Araca Energy : - annual report 2021

ARACA ENERGY ASA

CONSOLIDATED FINANCIAL STATEMENTS AND STANDALONE FINANCIAL STATEMENTS OF THE PARENT COMPANY PREPARED IN ACCORDANCE WITH SIMPLIFIED APPLICATION OF INTERNATIONAL ACCOUNTING STANDARDS ACCORDING TO THE NORWEGIAN ACCOUNTING ACT § 3-9

31 DECEMBER 2021

Contents

	Page
Group Financial Statement of Araca Energy ASA
Consolidated Statement of Comprehensive Income	6
Consolidated Statement of Financial Position	7
Consolidated Statement of Cash Flows	8
Consolidated Statement of Changes in Equity	9
Notes to the Consolidated Financial Statements	10-23
Standalone Financial Statement of Araca Energy ASA
Statement of Comprehensive Income	24
Statement of Financial Position	25
Statement of Cash Flows	26
Statement of Changes in Equity	27
Notes to the Standalone Financial Statements of Araca Energy ASA	28-34

BOARD OF DIRECTORS' REPORT

Operations

Araca Energy ASA (the "Company" or "Araca") is an independent Norwegian exploration and production company engaged in the development and operation of oil and natural gas assets in Russia. In 2021 the Company had ownership interest in Aladdin Oil & Gas (Cyprus) Ltd ("Aladdin"), Culebra Holding Ltd ("Culebra"), Larchbay Traders & Consultants Ltd ("Larchbay") and Select Investment Ltd ("Select") together ("the Group").

Aladdin and Culebra are financial investments for Araca and the Company owns 47.6% and 34.3% respectively. Culebra owns 100% of the Russian company OOO Geotechnologia ("Geotechnologia"). Larchbay and Select are 100% owned subsidiaries.

Select has a minority interest in Timan Oil & Gas Plc ("Timan"). Timan has one subsidiary, OAO Geotermneftegaz ("Geoterm") and minority ownership interest in Neftegazopromyslovye Tekhnologii LLC ("NGPT").

The Company's headquarter is located in Oslo, Norway.

Highlights and status

The Company´s main assets are minority shareholdings in companies with activity in Russia. In 2021 there have been limited progress in the development of the underlying assets. Due to the now ongoing war between Russia and Ukraine all activity has been very challenging and information from the companies have been limited.

The Board and Management have taken action and been closely monitoring the situation. The Company is subsequently evaluating possible solutions including a potential exit from all Russian activity. In this process the Company is reviewing alternative routes for future operations including renewable energy activity that lies within the competence and resources of the Company´s Board and Management.

The Company is not aware that any of its stakeholders are on the official sanctions list and the Board will take immediate action should such information arise.

Financial statements 2021

The Company prepares and presents its accounts in accordance with Simplified International Financial Reporting Standards (IFRS). The Board of Directors and the CEO consider the statements and corresponding notes presented in this report to give a correct and accurate summary of the Company's operations and position as at 31 December 2021.

Consolidated operating revenues for the year ended 31 December 2021 amounted to MNOK 0.2 compared to MNOK 0.2 in the year ended 31 December 2020. For the year ended 31 December 2021 the Group incurred a loss from operations of MNOK 1.6 (for the year ended 31 December 2020 a loss of MNOK 2.5).

Consolidated profit after tax for the year ended 31 December 2021 was MNOK 7.4, compared to MNOK 4.0 loss in 2020. The profit in 2021 is due to a reversal of accruals in the subsidiary Larchbay.

The Group's net working capital is negative with MNOK 20.9. (2020: MNOK negative MNOK 28.3). Available cash and cash equivalents as at 31 December 2021 were MNOK 0.1. The Group's current interest-bearing debt as at 31 December 2021 was MNOK 19.5.

As at 31 December 2021, the Group had total assets of MNOK 0.1. Total Shareholders' equity was minus MNOK 20.9.

Board of directors and key management

In 2021 the Board consisted of:

The accompanying notes are an integral part of these consolidated financial statements

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Mr Rashid Ibrahim, Chairman of the Board

Mr Abdulkareem Al Mutawa

Mrs Tatiana Melkaia

Gender equality

Out of three employees and consultants in the Group as of the year ended 31 December 2021, there is one woman. Women are represented in the board members in Araca Energy ASA. The Company is trying to recruit women to Group management positions. Women are well represented in the Group. There are no significant differences in employee benefits between men and women.

Working conditions

Safe working conditions are a fundamental prerequisite for the future growth of the Group. The Board and the CEO consider the working conditions in the Group to be satisfactory. No serious accidents resulting in major personal injuries or material damage have been reported in year ended 31 December 2021.

Research & development activities

The Group has not undertaken any research and development (R&D) activities in year ended 31 December 2021.

Anti-discrimination

The Discrimination Act´s purpose is to promote equality, ensure equal opportunities and rights, and prevent discrimination. The Group is working actively to promote this in all of the Group's activities including recruitment, salary, working condition, promotion, development and protection against harassment.

The external environment

The Company was in 2021 an indirect minority owner of Geotechnologia, an operator of the Group's oil & gas fields in Russia. During drilling, the responsibility for the wells may be transferred to a subcontractor (drilling company) which holds full responsibility for the operations and any reporting to Russian authorities until the well is finished. When a well is finished and ready for production, the responsibility for the well is transferred back to the operating entities. The Board is aware of the importance in finding industrial solutions protecting the external environment and ensuring co-existence with other important industries. The Company upholds the laws and regulations applying in Russia at all times. No environmental incidents have been reported to Araca for the year ended 31 December 2021 or to date. At current Russia is at war with Ukraine and the Company highlights there is a risk that not all information is available to the Board or Management of Araca.

Financial risk

Mainly, the Group´s financial risks are currency risk, price risk and liquidity risk. The Group seeks to achieve an acceptable risk level within these areas. As to interest rate risk, the Company's loan has both floating and fixed interest rates, and is therefore exposed to risk in fluctuating interest rate levels. The loans are in Norwegian kroner and in Great Britain Pounds and thus represent a currency risk. The functional and presentation currency for the Group is Norwegian kroner, while the subsidiaries in Cyprus and UAE has presentation currency is US dollars. The Group is therefore exposed to currency risk.

As to liquidity, the Group is in a development phase and has currently low or no revenue. The access to necessary funds to maintain its operation is considered a risk factor. This is planned to be covered through a combination of loans and equity.

Business ethics

The Company has adopted a policy that all activities and operations are to be conducted in a professional and safe manner, without injuries to humans or environmental damage. Training and exercises are important measures to achieve such. The Company supports honesty and trustful relationships with its business partners as well as the local community and has zero tolerance of corruption.

The accompanying notes are an integral part of these consolidated financial statements

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Going Concern

Levant Consultants LLP, that represents the major shareholder of the Company has confirmed that it will continue to provide the necessary financial support to the Company to enable the Company to meet its obligations and to carry on its operations. In 2021 Levant (and related parties) has provided funding for the Company of c. NOK 1.3 million which has been sufficient to repay outstanding debts and to cover administration and operational costs in the period. The Company currently has a negative equity. The Board of Directors is evaluating several options to improve the situation including issuing new equity, the conversion of debt to equity. The Board of Directors' intention is to maintain the Company as a going concern and the financial statements have been prepared based on the going concern assumption. As per the 15th November 2022 the Company received a conversion notice from Levant on its total debt including outstanding interests. When converted this will result in positive equity for the Company.

Outlook

The outlook for the Company is uncertain. As all assets of the Company are in Russia and owned through minority positions it is highly uncertain whether any value can be retained from these. The Company is evaluating a range of alternatives including exiting all Russian assets entirely. The Company is monitoring the situation continuously.

Despite the challenging situation the Company is actively evaluating opportunities to grow inorganically. Araca focuses on onshore opportunities with active production or late stage development but also opportunities within renewable energy, with limited requirement for further capital expenditure. The target is to add assets with cash flow contribution that represent accretion to the shareholders. Consideration for such acquisitions will be sought through partners, new debt or the issuance of new shares in the Company.

Parent company accounts and the coverage of the loss for the year

The profit and loss account for the parent company Araca Energy ASA showed a loss for the year ended 31 December 2021 of MNOK 3.2 (2020 Loss MNOK 4.0).

The Board propose to post the loss to accumulated losses.

Oslo, 17th November 2022

_________________________________	____________________
Rashid M. Ibrahim (Chairman of the Board)	Harald Sætvedt (CEO)

______________________	_____________________
Tatiana Melkaia	Abdulkareem Al Mutawa

The accompanying notes are an integral part of these consolidated financial statements

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