CONSOLIDATED STATEMENT OF CASH FLOWS

				Year-ended 31 December
	Note			2020 $000	2019 $000
Operating activities
Net profit for the year				3,428	2,366
Adjustments for:
Depreciation and depletion	14			5,611	6,238
Finance costs, net	28			8	432
Deferred tax	25			(1,311)	(1,511)
Share based compensation	21			300	63
				8,036	7,588
Change in non-cash working capital	28			1,513	410
Net cash generated from operating activities				9,549	7,998
Investing activities
Additions to property, plant and equipment	28			(60)	(20)
Reduction of TPDC receivable	28			-	5,238
Interest income				82	21
Net cash from investing activities				22	5,239
Financing activities
Principal term loan repayments	18			(1,664)	(6,661)
Interest on term loan	18			(38)	(593)
Interest/renewal fee on overdraft facility	17			-	(18)
Payment of contingent PTTEP liability				-	(848)
Dividends paid	24			(3,274)	(1,033)
Repurchase of own shares	20			(295)	-
Net cash used in financing activities				(5,271)	(9,153)
Net change in cash and cash equivalents				4,300	4,084
Cash and cash equivalents, beginning of the period				13,487	9,403
Cash and cash equivalents, end of the period				17,787	13,487

 

 

 

 

 

 

 

 

 

 

NOTES TO THE ACCOUNTS

1.            Incorporation and basis of preparation

Wentworth Resources plc ("Wentworth" or the "Company") is an East Africa-focused upstream natural gas production company. These audited consolidated financial statements include the accounts of the Company and its subsidiaries (collectively referred to as "Wentworth Group of Companies" or the "Group"). The Company is actively involved in oil and gas exploration, development and production operations. Wentworth is incorporated in Jersey and shares of the Company as at 31 December 2020 were held and listed on the AIM part of the London Stock Exchange (ticker: WEN).

The Company's principal place of business is located at 4th Floor, St Paul's Gate, 22 - 24 New Street, St Helier, Jersey, JE1 4TR

The Group maintains offices in Jersey, Tanzania and the United Kingdom.

Basis of presentation and statement of compliance

These consolidated financial statements have been prepared on a historical cost basis and have been prepared using the accrual basis of accounting. The consolidated financial statements are prepared in accordance with International Financial Reporting Standard ("IFRS") as issued by the International Accounting Standards Board ("IASB") in conformity with the requirements of the Companies (Jersey) Law 1991.

The consolidated financial statements were approved by the Board of Directors on 21 April 2021.

Over 12-months have passed since the emergence of COVID-19 as an issue of unprecedented international consequence in early 2020. Whilst it is true that the longer international trade is frustrated by the necessity or quarantine protocols, the more severe the long-term impact on the worldwide economic recovery will be, we do have a better understanding of both the operational and financial impact upon our business and are well placed to deal with any reasonable eventualities.

Over the past 12-months, we have continued to strengthen our working capital position whilst at the same time increasing dividend returns to shareholders and continuing to model and, where possible, mitigate potential downside scenarios. Ultimately, however, it will be the macro-economic environment that influences the impact upon the wider Group and there can be no certainty as to what this final outcome will be despite the positivity surrounding the various accelerated vaccination programmes and the early indications that these are beginning to make a difference with respect to retransmission rates. We continue to apply the judgement that the business will continue, anticipating minimal disruption, and do not at this stage foresee this to be material in nature to it. We do, however, continue to monitor the situation as it progresses and are mindful of the speed in which circumstances may change, both for the better or for the worse.

Functional and presentation currency

These consolidated financial statements are presented in US dollars which is the functional currency the majority of its subsidiaries.

Basis of consolidation

These consolidated financial statements include the accounts of the Company and its subsidiaries.  Subsidiaries are entities that the Company controls. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and can affect those returns through its authority over the investee.  The existence and effect of potential voting rights are considered when assessing whether a company controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are deconsolidated from the date that control ceases. The legal entities within the Wentworth Group of Companies are disclosed within note 15. All inter-company transactions, balances and unrealised gains on transactions between the parent and subsidiary companies are eliminated on consolidation.

The Group holds a 31.94% participation interest in the Mnazi Bay Concession through two subsidiaries.  Wentworth Gas Limited ("WGL"), which is a wholly owned subsidiary, owns a 25.40% participation interest and CMBL owns a 16.38% participation interest of which the Group's proportionate share is 6.54% (i.e. Wentworth's interest of 39.925% interest in CMBL multiplied by 16.38% participation interest). CMBL is considered a jointly controlled entity and accounted for as a joint operation rather than a joint venture. The Group the group accounts for its share of CMBL assets and liabilities as CMBL has contractual agreements which establish that the parties to the joint arrangement have rights to the assets and obligations for the liabilities of ownership in proportion to their interest in the arrangement.

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 Strategic Report. The financial position of the Group, its cash flows and liquidity position are described in the Financial Review contained within this report.

With the world continuing to struggle to come to terms with the unprecedented events of the COVID-19 pandemic and the risk presented to the continued health and well-being of our workforce alongside the disruption that preventative measures have had on the global supply chain in placing restrictions on the transportation of goods, services and personnel set to continue for some time to come, considerable time and resource has been allocated by Directors and senior management in ensuring that Wentworth is best placed to be able to continue to safely produce gas from Mnazi Bay alongside the Operator, Maurel et Prom.  Given the essential nature of services provided and the forecasted impact of the virus in the country, the Group notes that an interruption of production and unavailability of key workforce is remote.  The Directors however are mindful of the speed with which circumstances may change, both for the better or for the worse, and all modelling is based on information that we currently have available to us.

The Group has a long established and collaborative relationship with the Government of the United Republic of Tanzania, having operated in-country for many years, however the Directors do recognise that the Group is dependent upon the continued collection of gas sales invoices and ongoing operational support of the Government as its sole gas sales customer through its operating agencies TPDC and TANESCO.

The Directors have, therefore, judged that on a risk-weighted basis, which takes into consideration both the probability of occurrence and an estimate of the financial impact, the continued timely settlement of gas-sales invoices by the Government of the United Republic of Tanzania continues to be the most significant risk currently faced by the Group. To this end, should no settlement of future gas sales invoices be received from the date of approval of these financial statements, we have assessed that the Group would be able to continue to operate for a period of up to 17 months without the need for a further injection of working capital. 

Further to this based on the application of reasonable and foreseeable sensitivities, which include potential changes in demand, capital spend and operating costs, the Directors believe that the Group is well placed to manage its financial exposures The Directors have judged that owing to a combination of the stability of this relationship which has seen payment terms continue to improve during 2019 and its much improved financial position having fully repaid all of its fixed-term debt in January 2020, the Group has sufficient cash resources for its working capital needs, committed capital and operational expenditure programmes for at least the next 17 months based on the Directors  worst case scenario of no settlement of future gas sales as noted above.

Consequently, the Directors are confident that the Group will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the financial statements and therefore have prepared the financial statements on a going concern basis.

Changes in accounting policies

A number of new standards are effective from 1 January 2020 but they do not have material effect on the Group's financial statements.

 

New and amended standards

The following amended standards and interpretation are effective for financial years commencing on or after 1 January 2021. The Group does not intend to adopt the standards below, before their mandatory application date.

 

Standard	Description	Effective date	EU Endorsement Status	UK Endorsement Status
IFRS 9, IAS 39 and IFRS 7 (Amendments)	Interest Rate Benchmark Reform.	1 January 2021	Endorsed	Given these amendments were endorsed by the EU before 31 December 2020 they are part of the EU-IFRS as it stands at 31 December 2020 and therefore are UK endorsed. UK effective date 1 January 2021.
IAS 1 (Amendments)	Presentation of financial statements' on classification of liabilities.	1 January 2021	Endorsed
IFRS 17	Insurance Contracts.	1 January 2022	Endorsed

Future accounting pronouncements

The Company intends to adopt the above listed standards and interpretations in its financial statements for the annual period beginning 1 January 2021. The Company does not expect the interpretation to have a material impact on the financial statements. 

2.            Summary of accounting policies

The principal accounting policies applied in the preparation of these Company and Group consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

Joint arrangements

The analysis of joint arrangements requires management to analyse numerous agreements and the requirements of IFRS 10 and IFRS 11. Several judgements and estimates are made by management including whether joint control exists and the extent of exposure to the underlying assets and liabilities of the joint arrangement. By virtue of the provisions contained within the underlying shareholder agreements, to which Cyprus Mnazi Bay Limited (see below for accounting considerations of this entity) and Wentworth Holdings Gas Limited, a wholly owned subsidiary of Wentworth Resources plc, are parties to,  management have assessed that the Company has a joint arrangement through its 31.94% ownership in the license and accounts for this interest as a joint operation as no single individual shareholder may exercise absolute control over the entity. The agreement is bilateral, with Maurel & Prom Mnazi Bay Holdings SAS (M&P) and whilst the Operator may make day-to-day decisions, the overall strategic direction of the partnership requires unanimous consent between M&P and Wentworth. M&P hold 48.06% share in the license and 20% is owned by TPDC.  As such the Group is entitled to its share of production from the license and therefore revenue generated from the sale of this output.  Wentworth also recognise its share of all expenses incurred the joint arrangement, its right to the assets, as well as its share of the liabilities and obligations.   Accounting treatment of CMBL

The Group holds a 31.94% participation interest in the Mnazi Bay Concession through two subsidiaries.  Wentworth Gas Limited ("WGL"), which is a wholly owned subsidiary, which owns a 25.40% participation interest and Wentworth Holdings (Jersey) Limited, a wholly owned subsidiary whom hold 39.925% in   Cyprus Mnazi Bay Limited ("CMBL"), which owns a 16.38% participation  interest of which the Group's proportionate share is therefore 6.54% (i.e. Wentworth's interest of 39.925% interest in CMBL multiplied by 16.38% participation interest). CMBL is considered a jointly controlled entity and accounted for as a joint operation rather than a joint venture. The Group therefore recognises its share of production from the license and therefore revenue generated from the sale of this output.  It also recognises its share of all expenses incurred the joint arrangement, its right to the assets, as well as its share of the liabilities and obligations."

Financial instruments

The Group recognises financial assets and liabilities on its balance sheet when it becomes a party to the contractual provisions of the instrument.

(i)           Financial assets

Classification and initial measurement

Financial assets within the scope of IFRS 9 are classified as financial assets at amortised cost, fair value through profit or loss or fair value through other comprehensive income. The Group determines this classification at initial recognition depending on the business model for managing the financial asset and the contractual terms of the cash flows.

The Group's financial assets include cash and cash equivalents, trade and other receivables.

When financial assets are initially recognised, they are measured at fair value being the consideration given or received plus directly attributable transaction costs. Any gain or loss at initial recognition is recognised in the income statement.

The Group's financial assets measured at amortised cost are held for the collection of contractual cash flows where those cash flows have specified dates and represent solely payments of principal and interest, such as cash and cash equivalents or trade receivables.

The Group's financial assets measured at fair value through profit or loss are those financial assets where the contractual cash flows do not solely represent payments of principal and interest, such as trade receivables.

Subsequent measurement

Financial assets held for the collection of contractual cash flows that are solely payments of principal and interest (and classified as amortised cost) are subsequently measured at amortised cost using the effective interest rate method ("EIR"). Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the income statement. Allowance for impairment is estimated on a case-by-case basis.

Derecognition

A financial asset is derecognised when the Group loses control over the contractual rights that comprise that asset. This occurs when the rights are realised, expire or are surrendered.

Impairment of financial assets

The Group assesses on a forward-looking basis the expected credit losses that might arise on financial assets measured at amortised cost. This assessment considers the probability of a default event occurring that could result in the expected cash flows due from a counterparty falling short of those contractually agreed.

Expected credit losses are estimated for default events possible over the lifetime of a financial asset measured at amortised cost. However, where the financial asset is not a trade receivable measured at amortised cost and there have been no significant increases in that financial asset's credit risk since initial recognition, expected credit losses are estimated for default events possible within 12 months of the reporting date.

(ii)          Financial liabilities

Classification and initial measurement

Financial liabilities within the scope of IFRS 9 are classified as financial liabilities at amortised cost or fair value through profit or loss. The Group determines the classification of its financial liabilities at initial recognition.

The Group's financial liabilities include trade and other payables, other liabilities and borrowings which are classified as amortised cost. Trade payables may be designated and measured at fair value through profit or loss when doing so eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities on a different basis.

All financial liabilities are recognised initially at fair value while financial liabilities at amortised cost additionally include directly attributable transaction costs.

Subsequent measurement

Trade and other payables, borrowings and other financial liabilities are subsequently measured at amortised cost using the EIR method after initial recognition. Gains and losses are recognised in the income statement through the EIR amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance costs in the income statement.

A gain or loss on a financial liability measured at fair value through profit or loss is recognised in the income statement in the period in which it arises.

Derecognition

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement.

(iii)         Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the balance sheet when there is an enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

(iv)         Fair value of financial instruments

At each reporting date, the fair value of financial instruments that are traded in active markets is determined by reference to quoted market prices, without any deduction for transaction costs. For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include using recent arm's length market transactions, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis or other valuation models.

Cash and cash equivalents

Cash and cash equivalents include cash on hand, term deposits and short-term highly liquid investments with the original term to maturity of three months or less, which are convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of changes in value.

Long-term receivables

Long-term receivables plus applicable accrued interest are initially recognised at their fair value based on the discounted cash flows.  The discounted cash flows are reviewed at least every year to adjust for variations in the estimated future cash flows with the change in estimate reported in profit or loss. The discount rate is based on the credit quality and term of the financial instrument.  The financial instrument is subsequently valued at amortised costs by accreting the instrument over the life of the asset.  The accretion is reported in profit or loss.

Exploration and evaluation ("E&E") exploration assets

E&E costs, including costs of licence acquisition, technical services and studies, exploratory drilling, whether successful or unsuccessful, and testing and directly attributable overhead, are capitalised as E&E assets according to the nature of the assets acquired. These costs are accumulated in cost centres by well, field or exploration area pending determination of technical feasibility and commercial viability.

E&E assets are assessed for impairment if (i) sufficient data exists to determine technical feasibility and commercial viability, and (ii) facts and circumstances suggest that the carrying amount exceeds the recoverable amount.

The technical feasibility and commercial viability of extracting a resource is generally considered to be determinable when proven and/or probable reserves are determined to exist. A review of each exploration licence or field is carried out, at least annually, to ascertain whether it is technically feasible and commercially viable. Upon determination of technical feasibility and commercial viability, intangible E&E assets attributable to those reserves are first tested for impairment with the unimpaired amounts reclassified from E&E assets to a separate category within tangible assets within PP&E referred to as oil and gas interests.

Costs incurred prior to the legal awarding of petroleum and natural gas licences, concessions and other exploration rights are recognised in profit or loss as incurred.

PP&E - oil and natural gas properties

Items of PP&E, which include oil and gas development and production assets, are measured at cost less accumulated depletion and depreciation and accumulated impairment losses. PP&E assets include costs incurred in developing commercial reserves and bringing them into production, such as drilling of development wells, tangible costs of facilities and infrastructure construction, together with the E&E expenditures incurred in finding the commercial reserves that have been reclassified from E&E assets as outlined above, the projected cost of retiring the assets and any directly attributable general and administrative expenses. Expenditures on developed oil and natural gas properties are capitalised to PP&E when it is probable that a future economic benefit will flow to the Company as a result of the expenditure and the cost can be reliably measured. The initial cost of an asset is comprised of its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of any decommissioning obligations associated with the asset and borrowing costs on qualifying assets.  When significant parts of an asset with PP&E, including oil and gas interests, have different useful lives, they are accounted for as separate items (major components). Costs incurred subsequent to the determination of technical feasibility and commercial viability and the costs of replacing parts of PP&E are recognised as capitalised oil and gas interests only when they increase the future economic benefits embodied in the specific asset to which they relate.  Subsequent changes in estimated decommissioning obligation due to changes in timing, amounts and discount rates are included in the cost of the asset.  Such capitalised oil and gas interests generally represent costs incurred in developing proved and/or probable reserves and bringing in or enhancing production from such reserves and are accumulated on a field or geotechnical area basis. The carrying amount of any replaced or sold component is derecognised. The costs of the day-to-day operating of PP&E are recognised in profit or loss as incurred.

Depletion

The net carrying amount of PP&E is depleted on a field by field unit of production method by reference to the ratio of production in the year to the related proven and probable reserves. If the useful life of the asset is less than the reserve life, the asset is depreciated over its estimated useful life using the straight-line method.  Future development costs are estimated considering the level of development required to produce the proven and probable reserves. These estimates are reviewed by third party independent reserves engineers. Changes in factors such as estimates of reserves that affect unit-of-production calculations are dealt with on a prospective basis. Capital costs for assets under construction included in development and production assets are excluded from depletion until the asset is available for use, that is, when it is in the location and condition necessary for it to be capable of operating in the manner intended by management.

Disposals

Oil and natural gas properties are derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss on derecognition of the asset, including farm out transactions or asset sales or asset swaps, is calculated as the difference between the proceeds on disposal, if any, and the carrying value of the asset, is recognised in profit or loss in the period of derecognition.

PP&E - office and other equipment

Office and other equipment are carried at cost less accumulated depreciation and impairment losses.  Depreciation of the cost of these assets less residual value is charged to profit and loss on a straight-line basis over their estimated useful economic lives of between three and five years.

Leases

IFRS 16 Leases applies to all leases, including subleases, but does not apply to leases to explore for or use minerals, oil, natural gas and similar non-regenerative resources.

 

The Company has elected not to recognise right-of-use assets and lease liabilities for lease of low-value assets and short-term leases. The Company recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

Decommissioning obligation

Decommissioning obligations are recognised for legal obligations related to the decommissioning of long-lived tangible assets that arise from the acquisition, construction, development or normal operation of such assets.  A liability for decommissioning is recognised in the period in which it is incurred and when a reasonable estimate of the liability can be made with the corresponding decommissioning provision recognised by increasing the carrying amount of the related long-lived asset.  The recognised decommissioning provision is subsequently allocated in a rational and systematic method over the underlying asset's useful life.  The initial amount of the liability is accreted by charges to the profit or loss to its estimated future value.

Impairment

The carrying values of production assets, exploration and evaluation expenditures that have been capitalised and property, plant and equipment are assessed for impairment when indicators of such impairment exist. In performing impairment reviews, assets are categorised into the smallest identifiable groups (cash generating units) that generate cash flows independently. If any indication of impairment exists, the estimated recoverable amount of the asset or cash generating unit ("CGU") is calculated.

If the carrying amount of the asset or CGU exceeds its recoverable amount, it is impaired with the loss charged to the income statement so as to reduce the carrying amount to its recoverable amount.

Impairment losses are recognised in the income statement in those expense categories consistent with the function of the impaired asset or CGU.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of the recoverable amount.

(i)            Calculation of recoverable amount

The recoverable amount of an asset or CGU is the greater of its value in use and fair value less costs to sell. In assessing value in use, the estimated future cash flows of the asset or CGU in its present condition 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. In determining fair value less costs to sell, consideration will be given to whether the value of the asset or CGU can be determined from an active market (e.g. recognised exchange) or a binding sale agreement which are classified as level 1 in the fair value hierarchy under IFRS 13 'Fair Value Measurements'. Where this is not determinable, fair value less costs to sell for a CGU is usually estimated with reference to a discounted cash flow model, similar to the method used for value in use, but may include estimates of future production, revenues, costs and capital expenditure not currently included in the economic model. Additionally, cash flow estimates include the impact of tax and are discounted using a post-tax discount rate. An estimate made on this basis is classified as level 3 in the fair value hierarchy.

(ii)           Reversals of impairment

A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. If this is the case, the carrying amount of the asset is increased to its recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised for the asset in prior years. Such reversals are recognised in the income statement. Impairment losses recognised in relation to goodwill are not reversed for subsequent increases in the recoverable amount.

Share capital

The proceeds from the exercise of share options and the issuance of shares from treasury are recorded as share capital in the amount for which the option, warrant, or treasury share enables the holder to purchase a share in the Company.

Proceeds for shares in excess of the nominal value are recorded within share premium.

Share issuance costs

Commissions paid to underwriters, and other related share issue costs, such as legal, auditing and advisory, on the issue of the Company's shares are charged directly to share capital, net of tax within the share premium account.

Share based payments

The fair value of the options at the date of the grant is determined using the Black-Scholes option pricing model and share based compensation is accrued and charged to profit or loss, with an offsetting credit to equity reserve over the vesting periods. A forfeiture rate is estimated on the grant date and is adjusted to reflect the actual number of options that vest.

Capitalisation of interest

The Company capitalises interest expense incurred during the construction phase of the projects, except E&E assets which were funded by the related financing.

Revenue recognition

Natural gas revenues are recognised upon the transfer of control over its gas to its customers, TPDC and TANESCO, which is when delivery is made to them through the offtake network.

Investment income is accrued on a time basis by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying value.

Income taxes

Tax expense comprises current and deferred tax. Tax is recognised in the profit or loss except to the extent it relates to items recognised in other comprehensive income ("OCI") or directly in equity.

Current income tax

Current tax expense is based on the results for the period as adjusted for items that are not taxable or not deductible. Current tax is calculated using tax rates and laws that were enacted or substantively enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax

Deferred taxes are the taxes expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the consolidated statement of financial position and their corresponding tax basis. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that future taxable profits are expected to be available against which deductible temporary differences to the tax basis can be utilised. Deferred income tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill, if any, or from the initial recognition (other than in a business combination) of other assets in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and joint arrangements except where the reversal of the temporary difference can be controlled, and it is probable that the difference will not reverse in the foreseeable future.

Deferred tax assets are reviewed at each reporting period and reduced to the extent that it is no longer probable that sufficient future taxable profits are expected to be available to allow all or part of the asset to be recovered. Deferred tax assets are recognised for taxable temporary differences arising on investments in subsidiaries to the extent that it is probable that the temporary difference will reverse in the foreseeable future and future taxable profits are expected to be available against which the temporary difference can be utilised.

Foreign currency translation

Items included in the financial statements of the Company and its subsidiaries are measured using the currency of the primary economic environment in which the legal entity operates (the "functional currency"). Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transaction.  Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities not denominated in the functional currency of an entity are recognised in profit or loss.

The functional currency of all Wentworth subsidiaries is US dollars except for Wentworth Resources (UK) Limited which is Pound Sterling.  The assets and liabilities of this Company are translated into US dollars at the period-end exchange rate.  The income and expenses of the Company are translated to US dollars at the average exchange rate for the period.

Translation gains and losses are included in other comprehensive income; however, this subsidiary has limited operations so there is no significant amount of foreign exchange gains and losses to include in other comprehensive income.  All other foreign exchange gains and losses are recognised in profit or loss.  

Earnings or loss per share ("EPS")

Basic earnings or loss per share is calculated by dividing profit or loss attributable to owners of the Company (the numerator) by the weighted average number of ordinary shares outstanding (the denominator) during the period. The denominator is calculated by adjusting the shares outstanding at the beginning of the period by the number of shares bought back or issued during the period, multiplied by a time-weighting factor.

Diluted EPS is calculated by adjusting the earnings and number of shares for the effects of all dilutive potential ordinary shares deemed to have been converted at the beginning of the period or if later, the date of issuance. The effects of anti-dilutive potential ordinary shares are ignored in calculating diluted EPS.

3.         Critical accounting judgements and key sources of estimation uncertainty

In applying the Group's accounting policies, the preparation of consolidated financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts may differ materially from these estimates due to changes in general economic conditions, changes in laws and regulations, changes in future operating plans and the inherent imprecision associated with estimates. Significant estimates and judgments used in the preparation of these consolidated financial statements include the assessment of impairment triggers related to E&E and PP&E assets and recognition of a deferred tax asset.

Recoverable value of Mnazi Bay E&E and PP&E costs

Significant accounting Judgements

The Directors review the carrying value of the Groups assets to determine whether there are any indicators if impairment such that the carrying values of the assets may not be recoverable.  The assessment of whether an indicator of impairment or reversal thereof has arisen requires considerable judgement, taking account of factors such as future operational and financial plans, commodity prices and the competitive environment.

Oil and gas assets are inherently judgemental to value. The amounts capitalised represent active projects and investments. These amounts are expensed to profit or loss as unless the determination process over whether reserves are recoverable or not is not completed and there are no indications of impairment at the reporting date or commercial reserves are established. Indictors of impairment include but are not limited to; declines in market value; company net assets in excess of market capitalisation; obsolescence or physical damage; economic performance worse than expected; or substantive expenditure in the specific area is neither budgeted nor planned. The outcome of ongoing production and exploration activities and whether their carrying values will ultimately be recovered is inherently uncertain and requires significant judgement.

Management performs impairment testing on the Company's producing and non-producing assets when indicators of impairment are present. The assessment of impairment indicators is subjective and considers the various internal and external factors such as the financial performance of individual CGUs, market capitalisation and industry trends.

Key sources of estimation uncertainty

The preparation of discounted cash flows used to assess the recoverable amount of the Groups CGU includes management's estimates of future operating costs, economic and regulatory environments, capital expenditures requirements, long term field plans and other factors including discount rates and the total level of reserves deemed to be commercial.

The valuation underpinning the carrying value of producing and non-producing assets are largely dependent on supply and demand variables.

The gas sales price is fixed, and the cost base of production operations is also largely fixed in nature. Whilst the benefits of increased production volumes are clear, the opposite is equally true during operational downtime, prolonged or permanent gas supply outages which may in turn impact upon the commerciality of the field. Mnazi Bay currently has 5 producing wells and formally signed the Commercialisation of Discovery making all terms contained within the Mnazi Bay GSA legally binding and fully in effect from 10 September 2019. The Mnazi Bay JV is committed to supplying a minimum quota of natural gas to TPDC and TANESCO of 80 MMscf/day rising to 130 MMscf/day for the entire remaining term of the GSA and is guaranteed of future revenue streams via a take or pay provision of 85% of these amounts. This greatly strengthens and formally ratifies the long-term commerciality of the Mnazi Bay asset, and as such it would require significant reductions in daily production operations to trigger an indication of impairment under IFRS 6 and IAS 36 and a subsequent write down in the book value of the Mnazi Bay asset which currently totals $72.3 million.

At the year-end, a full impairment test was conducted on the Mnazi Bay production asset as there was an indication of impairment with respect to the discrepancy between the market capitalisation of the Company at 31 December 2020 of $46.4 million and the carrying value of $72.3 million. The full impairment testing ultimately determined that the recoverable amount was significantly higher than the market value at the year-end which had been externally corroborated by the RPS third party Independent Reserves Assessment Report valuation (NPV10) of $116.6 million.

Equally, due to there being no formal agreement between Mnazi Bay partners to sanction further expenditure on non-producing assets, a full impairment test was also undertaken carrying value of $8.1 million at the year-end. The impairment test ultimately determined that the value-in-use exceeded the carrying amount and that no impairment was required.

In both of the above cases, the impairment testing was conducted over the licence term, which expires in 2031.

The key assumptions that went into the impairment modelling related to:

·     Production supply and demand forecasting, which was largely in-line with the RPS independent reserves assessment modelling;

·     Gas sales invoice settlement terms, which have been extrapolated from both historic and future expectations on terms;

·     Operating cost forecasts, noting both fixed and variable elements of production operating costs and the impact of future development expenditures;

·     Future field development expenditures and their anticipated timings;

·     Cost pool recovery expenditures available for future recovery; and

·     Known tax and fiscal changes to the extent that an interpretation of the legislation was required.

Sensitivities were run on the following variables:

·    Field production per well, noting that the engineering solutions utilized on Mnazi Bay allow for the production of multiple hydrocarbon bearing horizons from certain wells;

·    The operating and development costs of producing gas from Mnazi bay.

·    The impact of increased sales invoice delinquency upon future cash flows; and

·    Currency settlement denomination variables, currently in US dollars, noting that in certain circumstances an election for settlement in Tanzanian Shillings may be made by TPDC;

 

 

Reserves estimates

Significant accounting judgements

The Directors use judgement and experience to determine the timing and quantum of volumes recovered from producing fields in order to be able to calculate a probabilistic base-case value-in-use for its assets. This valuation may vary in response to changes in field performance over time and the Company expects that there will likely be revisions upward or downward based on updated information such as the results of future drilling, oil and gas production levels and reservoir performance.

Key sources of estimation uncertainty

Oil and natural gas reserves, prepared by an external independent reserve evaluator as at 31 December 2020, are used in the calculation of depletion, impairment and impairment reversal determinations and recognition of deferred tax asset. Reserve estimates are based on engineering data, estimated future prices and costs, expected future rates of production and the timing of future capital expenditures; all of which are subject to many uncertainties and certain input assumptions. A summary of the independent RPS reserves assessment report for the year-ended 31 December 2020 can be found within the Strategic Report's Mnazi Bay Production Operations section of this report in which 2P field reserves are assessed to be 90.8 BCF with an indicative NPV10 of $117 million.

 

Taxes

Significant accounting judgements

The Directors make judgements in relation to the recognition of various taxes levied on the Group, which are both payable and recoverable. Judgement applies as the Group operates in countries where the legal and tax systems are less developed, which increases the requirement for management to make assumptions as to whether certain payments will be required related to matters such as income taxes, value added taxes, and other indirect taxes as well as outcomes of any tax disputes which would affect the recognition of tax liabilities and deferred tax assets. A provision is recognized in the financial statements for such matters if it is considered probable that a future outflow of cash resources will be required. The provision, if any, is subject to management estimates and judgements with respect to the outcome of the event, the costs to defend, the quantum of the exposure and past practice in the country.

Key sources of estimation uncertainty

Estimates may be made to determine the amount of taxes recoverable, principally deferred tax assets. The commencement of commercial production and gas sales under the Gas Sales Agreement, allowed for the recognition of a deferred tax asset within the financial statements. The amount that the company recognizes is subject to the following estimates:

 

·        The timing of future profits for the utilization of tax losses from the current tax pools which are based on management assessments and forecasts of future performance;

·        The effective tax rate at which the losses will be utilized at throughout the Group which is currently the tax rate of Tanzania as this is where all of the Group's operations are;

·        The status of any current tax assessments and disputes and their impact on the deferred tax pool on a probabilistic basis;

·        Any material changes in legislation that may impact upon the fiscal regime on which the deferred tax asset is computed.

Changes in these estimates within a reasonably possible range in the next 12 months are not expected to significantly alter the carrying amount of the Group's taxes that are recoverable.

 

The Group engages early with tax authorities where it has or will enter into a large or complicated transaction that is subject to interpretation and, in Tanzania, completed its most recent TRA audit for the years of 2016 and 2017 in December 2020, the result of which was an agreed assessment for taxes totalling $126k. A further, smaller, amount was assessed by the TRA for withholding taxes deemed due for the year-ended 31 December 2018 which the company is in continuing discussions over.

 

 

 

4.            Segment information

The Company conducts its business through the Tanzania ("Mnazi Bay Concession") segment. Gas operations include the exploration, development, and production of natural gas and other hydrocarbons.  The Corporate segment activities include investment income, interest expense, financing related expenses, share based compensation relating to corporate activities and general corporate expenditures.  Inter-segment transfers of products, which are accounted for at market value, are eliminated on consolidation.

Net income/(loss) for the year-ended 31 December 2020

 

	Tanzania Operations $000	Corporate   $000	Consolidated   $000
Total revenue	18,991	-	18,991
Production and operating costs	(3,837)	-	(3,837)
Depletion	(5,607)	-	(5,607)
Total cost of sales	(9,444)	-	(9,444)
Gross profit	9,547	-	9,547
Recurring administrative costs	(2,415)	(3,033)	(5,448)
New venture and pre - licence costs		(1,558)	(1,558)
Share-based payment charges	(72)	(228)	(300)
Depreciation and depletion	(3)	(1)	(4)
Total costs	(2,490)	(4,820)	(7,310)
Profit/(loss) from operations	7,057	(4,820)	2,237
Finance income	36	110	146
Finance costs	(154)	-	(154)
Profit/(loss) before tax	6,939	(4,710)	2,229
Current tax expense	(160)	48	(112)
Deferred tax	1,311	-	1,311
	1,151	48	1,199
Net profit/(loss) and comprehensive profit/(loss) from continued operation	8,090	(4,662)	3,428

 

 

 

 

Net income/(loss) for the year-ended 31 December 2019

	Tanzania Operations $000	Corporate   $000	Consolidated   $000
Total revenue	18,636	-	18,636
Production and operating costs	(3,935)	-	(3,935)
Depletion	(6,236)	-	(6,236)
Total cost of sales	(10,171)	-	(10,171)
Gross profit	8,465	-	8,465
Recurring administrative costs	(2,939)	(2,944)	(5,883)
New venture and pre - licence costs	-	(609)	(609)
Management restructuring costs	-	(489)	(489)
Share-based payment charges	(23)	(40)	(63)
Depreciation and depletion	-	(2)	(2)
Total costs	(2,962)	(4,084)	(7,046)
Profit/(loss) from operations	5,503	(4,084)	1,419
Finance income	-	306	306
Finance costs	(338)	(400)	(738)
Profit/(loss) before tax	5,165	(4,178)	987
Current tax expense	(83)	(49)	(132)
Deferred tax	1,511	-	1,511
	1,428	(49)	1,379
Net profit/(loss) and comprehensive profit/(loss) from continued operation	6,593	(4,227)	2,366

 

 

Selected balances at 31 December 2020

	Tanzania Operations $000	Mozambique (Discontinued) $000	Corporate   $000	Consolidated   $000
Current assets	8,535	101	13,998	22,634
Exploration and evaluation assets	8,129	-	-	8,129
Property, plant and equipment	72,305	-	2	72,307
Deferred tax asset	6,859	-	-	6,859
Total assets	95,828	101	14,000	109,929
Current liabilities	1,436	-	946	2,382
Non-current liabilities	1,514	-	-	1,514
Total Liabilities	2,950	-	946	3,896

Capital additions for the year-ended 31 December 2020

Additions to property, plant   and equipment	357	-	2	359

 

Selected balances at 31 December 2019

	Tanzania Operations $000	Mozambique (Discontinued) $000	Corporate   $000	Consolidated   $000
Current assets	8,758	118	10,686	19,562
Exploration and evaluation assets	8,129	-	-	8,129
Property, plant and equipment	77,556	-	3	77,559
Deferred tax asset	5,548	-	-	5,548
Total assets	99,991	118	10,689	110,798
Current liabilities	3,356	-	483	3,839
Non-current liabilities	1,085	-	-	1,085
Total Liabilities	4,441	-	483	4,924

Capital additions for the year-ended 31 December 2019

Additions to property, plant   and equipment	18	-	2	20

 

 

 

5.            Revenue

	2020 $000	2019 $000
Revenue from gas sales	18,881	18,601
Revenue from condensate sales	49	35
Other revenue	61	-
	18,991	18,636

 

Other revenue represents the recovery of corporate income taxes incurred through adjustments to TPDC gas sales entitlements.

 

6.            Leases

Amounts recognised in profit or loss

The following amounts have been recognised in the income statement for which the Company is a lessee under IFRS 16:

	2020	2019
	$000	$000
Expenses relating to short-term leases	152	250

 

 

 

 

Amounts recognised in statement of cash flows

	2020 $000	2019 $000
Cash outflow for leases	152	250

 

7.            Expenses and auditor's remuneration

	2020 $000	2019 $000
Employee salaries and benefits	2,289	2,277
Contractors and consultants	1,043	972
Travel and accommodation	116	248
Professional, legal and advisory	431	829
Office and administration	513	638
Corporate and public company costs	1,056	919
	5,448	5,883
Auditor's remuneration:
Audit of these financial statements	163	111
Audit of financial statements of subsidiaries of the Company	125	151
Taxation compliance services	79	62
Other tax advisory services	21	60
	388	384

 

8.            Staff numbers and costs

The average number of persons employed during the year, analysed by category, was as follows:

	2020	2019
	Number of employees
Senior Managers	1	1
Managers and supervisors	5	5
Support staff	8	9
	14	15

The aggregate payroll costs were as follows:

	2020 $000	2019 $000
Salaries	798	775
Social security costs	107	167
Bonuses	126	116
Other payroll costs	177	141
	1,208	1,199

 

 

 

9.            Directors' remuneration

	2020 $000	2019 $000
Director's remuneration	972	1,062
Bonuses	313	152
Contractual termination payments	100	-
Pensions	43	44
Severance payments	-	489
Other benefits	69	68
LTIP charges	228	43
	1,725	1,858

 

The aggregate of remuneration of the highest paid Director was $699k (2019: $391k). Contractual termination payments relate to amounts paid to Bob McBean who will be standing down as Company chairman in 2021. Severance payments include amounts paid to Eskil Jersing, who resigned as Chief Executive Officer in 2019.

For additional segregation by Director, refer to Total Remuneration of Executive Director Table and Total Remuneration of Non-Executive Executive Directors Table contained within the Remuneration Committee Report.

 

10.          Finance income and finance costs

 

	2020 $000	2019 $000
Finance income
Interest income	82	21
Foreign exchange gain	37	-
Other finance income	27	285
	146	306
Finance costs
Accretion - decommissioning provision	(130)	(116)
Interest expense	(13)	(493)
Foreign exchange loss	-	(129)
Expected credit losses on TANESCO receivable (note 11)	(11)	-
	(154)	(738)

 

 

 

11.          Trade and other receivables

	2020 $000	2019 $000
Trade receivable from TPDC Other receivable from TPDC     Trade receivable from TANESCO	1,943 215 1,316	4,014 513 789
Other receivables	1,373	759
	4,847	6,075

At the year-end $1.3 million was receivable from TANESCO representing fourteen months of gas sales (2019: $790k representing eight months of gas sales). Due to the age of the receivable at the year-end and the likely time it will take to recover the debt, the an expected credit loss of $11k at a loss rate of 0.4% has been recognised (2019: $nil).

Other receivables from TPDC represent income tax of $215k (2019: $513k) paid by Wentworth Gas Limited, a wholly owned subsidiary of the Company. The income tax is anticipated to be recovered from TPDC's share of profit gas within the next 12-months under the terms of the Mnazi Bay PSA, which provides such a mechanism for the recovery of all corporate taxes.

Other receivables include VAT recoverable of $600k (2019: $279k), gas condensate sales of $47k (2019: $35k), corporate tax prepayments of $508k (2018: $312k) and corporate tax receivable $48k (2019: nil). In accordance with IFRS 9 the Company notes no material expected credit losses.

 

 

 

12.          Tanzania Government receivables

As at 31 December 2021, the undiscounted Tanzanian Government receivable is $6.5 million (2019: $6.5 million). 

	$000
Balance at 31 December 2018	-
Accretion	516
Change in estimated timing of receipt	(516)
Balance of amortised cost at 31 December 2019	-
Accretion	565
Change in estimated timing of receipt	(565)
Balance of amortised cost at 31 December 2020	-

The Group has an agreement with the Government of the United Republic of Tanzania (TANESCO, TPDC and the Ministry of Energy and Minerals) to be reimbursed for all the project development costs associated with Umoja T&D expenditures at cost.  An audit of the Mtwara Energy Project ("MEP") development expenditures was completed in November 2012 and costs of approximately $8.1 million were verified to be reimbursable. After deducting costs associated with the Tariff Equalisation Fund and VAT input credits associated with the MEP totalling $1.6 million, the amount agreed to be reimbursed was $6.5 million.

During 2017, the Government initiated its first review of the costs to verify the balance owing by it. On 8 February 2018 the Government issued the results which differed from the previously audited and approved gross receivable of $6.5 million, which the Group maintains was accurate and correct.

The Government is conducting a second review and due to the age and uncertainty surrounding the receivable and its recoverability, the Group made a provision in-full during 2018 against the carrying amount without prejudice to the ongoing commercial discussions with the Government, the Group has reviewed this at the year-end and continues to feel the provision is appropriate.

 

13.          Exploration and evaluation assets

	Tanzania $000
Cost
Balance at 31 December 2019 and 2020	8,129

At the year-end, E&E assets totalled $8.1 million (2019: $8.1 million) and represent the cost of seismic acquisition and interpretation studies on Mnazi Bay on prospective but, as yet, non-producing areas of the concession licence. The costs incurred in evaluating these prospects have been capitalised and, to the extent that it is possible to do so given their maturity, have been assessed as being recoverable in full. The Mnazi Bay Concession agreement will expire in 2031.

At the year-end the carrying value of these assets were assessed for impairment and due to there being no formal agreement between Mnazi Bay partners to sanction further expenditure at this time, a full impairment test was undertaken. The impairment test ultimately determined that the value-in-use exceeded the carrying amount and that no impairment was required.