Source - LSE Regulatory
RNS Number : 0942W
Wentworth Resources PLC
21 April 2021
 

  

PRESS RELEASE                                                                                                                                  21 April 2021

WENTWORTH RESOURCES PLC
("Wentworth" or the "Company")

Final Results for the year ended 31 December 2020

Declaration of Final Dividend

Publication of Sustainability Report

Wentworth (AIM: WEN), the independent, Tanzania-focused natural gas producer is pleased to announce its audited financial results for the year ended 31 December 2020 along with its proposed final dividend declaration for the full year 2020. All values are expressed in US dollars unless stated otherwise.

As a domestic natural gas business in Tanzania, our purpose is to empower people with affordable, low carbon and reliable energy by working to close the energy access gap. As a responsible company, we recognise the importance of providing our stakeholders with greater transparency around how we execute on this strategy and perform against key environmental, social and governance (ESG) criteria. To this end, Wentworth is pleased to announce the launch of its inaugural Sustainability Report. The report is available on the Company's website at: www.wentplc.com.

HIGHLIGHTS

Health and Safety

·    The health and safety of our people, partners and local communities remains our priority; zero fatalities in 2020 and a Lost Time Incident Rate ("LTIR") of zero for the fourth year running

·    Robust precautionary measures remain in place related to COVID-19 to ensure the ongoing safety of our staff; to date, there have been zero reported cases of COVID-19 at Mnazi Bay

 

Financial

·    Declaring a final dividend in respect of FY 2020 of 1.0 pence per share ($2.6 million); a total dividend distribution in respect of 2020 of $3.8 million (1.5 pence per share) representing an increase of 27% from 2019 ($3.0 million) and a yield of approximately 6.7% (calculated on an annualised basis)

·    Strong and resilient financial performance against a challenging macro-economic backdrop

·    Revenues of $18.9 million (2019: $18.6 million), underpinned by long-term fixed gas price contracts 

·    Adjusted earnings before interest, taxes, depreciation, amortization and exploration (EBITDAX) of $9.7 million (2018: $8.8 million)

·    Debt free with cash on hand of $17.8 million at 31 December 2020

·    TPDC continues to remain fully current with all invoices for gas sales

 

Operational

·    Production averaged 65.5 MMscf/day (2019: 70.3 MMscf/day), lower due to fluctuating demand but in line with guidance of 60-70 MMscf/day

·    Capacity from existing wells and production facilities increased to in excess of 100 MMscf/day

·    Low operational cost of production of $0.69 / Mscf

·    Wentworth's share of Gross 2P Reserves as at 31 December 2020 estimated by RPS to be 90.8 Bcf with a post-tax NPV10 of $116.6 million

 

Corporate

·    Ongoing commitment to a progressive capital returns policy

·    Tanzania focused growth continues to be a key focus to capitalise on existing operational track record

·    Continued process of Board refreshment, with Bob McBean retiring as Chairman at the AGM and John Bentley stepping down during the year

·    At least one new Non-Executive Director to be appointed during 2021 with the aim of bringing further diversity to the Board

 

Sustainability

·    Ongoing ESG strategy remains a priority with a focus on measurement and mitigation strategies for climate-related impacts in 2021

Sustainability Report

·    Published inaugural Sustainability Report for 2020; it addresses how we manage the impacts of our business by upholding relevant international standards and how we take our responsibility to our stakeholders, society and the environment seriously  

·    Announced membership of the United Nations ("UN") Global Compact, underlining our commitment to operating responsibly in line with the UN's Ten Principles on human rights, labour, environment and anti-corruption and to take strategic action to the support the UN's Sustainable Development Goals

Social and Environmental Impact

·    The power access gap in Tanzania is growing despite domestic energy supply increasing; transformational  growth is needed in domestic energy supply to deliver the Government's target of universal access by 2030 through low-cost, low carbon solutions that will secure a just transition for Tanzania

·    Natural gas will play a critical role in meeting this target to support cheaper and more reliable electricity as well as facilitating an enabling environment to supplement carbon-free renewable energy systems, such as hydro and solar

·    Natural gas constitutes 50% of Tanzania's energy mix:

Production from Mnazi Bay constitutes 50% of the gas produced into the grid

30% of Tanzania's electricity customers rely on Mnazi Bay gas 

·    Wentworth and its partners play an important role in delivering on UN Sustainable Development Goal 7, ensuring universal access to affordable, reliable and modern energy services

 

2021 Outlook

·    Record quarter performance to date with average production volumes for Q1 2021 of 84.74 MMscf/day (gross) compared with Q1 2020 average of 63.60 MMscf/day (gross)

·    All-time production volume highs at Mnazi Bay of 110.65 MMscf/day including monthly average production of 101.85 MMscf/day (gross) during March 2021, demonstrating the ability to supply greater than 100 MMscf/day (gross) consistently during periods of high demand

·    2021 Mnazi Bay production guidance remains unchanged at 65-75 MMscf/day (gross), considering the seasonal rainy season typically impacts demand for natural gas during Q2

 

Dividend

The directors propose that a final dividend of 1.0 pence per ordinary share be paid to the holders of the ordinary shares who are on the register of members of the Company at 6.00 p.m. on 25 June 2021. The proposed final dividend will bring distributions to shareholders with regard to the financial year ended 31 December 2020 to $3.8 million, an increase of 27% from 2019 distributions of $3.0 million and in line with the Company's stated commitment to a sustainable and progressive dividend.  If approved by shareholders, the dividend will be paid according to the timetable below.

Final Dividend Payment Timetable:

Ø Ex-Dividend Date:                24 June 2021

Ø Record Date:                         25 June 2021

Ø UK Payment Date (for shareholders who hold shares on the UK Register): 23 July 2021

Ø VPS Payment Date (for shareholders who hold shares on the VPS Register): 6 August 2021

Shareholders who hold their shares on the VPS Register on the Record Date shall receive the dividend in NOK.  The exchange rate shall be determined on the UK Payment Date and the Company shall inform VPS shareholders via RNS as soon as practicable thereafter of the NOK sum per share they will receive which shall be settled on the VPS Payment Date.

Results Conference Calls

Analyst call

The Company is holding a conference call for analysts at 9.30am BST today, Wednesday 21 April 2021.

To register for the call, please click on the following link:

 

https://secure.emincote.com/client/wentworth/wentworth006/vip_connect

 

You can view the presentation during the call via the following link:

 

https://secure.emincote.com/client/wentworth/wentworth006 

Investor call

The Company is holding a conference call for investors at 12.30pm BST today, Wednesday 21 April 2021, via Investor Meet Company.

To register for the call, please click on the following link:

https://www.investormeetcompany.com/wentworth-resources-plc/register-investor 

Katherine Roe, CEO, commented:

"2020 challenged the status quo for every community in every society around the world. Despite a challenging macro-economic and industry backdrop, Wentworth has proven itself to be resilient. 

"The corporate transformation that has been underway has made our fundamentals stronger - with no debt, fixed price contracts, a simplified corporate structure and ongoing cash generation. Having returned $3.0 million to shareholders in 2019, I'm delighted that despite facing the greatest post-war crisis history has ever seen, we are set to increase our returns for 2020 by distributing a further $3.8 million.

"This positive trend looks set to continue into 2021 with record production during Q1 due in large part to industrial demand growth, reaffirming our view that asset production is dictated more by demand constraints than by field limitations. However, we remain responsible in our approach to guidance which is unchanged for now as we await the effects of the resumption of supply following maintenance at the Songo Songo gas field and clarity on hydropower capacity after the current rainy season. 

"The resilience of the Tanzanian economy in 2020, the ambitions of the Tanzanian government to attract further foreign investment and the strengthening demand from industrial customers underscores our confidence in the future demand growth in the country. We look forward to working with our partners, including TPDC, to fulfil the Government and the UN's ambitions to deliver universal energy access by 2030.

"I would like to pay tribute to Bob McBean as he ends his 11 year leadership of Wentworth. He leaves the Board with the Company in great health to pursue his ongoing vision of Wentworth as a champion in the East African gas sector."  

Enquiries: 


Wentworth

 

 

Katherine Roe,
Chief Executive Officer
 

 

 

katherine.roe@wentplc.com
+44 (0)  7841 087 230
 

 
Stifel Nicolaus Europe Limited

 
AIM Nominated Adviser and Joint Broker 
Callum Stewart
Ashton Clanfield
Simon Mensley

 
+44 (0) 20 7710 7600

 

Peel Hunt LLP

 

Joint Broker 
Richard Crichton
Alexander Allen

 

+44 (0) 20 7418 8900

 

FTI Consulting

 

Communications Adviser 
Sara Powell                               

Ben Brewerton

 

+44 (0) 20 3727 1000

 

 

 

 

 

CHAIRMAN'S STATEMENT

2020 has been a year unlike any seen for several generations. While I won't dwell on the impact of the COVID-19 pandemic on all our lives, I will say that the resilience of humanity to adapt in the face of change is cause for hope. Despite the uncertainty we face, I have no doubt that once the spread of the pandemic is contained, life will resume - hopefully with a renewed sense of perspective, optimism, and gratitude.  

Continued financial strength  

For Wentworth, 2020 has been a remarkable year. Our strong operational profile and agility has not only seen us weather the economic storm but thrive in the face of adversity. Being solely a natural gas producer with a fixed price contract, we have not been subject to the volatile price swings that have created financial difficulties faced by other E&Ps. This has resulted in us outperforming many of our oil and gas sector peers on the London Stock Exchange.

While others faced financial challenges, we continued to strengthen our balance sheet. Our rigour has enabled us to continue providing sustainable returns to our shareholders. Having introduced our divided policy and maiden dividend in 2019, we increased our dividend payout by 20% in 2020. This commitment puts us as one of only three AIM-listed exploration and production companies to be paying an annual dividend to shareholders.  

Ongoing demand for natural gas  

Operationally, our single producing asset at Mnazi Bay in Southern Tanzania continues to perform well. Demand has remained stable on an annualised basis despite a slight decline in 2020, and we expect ongoing growth over the coming years in line with Tanzania's ambition to achieve universal energy access by 2030. With the important role natural gas plays in the country's energy mix, we are confident that Wentworth is well positioned to benefit from any increase in demand. 

Growth as our focus  

Over the past year we continued to reduce G&A expenditure, although we incurred additional legal costs from exploring and negotiating a couple of specific growth opportunities. Despite many positive conversations, restrictions from the COVID-19 pandemic made negotiations challenging. Looking to the year ahead, we are optimistic that as the global situation improves, we will continue those discussions. Our focus is on exploring opportunities in East Africa - primarily in Tanzania where our operational focus and unique proposition sits.  

Our goal for the next year will be to focus on pursuing the right growth opportunities both within our existing asset and beyond that to support our existing stable operations. Whilst we are not budgeting for any significant capital projects in 2021, we are continuing to work with our Operator, Maurel et Prom ("M&P"), on an optimal field development plan. A minimal work programme will allow us to strengthen our balance sheet further by year-end. This solid financial base will also give us the ability to leverage our position in any competitive negotiations where appropriate; it is paramount to us that any growth will be responsible and only on terms that protect our existing shareholder returns and core asset value.

A departing note

Sadly this will be my last Chairman's message as I will be stepping down at the end of June. I am doing so knowing that Wentworth is in the best financial shape of its 11-year history. I am extremely proud of what has been accomplished since Wentworth acquired its East African assets and would like to thank all who have helped along the way, not only the Company Directors and employees both past and present, but also our joint venture partners and the Governments of both Tanzania and Mozambique.  

I would also like to take this opportunity to thank our staff in Dar es Salaam for their unwavering commitment during this difficult time. A special thanks too to Katherine Roe, our CEO, for her work ethic and outstanding contribution to the Company over the past year. Katherine has been a joy to work with and will continue to steer us forward into 2021 and beyond.  

Finally, I would like to thank all our shareholders for their continued support in a year when the health of family and loved ones has been the main concern for all.

 

Robert McBean

Chairman

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

 

Year-ended 31 December

 

Note

2020

$000

2019

$000

 

 

 

 

 

 

 

 

Total revenue

5

18,991

18,636

 

 

 

 

Production and operating costs

 

(3,837)

(3,935)

Depletion

14

(5,607)

(6,236)

Total cost of sales

 

(9,444)

(10,171)

 

 

 

 

Gross profit

 

9,547

8,465

 

 

 

 

Recurring administrative costs

7

(5,448)

(5,883)

New venture and pre - licence costs

 

(1,558)

(609)

Management restructuring costs

 

-

(489)

Share-based payment charges

21

(300)

(63)

Depreciation

14

(4)

(2)

Total costs

 

(7,310)

(7,046)

 

 

 

 

Profit from operations

 

2,237

1,419

 

 

 

 

Finance income

10

146

306

Finance expense

10

(154)

(738)

Profit before tax

 

2,229

987

 

 

 

 

Current tax expense

25

(112)

(132)

Deferred tax income

25

1,311

1,511

 

 

 

1,199

1,379

Net and comprehensive profit after tax

 

3,428

2,366

 

 

 

 

Net profit per ordinary share

 

 

 

Basic and diluted (US$/share)

23

0.02

0.01

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

Note

 

31 December

2020

$000

31 December

2019

$000

 

 

 

 

ASSETS

 

 

 

Current assets

 

 

 

Cash and cash equivalents

 

17,787

13,487

Trade and other receivables

11

4,847

6,075

 

 

22,634

19,562

Non-current assets

 

 

 

Exploration and evaluation assets

13

8,129

8,129

Property, plant and equipment

14

72,307

77,559

Deferred tax asset

25

6,859

5,548

 

 

87,295

91,236

Total assets

 

109,929

110,798

                                                                                                     

 

 

 

LIABILITIES

 

 

 

Current liabilities

 

 

 

Trade and other payables

16

2,382

2,125

Current portion of long-term loans

18

-

1,714

 

 

2,382

3,839

Non-current liabilities

 

 

 

Decommissioning provision

19

1,514

1,085

 

 

1,514

1,085

Equity

 

 

 

Share capital

22

416,426

416,426

Equity reserve

22

26,656

26,651

Accumulated deficit

 

(337,049)

(337,203)

 

 

106,033

105,874

Total liabilities and equity

 

109,929

110,798

 

 

 

 

 

The financial statements of Wentworth Resources plc, registered number 127571 were approved by the Board of Directors and authorised for issue on 21 April 2021.

Signed on behalf of the Board of Directors.

Katherine Roe

Chief Executive Officer

21 April 2021

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

 

 

Note

 

Number of shares

 

Share capital

 

Equity reserve

 

Accumulated

deficit

 

Total

 equity

 

 

 

$000

$000

$000

$000

 

 

 

 

 

 

 

Balance at 31 December 2018

 

186,488,465

416,426

26,588

(338,536)

104,478

 

 

 

 

 

 

 

Dividends

Net profit and comprehensive profit

24

-

-

-

-

-

-

(1,033)

2,366

(1,033)

2,366

Share based compensation

21

-

-

63

-

63

Balance at 31 December 2019

 

186,488,465

416,426

26,651

(337,203)

105,874

 

Dividends

Net profit and comprehensive profit

 

24

                          

-

-

        

-

-

 

-

-

 

(3,274)

3,428

 

(3,274)

3,428

Share based compensation

21

-

-

300

-

300

Repurchase of own shares

20

 

 

(295)

-

(295)

Balance at 31 December 2020

 

186,488,465

416,426

26,656

(337,049)

106,033

 

 

 

 

 

 

 

 

 

 

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.

14.          Property, plant and equipment

 

Natural gas properties

Office and other equipment

Total

 

 

$000

                              

$000

 

$000

Cost

 

 

 

Balance at 31 December 2018

104,025

609

104,634

Additions

18

2

20

Balance at 31 December 2019

104,043

611

104,654

 

 

 

 

Additions

58

2

60

Change in decommissioning liability

299

-

299

Balance at 31 December 2020

104,400

613

105,013

 

Accumulated depreciation and depletion  

 

 

 

Balance at 31 December 2018

(20,254)

(603)

(20,857)

Depreciation and depletion

(6,236)

(2)

(6,238)

Balance at 31 December 2019

(26,490)

(605)

(27,095)

 

 

 

 

Depreciation and depletion

(5,607)

(4)

(5,611)

Balance at 31 December 2019

(32,097)

(609)

(32,706)

           

 

Carrying amounts

 

 

 

31 December 2019

77,553

6

77,559

31 December 2020

72,303

4

72,307

 

During the year a full impairment test was conducted on the Mnazi Bay asset as there was an indication of impairment with respect to the discrepancy between the market capitalisation at 31 December 2020 of $46.4 million and the carrying value of $72.3 million. The full impairment test ultimately determined that the recoverable amount was significantly higher than the market value of the Company at the year-end which had been externally corroborated by the RPS third party Reserves Report valuation (NPV10) of $116.6 million. Refer to note 3 for additional detail regarding the assumptions used within the impairment testing.

During the year, the Group made cash additions to PPE totalling $60k (2019: $20k). A change to the assumptions used in calculating the decommissioning and abandonment provisions resulted in further non-cash additions of $299k (2019: $nil) (see note 19).

 

15.          Subsidiary and joint undertakings

The subsidiary and joint undertakings at 31 December 2020 are:

 

Name of Company

Country of incorporation

Class of shares held

Types of ownership

Percentage holding

Nature of business

Wentworth Resources (UK) Limited

United Kingdom

Ordinary

Direct

100%

Investment holding company

Wentworth Holding (Jersey) Limited

Jersey

Ordinary

Direct

100%

Investment holding company

Wentworth Tanzania (Jersey) Limited

Jersey

Ordinary

Indirect

100%

Investment holding company

Wentworth Gas (Jersey) Limited

Jersey

Ordinary

Indirect

100%

Investment holding company

Wentworth Gas Limited

Tanzania

Ordinary

Indirect

100%

Exploration production company

Cyprus Mnazi Bay Limited 1

Cyprus

Ordinary

Indirect

39.925%

Exploration production company

Wentworth Mozambique (Mauritius) Limited

Mauritius

Ordinary

Indirect

100%

Investment holding company

Wentworth Moçambique

Petroleos, Limitada 2

Mozambique

Ordinary

Indirect

100%

Investment holding company

1 CMBL is considered a jointly controlled entity and accounted for as a joint operation rather than a joint venture (see note 1 for further details).

 

2 The Wentworth Moçambique Petroleos, Limitada is in the process of liquidation after relinquishment of the Tembo Block Appraisal Licence. 

 

 

16.          Trade and other payables

 

2020

$000

2019

$000

Payable to Maurel et Prom (Operator)

884

1,303

Trade payables

181

150

Other payables and accrued expenses

1,317

             672

 

 

2,382

 

2,125

 

Other payables and accrued expenses include bonuses and payment in lieu of leave of $451k (2019: 228k), legal fees of $422k (2019: nil), audit fees of $364k (2019: $203k) and other third party services of $80k (2019: $241k).

 

17.          Overdraft credit facility

The Company overdraft credit facility with a Tanzanian Government owned bank of $2.5 million expired on 5 April 2020. The Company is in discussions with respect to renewing the facility on equivalent or better terms with a number of counterparties in Tanzania, however, no firm commitment has yet been made.

No interest expense or renewal fees were incurred during the year-ended December 2020 (2019: $18k) on the overdraft credit facility. 

 

18.          Long-term loans

On 8 December 2014, Wentworth Gas Limited, a wholly owned subsidiary of the Company, entered into a $20.0 million loan facility to finance the field infrastructure development of the Mnazi Bay Concession in Tanzania.

The term of the loan was initially forty-eight months in duration commencing on the first draw-down date and bore interest at six-month LIBOR rate plus 750 basis points, subject to a minimum (floor) of 8% p.a. and a maximum (ceiling) of 9.5% p.a.  Security was in the form of a debenture creating a first ranking charge over the assets of the WGL (assets of WGL include a 25.4% participation interest in the Mnazi Bay Concession), assignment over the TPDC long-term receivable and assignment of revenues generated from the Mnazi Bay Concession.

During 2017, the Company executed amendments to the credit facility agreement, which included the restructuring of principal loan repayments and added provisions. The new provisions were not finalised at the time of the execution of the amendment to the credit facility agreement. On 6 June 2018, the Company formalised the new provisions, which became effective 6 June 2018.

The new provisions contain a requirement for the Company to maintain two financial covenants both calculated on 30 June and 31 December. The Debt Service Coverage Ratio provides that the Company has adequate cover to meet its loan interest and principal repayment obligations for the next twelve months, while the Loan Life Coverage Ratio provides that adequate free discounted cash flow coverage is maintained for all future loan repayments over the full life of the loan.

The $20.0 million credit facility is subject to interest rate of six-month LIBOR rate plus 750 basis points subject to a minimum (floor) of 8.5% p.a. and no maximum (ceiling). As at 30 January 2020 when the last installment was settled, the six-month interest rate was 9.42%. 

The credit facility was fully settled on 30 January 2020. 

 

During the year-ended 31 December 2020, the Company incurred interest expense on long-term loans of $13k  (2019: $0.5 million) with finance costs accretion of $25k (2019: $0.3 million).  A total of $38k was settled in cash during 2020 (2019: $0.6 million).

 

 

$000

Credit facilities balance

 

Balance as at 01 January 2019

8,779

 

Loan repayments

 

(6,661)

Total changes from financing cash flows

(6,661)

 

 

Other changes

 

Interest expense

474

Interest paid

(593)

Finance cost accretion

(285)

Total other charges

(404)

 

Balance as at 31 December 2019

 

1,714

 

Loan repayments

 

(1,664)

Total changes from financing cash flows

   (1,664)

 

 

Interest expense

13

Interest paid

(38)

Finance cost accretion

(25)

Total other charges

(50)

 

Balance as at 31 December 2020

 

-

 

 

 

 

 

19.          Decommissioning and abandonment provision

The Company's decommissioning provision results from net ownership interests in petroleum and natural gas assets including well sites, pipeline gathering systems, and processing facilities in Tanzania. The operator of the Mnazi Bay Concession has estimated the Company's share of the undiscounted inflation-adjusted amount of cash flows required to settle decommissioning obligations for the infrastructure within the Mnazi Bay Concession to be $4.23 million. The costs expected to be incurred in 2030. The obligations have been estimated using existing technology at current prices inflated and discounted using discount rates that reflect current market assessments of the time value of money and the risks specific to each liability.

 

A reconciliation of the decommissioning obligations is provided below:

 

2020

$000

2019

$000

Balance at 1 January

1,085

969

Change in accounting estimates

299

-

Accretion

130

116

Balance at 31 December

1,514

1,085

 

During the year the discount rate used for calculating the current provision was amended to 8.3% from 12.0% in 2019 to better reflect a United States Doller interest rate from a Tanzanian Shilling interest rate as it was felt that this would likely be the denomination of any the final liability. At the same time, the inflation rate was updated and amended to 1.36% from 2.03% in 2019. These amendments have materialised an additional charge in the current period of $299k (2019: $nil).

 

20.          Repurchase of own shares

On 18 December 2020, the Company entered into a settlement agreement with a dissenting shareholder to purchase 702,874 ordinary shares of the Company at NOK 2.91 ($0.339) per ordinary share less dividend payments made with respect to those shares from the notification of dissent. The cost to the Company with respect to this buyback was NOK 1.89 million ($222k).

On 21 December 2020, the Company entered into a second settlement agreement with a separate dissenting shareholder to purchase a further 236,452 ordinary shares of the Company at NOK 2.91 ($0.338) per ordinary share less dividend payments made with respect to those shares from the notification of dissent. The cost to the Company with respect to this buyback was NOK 649k ($80k). 

 

The following table summarises dissenting shareholder settlements and fair valuation:

 

 

Gross amount $000

Dividend deducted $000

Settled amount $000

Settlement of 702,874 ordinary shares at NOK 2.91 (US$0.339) each

237

(17)

220

Settlement of 236,452 ordinary shares at NOK 2.91 (US$0.338) each

80

(5)

75

Exchange rate difference

1

-

-

 

318

(22)

295

 

The $295k was recognised within equity reserves at 31 December 2020 (see note 22) and was transferred to the share capital reserve on 3 February 2021, the date that the shares were cancelled and removed from the Company register.

 

21.          Share-based payments

 

 

2020

$000

2019

$000

 

 

 

Share based compensation recognised in the statement of Comprehensive loss

300

63

 

Movement in the total number of share options outstanding and their related weighted average exercise prices are summarised as follows:

 

2020

2019

 

Number of

options

Weighted average exercise price (US$)1 

Number of

options

Weighted average exercise price (US$)

 

 

 

 

 

Outstanding at 1 January

6,385,497

0.57

12,560,301

0.49

Granted

3,428,214

-

495,422

-

Forfeited

-

-

(5,020,226)

0.29

Lapsed

(2,000,000)

0.67

(1,650,000)

0.62

Outstanding at 31 December

7,813,711

0.30

6,385,497

0.57

 

 

The following table summarises share options outstanding and exercisable at 31 December 2020:

 

 

 

       Outstanding

Exercisable

Exercise price (NOK)

Exercise price (US$)1

Number of options

Weighted average remaining life (years)

Number of options

 

 

 

 

 

-

-

942,593

9.9

-

-

-

2,485,621

9.0

-

-

-

1,385,497

8.4

-

3.85

0.45

750,000

5.0

750,000

4.08

0.47

250,000

2.3

250,000

5.18

0.60

1,500,000

3.2

1,500,000

5.57

0.64

500,000

0.3

500,000

 

 

7,813,711

 

3,000,000

 

 

 

The following table summarises share options outstanding and exercisable at 31 December 2019:

 

 

 

       Outstanding

Exercisable

Exercise price (NOK)

Exercise price (US$)1

Number of options

Weighted average remaining life (years)

Number of options

 

 

 

 

 

-

-

1,385,497

9.4

-

3.85

0.44

750,000

6.0

750,000

3.60

0.41

1,600,000

0.8

1,600,000

4.08

0.46

250,000

3.3

250,000

5.18

0.59

200,000

4.4

200,000

5.18

0.59

1,700,000

4.2

1,700,000

5.57

0.63

500,000

1.3

500,000

 

 

6,385,497

 

5,000,000

 

1 The US Dollar to Norwegian Kroner exchange rate used for determining the exercise price at 31 December 2020 is 0.11676.

 

22.          Share capital and reserves

 

2020

$000

2019

$000

Authorised, called up, allotted and fully paid

 

 

186,488,465 (2019: 186,488,465) ordinary shares  

416,426

416,426

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.

Reserves

 

2020

$000

2019

$000

 

 

 

Balance at 1 January

       26,651

26,588

LTIP charges

300

63

Repurchase of own shares (note 20)

(295)

-

Balance at 31 December

26,656

26,651

The buyback of stock from dissenting shareholders totalling 939,326 ordinary shares (note 20) was settled in-full in December 2020, cancelled and removed from the share register on 3 February 2021. At 31 December 2020 these shares were included within equity reserves.   

 

 

 

23.          Earnings per share

Basic and diluted eps

 

2020

$000

2019

$000

 

 

 

Net profit for the period

3,428

2,366

 

 

 

Weighted average number of ordinary shares outstanding

186,488,465

186,488,465

Weighted average number of own ordinary shares repurchased

(31,426)

-

 

186,457,039

186,488,465

 

 

 

Dilutive effect of share options outstanding

4,813,711

2,135,497

Dilutive weighted average number of ordinary shares outstanding

191,270,750

188,623,962

Undiluted net profit per ordinary share

0.02

0.01

Diluted net profit per ordinary share

0.02

0.01

 

During the year-ended 31 December 2020 3,000,000 options (2019: 4,250,000 options) were excluded from the dilutive weighted average number of shares outstanding because they were anti-dilutive.

On 18 December 2020 and 21 December 2020, the Company repurchased own ordinary shares 702,874 and ordinary shares 236,452 respectively from dissenting shareholders. On 3 February 2021, the Company cancelled all repurchased ordinary shares 939,326. (see note 20).

 

 

 

24.          Dividends

 The following dividends were declared and paid by the Company during the year.

 

2020

$000

2019

$000

0.9 pence (US$ 0.01137; NOK 0.10872) per ordinary share (2019: 0.45 pence; US$ 0.00583; NOK 0.0514)

2,120

1,033

0.48 pence (US$ 0.00619; NOK 0.05683) per ordinary share

1,154

-

Total dividend paid

3,274

1,033

 

On 26 June 2020, the Company paid the full year 2019 dividend of NOK 0.10872 (GBP 0.9 pence, US$ 0.01137) per ordinary share, being a total dividend distribution of $2.1 million.

On 23 October 2020, Company paid 2020 interim dividend of NOK 0.05683 (GBP 0.48 pence, US$ 0.00619) per ordinary share, being a total dividend distribution of $1.1 million.

25.          Income taxes 

Income taxes

The Company's income tax expense for the year-end 31 December is as follows:

 

 

2020

$000

2019

$000

Profit before income taxes

2,229

987

 

 

 

Expected income tax (recovery) expense at combined Tanzanian rate of 30% (2019: 30%)

669

296

Rate differentials

    506

541

Share based compensation

     -

12

Tanzania cost gas excluded from taxable income

(3,530)

(3,367)

Movement in deferred tax assets not previously recognised and other adjustments

1,156

1,139

Income tax expense

(1,199)

(1,379)

 

The Company operates in multiple jurisdictions with complex tax laws and regulations which are evolving over time. The Company has taken certain tax positions in its tax filings and these filings are subject to audit and potential reassessment after the lapse of considerable time.  Accordingly, the actual income tax impact may differ significantly from that estimated and recorded by management. 

The Company has unrecognised deductible temporary differences that result in unrecognised deferred income tax assets of:

 

2020

$000

2019

$000

Non-capital losses

3,717

20,262

Property and equipment

(325)

(263)

Accounts receivables and others

-

16

 

3,392

20,015

 

The total non-capital losses of the Company are $116.6 million (2019: $163.6 million) of which$105.1 million are in Tanzania, $10.3 million (2019: $5.8 million) are in the UK and $1.2 million (2019: $0.7 million) are in Jersey.

 

A deferred tax asset is recognised to the extent that it is probable that taxable profit will be available against which deductible temporary differences and the loss carry forwards can be utilised.  A deferred tax asset of $6.9 million as at 31 December 2020 (2019: $5.5 million) is attributable to the accumulated tax loss carry-forward of the Company's Tanzanian subsidiary, which are expected to be offset against future taxable income.  Recognition of the tax asset is supported by the proven and probable reserves as determined by a third-party external reserves engineer, RPS Canada.

 

2020

$000

2019

$000

Balance at 1 January

5,548

4,036

Deferred income tax assets recognised in profit or loss:

 

 

Non-capital losses

(179)

820

Asset retirement obligations and

33

(50)

Deferred income tax liabilities recognised in profit or loss:

 

 

  PP&E

1,454

1,200

  Receivables

3

(458)

 

 

 

Balance at 31 December

6,859

5,548

 

26.          Financial instruments

The Company's activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk (currency fluctuations, interest rates and commodity prices). The Company's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company's financial performance. A full description of the risks and key risks affecting the business is noted in the Business Risks section of the Strategic Report.

Credit risk

Wentworth's credit risk exposure is equal to the carrying value of its cash and cash equivalents, trade, other and long-term receivables. 

Trade and other receivables are comprised predominantly of amounts due from government owned entities in Tanzania and Value Added Tax ("VAT") in Tanzania. 

The Group's ongoing exposure to trade receivables from TANESCO, the state power company, relates to the gas sales from the Mnazi Bay Concession to a TANESCO owned 18-megawatt gas-fired power plant located in Mtwara, Tanzania. At 31 December 2020, the Mnazi Bay Concession partners were owed 14 months of invoices for gas sales made to TANESCO, with $1.3 million owing to Wentworth (2019: $789k ). Due to the age of the TANESCO 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). The Company continues to engage in discussions with TANESCO to accelerate the settlement of amounts past due.

During 2015, the Group commenced gas sales to TPDC under a long-term gas sales agreement, the operator of the new transnational gas pipeline in Tanzania. Credit risk relating to sales to TPDC is substantially mitigated through a two-part payment guarantee structure. The first part relates to a prepayment amount of approximately three to four months of gas deliveries at current sales volumes which has been received and is held by the Operator of the Mnazi Bay Concession. The second part is a one-month replenishable letter of credit which is not yet executed but expected to be executed during 2020.  At 31 December 2020, the Mnazi Bay Concession partners were owed one month gas sales invoices, with $1.9 million owing to Wentworth (2019: $4.0 million).  Subsequent to year-end, TPDC has paid $3.5 million net to Wentworth.

At 31 December 2020, an undiscounted long-term receivable of $6.5 million (2019: $6.5 million) related to the Group's disposal of transmission and distribution assets, and the costs associated with the MEP incurred in prior years by a wholly owned subsidiary of Wentworth (see note 12).  On February 6, 2012, the Company, TANESCO, TPDC and MEM reached an agreement that the Group's cost of historical operations in respect of the Mtwara Energy Project should be reimbursed.

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.

The Group's cash and cash equivalents of $17,787 as at 31 December 2020 (2019: $13,487). The cash and cash equivalents are held with financial institutions which are rated below. Wherever possible ratings are provided by Fitch Ratings, however, where no rating was available from either Fitch Ratings or either of the other major international credit rating agencies such as Standard & Poors or Moodys, the bank's local credit rating was used:

 

 

Financial Institutions

 

Rating

2020

Cash held

$000

2019

Cash held

$000

Santander

A+

7,296

10,303

Standard Bank

BB-

6,049

105

FirstRand Bank

BB-

4,066

2,134

Citibank Group

A

219

24

Mauritius Commercial Bank Limited

BB-

107

107

Tanzania Postal Bank

-

31

789

RBC Royal Bank

AA

14

11

Barclays

A+

3

12

Petty cash

N/A

2

2

 

 

17,787

13,487

 

 

 

 

 

The exposure to credit risk as at:

 

2020

 

$000

2019

 

$000

Trade and other receivables

4,847

6,075

Cash and cash equivalents

17,787

13,487

 

22,634

19,562

 

Aged trade and other receivables

 

Current

 1-30 days

$000

31-60

 days

$000

61-90

 days

$000

>90

 days

$000

 

Total

$000

Balance at 31 December 2020

 

 

 

 

 

Trade receivables

2,128

94

84

954

3,260

Other receivables

1,061

-

-

526

1,587

 

3,189

94

84

1,480

4,847

Balance at 31 December 2019

 

 

 

 

 

Trade receivables

1,720

1,736

94

1,254

4,804

Other receivables

448

-

-

823

1,271

 

2,168

1,736

94

2,077

6,075

 

The movement in the allowances for impairment in respect of trade receivables and contract assets during the year was as follows (see note 11):

 

 

2020

$000

2019

$000

Balance as at 1 January

-

-

Impairment loss recognized

11

-

Impairment loss reversed

-

-

Amount written off

-

-

 

11

-

Liquidity risk

Liquidity risk is the risk that the Company will not have sufficient funds to meet its liabilities as they become payable. Other than routine trade and other payables, incurred in the normal course of business.

The table below summarises the maturity profile of the Company's financial liabilities based on contractual undiscounted payments including future interest payments on long-term loans.

 

 

Less than 1 year

$000

1 to 2 years

$000

2 to 5 years

$000

Total

$000

Balance at 31 December 2020

 

 

 

 

Trade and other payables

2,382

-

-

2,382

 

2,382

-

-

2,382

 

 

 

 

 

Balance at 31 December 2019

 

 

 

 

Trade and other payables

       2,125

-

-

2,125

Long-term loans

1,714

-

-

1,714

Future interest

18

 

 

18

 

3,857

-

-

3,857

 

The fair value of the Company's trade and other payables approximates their carrying values due to the short-term nature of these instruments.  The fair value of the long-term loans approximates their carrying amounts as they bear market rates of interest. The fair value of the other liability approximates its carrying amount.

The Company has a working capital surplus at 31 December 2020 and generated positive cash flow from operations in 2020. The Company plans to pay its financial liabilities in the normal course of operations and fund future operating and capital requirements through operating cash flows, bank debt, bank overdraft credit facility and equity raises, when deemed appropriate.  Operating cash flow of the Company is dependent upon the purchasers of natural gas, TPDC and TANESCO, continuing to meet their payment obligations on a timely manner. Any delays in collecting funds from these purchasers for an extended period of time could negatively impact the Company's ability to pay its financial liabilities in a timely manner in the normal course of business (see also Capital management section).

Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk is comprised of foreign currency risk, interest rate risk and other price risk (e.g. commodity price risk). The objective of market risk management is to manage and control market price exposures within acceptable limits, while maximising returns.

Commodity price risk

Commodity price risk is the risk that the Company suffers financial loss as a result of fluctuations in oil or natural gas prices.  The Company's exposure to commodity price risk is mitigated as the sale prices for gas sold by the Company is fixed under the existing gas sale and purchase agreements. An increase of 1% in the gas production would result in an increase of $58 (2019: $57k) in revenue.

Foreign exchange risk

Foreign exchange rate risk is the risk that the Company suffers financial loss as a result of changes in the value of an asset or liability or in the value of future cash flows due to movements in foreign currency exchange rates.  Wentworth operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Tanzanian Shilling and Pound Sterling against its functional currency of its operating entities, the US dollar. The Company's objective is to minimise its risk by borrowing funds in US dollars as revenues are paid to the US dollar. In addition, the Company holds substantially all its cash and cash equivalents in US dollars and converts to other currencies only when cash requirements demand such conversion. 

 

 

Current receivables and liabilities denominated in various currency:

 

Pound Sterling

$000

Tanzanian Shilling

$000

Other Currency

$000

United States

Dollar

$000

 

Total

$000

Balance at 31 December 2020

 

 

 

 

 

Cash and cash equivalents

95

110

123

17,459

17,787

Trade and other receivables

935

384

92

3,436

4,847

Trade and other payables

(74)

(101)

(5)

(2,202)

(2,382)

 

956

393

210

18,693

20,252

 

 

 

 

 

 

 

Pound Sterling

000

Tanzanian Shilling

$000

Other Currency

$000

United States

Dollar

$000

 

Total

$000

Balance at 31 December 2019

 

 

 

 

 

Cash and cash equivalents

1,442

47

120

11,878

13,487

Trade and other receivables

105

1,000

92

4,878

6,075

Trade and other payables

(62)

(52)

(10)

(2,001)

(2,125)

 

1,485

995

202

14,755

17,437

 

A 10% increase/decrease of the Pound Sterling against US dollar would result in a change in profit or loss before tax of $39 (2019: $28k).  In addition, a 10% increase/decrease of the Tanzanian shilling against the US dollar would result in a change in profit or loss before tax of approximately $2k (2019: $5k).

Financial instrument classification and measurement

The Company classifies the fair value of financial instruments according to the following hierarchy based on the amount of observable inputs used to value the instrument:

·    Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

·    Level 2 - Pricing inputs are other than quoted prices in active markets included in Level 1. Prices in Level 2 are either directly or indirectly observable as of the reporting date. Level 2 valuations are based on inputs, including expected interest rates, share prices, and volatility factors, which can be substantially observed or corroborated in the marketplace.

·    Level 3 - Valuation in this level are those with inputs for the asset or liabilities that are not based on observable market data.

 

 

 

The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.

 

 

Carrying amount

2020

$000

Fair value

2020

$000

Level 1

2020

$000

Level 2

2020

$000

Level 3

2020

$000

Carrying amount

2019

$000

Fair value

2019

$000

Level 1

2019

$000

Level 2

2019

$000

Level 3

2019

$000

Loans and receivables

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalent

17,787

-

-

-

-

13,487

-

-

-

-

Trade and other receivables (note 11)

4,810

4,799

-

4,799

-

6,075

-

-

-

-

Total financial assets

 

22,597

 

4,799

 

-

 

4,799

 

-

 

19,562

 

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities measured at amortised cost

 

 

 

 

 

 

 

 

 

 

Trade and other payables (note 16)

 

(2,382)

 

-

 

-

 

-

 

-

 

(2,125)

 

-

 

-

 

-

 

-

Long-term loans (note 18)

 

-

 

-

 

-

 

-

 

-

 

(1,714)

 

-

 

-

 

-

 

-

Total financial liabilities

 

(2,382)

 

-

 

-

 

-

 

-

 

(3,839)

 

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

Total financial instruments

 

20,215

 

4,799

 

-

 

4,799

 

-

 

15,723

 

-

 

-

 

-

 

-

Capital management

The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern, in order to develop its oil and gas properties and maintain a flexible capital structure for its projects for the benefit of its stakeholders. In the management of capital, the Company includes the components of shareholders' equity as well as cash and long-term liabilities.

The Company manages the capital structure and adjusts it in light of changes in economic conditions and the risk characteristics of the underlying assets. As part of its capital management process, the Company prepares budgets and forecasts, which are used by management and the Board of Directors to direct and monitor the strategy, ongoing operations and liquidity of the Company. Budgets and forecasts are subject to judgement and estimates such as those relating to future gas demand and ultimate timing of collectability of trade receivables for gas sales.  These factors may not be within the control of the Company, which may create near term risks that may impact the need to alter the capital structure. The Company continues to effectively manage its relationships with its gas purchasers to ensure timely collection and with external lenders such that lending facilities are available to the Company as and when needed. The Company may attempt to issue new shares, enter into joint arrangements or acquire or dispose of assets in order to maintain or adjust the capital structure. Management reviews the capital structure on a regular basis to ensure that the above-noted objectives are met. The Company's overall strategy remains unchanged from the prior year.

 

 

 

27.          Related party transactions

Transactions with key management personnel

Details of Directors' remuneration, which comprise key management personnel, are provided below:

 

 

2020

$000

2019

$000

  Short-term employee benefits

1,497

1,815

  LTIP charges

228

43

 

 

1,725

 

1,858

28.          Supplemental cash flow information

Change in non-cash working capital: 

 

2020

$000

2019

$000

Net change in non-cash working capital related to operating activities:

 

 

  Trade and other receivables

1,229

1,477

  Trade and other payables

284

(1,067)

 

 

1,513

 

410

 

 

Cash movements from investing activities in the Statements of Cash Flows consists of the following:

 

Property, plant and equipment

$000

TPDC receivable

$000

Year-ended 31 December 2020

 

 

 

Total additions (see note 14)

359

-

Addition decommissioning and abandonment asset (see note 19)

(299)

-

 

Cash additions/(reductions)

 

60

 

-

 

Year-ended 31 December 2019

 

 

 

Total additions/(reductions)

20

(5,238)

 

Cash additions/(reductions)

 

20

 

(5,238)

 

 

Closing balance of liabilities arising from financing liabilities:

 

 

Long-term

Loan

$000

Contingent

liability

$000

Total

liability

$000

 

Balance as at 01 January 2020

 

 

1,714

 

-

 

1,714

Changes from financing cash flows

 

 

 

 

Principal term loan repayments

                (1,664)

-

(1,664)

Total changes from financing cash flows

               

(1,664)

 

(1,664)

 

Other changes

 

 

 

 

Interest expense

 

13

 

-

 

13

Interest paid

(38)

-

(38)

Finance cost accretion

(25)

-

(25)

 

Total liabilities related to other charges

 

(50)

 

(50)

 

Balance as at 31 December 2020

 

-

 

-

 

-

 

 

 

 

 

 

Balance as at 1 January 2019

 

 

8,779

 

848

 

9,627

Changes from financing cash flows

 

 

 

 

Principal term loan repayments

(6,661)

-

(6,661)

Contingent liability payment

-

(848)

(848)

 

Total changes from financing cash flows

 

(6,661)

 

(848)

 

(7,509)

 

Other changes

 

 

 

 

Interest expense

 

474

 

-

 

474

Interest paid

(593)

-

(593)

Finance cost accretion

(285)

-

(285)

 

Total liabilities related to other charges

 

(404)

 

-

 

(404)

 

Balance as at 31 December 2019

 

1,714

 

-

 

1,714

 

 

 

 

 

 

 

 

2020

$000

2019

$000

Finance income

 

 

Interest income

82

21

Foreign exchange gain

37

-

Accretion - finance cost

27

285

 

 

146

 

306

 

 

 

Finance costs

 

 

Accretion - decommissioning provision

(130)

(116)

Interest expense

(13)

(493)

Foreign exchange loss

-

(129)

Discount on receivable

(11)

-

 

 

(154)

 

(738)

Finance costs/(income), net

 

(8)

 

(432)

 

29.          Commitments

Lease payments

The Group has office locations in Jersey, Tanzania and the United Kingdom.  The future minimum lease payments associated with these office premises as at 31 December 2020 is $38k committed for year 2021.

 

30.          Subsequent events

On 14 January 2021, the Company provided a financial and operational update, setting 2021 production guidance at 65-75 MM/scf/day (gross).

On 2 February 2021, the Company announced the completion of the Independent Reserves Assessment Report in which Wentworth's share of gross 2P Reserves as at 31 December 2020 was estimated by RPS Group to be 142.2 Bcf (23.7 MMboe) with a post-tax NPV10 of $116.6 million.

On 19 February 2021, the Company announced its membership to the United Nations (UN) Global Compact, a voluntary initiative to promote the development, implementation and disclosure of responsible business practices. 

About Wentworth Resources

Wentworth Resources plc (AIM: WEN) is a leading, domestic natural gas producer in Tanzania with a core producing asset at Mnazi Bay in the onshore Rovuma Basin in Southern Tanzania. The power demand base in-country is growing and with an ambitious universal energy access target set by the Government for 2030, Wentworth has a vital role to play in increasing access by ensuring a reliable, affordable and growing supply of natural gas into the local market. In 2019, Wentworth launched its sustainable dividend policy and remains committed to responsible growth that maintains returns for shareholders.

Cautionary note regarding forward-looking statements

This press release may contain certain forward-looking information. The words "expect", "anticipate", believe", "estimate", "may", "will", "should", "intend", "forecast", "plan", and similar expressions are used to identify forward looking information.

The forward-looking statements contained in this press release are based on management's beliefs, estimates and opinions on the date the statements are made in light of management's experience, current conditions and expected future development in the areas in which Wentworth is currently active and other factors management believes are appropriate in the circumstances. Wentworth undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless required by applicable law.

Readers are cautioned not to place undue reliance on forward-looking information. By their nature, forward-looking statements are subject to numerous assumptions, risks and uncertainties that contribute to the possibility that the predicted outcome will not occur, including some of which are beyond Wentworth's control. These assumptions and risks include, but are not limited to: the risks associated with the oil and gas industry in general such as operational risks in exploration, development and production, delays or changes in plans with respect to exploration or development projects or capital expenditures, the imprecision of resource and reserve estimates, assumptions regarding the timing and costs relating to production and development as well as the availability and price of labour and equipment, volatility of and assumptions regarding commodity prices and exchange rates, marketing and transportation risks, environmental risks, competition, the ability to access sufficient capital from internal and external sources and changes in applicable law. Additionally, there are economic, political, social and other risks inherent in carrying on business in Tanzania. There can be no assurance that forward-looking statements will prove to be accurate as actual results and future events could vary or differ materially from those anticipated in such statements.

Notes and Glossary

These assessments are made in accordance with the standards defined in the Petroleum Resources Management System (Revised 2018) sponsored by SPE, WPC, AAPG, SPEE, SEG, SPWLA, and EAGE.

Cameron Snow, Head of Subsurface and Business Development, is a geologist with 15 years' experience across North America, South America, Africa, and Europe.  He holds a BS in Geology from North Carolina State University, an MS in Geology from Utah State University, a PhD in Geological and Environmental Science from Stanford University, and an MBA from Imperial College London. Mr. Snow has read and approved the technical disclosure in this regulatory announcement. 

2P

Proved + Probable Reserves, those additional Reserves which analysis of geoscience and engineering data indicate are less likely to be recovered than Proved Reserves but more certain to be recovered than Possible Reserves. It is equally likely that actual remaining quantities recovered will be greater than or less than the sum of the estimated Proved plus Probable Reserves

Bcf/Bscf

Billion standard cubic feet

Gross Reserves

Reserves volumes before deductions for royalty

MMscf

Million standard cubic feet

MMscf/d

Million standard cubic feet per day

Mscf

Thousand standard cubic feet

NPV

Net present value (at a specified discount rate and specified discount date)

Reserves

Quantities of petroleum anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions.

 

Inside Information

The information contained within this announcement is deemed by Wentworth to constitute inside information as stipulated under the Market Abuse Regulation (EU) no. 596/2014 ("MAR"). On the publication of this announcement via a Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain.

-Ends-

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