RNS Number : 9719P
i3 Energy PLC
01 June 2018
 

1 June 2018

I3 Energy plc

("i3", "i3 Energy", or the "Company")

 

Final Results for the year ended 31 December 2017

 

i3 Energy plc, an independent oil and gas company with assets and operations in the UK, is pleased to announce the audited results for the year ended 31 December 2017. A copy of the Company's financial statements will be available shortly on the Company's website at https://i3.energy/ together with a notice of AGM. The AGM will be held at 11:00 am on 28th June 2018 at WH Ireland, 24 Martin Lane, London, EC4R 0DR.

HIGHLIGHTS

·      Successfully completed a private placement raising £4.2m through Convertible Loan Notes before expenses to fund Liberator front-end engineering and design, project management, site survey, environmental statement development, and general corporate purposes

·      Remained focused on the safe and efficient development of the Liberator field:

Worked with the supply chain on development design and engineering

Continued to advance proposals with the suppliers regarding the provision of a rig, well services, and well services project management related to the development of Liberator

Positively engaged the Blake field partners regarding Liberator offtake terms across the producing Blake infrastructure, with feasibility and engineering studies commissioned and completed

Conducted a site survey over multiple areas and completed an environmental statement for two development drill centres at Liberator

Submitted the Liberator Field Development Plan ("FDP") to the UK Oil & Gas Authority ("OGA")

Received a reclassification and upgrade of Liberator resources to 11.7MMboe

2P Reserves with pre-tax net present value, discounted at 10%, of US$328 million

·      Admitted i3 Energy plc to the Alternative Investment Market ("AIM") of the London Stock Exchange with first day of dealings on 25th July 2017

·      Appointed David Knox as Non-executive Chairman and welcomed Richard Ames and Majid Shafiq as Non-executive Directors

·      Assessed several North Sea asset opportunities

Purchased seismic covering 830 km 2  across multiple blocks

Submitted firm-well bid application and arranged appraisal well funding for high-impact acreage in the UK's 30 th Offshore Licensing Round

Engaged AGR Tracs International Limited ("AGR") to conduct an independent assessment of i3's 30 th Round application target with the resulting report attributing 22MMBO 2C Mid-case Contingent Resources and 47MMBO Mid-case Prospective Resources to the asset

·      Continued to explore numerous funding options to develop Liberator including accessing equity and debt capital markets, joint venture partnering and supply chain financing

Received non-binding terms from UK-based lenders for a US$25 million credit facility for Liberator development funding

Arranged and entered into a financing agreement with an i3 investor to fund the Company's 30th Round work commitment (c. US$14 million appraisal well and seismic programme)

Advanced Joint Venture discussions with multiple industrial partners relating to i3's Liberator development and 30th Round target, with indicative commercial interest received for a full carry on a multi-well development with potential capital commitment estimated to be US$200 million.

POST PERIOD AND OUTLOOK

 

On 31st January 2018 the Company announced that it had raised £2.57 million through the placing of 8,563,630 new ordinary shares in the capital of the Company to new and existing investors at an issue price of 30 pence per share, representing a 0.4% premium to the 30-day average for the week ending 26th January 2018.  The proceeds of the funding are being used towards prerequisite engineering, trees and wellheads for the Liberator development, and general corporate purposes.

 

On 6th February 2018 the Company amended the terms of certain outstanding zero-coupon unsecured convertible loan notes.  The amended loan instrument replaced an existing loan note instrument dated 17th July 2017 and the principal amendments were detailed in the Company's news release dated 6th February 2018.

 

On 2nd March 2018, 20th March 2018 and 25th May 2018 the Company announced that, in relation to the amended Loan Note Agreement as announced 6th February 2018, it received notices of exercise from James Caird Asset Management ("JCAM") to convert part of the loan with an aggregate par value of US$1,500,000, into shares.  Following the conversions the value outstanding on the loan was US$1,000,000.  The Company allotted 3,368,728 ordinary shares to JCAM which rank pari passu in all respects with the existing ordinary shares. Following Admission of these shares, the Company's enlarged issued share capital was comprised of 37,623,250 ordinary shares.

 

On 23rd May 2018 the Company announced it had been awarded its sole 30th Offshore Licensing Round application target, Block 13/23c (123 km2), on a 100% interest basis.  Block 13/23c contains a material extension of the Liberator field, referred to by i3 as Liberator West, with further prospectivity identified by the Company outside the Liberator trend.  The award delivers a significant increase in i3's combined Reserve & Resource Base, now totalling an independently verified 80MMBO.

 

The Company's focus for the remainder of 2018 will be on 4 key areas:

1    Continued advancement of a safe and robust Liberator development with targeted first oil in 2019.

2    Target a high-impact 2018 appraisal programme on the Company's 30th Round Award Block 13/23c (Liberator West).

3    Efficient funding of the Company's development and appraisal efforts, with a focus on joint venture partnerships.

4    The sourcing and capture of accretive development and production assets, and consideration of transactions that enhance capital efficiency.

The Company continuously evaluates opportunities to strengthen its balance sheet whilst maintaining tight control of its costs and working capital position.

Neill Carson, CEO of i3 Energy plc, commented

"2017 has been a year in which solid foundations were laid for the future success of i3 Energy. Our team has deepened its understanding of the high-quality nature of our 100% owned and operated Liberator oil discovery and we remain focused on the advancement of this asset. The strong technical underpinning of Liberator combined with the deliverability of the project has attracted investment from private and institutional investors, in addition to drawing meaningful interest from senior lenders and potential joint venture partners. We look forward to the remainder of 2018 with excitement as we aim to unlock Liberator's full potential while seeking out target acquisitions from which we can extract shareholder value.

i3's Board, Executive, and Management Team would like to thank our valued shareholders for their ongoing support as we push towards the exciting year ahead."

Joint Broker

 

With effect from today the Company is pleased to announce Canaccord Genuity Limited as Joint Broker to the Company alongside GMP First Energy and WH Ireland.

 

Enquiries:

 

CONTACT DETAILS:

 

i3 Energy plc

 

 

Neill Carson (CEO) / Graham Heath (CFO)

c/o Camarco

Tel: +44 (0) 203 757 4980

 

WH Ireland Limited (Nomad and Joint Broker)

 

 

James Joyce, James Sinclair-Ford

Tel: +44 (0) 207 220 1666

 

GMP FirstEnergy (Joint Broker)

 

 

Jonathan Wright, David van Erp

Tel: +44 (0) 207 448 0200

 

 

Canaccord Genuity Limited

Henry Fitzgerald- O'Connor

James Asensio

 

Tel: +44 (0) 207 523 8000

 

 

Camarco

Georgia Edmonds, Jane Glover, James Crothers

 

Tel: +44 (0) 203 757 4980

 

Notes to Editors:

i3 is an oil and gas development company initially focused on the North Sea. The Company's core asset is the Greater Liberator Area, located in Blocks 13/23d and 13/23c, containing recoverable resources of 80 MMBO. The Greater Liberator Area consists of the Liberator oil field discovered by well 13/23d-8 and the Liberator West extension, both of which i3 hold a 100% working interest in. Liberator West will be the subject of a single well appraisal campaign in Q4 2018.

The Company's strategy is to acquire high quality, low risk producing and development assets, to broaden its portfolio and grow its reserves and production.

i3 has a strong management team with a track record of delivery and was founded by Neill Carson, previously founder and CEO of Ithaca Energy, where he built an asset portfolio including multiple developments.

The information contained within this announcement is deemed by the Company to constitute inside information under the Market Abuse Regulation (EU) No. 596/2014.

CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT

2017 was a landmark year for i3 Energy.

We were delighted to complete our acquisition of the Liberator oil field on 28th December 2016 from Dana Petroleum as it furnished i3 with a high-quality, low-cost development opportunity, and a strong foundation for growth.  Development activities started immediately and following successful delivery of early milestones and subsequent upgrading of Liberator's reserves, i3 Energy will be well placed to deliver first oil in 2019 upon the completion of certain funding initiatives currently being undertaken by the team.

A successful issue of loan notes was made in early 2017 and with a subsequent conversion to ordinary share capital, i3 was able to conclude its admission to AIM in July. This was a significant achievement for the Company, providing us with greater funding flexibility for both Liberator and our future growth plans. The first step of that growth was taken in November 2017 when we made a firm-well bid application for highly attractive acreage in the UK's 30th Offshore Licensing Round.  The Board and management team were thrilled to be awarded the Company's sole 30th Round application target, Block 13/23c (Liberator West), on 23rd May 2018.  With the addition of Liberator West, i3 has seen an independently verified increase from its previous 2P Reserves base of 11MMBO, to 80MMBO of combined reserves, contingent and prospective resources, post the award.

Successful funding and AIM listing

During the early part of 2017 and on the back of the Liberator acquisition, we were pleased to issue approximately £4.2 million of convertible loan notes through a private placement. We then positioned ourselves for a concurrent IPO and listing to AIM. A softening in commodity prices during that period combined with a backdrop of numerous other factors prevented us from attaining the necessary commitment levels required to fully fund the Liberator development and, as such, i3 did not raise additional capital at that time. However, a majority of i3's Loan Noteholders agreed to convert their Notes to ordinary share capital in the Company, permitting us to conclude our admission to AIM. i3 Energy plc began trading on 25th July with circa 25.7 million shares in issuance, with Management and Board holding 65%. Listing the Company was crucial to preserving the option to conduct future fundraising from capital markets on our timing and when market conditions were more favourable.

Post year-end, the Company raised a further £2.57 million through the placing of approximately 8.6 million shares in the capital of the Company to new and existing investors. Additionally, an election by an existing investor to a partial conversion of their Loan Notes into shares has resulted in the issuance of a further 3.37 million shares such that the Company's current enlarged issued share capital comprises circa 37.6 million ordinary shares.

 

The proceeds of the funding have to-date been used towards engineering and development costs for Liberator, and for general corporate purposes.  The Company continues to explore all potential funding avenues including, but not limited to, joint venture partnering, capital markets, debt facilities, and vendor financing.

Early development milestones met, and good progress made towards Liberator first oil

Preliminary work to develop Liberator started in early 2017.  This work had several components: progression of the technical definition of the Liberator Project including studies for a tie-in (with associated commercial arrangements) to the nearby producing Blake and Ross facilities operated by Repsol Sinopec Resources UK Limited (RSRUK), pre-ordering of long lead items required for the drilling of two development wells, and advancement of a Field Development Plan with the Oil and Gas Authority (OGA).  This work continues to progress with the programme on track to deliver first oil from Liberator in 2019. Key highlights included:

·      Engagement with the Blake and Ross operator, RSRUK. Host engineering studies to accommodate the introduction and processing of Liberator fluids have been largely completed. These studies will confirm the technical requirements and construction schedule, enabling final engineering design to be completed and commercial arrangements for an offtake agreement to be finalised.

·      Completion of a site survey and pipeline route sampling operations over two areas close to the Liberator field that have been identified as potential development drill centres.

·      Sourcing of necessary equipment and services to conduct the Liberator drilling campaign, with time-critical components procured to avoid potential schedule disruption.

·      Submission of the Environmental Statement addressing potential environmental impacts from the Liberator development.

·      At the request of the OGA, submission of the Liberator Field Development Plan following a peer review by their technical team.

We strongly believe that projects such as Liberator - yet to be developed satellites near later life but well-maintained infrastructure - are a prime example of the type of collaboration that's required now and in the future between smaller operators and large infrastructure owners to maximise economic recovery in the UK and that this development closely adheres to the guidance given by the OGA in that regard. We are therefore pleased with the progress made with RSRUK.

Significant upgrade and reclassification of Liberator reserves

As part of the AIM Admission Document, i3 Energy engaged Gaffney, Cline & Associates (GCA) as its Competent Person to opine on the hydrocarbon resources in the Liberator field. Their assessment was that the 2C Contingent Resources attributed to the on-licence portion of Liberator was 9.4MMboe, producing a pre-tax net present value, discounted at 10%, of US$249 million.

In the fourth quarter, following further technical and commercial progress on the Liberator field, we commissioned AGR TRACS International Limited ("AGR") as a Competent Person to provide an updated Reserves Report over Liberator. In summary, the Reserves Report reclassified the 2C Resources to 2P Reserves and increased the recoverable volume to 11.7MMboe. The pre-tax net present value, discounted at 10%, is now US$328 million.

The i3 team is extremely encouraged by this assessment and believe it is a testament to the quality of the Liberator field and our continued progression of the Liberator development.

Fully-funded application submitted for highly attractive asset in the UK's 30th Offshore Licensing Round

In November 2017, i3 applied for strategic acreage in the UK's 30th Offshore Licensing Round on a 100% basis. Our confidence in bidding a firm well commitment had followed an extensive evaluation of seismic and well data by our technical team. The bid was underpinned by a funding agreement entered into between the Company and an existing investor, post their engagement of an independent third-party to conduct due diligence on i3's current and potential asset portfolio.

In advance of its bid, i3 also commissioned AGR to independently assess the target opportunity and the resulting Resources Report indicates that the main target contains recoverable Contingent Resources of 22MMBO with a 70% chance of commercial success due to the low risk nature of the discovery, reservoir properties, oil quality, and proximity to infrastructure. A further opportunity exists in the bid acreage with potential recoverable Prospective Resources of 47MMBO to which AGR attributes a 56% chance of success.

On 23rd May 2018, the OGA announced that i3 had been awarded Block 13/23c during the UK's 30th Offshore Licensing Round. We believe that this highly attractive asset is material to the Company and can be rapidly appraised and thereafter brought into production.  The award of this acreage marks i3's first step to further grow the Company and demonstrates our belief that attractive opportunities remain accessible within the UK North Sea.

Disciplined management of cash resources

During the year ended 31 December 2017, the Company incurred a net loss of £2,935,692 (31 December 2016 - net loss of £404,834). The majority of the loss resulted from the Company's ongoing development of its Liberator asset and consisted of expenses relating to i3 Energy plc's AIM listing, expenses relating to day-to-day operations, and accrued interest in relation to i3's Loan Notes.

A total of £4,195,869 (before expenses) was raised during 2017 through the private placement of Loan Notes, with the proceeds being used to fund Liberator engineering, offtake studies, project management, environmental statement, site survey, FDP and general corporate purposes.

Moving forward, we will continue to tightly manage our existing cash resources, which stood at £628,389 at the end of December 2017 (before the placement of new shares subsequent to year-end), as we progress the funding and development of an asset that has the potential to deliver substantial shareholder value.

Outlook

2017 was a landmark year for us.  Significant progress was made towards our goal of delivering material returns through the development of high-quality, low-cost, deliverable assets. We are now poised to make major steps in the Liberator development whilst continuing to pursue growth opportunities beyond our existing portfolio. The continuing increase in commodity prices will help to support both the value of Liberator and the commerciality of other satellite developments which will remain a focus of our future strategy.

We also extend thanks and gratitude to our shareholders for their continued support, appreciating the patience and steadfastness required to endure value creation during the early stages of our venture. We've found ourselves better positioned this year than last and are looking ahead with great expectation.

 

 

David Knox

Non-Executive Chairman

31 May 2018

 

 

Neill Carson

Chief Executive Officer

31 May 2018

 

 

 

i3 Energy plc

Consolidated Statement of Comprehensive Income

For the Year Ended 31 December 2017

 

 

Notes

Year Ended 31 December 2017

£

Year Ended 31 December 2016

£

 

 

 

 

 

 

Administrative expenses

5

(1,576,713)

(389,168)

AIM listing expenses

 

(475,050)

-

 

 

 

 

Operating loss

 

(2,051,763)

(389,168)

 

 

 

 

Finance expense:

 

 

 

Finance fees

 

(259,832)

(7,598)

Interest payable and similar costs

7

(624,097)

(8.068)

 

 

 

 

Total finance expense

 

(883,929)

(15,666)

 

 

 

 

Loss on ordinary activities before taxation attributable to owners of the parent

 

 (2,935,692)

(404,834)

 

 

 

 

Tax charge for the year

8

-

-

 

 

 

 

Net loss for the year and total comprehensive loss for the year attributable to owners of the parent

 

 (2,935,692)

(404,834)

 

 

 

 

           

 

Earnings per ordinary share

from continuing operations

Basic and diluted

 

 

 

 

 

 

 

 

    11

(0.25)

 

(0.07)

             

 

 

 

 

The accompanying notes on pages 29 - 46 form part of these financial statements.

No other comprehensive income has arisen in the period and as such is not disclosed.

 

 

 

 

 

 

 

31 December 2017

£

 

31 December 2016

£

 

 

 

 

 

ASSETS

Notes

 

 

 

Non-current assets

 

 

 

 

Property, plant & equipment

 

19,187

-

 

Exploration and evaluation assets

12

3,879,859

1,725,772

 

 

 

 

 

 

Total non-current

 

3,899,046

1,725,772

 

 

 

 

 

 

Current assets

 

 

 

 

Cash at bank and in hand

 

628,389

18,905

 

Trade and other receivables

14

151,641

10,449

 

 

 

 

 

 

Total current assets

 

780,030

29,354

 

 

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

15

(1,263,917)

(165,131)

 

Loan payable - related parties

17

(44,555)

-

 

Convertible loan notes payable

16

(2,995,914)

(1,990,264)

 

 

 

 

 

 

Total current liabilities

 

(4,304,386)

(2,155,395)

 

 

 

 

 

 

Net current liabilities

 

(3,524,356)

(2,126,041)

 

 

 

 

 

 

Total assets less current liabilities

 

374,690

(400,269)

 

 

 

 

 

 

Net liabilities

 

374,690

(400,269)

 

 

 

 

 

 

Capital and reserves

 

 

 

 

Called up share capital

18

2,569

701

 

Share premium

 

3,517,417

-

 

Deferred shares

18

50,000

-

 

Share-based payment reserve

19

145,230

3,864

 

Retained earnings

 

(3,340,526)

(404,834)

 

 

 

 

 

 

Shareholders' funds/(deficit)

 

374,690

(400,269)

 

 

 

 

 

 

           


i3 Energy plc

Consolidated Statement of Financial Position

As at 31 December 2017

(GBP)

 

The consolidated financial statements of i3 Energy plc, company number 10699593, were approved by the Board of Directors and authorized for issue on 31 May 2018. 

Signed on behalf of the Board of Directors by:

 

Neill Carson

Director

 

 

 

 

 

 

Notes

Called up share capital

Share premium

Deferred shares

Share-based payment reserve

Retained earnings

Total

As at 31 December 2015

 

1

-

-

-

-

1

Loss for the year and total comprehensive income

 

-

-

-

-

(404,834)

(404,834)

Issue of share capital

18

700

-

-

-

-

700

Share-based payment expense

19

-

-

-

3,864

-

3,864

As at 31 December 2016

 

701

-

-

3,864

(404,834)

(400,269)

 

 

 

 

 

 

 

Balance at 31 December 2016

 

701

-

-

3,864

(404,834)

(400,269)

Loss for the year and total comprehensive income

 

-

-

-

-

(2,935,692)

(2,935,692)

Issue of share capital

18

1,868

3,517,417

50,000

-

-

3,569,285

Share-based payment expense

19

-

-

-

141,366

-

141,366

Balance at 31 December 2017

 

2,569

3,517,417

50,000

145,230

(3,340,526)

374,690

                       

i3 Energy plc

Consolidated Statement of Changes in Equity

For the Year Ended 31 December 2017

(GBP)

 

 

The following describes the nature and purpose of each reserve within equity:

Reserve

Called up share capital

The following describes the nature and purpose of each reserve within equity:

 

Reserve

Description and purpose

Called up share capital

Represents the nominal value of shares issued

Share premium account

Amount subscribed for share capital in excess of nominal value

Deferred shares

Represents shares yet to be issued in the capital of the Company

Share-based payment reserve

Represents the accumulated balance of share-based payment charges recognised in respect of share options granted by the Company less transfers to retained deficit in respect of options exercised or cancelled/lapsed

Retained earnings

Cumulative net gains and losses recognised in the Consolidated Statement of Comprehensive Income

 

 

 

The accompanying notes on pages 29 - 46 form part of these financial statements.

 

i3 Energy plc

Consolidated Statement of Cash Flow

For the Year Ended 31 December 2017

(GBP)

 

 

Notes

Year ended 31 December 2017

£

Year ended 31 December 2016

£

 

 

 

 

OPERATING ACTIVITIES

 

 

 

Loss for the year

 

(2,935,692)

(404,834)

Adjustments for:

 

 

 

- Unrealized FX (Gain) / Loss

 

(234,557)

137,498

- Share-based payment expense

19

141,366

3,864

- Depletion, depreciation and amortization

 

4,894

 

Operating cash flows before movements in working capital:

 

 

 

- (Increase) in receivables

 

(103,608)

(10,448)

- (Increase) in prepaid expenses

 

(37,584)

 

- Increase in interest payable

 

623,733

8,068

- Increase in current liabilities

 

253,902

165,131

 

 

 

 

Net cash used in operating activities

 

 (2,287,546)

(100,721)

 

 

 

 

INVESTING ACTIVITIES

 

 

 

Property, plant & equipment

 

(24,081)

(1,725,772)

Expenditure on exploration and evaluation assets

 

(1,309,203)

 

 

 

 

 

Net cash used in investing activities

 

 (1,333,284)

(1,725,772)

 

 

 

 

FINANCING ACTIVITIES

 

 

 

Proceeds on issue of ordinary shares

18

94,999

700

Proceeds on issue of deferred shares

18

50,000

-

Proceeds from loan notes

16

4,210,041

1,844,698

Proceeds from employee loans

17

44,555

-

 

 

 

 

Net cash from financing activities

 

4,399,595

1,845,398

 

 

 

 

Effect of exchange rate changes on cash

 

(169,281)

-

 

 

 

 

Net increase in cash and cash equivalents

 

609,484

18,905

 

 

 

 

Cash and cash equivalents, beginning of year

 

 18,905

-

 

 

 

 

CASH AND CASH EQUIVALENTS, END OF YEAR

 

628,389

18,905

 

 

 

 

 

1          Summary of Significant Accounting Policies

General Information and Authorisation of Financial Statements

i3 Energy plc ("the Company") is registered in England and Wales under the Companies Act 2006 with registered number 10699593.  The Company's ordinary shares are traded on the AIM Market operated by the London Stock Exchange.  The address of the Company's registered office is New Kings Court, Tollgate, Chandler's Ford, Eastleigh, Hampshire, SO53 3LG.

The Company and its subsidiary (together, "the Group") are involved in the identification, evaluation, acquisition and development of oil and gas projects.

Share for Share Exchange Agreement

On 17 July 2017, i3 Energy plc and i3 Energy North Sea Limited entered into an arrangement agreement (the "Arrangement") whereby i3 Energy plc and i3 Energy North Sea Limited would complete a combination pursuant to a share exchange agreement (the "Share Exchange Agreement").

Pursuant to the Arrangement, each common share of i3 Energy North Sea Limited was exchanged for 1 common share of i3 Energy plc, resulting in the issuance of an aggregate of 16,499,999 ordinary shares of £0.0001 each and 5,000 deferred shares of £10 each of i3 Energy plc shares.  Due to the relative size of the companies, 'i3 Energy North Sea Limited' shareholders became the majority shareholders in the enlarged share capital.  i3 Energy plc's shares were listed onto AIM on 25th July 2017.

The translation fell outside of the scope of IFRS 3 ("Business Combinations") and has been accounted for using reverse acquisition accounting.  Accordingly, the consolidated financial statements have been treated as being a continuation of the financial statements of i3 Energy North Sea Limited, with i3 Energy plc being treated as the acquired entity for accounting purposes.  Accordingly, the financial information for the current period and comparatives has been presented as if i3 Energy North Sea Limited had been owned by i3 Energy plc throughout the current period due to the nature of the transaction.

Changes in accounting standards

The standards which applied for the first time this year have been adopted and have not had a material impact.

The International Accounting Standards Board (IASB) has issued the following new and revised standards, amendments and interpretations to existing standards that are not effective for the financial year ending 31 December 2017 and have not been adopted early.  The Group is currently assessing the impact of these standards and based on the Group's current operations do not expect them to have a material impact on the financial statements.

New Standards

Effective Date

IFRS 15  Revenue from Contracts with Customers

01-Jan-18

IFRS 9  Financial Instruments

01-Jan-18

IFRS 16  Leases

01-Jan-19

IFRS 1  Insurance Contracts

01-Jan-21

Amendments to Existing Standards

 

Clarifications to IFRS 15 revenue from Contracts with Customers

01-Jan-18

Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2)*

01-Jan-18

IFRIC 22 Foreign Currency Transactions and Advance Consideration*

01-Jan-18

Annual Improvements to IFRSs (2014-2016 Cycle)*

01-Jan-18

IFRIC 23 Uncertainty over Income Tax Treatments*

01-Jan-19

Annual Improvements to IFRSs (2015-2017 Cycle)*

01-Jan-19

*Not yet adopted by European Union

i3 Energy plc has progressed further its projects dealing with the implementation of these key new accounting standards and is able to provide the following information regarding their likely impact:

IFRS 9 'Financial Instruments'

The standard replaces all phases of the financial instruments project and IAS 39 'Financial Instruments: Recognition and Measurement'.  The standard is effective from periods beginning on or after 1 January 2018 and introduces:

·      new requirements for the classification and measurement of financial assets and financial liabilities;

·      a new model for recognising provisions based on expected credit losses; and,

·      simplified hedge accounting by aligning hedge accounting more closely with an entities risk management methodology.

The adoption of IFRS 9 is unlikely to have a material impact on the consolidated results of the Group. 

IFRS 15 'Revenue from Contracts with Customers'

The standard is effective for periods commencing on or after 1 January 2018.  This standard introduces a new revenue recognition model and replaces IAS 18 'Revenue', IAS 11 'Construction Contracts', IFRIC 13 'Customer Loyalty Programmes', IFRIC 15 'Agreements for the Construction of Real Estate', IFRIC 18 'Transfer of Assets from Customers' and SIC-31 "Revenue - Barter Transactions Involving Advertising Services.'  As the Group has no revenue the introduction of IFRS 15 will have no impact in the financial statements.

IFRS 16 'Leases'

The standard is effective for periods commencing on or after 1 January 2019 and has been endorsed by the EU.  Under the provisions of the standard most leases, including the majority of those previously classified as operating leases, will be brought onto the statement of financial position, as both a right-of-use asset and a largely offsetting lease liability.  The right-of-use asset and lease liability are both based on the present value of lease payments due over the term of the lease, with the asset being depreciated in accordance with IAS 16 'Property, Plant and Equipment' and the liability increased for the accretion of interest and reduced by lease payments.  The directors continue to consider the potential effects on the Group's financial statements and do not currently expect that there will be a material impact.

2          Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRIC) as adopted by the European Union.

The financial information is presented in Pounds Sterling (£) unless otherwise stated.

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.  These policies have been consistently applied unless otherwise stated.  The Company has elected not to present individual financial statements as it is not required to do so.

Basis of Consolidation

The consolidated financial statements consolidate the audited financial statements of i3 Energy plc and the financial statements of its subsidiary undertakings made up to 31 December 2017.

Subsidiaries are 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 entity and has the ability to affect those returns through its power over the entity.  Subsidiaries are fully consolidated from the date on which control is transferred to the Group.  They are de-consolidated from the date that control ceases.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies.  All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

Going concern

The financial statements have been prepared on a going concern basis.  The Group's assets are not generating revenues, an operating loss has been reported and an operating loss is expected in the 12 months subsequent to the date of these financial statements and as a result the Company will need to raise funding to provide additional working capital to finance their ongoing activities and non-discretionary expenditures.  The Board has successfully raised £2.57 million, prior to expenses, subsequent to the year end as discussed in note 16 to the financial statements.  The net proceeds of the placing will be used towards prerequisite engineering, trees and wellheads for the Liberator development and general corporate purposes.

Based on the Board's assessment that the cash flow budgets can be achieved and that the necessary funds will be raised, the Directors have a reasonable expectation that the Group and the Company has access to adequate resources to continue in operations existence for the foreseeable future.  Thus, they continue to adopt the going concern basis of accounting in preparing the annual financial statements for the year ended 31 December 2017.

These conditions indicate the existence of material uncertainties that may cast significant doubt regarding the applicability of the going concern assumption and the auditors have made reference to this in their audit report.

Should the Group be unable to continue trading, adjustments would have to be made to reduce the value of the assets to their recoverable amounts, to provide for further liabilities which might arise and to classify fixed assets as current.

 

3          Significant accounting policies

The accounting policies adopted are consistent with those applied in the previous financial year, unless otherwise indicated.

Financial instruments:

Cash and cash equivalents:

Cash and cash equivalents comprise cash on hand and cash held on current account or on short-term deposits at variable interest rates with original maturity periods of up to three months.  Any interest earned is accrued monthly and classified as interest income within finance income.

Trade and other receivables:

Trade and other receivables are initially recognised at fair value when related amounts are invoiced then carried at this amount less any allowances for doubtful debts or provision made for impairment of these receivables.

Trade and other payables:

These financial liabilities are all non-interest bearing and are initially recognised at the fair value of the consideration payable.

Impairment of financial assets:

In relation to financial assets, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Company will not be able to collect all of the amounts due under the original terms of the invoice.  The carrying amount of receivables is reduced through use of an allowance account.  Impaired debts are derecognised when they are assessed as uncollectible.

Financial liabilities at Fair Value Through Profit or Loss ("FVTPL")

Financial liabilities at FVTPL comprise of the Company's convertible loan notes payable.  Financial liabilities are classified as at FVTPL when the financial liability is (i) contingent consideration that may be paid by an acquirer as part of a business combination to which IFRS 3 applies, (ii) held for trading, or (iii) it is designated as at FVTPL.

A financial liability is classified as held for trading if:

·      it has been incurred principally for the purpose of repurchasing it in the near term; or

·     on initial recognition it is part of a portfolio of identified financial instruments that the Company manages together and has a recent actual pattern of short-term profit-taking; or

·      it is a derivative that is not designated and effective as a hedging instrument.

A financial liability other than a financial liability held for trading or contingent consideration that may be paid by an acquirer as part of a business combination may be designated as at FVTPL upon initial recognition if:

·   such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

·      the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed, and its performance is evaluated on a fair value basis, in accordance with the Company's documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

·   it forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL.

Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability and is included in the 'other gains and losses' line item in the income statement.

Embedded derivatives

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at FVTPL.

Equity:

Equity instruments issued by the Company are usually recorded at the proceeds received, net of direct issue costs, and allocated between called up share capital and share premium accounts as appropriate.

 

Foreign currency:

The Company does not have any foreign operations. Transactions denominated in currencies other than functional currency are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are re-translated at the rate of exchange ruling at the balance sheet date.  All differences that arise are recorded in the income statement.

For the purpose of the financial statements, the results and financial position are expressed in GBP, being the functional and presentational currency of all entities within the Group.

Taxation

Tax is recognised in the consolidated Statement of Comprehensive Income, except to the extent that it relates to items recognised in other comprehensive income or directly in equity.  In this case, the tax is also recognised in other comprehensive income or directly in equity respectively.

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 bases used in the computation of taxable profit.  However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business on combination that at the time of the transaction affects neither accounting nor taxable profit or loss.

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 profit will be available against which deductible temporary differences can be utilised.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Company 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 assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred tax assets and liabilities relate to taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

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 assets and liabilities are not discounted.

Intangible assets:

Exploration and evaluation expenditures (E&E):

a)    Development expenditure

Expenditure on the construction, installation and completion of infrastructure facilities such as platforms, pipelines and the drilling of development wells, including service, is capitalized initially within intangible fixed assets and when the well has formally commenced commercial production, then it is transferred to property, plant and equipment and is depreciated from the commencement of production as described in the accounting policy for property, plant and equipment.

b)    Drilling costs and intangible licenses

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 Petroleum 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 expenditure' 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

The Group assesses at each reporting date whether there is an indication that an asset may be impaired.  This includes consideration of the IFRS 6 impairment indicators for any intangible exploration and evaluation assets capitalised as intangible costs..If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset's recoverable amount. An asset's recoverable amount is the higher of its fair value less costs to sell and its value in use. This is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, and the asset's value in use cannot be estimated to be close to its fair value. In such cases, the asset is tested for impairment as part of the cash-generating unit to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, it is considered impaired and is written down to its recoverable amount. In assessing value in use, estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses relating to continuing operations are recognised in those expense categories consistent with the function of the impaired asset unless the asset is carried at revalued amount (in which case the impairment loss is treated as a revaluation decrease). An assessment is also made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the Statement of Comprehensive Income unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset's revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

Finance income

Finance income consists of bank interest on cash and cash equivalents which is recognised as accruing on a straight-line basis, over the period of the deposit.

Investments

Investments in subsidiary undertakings are stated at cost less any provision for impairment in value, prior to their elimination on consolidation.

Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses.  Depreciation is provided on all property, plant and equipment to write off the cost less estimated residual value of each asset over its expected useful economic life on a straight-line basis at the following annual rates:

·      Office equipment 20% or straight line over the life of the equipment - whichever is the lesser;

·      Field equipment - between 5% and 25%.

All assets are subject to annual impairment reviews.

3   Significant accounting policies - continued

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. The carrying amount of the replacement part is derecognised. All other repairs and maintenance are charged to the Statement of Comprehensive Income during the financial period in which they are incurred. The asset's residual value and useful economic lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset's carrying value is written down to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. Gains and losses on disposal are determined by comparing the proceeds with the carrying amount and are recognised within the Statement of Comprehensive Income.

Share-based payments:

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. The fair value excludes the effect of non-market-based vesting conditions.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Company's estimate of equity instruments that will eventually vest. At each balance sheet date, the Company revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.

Earnings per share

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

Significant accounting judgements, estimates and assumptions

Critical Accounting Estimates and Judgements

The preparation of financial statements using accounting policies consistent with IFRS requires the Directors to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of income and expenses.  The preparation of financial statements also requires the Directors to exercise judgement in the process of applying the accounting policies.  Changes in estimates, assumptions and judgements can have a significant impact on the financial statements.

Estimates and underlying assumptions are reviewed on an ongoing basis.  Revisions to accounting estimates are recognised prospectively from the period in which the estimates are revised.

There are no critical judgements identified, apart from those involving estimations (which are dealt with separately below) that the Directors have made in the process of applying the Company's accounting policies and that have the most significant effect on the amounts recognised in the financial statements.

Carrying value of exploration and evaluation assets

At 31 December 2017, the Group held oil and gas exploration and evaluation assets of £3.88m (2016: £1.73m). Management tests annually whether the assets have future economic value in accordance with the accounting policies.

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. 

The source for the estimates used by the Director's in determining the recoverability of the Company's oil and gas properties is the Competent Person's Report (available at www.i3.energy).

Fair value measurements and valuation processes

Some of the Company's assets and liabilities are measured at fair value for financial reporting purposes. The board of directors of the Company determine the appropriate valuation techniques and inputs for fair value measurements. 

In estimating the fair value of an asset or liability, the Company uses market-observable data to the extent it is available. Where Level 1 inputs are not available, the Company works closely with the qualified external valuers to establish the appropriate valuation techniques and inputs to the model.

Information about the valuation techniques and inputs used in determining the fair value of various assets and liabilities are disclosed in notes 19 and 21.

4          Segmental reporting

The Chief Operating Decision Maker (CODM) is considered to be the Board of Directors.  They consider that the Group operates in a single segment, that of oil and gas exploration, appraisal and development, in a single geographical location, the North Sea of the United Kingdom.  As a result, the financial information of the single segment is the same as set out in the consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of Changes in Equity and Consolidated Statement of Cashflows.

5          Administrative expenses

 

2017

£

2016

£

Directors' fees accrued

64,810

-

Wages and salaries

800,123

177,500

Travel and subsistence expenses

106,752

22,368

Professional fees - legal, consulting, exploration

398,928

126,251

Auditor's remuneration - audit

45,000

8,000

Exploration expenditures

19,868

25,324

Stock-based compensation expense

141,366

3,864

Insurance expense

41,542

-

Office expense

108,106

4,890

Corporate communications expense

53,853

-

Other expenses

37,645

20,971

Realised FX (gain) / loss

(6,723)

-

Unrealised FX (gain) / loss

(234,557)

-

Total operating expenses

1,576,713

389,168

6          Employee Information

 

Group staff Costs comprised:

2017

£

2016

£

Wages, salaries and benefits

1,289,380

177,500

Share-based payments expense

141,366

3,864

Less: capitalised exploration expenditure

(489,257)

-

Charge to the profit or loss

941,489

181,364

 

i3 Energy plc had no staff during the year ended 31 December 2017 (2016: nil) and therefore no payments were made.

The average number of persons employed in the Group, including Executive Directors, was:

Average number of persons employed

2017

Number

2016

Number

Operations

7

3

Administration

3

3

 

10

6

7          Interest payable and similar costs

 

Year ended

 31 December

 2017

£

Year ended
31 December

2016

£

 

 

 

Commission payable on loan notes

259,832

7,598

Interest payable on loan notes

624,097

8,068

Total interest payable and similar costs

883,929

15,666

8          Taxation

A deferred tax asset has not been provided for in accordance with IAS 12.  The Group does not have a material deferred tax liability at the year end.  i3 Energy plc had no liability to UK corporation tax on the ordinary activities for the period ended 31 Dec 2017 (31 Dec 2016 - Nil). 

 

2017

£

2016

£

Current income tax charge

-

-

Deferred tax charge / (credit)

-

-

Total taxation charge / (credit)

-

-

 

 

 

 

Taxation reconciliation

The below table reconciles the tax charge for the year to the theoretical charge based on the result for the year and the corporation tax rate.

 

2017

£

2016

£

Loss before income tax

(2,935,692)

(404,834)

Rate of Corporate Tax

40%

40%

Expected tax recovery

(1,174,277)

(161,934)

Effects of:

 

 

Permanent differences

68,410

-

Non-taxable income/Non-deductible expenses for tax purposes

56,710

1,545

Derecognition of deferred tax asset

1,049,157

160,389

Total income tax expense

-

-

As at 31 Dec 2017 the Company had taxable losses of £5,932,000 (31 Dec 2016 - 1,961,000) for which no deferred tax asset has been recognised.  This is due to uncertainty over the availability of future taxable profits to offset these losses against.

9          Dividends

No dividends were proposed. (2016: nil).

10        Directors' remuneration

 

 

2017

Salary / Fees

£

Bonus

£

Share based payments

£

Total

£

Executive Directors

 

 

 

 

Neill Carson

166,666

35,750

42,982

245,398

Graham Heath

155,000

35,500

42,982

233,482

 

 

 

 

 

Non-Executive Directors

 

 

 

 

David Knox

25,924

-

42,982

68,906

Majid Shafiq

19,443

-

42,982

62,425

Richard Ames

19,443

-

42,982

62,425

 

386,476

71,250

214,910

672,636

 

 

 

 

 

2016

 

Salary / Fees

 

Bonus

Share based payments

 

Total

Executive Directors

 

 

 

 

Neill Carson

35,000

-

-

35,000

Graham Heath

32,500

-

-

32,500

 

67,500

 

 

67,500

No pension benefits are provided for any Directors (2016: nil).

The total amount of Directors' fees, to the non-executive directors, in 2017 in the amount of £64,810 have been accrued but have not yet been paid and £65,000 of the executive directors' fees have been accrued and not been paid to provide the Company with as much working capital as possible.  During the year ended 31 December 2016, i3 Energy accrued £62,500 in relation to the salary / fees payable to Mr. Carson and Mr. Heath, the accrued 2016 salary /fees were paid in February of 2017.

 

11        Earnings per share

From continuing operations

The calculation of the basic and diluted earnings per share is based on the following data:

 

 

Year Ended 31 December 2017

Year Ended 31 December 2016

Earning s

£

£

 

Earnings for the purposes of basic earnings per share being net loss attributable to owners of i3 Energy ( £)

              2,935,692

                        404,834

 

Weighted average number of Ordinary Shares

11,731,570

5,678,683

 

Loss for the purposes of diluted earnings per share ( £)

(0.25)

(0.07)

 

             

The 31 December 2017 and 31 December 2016 calculations use the Ordinary Shares, both basic and diluted, held at these dates.  The diluted loss per Ordinary Share is calculated by adjusting the weighted average number of Ordinary shares outstanding to assume conversion there would be no potential dilutive Ordinary Shares in issue.  The effect of potential dilutive Ordinary Shares would be anti-dilutive and therefore are not included in the above calculation of diluted earnings per Ordinary Share.  

12        Exploration and evaluation assets (Intangible)

 

Exploration and evaluation assets

£

Total

£

As at 1 January 2016

-

-

Additions

1,725,772

1,725,772

As at 31 December 2016

 

1,725,772

Additions

2,154,087

2,154,087

As at 31 December 2017

 

3,879,859

13        Investment in subsidiaries

At 31 December 2017 the Company held 100% of the share capital of the following wholly owned subsidiary:

 

Company

Place of Business

Registered Office

% Ownership held

Nature of business

i3 Energy North Sea Limited*

England and Wales

New Kings Court

Tollgate

Chandler's Ford

Eastleigh, Hampshire

SO53 3LG

100

Exploration & Production

 

*Wholly owned subsidiary of i3 Energy plc.

 

 

Investment in subsidiaries

£

 

Total

£

As at 1 January 2016

-

-

Investment

-

-

As at 31 December 2016

-

-

Investment on acquisition of i3 Energy North Sea Limited (see note 1)

145,700

145,700

As at 31 December 2017

 

145,700

The investment relates to the acquisition of i3 Energy North Sea Limited by i3 Energy plc (the Parent) on incorporation.  See Note 1 - Share for Share Exchange for more details.

14        Trade and other receivables

 

 As at

31 December 2017

£

As at

31 December 2016

£

Parent Company

As at 31 December 2017

£

VAT receivable

114,057

10,449

-

Prepayments & other receivables

37,584

-

-

Total trade and other receivables

151,641

10,449

-

Other receivables are all due within one year.

Loans advanced from or to the subsidiary are unsecured, interest free and have no fixed repayment date.

The fair value of other receivables is the same as their carrying values as stated above.

Other receivables do not contain any impaired assets.

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.

15        Trade and other payables

 

As at

31 December 2017

£

As at

31 December

  2016

£

Parent Company

As at

31 December 2017

£

Trade creditors

750,458

25,524

-

Accruals

513,459

139,607

67,493

Total trade and other payables falling due within one year

1,263,917

165,131

67,493

 

The average credit period taken for trade purchases is 30 days.  No interest is charged on the trade payables.  The carrying values of trade and other payables are considered to be a reasonable approximation of the fair value and are considered by the Directors as payable within one year.

16        Convertible Loan Notes

 

£

 

 

Proceeds of issue of convertible loan notes as at 31 December 2015

-

Proceeds of issue of convertible loan notes as at 31 Dec 2016

1,844,698

 

 

Liability component at date of issue

1,844,698

Interest charged

8,068

Foreign exchange

137,498

Liability component at 31 December 2016

1,990,264

 

 

Proceeds of issue of convertible loan notes as at 31 December 2016

1,990,264

Issuance of convertible loan notes

4,210,041

CLNs converted on Aim Listing

(3,424,286)

Interest charged

623,733

Foreign exchange

(403,838)

Liability component at 31 December 2017

2,995,914

 

On or before 28 December 2016, the Company issued Loan Notes totalling £1,844,698, the proceeds of which were used to fund the Sale and Purchase Agreement with Dana Petroleum and for general corporate purposes. This issue comprised of Loan Notes with a one-year term of £1,100,000 to be converted at a 50 per cent discount to the IPO price upon admission to AIM or redeemed at a 50 per cent premium to par at maturity, and Loan Notes with a one-year term of £744,698 to be converted at a 25 per cent discount to the IPO price upon admission to AIM or redeemed at a 25 per cent premium to par at maturity. A summary of the terms of the Loan Notes is as follows:

·      Security: None

·      Interest:  None

·      Mandatory conversion/redemption conditions:

·      AIM listing; and

·      Minimum raise of USD 36 million

·      Conversion Election

·      50 per cent. Loan Notes

Conversion price: Lower of 50% of IPO price (in USD) and USD 0.40/share (IPO will be on AIM and shares will trade in GBP)


Conversion option: Anytime at option of noteholder at USD 0.40/share

·      25 per cent. Loan Notes

Conversion price:  Lower of 75% of IPO price (in USD) and USD 0.60/share (IPO will be on AIM and shares will trade in GBP) 

 

Conversion option: Anytime at option of noteholder at USD 0.60/share

·      Redemption Election

·      50 per cent. Loan Notes

Redemption price: Principal plus 50% redemption premium automatically paid within 10 business days of certain mandatory redemption conditions

·      25 per cent. Loan Notes

Redemption price: Principal plus 25% redemption premium automatically paid within 10 business days of certain mandatory redemption conditions

Term:

25 per cent. Loan Notes
125% of principal to be repaid after 28th December 2017 in the event of non-conversion/non-redemption

50 per cent. Loan Notes
150% of principal to be repaid after 28th December 2017 in the event of non-conversion/non-redemption

At the time of subscribing for the i3 Energy Loan Notes, the subscriber had the option to select a conversion election or a redemption election.  Selections were made as follows:

1.     £1,531,717 of the Loan Notes will convert to shares as follows:

I.  £1,100,000 at the lower of 50% of IPO price (in USD) and USD 0.40/share

II. Conversion option:  Anytime at option of noteholder at USD 0.40/share

And the balance of £431,717 will convert as follows:

I.  Lower of 75% of IPO price (in USD) and USD 0.60/share

II. Conversion option:  Anytime at option holder at USD 0.60/share

2.     £312,981 of the funds will be redeemed as follows:

Redemption price:  Principal plus 25% redemption premium automatically paid within 10 business days of certain mandatory redemption conditions

In the first half of 2017, the Company successfully raised £4,210,041 before expenses through the issuance of further Loan Notes of which proceeds were to fund Liberator field front-end engineering and design, project management, environmental statement, potential site survey, and general corporate purposes.

The Loan Notes issued by the Company ranked pari passu equally and rateably with any present and future unsecured debt obligations of the Company.  If the notes were not converted, they would be redeemed on 28 December 2017 at the agreed redemption price.

The Loan Notes are not deemed to contain an equity component and the options meet the definition of a derivative and are not closely related to the host contract.  Due to the complexity of performing separate valuations for each derivative, the Company has elected under IAS 39 to designate the entire hybrid loan notes as fair value with subsequent changes in value flowing through profit and loss.

The interest expensed for the year ended 30 December 2017 is calculated by applying an effective interest rate of 25 per cent and 50 per cent to the liability components of £4,878,200 and £1,100,000 respectively for the period since the Loan Notes were issued. The liability component is measured at amortised cost. The difference between the carrying amount of the liability component at the date of issue and the amount reported in the balance sheet at 31 December 2017 represents the effective interest rate less interest paid to that date.

On 13 June 2017, the holders of the 50 per cent. Loan Notes waived the requirement for the Company to raise a minimum of USD 36 million before their notes automatically convert at a price of USD 0.40/share.  Such waiver was conditional on Admission taking place on or before 27 December 2017.

The existing 25 per cent. Loan Notes were amended and restated on 29 June 2017, and a further loan note instrument constituting US$2,500,000 unsecured convertible Loan Notes was entered into on 17 February 2017 and subsequently amended and restated on 29 June 2017 (the "New Notes").

A summary of the terms in the amended 25 percent Loan Notes and the New Notes are as follows:

·      Interest: None

·      Mandatory conversion/redemption conditions:

·      AIM listing and;

·      Minimum raise of USD 20 million (in respect of New Notes only)

·      Conversion Election:

·      25 percent Loan Notes

Conversion price:  USD 0.54/share (IPO will be on AIM and shares will trade in GBP)

Conversion option:  On Admission or at any time at option of noteholder at USD 0.54/share

·      New Notes

Conversion price:  Lower of 75% of the issue price upon a minimum USD 20 million fundraise and USD 0.54/share (IPO will be on AIM and shares will trade in GBP)

Conversion option:  Upon a minimum USD 20 million fundraise (post Admission) or at any time at option of noteholder in multiples of USD 500,000 at USD 0.54/share

·      Redemption Election:

·      25 percent Loan Notes and New Notes

Redemption price:  Principal plus (i) 25% redemption premium if redeemed on or before 28 December 2017; or (ii) 35% Redemption premium if redeemed after 28 December 2017, automatically paid within 10 business days of mandatory redemption conditions

·      Term

·      25 percent Loan Notes and New Notes

·      135% of principal to be repaid at the earlier of AIM listing date plus 13 months or 31 August 2018 in the event of non-conversion/non-redemption prior to that date

At the time of subscription for the Loan Notes and pursuant to subsequent amendments to the Loan Notes, the subscriber had the option to select a conversion election or a redemption election.  Selections were made as follows:

·      £1,100,000 of the funds will convert upon AIM listing at USD 0.40/share

·      £2,324,286 of the funds will convert upon AIM listing at USD 0.54/share

·      £1,850,500 of the funds elected to convert in the future as follows:

·      Lower of 75% of IPO price (in USD) and USD 0.54/share

·      Conversion option: Anytime at option of noteholder in multiples of USD 500,000 at USD 0.54/share

·      £513,642 of the funds will be redeemed as follows:

Redemption price:  Principal plus (i) 25% redemption premium if redeemed on or before 28 December 2017; or (ii) 35% redemption premium if redeemed after 28 December 2017, automatically paid within 10 business days of certain mandatory redemption conditions

On 18 July 2017, all holders of the 50 percent Loan Notes and certain holders of the 25 per cent. Loan Notes converted their notes into 9,190,892 ordinary shares which, alongside 16,500,000 existing ordinary shares, were admitted to AIM.

17        Loan Payable - Related Party

On 12 December 2017 the employees entered into an agreement with the Company to loan the Company, each month, an amount equal to their net pay from the Company.  The agreement was effective 12 December 2017 and terminates on the earlier of 31st March 2018 or such date as the Company has completed an unencumbered fundraise of a minimum of USD 2 million.  Upon termination the Company would pay back to the employee an amount equalling 135% of the loan.

The Company terminated the loan agreement upon completing a fundraise at the end of January 2018 and all employees' loans were repaid at 135%.

18        Authorised, issued and called-up share capital

 

Issuance Date

Ordinary Shares

A Ordinary Shares

 

Deferred

Shares

Nominal Value  £ per Share

Called up Share Capital

Premium

Share

Capital

As at 31 December 2015

 

1

 

 

1.00

1

-

Issuance of A ordinary shares

01 Mar 16

-

6,750,000

-

0.0001

675

-

Subdivision of ordinary share

31 May 16

(1)

10,000

-

0.0001

-

-

Change of class of shares

01 Jul 16

6,760,000

(6,760,000)

-

0.0001

-

-

Issue of ordinary shares

15 Dec 16

250,000

-

-

0.0001

25

-

As at 31 December 2016

 

7,010,000

-

-

0.0001

701

-

Issue of ordinary shares

30 Mar 17

1

-

-

0.0001

-

-

Issue of ordinary shares

17 Jul 17

9,489,999

-

-

0.0001

949

94,050

Issue of deferred shares

17 Jul 17

-

-

5,000

10.00

50,000

-

Issue of ordinary shares

18 Jul 17

9,190,892

-

-

0.0001

919

3,423,367

As at 31 December 2017

 

25,690,892

-

5,000

-

52,569

3,517,417

The ordinary shares confer the right to vote at general meetings of the Company, to a repayment of capital in the event of liquidation or winding up and certain other rights as set out in the Company's articles of association.

The deferred shares do not confer any voting rights at general meetings of the Company and do confer a right to a repayment of capital in the event of liquidation or winding up, they do not confer any dividend rights or any of redemption.

On 31 March 2017, 1 ordinary share with a nominal value of £0.0001 was issued at a price of £0.0001 per share.

On 17 July 2017, 9,489,000 ordinary shares with a nominal value of £0.0001 was issued at a price of £0.01 per share for cash consideration of £94,050.

On 17 July 2017, 5,000 deferred shares with a nominal value of £10.00 per share was issued at a price of £10.00 per share for cash consideration of £50,000.

On 18 July 2017, £3,384,819 of CLNs were converted into 9,190,892 ordinary shares with a nominal value of £0.0001 per share and cash consideration of £3,384,819.

 

19        Share based payments

Share Options

During the year the following share options were issued and the cost of £145,230 (2016: £3,864) was calculated using the Black Scholes method:

 

 

Weighted Avg Price

(pence)

Number

Exercise Price

(pence)

Vested

Share

Options

Share price at grant (pence)

Weighted Avg Term (years)

Value*

18 Jul 2017

0.55

3,082,048

0.55

1,027,348

0.425

5

0.138

 

*In the Black Scholes model, the inputs were Volatility as 46%, the Risk-Free Interest Rate as 0.50% and the dividend yield as 0.5%.

 

EMI Options

 

The Company operates an Employee Management Incentive (EMI) share option scheme.  Grants were made as set out below on 14th April 2016 and 6th December 2016.  The scheme is based on eligible employees being granted EMI options.  The right to exercise the option is at the employee's discretion for a ten-year period from the date of issuance. 9,490,000 options are exercisable at a price equal to £0.01 and 500,000 options are exercisable at a price equal to £0.11 respectively.  As the Options may be exercised at any time, the vesting period is deemed to be immediate.  If the options remain unexercised after a period of ten years from the date of grant the options expire.  Employees who leave i3 Energy have 60 days to exercise the Options prior to them being forfeited.

 

 

Number of share options

Weighted average exercise price

(in £)

As at 31 Dec 2016

9,990,000

0.015

Granted during the year

-

-

Forfeited during the year

-

-

Exercised during the year

9,490,000

0.015

Expired during the year

-

-

Outstanding at the end of the year

500,000

0.11

Exercisable at the end of the year

500,000

0.11

 

9,490,000 options were exercised during the year.  The options outstanding at 31 December 2017 had a weighted average exercise price of £0.11, and a weighted average remaining contractual life of 8.92 years.

19.  Related party transactions

The Company had the following related party transactions:

a.     During the year ended 31 December 2017, the Company had nil in share subscription receivable (31 December 2016 - £1.00) relating to share issuance costs by a director and officer, Neill Carson, of the Company.

b.     During the year ended 31 December 2017, one executive director, Neill Carson, and two non-executive directors, David Knox and Richard Ames, participated in the Company's financing and hold or had held convertible loan notes.  Upon the Company's AIM listing on 25 July 2018 David Knox converted his convertible loan notes into 138,871 ordinary shares of the Company.  Terms of the convertible loan notes are detailed in note 16.

c.     On 12 December 2017 the employees entered into an agreement with the Company to loan the Company, each month, an amount equal to their net pay from the Company.  Terms of the loan are detailed in note 17.

d.     During the year the Company provided funds amounting to £5,958,705 (2016: Nil) to its subsidiary and received funds in the amount of £842,666 from its subsidiary.  The total net receivable from its subsidiary at 31 December 2017 was £5,116,038 (2016: Nil).

 

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

Remunerations of Key Management Personnel

Directors of the Company are considered to be Key Management Personnel.  The remuneration of the Directors is set out in note 10. 

20.  Financial instruments and capital risk management

Financial Risk Management

Financial Risk Factors

The Group's activities expose it to a variety of financial risks; market risk (including foreign currency risk and price risk), credit risk and liquidity risk.  The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance.

Risk management is carried out by the Board of Directors under policies approved at Board meetings.  The Board frequently discusses principles for overall risk management including policies for specific areas such as foreign exchange.

a)    Market Risk

i)      Foreign Exchange Risk

The Group is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the UK pound sterling and the US dollar.  Foreign exchange risk arises from recognised monetary assets and liabilities (USD bank account and USD CLNs) where they may be denominated in a currency that is not the Group's functional currency.  The exposure to this risk is not considered material to the Group's operations and thus the Directors consider that, for the time being, no hedging or other arrangements are necessary to mitigate this risk.

On the assumption that all other variables were held constant, and in respect of the Group and the Company's expenses the potential impact of a 1% increase / decrease in the UK Sterling: US Dollar Foreign exchange rate on the Group's loss for the year and on equity is as follows:

Potential impact on USD expenses: 2017

Effect on loss before tax for the year ended

 

Increase/(decrease) in foreign exchange rate

 

Group

£

 

1%

25,152

 

-1%

25,152

b)    Credit Risk

Credit risk arises from cash and cash equivalents.

The Group considers the credit ratings of banks in which it holds funds in order to reduce exposure to credit risk.  The Group will only keep its holdings of cash with institutions which have a minimum credit rating of 'A'.

The Group considers that it is not exposed to major concentrations of credit risk.

The Group holds cash as a liquid resource to fund its obligations.  The Group's cash balances are held in Sterling and US Dollar.  The Group's strategy for managing cash is to maximise interest income whilst ensuring its availability to match the profile of the Group's expenditure.  This is achieved by regular monitoring of interest rates and monthly review of expenditure forecasts.

The Group has a policy of not hedging and therefore takes market rates in respect of foreign exchange risk; however, it does review its currency exposures on an ad hoc basis. 

c)    Liquidity Risk

To date the Group has relied upon equity funding to finance operations.  The Directors are confident that adequate funding will be forthcoming with which to finance operations.  Controls over expenditure are carefully managed.

The Group ensures that its liquidity is maintained by a management process which includes projecting cash flows and considering the level of liquid assets in relation thereto, monitoring Balance Sheet liquidity and maintaining funding sources and back-up facilities.

Fair Value Estimation

The following table presents the Group's financial asset and financial liabilities that are measured at fair value at 31 December 2017.

Fair value hierarchy

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Fair value measurements

To estimate fair value of the risk management contracts, the Company uses quoted market prices when available, or industry accepted third-party models and valuation methodologies that utilise observable market data.  In addition to market information, the Company incorporates transaction specific details that market participants would utilise in a fair value measurement, including the impact of non-performance risk.   The Company characterises inputs used in determining fair value using a hierarchy that prioritises inputs depending on the degree to which they are observable.  However, these fair value estimates may not necessarily be indicative of the amounts that could be realised or settled in a current market transaction.

The three levels of the fair value hierarchy are as follows:

·      Level 1 - inputs represent quoted prices in active markets for identical assets or liabilities (for example, exchange-traded commodity derivatives). Active markets are those in which transactions occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

·      Level 2 - inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, as of the reporting date. Level 2 valuations are based on inputs, including quoted forward prices for commodities, market interest rates, and volatility factors, which can be observed or corroborated in the marketplace.

·      Level 3 - inputs that are less observable, unavailable or where the observable data does not support the majority of the instruments fair value.

In forming estimates, the Company utilises the most observable inputs available for valuation purposes. If a fair value measurement reflects inputs of different levels within the hierarchy, the measurement is categorised based upon the lowest level of input that is significant to the fair value measurement.

All financial assets are classified as loans and receivables and are accounted for on an amortised cost basis. All financial liabilities are classified as other liabilities. The carrying amount of the other financial assets and liabilities approximates the fair value due to its short maturities.

Fair value measurements recognised in the statement of financial position

 

2017

 

Level 1

Level 2

Level 3

Total

 

£

£

£

£

 

 

 

 

 

Financial liabilities at FVTPL

 

 

 

 

Financial liabilities designated at FVTPL

-

-

2,995,914

2,995,914

Total

-

-

2,995,914

2,995,914

There were no transfers between Level 1 and 2 during the current or prior year.  Trade and other receivables and trade and other payables are held at approximate fair value therefore the financial instruments noted above do not require fair value disclosure.

The Company's convertible Loan Notes are issued in both GBP and USD.  The Loan Notes issued in USD are subject to the FX fluctuation between the USD and GBP rates and can impact the fair value reported in GBP.

Capital Risk Management

The Group's objectives when managing capital are to safeguard the Group's ability to position as a going concern and to continue its exploration and production activities.  The Group has debt of £4,304,386 as at 31 December 2017 (2016: £2,155,395) and has capital, defined as the total equity and reserves of the Group of £74,690 (2016:(400,269)).

The group monitors it level of cash resources available against future planned exploration and evaluation activities and may issue new shares in order to raise further funds from time to time.

22   Commitments

Operating leases -

2017

2016

Future aggregate minimum lease payments

£

£

Not less than one year

45,000

-

Later than one year but not later than five years

101,250

-

Total lease commitment

146,250

-

On 1 April 2017, i3 Energy North Sea Limited, at that time i3 Energy Limited, entered into a 5-year lease agreement to rent space.  The lease expires in April 2022.

Capital commitments -

As at 31st December 2017, the Company had cancellation exposure to certain long-lead items for its Liberator development totalling £473,757.  As at 31st May 2018 the cancellation exposure for these same long-lead items was £3,794,863.

23   Events after the reporting period

On 31 January 2018 the Company announced that it had raised £2.57 million through the placing of 8,563,630 new ordinary shares in the capital of the Company to new and existing investors at an issue price of 30 pence per share, representing a 0.4% premium to the 30-day average for the week ending 26th January 2018.  The proceeds of the funding will be used towards prerequisite engineering, trees and wellheads for the Liberator development, and general corporate purposes.

 

On 6 February 2018 the Company the terms of the amended loan notes.  The amended loan note instrument supersedes the existing loan note instrument dated 17 July 2017 and the principal amendments to the Existing Loan notes are detailed in the Company's news release dated 6 February 2018.

 

On 2 March 2018 the Company announced that, in relation to the Loan Note Agreement as announced 6 February 2018, it received notice of exercise from James Caird Asset Management ("JCAM") to convert part of the loan with an aggregate par value of US$500,000, into shares.  Following this conversion, the value outstanding on the Loan will be US$2,000,000.  The Company allotted 1,516,876 ordinary shares to JCAM which will rank pari passu in all respects with the existing shares.  Following Admission, the Company's enlarged issued share capital will comprise 35,771,339 ordinary shares.

 

On 2nd March 2018, 20th March 2018 and 25th May 2018 the Company announced that, in relation to the amended Loan Note Agreement as announced 6th February 2018, it received notices of exercise from James Caird Asset Management ("JCAM") to convert part of the loan with an aggregate par value of US$1,500,000, into shares.  Following the conversions the value outstanding on the loan was US$1,000,000.  The Company allotted 3,368,728 ordinary shares to JCAM which rank pari passu in all respects with the existing ordinary shares. Following Admission of these shares, the Company's enlarged issued share capital was comprised of 37,623,250 ordinary shares.

 

On 23rd May 2018 the Company announced it had been awarded its sole 30th Offshore Licensing Round application target, Block 13/23c (123 km2), on a 100% interest basis.  Block 13/23c contains a material extension of the Liberator field, referred to by i3 as Liberator West, with further prospectivity identified by the Company outside the Liberator trend.  The award delivers a significant increase in i3's combined Reserve & Resource Base, now totalling an independently verified 80MMBO.

 

 


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