

 

117

(20)

50

Cash and cash equivalents at the beginning of the period

 

20,536

22,011

22,011

Cash and cash equivalents at the end of the period

 

11,091

14,664

20,536

 

Cash flow from operations reconciliation

 

 

 

 

Profit/(loss) before tax from continuing operations

 

(11,467)

(3,432)

(11,749)

Profit/(loss) before tax from discontinued operations

 

-

5,236

4,953

Total profit/(loss) for the period before tax

 

(11,467)

1,804

(6,796)

Finance revenue

 

(57)

(61)

(259)

Exploration expenditure written off and impairment of assets

 

6,494

-

4,058

Gain on disposal of Italian operations

 

-

(3,967)

(3,684)

Decrease in accruals and short term payables

 

(4,365)

(379)

1,078

Depreciation

 

266

176

164

Share based payments charge and bonuses paid in shares

 

901

1,529

3,094

Decrease/(Increase) in drilling inventories

 

(91)

28

(299)

Loss on derivative financial instruments

 

-

80

80

Finance costs and exchange differences

 

1,035

(690)

(1,013)

Foreign currency translation gain reclassified from other comprehensive income

 

-

(1,533)

(1,533)

Decrease in short term receivables and prepayments

 

693

1,811

4,829

Cash flow from operations

 

(6,591)

(1,202)

(281)

 

Notes to the Condensed Interim Consolidated Financial Statements

1. Basis of preparation

 

The condensed interim consolidated financial statements do not represent statutory accounts within the meaning of section 435 of the Companies Act 2016. The financial information for the year ended 31 December 2018 is based on the statutory accounts for the year ended 31 December 2018. Those accounts, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

The condensed interim financial information is unaudited and has been prepared on the basis of the accounting policies set out in the Group's 2018 statutory accounts, except for the adoption of IFRS 16, Leases and in accordance with IAS 34 Interim Financial Reporting. The Group adopted IFRS 16 which became effective on 1 January 2019. As allowed by IFRS 16, the Group used the modified retrospective method and therefore the comparatives were not restated and the reclassifications and adjustments arising from the adoption of IFRS 16 were recognised in the opening balance sheet on 1 January 2019. The Group's leases are in respect of the UK and Morocco office premises. On adoption of IFRS 16, the Group recognised £0.3 million as lease liability and right of use assets of the same amount, adjusted for prepaid amounts relating to the lease. The Group elected to recognise as an expense on a straight-line basis for short-term leases (lease term of 12 months or less) and leases of low value assets. Further information on the leases is provided in note 8.

The seasonality or cyclicality of operations does not impact on the interim financial statements.

Going concern

As at 30 June 2019, the Company's cash balance was £11.1 million. The Company's Condensed Interim Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the realisation of assets and the settlement of liabilities and commitments in the normal course of operations. The Company has paused further operations as it explores the monetisation options available to the Company in respect of its Eastern Moroccan licences. The Company has initiated a structural cost reduction programme to conserve cash resources and meet its ongoing obligations including the settlement of coupon interest on the Company's €28.8 million bond.  The Company's cashflow forecast for the twelve-month period to September 2020 indicates that additional funding will be required to enable the Company to meet its obligations.

These conditions indicate the existence of a material uncertainty which, were it not for the expected funding due from the marketing process, may cast significant doubt about the Company's ability to continue as a going concern. These Condensed Interim Consolidated Financial Statements do not include adjustments that would be required if the Company was unable to continue as a going concern. The directors have formed a judgement based on the Company's proven success in raising capital and a review of the strategic options available to the Company, that the going concern basis should be adopted in preparing the Condensed Interim Consolidated Financial Statements.

2. Segment information

The Group categorises its operations into three business segments based on Corporate, Exploration and Appraisal and Development and Production. The Group's Exploration and Appraisal activities are carried out in Morocco. The Group's reportable segments are based on internal reports about the components of the Group which are regularly reviewed by the Board of Directors, being the Chief Operating Decision Maker (''CODM''), for strategic decision making and resources allocation to the segment and to assess its performance. The segment results for the period ended 30 June 2019 are as follows:

Segment results for the period ended 30 June 2019

 

Corporate £'000s

Development & Production £'000s

Exploration & Appraisal £'000s

Total

 £'000s

Exploration costs

-

-

(6,494)

(6,494)

Administration expenses

(3,995)

-

-

(3,995)

Operating loss segment result

(3,995)

-

(6,494)

(10,489)

Finance revenue

57

-

-

57

Finance costs and exchange adjustments

(1,035)

-

-

(1,035)

Loss for the period before taxation

(4,973)

-

(6,494)

(11,467)

The segments assets and liabilities at 30 June 2019 are as follows:

 

Corporate £'000s

Development & Production £'000s

Exploration & Appraisal £'000s

Total

£'000s

Capital expenditure

1,590

152,247

30,988

184,825

Other assets

12,490

-

1,710

14,200

Total liabilities

(22,820)

-

(5,092)

(27,912)

The geographical split of non-current assets is as follows:

 

UK

£'000s

Morocco

£'000s

Development and production assets

-

152,247

Interest in Badile land

985

-

Fixtures, fittings and office equipment

75

198

Right of use assets

120

204

Exploration and evaluation assets

-

30,824

Software

8

164

Total

1,188

183,637

Segment results for the period ended 30 June 2018

 

Corporate £'000s

Development & Production £'000s

Exploration

& Appraisal

£'000s

Total

 £'000s

Administration expenses

(4,077)

-

-

(4,077)

Operating loss segment result

(4,077)

-

-

(4,077)

Finance revenue

35

-

-

35

Gain/(loss) on derivative financial instruments

(80)

-

-

(80)

Finance costs and exchange adjustments

690

-

-

690

Profit/(loss) for the period before taxation

(3,432)

-

-

(3,432)

The segments assets and liabilities at 30 June 2018 were as follows:

 

Corporate £'000s

Development & Production £'000s

Exploration

& Appraisal

£'000s

Total

£'000s

Capital expenditure

680

-

170,585

171,265

Other assets

19,999

-

3,729

23,728

Liabilities attributable to continuing operations

(21,080)

-

(4,135)

(25,215)

The geographical split of non-current assets is as follows:

 

UK

£'000s

Morocco

£'000s

Fixtures, fittings and office equipment

148

532

Exploration and evaluation assets

-

170,449

Software

45

91

Total

193

171,072

Segment results for the year ended 31 December 2018

 

Corporate

£'000s

Development

& Production

£'000s

Exploration &

Appraisal

£'000s

Total

£'000s

Exploration costs

-

-

(4,058)

(4,058)

Administration expenses

(8,857)

-

-

(8,857)

Operating loss segment result

(8,857)

-

(4,058)

(12,915)

Interest receivable

233

-

-

233

Loss on derivative financial instruments

(80)

-

-

(80)

Finance costs and exchange adjustments

1,013

-

-

1,013

Loss for the period before taxation from continuing operations

(7,691)

-

(4,058)

(11,749)

 

The segments assets and liabilities at 31 December 2018 were as follows:

 

Corporate

£'000s

Development

& Production

£'000s

Exploration &

Appraisal

£'000s

Total

£'000s

Non-current assets

405

150,600

33,626

184,631

Current assets

22,056

-

2,952

25,008

Liabilities attributable to continuing operations

(22,377)

(320)

(7,847)

(30,544)

The geographical split of non-current assets is as follows:

 

UK

£'000s

Morocco

 £'000

Development and production assets

-

150,600

Interest in Badile land

1,618

-

Fixtures, fittings and office equipment

113

292

Exploration and evaluation assets

-

31,799

Software

24

185

Total

1,755

182,876

 

3. Profit/(loss) per share

The calculation of basic profit/(loss) per Ordinary Share is based on the profit/(loss) after tax and on the weighted average number of Ordinary Shares in issue during the period. The calculation of diluted profit/(loss) per share is based on the profit/(loss) after tax on the weighted average number of ordinary shares in issue plus weighted average number of shares that would be issued if dilutive options and warrants were converted into shares. Basic and diluted profit/(loss) per share is calculated as follows:

 

30 June

2019

£'000

30 June

2018

£'000

31 December

2018

£'000

Loss after tax from continuing operations

(11,467)

(3,432)

(11,749)

Profit/(loss) after tax from discontinued operations

-

5,236

4,953

Total profit/(loss) for the period

(11,467)

1,804

(6,796)

 

 

million

million

million

Weighted average shares in issue

1,057

1,019

1,035

Dilutive potential ordinary shares

-

33

18

Diluted weighted average number of shares

1,057

1,052

1,053

Basic profit/(loss) per share

 

Pence

Pence

Pence

Basic loss per share from continuing operations

(1.08)

(0.34)

(1.14)

Basic profit/(loss) per share from discontinued operations

-

0.51

0.48

Basic profit/(loss) per share from continuing and discontinued operations

(1.08)

0.17

(0.66)

Diluted profit/(loss) per share

 

Pence

Pence

Pence

Diluted loss per share from continuing operations

(1.08)

(0.34)

(1.14)

Diluted profit/(loss) per share from discontinued operations

-

0.50

0.47

Diluted profit/(loss) per share from continuing and discontinued operations

(1.08)

0.17

(0.66)

 

The effect of the potential dilutive shares noted above on the earnings per share from continuing operations would be anti-dilutive and therefore are not included in the above calculation of diluted earnings per share from continuing operations.

4. Property, plant and equipment

 

 30 June

 2019

£'000s

 30 June

2018

£'000s

 31 Dec

2018

 £'000s

Cost

 

 

 

At start of period

 151,394

 646

 646

Transfer from intangible assets

 -  

 -  

 146,245

Additions

 1,390

 382

882

Exchange adjustments

 620

 6

3,625

Disposal

(1)

-

(4)

At end of period

153,403

 1,034

 151,394

 

 

 

 

 

Depreciation

 

 

 

At start of period

 389

 274

274

Exchange adjustments

(51)

2

 21

Disposals

 -  

 -  

(2)

Charge for period

 221

78

 96

At end of period

 559

 354

 389

Net book amount

152,844

 680

 151,005

 

5. Intangibles

 

 30 June

 2019

Unaudited £'000s

 30 June

2018

Unaudited

£'000s

 31 Dec

2018

 Audited

£'000s

Cost

 

 

 

At start of period

36,412

164,018

164,018

Additions

5,268

3,408

11,447

Transfer to property, plant & equipment

-

-

(146,245)

Exchange adjustments

383

3,304

7,192

At end of period

42,063

170,730

36,412

Impairment and Depreciation

 

 

 

At start of period

4,404

79

79

Charge for period

6,539

64

4,126

Exchange adjustments

124

2

199

At end of period

11,067

145

4,404

Net book amount

30,996

170,585

32,008

 

Approximately £6.5 million impairment charge was recognised during the period following sub-commercial well results at TE-10 well,

Onshore Morocco. The impairment charge is reported within exploration costs in the profit and loss account.

 

  

6. Other receivables

 

 30 June

 2019

Unaudited

£'000s

30 June

2018

Unaudited

£'000s

31 Dec

2018

Audited

£'000s

Italian Vat refundable

-

2,730

-

Interest in Badile land

-

1,592

-

Other receivable

1,963

3,913

3,365

 

1,963

8,235

3,365

7. Loans and Borrowings

 

 

30 June

 2019

Unaudited

£'000s

 

30 June

2018

Unaudited

£'000s

 

 31 Dec

2018

Audited

£'000s

Non-current liability

 

 

 

5-year secured bonds

21,337

19,290

20,476

 

21,337

19,290

20,476

 

The Company has 5-year non-amortising secured bonds with an aggregate value of €28.8 million. The bonds are secured over the share capital of Sound Energy Morocco South Limited, have a 5% coupon and were issued at a 32% discount to par value. Alongside the bonds, the Company issued 70,312,500 warrants to subscribe for new ordinary shares in the Company at an exercise price of 30 pence per ordinary share and an exercise period of approximately five years, concurrent with the term of the bonds. The effective interest rate is approximately 16.3%. The 5-year secured bonds are due in June 2021.

8. Lease liabilities

 

 

30 June 2019

Unaudited

£'000s

 

30 June 2018

Unaudited

£'000s

 

 31 December

2018

Audited

£'000s

Amounts due within one year

181

-

-

Amounts due after more than one year

151

-

-

 

332

-

-

The Group has adopted IFRS 16 Leases, from 1 January 2019. As allowed by IFRS 16, the comparatives were not restated and the reclassifications and the adjustments arising from the new leasing rules were recognised in the opening balance sheet on 1 January 2019. The Group's leases are in respect of the UK and Morocco offices premises. On adoption of IFRS 16, the Group recognised lease liabilities in relation to the office leases which were previously classified as operating leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the individual entities incremental borrowing rates. The weighted average incremental borrowing rate was 5.6%.

The associated right of use assets for the office leases were measured at an amount equal to the lease liability but adjusted for prepaid amounts relating to the lease recognised in the balance sheet as at 31 December 2018. The right of use assets are reported within property, plant and equipment and had a carrying value of £0.3 million as at 30 June 2019.

9. Shares in issue and share based payments

As at 30 June 2019, the Company had 1,079,570,324 ordinary shares in issue. On 18 June 2019, the Company announced the issue of 23,830,328 shares at 10 pence per share following a placing. The net proceeds of the placing were approximately £2.1 million.

During the period to 30 June 2019, the Company granted 0.8 million restricted stock units awards to staff under its long term incentive plan. 625,000 share options were exercised and 550,000 expired during the period.

10. Discontinued operations

On 5 October 2017, the Company announced that it had entered into non-binding conditional heads of terms with Saffron Energy plc (''Saffron'') and Po Valley Energy Limited under which it was proposed that the Company disposed of its portfolio of Italian interests and permits through the sale of Sound Energy Holdings Italy (''SEHIL'') and Apennine Energy SpA (''APN'') (the ''disposal'') for the consideration of 185,907,500 new ordinary shares in Saffron (subsequently renamed Coro Energy plc) issued directly to the Company's shareholders. On 23 January 2018, the Company announced that it had entered into a binding agreement with Saffron for the disposal and the transaction completed on 9 April 2018. The value of the 185, 907, 500 Coro Energy plc shares distributed to the Company's shareholders was £8.0 million using the completion date share price of 4.3 pence. The Company was also entitled to receive proceeds of VAT refund from the Badile well operations and retained economic interest in Badile land. The Company was also obligated to fund Badile land restoration for a fixed amount. During the period to 30 June 2019 the Company received approximately £0.8 million VAT refund from the Badile well operations and recognised £0.6 million impairment charge in respect of the interest in Badile land due to decline in expected sale price.

The results of the Italian operations for the period are presented below:

 

Six months ended

30 June 2019

Unaudited

£'000

Six months
ended

30 June 2018

Unaudited

£'000

Twelve months
ended

31 December 2018

Audited

£'000

Revenue

-

140

140

Operating costs

-

(170)

(170)

Exploration costs

-

(25)

(25)

Gross loss

-

(55)

(55)

Administrative expenses

-

(235)

(235)

Operating loss from discontinued operations

-

(290)

(290)

Finance revenue

-

26

26

Foreign currency translation gain reclassified from other comprehensive income

-

1,533

1,533

Gain on disposal of Italian operations

-

3,967

3,684

Profit/(loss) for the period before and after taxation from discontinued operations

-

5,236

4,953

The net cash flows for the period were as follows:

Net cash flow from operating activities

-

1,897

1,897

Net cash flow from investing activities

761

-

(2,655)

Net cash flow from financing activities

-

-

-

Net cash outflow

761

1,897

(758)

 

11. Post Balance Sheet events

There are no significant subsequent events to report.

 


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