MAGNOLIA PETROLEUM PLC
Magnolia Petroleum Plc / Index: AIM / Epic: MAGP / Sector: Oil & Gas
27 June 2016
Magnolia Petroleum Plc ('Magnolia' or 'the Company')
Final Results
Magnolia Petroleum Plc, the AIM quoted US focused oil and gas exploration and
production company, announces its final results for the year ended 31 December
2015.
Operational Overview
- 21% year on year increase in number of producing wells to 213 in proven
US onshore formations such as the Bakken/Three Forks Sanish, North Dakota, and
the Mississippi Lime, Woodford/Hunton, Oklahoma, (2014: 176)
- Elected to participate in 38 new wells - 12 wells currently at various
stages of development
- Post period end daily production of 242 boepd as at 31 March 2016
compared to 281 boepd as at 1 January 2015 due to a combination of natural
decline rates and also lower drilling activity across the sector in response to
volatile global oil and gas markets
Financial Overview
- 2015 revenues of US$1,991,021(2014: US$3,851,905) - reflects a more than
50% year on year reduction in the oil price
- EBITDA of (US$292,180) (2014: US$2,596,658)
- Tangible assets of US$7,294,470 (2014: US$11,294,373) - reflecting lower
price of oil, natural decline rates and reduced drilling activity
- 31% reduction in full year operating costs compared to costs in previous
year
- US$400,000 paid towards credit facility which will result in significant
reduction in financing costs
- £1 million raised via a placing to fund new drilling
Magnolia CEO, Steven Snead said, "Even with oil trading at sub US$50 per
barrel, Magnolia Petroleum remains a cashflow generative, low cost, oil and gas
producer focused on proven US onshore formations. Thanks to the action we have
taken over the course of the year, specifically a 31% and 25% reduction in
operating costs and net debt respectively, the Company's significantly lower
outgoings allow a higher proportion of our production based revenues to be
reinvested into further drilling activity. We are therefore confident that
despite the current downturn, the year ahead will continue to see Magnolia
participate with leading operators such as Continental Resources in drilling
new wells where it makes commercial sense to do so.
"As at year end, the Company's tangible assets stood at US$7,294,470, the
majority of which comprise proven developed reserves which were independently
estimated post period end at 138.63 Mbbl of oil and condensate and 352.38 MMcf
gas as at 1 January 2016. This estimate coincided with WTI trading at close to
12 year lows of sub US$30 per barrel and therefore has been made at what could
prove to be the low point of the current cycle. When combined with the
reduction in debt over the period, Magnolia has considerable asset backing,
particularly when compared with our current market capitalisation. We are
working hard to close this disconnect and I look forward to providing further
updates on our progress during the year ahead."
Chief Executive's Statement
Magnolia Petroleum is an oil and gas production and exploration company focused
on acquiring and developing leases in proven US onshore formations, such as the
Bakken in North Dakota and the Mississippi Lime and Woodford in Oklahoma.
The year under review has seen the unbroken sequence of double digit year on
year percentage growth in our producing well count maintained, an achievement
which is all the more impressive when set against the backdrop of sharply lower
oil prices. With West Texas Intermediate ("WTI") averaging US$48.66 per barrel
over the course of the year, the extended period of WTI trading in a tight
range around the US$95 per barrel level has been brought to an abrupt end.
Like all US onshore operators, such a sharp retrenchment in such a short space
of time has necessitated a realignment of Magnolia's operations to the lower
oil price environment, and I am pleased to report this is what we have done.
Significant reductions in the Group's capital expenditure, operating costs and
reserve based debt facility have all been achieved over the last 12 months.
Restricting our participation in drilling only those wells which offer
attractive returns at US$30-US$40 oil prices or lower has cut our capital
investment requirements for the year; a comprehensive review of corporate
overheads including salaries and directors' fees has resulted in full year
operating costs being reduced by 31% compared to the previous year; while a
part repayment of our credit facility will see financing costs sharply reduced
going forward. Magnolia was always a low cost, cash flow generative business,
and thanks to the action we have taken, it is even more so today.
The focus on outgoings however has not stopped us from continuing the roll-out
of our strategy to drill new wells in proven US onshore formations alongside
established operators. As at 31 December 2015 our producing well count stood
at 213 compared to 176 as at 1 January 2015, a 21% year on year increase.
Bearing in mind our focus has been on participating in those new wells which
make commercial sense at prevailing oil and gas prices, this strong performance
serves to highlight the low break-even costs associated with our US onshore
acreage.
Once a well has been drilled and commences production it is by no means
forgotten. Instead we actively manage our portfolio of interests, constantly
monitoring each individual well's performance and importantly its
commerciality. With this in mind, post year end we announced in our Q1 2016
update the divestment of 46 uneconomic wells with little or no value to free up
our internal accounting resources. The carrying value of these wells have been
impaired through profit and loss down to their net realisable value as at 31
December 2015 We have since divested a further 21 wells, bringing our total
producing well count to 146. These 146 wells continue to generate meaningful
production for us. As at 31 March 2016, 242 boepd were recovered net to
Magnolia, which compares to 309 boepd on 1 August 2015 and 281 boepd as at 1
January 2015. The reduction in production largely reflects natural decline
rates and also lower drilling activity across the sector over the period in
response to volatile global oil and gas markets.
Even at lower oil prices, our net production generated revenues of US$1,991,021
for the year ended 31 December 2015. As expected our revenues were lower than
last year. However the 31% reduction in corporate overheads and operating
costs over the last 12 months allows a higher proportion of our cash flows to
drop to the bottom line and become available for reinvestment into further
drilling. Not only does this bode well for Magnolia's progress in the current
market environment, but also for future profitability, particularly when global
supply and demand for oil and gas returns to equilibrium.
From the outset, management has viewed the current downturn in oil and gas
markets as cyclical in nature rather than structural: one that has been caused
by excess supply coinciding with a slowdown in demand growth, particularly in
previously buoyant areas of the world. As with all cycles, supply and demand
will rebalance and while this will take time, we are already seeing signs of
this happening: in April 2016 the number of active rigs in the US stood at a
multi-year low of 420, a fraction of the 2,000 or so which were regularly
reported in recent years. In the US, the rebalancing process is clearly
underway. Combined with hundreds of millions of dollars' worth of new projects
across the world being put on the backburner, the point of equilibrium could be
closer than most interested observers currently anticipate.
In the meantime, the current downturn has levelled the playing field, at least
in the US onshore sector. Technological advances along with the cutting edge
drilling/completing techniques which have transformed the US energy sector are
here to stay and continue to be improved on. What has changed is that
operators of all sizes are retrenching fast with leases being relinquished or
allowed to expire. As a result, acreage which is located in highly productive
areas where we have been looking to increase our exposure to, or gain a
foothold in, is becoming available. This is where management's nearly four
decades of experience and expertise in leasing US onshore acreage comes into
its own. We are therefore highly confident that we can take advantage of
today's market conditions to effectively high grade Magnolia's portfolio of US
onshore leases.
Financial Review
During the 12 months to 31 December 2015, net production generated revenues of
US$1,991,021, compared to US$3,851,905 the previous year. The sharp fall in
the price of oil, which has effectively halved over the last twelve months, is
responsible for the drop in revenues, both directly by lowering sales prices
achieved and indirectly through operators shutting in wells to curtail
production. In view of this, the Group has quickly taken steps to reduce
overheads to help accommodate the revenue decline.
Property, plant and equipment (comprising producing properties) as at end
December 2015 stood at US$7,294,470, (2014: US$11,294,373) while intangible
assets (comprising new leases and wells that are drilling but not yet
completed) stood at US$1,830,773 (2014: US$6,481,872). Non-cash impairments
totalling US$8,511,709 million have been provided for in the results for the
year ended 31 December 2015.
This includes write-downs associated with the cost of mineral leases which have
expired; and a markdown in the value of the Group's interest in producing
properties that Moyes has identified as non-economic at today's low oil
prices. Management expects the value of its interests in producing wells to be
written back, either in part or in full, as and when the oil price recovers.
In addition, an impairment of US$225,230 for the Magnolia operated Shimanek #2
vertical well ('Shimanek') in Oklahoma has been taken in the full year results.
Shimanek encountered hydrocarbons in the targeted conventional zones, including
the Lower Skinner, Redfork Sand and Mississippi Lime/Chat, in line with the
pre-drill geological model. However, high salt water saturation levels and the
high costs associated with the disposal of the salt water, led to the decision
to plug rather than complete the well and to cap the total cost of operations.
Direct operating expenses during the year totalled US$2,784,769 (2014:
US$2,784,759). US$1,547,313 (2014: US$1,298,759) of this total is a non-cash
item covering depreciation costs. A further US$990,854 (2014: US$794,903) was
due to lease operating expenses, while production tax and marketing fees came
in at US$246,602 (2014: US$309,161).
During the year, US$1.5 million (£1 million) was raised via a placing to fund
new drilling operated by a number of leading operators including Chesapeake
Energy, Continental Resources and BP America. As a result, 142,857,143 new
ordinary shares in the Company were issued.
In June 2015, we appointed Mr. Thomas Wagenhofer to the Board as a
Non-Executive Director. Mr. Wagenhofer, who is a highly respected petroleum
engineer and oil and gas investment specialist with over 20 years' experience
in the global E&P sector, has elected to receive the majority of his annual fee
in new ordinary shares of the Company. Accordingly a further 3,285,713 new
ordinary shares were issued to Mr. Wagenhofer upon taking a position on the
Board and a further 857,142 shares were issued in January 2016 in settlement of
his director's fees.
Post period end, we further bolstered the Board with the appointment of Mr.
Leonard Wallace, a highly experienced oil and gas engineer, as a Non-Executive
Director of the Company. Mr. Wallace is an experienced management professional
specialising in drilling engineering, well construction and rig operation with
50 years' experience within the oil and gas exploration and production
industry.
Outlook
Magnolia's senior management has been actively involved in the US onshore oil
and gas sector for four decades. During this time we have collectively
experienced six cyclical downturns of varying degrees of severity. Downturns
are followed by upswings and we intend to be at the forefront of the next one.
With this in mind over the last twelve months we have taken steps to ensure we
can do just that: we have significantly cut costs and reduced debt; high graded
our portfolio of interests in producing wells and leases which are economic at
current oil prices; and we have bolstered our Board so that it has a
complementary skillset covering all aspects of the oil and gas sector. While
volatile oil markets have pushed out timelines for all companies, our objective
and ambition remain the same: to build a leading US onshore focused oil and gas
group. I look forward to providing further updates on our progress.
Finally, I would like to thank the Board, management team and all our advisers
for their hard work over the last twelve months and also to our shareholders
for their continued support.
Steven Snead
Chief Executive Officer
24 June 2016
Chief Operations Officer's Report
The Bakken / Three Forks Sanish Formations, North Dakota
During the twelve months to 31 December 2015, a total of four wells targeting
the Bakken and Three Forks Sanish ('TFS') formations in North Dakota commenced
production, bringing the total number of producing wells in these formations in
which Magnolia has an interest to 41. Of the wells reported during the period,
two are producing from the Bakken, a reservoir which is estimated to hold 3.65
billion barrels of undiscovered, technically recoverable oil (2013 US
Geological Survey). Gross initial production rates for these two wells were:
Skunk Creek 1-8-17-15H3 (0.684%): 4,298 boepd
Skunk Creek 1-8-17-16H (0.684%): 4,305 boepd
Gross initial production rates for the two wells which commenced production
from the TFS, a separate reservoir lying directly below the Bakken which is
estimated to hold as much as 3.73 billion barrels of recoverable oil (2013 US
Geological Survey), were as follows:
Skunk Creek 1-8-17-15H3 (0.684%): 3,612 boepd
Skunk Creek 1-8-17-16H3 (0.684%): 3,399 boepd
Boepd: Barrels of oil equivalent per day
Bopd: Barrels of oil per day
As at 1 January 2016, Moyes & Co. ('Moyes') estimated Magnolia's Bakken Proven
Developed Reserves ('PDP') at 49,000 barrels of oil and condensate and 24MMcf
of natural gas to which Moyes assigned a value of US$0.829 million. Meanwhile,
Magnolia's PDP ("proved") reserves in the TFS formation were estimated at
15,000 barrels of oil and condensate and 9MMcf of natural gas which Moyes has
assigned a value of US$0.267 million.
Mississippi Lime Formation, Oklahoma
The Mississippi Lime is an historic oil and gas system that has been producing
at depths ranging from 4,500 to 7,000 feet from several thousand vertical wells
for over 50 years. Gross initial production rates for eight producing wells
targeting the Mississippi Lime were reported during the twelve month period
ending 31 December 2015:
Alison 16-1H (0.155%): 653 boepd
Blackjack 1-21H (0.4%): 67 boepd
Cerlbert 1-30MH (0.63%): 288 boepd
Bates (0.25%): 205 boepd
Jacob 16-1H (0.155%): 552 boepd
Nighswonger Farms 2 (2.42%): 205 boepd
Nighswonger Farms 3 (2.42%): 53 boepd
Louis 2815 1-17H (0.21%): 390 boepd
Magnolia holds leases covering approximately 5,500 net mineral acres in the
Mississippi Lime. The acreage includes leases with working interests of up to
100%. In a Reserves Report dated 1 January 2016, Moyes estimated the Group's
Mississippi Lime PDP reserves at 61,000 barrels of oil and condensate and
139MMcf of natural gas with a value of US$1.414 million.
Woodford Formation, Oklahoma
The Woodford lies below and is the source rock to the Mississippi Lime
formation in Oklahoma. As a result much of Magnolia's leases in Oklahoma are
prospective for both the Woodford and the Mississippi Lime. During 2015,
Magnolia reported gross initial production rates for the following eight wells:
Lois 1-6H (0.87%): 2,122 mcf/d
Buckner 1 (1.79%): 1,041 boepd
Buckner 2 (1.79%): 747 boepd
Lois 1-6H (0.87%): 674 boepd
McLain 1 (1%): 826 boepd
McLain 2 (1%): 321 boepd
Clara 1-13/24H (0.3%): 2,268 mcf/d
Reginal 1-25/24H (0.5%): 2,415 mcf/d
In the updated Reserves Report dated 1 January 2016, Moyes estimated the
Group's Woodford PDP reserves at 8,000 barrels of oil and condensate and
125MMcf of natural gas with a value of US$0.299 million. As the Woodford is at
an earlier stage of development compared to the Mississippi Lime, the Reserves
Report does not fully reflect the potential of the formation. This is expected
to change as more wells are drilled to the Woodford.
Other Formations in Oklahoma
During the period, four wells in which Magnolia has an interest commenced
production from other formations in Oklahoma, the details of which are as
follows:
Fern 30-1H (0.09%): 28 boepd (Oswego)
Celesta 1-5-32 XH (0.02%): 1,076 boepd (Springer)
Loretta 130 vertical (13.198%): 23 boepd (various formations,
Yani (3.8%) Hunton Oklahoma)
58 boepd (Hunton)
In the updated Reserves Report dated 1 January 2016, Moyes estimated the
Group's PDP reserves in other formations in Oklahoma at 6,000 barrels of oil
and condensate and 20MMcf of natural gas with a value of US$0.93 million.
Summary
During the year under review, the Group elected to participate in 38 new wells
in proven US onshore formations in which Magnolia has an interest. The decision
to participate in the drilling of these wells was only taken after they
demonstrated attractive economics when modelled at oil prices at or below
current levels. This in turn highlights the quality and low break-even cost
of Magnolia's existing acreage. Management is actively taking advantage of the
prevailing oil price environment to further high grade Magnolia's portfolio of
producing wells and leases. Combined with a comprehensive review of corporate
overheads and operating costs, the Group is well placed to emerge from the
current downturn with an excellent revenue generative and reserves backed
platform which we will use to take the business forward.
Rita Whittington
Chief Operations Officer
24 June 2016
consolidated Statement of Comprehensive Income
Year ended 31 December 2015
Note Year ended Year ended
31 December 31 December
2015 2014
$ $
Continuing Operations
Revenue 1,991,021 3,851,905
Operating expenses 6 (1,237,456) (1,104,064)
Depreciation 13 (1,547,313) (1,298,759)
________ ________
Gross (Loss)/Profit (793,748) 1,449,082
Impairment of property, plant and equipment 13 (3,538,523) -
Impairment of intangible assets 14 (4,973,181) (229,385)
Profit on disposal of mineral leases - 329,850
Differences due to foreign exchange 678,001 756,644
Administrative expenses 6 (1,045,884) (1,491,444)
Other income 9 - 1,005,374
________ ________
Operating (Loss)/Profit (9,673,335) 1,820,121
Finance income 11 139 187
Finance costs 11 (120,080) (127,296)
________ ________
(Loss)/Profit before Tax (9,793,276) 1,693,012
Income tax 10 - -
________ ________
(Loss)/Profit for the year attributable to
owners of the parent
(9,793,276) 1,693,012
________ ________
Other Comprehensive Income:
Items that may be reclassified subsequently to
profit or loss
Currency translation differences (697,415) (780,861)
_______ _______
Other Comprehensive Income for the Year, Net (697,415) (780,861)
of Tax
________ ________
Total Comprehensive Income for the Year (10,490,691) 912,151
attributable to the owners of the parent
________ ________
Earnings per share attributable to the owners
of the parent during the year
Basic and diluted (cents per share) 12 (0.98) 0.19
____ _____
The Company has elected to take the exemption under Section 408 of the
Companies Act 2006 from presenting the Parent Company Statement of
Comprehensive Income.
The loss for the Parent Company for the year was $203,635 (2014: $315,229).
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2015
Note As at As at
31 December 31 December
2015 2014
ASSETS $ $
Non-Current Assets
Property, plant and equipment 13 7,294,470 11,294,373
Intangible assets 14 1,830,773 6,481,872
_________ _________
Total Non-Current Assets
9,125,243 17,776,245
_________ _________
Current Assets
Trade and other receivables 16 441,764 997,666
Cash and cash equivalents 17 645,759 433,748
________ ________
Total Current Assets 1,087,523 1,431,414
________ ________
TOTAL ASSETS 10,212,766 19,207,659
_________ _________
EQUITY AND LIABILITIES
Equity attributable to Owners of Parent
Share capital 18 1,704,820 1,481,396
Share premium 18 15,200,219 13,954,026
Merger reserve 1,975,950 1,975,950
Share option and warrants reserve 209,042 209,042
Reverse acquisition reserve (2,250,672) (2,250,672)
Translation reserve (962,887) (265,472)
Retained losses (9,959,977) (166,701)
_________ _________
Total Equity 5,916,495 14,937,569
_________ _________
Non-Current Liabilities
Borrowings 19 3,154,784 2,736,274
________ _______
Total Non-Current Liabilities 3,154,784 2,736,274
________ _______
Current Liabilities
Trade and other payables 20 1,141,487 1,533,816
________ ________
Total Current Liabilities 1,141,487 1,533,816
________ ________
TOTAL EQUITY AND LIABILITIES 10,212,766 19,207,659
_________ _________
These Financial Statements were approved by the Board of Directors on 24 June
2016 and were signed on its behalf by:
Thomas Wagenhofer
Director
Company STATEMENT OF FINANCIAL POSITION
As at 31 December 2015
Note As at As at
31 December 31 December
2015 2014
$ $
ASSETS
Non-Current Assets
Investments in subsidiaries 15 3,453,879 3,646,431
________ ________
Total Non-Current Assets 3,453,879 3,646,431
________ ________
Current Assets
Trade and other receivables 16 12,663,513 12,098,782
Cash and cash equivalents 17 44,210 3,661
_________ _________
Total Current Assets 12,707,723 12,102,443
_________ _________
TOTAL ASSETS 16,161,602 15,748,874
_________ _________
EQUITY AND LIABILITIES
Equity attributable to Shareholders
Share capital 18 1,704,820 1,481,396
Share premium 18 15,200,219 13,954,026
Merger reserve 1,975,950 1,975,950
Share option and warrants reserve 209,042 209,042
Translation reserve (1,407,825) (536,827)
Retained losses (1,570,070) (1,366,435)
_________ _________
Total Equity 16,112,136 15,717,152
_________ _________
Current Liabilities
Trade and other payables 20 49,466 31,722
______ ______
Total Current Liabilities 49,466 31,722
______ ______
TOTAL EQUITY AND LIABILITIES 16,161,602 15,748,874
_________ _________
These Financial Statements were approved by the Board of Directors on 24 June
2016 and were signed on its behalf by:
Thomas Wagenhofer
Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2015
Attributable to the owners of the parent
Group ($) Share Share Merger Share Reverse Translation Retained Total
capital Premium reserve option acquisition reserve losses equity
and reserve
warrants
reserve
Balance at 1,481,396 13,954,026 1,975,950 209,042 (2,250,672) 515,389 (1,859,713) 14,025,418
1 January 2014
Profit for the - - - - - - 1,693,012 1,693,012
year
Other
Comprehensive
Income
Currency - - - - - (780,861) - (780,861)
translation
differences
Total - - - - - (780,861) 1,693,012 912,151
Comprehensive
Income for the
Year
Transaction - - - - - - - -
with owners,
recognised
directly in
equity
Balance at 1,481,396 13,954,026 1,975,950 209,042 (2,250,672) (265,472) (166,701) 14,937,569
31 December
2014
Balance at 1,481,396 13,954,026 1,975,950 209,042 (2,250,672) (265,472) (166,701) 14,937,569
1 January 2015
Loss for the - - - - - - (9,793,276) (9,793,276)
year
Other
Comprehensive
Income
Currency - - - - - (697,415) - (697,415)
translation
differences
Total - - - - - (697,415) (9,793,276) (10,490,691)
Comprehensive
Income for the
Year
Share issue 223,424 1,340,543 - - - - - 1,563,967
Share issue - (94,350) - - - - - (94,350)
costs
Transaction 223,424 1,246,193 - - - - - 1,469,617
with owners,
recognised
directly in
equity
Balance at 1,704,820 15,200,219 1,975,950 209,042 (2,250,672) (962,887) (9,959,977) 5,916,495
31 December
2015
COMPANY STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2015
Attributable to the shareholders
Company ($) Share Share Merger Share Translation Retained Total
capital premium reserve Option reserve losses equity
and
warrants
reserve
Balance at 1,481,396 13,954,026 1,975,950 209,042 450,027 (1,051,206) 17,019,235
1 January 2014
Loss for the year - - - - - (315,229) (315,229)
Other Comprehensive
Income
Currency translation - - - - (986,854) - (986,854)
differences
Total Comprehensive - - - - (986,854) (315,229) (1,302,083)
Income for the Year
Total contributions - - - - - - -
by and distributions
to owners of the
parent, recognised
directly in equity
Balance at 1,481,396 13,954,026 1,975,950 209,042 (536,827) (1,366,435) 15,717,152
31 December 2014
Balance at 1,481,396 13,954,026 1,975,950 209,042 (536,827) (1,366,435) 15,717,152
1 January 2015
Loss for the year - - - - - (203,635) (203,635)
Other Comprehensive
Income
Currency translation - - - - (870,998) - (870,998)
differences
Total Comprehensive - - - - (870,998) (203,635) (1,074,633)
Income for the Year
Share issue 223,424 1,340,543 - - - - 1,563,967
Share issue costs - (94,350) - - - - (94,350)
Total contributions 223,424 1,246,193 - - - - 1,469,617
by and distributions
to owners of the
parent, recognised
directly in equity
Balance at 31 1,704,820 15,200,219 1,975,950 209,042 (1,407,825) (1,570,070) 16,112,136
December 2015
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 31 December 2015
Year ended Year ended
31 December 31 December
Note 2015 2014
$ $
Cash Flows from Operating Activities
(Loss)/Profit before tax (9,793,276) 1,693,012
Impairment of property, plant and equipment 13 3,538,523 19,847
Impairment of intangible assets 14 4,973,181 229,385
Depreciation 13 1,553,240 1,303,796
Profit on disposal - (329,850)
Foreign exchange (676,825) (757,326)
Finance income (139) (187)
Finance costs 120,080 127,296
________ ________
(285,216) 2,285,973
Changes to working capital
Decrease in trade and other receivables 555,902 271,157
(Decrease)/Increase in trade and other payables (392,329) 309,765
________ ________
Cash (used in)/generated from operations (121,643) 2,866,895
Interest paid (120,080) (91,022)
________ ________
Net Cash (used in)/generated from Operating (241,723) 2,775,873
Activities
________ ________
Cash Flows from Investing Activities
Purchases of intangible assets (376,062) (342,195)
Purchases of property, plant and equipment (1,056,849) (4,376,595)
Disposal proceeds of property, plant and - 449,500
equipment
Interest received 139 187
________ ________
Net Cash used in Investing Activities (1,432,772) (4,269,103)
________ ________
Cash Flows from Financing Activities
Proceeds from issue of ordinary shares 18 1,563,967 -
Issue costs 18 (94,350) -
Proceeds from borrowings 19 418,510 1,800,000
________ ________
Net Cash generated from Financing Activities 1,888,127 1,800,000
________ ________
Net Increase in Cash and Cash Equivalents 213,632 306,770
________ ________
Movement in Cash and Cash Equivalents
Cash and cash equivalents at the beginning of 17 433,748 128,002
the year
Exchange loss on cash and cash equivalents (1,621) (1,024)
Net Increase in cash and cash equivalents 213,632 306,770
_______ ________
Cash and Cash Equivalents at the End of the Year 17 645,759 433,748
_______ ________
COMPANY Statement of Cash Flows
Year ended 31 December 2015
Year Year
ended ended
31 December 31 December
Note 2015 2014
$ $
Cash Flows from Operating Activities
Loss before tax (203,635) (315,229)
Foreign exchange 2,139 (682)
_______ _______
(201,496) (315,911)
Changes to working capital
Decrease in trade and other receivables 13,425 37
Increase/(decrease) in trade and other payables 17,745 (6,909)
_______ _______
Net Cash used in Operating Activities (170,326) (322,783)
_______ _______
Cash Flows from Financing Activities
Proceeds from issue of ordinary shares 18 1,563,967 -
Issue costs 18 (94,350) -
(Increase)/decrease in funding subsidiary (1,257,121) 173,103
undertaking
_______ ________
Net Cash generated from Financing Activities 212,496 173,103
_______ ________
Net increase/(decrease) in Cash and Cash 42,170 (149,680)
Equivalents
_______ ________
Movement in Cash and Cash Equivalents
Cash and cash equivalents at the beginning of 17 3,661 154,365
the year
Exchange loss on cash and cash equivalents (1,621) (1,024)
Net increase/(decrease) in cash and cash 42,170 (149,680)
equivalents _______ _______
Cash and Cash Equivalents at the End of the 17 44,210 3,661
Year _______ _______
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2015
1 GENERAL INFORMATION
The Consolidated Financial Statements of Magnolia Petroleum plc ("the Company")
consists of the following companies; Magnolia Petroleum plc and Magnolia
Petroleum Inc. (together "the Group").
The Company is a public limited company which is listed on the AIM market of
the London Stock Exchange and incorporated and domiciled in England and Wales.
Its registered office address is Suite 321, 19-21 Crawford Street, London, W1H
1PJ.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these
Consolidated Financial Statements are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated.
2.1 Basis of preparation of Financial Statements
The consolidated Financial Statements of Magnolia Petroleum plc have been
prepared in accordance with International Financial Reporting Standards (IFRS)
and IFRIC interpretations (IFRS IC) as adopted by the European Union and the
Companies Act 2006 applicable to companies reporting under IFRS.
The Financial Statements have been prepared under the historical cost
convention.
The preparation of Financial Statements in conformity with IFRS requires the
use of certain critical accounting estimates. It also requires management to
exercise its judgement in the process of applying the Group's accounting
policies. The areas involving a higher degree of judgement or complexity, or
areas where assumptions and estimates are significant to the consolidated
Financial Statements, are disclosed in Note 4.
2.2 Basis of consolidation
The consolidated Financial Statements consolidate the Financial Statements of
Magnolia Petroleum plc and the audited Financial Statements of its subsidiary
undertaking made up to 31 December 2015.
Subsidiaries are all entities over which the Group has control. The Group
controls an entity when the Group is exposed to, or has rights to, variable
returns from its involvement with the investee and has the ability to affect
those returns through its power over the investee. Subsidiaries are fully
consolidated from the date on which control is transferred to the Group. They
are deconsolidated from the date that control ceases.
The Company acquired Magnolia Petroleum Inc. on 23 October 2009 through a share
exchange. As the shareholders of Magnolia Petroleum Inc. had control of the
legal parent, Magnolia Petroleum plc, the transaction was accounted for as a
reverse acquisition in accordance with IFRS 3 "Business Combinations". The
following accounting treatment has been applied in respect of the reverse
acquisition:
- the assets and liabilities of the legal subsidiary Magnolia Petroleum
Inc. are recognised and measured in the Consolidated Financial Statements at
their pre-combination carrying amounts, without restatement to fair value; and
- the equity structure appearing in the Consolidated Financial Statements
reflects the equity structure of the legal parent, Magnolia Petroleum plc,
including the equity instruments issued to effect the business combination.
The cost of acquisition was measured as the fair value of the assets acquired,
equity instruments issued and liabilities incurred or assumed at the date of
exchange, plus certain costs directly attributable to the acquisition.
In accounting for the acquisition of Magnolia Petroleum Inc., the Company has
taken advantage of Section 612 of the Companies Act 2006 and accounted for the
transaction using merger relief.
Investments in subsidiaries are accounted for at cost less impairment. Where
necessary, adjustments are made to the financial statements of subsidiaries to
bring the accounting policies used into line with those used by other members
of the Group. All inter-company transactions and balances between Group
entities are eliminated on consolidation.
2.3 Going concern
The Group's business activities, together with the factors likely to affect its
future development and performance are set out in the Chief Executive Officer's
Statement. In addition, notes 3 and 23 to the Financial Statements disclose the
Group's and Company's objectives, policies and processes for managing financial
risks and capital.
At the year end the Group was in discussion with Bank SNB, the lenders of the
Group's $6 million revolving credit facility, with regards to agreeing certain
waivers of, and amendments to, the Group's facility due to non-compliance at
that date of financial and other covenants. Discussions also included an
extension to the facility's maturity date that was originally due to end on 7
September 2016. At 31 December 2015 the Group's borrowings under the facility
amounted to $3,154,784 and Bank SNB agreed to the following:
* Waiver of certain financial covenants from 1 July 2015 onwards and until
further notice. The consent letter allowing the Group to be in breach of
certain financial covenants was formally signed and executed 13 April 2016;
* Subject to receipt of an updated reserves report on the Group's reserves,
in order to recalculate the borrowing base element, to extend the maturity
date for the borrowing base element from 7 September 2016 to 7 March 2017.
On 20 April 2016, as a result of the lower oil prices during the year to 31
December 2015 and receipt of the Group's updated reserves report, the borrowing
base limit under the Group's revolving credit facility was formally reduced
from $3,284,210 to $1,604,565.
On 1 June 2016, the Group and Bank SNB, effective 31 December 2015, signed and
executed an agreement to extend the maturity date for the borrowing base
element from 7 September 2016 to 7 March 2017. A $400,000 principal payment
reduction in 2016 leaves a current principal balance of $2,754,784 of which
$1,150,219 will be repaid in equal monthly instalments over a 5 year period.
The borrowing base limit liability of $1,604,565 is due for repayment in full
on 7 March 2017, however the Directors are confident that this will be further
deferred based upon the value of its proven development producing properties.
The decision to extend is however at Bank SNB's discretion.
With the exception of the Current Ratio covenant, which has been waived until
further notice by Bank SNB, all covenants were satisfied. Funding future growth
will however be via the Group's own generated cash-flow, wherever possible.
The Group's cash flow forecasts and projections prepared up to 30 June 2017
show that the Group has sufficient funds and facilities to fund its ongoing
operating costs and the scheduled principal repayments plus interest of the
borrowings in excess of the borrowing base of £1,150,219. Additional funds
will be required if Bank SNB require repayment of the borrowing base liability
on 7 March 2017. The Directors have a reasonable expectation that the Company
and Group has adequate resources to continue in operational existence for the
foreseeable future. For this reason, the Directors continue to adopt the going
concern basis of accounting in preparing the Financial Statements.
REPORT OF THE INDEPENDENT AUDITOR
Emphasis of matter - going concern
In forming our opinion on the Financial Statements, which is not modified, we
have considered the adequacy of the disclosure made in note 2.3 to the
Financial Statements concerning the Group and Company's ability to continue as
a going concern. The Group incurred a net loss of £9,793,276 during the year
ended 31 December 2015 and, at that date, the Group's had net current
liabilities of $53,964. These conditions, along with the other matters
explained in note 2.3 to the Financial Statements, indicate the existence of a
material uncertainty which may cast significant doubt on the Group and
Company's ability to continue as a going concern. The Financial Statements do
not include the adjustments that would result if the Group and Company were
unable to continue as a going concern .
2.4 Changes in accounting policy and disclosure
a) New and amended standards adopted by the Group
There were no IFRSs or IFRIC interpretations that were effective for the first
time for the financial year beginning 1 January 2015 that had a material impact
on the Group or Company.
b) New and amended standards and interpretations issued but not yet
effective or endorsed and not early adopted
The standards and interpretations that are relevant to the Group and Company,
issued, but not yet effective, up to the date of issuance of the Financial
Statements are listed below. The Group and Company intends to adopt these
standards, if applicable, when they become effective. Unless stated below,
there are no IFRSs or IFRIC interpretations that are not yet effective that
would be expected to have a material impact on the Group and Company.
Effective Date
IAS 1 (Amendments) Presentation of Financial Statements: 1 January 2016
Disclosure Initiative
IAS 16 (Amendments) Clarification of Acceptable Methods of 1 January 2016
Depreciation
IAS 38 (Amendments) Clarification of Acceptable Methods of 1 January 2016
Amortisation
IFRS 9 Financial Instruments *1 January 2018
IFRS 11 Joint Arrangements: Accounting for 1 January 2016
(Amendments) Acquisitions of Interests in Joint
Operations
IFRS 15 Revenue from Contracts with Customers *1 January 2018
IFRS 16 *1 January 2019
Annual Improvements 2010 - 2012 Cycle 1 February 2015
Annual Improvements 2012 - 2014 Cycle 1 January 2016
*Subject to EU endorsement
2.5 Revenue recognition
Revenue represents the amounts receivable from operators for the Group's share
of oil and / or gas revenues less any royalties payable to the lessor or
assignor of the mineral rights. Revenue is recognised in the period to which
the declarations from the operators relate. Other income is recognised in the
accounting period in which the services are rendered, in accordance with the
terms of the underlying contractual agreements.
2.6 Foreign Currency Translation
(a) Functional and presentation currency
Items included in each of the Financial Statements of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates (the 'functional currency'). The functional currency of the UK
parent entity is sterling and the functional currency of the subsidiary is US
Dollars. The Financial Statements are presented in US Dollars, rounded to the
nearest Dollar, which is the Group's and Company's presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using
the exchange rates prevailing at the dates of the transactions or valuation
where such items are re-measured. Foreign exchange gains and losses resulting
from the settlement of such transactions and from the translation at year-end
exchange rates of monetary assets and liabilities denominated in foreign
currencies are recognised in the statement of comprehensive income.
(c) Group companies
The results and financial position of all the Group entities that have a
functional currency different from the presentation currency are translated
into the presentation currency as follows:
* assets and liabilities for each Statement of Financial Position presented
are translated at the closing rate at the date of that Statement of
Financial Position;
* income and expenses for each statement of comprehensive income are
translated at average exchange rates (unless this average is not a
reasonable approximation of the cumulative effect of the rates prevailing
on the transaction dates, in which case income and expenses are translated
at the dates of the transactions); and
* all resulting exchange differences are recognised in other comprehensive
income.
On consolidation, exchange differences arising from the translation of the net
investment in foreign entities, and of monetary items receivable from foreign
subsidiaries for which settlement is neither planned nor likely to occur in the
foreseeable future are taken to other comprehensive income. When a foreign
operation is sold, such exchange differences are recognised in the Statement of
Comprehensive Income as part of the gain or loss on sale.
2.7 Property, plant and equipment
Following evaluation of successful exploration wells, if commercial reserves
are established and the technical feasibility of extraction demonstrated, and
once a project is sanctioned for commercial development, then the related
capitalised exploration costs are transferred into a single field cost centre
within 'producing properties' within property, plant and equipment after
testing for impairment. Where results of exploration drilling indicate the
presence of hydrocarbons which are ultimately not considered commercially
viable, all related costs are written off to the Statement of Comprehensive
Income.
The net book values of 'producing properties' are depreciated on a unit of
production basis at a rate calculated by reference to proven and probable
reserves and incorporating the estimated future cost of developing and
extracting those reserves.
All costs incurred after the technical feasibility and commercial viability of
producing hydrocarbons has been demonstrated are capitalised within 'drilling
costs and equipment' on a well by well basis. Subsequent expenditure is
capitalised only where it either enhances the economic benefits of the
development/producing asset or replaces part of the existing development/
producing asset. Any costs remaining associated with the part replaced are
expensed.
Net proceeds from any disposal of an exploration asset are initially credited
against the previously capitalised costs. Any surplus proceeds are credited to
the Income Statement.
All property, plant and equipment other than oil and gas assets are stated at
historical cost less depreciation. Historical cost includes expenditure that is
directly attributable to the acquisition of the items.
Subsequent costs are included in the asset's carrying amount or recognised as a
separate asset, as appropriate, only when it is probable that future economic
benefits associated with the item will flow to the Group and the cost of the
item can be measured reliably. All other repairs and maintenance are charged to
the Statement of Comprehensive Income during the financial period in which they
are incurred.
Depreciation is charged so as to allocate the cost of assets, over their
estimated useful lives, on a straight line basis as follows:
Drilling costs and equipment - 10 years
Motor vehicles and office equipment - 4 years
Oil and gas producing properties held in property, plant and equipment are
mainly depreciated on a unit of production basis at a rate calculated by
reference to proven and probable reserves and incorporating the estimated
future cost of developing and extracting those reserves.
The assets' residual values and useful lives are reviewed, and adjusted if
appropriate, at each financial year-end.
Gains and losses on disposal are determined by comparing proceeds with carrying
amount. These are included in the Income Statement.
Decommissioning
Where a material liability for the removal of production facilities and site
restoration at the end of the production life of a field exists, a provision
for decommissioning is recognised. The amount recognised is the present value
of estimated future expenditure determined in accordance with local conditions
and requirements. The cost of the relevant property, plant and equipment asset
is increased with an amount equivalent to the provision and depreciated on a
unit of production basis. Changes in estimates are recognised prospectively,
with corresponding adjustments to the provision and the associated non-current
asset.
2.8 Intangible assets
a. Goodwill
Under the reverse acquisition, goodwill represents the excess of the cost of
the combination over the acquirer's interest in the net fair values of the
legal parent. The fair value of the equity instruments of the legal subsidiary
issued to effect the combination was not available and therefore the fair value
of all the issued equity instruments of the legal parent prior to the business
combination was used as the basis for determining the cost of the combination.
Goodwill is initially recognised as an asset at cost and is subsequently
measured at cost less any impairment. Goodwill which is recognised as an asset
is reviewed for impairment at least annually. Any impairment is recognised
immediately and is not subsequently reversed.
b. Drilling costs and mineral leases
The Group applies the successful efforts method of accounting for oil and gas
assets, having regard to the requirements of IFRS 6 'Exploration for and
Evaluation of Mineral Resources'. Costs incurred prior to obtaining the legal
rights to explore an area are expensed immediately to the Statement of
Comprehensive Income.
Expenditure incurred on the acquisition of a licence interest is initially
capitalised within intangible assets on a licence by licence basis. Costs are
held, unamortised, within mineral leases until such time as the exploration
phase of the licence area is complete or commercial reserves have been
discovered. The cost of the licence is subsequently transferred into "Producing
Properties" within property, plant and equipment and depreciated over its
estimated useful economic life.
Exploration expenditure incurred in the process of determining exploration
targets is capitalised initially within intangible assets as drilling costs.
Drilling costs are initially capitalised on a well by well basis until the
success or otherwise has been established. Drilling costs are written off on
completion of a well unless the results indicate that hydrocarbon reserves
exist and there is a reasonable prospect that these reserves are commercially
viable. Drilling costs are subsequently transferred into 'Drilling costs and
equipment' within property, plant and equipment and depreciated over their
estimated useful economic life. All such costs are subject to regular
technical, commercial and management review on at least an annual basis to
confirm the continued intent to develop or otherwise extract value from the
discovery. Where this is no longer the case, the costs are immediately expensed
to the Statement of Comprehensive Income.
Impairment of Non-Financial Assets
Assets not ready for use are not subject to amortisation and are tested
annually for impairment. Assets that are subject to amortisation or
depreciation are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognised for the amount by which the asset's carrying
amount exceeds its recoverable amount. The recoverable amount is the higher of
an asset's fair value less costs to sell and value in use. For the purposes of
assessing impairment, assets are grouped at the lowest levels for which there
are separately identifiable cash flows (cash-generating units). Non-financial
assets other than goodwill that suffered impairment are reviewed for possible
reversal of the impairment at each reporting date.
2.9 Financial assets
Classification
Financial assets are recognised when the Group becomes a party to the
contractual provisions of the instrument. At initial recognition, the Group
classifies its financial assets as loans and receivables which comprise 'trade
and other receivables' and 'cash and cash equivalents'.
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They are
included in current assets, except for maturities greater than 12 months after
the end of the reporting period.
Recognition and measurement
Loans and receivables are initially recognised at the amount expected to be
received, less where material, a discount to reduce the loans and receivables
to fair value. Subsequently, loans and receivables are measured at amortised
cost using the effective interest method less a provision for impairment.
Derecognition
The Group derecognises a financial asset when the contractual rights to the
cash flows from the asset expire, or it transfers the rights to receive the
contractual cash flows on the financial asset in a transaction in which
substantially all the risks and rewards of the ownership of the financial asset
are transferred. Any interest in transferred financial assets that is created
or retained by the Group is recognised as a separate asset or liability.
Derecognition also takes place for certain assets when the Group writes-off
balances pertaining to the assets deemed to be uncollectible.
The Group derecognises a financial liability when its contractual obligations
are discharged or cancelled or expire.
Impairment of financial assets
At each Statement of Financial Position date, the Group assesses whether there
is objective evidence that financial assets are impaired. Financial assets are
impaired when objective evidence demonstrates that a loss event has occurred
after the initial recognition of the asset, and the loss event has an impact on
the future cash flows of the asset that can be estimated reliably.
The Group considers the evidence of impairment at both a specific asset and
collective level. All individually significant financial assets are assessed
for specific impairment. All significant assets found not to be specifically
impaired are then collectively assessed for any impairment that has been
incurred but not yet identified. Assets that are not individually significant
are then collectively assessed for impairment by grouping together financial
assets (carried at amortised cost) with similar risk characteristics. When a
subsequent event causes the amount of impairment loss to decrease, the
impairment loss is reversed through the Income Statement.
2.10 Trade and other receivables
Trade and other receivables are recognised initially at fair value and
subsequently measured at amortised cost using the effective interest method,
less provision for impairment. A provision for impairment of trade receivables
is established when there is objective evidence that the Group will not be able
to collect all amounts due according to the original terms of receivables.
2.11 Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and demand deposits
with banks.
2.12 Trade and other payables
Trade and other payables are initially measured at fair value and are
subsequently measured at amortised cost using the effective interest method.
2.13 Borrowings
Borrowings are recognised initially at fair value, net of transaction costs
incurred. Borrowings are subsequently carried at amortised cost; any
difference between the proceeds (net of transaction costs) and the redemption
value is recognised in the Income Statement over the period of the borrowings,
using the effective interest method.
Borrowings are classified as current liabilities unless the Group has an
unconditional right to defer settlement of the liability for at least 12 months
after the end of the reporting period.
2.14 Borrowing costs
Borrowing costs are recognised in the Income Statement in the period in which
they are incurred.
2.15 Share capital
Ordinary shares are classified as equity when there is no obligation to
transfer cash or other assets. Incremental costs directly attributable to the
issue of equity instruments are shown in equity as a deduction from the
proceeds, net of tax. Incremental costs directly attributable to the issue of
equity instruments as consideration for the acquisition of a business are
included in the cost of acquisition.
2.16 Share based payment
The Group operates equity-settled, share-based compensation plans under which
the entity receives services from employees and suppliers as consideration for
equity instruments (options and warrants) of the Company. The fair value of
the services received in exchange for the grant of options and warrants is
recognised as an expense and as a component of equity, if material. The total
amount to be expensed over the vesting period is determined by reference to the
fair value of the options and warrants granted using the Black-Scholes pricing
model. When the options are exercised, the Company issues new shares. The
proceeds received, net of any directly attributable transaction costs, are
credited to share capital (nominal value) and share premium.
2.17 Taxation
The tax expense or credit comprises current and deferred tax. It is calculated
using tax rates that have been enacted or substantively enacted by the
Statement of Financial Position date.
Deferred tax is accounted for using the balance sheet liability method in
respect of temporary differences arising from differences between the carrying
amount of assets and liabilities in the financial statements and the
corresponding tax basis used in the computation of taxable profit. In
principle, deferred tax liabilities are recognised for all taxable temporary
differences and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which deductible
temporary differences can be utilised. Such assets and liabilities are not
recognised if the temporary difference arises from goodwill (or negative
goodwill) or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction, which affects
neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries and associates, and interests in joint
ventures, except where the Group is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future. Deferred tax is calculated at the tax rates
that are expected to apply to the period when the asset is realised or the
liability is settled. Deferred tax is charged or credited in the Statement of
Comprehensive Income, except when it relates to items credited or charged
directly to equity, in which case the deferred tax is also dealt with in
equity. Deferred tax assets and liabilities are offset when they relate to
income taxes levied by the same taxation authority and the Group intends to
settle its current tax assets and liabilities on a net basis.
2.18 Leasing
Leases in which a significant portion of the risks and rewards of ownership are
retained by the lessor are classified as operating leases. Payments made under
operating leases (net of any incentives received from the lessor) are charged
to the Income Statement on a straight-line basis over the period of the lease.
2.19 Segment Information
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-makers, who are responsible
for allocating resources and assessing performance of the operating segments
and making strategic decisions.
2.20 Pension Obligations
The Group makes contributions to defined contribution pension plans. The Group
has no legal or constructive obligations to pay further contributions if the
plans do not hold sufficient assets to pay all employees the benefits relating
to employee service in the current or prior periods. The contributions are
recognised as employee benefit expense when they are paid.
2.21 Exceptional items
Exceptional items are disclosed separately in the Financial Statements where it
is necessary to do so to provide further understanding of the financial
performance of the Group. They are material items of income or expense that
have been shown separately due to the significance of their nature or amount.
3 FINANCIAL RISK MANAGEMENT
The Group's activities expose it to a variety of financial risks: market risk
(including currency risk and cash flow and interest rate risk), credit risk and
liquidity risk.
Market risk
The Group operates in an international market for hydrocarbons and is exposed
to risk arising from variations in the demand for and price of the
hydrocarbons. Oil and gas prices historically have fluctuated widely and are
affected by numerous factors over which the Group has no control, including
world production levels, international economic trends, exchange rate
fluctuations, speculative activity and global or regional political events.
a) Currency risk
The majority of the Group's sales and purchase transactions are denominated in
US dollars. The Company's expenditure is predominantly denominated in Sterling.
The currencies are stable and any exchange risk is managed by maintaining bank
accounts denominated in those currencies.
b) Cash flow and interest rate risk
The Group's interest rate risk arises from long-term borrowings. Borrowings
issued at variable rates expose the Group to cash flow interest rate risk,
which is partially offset by cash held at variable rates. During 2015, the
Group's borrowings at variable rates were denominated in US dollars.
At 31 December 2015, if variable interest rates on borrowings are 10 basis
points higher/lower with all other variables held constant, the annual interest
expense will be $145,120 higher / $138,810 lower.
Credit risk
Credit risk represents the risk of loss the Group would incur if operators and
counterparties fail to fulfil their credit obligations. The maximum exposure to
credit risk is represented by the carrying amount of each financial asset.
Where the Group is not an operator of wells, the Group's trade receivables and
accrued income result from contractual amounts due from third party operators.
The risk is concentrated between a relatively small group of operators given
the small number of parties involved in oil and gas exploration and production
activities. The Group seeks to mitigate this risk where possible by assessing
the credit quality of the operators and by establishing ongoing and long term
relationships.
Liquidity risk
Cash flow forecasting is performed in the operating entities of the Group, and
aggregated by Group Finance. Group Finance monitors rolling forecasts of the
Group's liquidity requirements to ensure it has sufficient cash to meet
operational needs, while seeking to maintain sufficient headroom on its undrawn
committed borrowing facilities (Note 19) at all times, so that the Group does
not breach borrowing limits or covenants (where applicable) on any of its
borrowing facilities. Such forecasting takes into consideration the Group's
debt financing plans, covenant compliance, compliance with internal Statement
of Financial Position ratio targets, and, if applicable, external regulatory or
legal requirements (for example, currency restrictions).
The table below analyses the Group's non-derivative financial liabilities and
net-settled derivative financial liabilities into relevant maturity groupings,
based on the remaining period at the Statement of Financial Position to the
contractual maturity date. The amounts disclosed in the table are the
contractual undiscounted cash flows.
Group Less than 1 year Between 1 & 2 years
At 31 December 2015
Borrowings - 3,154,784
Trade and other 1,902,137 -
payables
At 31 December 2014
Borrowings - 2,700,000
Trade and other 1,502,216 -
payables
4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Use of estimates and judgements
The preparation of Financial Statements in conformity with IFRSs requires
management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities, income
and expenses. The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis of making the judgements
about carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
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 current and
future periods. In particular, information about significant areas of
estimation uncertainty and critical judgements in applying accounting policies
that have the most significant effect on the amount recognised in the financial
statements are described below.
Estimated impairment of producing properties and capitalised drilling costs &
equipment
At 31 December 2015, mineral leases and capitalised drilling costs & equipment
on producing properties have a total carrying value of $7,288,003 (2014:
$11,285,037) (Note 13). Management tests annually whether the assets have
future economic value in accordance with the accounting policies. These assets
are also subject to an annual impairment review by an independent consultant.
The recoverable amount of each property has been determined based on a value in
use calculation which requires the use of certain estimates and assumptions
such as long term commodity prices (i.e. oil and gas prices), discount rates,
operating costs, future capital requirements and mineral resource estimates.
These estimates and assumptions are subject to risk and uncertainty and
therefore a possibility that changes in circumstances will impact the
recoverable amount.
In assessing the carrying amounts of its producing properties and related
drilling and equipment costs, the Directors have used an updated reserves
report ("The Report") and have concluded that an impairment charge of
$3,538,523 should be recognised to write down the value of the assets. The
Report has identified certain wells to be non-economic, based on the current
and projected oil and gas prices.
Recoverability of non-producing mineral leases and capitalised drilling costs &
equipment
Mineral leases and drilling costs on non-producing properties have a carrying
value at 31 December 2015 of $1,490,520 (2014: $6,122,650). Management tests
annually whether non-producing mineral leases have future economic value in
accordance with the accounting policy stated in Note 2.8. This assessment takes
into consideration the likely commerciality of the asset, the future revenues
and costs pertaining and the discount rates to be applied for the purposes of
deriving a recoverable value. In the event that a lease does not represent an
economic drilling target and results indicate that there is no additional
upside, the mineral lease and drilling costs will be impaired. The Directors
have reviewed the estimated value of the licences and have concluded that an
impairment charge of $4,973,181 should be recognised.
Decommissioning
Where the Group has decommissioning obligations in respect of its assets, the
full extent to which the provision is required depends on the legal
requirements at the time of decommissioning, the costs and timing of any
decommissioning works and the discount rate applied to such costs.
Estimated impairment of goodwill
Goodwill has a carrying value at 31 December 2015 of $340,253 (2014: $359,222).
The Group tests annually whether goodwill has suffered any impairment in
accordance with the accounting policy stated in Note 2.8. Management have
concluded that there is no impairment charge necessary to the carrying value of
goodwill.
Estimated useful lives of property, plant and equipment
Useful lives are based on industry standards and historical experience which
are subjected to yearly evaluation. For producing properties, the Group's
considerations include the lease period of the agreement, estimated levels of
proven and probable reserves and the estimated future cost of developing and
extracting those reserves. Management review property, plant and equipment at
each Statement of Financial Position date to determine whether there are any
indications of impairment. If any such indication exists, an estimate of the
recoverable amount is performed, and an impairment loss is recognised to the
extent that the carrying amount exceeds the recoverable amount. The Directors
have reviewed the estimated value of each property and do not consider any
further impairment to be necessary.
5 SEGMENTAL INFORMATION
The Executive Directors are the Group's chief operating decision-makers.
The Group operates in two geographical areas, the United Kingdom and the United
States of America. Activities in the UK are mainly administrative in nature
whilst the activities in the USA relate to exploration and production from oil
and gas wells. The reports reviewed by the Board of Directors that are used to
make strategic decisions are based on these geographical segments.
Year ended 31 December 2015
Intra-segment
USA UK balances Total
$ $ $ $
Revenue from external 1,991,021 - - 1,991,021
customers
Gross loss (793,748) - - (793,748)
Operating loss (9,469,700) (203,635) - (9,673,335)
________ _______ ___ ________
Impairment - property, plant -
and 3,538,523 - 3,538,523
Equipment
Impairment - intangible 4,973,181 - - 4,973,181
assets
Depreciation 1,553,240 - - 1,553,240
Capital expenditure 1,432,911 - - 1,432,911
Total assets 9,819,175 16,161,602 (16,108,264) 9,872,513
Total liabilities 16,901,190 49,466 (12,654,385) 4,296,271
_________ _________ _________ _________
Year ended 31 December 2014
Intra-segment
USA UK balances Total
$ $ $ $
Revenue from external 3,851,905 - - 3,851,905
customers
Gross profit 1,449,082 - - 1,449,082
Operating profit/(loss) 2,259,130 (439,009) - 1,820,121
________ _______ ___ ________
Impairment - property, plant
and 19,847 - - 19,847
Equipment
Impairment - intangible 229,385 - - 229,385
assets
Depreciation 1,303,796 - - 1,303,796
Capital expenditure 4,718,790 - - 4,718,790
Total assets 18,462,997 15,748,874 (15,363,438) 18,848,433
Total liabilities 16,314,595 31,722 (12,076,227) 4,270,090
_________ _________ _________ _________
A reconciliation of the operating loss to loss before taxation is provided as
follows:
Year ended Year ended
31 December 31 December
2015 2014
$ $
Operating (loss)/profit for reportable segments (9,673,335) 1,820,121
Finance income 139 187
Finance costs (120,080) (127,296)
________ _______
(Loss)/profit before tax (9,793,276) 1,693,012
________ _______
The amounts provided to the Board of Directors with respect to total assets are
measured in a manner consistent with that of the Financial Statements. These
assets are allocated based on the operations of the segment and physical
location of the asset. Goodwill recognised by the Group is managed centrally
and is not considered to be a segmental asset.
Reportable segments' assets are reconciled to total assets as follows:
Year ended Year ended
31 December
31 December 2014
2015
$ $
Segmental assets for reportable segments 9,872,513 18,848,437
Unallocated: goodwill 340,253 359,222
_________ _________
Total assets per Statement of Financial Position 10,212,766 19,207,659
_________ _________
Information about major customers/operating partners
In the year ended 31 December 2015 revenues of $586,842 and $401,168 are
derived from two operators. These revenues were all generated in the USA.
In the year ended 31 December 2014 revenues of $834,903 and $663,105 are
derived from two operators. These revenues were all generated in the USA.
6 EXPENSES BY NATURE
Group 2015 2014
$ $
Operator costs 990,854 885,233
Production taxes 246,602 218,837
Total operating expenses 1,237,456 1,104,070
Directors' remuneration and fees 151,914 528,378
Consulting fees 39,130 127,234
Legal, professional and compliance costs 229,724 254,338
Depreciation 5,927 5,037
Office staff costs 267,514 234,147
Other costs 351,675 342,310
Total administrative expenses 1,045,884 1,491,444
7 AUDITOR REMUNERATION
Services provided by the Company's auditor and its associates
During the year, the Group (including its overseas subsidiaries) obtained the
following services from the Company's auditor:
2015 2014
$ $
Fees payable to the Company's auditor for the 27,500 27,500
audit of the Parent Company and consolidated
Financial Statements
Fees payable to the Company's auditor for other
services:
- in relation to tax compliance 2,177 2,177
- in relation to other audit related assurance - 3,819
services
8 STAFF COSTS
The Group and Company incurred the following staff costs (including Directors):
Group 2015 2014
$ $
Wages and salaries 481,226 715,128
Social security costs 16,957 29,876
Pension costs 7,200 7,200
Other benefits 69,995 50,315
575,378 802,519
Directors' Emoluments
The Directors' emoluments in respect of qualifying services were:
Group 2015 2014
$ $
Directors' salary and fees 326,227 500,501
Pension costs 7,200 7,200
Other benefits 30,194 28,908
363,621 536,609
T Wagenhofer 10,695 -
J M Cubitt 8,553 28,807
S O Snead 33,732 87,629
R S Harwood 33,732 87,629
G J Burnell 31,471 28,807
R F Whittington 245,438 303,737
Total 363,621 536,609
The average monthly number of staff, including the Directors, during the
financial year was as follows:
Group
2015 2014
$ $
Administrative and managerial 7 7
9 OTHER INCOME
Group
2015 2014
$ $
Consultancy and success fee - 1,005,374
10 INCOME TAX
Tax charge for the period
The tax charge for the year is $Nil (2014: $Nil).
Factors affecting the tax charge for the period
The tax charge for each year is explained below:
2015 2014
$ $
(Loss)/profit for the year before taxation (9,793,276) 1,693,012
(Loss)/profit for the period before tax (3,877,092) 634,690
multiplied by the weighted average tax rate of
39.59% (2014: 37.49%)
Expenses not deductible for tax purposes - 3,984,640 -
impairment of non-current assets
Tax losses for which no deferred tax asset 80,618 118,175
recognised - UK
Tax losses for which no deferred tax asset 342,819 837,678
recognised - US
Revenue deduction for capitalised costs - US (1,341,233) (1,590,543)
_______ _______
Income tax charge - -
_______ _______
The Group has UK tax losses of approximately $1,284,000 (2014: $1,205,000) and
US tax losses of approximately $9,146,000 (2014: losses of approximately
$8,280,000) available to carry forward against future taxable profits. A
potential deferred tax asset of approximately $260,000 (2014: $241,000) on the
UK losses and $3,659,000 (2014: $3,312,000) on the US losses has not been
recognised because of uncertainty over the timing of future taxable profits
against which the losses may be offset.
11 FINANCE INCOME AND FINANCE COSTS
2015 2014
$ $
Interest income 139 187
Interest expense and fees - bank borrowings (120,080) (127,296)
12 EARNINGS PER SHARE
The calculation of earnings per share of loss of 0.98 cents per share (2014
profit per share: 0.19 cents) is calculated by dividing the loss attributable
to ordinary shareholders of $9,793,276 (2014 profit: $1,693,012) by the
weighted average number of ordinary shares of 995,081,516 (2014: 910,672,851)
in issue during the period.
In accordance with IAS 33, there is no difference between the basic and diluted
earnings per share.
Details of share options and warrants that could potentially dilute earnings
per share in future periods are set out in Note 18. None of the share options
and warrants were dilutive as at 31 December 2015.
13 PROPERTY, PLANT AND EQUIPMENT
Group
Cost Producing Drilling Motor Total
properties costs and vehicles $
(Mineral equipment and office
Leases) $ equipment
$ $
At 1 January 2014 1,255,743 8,112,955 19,059 9,387,757
Additions 131,258 4,242,725 2,612 4,376,595
Impairment - (19,847) - (19,847)
Transferred from intangible assets 1,206 4,724 - 5,930
Disposals (43,452) (108,650) - (152,102)
________ ________ ______ ________
At 31 December 2014 1,344,755 12,231,907 21,671 13,598,333
________ ________ ______ ________
Additions 3,890 1,049,901 3,058 1,056,849
Transferred from intangible assets 704 34,307 - 35,011
________ _________ ______ _________
At 31 December 2015 1,349,349 13,316,115 24,729 14,690,193
________ _________ ______ _________
Accumulated Depreciation and
Impairment
At 1 January 2014 190,841 837,233 7,298 1,035,372
Charge for the period 273,071 1,025,688 5,037 1,303,796
Disposals (13,711) (21,497) - (35,208)
_______ _______ _____ ________
At 31 December 2014 450,201 1,841,424 12,335 2,303,960
_______ _______ _____ ________
Charge for the period 251,645 1,295,668 5,927 1,553,240
Impairment 385,161 3,153,362 - 3,538,523
_______ ________ ______ _________
At 31 December 2015 1,087,007 6,290,454 18,262 7,395,723
_______ ________ _____ ________
Net Book Amount
At 31 December 2014 894,554 10,390,483 9,336 11,294,373
________ _________ ______ _________
At 31 December 2015 262,342 7,025,661 6,467 7,294,470
________ _________ ______ _________
Transfers from intangible assets represent licence areas where production has
commenced together with drilling costs associated with these licences.
Producing properties and drilling costs depreciation expense of $1,547,313
(2014: $1,298,759) has been charged in cost of sales.
Motor vehicles and office equipment depreciation expense of $5,927 (2014:
$5,037) has been charged in administrative expenses.
14 INTANGIBLE ASSETS
Group Drilling Mineral Total
Goodwill costs leases $
$ $ $
Cost
At 1 January 2014 381,733 3,995 6,014,530 6,400,258
Additions - 50,766 291,429 342,195
Transferred to property, plant and - (4,724) (1,206) (5,930)
Equipment
Disposals - - (2,755) (2,755)
Exchange movements (22,511) - - (22,511)
Impairment - - (229,385) (229,385)
At 31 December 2014 359,222 50,037 6,072,613 6,481,872
Additions - 291,332 84,730 376,062
Transferred to property, plant and - (34,307) (704) (35,011)
equipment
Exchange movements (18,969) - - (18,969)
Impairment - (225,230) (4,747,951) (4,973,181)
As at 31 December 2015 340,253 81,832 1,408,688 1,830,773
Amortisation
At 1 January 2014, 31 December 2014 - - - -
and 31 December 2015
Net Book Amount
At 31 December 2014 359,222 50,037 6,072,613 6,481,872
At 31 December 2015 340,253 81,832 1,408,688 1,830,773
Drilling costs and mineral leases represent acquired intangible assets with an
indefinite useful life and are tested annually for impairment. Expenditure
incurred on the acquisition of mineral leases is capitalised within intangible
assets until such time as the exploration phase is complete or commercial
reserves have been discovered. Exploration expenditure including drilling costs
are capitalised on a well by well basis if the results indicate the existence
of a commercially viable level of reserves.
Impairment review - Property, plant and equipment and Intangible assets
The Directors have undertaken a review to assess whether circumstances exist
which could indicate the existence of impairment as follows:
- The Group no longer has title to the mineral lease.
- A decision has been taken by the Board to discontinue exploration due to
the absence of a commercial level of reserves.
- Sufficient data exists to indicate that the costs incurred will not be
fully recovered from future development and participation.
- The Group has disposed of the licence in 2016 therefore the asset has
been written down to net realisable value.
Following their assessment the Directors recognised an impairment charge
totalling US$8,511,704 for the year ended 31 December 2015 (2014: $249,232).
This is comprised of write-downs associated with the cost of mineral leases
which have expired and a markdown in the value of its interests in producing
properties identified as non-economic at today's low oil prices. Management
expects the value of its interests in producing wells to be written back,
either in part or in full, as and when the oil price recovers.
The Directors believe that no impairment is necessary on the carrying value of
goodwill. Goodwill arose on the reverse acquisition of Magnolia Petroleum Plc.
The goodwill represents the value of the parent company being an AIM listed
entity to Magnolia Petroleum Inc.
15 INVESTMENTS
Investments in subsidiaries
2015 2014
$ $
Company
Shares in group undertakings
At 1 January 3,646,431 3,874,935
Exchange movements (192,552) (228,504)
At 31 December 3,453,879 3,646,431
Investments in group undertakings are recorded at cost, which is the
fair value of the consideration paid.
Principal subsidiaries
Name Country of Nature of Registered Proportion of equity
incorporation business capital shares held by Company
and residence
Magnolia United States of Oil and gas Ordinary 100%
Petroleum Inc. America exploration shares US$1
This subsidiary undertaking is included in the consolidation. The proportion
of the voting rights in the subsidiary undertaking held directly by the Parent
Company does not differ from the proportion of ordinary shares held.
16 TRADE AND OTHER RECEIVABLES
Group Company
2015 2014 2015 2014
$ $ $ $
Trade receivables 254,461 311,105 - -
Other receivables 30,394 26,000 - 7,846
Amounts due from group - - 12,654,385 12,076,229
undertakings
Prepayments 156,908 410,374 9,128 14,707
Accrued income - 250,187 - -
_______ ________ _________ _________
441,763 997,666 12,663,513 12,098,782
_______ ________ _________ _________
Trade receivables comprise customer receivables. Trade receivables are neither
past due nor impaired and relate to existing customers with no defaults in the
past. The Group retains all risks associated with these receivables until fully
recovered.
The fair value of all receivables is the same as their carrying values stated
above.
As at 31 December 2015, trade receivables of $254,461 (2014: $311,105) were
fully performing.
Group
The carrying amounts of the Group's trade and other receivables are denominated
in the following currencies:
2015 2014
$ $
UK Pounds 9,128 22,553
US Dollar 432,635 975,113
_______ ________
441,763 997,666
_______ ________
The maximum exposure to credit risk at the reporting date is the carrying value
of each class of receivable mentioned above. The Group does not hold any
collateral as security.
Company
The carrying amounts of the Company's trade and other receivables are
denominated in UK pound sterling.
17 CASH AND CASH EQUIVALENTS
Group Company
2015 2014 2015 2014
$ $ $ $
Cash at bank 645,759 433,748 44,210 3,661
_______ _______ _____ _______
Cash and cash 645,759 433,748 44,210 3,661
equivalents
_______ _______ _____ _______
At 31 December 2015, the Group held cash of $44,210 (2014: $3,661) in a bank
with a Fitch credit rating of A (Stable) and $601,549 (2014: $430,087) in a
bank where no Fitch credit rating is available.
18 SHARE CAPITAL AND PREMIUM
Ordinary shares Share premium
Group Number of Nominal Nominal Nominal Nominal Total
shares value value value value $
£ $ £ $
At 1 January 910,672,851 910,673 1,481,396 8,703,462 13,954,026 15,435,422
2014
__________ _______ ________ ________ _________ _________
At 31 December 910,672,851 910,673 1,481,396 8,703,462 13,954,026 15,435,422
2014 __________ _______ ________ ________ _________ _________
Placing shares 146,142,856 146,143 223,424 876,857 1,340,544 1,563,968
Issue costs - - - (60,000) (94,350) (94,350)
__________ _______ ________ ________ _________ _________
At 31 December 1,056,815,707 1,056,816 1,704,820 9,520,319 15,200,220 16,905,040
2015 __________ _______ ________ ________ _________ _________
Each ordinary share has a nominal value of 0.1 pence per share.
Share options and warrants
Share options and warrants outstanding and exercisable at the end of the year
have the following expiry dates and exercise prices:
No. Options/warrants
Expiry date Exercise price in 2015 2014
pence per share
25 November 2018 1.30 52,820,768 52,820,768
24 January 2017 2.85 1,754,386 1,754,386
28 January 2020 2.925 20,338,982 20,338,982
_________ _________
74,914,136 74,914,136
_________ _________
The options and warrants are exercisable starting immediately from the date of
grant other than those expiring on 24 January 2017, which were exercisable from
24 January 2014. The Company and Group have no legal or constructive
obligation to settle or repurchase the warrants or options in cash.
A reconciliation of options granted and lapsed during the year ended 31
December 2015 is shown below.
Year ended Year ended
31 December 2015 31 December 2014
No. of Weighted No. of Weighted
options average options and average
and exercise warrants exercise
warrants price price
(in pence) (in pence)
Outstanding at beginning of 74,914,136 1.78 74,914,136 1.78
year
_________ ____ _________ ____
Outstanding at end of year 74,914,136 1.78 74,914,136 1.78
_________ ____ _________ ____
Exercisable at end of year 74,914,136 1.78 74,914,136 1.78
_________ ____ _________ ____
The warrants and options outstanding at 31 December 2015 had a weighted average
remaining contractual life of 3.2 years (2014: 4.2 years).
No options or warrants were exercised, granted or cancelled during the year.
19 BORROWINGS
Group Company
2015 2014 2015 2014
$ $ $ $
Non-current
Bank borrowings (including 3,154,784 2,736,274 - -
arrangement fee)
As at 31 December 2015 the Group had a $6 million revolving credit facility
with, subject to certain conditions being met, a maturity date of 7 March 2017
(originally 7 September 2016). The borrowing base is reassessed on a six
monthly basis and adjusted in line with the level of the Group's proven
developed producing reserves. Interest is charged on credit drawn down at the
Wall Street Journal Prime rate (currently 3.25%) +0.75%. The credit facility
is secured against the producing leases and operating equipment owned by the
Group, together with sales contracts and farm-out agreements. Note 2.3
provides details of amendments to the terms of the revolving credit facility
subsequent to the year end.
The fair value of borrowings equals their carrying amount. All borrowings are
denominated in US dollars. The Group has the following undrawn borrowing
facilities:
Group Company
2015 2014 2015 2014
$ $ $ $
Expiring beyond one year 3,154,784 1,896,944 - -
20 TRADE AND OTHER PAYABLES
Group Company
Current 2015 2014 2015 2014
$ $ $ $
Trade and other 1,092,137 1,502,216 116 122
payables
Accrued expenses 49,350 31,600 49,350 31,600
________ ________ ______ ______
1,141,487 1,533,816 49,466 31,722
________ ________ ______ ______
21 FINANCIAL INSTRUMENTS BY CATEGORY
Group Company
2015 2014 2015 2014
$ $ $ $
Assets as per Statement of Financial
Position
Loans and receivables:
Trade and other receivables 284,855 587,292 12,654,385 12,084,075
(excluding prepayments)
Cash and cash equivalents 645,759 433,748 44,210 3,661
________ _______ ________ ________
930,614 1,021,040 12,698,595 12,087,736
________ _______ ________ ________
Liabilities per Statement of Financial
Position
Financial liabilities at amortised cost:
Borrowings 3,154,784 2,736,274 - -
Trade and other payables 1,141,487 1,533,816 49,466 31,722
(excluding non-financial liabilities) ________ ________ ______ ______
4,296,271 4,270,090 49,466 31,722
22 TREASURY POLICY
The Company and Group operate informal treasury policies which include ongoing
assessments of interest rate management and borrowing policy. The Board
approves all decisions on treasury policy.
The Group has financed its activities by raising funds through the placing of
shares and through bank borrowings set out in Note 19 above. There are no
material differences between the book value and fair value of the financial
assets.
23 CAPITAL MANAGEMENT POLICIES
The Group and Company's capital management objectives are:
* to ensure compliance with borrowing covenants;
* to ensure the Group's and Company's ability to continue as a going concern;
and
* to provide an adequate return to shareholders.
In order to maintain or adjust the capital structure, the Group may issue new
shares or sell assets to reduce debts.
The current $6 million revolving credit facility maturity date (see Note 19)
has subsequent to the year-end been extended from 7 September 2016 to 7 March
2017. The Group will start making principal reduction payments, along with
interest payments in accordance with financial and non-financial loan
covenants.
24 CAPITAL COMMITMENTS
The Group and Company set the amount of capital in proportion to its overall
financing structure and manage their capital structure and make adjustments to
it in the light of changes in economic conditions and the risk characteristics
of the underlying assets.
As at 31 December 2015 or 2014 the Group had no capital commitments for
drilling and equipment costs contracted but not provided for.
25 RELATED PARTY TRANSACTIONS
Transactions with Group undertakings
During the year ended 31 December 2015 the Company charged management fees of
$43,504 (2014: $123,780) to Magnolia Petroleum Inc, the Company's wholly owned
subsidiary for the provision of administrative and management services. $43,504
(2014: $123,780) in relation to these fees was outstanding at the year end date
and is included within Trade and other receivables. As at 31 December 2015, the
amount due to the Company from Magnolia Petroleum Inc was $12,654,385 (2014:
$12,076,229).
All Group transactions were eliminated on consolidation.
Transactions with Enerlex Inc
Steven Snead and his wife have a 100% interest in the issued share capital of
Enerlex Inc. ("Enerlex"). The rental agreement between Enerlex and Magnolia
Petroleum Inc was revised on 30 September 2014 whereby Enerlex agreed to
provide Magnolia Petroleum Inc on a month to month basis with office premises
and services for $3,500 per month. A charge of $42,000 (2014: $33,000) was
recognised during the year under the former and revised agreement.
Subsequently, a reduced rate of $2,500 per month was agreed on effective
February 2016 until further notice.
Enerlex gave an undertaking to Magnolia Petroleum Inc dated 15 November 2011
whereby Enerlex undertakes that if any of the mineral leases granted to
Magnolia Petroleum Inc on any of the mineral interests in the Woodford/Hunton
play in Oklahoma expires at the end of the primary period because of
non-drilling, Enerlex will at Magnolia Petroleum Inc's request grant a further
three year lease on the same terms as the expired lease.
Transaction with Thomas Wagenhofer
Thomas Wagenhofer was appointed to the Board as a Non-Executive Director on 29
June 2015. Mr. Wagenhofer has elected to receive the majority of his annual
fee in new ordinary shares of the Company. On 30 June 2015, 428,571 and
2,857,142 new ordinary shares of 0.1 pence per share were issued to Mr.
Wagenhofer, in settlement of his fees due of £3,000 and his initial joining fee
of £20,000, respectively.
26 ULTIMATE CONTROLLING PARTY
As at the Statement of Financial Position date, the Directors do not consider
there is an ultimate controlling party.
27 EVENTS AFTER THE REPORTING PERIOD
On 12 January 2016 a further 428,571 ordinary shares of 0.1 pence per share
were issued to Mr. Wagenhofer, in settlement of his fees due of £3,000.
On 15 February 2016 the Company raised £300,000 (gross) through the issue of
214,285,714 ordinary shares at a price of 0.14 pence per share.
On 13 April 2016 Bank SNB formally signed and executed a waiver and consent
letter allowing the Group to be in breach of certain financial covenants from 1
July 2015 onwards and until further written notice is provided by Bank SNB.
On 20 April 2016, as a result of the lower oil prices during the year to 31
December 2015 and receipt of the Group's updated reserves report, the borrowing
base limit under the Group's revolving credit facility was decreased from
$3,284,210 to $1,604,565.
On 22 April 2016 the Company issued 4,500,000 new ordinary shares, at a price
of 0.2 pence per share, to the Directors of the Company: Steven Snead; Rita
Whittington; and Ronald Harwood, in settlement of their fees for the period
from 1 January 2016 to 31 March 2016.
On the same date, the Company also cancelled certain existing share options and
granted a further 84,677,737 new share options to staff and Directors. The
details relating to Directors are as follows:
Number of Number of
share share
Options Options
cancelled granted
Steven Snead 24,417,161 36,417,161
Rita Whittington 16,905,661 28,905,661
Ronald Harwood 3,354,915 13,354,915
________ ________
44,677,737 78,677,737
On 1 June 2016, the Group and Bank SNB, effective 31 December 2015, signed and
executed an agreement to extend the maturity date for the borrowing base
element from 7 September 2016 to 7 March 2017. A $400,000 principal payment
reduction in 2016 leaves a current principal balance of $2,754,784 of which
$1,150,219 will be repaid in equal instalments over a 5 year period. Interest
payments will be made monthly on the balance of $1,604,565.
NOTICE OF AGM AND POSTING OF ANNUAL REPORT
Notice is given that the Annual General Meeting of Magnolia Petroleum plc will
be held at 10.00am on 22 July 2016 at 18452 E 111th, Broken Arrow, Oklahoma, OK
74011. The Company's Annual Report, together with a Notice of Annual General
Meeting will be sent to shareholders shortly which will also be available on
the Company's website http://www.magnoliapetroleum.com/.
ENDS
For further information on Magnolia Petroleum Plc visit
www.magnoliapetroleum.com or contact the following:
Steven Snead Magnolia Petroleum Plc +01918449 8750
Rita Whittington Magnolia Petroleum Plc +01918449 8750
Jo Turner / James Caithie Cairn Financial Advisers LLP +44 20 7148 7900
Jamie Vickers/Max Bascombe Sanlam Securities UK Limited +44 20 7280 8700
Colin Rowbury Cornhill Capital Limited +44 20 7710 9610
Lottie Brocklehurst St Brides Partners Ltd +44 20 7236 1177
Frank Buhagiar St Brides Partners Ltd +44 207 236 1177
MAGNOLIA PETROLEUM : Final Results
June 27, 2016 at 10:50 am EDT
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