Source - LSE Regulatory
RNS Number : 6690C
Petro Matad Limited
22 June 2021
 

 

THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED BY PETRO MATAD LIMITED TO CONSTITUTE INSIDE INFORMATION AS STIPULATED UNDER THE UK VERSION OF THE MARKET ABUSE REGULATION (EU) NO. 596/2014 AS IT FORMS PART OF UNITED KINGDOM DOMESTIC LAW BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018 ("UK 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.

 

22 June 2021

Petro Matad Limited

("Petro Matad" or the "Company")

Final results for year ended 31 December 2020

 

Petro Matad Limited ("Petro Matad" or "the Company"), the AIM quoted Mongolian oil company, announces its audited final results for the year ended 31 December 2020. All monetary values are expressed in United States dollars unless stated otherwise.

 

Block XX Operational Highlights

During the course of 2020 Petro Matad focused on progressing the Block XX Exploitation Licence application, working closely with the relevant Mongolian government authorities.

The Company applied for and was granted a moratorium on Block XX whilst the Exploitation Licence application progressed.

A Competent Persons' Report for the northern part of Block XX including the Heron structure was prepared by independent reserves certifiers LEAP Energy.  LEAP's total mean unrisked in-place oil resource estimation for the Heron structure was 194 million barrels, some 20% higher than Petro Matad's internal estimate.

The Company secured approval of the Detailed Environmental Impact Assessment (DEIA) for the Heron development phase as part of the Block XX Exploitation Licence application process.

The Ministry of Mining and Heavy Industry (MMHI) approved the Company's Reserves Report for the Heron discovery which is a critical step in securing the Exploitation Licence.

An assay of Heron 1 oil was carried out and confirmed that it is a light, sweet, waxy crude very similar to the oil produced in the neighbouring Blocks XIX and XXI and is one of the lightest oils found to date in the Tamtsag Basin.

 

 

Blocks IV & V Operational Highlights

The Company relinquished Block IV with a view to potential partnering and relicensing of its more prospective areas in the future. The Company made a partial relinquishment of Block V, retaining the prospective Taats and Tugrug basins and applied for and was granted a moratorium to allow more time to secure partners and/or funding for the next phase of Block V exploration.

 

Corporate Highlights

The Company put in place cost saving measures to preserve its financial resources while progressing the Block XX Exploitation Licence application, recognising the delays caused by the COVID-19 pandemic.

The Company announced in October the retirement of John Henriksen who served as Executive Director and Chief Financial Officer since 2012, with the resignation effective as of 31 December 2020.

 

Financial Highlights

At 31 December 2020, the Group's cash position was $939,000 including Term Deposits (Financial Assets) (31 December 2019: $2.8 million).

The Group's net loss after tax for the twelve months ended 31 December 2020 was $3.2 million (31 December 2019: loss $16.8 million).

No dividends have been paid or are proposed in respect of the year ended 31 December 2020 (2019: Nil).

 

Post Period End

The Block XX Exploitation Licence application continues to progress through the government's approval process.

The Company and the Mineral Resources and Petroleum Authority of Mongolia (MRPAM) have agreed the area of Block XX that will be retained under the Exploitation Licence which includes the entire extension into Block XX of the proven and producing Toson Uul Basin.

A Competent Persons' Report for the northern part of Block XX including the Heron structure was prepared by independent reserves certifiers LEAP Energy.  LEAP's total mean unrisked in-place oil resource estimation for the Heron structure was 194 million barrels, some 20% higher than Petro Matad's internal estimate.

Petro Matad has now lodged with MMHI its formal application for the award of the Block XX Exploitation Licence.

To ensure funding of the Company through the Exploitation Licence application process and the preparations for the next phase of operations, the Company's largest and founding shareholder, Petrovis Matad Inc. (Petrovis) agreed to make available to the Company a loan facility of up to $1.5 million, against which the Company can draw funds as required. $0.45 million was drawn in June 2021 to meet ongoing running costs.

 

Mike Buck, CEO of Petro Matad, said:

 

"There is no doubt that 2020 was a challenging year due to the disruption triggered by the global health pandemic. Despite the difficulties, the Company worked hard throughout to progress the application for the Exploitation Licence for Block XX through a complex and lengthy process. We appreciate the patience that many of our shareholders have shown as we continue to work with the Mongolian Government to secure the requisite approvals. The formal application for award of the licence has now been submitted to the Ministry and we are working with the relevant departments as they process the necessary documentation."

 

About Petro Matad

Petro Matad is the parent company of a group focussed on oil exploration, as well as future development and production in Mongolia. At the current time, Petro Matad holds 100% working interest and the operatorship of two Production Sharing Contracts with the Government of Mongolia. Block XX has an area of 10,367 square kilometres in the far eastern part of the country and Block V has an area of 7,937 square kilometres in the central western part of the country.

 

Petro Matad Limited is incorporated in the Isle of Man under company number 1483V. Its registered office is at Victory House, Prospect Hill, Douglas, Isle of Man, IM1 1EQ.

 

For more information, please contact:

 

Petro Matad Limited

 

Mike Buck, CEO

+97 670 141 099 / +97 675 751 099

 

 

Shore Capital (Nominated Adviser and Broker)

Toby Gibbs

Jerry Keen

John More

+44 (0) 20 7408 4090

 

FTI Consulting (Communications Advisory Firm)

 

Sara Powell

Ben Brewerton

+44 (0) 20 3727 1000

 

Annual Report and Accounts

 

The Company's statutory annual report and accounts will be dispatched electronically to shareholders and will be posted to shareholders who have elected to receive hard copies of the Annual Report. Additional copies of the Annual Report may be requested directly from the Company and an electronic copy is available on the Company's website www.petromatadgroup.com.

 

Annual General Meeting ("AGM")

 

A notice of the Company's AGM will be distributed in due course and made available on the Company's website www.petromatadgroup.com.

 

All Reserves and Resources definitions and estimates shown in this report are based on the 2018 SPE/AAPG/WPC/SPEE Petroleum Resource Management System ("PRMS").

 

Technical information in this news release has been reviewed by the Company's Exploration Manager, Mr. Jerry Smart. He has 38 years of industry experience in oil and gas exploration and production with LASMO, Eni, Salamander Energy and Ophir Energy. He holds a B.Sc. in Geology from King's College, London.

 

Directors' Statement

Summary

Throughout 2020 the Company focused its attention on completing documentation and engaging with the various agencies in the Mongolian government to advance the approval processes to obtain the Exploitation Licence for the appraisal and development of its Heron oil discovery in northern Block XX in eastern Mongolia.

Covid-19 protocols introduced and enforced by the Mongolian government at the start of the pandemic along with mid-year Parliamentary elections and October local elections contributed to delays in the Exploitation Licence approvals process. However, the government recognises that the Company has been the country's most active oil explorer over recent years and that the success of its 2019 exploration efforts is very well timed in light of the government's commitment to the construction of a new domestic oil refinery. While approval processes have moved slowly, the Company is grateful for the support of the government at all levels during its engagement with various administrative bodies and looks forward to constructive engagement moving forward.

The Company has now completed all the stages of the government's Exploitation Licence application process and has lodged the formal application for the granting of the licence.

 

Covid-19

The proactive approach taken by the Mongolian government commencing in early 2020 was highly effective in preventing community spread in the country until November 2020 when the first cases in community were reported. A substantial effort to contain the outbreak, including full lockdowns and partial lockdowns has been implemented, however the number of cases in Mongolia has continued to grow and the government is now focused on balancing business needs with virus mitigation until such time that the majority of the population is vaccinated. Large scale vaccination operations commenced in March 2021 and the effort continues with the goal of completing the vaccination of all citizens aged 18 and above (which compromises 60% of the population) by 1 July 2021.

Petro Matad's staff have been able to function effectively through a combination of working from home and in the office. Throughout, the Company has been liaising with the authorities and is taking all precautions to ensure the safety of its staff and contractors. Field activities of companies operating in Mongolia through 2020 were impacted by the restrictions in place but in Q2 2021 restrictions were eased and operability appears to be improving. This is encouraging in light of Petro Matad's plans for appraisal and development activity on the Heron oilfield once the Exploitation Licence is in hand.

 

2020 Review

HSSE

As part of the Company's ongoing process of continual improvement, the Company's Health, Safety, Security and Environmental Management System (HSSE MS) which is fully structured to follow International Association of Oil and Gas Producers (IOGP) guidelines has been adapted to accommodate best practice in mitigating the impacts of the Covid-19 pandemic. The Company's efforts have been very successful in this regard. Meanwhile, as per standard practice, all reported HSSE incidents continue to be fully investigated, recorded and classified according to IOGP guidelines and learnings are openly shared through the management review process. 

The Company is fully committed to environmental protection and ensures all practical measures are implemented to comply with national and international standards with reference to ISO 14001 as the benchmark.

The Company is pleased to report that Petro Matad along with its sub-contractors followed all Mongolian national standards in all aspects of the 2020 operations and there were no environmental incidents, lost time incidents or recordable incidents during 2020.

The Company has had its Detailed Environmental Impact Assessment (DEIA) for the Heron Development approved by the Ministry of Environment. This is a major milestone as the field work, documentation and local community engagement requirements in the preparation of the DEIA are significant and time consuming. An approved DEIA is one of the documents required to get the final ministerial sign off on the Exploitation Licence. Securing the DEIA approval while countrywide Covid-19 restrictions remained in force was achieved with the cooperation of central and local government bodies and with the hard work of the Company's HSSE and Community Relations departments.

Operations

Throughout 2020 the Company was primarily focused on securing the Exploitation Licence on Block XX. In addition to progressing the approval process, major milestones achieved were the preparation of a Competent Persons' Report which provided the first independent review of the Company's reserves and resources in Block XX, and the preparation of a detailed Reserves Report which was presented to the government and was approved. An assay of the Heron  1 well crude oil was also prepared and it confirmed that the oil is a sweet, light, waxy, high quality crude and, as expected, is very similar to the oils produced in neighbouring Block XIX.

Based on the government's approval of the Reserves Report, Petro Matad formally declared its intention to develop the Heron discovery. Subsequently an Exploitation Area was agreed between the Company and the industry regulator, the Mineral Resources and Petroleum Authority of Mongolia (MRPAM) and has been confirmed in a protocol signed by both parties. The area contains the entire Heron structure, the nearby Gazelle discovery and the surrounding prospectivity identified within the proven and prolific oil producing Toson-Uul sub-basin.

As required under the government's Exploitation Licence application process, a Plan of Development (PoD) has to be prepared by the Company and approved by the Mineral Resources Professional Council (MRPC). The approval of the PoD is the final step in the Exploitation Licence application process and after the clarifications requested by MRPC were provided by the Company, MRPC members signed off on the outstanding items and the Council is now finalising its conclusion. The formal application for the Block XX Exploitation Licence has now been submitted to the Ministry of Mining and Heavy Industry (MMHI) requesting the Minister to award the Licence.

As part of the PoD preparations Petro Matad and Petro China, operator of neighbouring Block XIX,  discussed the technical and commercial aspects of the potential unitisation of the Heron oilfield which straddles the boundary of Block XIX and Block XX. The companies agreed that unitisation and joint development are not merited due to the nature of the deposit and its relatively small extension into Block XIX. This conclusion, covered in a Memorandum of Understanding (MoU) between the companies, has the advantage that it saves considerable time and effort in preparing a joint development plan. The conclusion was incorporated into the Block XX PoD. The MoU also includes the agreement that Petro Matad and Petro China will discuss, agree and formalise how Petro Matad will access Petro China's Block XIX infrastructure to exploit economies of scale and operating efficiencies.

Production Sharing Contracts (PSCs)

Block XX: A moratorium was secured for calendar year 2020 whilst the process of applying for the Exploitation Licence was progressed. With the Exploitation Area now approved and Petro Matad's declaration of intent to develop on file, the PSC remains valid for the Exploitation Area and the remainder of Block XX will be returned to the government as per the Petroleum Law and the PSC upon the expiry of the exploration period in July 2021.

Block V: The Company has identified significant exploration potential in the Taats and Tugrug basins within the area of the Block V PSC. In order to preserve the potential for further exploration whilst the Covid-19 pandemic was impacting operability in Mongolia, the Company applied for moratoria on Block V covering 2020 and 2021. These applications were approved by MRPAM and extend the exploration phase on Block V until 29 July 2023.

Block IV: Following post well studies on the Wild Horse 1 well drilled in 2018 and recognising the short time that then remained on the Block IV PSC without any clearly defined, high-graded drillable targets, the Company proposed to the government to relinquish the block with a view to potential partnering and re-licencing of its more prospective areas in the future. The relinquishment process has now been completed.

New Areas: The Company has identified a number of technically attractive areas in Mongolia with a view to submitting requests to the government to review data on areas that are not currently licenced. The Company wants to exploit its pre-eminent position in Mongolia as a technically and operationally competent upstream operator and a prospective partner of choice. Pursuing new areas with a view to signing new PSCs will allow the Company to re-load the portfolio and can provide Petro Matad with a balance of production, development, appraisal, near field and high impact exploration.

Community Relations

The Company takes its responsibilities in community engagement and community relations very seriously. In advance of any work programme activity being undertaken, the Company ensures that it obtains the necessary approvals from MRPAM and all other relevant authorities. Company staff participate in joint meetings with the regulator and the local communities to present and discuss planned activities. In addition to meeting local government officials, the socialisation programmes will typically include town hall meetings where questions from local residents are answered. Company representatives will also meet with nomadic herders who may be in proximity to planned operations to ensure all parties are listened to. Representatives from the Community Relations team are stationed at site during all operational activities.

A focused programme of community projects is undertaken in areas where operations are conducted and this is done in cooperation with local government. The Company views engagement with local communities as key to conducting safe and successful operations that will in turn benefit the local area.

Due to the Covid-19 pandemic and lack of field operations in 2020, the Company did not undertake any substantial community projects during the year. The Company will carefully review options for targeted community assistance programmes once operations in the field recommence. Meetings with local communities will be arranged well in advance of future field operations.

Short-Term Funding Considerations

As the Company reported in 2020, cash conservation initiatives were implemented to extend the life of the Company's existing cash resources through to mid-2021, a period deemed long enough at that time to secure the Exploitation Licence and make preparations for the next phase of the Company's development. In light of the slow progress on the licence application, the Board took steps to secure the financial good standing of the Company beyond mid-2021 and has procured an unsecured loan facility from its major and founding shareholder, Petrovis.

Petrovis agreed to make available to Petro Matad a line of credit of up to US$1.5 million, to be drawn when needed to maintain the Company's operating capability, to see it through to the award of the Exploitation Licence and to prepare for subsequent development operations. Interest on the loan will be paid at effectively the same rate that Petrovis secures US dollar financing from its banks (currently 10%). The loan will be repaid by one or more of the following:

From production revenue with repayment starting no earlier than 2023.

The amount drawn plus interest will be rolled into the Petrovis contribution to any future equity fund raising that may be undertaken.

From the proceeds (payment of back-costs) of a successful farm-out.

The loan will be drawn as required and based on current and forecast operating costs could fund the Company at its current level of staffing and activity through to Q3 2022 if necessary. With this funding mechanism available, Petro Matad has the finances it needs to complete the Exploitation Licence application process and to prepare for development operations on the Heron oilfield.

 

Conclusion

After a long period of exploration in Mongolia, the Company is finally poised to add production and development to its activities.

 

Acknowledgements

The combination of the global pandemic, its impact upon financial markets and the significant reduction in the oil price made it a testing time for all those that operate in our industry in 2020. Although the pandemic is not over, Petro Matad is determined to weather the storm and prepare for the next phase of operations.

The Directors would like to express their appreciation to the staff of Petro Matad, both technical and non-technical, who have continued to work with enthusiasm, diligence and dedication throughout these trying times. The Board looks forward to an exciting time ahead with the full commitment of the Petro Matad team as we enter the next phase of the Company's development.

The Board is fully committed to creating shareholder value and would like to express its gratitude to shareholders for their continued support of the Company. Special mention of our largest shareholder, Petrovis, is warranted as they have once again stepped up to assist the Company with the execution of the 2021 loan agreement.

 

 

Consolidated Statement of Profit or Loss and Other Comprehensive Income

For the year ended 31 December 2020

 

 

 

Consolidated

 

 

 

 

 

 

 

31 Dec 2020

31 Dec 2019

 

 

 Note

$'000

$'000

 

 

 

 

 

 

Continuing operations

 

 

 

 

Revenue

 

 

 

 

Interest income

4(a)

25

765

 

Other income

4(a)

39

4

 

 

 

64

769

 

Expenditure

 

 

 

 

Consultancy fees

 

(80)

(130)

 

Depreciation and amortisation

 

(224)

(174)

 

Employee benefits expense

4(b)

(1,598)

(4,092)

 

Exploration and evaluation expenditure

4(c)

(433)

(10,916)

 

Other expenses

4(d)

(974)

(2,291)

 

(Loss)/Profit from continuing operations before income tax

 

(3,245)

(16,834)

 

 

 

 

 

 

Income tax expense

5

-

-

 

(Loss)/Profit from continuing operations after income tax

 

(3,245)

(16,834)

 

 

 

 

 

 

Net (loss)/profit for the year

 

(3,245)

(16,834)

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

Items that may be reclassified subsequently to profit or loss:

 

 

 

 

Exchange differences on translating foreign operations, net of income tax of $Nil (2019: $Nil)

 

(16)

(14)

 

Other comprehensive (loss)/income for the year, net of income tax

 

(16)

(14)

 

 

 

 

 

 

Total comprehensive (loss)/income for the year

 

(3,261)

(16,848)

 

 

 

 

 

 

 

 

 

 

 

(Loss)/Profit attributable to owners of the parent

 

(3,245)

(16,834)

 

 

 

 

 

 

Total comprehensive (loss)/income attributable to owners of the parent

 

(3,261)

(16,848)

 

 

 

 

 

 

 

 

 

 

 

 (Loss)/Earnings per share (cents per share)

 

 

 

 

 

 

 

 

 

Basic (loss)/earnings per share

6

(0.5)

(2.5)

 

Diluted (loss)/earnings per share

6

(0.5)

(2.5)

           

 

 

 

 

The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes.

 

 

 

Consolidated Statement of Financial Position

As at 31 December 2020

 

 

 

Consolidated

 

 

 

 

 

 

31 Dec 2020

31 Dec 2019

 

 Note

$'000

$'000

 

 

 

 

ASSETS

 

 

 

Current Assets

 

 

 

Cash and cash equivalents

7

939

2,815

Trade and other receivables

8

10

23

Prepayments

9

222

155

Financial assets

10

11

1,510

Inventory

11

224

226

Total Current Assets

 

1,406

4,729

 

 

 

 

Non-Current Assets

 

 

 

Exploration and evaluation assets

12

15,275

15,275

Property, plant and equipment

13

145

260

Right-of-Use asset

13

36

-

Total Non-Current Assets

 

15,456

15,535

TOTAL ASSETS

 

16,862

20,264

 

 

 

 

LIABILITIES

 

 

 

Current Liabilities

 

 

 

Trade and other payables

14

364

502

Lease liability

14

25

-

Total Current Liabilities

 

389

502

 

 

 

 

TOTAL LIABILITIES

 

389

502

 

 

 

 

NET ASSETS

 

16,473

19,762

 

 

 

 

 

 

 

 

EQUITY

 

 

 

Equity attributable to owners of the parent

 

 

 

Issued capital

15

144,011

143,174

Reserves

16

1,392

3,062

Accumulated losses

 

(128,930)

(126,474)

TOTAL EQUITY

 

16,473

19,762

 

 

 

 

 

 

 

 

The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.

 

 

 

Consolidated Statement of Cash Flows

For the year ended 31 December 2020

 

 

 

Consolidated

 

 

 

 

 

 

31 Dec 2020

31 Dec 2019

 

 Note

$'000

$'000

 

 

 

 

Cash flows from operating activities

 

 

 

Payments to suppliers and employees

 

(3,340)

(17,598)

Interest received

 

25

765

Other income

 

52

-

Net cash flows (used in)/provided by operating activities

7

(3,263)

(16,833)

 

 

 

 

Cash flows from investing activities

 

 

 

Purchase of property, plant and equipment

 

(13)

(105)

Proceeds from the sale of financial assets

 

1,499

17,651

Proceeds from the sale of property, plant and equipment

 

-

5

Net cash flows used in investing activities

 

1,486

17,551

 

 

 

 

Cash flows from financing activities

 

 

 

Proceeds from issue of shares

 

31

-

Capital raising cost

 

-

-

Payments of lease liability principal

 

(114)

-

Net cash flows from financing activities

 

(83)

-

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

(1,860)

718

 

 

 

 

Cash and cash equivalents at beginning of the year

 

2,815

2,111

Net foreign exchange differences

 

(16)

(14)

Cash and cash equivalents at the end of the year

7

939

2,815

 

 

 

 

 

 

 

The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.

 

 

 

Consolidated Statement of Changes in Equity

For the year ended 31 December 2020

 

 

 

Consolidated

 

 

 

Attributable to equity holders of the parent

 

 

 

Issued

Capital

Accumulated Losses

Other

Reserves

Total

 

 

 

 

 

Note 16

 

 

 

 Note

$'000

$'000

$'000

$'000

 

As at 1 January 2019

 

143,174

(109,809)

2,660

36,025

 

 

 

 

 

 

 

 

Net loss for the year

 

-

(16,834)

-

(16,834)

 

Other comprehensive income

 

-

-

(14)

(14)

 

Total comprehensive gain/(loss) for the year

 

-

(16,834)

(14)

(16,848)

 

 

 

 

 

 

 

 

Issue of share capital

15

-

-

-

-

 

Cost of capital raising

15

-

-

-

-

 

Share-based payments

15 & 16

-

-

585

585

 

Exercise of Conditional Share Awards

15, 16 & 17

-

-

-

-

 

Expiry of Options

16 & 17

-

169

(169)

-

 

As at 31 December 2019

 

143,174

(126,474)

3,062

19,762

 

 

 

 

 

 

 

 

Net loss for the year

 

-

(3,245)

-

(3,245)

 

Other comprehensive income

 

-

-

(16)

(16)

 

Total comprehensive gain/(loss) for the year

 

-

(3,245)

(16)

(3,261)

 

 

 

 

 

 

 

 

Issue of share capital

15

192

-

-

192

 

Cost of capital raising

15

-

-

-

-

 

Share-based payments

15 & 16

-

-

(220)

(220)

 

Exercise of Conditional Share Awards

15, 16 & 17

645

-

(645)

-

 

Expiry of Options

16 & 17

-

789

(789)

-

 

As at 31 December 2020

 

144,011

(128,930)

1,392

16,473

 

 

 

 

 

 

The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.

 

 

 

Notes to the Consolidated Financial Statements

For the year ended 31 December 2020

 

1    Corporate information

 

The financial report of Petro Matad Limited (Company) for the year ended 31 December 2020 was authorised for issue in accordance with a resolution of the Directors dated 18 June 2021, which was approved on 22 June 2021.

 

This financial report presents the consolidated results and financial position of Petro Matad Limited and its subsidiaries. 

 

Petro Matad Limited (Company) incorporated in the Isle of Man on 30 August 2007 has four wholly owned subsidiaries, including Capcorp Mongolia LLC and Petro Matad LLC (both incorporated in Mongolia), as well as Central Asian Petroleum Corporation Limited (Capcorp) and Petromatad Invest Limited (both incorporated in the Cayman Islands). The Company and its subsidiaries are collectively referred to as the "Group". The Group's principal activity in the course of the financial year consisted of oil exploration in Mongolia.

 

Petrovis Matad Inc. (Petrovis) is a major shareholder of the Company, holding approximately 21.44% of the shareholding at the year end of 2020.

 

2    Summary of significant accounting policies

 

(a)  Basis of preparation

 

This financial report complies with International Financial Reporting Standards (IFRS) as adopted by the European Union.

 

This financial report has been prepared on a historical cost basis, except where otherwise stated. Historical cost is generally based on the fair values of the consideration given in exchange for goods and services. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique.

 

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

·      Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

·      Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

·      Level 3 inputs are unobservable inputs for the asset or liability.

 

For the purpose of preparing the consolidated financial statements, the Company is a for-profit entity.

 

(b)  Statement of compliance

 

This general-purpose financial report has been prepared in accordance with the requirements of all applicable IFRS as adopted by the European Union and related Interpretations and other authoritative pronouncements. 

 

(c)  Going concern

 

The financial statements have been prepared on a going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the ordinary course of business.

 

The Group generated a loss of $3.25 million (2019: $16.83 million loss) and experienced net cash outflows from operating activities of $3.26 million (2019 outflow: $16.83 million). In addition, as outlined in Note 18(b) the Group is required to meet minimum exploration commitments on its Block XX Production Sharing Contract (PSC) of approximately $6.96 million as of 31 December 2021. The Company has reached an agreement with the Mineral Resources and Petroleum Authority of Mongolia (MRPAM) that this underspent minimum exploration commitment can be transferred to and spent on exploration and appraisal activities during the exploitation period. The documentation confirming this agreement is currently being formalized. The Company's application for a 25-year Exploitation Licence (EL) for Block XX is at an advanced stage with approval expected in the near future. Once the EL is obtained, the Company will be in a position to initiate a

 

 

Notes to the Consolidated Financial Statements

For the year ended 31 December 2020

 

2     Summary of significant accounting policies (continued)

 

(c)   Going concern (continued)

 

fundraise for appraisal and development of the Heron discovery, including expenditure to satisfy the aforementioned shortfall.

 

The delay in EL approval and requirement for a fundraise to commence appraisal and development activities are conditions that indicate a material uncertainty that may cast significant doubt over the Group's ability to continue as a going concern.

 

The Company's current cash balance is insufficient to continue operations beyond July 2021. To address this situation, the Company's largest and founding shareholder, Petrovis has agreed to make available to the Company a loan of up to $1.5 million, against which the Company can draw funds as required. This facility ensures the Company will be able to operate until late 2022, if unexpectedly, the EL is not approved in the near-term.

 

Although the Company is fully funded for its planned activities in 2021, the ability of the Group to continue as a going concern beyond 2021 is principally dependent upon one or more of the following:

·      Obtaining approval from the Ministry of Mining and Heavy Industry (MMHI) the Block XX Exploitation Licence;

·      Raising additional equity;

·      Securing farm-out agreements to fund operations beyond 2021.

 

The Company handed back its Block IV PSC with no financial commitment remaining and MRPAM has approved the return of the Block.

 

Cumulative expenditures to end 2020 in Block V exceed financial commitments by $3.90 million. In 2020, the Company relinquished 13,206.41 sq kms of the Block (retaining 7,936.95 sq kms) and this has been formally approved by MRPAM.  The Company applied for moratoria on Block V for both 2020 and 2021 which have been approved by MRPAM. The Block V PSC exploration term is now due to expire in July 2023.

 

The Directors have prepared a cash flow forecast which indicates that the Group will have sufficient cash to meet their working capital requirements for the twelve-month period from the date of signing the financial report.

 

The Directors are satisfied that they will achieve successful outcomes in relation to the matters set out above and therefore the going concern basis of preparation is appropriate. The financial report has therefore been prepared on the going concern basis, which assumes continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business.

 

Should the Group be unable to achieve the matters referred to above, there is a material uncertainty whether the Group will be able to continue as going concerns beyond 2022 and, therefore, whether it will realise its assets and discharge its liabilities in the normal course of business and at amounts stated in the financial report.

 

The financial report does not include adjustments relating to the recoverability and classification of recorded asset amounts nor to the amounts and classification of liabilities that might be necessary should the Group not continue as a going concern.

 

(d)  Application of new and revised Accounting Standards

 

Accounting Standards that are mandatorily effective for the current reporting year

 

The Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) that are relevant to its operations and effective for an accounting period that begins on or after 1 January 2020. New and revised Standards and amendments thereof and Interpretations effective for the current year that are relevant to the Group include:

·      AASB 2018-6 Amendments to Australian Accounting Standards - Definition of a Business

·      AASB 2018-7 Amendments to Australian Accounting Standards - Definition of Material

·      AASB 2019-1 Amendments to Australian Accounting Standards - References to the Conceptual Framework

·      AASB 2019-3 Amendments to Australian Accounting Standards - Interest Rate Benchmark Reform

·      AASB 2019-5 Amendments to Australian Accounting Standards - Disclosure of the Effect of New IFRS Standards Not Yet Issued in Australia.

 

The Directors have determined that there is no material impact of the new and revised Standards and Interpretations on the Group and, therefore, no material change is necessary to Group accounting policies.

 

Notes to the Consolidated Financial Statements

For the year ended 31 December 2020

 

2     Summary of significant accounting policies (continued)

 

(d)   Application of new and revised Accounting Standards (continued)

 

Standards and Interpretations in issue not yet adopted

 

At the date of authorisation of the financial statements, the Group has not applied the new and revised Australian Accounting Standards, Interpretations and amendments that have been issued but are not yet effective.  Based on a preliminary review of the standards and amendments, the Directors do not anticipate a material change to the Group's accounting policies, however further analysis will be performed when the relevant standards are effective.

 

(e)  Basis of consolidation

       

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company and its subsidiaries. Control is achieved when the Company:

·      has power over the investee;

·      is exposed, or has rights, to variable returns from its involvement with the investee; and

·      has the ability to use its power to affect its returns.

 

The Company reassesses whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

 

The financial statements of the subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

 

The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist.

 

A change in the ownership interest of a subsidiary that does not result in a loss of control is accounted for as an equity transaction.

 

All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered.

 

(f)   Foreign currency translation

 

Functional and presentation currency

 

Both the functional and presentation currency of Petro Matad Limited is United States Dollars (USD). The Cayman Island subsidiaries' functional currency is USD. The Mongolian subsidiaries' functional currency is Mongolian Tugrugs (MNT) which is then translated to the presentation currency, USD.

                                                                                                                                                                    

Transactions and balances

 

Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date.

 

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

 

Exchange differences are recognised in profit or loss in the period in which they arise except for:

Exchange differences on transactions entered into to hedge certain foreign currency risks; and

Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on disposal or partial disposal on the net investment.

 

Translation of subsidiaries' functional currency to presentation currency

 

The results of the Mongolian subsidiaries are translated into USD (presentation currency) as at the date of each transaction. Assets and liabilities are translated at exchange rates prevailing at the reporting date.

Notes to the Consolidated Financial Statements

For the year ended 31 December 2020

 

2     Summary of significant accounting policies (continued)

 

(f)    Foreign currency translation (continued)

 

Exchange differences resulting from the translation are recognised in other comprehensive income and accumulated in the foreign currency translation reserve in equity.

 

On consolidation, exchange differences arising from the translation of the net investment in Mongolian subsidiaries are recognised in other comprehensive income and accumulated in the foreign currency translation reserve. If a Mongolian subsidiary was sold, the proportionate share of exchange difference would be transferred out of equity and recognised in profit and loss.

 

(g)  Cash and cash equivalents

 

Cash and short-term deposits in the statement of financial position comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.

 

For the purposes of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

 

(h)  Trade and other receivables

 

Trade receivables, which generally have 30-60 day terms, are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less an allowance for impairment.

 

Collectability of trade receivables is reviewed on an ongoing basis. An impairment provision is recognised when there is objective evidence that the Group will not be able to collect the receivable. Objective evidence of impairment includes financial difficulties of the debtor, default payments or debts more than 60 days overdue. The amount of the impairment loss is the amount by which the receivable carrying value exceeds the present value of the estimated future cash flows, discounted at the original effective interest rate.

 

(i)   Plant and equipment

 

Plant and equipment is stated at historical cost less accumulated depreciation and any impairment in value.

 

Depreciation is calculated on a straight-line basis over the estimated useful life of the asset and is currently estimated to be an average of 6 years.

 

The assets' residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end.

 

Derecognition

 

An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal.

 

(j)   Financial instruments

 

Initial recognition and measurement

 

Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions to the instruments. For financial assets, this is equivalent to the date that the Company commits itself to either purchase or sell of the asset (i.e. trade date accounting is adopted).

 

Financial instruments are initially measured at fair value plus transaction costs, except where the instruments is classified at 'Fair value through profit or loss' in which case transaction costs are expensed to profit or loss immediately. Financial instruments are classified and measured as set out below.

 

Classification and subsequent measurement

 

Financial instruments are subsequently measured at either fair value, amortised cost using the effective interest rate method or cost. Fair value represents the price that would be received to sell an asset or paid to transfer a liability in orderly transaction between market participants at the measurement date. Where available, quoted

 

 

Notes to the Consolidated Financial Statements

For the year ended 31 December 2020

 

2     Summary of significant accounting policies (continued)

 

(j)    Financial instruments (continued)

 

prices in an active market are used to determine fair value. In other circumstances, valuation techniques are adopted.

 

Amortised cost is calculated as (i) the amount at which the financial asset or financial liability is measured at initial recognition; (ii) less principal repayments; (iii) plus or minus the cumulative amortization of the difference, if any, between the amount initially recognised and the maturity amount calculated using the effective interest method; and (iv) less any reduction for impairment.

 

The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that exactly discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carry amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense in profit or loss. The Group does not designate any interest in subsidiaries, associates or joint venture entities as being subject to the requirements of accounting standards specifically applicable to financial statements.

 

(i)    Financial assets at fair value through profit and loss or through other comprehensive Income

Financial assets are classified at 'Fair value through profit or loss' or Fair value through other comprehensive Income' when they are either held for trading for purposes of short term profit taking, derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets are subsequently measured at fair value with changes in carrying value being included in profit or loss if electing to choose 'fair value through profit or loss' or other comprehensive income if electing 'Fair value through other comprehensive income'.

 

(ii)   Financial Liabilities

The Group's financial liabilities include trade and other payables, loan and borrowings, provisions for cash bonus and other liabilities which include deferred cash consideration and deferred equity consideration for acquisition of subsidiaries & associates.

 

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, and payables, net of directly attributable transaction costs.

 

Fair value

 

Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm's length transactions, reference to similar instruments and option pricing models.

 

Derecognition

 

Financial assets are derecognised where the contractual rights to receipts of cash flows expire or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risk and benefits associated with the asset. Financial liabilities are recognised where the related obligations are either discharged, cancelled or expire. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss.

 

(k)  Inventory

 

Inventories are stated at the lower of cost and net realisable value. Costs of inventories are determined on a first-in-first-out basis. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.

 

 

Notes to the Consolidated Financial Statements

For the year ended 31 December 2020

 

2     Summary of significant accounting policies (continued)

 

(l)   Exploration and evaluation expenditure

 

Exploration and evaluation expenditure incurred by the Group is expensed separately for each area of interest. The Group's policy is to expense all exploration and evaluation costs funded out of its own resources.

 

(m) Exploration and evaluation assets

 

Exploration and evaluation assets arising out of business combinations are capitalised as part of deferred exploration and evaluation assets. Subsequent to acquisition, exploration expenditure is expensed in accordance with the Group's accounting policy.

 

(n)  Impairment of tangible and intangible assets other than goodwill

 

At each reporting date, the Group assesses whether there is any indication that tangible and intangible asset may be impaired.  Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount for each asset or cash generating unit to determine the extent of the impairment loss (if any). Where the carrying amount of an asset (or cash-generating unit) exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount.

 

Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset, unless the asset's value in use cannot be estimated to be close to its fair value less costs to sell and it does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

 

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

 

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the assets (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of impairment loss is treated as a revaluation increase.

 

Impairment review for deferred exploration and evaluation assets are carried out on a project-by-project basis, where each project representing a single cash generating unit. An impairment review is undertaken when indicators of impairment arise, typically when one of the following circumstances apply:

 

·              Unexpected geological occurrences that render the resource uneconomic;

·              Title to asset is compromised;

·              Variations in prices that render the project uneconomic; or

·              Variations in the currency of operation.

 

(o)  Trade and other payables

 

Trade and other payables are initially recognised at fair value. After initial recognition, trade and other payables are carried at amortised cost and due to their short-term nature are not discounted. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition.

 

(p)  Provisions

 

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

 

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. If the effect of the time-value of money is material, provisions are determined by discounting the

 

 

Notes to the Consolidated Financial Statements

For the year ended 31 December 2020

 

2     Summary of significant accounting policies (continued)

 

(p)    Provisions (continued)

 

expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

 

Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

 

(q)  Leases

 

The Group as lessee

 

At inception of a contract, the Group assesses if the contract contains or is a lease. If there is a lease present, a right-of-use asset and a corresponding lease liability are recognised by the Group where the Group is a lessee. However, all contracts that are classified as short-term leases (ie a lease with a remaining lease term of 12 months or less) and leases of low-value assets are recognised as an operating expense on a straight-line basis over the term of the lease.

 

Initially the lease liability is measured at the present value of the lease payments still to be paid at the commencement date. The lease payments are discounted at the interest rate implicit in the lease. If this rate cannot be readily determined, the Group uses the incremental borrowing rate.

 

Lease payments included in the measurement of the lease liability are as follows:

·      fixed lease payments less any lease incentives;

·      variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;

·      the amount expected to be payable by the lessee under residual value guarantees;

·      the exercise price of purchase options, if the lessee is reasonably certain to exercise the options;

·      lease payments under extension options, if the lessee is reasonably certain to exercise the options; and

·      payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.

 

The right-of-use assets comprise the initial measurement of the corresponding lease liability, any lease payments made at or before the commencement date and any initial direct costs. The subsequent measurement of the right-of-use assets is at cost less accumulated depreciation and impairment losses.

 

Right-of-use assets are depreciated over the lease term or useful life of the underlying asset, whichever is the shortest.

 

Where a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group anticipates to exercise a purchase option, the specific asset is depreciated over the useful life of the underlying asset.

 

The Group as lessor

 

Upon entering into each contract as a lessor, the Group assesses if the lease is a finance or operating lease.

 

A contract is classified as a finance lease when the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases not within this definition are classified as operating leases.

 

Rental income received from operating leases is recognised on a straight-line basis over the term of the specific lease.

 

Initial direct costs incurred in entering into an operating lease (for example, legal cost, costs to set up equipment) are included in the carrying amount of the leased asset and recognised as an expense on a straight-line basis over the lease term.

 

Rental income due under finance leases are recognised as receivables at the amount of the Group's net investment in the leases. When a contract is determined to include lease and non-lease components, the Group applies IFRS 15 to allocate the consideration under the contract to each component. 

 

 

Notes to the Consolidated Financial Statements

For the year ended 31 December 2020

 

2     Summary of significant accounting policies (continued)

 

(r)   Contributed equity

 

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. 

 

(s)  Revenue

 

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific criteria must also be met before revenue is recognised:

 

Interest revenue

 

Revenue is recognised on an accrual basis using the effective interest method.

 

(t)   Share-based payment transactions

 

The Group provides to certain key management personnel share-based payments, whereby they render services in exchange for rights over shares (equity-settled transactions).

 

The cost of these equity-settled transactions is measured by reference to the fair value at the date at which they are granted. The fair value is determined by use of the Black Scholes model.

 

In determining the fair value of the equity-settled transactions, vesting conditions that are not market conditions are not taken into account.

 

The cost of equity-settled transactions is recognised as an expense on a straight-line basis, together with a corresponding increase in equity, over the period in which they vest.

 

The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects:

 

·       the extent to which the vesting period has expired; and

·       the number of awards that, in the opinion of the Directors of the Group, will ultimately vest.

 

This opinion is formed based on the best available information at the reporting date. The impact of the revision of original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.

 

Where the terms of an equity-settled award are modified, as a minimum, an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of modification.

 

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

 

(u)  Income tax

 

Current tax

 

Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the year. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by the reporting date. Current tax for current and prior years is recognised as a liability (or asset) to the extent that it is unpaid (or refundable).

 

Deferred tax

 

Deferred tax is accounted for using the comprehensive balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities and the corresponding tax base of those items.

 

 

Notes to the Consolidated Financial Statements

For the year ended 31 December 2020

 

2     Summary of significant accounting policies (continued)

 

(u)   Income tax (continued)

 

In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities (other than as a result of a business combination) that affects neither taxable income nor accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from goodwill.

 

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the consolidated Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.

 

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

 

Current and deferred tax for the year

 

Current and deferred tax is recognised as an expense or income in the profit or loss, except when it relates to items credited or debited directly to equity/other comprehensive income, in which case the deferred tax is also recognised directly in equity/other comprehensive income, or where it arises from the initial accounting for a business combination, in which case it is taken into account in the determination of goodwill.

 

(v)  Earnings per share

 

Basic earnings per share is calculated as net profit attributable to owners of the parent, adjusted to exclude any costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element.

 

Diluted earnings per share is calculated as net profit attributable to owners of the parent, adjusted for:

 

·      Costs of servicing equity (other than dividends);

·      The after-tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and

·      Other non-discretionary changes in revenues or expenses during the year that would result from the conversion of dilutive potential ordinary shares, divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element.

 

(w)  Significant accounting judgments, estimates and assumptions

 

In applying the Group's accounting policies, management continually evaluates judgments, estimates and assumptions based on experience and other factors, including expectations of future events that may have an impact on the Group. All judgments, estimates and assumptions made are believed to be reasonable based on the most current set of circumstances available to management. Actual results may differ from the judgments, estimates and assumptions.

 

Any revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both the current and future periods.

 

The following are the most critical estimates and judgments made by management in applying the accounting policies and have the most significant effect on the amounts recognised in the financial statements.

 

Share-based payments

 

The Group measures the cost of equity-settled transactions with Directors and employees at the fair value of the equity instruments at the date at which they are granted. The fair value is determined using a Black Scholes model.

 

 

Notes to the Consolidated Financial Statements

For the year ended 31 December 2020

 

2     Summary of significant accounting policies (continued)

 

(w)   Significant accounting judgments, estimates and assumptions (continued)

 

One of the inputs into the valuation model is volatility of the underlying share price which is estimated on the historical share price.

 

Recovery of the exploration and evaluation assets

 

The ultimate recoupment of the exploration and evaluation assets is dependent upon successful development and commercial exploitation or alternatively the sale of the respective areas of interest at an amount at least equal to book value.  At the point that it is determined that any capitalised exploration and evaluation expenditure is not recoverable, it is written off.

 

Going Concern

 

The Group assesses the going concern of the Group on a regular basis, reviewing its cash flow requirements, commitments and status of PSC requirements and funding arrangements.  Refer to Note 2(c) for further details.

 

3    Operating segments

 

Operating segments have been identified on the basis of internal reports of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segments and to assess their performance.

 

The chief operating decision maker has been identified as the Board of Directors. On a regular basis, the Board receives financial information on a consolidated basis similar to the financial statements presented in the financial report, to manage and allocate their resources. Based on the information provided to the Board of Directors, the Group has one operating segment and geographical segment, being Mongolia; as such no separate disclosure has been provided.

 

 

Notes to the Consolidated Financial Statements

For the year ended 31 December 2020

 

 

 

 

 

 

31 Dec 2020

31 Dec 2019

 

 

$'000

$'000

 

 

 

 

 

           

4    Revenues and expenses

 

a)     Revenue

 

Interest income

 

25

765

Other income:

 

 

 

        Other income

 

39

4

 

 

64

769

 

 

b)    Employee benefits expense

 

Included in employee benefits expense are the following:

 

Wages and salaries

 

1,471

2,708

Bonuses

 

-

269

 Non-Executive Directors' fees (including

Directors of affiliates)

96

166

Consultancy fees

 

251

364

Share-based payments

 

(220)

585

 

 

1,598

4,092

 

 

c)     Exploration and evaluation expenditure

       

Exploration and evaluation expenditure relates to the following PSCs:

 

Block XX

 

404

10,726

Blocks IV and V

 

29

190

 

 

433

10,916

 

The Company handed back its Block IV with no financial commitment remaining and MRPAM has approved the return of the Block.

 

d)    Other expenses

       

Included in other expenses are the following:

 

Administration costs

 

494

1,161

PSC administration costs

 

345

745

Audit fees

 

84

83

Travel expenses

 

51

302

 

 

974

2,291

 

 

 

 

Notes to the Consolidated Financial Statements

For the year ended 31 December 2020

 

 

 

 

 

 

31 Dec 2020

31 Dec 2019

 

 Note

$'000

$'000

           

 

5    Income tax                                                                                    

 

Income tax recognised in the statement of profit or loss:

 

Tax expense/(benefit) comprises:

 

 

 

Current tax expense/(benefit)

 

-

-

Deferred tax expense/(benefit) relating to the

origination and reversal of temporary differences

 

-

-

Total tax expense/(benefit) reported in the statement of profit or loss

 

-

-

         

 

The prima facie income tax benefit on pre-tax accounting loss from continuing operations reconciles to the income tax expense/(benefit) in the financial statements as follows:

 

Net (loss)/profit for the year

 

(3,245)

(16,834)

 

 

 

 

Income tax benefit calculated at 10%

(i)

325

1,683

Effect of different tax rates on entities in different jurisdictions

(ii)

(95)

(245)

Change in unrecognised deferred tax assets

 

(230)

(1,438)

 

 

-

-

 

(i)            The tax rate used in the above reconciliation is the corporate tax rate of 10% payable by Mongolian corporate entities on taxable profits up to 6 billion MNT under Mongolian tax law.

 

(ii)           Petromatad Invest Limited and Capcorp are exempt of Mongolian corporate tax on profits derived from the sale of oil under their PSCs once production commences and are subject to Cayman Islands income tax at a rate of 0%. As a consequence, no provision for Mongolian corporate tax or Cayman Islands current tax or deferred tax has been made in the Company's accounts in relation to them.

 

Petro Matad Limited is subject to Isle of Man income tax at a rate of 0%. As a consequence, no provision for Isle of Man current tax or deferred tax has been made in the Company's accounts.

 

6    (Loss)/Earnings per share

 

The following reflects the loss and share data used in the total operations basic and diluted (loss)/earnings per share computations:

 

 

 

31 Dec 2020

31 Dec 2019

 

cents per share

cents per share

 

 

 

Basic (loss)/earnings per share

(0.5)

(2.5)

 

 

 

Diluted (loss)/earnings per share

(0.5)

(2.5)

 

 

 

 

$'000's

$'000's

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

 

 

 

 

 

Net (loss)/profit attributable to owners of the parent

(3,245)

(16,834)

 

 

 

Weighted average number of ordinary shares for the purposes of diluted (loss)/earnings per share (in thousands)

675,284

662,196

 

 

 

Weighted average number of ordinary shares for the purposes of basic (loss)/earnings per share (in thousands)

675,284

662,196

 

 

 

       

 

 

 

Notes to the Consolidated Financial Statements

 

For the year ended 31 December 2020

 

 

 

 

 

 

31 Dec 2020

31 Dec 2019

 

 

$'000

$'000

 

 

 

 

 

           

 

7    Cash and cash equivalents

 

 

 

 

Cash at bank and in hand

 

939

2,815

 

 

939

2,815

 

Cash at bank and in hand earns interest at fixed and floating rates based on prevailing bank rates, and the fair value of the above cash and cash equivalents is $939,000 (2019: $2,815,000) due to the short-term nature of the instruments.

 

Reconciliation from the net gain/(loss) after tax to the net cash flows from operations:

 

Net (loss)/gain after tax

 

(3,245)

(16,834)

 

 

 

 

Adjustments for:

 

 

 

Depreciation and amortisation

 

224

174

Consultancy fee

 

161

-

Share based payments

 

(220)

585

Unrealised foreign exchange (gains)/ losses

 

7

6

 

 

 

 

Changes in assets and liabilities

 

 

 

Decrease/(increase) in trade and other receivables

 

13

(14)

Decrease/(increase) in prepayments

 

(67)

47

Decrease/(increase) in inventory

 

2

(13)

Increase/(decrease) in trade and other payables

 

(138)

(784)

 

 

 

 

Net cash flows used in operating activities

 

(3,263)

16,833

 

Non-cash investing and financing activities

 

There were no non-cash investing or financing activities undertaken in the 2020 financial year or prior year, other than the exercise of Conditional Share Awards of $0.838 million (2019: nil).

 

8    Trade and other receivables

 

Current

 

 

 

Other debtors

 

10

23

 

 

10

23

 

All amounts are recoverable and are not considered past due or impaired.

 

9    Prepayments

 

Prepayments

 

222

155

 

 

222

155

 

 

10   Financial assets

 

Long Term Deposits

 

11

1,510

 

 

11

1,510

 

The Group holds term deposits with an average weighted interest rate of 1.8%. The deposits have maturity dates greater than 3 months. None of these assets had been past due or impaired at the end of the reporting period.

 

 

 

Notes to the Consolidated Financial Statements

 

For the year ended 31 December 2020

 

 

 

 

 

 

31 Dec 2020

31 Dec 2019

 

 

$'000

$'000

           

 

11   Inventory

 

Raw materials

 

224

226

 

 

224

226

 

Inventory are mainly consumables, including casing, mud and drilling materials purchased for Block XX.

 

 

12   Exploration and evaluation assets

 

Exploration and evaluation assets

 

15,275

15,275

 

 

15,275

15,275

 

The exploration and evaluation asset arose following the initial acquisition in February 2007 of 50% of Petromatad Invest Limited, together with acquisition on 12 November 2007 of the remaining 50% not already held by the Group, for a consideration of 23,340,000 ordinary shares credited as fully paid up and with an estimated fair value of $0.50 per share, taking into account assets and liabilities acquired on acquisition. This relates to the exploration and evaluation of PSC Block XX.

 

The ultimate recoupment of exploration and evaluation expenditure is dependent upon successful development and commercial exploitation or alternatively the sale of the respective areas of interest at an amount at least equal to book value. 

 

Management have reviewed for impairment indicators on Block XX and no impairment has been noted.

 

During 2020, the Company was focused on providing all necessary documentation to the Mongolian regulator in an effort to obtain approval for its Exploitation Licence application, which would then enable development of its 2019 Heron discovery in the northern area of Block XX.  When the Exploitation Licence is approved, the Company will be able to appraise, develop and produce oil from the area. An Exploitation Licence has a 25-year term and is extendable by up to 10-years (two times 5-years)

 

13   Property, plant and equipment and Right-of-Use asset

 

Plant and equipment at cost

 

831

917

Accumulated depreciation and impairment

 

(686)

(657)

 

 

145

260

 

 

 

 

Right-of-Use asset

 

139

-

Accumulated depreciation - Right-of-Use asset

 

(103)

-

 

 

36

-

 

Reconciliation of carrying amounts at the beginning and end of the year:

 

 

 

 

 

 

 

Plant and equipment

Total

Right-of-Use asset

Total

Total

Total

 

 

 

$'000

$'000

$'000

 

 

 

 

 

 

 

As at 1 January 2019 (net of accumulated depreciation)

 

340

-

340

 

Additions

 

105

-

105

 

Disposals

 

(5)

-

(5)

 

Foreign exchange

 

(6)

-

(6)

 

Depreciation charge for the year

 

(174)

-

(174)

 

As at 31 December 2019 (net of accumulated depreciation)

 

260

-

260

 

 

 

 

 

 

 

Additions

 

13

139

152

 

Foreign exchange

 

(7)

-

(7)

 

Depreciation charge for the year

 

(121)

(103)

(224)

 

As at 31 December 2020 (net of accumulated depreciation)

 

145

36

181

 

                 

 

The following useful lives are used in the calculation of depreciation:  Plant and equipment - 2 to 10 years

 

 

Notes to the Consolidated Financial Statements

 

For the year ended 31 December 2020

 

 

 

 

 

 

31 Dec 2020

31 Dec 2019

 

 

$'000

$'000

 

 

 

 

 

           

14   Trade and other payables (current)

 

Trade payables

 

364

502

Lease liability

 

25

-

 

 

389

502

 

Trade payables are non-interest bearing and are normally settled within 60 day terms.

 

15   Issued capital

 

Ordinary Shares

 

 

 

 

681,422,306 shares issued and fully paid

(2019: 662,196,306)

 

144,011

143,174

 

 

144,011

143,174

           

 

Movements in ordinary shares on issue:

 

Number of Shares

Issue

Price $

$'000

 

 

 

 

As at 1 January 2019

662,196,306

 

143,174

No transaction during 2019

 

 

-

As at 31 December 2019

662,196,306

 

143,174

 

 

 

 

Exercise of Conditional Share Awards on 3 January 2020 (note (a))

7,954,000

$0.010

80

Exercise of Conditional Share Awards on 12 February 2020 (note (b))

3,039,000

$0.010

30

Exercise of Conditional Share Awards on 17 June 2020 (note (c))

1,100,000

$0.010

11

Exercise of Conditional Share Awards on 2 July 2020 (note (d))

3,200,000

$0.010

32

Exercise of Conditional Share Awards on 24 August 2020 (note (e))

616,000

$0.010

6

Exercise of Conditional Share Awards on 24 December 2020 (note (f))

3,317,000

$0.010

33

Capital raising cost

 

 

-

Exercise of Awards

 

 

645

As at 31 December 2020

681,422,306

 

144,011

 

 

 

 

 

(a)   On 3 January 2020, 7,954,000 shares were allotted to Directors and an employee upon exercise of Conditional Share Awards under the Group's Long Term Equity Incentive Plan (Plan), with an exercise price per share of $0.01.

 

(b)   On 12 February 2020, 3,039,000 shares were allotted to employees upon exercise of Conditional Share Awards under the Group's Plan, with an exercise price per share of $0.01.

 

(c)   On 17 June 2020, 1,100,000 shares were allotted to an employee upon exercise of Conditional Share Awards under the Group's Plan, with an exercise price per share of $0.01.

 

(d)   On 2 July 2020, 3,200,000 shares were allotted to an employee upon exercise of Conditional Share Awards under the Group's Plan, with an exercise price per share of $0.01.

 

(e)   On 24 August 2020, 616,000 shares were allotted to an employee upon exercise of Conditional Share Awards under the Group's Plan, with an exercise price per share of $0.01.

 

(f)    On 24 December 2020, 3,317,000 shares were allotted to Directors and an employee upon exercise of Conditional Share Awards under the Group's Plan, with an exercise price per share of $0.01.

 

 

 

 

Notes to the Consolidated Financial Statements

 

 

 

For the year ended 31 December 2020

 

 

 

 

 

           

 

16   Reserves

 

A detailed breakdown of the reserves of the Group is as follows:

 

 

 

Merger reserve

Equity benefits reserve

Foreign currency translation

Total

 

$'000

$'000

$'000

$'000

 

 

 

 

 

As at 1 January 2019

831

3,018

(1,189)

2,660

Currency translation differences

-

-

(14)

(14)

Expiry of Options

-

(169)

-

(169)

Exercise of Awards

-

-

-

-

Share based payments

-

585

-

585

As at 31 December 2019

831

3,434

(1,203)

3,062

 

 

 

 

 

Currency translation differences

-

-

(16)

(16)

Expiry of Options

-

(789)

-

(789)

Exercise of Awards

-

(645)

-

(645)

Share based payments

-

(220)

-

(220)

As at 31 December 2020

831

1,780

(1,219)

1,392

 

 

Nature and purpose of reserves

 

Merger reserve

 

The merger reserve arose from the Company's acquisition of Capcorp on 12 November 2007. This transaction is outside the scope of IFRS 3 'Business Combinations' and as such Directors have elected to use UK Accounting Standards FRS 6 'Acquisitions and Mergers'. The difference, if any, between the nominal value of the shares issued plus the fair value of any other consideration, and the nominal value of the shares received in exchange are recorded as a movement on other reserves in the consolidated financial statements.

 

Equity benefits reserve

 

The equity benefits reserve is used to record the value of Options and Conditional Share Awards provided to employees and Directors as part of their remuneration, pursuant to the Group's Long-Term Equity Incentive Plan (Plan" or Group's Plan). Refer to Note 17 for further details of these plans.

 

Foreign currency translation reserve

 

The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.

 

 

 

 

Notes to the Consolidated Financial Statements

 

 

 

For the year ended 31 December 2020

 

 

 

 

 

           

 

17   Share based payments

 

(a)    Long Term Equity Incentive Plan (Plan or Group's Plan)

 

The Group provides long term incentives to employees (including Executive Directors), Non-Executive Directors and consultants through the Group's Plan based on the achievement of certain performance criteria. The Plan provides for share awards in the form of Options and Conditional Share Awards. The incentives are awarded at the discretion of the Board, or in the case of Executive Directors, the Remuneration Committee of the Board, who determine the level of award and appropriate vesting, service and performance conditions taking into account market practice and the need to recruit and retain the best people.

 

Options may be exercised, subject only to continuing service, during such period as the Board may determine. Options have a term of 10 years.

 

Conditional Share Awards shall vest subject to continuing service and appropriate and challenging service and performance conditions determined by the Remuneration Committee relating to the overall performance of the Group.

 

Conditional Share Awards based on performance conditions will vest on achievement of the following performance conditions:

 

25% vest on the first discovery of oil on a commercial scale, estimated by management as being by 31 December 2021;

25% vest on the first production of oil on a commercial scale, estimated by management as being by 31 December 2023; and

50% vest on the Company achieving the sale of 1 million barrels of oil, estimated by management as being by 31 December 2024.

Other Conditional Share Awards have service conditions tied to employment continuity and are available for vesting in three equal annual instalments on various dates.

 

(b)     Option pricing model

 

The fair value of Options granted is estimated as at the date of grant using the Black Scholes model, taking into account the terms and conditions upon which the Options were granted.

 

No Options have been issued during 2019 and 2020.

 

 

 

 

Notes to the Consolidated Financial Statements

 

 

 

For the year ended 31 December 2020

 

 

 

 

 

           

 

17    Share based payments (continued)

 

(c)     Movement in Share Options

 

The weighted average fair value for all Options in existence as at 31 December 2020 is 0.91 (2019: 0.85).

 

 

 

Opening balance at 1 January 2019

Granted during the year

Forfeited during the year

 

 

 

Exercised during the year

Closing balance as at 31 December 2019

 

 

Exercisable as at 31 December 2019

 

 

 

 

 

 

 

Grant of Options on 8 April 2009

18,750

-

(18,750)

-

-

-

Grant of Options on 9 July 2010

476,400

-

(225,000)

-

251,400

251,400

Grant of Options on 6 April 2011

75,000

-

-

-

75,000

75,000

Grant of Options on 5 July 2011

150,000

-

-

-

150,000

150,000

Grant of Options on 22 Nov 2011

120,000

-

-

-

120,000

120,000

Grant of Options on 5 Dec 2011

23,600

-

-

-

23,600

23,600

Grant of Options on 25 Apr 2012

100,000

-

-

-

100,000

100,000

Grant of Options on 16 Jul 2012

24,000

-

-

-

24,000

24,000

Grant of Options on 4 Dec 2012

6,000

-

-

-

6,000

6,000

Grant of options on 9 July 2013

50,000

-

-

-

50,000

50,000

 

1,043,750

-

(243,750)

-

800,000

800,000

Weighted Average Exercise Price (cents per option)

89.36

-

65.86

-

96.52

96.52

 

 

 

Opening balance at 1 January 2020

Granted during the year

Lapsed during the year

 

 

 

Exercised during the year

Closing balance as at 31 December 2020

 

 

Exercisable as at 31 December 2020

 

 

 

 

 

 

 

Grant of Options on 9 July 2010

251,400

-

(251,400)

-

-

-

Grant of Options on 6 April 2011

75,000

-

-

-

75,000

75,000

Grant of Options on 5 July 2011

150,000

-

-

-

150,000

150,000

Grant of Options on 22 Nov 2011

120,000

-

-

-

120,000

120,000

Grant of Options on 5 Dec 2011

23,600

-

-

-

23,600

23,600

Grant of Options on 25 Apr 2012

100,000

-

-

-

100,000

100,000

Grant of Options on 16 Jul 2012

24,000

-

-

-

24,000

24,000

Grant of Options on 4 Dec 2012

6,000

-

-

-

6,000

6,000

Grant of options on 9 July 2013

50,000

-

-

-

50,000

50,000

 

800,000

-

(251,400)

-

548,600

548,600

Weighted Average Exercise Price (cents per option)

96.52

-

70.00

-

108.67

108.67

 

 

(d)     Share Options Contractual Life

 

The weighted average remaining contractual life of outstanding share Options is 1 year (2019: 1.5 years).

 

 

 

 

 

 

Notes to the Consolidated Financial Statements

 

 

 

 

 

For the year ended 31 December 2020

 

 

 

 

 

 

17    Share based payments (continued)

 

(e)    Conditional Share Awards pricing model

 

The fair value of Conditional Share Awards granted is estimated as at the date of grant using the Black Scholes model, taking into account the terms and conditions upon which the Awards were granted.

 

The following Table summarizes Conditional Share Awards granted during 2019 and 2020, along with relevant details in relation to the grant.

 

 

(1)

(2)

 

18 Dec 19

4 May 20

Conditional Share Awards granted

14,926,000

4,300,000

Share price at grant date

$0.0425

$0.0300

Expected Volatility (%)

57

51

Risk-free interest rates (%)

0.75

0.10

Expected life (years)

10

10

Exercise Price

$0.01

$0.01

Estimated fair value of each Conditional Share Award at the grant date

 

$0.0364

 

$0.0237

 

 

 

 

 

 

 

 

 

 

 

         Items (1) and (2): Conditional Share Awards vested immediately.

 

 

 

 

Notes to the Consolidated Financial Statements

 

 

 

For the year ended 31 December 2020

 

 

 

 

 

           

 

17    Share based payments (continued)

 

(f)     Movement in Conditional Share Awards

        

          The weighted average fair value for all Awards in existence as at 31 December 2020 is 0.85 (2019: 0.15)

 

 

Consolidated

 

Opening balance at 1 January 2019

Granted during the year

Exercised during the year

Forfeited during the year

Closing balance

as at 31 December 2019

Exercisable as at 31 December 2019

 

 

 

 

 

 

 

Grant of Conditional Share Awards on 3 Jun 2008

515,000

-

-

-

515,000

-

 

Grant of Conditional Share Awards on 8 Apr 2009

80,000

-

-

-

80,000

-

 

Grant of Conditional Share Awards on 9 Jul 2010

647,000

-

-

-

647,000

-

 

Grant of Conditional Share Awards on 6 Apr 2011

144,000

-

-

-

144,000

-

 

Grant of Conditional Share Awards on 5 Jul 2011

180,000

-

-

-

180,000

-

 

Grant of Conditional Share Awards on 22 Nov 2011

50,000

   -

-

-

50,000

-

 

Grant of Conditional Share Awards on 5 Dec 2011

39,600

-

-

-

39,600

-

 

Grant of Conditional Share Awards on 25 Apr 2012

550,000

-

-

-

550,000

-

 

Grant of Conditional Share Awards on 5 Oct 2012

150,000

-

-

-

150,000

-

 

Grant of Conditional Share Awards on 4 Dec 2012

3,000

-

-

-

3,000

-

 

Grant of Conditional Share Awards on 9 Jul 2013

120,000

-

-

-

120,000

-

 

Grant of Conditional Share Awards on 18 Dec 2019

-

14,926,000

-

-

14,926,000

14,926,000

 

 

2,478,600

14,926,000

-

-

17,404,600

14,926,000

 

Weighted Average Exercise Price

(cents per award)

1.00

1.00

1.00

1.00

1.00

-

 

                                 

 

 

Consolidated

 

Opening balance at 1 January 2020

Granted during the year

Exercised during the year

Lapsed during the year

Closing balance

as at 31 December 2020

Exercisable as at 31 December 2020

 

 

 

 

 

 

 

 

 

Grant of Conditional Share Awards on 3 Jun 2008

515,000

-

-

(250,000)

265,000

-

Grant of Conditional Share Awards on 8 Apr 2009

80,000

-

-

-

80,000

-

Grant of Conditional Share Awards on 9 Jul 2010

647,000

-

-

(225,000)

422,000

-

Grant of Conditional Share Awards on 6 Apr 2011

144,000

-

-

-

144,000

-

Grant of Conditional Share Awards on 5 Jul 2011

180,000

-

-

-

180,000

-

Grant of Conditional Share Awards on 22 Nov 2011

50,000

-

-

-

50,000

-

Grant of Conditional Share Awards on 5 Dec 2011

39,600

-

-

-

39,600

-

Grant of Conditional Share Awards on 25 Apr 2012

550,000

-

-

(150,000)

400,000

-

Grant of Conditional Share Awards on 5 Oct 2012

150,000

-

-

-

150,000

-

Grant of Conditional Share Awards on 4 Dec 2012

3,000

-

-

-

3,000

-

Grant of Conditional Share Awards on 9 Jul 2013

120,000

-

-

-

120,000

-

Grant of Conditional Share Awards on 18 Dec 2019

14,926,000

-

(14,926,000)

-

-

-

Grant of Conditional Share Awards on 4 May 2020

-

4,300,000

(4,300,000)

-

-

-

 

17,404,600

4,300,000

(19,226,000)

(625,000)

1,853,600

-

Weighted Average Exercise Price

(cents per award)

1.00

1.00

1.00

1.00

1.00

-

                       

 

 

 

(g)    Conditional Share Awards Contractual Life

 

The weighted average remaining contractual life of outstanding Conditional Share Awards is 7.5 years (2019: 9.8 years).

 

 

 

Notes to the Consolidated Financial Statements

 

 

 

For the year ended 31 December 2020

 

 

 

 

 

           

 

17    Share based payments (continued)

 

 

(h)      Summary of Share Based Payments

 

A reconciliation of all share-based payments made during the year is as follows:

 

 

 

31 Dec 2020

31 Dec 2019

 

 Note

$'000

$'000

 

 

 

 

Vesting of Awards and Options

17

(220)

585

 

 

(220)

585

 

 

 

 

31 Dec 2020

31 Dec 2019

 

 Note

$'000

$'000

 

 

 

 

Lapsed Options

17

(789)

-

 

 

(789)

-

 

 

 

 

 

Notes to the Consolidated Financial Statements

 

 

For the year ended 31 December 2020

 

 

 

 

 

 

             

 

18   Commitments and contingencies

 

(a)     Operating lease commitments

 

Operating leases relate to premises used by the Group in its operations, generally with terms between 2 and 5 years. Some of the operating leases contain options to extend for further periods and an adjustment to bring the lease payments into line with market rates prevailing at that time. The leases do not contain an option to purchase the leased property.

 

The Group has committed to office and warehouse lease in Mongolia in the amount of $58,000 for 2020.

 

 

 

31 Dec 2020

31 Dec 2019

 

 

$'000

$'000

 

 

 

 

 

Operating Leases:

 

 

 

 

Within one year

 

58

-

After one year but not more than five years

 

-

-

Greater than five years

 

-

-

 

 

58

-

           

 

(b)     Exploration expenditure commitments

 

Petromatad Invest Limited and Capcorp have minimum spending obligations, under the terms of their PSCs on Blocks V and XX with MRPAM.

 

The amounts set out below do not include general and administrative expenses.

 

 

 

31 Dec 2020

31 Dec 2019

 

 

$'000

$'000

 

 

 

 

 

Production Sharing Contract Fees:

 

 

 

Within one year

 

184

273

After one year but not more than five years

 

112

112

Greater than five years

 

-

-

 

 

296

385

           

 

Minimum Exploration Work Obligations:

 

 

 

Within one year

 

 

7,427

Greater than one year but no more than five years

 

-

-

Greater than five years

 

6,956

-

 

 

6,956

7,427

 

 

(c)     Contingencies

 

On 5 August 2016, Shell through its Affiliate company announced it would be withdrawing from Blocks IV and V in West/Central Mongolia. As part of the negotiations leading to formal Mongolian Government approval of the reassignment of interest from Shell's Affiliate to the Company's Affiliate, Shell agreed to a payment of $5 million to be remitted to the Company's Affiliate upon such government approval being received. A condition to the payment by Shell is that the proceeds are required to be repaid to Shell by the Company in the event a farmout is concluded in future prior to the development of either Block IV or V (Block IV has since been relinquished by the Company in its entirety). There is no certainty that such farmout will be concluded in future in which case funds would not be repaid. The $5 million payment was received on 1 February 2017.

 

  

 

Notes to the Consolidated Financial Statements

For the year ended 31 December 2020

 

 

 

 

19   Related party disclosures

 

The immediate parent and ultimate controlling party of the Group is Petro Matad Limited.

 

The consolidated financial statements include the financial statements of Petro Matad Limited and the subsidiaries listed in the following table:

 

 

                   Equity Interest

 

 

 

 

 

Country of

2020

2019

 

 Incorporation

%

%

 

 

 

 

Central Asian Petroleum Corporation Limited

Cayman Islands

100

100

Capcorp Mongolia LLC

Mongolia

100

100

Petromatad Invest Limited

Cayman Islands

100

100

Petro Matad LLC

Mongolia

100

100

 

 

 

 

 

Subsidiary Details

 

Central Asian Petroleum Corporation Limited (Capcorp) was acquired on 12 November 2007. Petro Matad Limited holds 43,340,000 ordinary shares of $0.01 each.

 

Capcorp Mongolia LLC is 100% owned by Capcorp. Capcorp holds 1,000,000 ordinary shares of MNT150 each.

 

Petromatad Invest Limited was acquired on 12 November 2007. 25,000 shares of $1 each held by Capcorp was transferred to Petro Matad Limited on 25 November 2019 resulting in Petro Matad Limited holding 50,000 shares of $1 each.

 

Petro Matad LLC is 100% owned by Petromatad Invest Limited. Petromatad Invest Limited holds 15,000 ordinary shares of     MNT10,000 each.

 

Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note.

 

Petrovis Matad Inc. (Petrovis) is a major shareholder of the Company, holding approximately 21.44% of the shareholding at year end of 2020.

 

 

 

Notes to the Consolidated Financial Statements

 

 

For the year ended 31 December 2020

 

 

 

 

 

 

             

 

20   Key management personnel

 

(a)   Details of Directors

 

The names of the Company's Directors, having authority and responsibility for planning, directing and controlling the activities of the Group, in office during 2019 and 2020, are as below:

 

The Directors were in office until the date of this report and for this entire period unless otherwise stated.

 

Directors

 

Enkhmaa Davaanyam                         Non-Executive Chairperson            

John Rene Henriksen                           Chief Financial Officer (Retired 31 December 2020)                                

 Timothy Paul Bushell                         Non-Executive Director                                 

 Michael James Buck                            Chief Executive Officer                    

 Shinezaya Batbold                                Non-Executive Director    

 

(b)     Compensation of Directors

 

 

Consolidated

 

 

 

 

 

 

 

 

31 Dec 2020

31 Dec 2019

 

 

 

$'000

$'000

 

 

 

 

 

 

Short-term employee benefits

 

681

1,257

 

Post-employment benefits

 

-

-

 

Share based payment expense

 

6

102

 

 

 

687

1,359

 

 

 

 

 

 

 

 

 

 

             

 

(c)   Other key management personnel transactions

 

There were no other key management personnel transactions during the year (2019: Nil).

 

 

 

 

Notes to the Consolidated Financial Statements

 

 

 

For the year ended 31 December 2020

 

 

 

 

 

           

 

21   Financial risk management objectives and policies

 

The Group's principal financial instruments comprise cash and short-term deposits classified as loans and receivables financial assets.

 

The main purpose of these financial instruments is to raise capital for the Group's operations.

 

The Group also has various other financial instruments such as trade debtors and trade creditors, which arise directly from its operations. It is, and has been throughout the year under review, the Group's policy that no trading in financial instruments shall be undertaken.

 

The main risks arising from the Group's financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk.

 

The Board is responsible for identification and control of financial risks. The Board reviews and agrees policies for managing each of these risks as summarised below.

 

Risk Exposures and Responses

 

Interest rate risk

 

Interest rate risk is the risk that the value of a financial instrument or cash flow associated with the instrument will fluctuate due to changes in market interest rate. Interest rate risk arises from fluctuations in interest bearing financial assets and liabilities that the Group uses. Interest bearing assets comprise cash and cash equivalents which are considered to be short-term liquid assets. It is the Group's policy to settle trade payables within the credit terms allowed and the Group does therefore not incur interest on overdue balances.

 

The following table sets out the carrying amount of the financial instruments that are exposed to interest rate risk:

 

 

 

31 Dec 2020

31 Dec 2019

 

 Weighted Average Int. rate

$'000

$'000

Financial Assets

 

 

 

Cash and cash equivalents

0.33%

939

2,815

*Other financial assets

1.51%

11

1,510

 

 

950

4,325

Trade and other receivables

0%

10

23

 

 

960

4,348

Financial Liabilities

 

 

 

Trade and other payables

0%

364

502

 

 

364

502

Net exposure

 

596

3,846

 

*Other financial assets are comprised of cash deposits placed in the banks for terms exceeding 90 days.

 

Sensitivity Analysis

If the interest rate on cash balances at 31 December 2019 and 2020 weakened/strengthened by 1%, there would be no material impact on profit or loss. There would be no effect on the equity reserves other than those directly related to other comprehensive income movements.

 

Foreign currency risk

 

As a result of operations overseas, the Group's statement of financial position can be affected by movements in various exchange rates.

 

The functional currency of Petro Matad Limited and presentational currency of the Group is deemed to be USD because the future revenue from the sale of oil will be denominated in USD and the costs of the Group are likewise predominately in USD. Some transactions are however dominated in currencies other than USD. These transactions comprise operating costs and capital expenditure in the local currencies of the countries where the

 

 

 

Notes to the Consolidated Financial Statements

 

 

 

For the year ended 31 December 2020

 

 

 

 

 

           

 

21    Financial risk management objectives and policies (continued)

 

Group operates. These currencies have a close relationship to the USD and management believes that changes in the exchange rates will not have a significant effect on the Group's financial statements.

 

The Group does not use forward currency contracts to eliminate the currency exposures on any individual transactions.

 

The following significant exchange rates applied during the year:

 

 

 

Average rate

Spot rate at the balance date

USD

 

2020

2019

2020

2019

 

 

 

 

 

 

Mongolian Tugrug (MNT) 1

 

2,813.05

2,663.31

2,849.51

2,733.52

 

 

 

 

 

 

Australian Dollar (AUD) 1

 

1.466224

1.438632

1.305016

1.425832

Great British Pound (GBP) 1

 

0.780108

0.783349

0.736474

0.758392

 

Sensitivity Analysis

A 5% strengthening/weakening of the MNT against USD at 31 December 2019 and 2020 would not have a material effect on profit and loss or on equity.

 

Price risk

 

The Group's exposure to price risk is minimal as the Group is currently not revenue producing other than from interest income.

 

Credit risk

 

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group is exposed to credit risk on its cash and cash equivalents and other receivables as set out in Notes 7 and 8 which also represent the maximum exposure to credit risk. The Group only deposits surplus cash with well-established financial institutions of high quality credit standing.

 

In addition, receivable balances are monitored on an ongoing basis with the result that the Group's exposure to bad debts is not significant.

 

There are no significant concentrations of credit risk within the Group.

 

Maximum exposure to credit risk at reporting date:

 

 

 

 

 

31 Dec 2020

31 Dec 2019

 

 Note

$'000

$'000

Financial Assets

 

 

 

Trade and other receivables

8

10

23

Net exposure

 

10

23

 

Impairment Losses:

 

None of the Group's receivables are past due at 31 December 2020 (2019: Nil)

 

Liquidity risk

 

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.

 

The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

 

The Group's objective is to ensure that sufficient funds are available to allow it to continue its exploration activities.

 

 

 

Notes to the Consolidated Financial Statements

 

 

 

For the year ended 31 December 2020

 

 

 

 

 

           

 

21    Financial risk management objectives and policies (continued)

 

The following table details the Group's expected maturity for its non-derivative financial assets. The table has been drawn up based on the undiscounted maturities of the financial assets including interest that will be earned on those assets.

 

 

Weighted average interest rate

 

6 months or less

6-12 months

1-5

years

over 5 years

Total

 

$'000

$'000

$'000

$'000

$'000

 

 

 

 

 

 

 

Cash and cash equivalents

0.33%

939

-

-

-

939

Trade and other receivables

-

10

-

-

-

10

Financial Assets

1.51%

11

-

-

-

11

As at 31 December 2020

 

960

-

-

-

960

 

 

 

 

 

 

 

Cash and cash equivalents

0.18%

2,815

-

-

-

2,815

Trade and other receivables

-

23

-

-

-

23

Financial Assets

4.05%

1,510

-

-

-

1,510

As at 31 December 2019

 

4,348

-

-

-

4,348

 

 

The remaining contractual maturities of the Group's and parent entity's financial liabilities are:

 

 

 

31 Dec 2020

31 Dec 2019

 

 

$'000

$'000

 

 

 

 

6 months or less

 

364

502

6-12 months

 

-

-

1-5 years

 

-

-

over 5 years

 

-

-

 

 

364

502

 

All of the Group's amounts payable and receivable are current.

 

Further, the Group has exploration expenditure commitments on its PSCs as disclosed in Note 18(b).

 

Fair Value of Financial Assets and Liabilities

 

The fair value of cash and cash equivalents and non-interest bearing financial assets and financial liabilities of the Group approximate their carrying value due to their short term duration.

 

 

 

Fair Value Hierarchy as at 31 December 2020

 

 

Level 1

Level 2

Level 3

Total

Financial Assets

 

 

 

 

 

Trade and other receivables

 

-

10

-

10

Total

 

-

10

-

10

 

 

 

 

 

 

Financial Liabilities

 

 

 

 

 

Trade and other payables

 

-

364

-

364

Total

 

-

364

-

364

 

 

 

Notes to the Consolidated Financial Statements

 

 

 

For the year ended 31 December 2020

 

 

 

 

 

           

 

21    Financial risk management objectives and policies (continued)

 

 

 

 

Fair Value Hierarchy as at 31 December 2019

 

 

Level 1

Level 2

Level 3

Total

Financial Assets

 

 

 

 

 

Trade and other receivables

 

-

23

-

23

Total

 

-

23

-

23

 

 

 

 

 

 

Financial Liabilities

 

 

 

 

 

Trade and other payables

 

-

502

-

502

Total

 

-

502

-

502

 

The fair values of the financial assets and financial liabilities included in the level 2 category above have been determined in accordance with generally accepted pricing models based on a discounted cash flow analysis, with the most significant inputs being the discount rate that reflects the credit risk of counterparties.

 

 

22   Capital management

 

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The management of the Group and the Group's capital is regularly reviewed by the Board.  The capital structure of the Group consists of cash and bank balances (Note 7) and equity of the Group (comprising issued capital, reserves and retained earnings as detailed in Notes 15 and 16).  This is reviewed by the Board of Directors as part of their regular Board meetings.

 

The Group monitors its capital requirements based on the funding required for its exploration activities in Mongolia and operations of the Company.

 

The Group is not subject to externally imposed capital requirements.

 

23   Events after the reporting date

 

The Company's largest and founding shareholder, Petrovis Matad Inc. (Petrovis) has agreed to make available to the Company a loan facility of up to $1.5 million, against which the Company can draw funds as required.

 

On 16 March 2021, MRPAM's Technical Committee approved an Exploitation Area of 218.2 sq km in Block XX. This area will be enshrined within the formal Exploitation Licence when awarded by the Mongolian Government.

 

On 17 June 2021, Petro Matad Singapore Pte. Ltd a wholly owned subsidiary of the Company was incorporated in Singapore.

 

 

 

Notes to the Consolidated Financial Statements

For the year ended 31 December 2020

 

24   Auditors' remuneration

 

The auditor of Petro Matad Limited is Bentleys (WA) Pty Ltd.

 

 

31 Dec 2020

31 Dec 2019

 

 

$'000

$'000

Amounts received or due and receivable by Bentleys (WA) Pty Ltd :

 

 

 

 

 

 

 

 - an audit or review of the financial report of the entity and any other entity in the Group

 

43

43

 - other services in relation to the entity and any other entity in the Group

 

-

-

 

 

43

43

Amounts received or due and receivable by Deloitte Onch Audit LLC for:

 

 

 

 

 

 

 

 - an audit or review of the financial report of subsidiary entities

 

41

40

 - other services in relation to the subsidiary entities

 

-

-

 

 

41

40

 

 

84

83

 

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