RNS Number : 6798A
i3 Energy PLC
31 May 2019
 

31 May 2019

i3 Energy plc

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

Final Results for the year ended 31 December 2018

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 2018.  A copy of the Company's financial statements will be posted to shareholders and made 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 27th June 2019 at WH Ireland, 24 Martin Lane, London, EC4R0DR.

HIGHLIGHTS

·     Awarded sole ownership of 30th Offshore Licensing Round Block 13/23c containing a material extension of the Liberator field referred to by i3 as Liberator West

·     Block 13/23c added 22 MMBO of 2C Contingent Resources and 47 MMBO Mid-case Prospective Resources to i3's previously held 11 MMBO of 2P Liberator Reserves, as independently verified by the Company's Competent Person, AGR TRACS International Limited ("AGR")

·     Successfully completed placements raising £2.57m and £1.62m before expenses through the issue of new ordinary shares at a price of 30 pence and 1.05 pence per share, respectively, to fund Field Development Plan ("FDP") engineering, trees and wellheads for the Liberator development, and general corporate purposes

·     Deleveraged the Company's balance sheet through the conversion of US$2.5m of existing loan notes held by James Caird Asset Management ("JCAM") into 5,220,580 new ordinary shares at an average conversion price of US$0.48 per share

·     Focused on defining an enlarged FDP following the award of Liberator West:

·     Redefined expected Liberator Phase I work programme to include 2 development wells in addition to the Company's commitment to appraise Liberator West

·     Worked with the supply chain on development design and engineering

·     Conducted internal and third-party reservoir simulations to optimize and de-risk well locations and trajectories

·     Continued sourcing long-lead equipment and services in advance of i3's expected 2019 development and appraisal drilling programme

·     Commissioned and completed feasibility and engineering studies for the tie-in of the planned Liberator production wells to the Bleo Holm floating production storage and offloading ("FPSO")

·     Contracted Gardline Limited to conduct a site survey at its Liberator field

·     Appointed Majid Shafiq as MD & CEO and Neill Carson (previous CEO and co-founder) as Non-Executive Director

Post Period and Outlook

On 10 January 2019 the Company provided an operational and funding update and announced that it had entered into a letter of intent with Dolphin Drilling Limited for a three-well appraisal and development drilling programme to be conducted in the summer of 2019.  The Company also announced that it had received indicative terms from Repsol Sinopec Resources UK Limited ("RSRUK") for Liberator's use of their leased Bleo Holm FPSO facility via Ross field infrastructure, and that the parties were working together to agree the terms for Liberator Phase I construction and tie-in, and transportation, processing and operating services agreements. These agreements are expected to be finalized alongside the 2019 field development plan approval by the UK Oil and Gas Authority ("OGA").  The Company also continued to progress its previously announced joint venture farmout process. It also continued negotiations with senior and junior lenders for the provision of loan facilities of between US$100 and US$130 million, of which up to 25% was expected to be available towards i3's planned 2019 drilling programme, with the balance drawable for the residual 2019/2020 Liberator Phase I production wells, subsea installation and field tie-in.  The Company estimated its 2019 drilling campaign to cost c.US$41 million with additional capex to 2020 first oil of c.US$90 million, inclusive of contingency.

On 25 February 2019 the Company announced that it had entered into a term sheet which sets out the terms and conditions of a £24mm junior secured loan note facility with warrants.  A European Investment Manager with assets under management in excess of £1 billion agreed to subscribe for £12 million of the Loan Notes and, based on offers received, the remainder of the Loan Notes were expected to be issued to one or more syndicate members and/or offtake providers who are also potential lenders in i3's senior debt facility which was under negotiation to provide US$100 million towards the Company's Liberator oil development.

On 12 March 2019 the Company announced its intention to issue new ordinary shares of £0.0001 each in the Company via an accelerated bookbuild ("Bookbuild") to raise in aggregate gross proceeds of not less than £16 million ("Placing") at a price of 37 pence per share ("Placing Price").  It was intended that the aggregate net proceeds of the Placing and the anticipated £24 million junior secured loan note facility with warrants, announced on 25 February 2019, would fund i3's planned 2019 multi-well appraisal and development drilling programme at its 100% owned and operated Liberator oil field and Serenity prospect and its near-term working capital requirements.  The programme was expected to commence as early as June 2019 and was targeting STOIIPs of 314 and 197 million barrels at the Liberator field and Serenity prospect respectively.

On 12 March 2019 the Company announced that further to the Placing Announcement earlier in the day, the Bookbuild had been successful and was closed.  The Company had successfully placed 43,243,243 Ordinary Shares at an Issue Price of 37 pence per share, raising gross proceeds of £16 million.

On 19 March 2019 the Company announced that it had posted a circular to shareholders regarding an Open Offer to raise up to £2 million of additional funds for the Company, as announced 12 March 2019.

On 22 March 2019 the Company announced that it had contracted Gardline Limited to conduct a site survey for its 2019 and 2020 drilling program plus the pipeline route for its Liberator Phase I development.  The Company also announced that all outstanding convertible loan notes totalling approximately £433,153 in principal would be repaid with interest in accordance with the terms on the maturity date of 31 March 2019.  In addition, the Company announced that i3's management and Board, in addition to the previously announced purchase of 678,645 shares by i3's Directors in the Placing announced 12 March, would be purchasing a further 2,131,538 ordinary shares in the Company at a price of 37 pence, totalling £788,669, alongside the Open Offer and conditional upon the completion of the Placing.  The Company further announced that it had issued a total of 5,920,000 share options, granted conditionally upon the completion of the Placing as announced on 12 March, to Directors and key management in accordance with the rules of the Company's Share Option Plan.  The issue of Options to Directors is a related party transaction for the purposes of Rule 13 of the AIM Rules for Companies.

On 4 April 2019 the Company announced that the Open Offer to shareholders as announced on 19th March 2019 had closed for acceptances in accordance with its terms.  The Company had received valid applications in respect of a total of 983,059 new ordinary shares in the Company.  The aggregate amount raised pursuant to the Open Offer was approximately £363,732.

On 9 April 2019 the Company announced that it had executed a contract with Dolphin Drilling Limited ("Dolphin) to utilize the Borgland Dolphin semi-submersible drilling rig for a 94-day programme which is due to commence between 15 July and 15 August 2019.  The drilling commencement window was agreed by the Company and Dolphin to ensure the availability of necessary equipment and to provide adequate preparation time to crew and mobilise the rig from its current mooring location in Norway.  In addition to contracting the Borgland Dolphin, i3 secured the necessary wellheads and conductor pipe for mid-July delivery to align with the start of its field operations and spud of the A3 appraisal well.  The Company also provided an update on its site survey operation which was conducted using the Gardline vessel 'Ocean Observer' at the Company's drilling locations and along the potential pipeline route from Liberator to the intended host facility.  The operations were completed and were conducted without incident.  Sufficient data had been acquired to allow the Company to proceed with permitting of the 2019 drilling programme and with engineering design for the Liberator Phase I development works.

On 30 May 2019 the Company announced that it had entered into binding terms with funds managed by Lombard Odier Asset Management (Europe) Limited for a £3mm participation in the junior loan note facility, the proposed terms of which were announced by the Company on 25th February 2019, (the "Junior Facility" or "Loan Notes"), a £2mm placing of new ordinary shares priced at 37p per share and associated warrants to subscribe for new ordinary shares (collectively the "Lombard Odier Investment"). The closing of the Lombard Odier Investment was conditional, inter alia, on the closing of the Junior Facility. In light of Lombard Odier's further £2mm equity investment, it was intended that the Junior Facility be downsized from the £24mm previously indicated to £22mm, and the closing of that facility will be the subject of a further announcement. 

The Company's focus for the remainder of 2019 will be on 3 key areas:

1     Continued advancement of a safe and economically robust Liberator development with targeted first oil in 2020.

2     Secure sufficient funding to conduct the Company's 2019 drilling and 2020 development initiatives.

3     Complete 2019 drilling campaign at Liberator, Liberator West and Serenity.

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

Majid Shafiq, CEO of i3 Energy plc, commented:

"2018 was a transformational year for i3 Energy as we significantly expanded our asset base and positioned ourselves to conduct, subject to the finalising of financing facilities, what is hopefully a game changing drilling program in 2019. The award of Block 13/23c in the 30th Licensing Round resulted in a material increase in our reserves and resources base, not only in the Liberator field in what we believe is a low risk field extension but also in the significant Serenity prospect, which similar to Liberator, we map as an extension to an existing discovery. Our team has conducted extensive subsurface technical studies and analysis to improve our understanding of these assets and so mitigate risk as we move towards drilling Liberator and Serenity this summer. We were also delighted to receive continued support from our shareholders and new investors as we conducted a couple of small equity placings in 2018 to fund engineering studies, long lead items and the site survey of our drilling locations and export pipeline route, which we completed in April 2019. Post the reporting period, we made significant progress on a number of fronts as we continued to move the Liberator development towards FID; entering into a drilling contract with Dolphin Drilling to drill development and appraisal wells on Liberator and Serenity, progressing discussions with RSRUK for transportation and processing Liberator crude through the Bleo Holm FPSO and advanced our FDP documentation with the OGA. We were very pleased to receive strong support from existing and new shareholders as we completed a significant equity placing for £16mm to part fund our 2019 drilling programme and have made good progress towards funding the balance of the drilling capex through the issue of loan notes to a consortium of sophisticated financial investors.

After over two years of hard work we look forward to completing our junior loan note facility and to an exciting summer drilling program which we hope will ultimately transform our company into one of the more significant oil producers in the UKCS."

Enquiries:

 

i3 Energy plc

 

 

Majid Shafiq (CEO) / Graham Heath (CFO)

c/o Camarco

Tel: +44 (0) 203 781 8331

 

WH Ireland Limited (Nomad and Joint Broker)

 

 

James Joyce, James Sinclair-Ford

Tel: +44 (0) 207 220 1666

 

GMP FirstEnergy (Joint Broker)

 

 

Jonathan Wright

Tel: +44 (0) 207 448 0200

 

 

Canaccord Genuity Limited (Joint Broker)

Henry Fitzgerald- O'Connor, James Asensio

 

Tel: +44 (0) 207 523 8000

 

 

Camarco

Jennifer Renwick, James Crothers

 

Tel: +44 (0) 203 781 8331

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 11 MMBO of 2P Reserves, 22 MMBO of 2C Contingent Resources and 47 MMBO of mid-case Prospective Resources. 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.

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.

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

2018 was a critical year for i3 Energy plc ("i3", "the Company" or "the Group"), the events of which redefined its potential for value creation. Key to this potential was the increase in i3's reserves and resources which resulted from its success in the UK's 30th Offshore Licensing Round and, to end the year, the Company's receipt of terms from Repsol Sinopec Resources UK Limited ("RSRUK") for the tie-in and offtake of hydrocarbons to be produced from i3's key asset, the Liberator oil field. Each of these were determining factors in our ability to attract funding and also to commit to material contracts for field appraisal and development.

Material increase in potential reserves and resources from strategic acreage capture

To date, i3's strategy has remained focused on the pursuit of assets where we possess deep technical insight. Our 2016 acquisition of Licence P.1987 Block 13/23d, the Liberator oil discovery, was based on a well-informed understanding of the asset and a previously unexplored regional view that our technical team interpreted would reveal potential upside beyond Liberator's western boundary. The procurement and reconditioning of multiple seismic datasets and their tying to regional control wells strongly supported this expectation, prompting the Company's November 2017 firm-well bid for Block 13/23c in the UK's 30th Offshore Licensing Round.

In advance of that bid, the Company engaged AGR TRACS International Limited ("AGR") to independently assess Liberator and its structural extension into Block 13/23c, referred to as Liberator West, the findings of which validated i3's view. In May, i3 was awarded Block 13/23c, adding audited Mid-case Resources of 69 MMBO (Contingent plus Prospective) to our previously held 2P Liberator Reserves of 11 MMBO, representing a potential sevenfold increase in the Company's reserves and resources.

Upon receipt of Block 13/23c which the Company knew to contain Liberator West, i3 broadened its investigation of potential on-block resources only to discover a look-alike extension to Liberator West in the north of the block. Additionally, further seismic analysis uncovered a large, amplitude supported feature that is on trend with the neighbouring Tain oil field (discovered and appraised by 4 wells in 2005). The Company refers to this extension as the Serenity prospect.

Since November 2017 when AGR produced their Competent Persons Reports on Liberator and Liberator West, i3 has continued to conduct further technical analysis and it is the management's view that the potential total reserves and contingent and prospective resources attributable to its licences, inclusive of Serenity, could be above 200 million barrels recoverable.

Preparations for a larger appraisal and development programme

The increased potential of the Company's licences, in concert with its associated appraisal and development commitments, necessitated a reconsideration of its original plan to develop Liberator. Much of 2018 was consumed by an overhaul to our drilling and delivery plans to allow for the multiple conditional outcomes that might arise as i3 de-risks and develops its current asset base. To meet its licence obligations, ascertain initial hydrocarbon potential, safely achieve first oil on the shortest timeline possible, and ensure that funding would be made available for its initiatives, the Company has decided to conduct a multi-well drilling programme in mid-2019 that aims to appraise both Liberator West and Serenity while confirming Liberator's Phase I development well locations, followed by a 2020 first oil delivery from two concurrent producers at targeted rates of approximately 20,000 bopd. To handle the doubling of its originally envisaged throughput requirements, in 2018 i3 also revised its planned pipeline route to tie directly into higher capacity infrastructure to accommodate expected outcomes.

2018's commercial, regulatory, and operational undertakings culminated in two major milestones being reached at year end, namely the receipt of proposed offtake terms to evacuate Liberator Phase I production via nearby infrastructure, and the agreement of terms with Dolphin Drilling for the provision of a semi-submersible rig to conduct i3's 2019 drilling campaign. The Company and RSRUK have since agreed the key commercial terms for both the construction and tie-in agreement ("CTIA") and the transportation, processing and operating services agreement ("TPOSA"), which will form the basis for the legally binding agreements supporting the Company's final Liberator Phase I Field Development Plan ("FDP") approval by the OGA. Additionally, on April 9th i3 executed a minimum 94-day drilling contract with Dolphin Drilling for the use of the Borglund Dolphin semi-submersible rig, which is expected to spud the first of three back-to-back wells in mid-summer.

Successful funding

During the year, i3's balance sheet was bolstered through the successful placements of £2.57 million and £1.62 million before expenses through the issue of new ordinary shares at a price of 30 pence and 1.05 pence per new ordinary share, respectively, and through the conversion of US$2.5 million of previously issued convertible loan notes into equity at an average price of US$0.48 per ordinary share. As at 31 December 2018, i3 carried an outstanding convertible loan notes balance of approximately £591,562 (redeemable at 135% of par or convertible at US$0.54 per ordinary share at the election of the noteholder in advance of the 31 March 2019 maturity). This deleveraging and addition of capital resources strengthened the Company's financial capacity as it positioned itself for the drilling and development of its assets.

Subsequent to the period, i3 successfully completed an equity placement to institutional investors, management and board (approximately £1.04 million), and current shareholders via open offer, totalling £17.15 million before expenses through the issue of new ordinary shares at a price of 37 pence. This equity raise, alongside i3's expected completion and drawdown of the £24 million Junior Facility announced on 25 February 2019, will provide adequate funding for i3 to conduct its planned 2019 drilling campaign, a successful outcome from which the Company believes will enable it to draw on a c.US$100 million senior facility that i3 has been negotiating with a syndicate of UK-based senior lenders and off-takers. On 31 March 2019, i3 redeemed, with interest, all outstanding convertible loan notes as per their terms.

Financial review

During the year ended 31 December 2018, the Group incurred a net loss of £1,959,802 (31 December 2017 - net loss of £2,935,692).  The majority of the loss resulted from the Group's expenses relating to day-to-day operations and stock option scheme expense. The Group reclaimed £553,658 of interest payable relating to CLNs that were converted to ordinary shares thereby eliminating the interest payable on the converted CLNs.

A total of £4,188,541 (before expenses) was raised during the year ended 31 December 2018 through a placing of 8,563,630 ordinary shares at 30 pence per share, representing a 0.4% premium to the 30-day average for the week ending 26 January 2018 and 1,542,336 ordinary shares at 1.05 pence per share. Proceeds of the placing were used towards pre-FDP engineering, purchase orders to secure trees and wellheads for the Liberator development, critical and project engineering resources required to update i3's technical work on the enlarged development area, survey of drilling locations and pipeline route locations and general corporate purposes.

Moving forward we will continue to tightly manage our existing cash resources, which stood at £598,039 at the end of December 2018, as we progress the funding, appraisal and development of the Companies oil and gas assets which, with success, the board and management believe have the potential to deliver significant shareholder value.

Development and Appraisal Financing Initiatives

i3's shares have continued to trade across a wide range (low of 22.35 pence - high of £1.28) during the course of 2018 and into 2019. Though frustrating for all shareholders, this volatility is representative of an early stage company that is de-risking the elements required to become a successful venture. Share price volatility may continue as we navigate the regulatory and commercial requirements of a UK North Sea operator, source critical contracts within a tightening market, configure funding arrangements to finance operations and appraise, develop and expand our asset base - the only way to genuinely secure long-term shareholder value.

Since its inception, the Company has consistently pursued all possible funding avenues including equity, debt and asset farmout. Given the very significant potential in the greater Liberator/Serenity area for a Company of our current market capitalization, we deem it more important to ensure that we are fully funded to create material value than to suffer further delays and resulting market sentiment from trying to over-optimize our funding configuration. In light of our planned 2019 summer drilling campaign and the catalysts that this will provide for i3 and its shareholders, we have been taking a competitive "first past the post" approach to our funding endeavours - meaning we would pursue without delay a financing proposal which is executable on an expedited basis, structured to deliver material shareholder value and that allows us to move our development plans forward.

Throughout much of 2018, it was our expectation that funding would come from numerous interested potential farminees who had approached i3 on an unsolicited basis, and the Company entered a 90-day exclusivity period with one of these in June. By September, it was apparent that this party would be unable to complete a transaction with i3 due to its own restructuring issues within the exclusivity period. This put downward pressure on i3's share price. In October, we engaged GMP FirstEnergy Capital LLP as our A&D advisor to formalize our farmout efforts. The speed at which potential JV partners are willing to work is limited by their own internal resource availabilities and therefore outside of i3's control. We've been guided by our advisors to allow all bona fide counterparties to complete their due diligence; an approach we remain in agreement with and, as such, this process is likely to remain live even as we enter our summer drilling operations.

Early in 2019, it became clear there was an opportunity to enter a £24 million junior loan notes facility with warrants that would, alongside a contribution of £16 million from the Company, allow us to undertake our planned 2019 drilling programme, the successful outcome from which is expected to unlock a US$100 million senior loan facility that would see i3 fully-funded to first oil from Liberator Phase I in 2020 at targeted rates of approximately 20,000 barrels per day.  On March 12th, i3 announced the successful placing of £16 million of new equity and expects to complete the drawdown of £22 million of Junior Facility funds to fund the Company's 2019 summer drilling programme. We look forward with great expectation to the summer 2019 drilling programme that has been enabled by these funding initiatives.

A strategic reshuffle of executive and board

In October 2018, we announced that Neill Carson, co-founder and CEO of i3, would transfer to a Non-executive role while Majid Shafiq, Non-executive Director since the Company's introduction to AIM, would succeed Neill as MD & CEO. In assessing the skillsets required to progress i3 through this next stage of its life cycle, all Board members believed this to be a sensible reassignment of roles and have been pleased with the progress to date.

I3's board and staff express their gratitude to Neill for his outstanding contribution to the start-up and growth of the Company. 

Looking Forward

We maintain our strong belief that there is substantial value to be created in the UK North Sea through the development of small and mid-sized fields which lie proximal to aging but well-maintained infrastructure. These satellite developments closely adhere to guidance provided by the OGA in regards to maximising economic recovery from the UK's resources and i3 continues to work closely with both the OGA and RSRUK to ensure that the development of Liberator Phase I aligns with these principles.

During 2018, i3 recognised substantial improvements to its oil and gas reserves and resources, balance sheet and ability to fund its operations. We have additionally made significant progress towards our goal of delivering material returns through the development and appraisal of a much-enlarged Liberator oil field and are now looking forward with anticipation to a company-making 2019, having executed a multi-well drilling rig contract and agreeing the key offtake terms for Liberator Phase I hydrocarbons. Though the development of Liberator and appraisal of Serenity are at present all-consuming, the Company continues to consider growth beyond our existing portfolio.

With deep respect and gratitude for their efforts, we would like to thank the Company's management team and staff. Their steadfast commitment to i3's intentions and aspirations during great periods of uncertainty reveals a deep commitment to all stakeholders. Holding a meaningful portion of the Company, i3's management remain tightly aligned to the interests of all i3 investors.

As always, we also thank our institutional investors, past noteholders, future lenders and those shareholders who support us in the open market. We expect the next 18 months to be truly transformational for both i3 and your investment in us.

 

David Knox
Non-Executive Chairman
28 May 2019

 

Majid Shafiq
Chief Executive Officer
28 May 2019

 

 

Consolidated Statement of Comprehensive Income

 

 

Notes

Year Ended 31 December 2018

Year Ended 31 December 2017

 

 

 

£

£

 

Administrative expenses

5

(2,369,529)

(1,576,713)

AIM listing expenses

 

-

(475,050)

Operating loss

 

(2,369,529)

(2,051,763)

Finance expense:

 

 

 

Finance fees

 

(25,370)

(259,832)

Other - CLN interest expense (reclaimed)

7

553,658

531,562

Interest payable and similar costs

7

(118,561)

(1,155,659)

Total finance expense

 

409,727

(883,929)

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

 

(1,959,802)

(2,935,692)

Tax charge for the year

8

-

-

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

 

(1,959,802)

(2,935,692)

Earnings per ordinary share
Basic and diluted

 

11

(0.05)

(0.25)

All operations are continuing.

 

The accompanying notes on pages 49 - 74 form part of these financial statements.

 

Consolidated Statement of Financial Position

 

Assets

Notes

31 December 2018

31 December 2017

 

 

£

£

Non-current assets

 

 

 

Property, plant & equipment

 

12,937

19,187

Exploration and evaluation assets

12

5,706,646

3,879,859

Total non-current

 

5,719,583

3,899,046

Current assets

 

 

 

Cash at bank and in hand

 

598,039

628,389

Trade and other receivables

14

159,068

151,641

Total current assets

 

757,107

780,030

Current liabilities

 

 

 

Trade and other payables

15

(1,229,903)

(1,263,917)

Loan payable - related parties

17

-

(44,555)

Convertible loan notes payable

16

(591,562)

(2,995,914)

Total current liabilities

 

(1,821,465)

(4,304,386)

Net current liabilities

 

(1,064,358)

(3,524,356)

Total assets less current liabilities

 

4,655,225

374,690

Net liabilities

 

4,655,225

374,690

Capital and reserves

 

 

 

Called up share capital - ordinary shares

18

4,102

2,569

Called up share capital - deferred shares

18

50,000

50,000

Share premium

 

9,215,598

3,517,417

Share-based payment reserve

19

685,853

145,230

Retained earnings

 

(5,300,328)

(3,340,526)

Shareholders' funds/(deficit)

 

4,655,225

374,690

 

The consolidated financial statements of i3 Energy plc, company number 10699593, were approved by the Board of Directors and authorized for issue on 30 May 2019.

Signed on behalf of the Board of Directors by:

Majid Shafiq

Director

The accompanying notes on pages 49 - 74 form part of these financial statements.                

 

Consolidated Statement of Changes in Equity

 

 

 

Called up share capital

Share premium

Deferred shares

Share-based payment reserve

Retained earnings

Total

 

 

£

£

£

£

£

£

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)

Transactions with owners:

 

 

 

 

 

 

 

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

Balance at 31 December 2017

 

2,569

3,517,417

50,000

145,230

(3,340,526)

374,690

Loss for the year and total comprehensive income

 

-

-

-

-

(1,959,802)

(1,959,802)

Transactions with owners:

 

 

 

 

 

 

 

Issue of share capital

18

1,533

5,698,181

-

-

-

5,699,714

Share-based payment expense

19

-

-

540,623

-

540,623

Balance at 31 December 2018

 

4,102

9,215,598

50,000

685,853

(5,300,328)

4,655,225

 

On 30 March 2017 management incorporated i3 Energy plc for the purposes of listing. Shareholders of i3 Energy North Sea Limited had their shares exchanged for shares in i3 Energy plc on 18 July 2017 upon listing. See Note 1 for more details.

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

 

Reserve

Description and purpose

Ordinary shares

Represents the nominal value of shares issued

Share premium account

Amount subscribed for share capital in excess of nominal value

Deferred shares

Represents the nominal value of shares issued, the shares have full capital distribution (including on wind up) rights and do not confer any voting or dividend rights, or any of redemption.

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

Note:  The issued share capital comprises of both ordinary and deferred shares and the consolidate nominal value exceeds the required minimum issued capital of £50,000.

 

The accompanying notes on pages 49 - 74 form part of these financial statements.

 

Consolidated Statement of Cash Flow

 

 

Notes

Year ended 31 December 2018

£

Year ended 31 December 2017

£

OPERATING ACTIVITIES

 

 

 

Loss for the year

 

(1,959,802)

(2,935,692)

Adjustments for:

 

 

 

Unrealized FX (Gain) / Loss

 

(10,161)

(234,557)

Share-based payment expense

19

540,623

141,366

Depletion, depreciation and amortization

 

7,528

4,894

Operating cash flows before movements in working capital:

 

 

 

(Increase) in receivables / prepaid expenses

 

(7,427)

(141,192)

(Decrease) / Increase in current liabilities

 

(91,187)

877,635

Net cash used in operating activities

 

 (1,520,426)

 (2,287,546)

INVESTING ACTIVITIES

 

 

 

Property, plant & equipment

 

(1,278)

(24,081)

Expenditure on exploration and evaluation assets

 

(2,220,304)

(1,309,203)

Net cash used in investing activities

 

 (2,221,582)

 (1,333,284)

FINANCING ACTIVITIES

 

 

 

Proceeds on issue of ordinary shares

18

3,866,133

94,999

Proceeds on issue of deferred shares

18

-

50,000

Repayment loan notes

16

(112,782)

4,210,041

Outflow from employee loans

17

(44,555)

44,555

Net cash from financing activities

 

3,708,796

4,399,595

Effect of exchange rate changes on cash

 

(,862

(169,281)

Net (decrease)/increase in cash and cash equivalents

 

(30,350)

609,484

Cash and cash equivalents, beginning of year

 

 628,389

 18,905

CASH AND CASH EQUIVALENTS, END OF YEAR

 

598,039

628,389

 

Net debt reconciliation is shown on page 66.

 

The accompanying notes on pages 49 - 74 are an integral part of these financial statements.

 

Notes Forming Part of the Financial Statements

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's (together, "the Group") principal activities consist of the development and production of oil and gas in the UK North Sea. The Company's wholly-owned subsidiary, i3 Energy North Sea Limited, is an independent oil and gas company with assets in the UK. The Company's principal activity is that of a listed holding company.

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 North Sea Energy 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.

IFRS 9 'Financial Instruments'

Effective 1 January 2018, i3 Energy has applied IFRS 9 which is effective for annual periods that begins on or after 1 January 2018.  The standard replaces all phases of the financial instruments project and IAS 39 'Financial Instruments: Recognition and Measurement'. The standard 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 has not had any significant impact on recognition and measurement of financial instruments in the Group's consolidated financial statements for 2018.  Comparative figures are not restated as the effect is immaterial.

IFRS 15 'Revenue from Contracts with Customers'

Effective 1 January 2018, i3 Energy has applied IFRS 15 Revenue from Contracts with Customers. 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 has had no impact in the financial statements.

IASB New and Revised Standards

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 2018 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

Amendments to IAS 19 Employee Benefits

01-Jan-19

Amendment to IFRS 3 Business Combinations and IFRS 11 Joint Operations

01-Jan-19

Amendment to IFRS 9 Financial Instruments

01-Jan-19

Amendment to IAS 12 Income Taxes

01-Jan-19

Amendment to IAS 23 Borrowing Costs

01-Jan-19

New standard IFRS 17 Insurance

01-Jan 20

Amendment in IFRS 3 Business Combinations

01-Jan-20

Amendments to IAS 1 and IAS 8

01-Jan-20

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 2018.

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 Board successfully raised approximately £17.15 million, prior to expenses, subsequent to the year end as discussed in note 24 to the financial statements. The net proceeds of the placing, in addition to the debt facility, which the Company expects to have in place prior to commencement of its 2019 summer drilling programme, will be used for asset development and working capital requirements in advance of the Company's anticipated 2020 first oil date.

Based on the Board's assessment that the cash flow budgets can be achieved, the Directors have a reasonable expectation that the Group and the Company has access to adequate resources to continue in operational 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 2018.

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.

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 2018, the Group held oil and gas exploration and evaluation assets of £5.71m (2017: £3.88m). Management assesses whether there are indicators of impairment in accordance with the accounting policies.

These estimates and assumptions are subject to risk and uncertainty and therefore a possibility that changes in circumstances will impact the assessment of impairment indicators.

Fair value measurements and valuation processes

Some of the Company's assets and liabilities are measured at fair value for financial reporting purposes, see Note 21. 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

 

2018

£

2017

£

Directors' fees accrued

156,210

64,810

Wages and salaries

919,746

800,123

Travel and subsistence expenses

135,205

106,752

Professional fees - legal, consulting, exploration

132,699

398,928

Auditor's remuneration - audit

22,625

45,000

Exploration expenditures

12,037

19,868

Stock-based compensation expense

540,623

141,366

Insurance expense

44,451

41,542

Office, marketing and nomad expense

308,877

108,106

Corporate Communications expense

73,867

53,853

Other expenses

15,032

37,645

Realised FX (gain) / loss

5,295

(6,723)

Unrealised FX (gain) / loss

2,862

(234,557)

Total operating expenses

2,369,529

1,576,713

5 (a)   Auditor remuneration

During the year, the Group obtained the following services from the Company's auditor:

 

2018

£

2017

£

Fees payable to the Company's auditor and its associates for the audit of the Parent Company and consolidated financial statements

22,625

45,000

 

22,625

45,000

6        Employee information

Group staff Costs comprised:

2018

£

2017

£

Wages, salaries and benefits

1,460,119

1,289,380

Share-based payments expense

540,623

141,366

Less: capitalised exploration expenditure

(540,373)

(489,257)

Charge to the profit or loss

1,460,368

941,489

 

i3 Energy plc had no staff during the year ended 31 December 2018 (2017:nil) and therefore no payments were made.

The average number of persons employed by i3 Energy North Sea Limited, including Executive Directors, was:

 

Average number of persons employed

2018 Number

2017 Number

Operations

7

7

Administration

3

3

 

10

10

7        Interest payable and similar costs

 

 

Year ended

31 December 2018

£

Year ended

31 December 2017

£

Commission payable on loan notes

(25,370)

(259,832)

Other - CLNs interest expense - reclaim after conversion of CLNs

553,658

531,562

Interest payable on loan notes

(118,561)

(1,155,659)

Total interest payable and similar costs

409,727

(883,929)

8        Taxation

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.

 

2018
£

2017
£

Loss before income tax

(1,959,802)

(2,935,692)

Rate of Corporate Tax

40%

40%

Expected tax recovery

(783,921)

(1,174,277)

Interest and other not deductible for SCT

(23,816)

-

Effects of:

 

 

Permanent differences

315,984

68,410

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

-

56,710

Derecognition of deferred tax asset

492,926

1,049,157

Other

(1,173)

-

Total income tax expense

-

-

 

As at 31 Dec 2018 the Company had taxable losses of £7,657,088 (31 Dec 2017 - £4,687,175) 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.

A deferred tax asset has 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 2018 (31 Dec 2017 - Nil).

9        Dividends

No dividends were proposed. (2017: nil).

10      Directors' remuneration

 

 

Salary / Fees

Bonus

Share based payments

Total

 

£

£

£

£

2018

Executive Directors

 

 

 

 

Neill Carson

311,989

-

-

311,989

Majid Shafiq

57,796

-

185,333

243,129

Graham Heath

135,000

-

33,213

168,213

Non-Executive Directors

 

 

 

 

David Knox

60,000

-

-

60,000

Majid Shafiq

34,644

-

-

34,644

Neill Carson

10,356

 

18,533

28,889

Richard Ames

45,000

-

18,533

63,533

 

654,785

-

255,612

910,397

2017

Salary / Fees

Bonus

Share based payments

Total

Executive Directors

 

 

 

 

Neill Carson

161,666

35,750

42,962

240,378

Graham Heath

95,000

35,500

42,962

173,462

Non-Executive Directors

 

 

 

 

David Knox

25,924

-

42,962

68,886

Majid Shafiq

19,443

-

42,962

62,405

Richard Ames

19,443

-

42,962

62,405

 

321,476

71,250

214,810

607,536

        

No pension benefits are provided for any Directors (2017: nil).

The total amount of Directors' fees to the Non-Executive Directors, in 2018, in the amount of £150,000 (2017: £64,810) have been accrued.  The accrued Non-Executive Directors' fees were paid in March 2019 with each of the Non-Executive Directors using their fees to participate in the Company's placing announced 12 March 2019.

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 2018

Year Ended 31 December 2017

Earnings

£

£

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

 1,959,802

 2,935,692

Weighted average number of Ordinary Shares

37,800,091

11,731,570

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

(0.05)

(0.25)

 

The 31 December 2018 and 31 December 2017 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 consider the impact of options, warrants and other dilutive securities. As the effect of potential dilutive Ordinary Shares would be anti-dilutive they 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 31 December 2016

-

1,725,772

Additions

2,154,087

2,154,087

As at 31 December 2017

3,879,859

3,879,859

Additions

1,826,787

1,826,787

As at 31 December 2018

5,706,646

5,706,646

 

13      Investment in subsidiaries

At 31 December 2018 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 North Sea Limited (see note 1)

145,700

145,700

As at 31 December 2017

 

145,700

Additional

-

-

As at 31 December 2018

 

145,700

 

The investment relates to the acquisition of I3 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 2018

£

As at

31 December 2017

£

Parent Company

As at 31 December 2018

£

Parent Company

As at 31 December 2017

£

VAT receivable

148,862

114,057

-

-

Prepayments & other receivables

10,206

37,584

6,062

-

Total trade and other receivables

159,068

151,641

6,062

-

 

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 2018

£

As at 31 December 2017

£

Parent Company As at 31 December 2018

£

Parent Company As at 31 December 2017

£

Trade creditors

350,698

750,458

-

-

Accruals

682,270

513,459

265,684

67,493

Provision - Payment in Lieu (Leavers)

196,935

-

-

-

Total trade and other payables falling due within one year

1,229,903

1,263,917

265,684

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

Issuance of convertible loan notes

-

CLNs Converted

(1,833,580)

CLNs Redeemed

(83,542)

CLN Interest Paid on Redemption

(29,240)

Interest charged

(450,692)

Foreign exchange

(7,298)

Liability component at 31 December 2018

591,562

 

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 elected 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 was 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 represented 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 were 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.

On 27 February 2018 the Company amended the provisions of its loan note instrument dated 17 July 2017, pursuant to which US$2,500,000 loan notes (the "Loan Notes") were issued by the Company to an existing investor (the "Noteholder").  The Loan Notes were previously automatically convertible into new Ordinary Shares if the Company raised at least US$20million of new equity post-Admission (a "Relevant Fundraising").  The conversion price in the event of a Relevant Fundraising was the lower of: (i) 75% of the subscription price paid per Ordinary Share pursuant to the Relevant Fundraising; or (ii) 54 cents per Ordinary Share (approximately 39 pence at the current exchange rate).

The amended loan note instrument superseded the existing loan note instrument.  The principal amendments are as follows:

·    Previously, the Company had agreed not to: (i) incur any borrowings exceeding US$4,950,000; or (ii) create, or permit to subsist, any security without the consent of the Noteholder.  The former of these was removed in the amended loan note instrument, and the latter was amended such that "security" for the purposes of the undertaking shall not include any security granted for the purpose of securing any obligation of the Company in  relation to any financing or borrowing provided to the Company to fund the development of its oil and gas assets.  These amendments and relaxation of these provisions provided the Company with greater flexibility to negotiate terms for the potential join venture and other financing arrangements that were currently under discussion with third parties.

·    Where an equity fundraising by the Company raised less than US$20million of new money, the Noteholder was entitled to convert a pro-rata proportion of the Loan Notes (such that, for the avoidance of doubt, if a fundraising raises US$15 million, the Noteholder would be entitled to convert 75% of the Loan Notes) at a conversion price per Ordinary Share equal to 75% of the subscription price per Ordinary Share pursuant to such fundraising.

·    In the event that the Company services notice on the Noteholder of its intention to redeem the amended Loan Notes in cash, the Noteholders had the right to elect for all of the Loan Notes to instead convert into Ordinary Shares at a conversion price per Ordinary Share equal to the volume weighted average price of the Ordinary Shares over the five business days immediately preceding the date on which the redemption notice is was served by the Company.

·    The maturity date of the Loan Notes is 18 August 2018 (as per the previous terms).

On 24 August 2018, holders of the Company's CLNs agreed to extend the term of the CLNs to 30 October 2018, thereby amending the majority date of the CLNs from 25 August 2018 to 31 October 2018. 

On 31 October 2018, the holders of the Company's CLNs agreed to a further extension to 31 March 2019, amending the majority date of the CLNs from 31 October 2018 to 31 March 2019.

On 22 March 2019, the Company announced that all outstanding convertible loan notes totalling approximately £433,153 in principal will be repaid with interest in accordance with its terms on the maturity date of 31 March 2019.

Net debt reconciliation

 

Convertible loans

£

Net debt as at 1 January 2017

1,990,264

Increase/(Decrease) through conversion and financing cash flows

381,553

(Decrease)/Increase through reversal/recognition of interest

624,097

Net debt as at 1 January 2018

2,995,914

Decrease through conversion and financing cash flows

(1,917,122)

(Decrease)/Increase through reversal/recognition of interest

(479,932)

Foreign exchange adjustments

(7,298)

Net debt as at 31 December 2018

591,562

17      Loan payable

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 would terminate on the earlier of 31st March 2018 or such date as the Company had 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

Share Issuance Costs

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

Issuance of ordinary shares

30 Jan 18

8,563,630

-

-

0.0001

221,035

856

2,568,232

Issuance of ordinary shares

27 Feb 18

1,516,876

-

-

0.0001

-

152

363,067

Issuance of ordinary shares

21 Mar 18

925,926

-

-

0.0001

-

93

359,157

Issuance of ordinary shares

25 May 18

925,926

-

-

0.0001

-

93

370,278

Issuance of ordinary shares

07 June 18

1,851,852

-

-

0.0001

-

185

740,556

Issuance of ordinary shares

01 Aug 18

1,542,336

-

-

0.0001

101,373

154

1,619,299

 

 

41,017,438

-

5,000

-

322,408

54,102

9,538,006

 

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 January 2018, 8,563,630 ordinary shares with a nominal value of £0.0001 was issued at a price of £0.30 per share as part of a placing in which the Company raised £2.57 million.  Share issue costs of £221,035 were incurred which have been recognised as direct costs of capital against share premium.

On 27 February 2018, £363,219 of CLNs were converted into 1,561,876 ordinary shares with a nominal value of £0.0001 per share.

On 31 March 2018, £359,250 of CLNs were converted into 925,926 ordinary shares with a nominal value of £0.0001 per share.

On 25 May 2018, £370,371 of CLNs were converted into 925,926 ordinary shares with a nominal value of £0.0001 per share.

On 7 June 2018, £740,741 of CLNs were converted into 1,851,852 ordinary shares with a nominal value of £0.0001 per share.

On 1 August 2018, 1,542,336 ordinary shares with a nominal value of £0.0001 was issued at a price of 1.05 pence per share as part of a placing in which the Company raised approximately £1.62 million.  Share issue costs of £101,373 were incurred which have been recognised as direct costs of capital against share premium.

19      Share based payments

Share Options

During the year the following share options were issued and the cost of £540,623 (2017: i3 plc: £141,366) (2017: i3 NSE £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

12 Oct 2018

0.635

2,917,035

0.635

972,344

0.635

10

0.556

 

*In the Black Scholes model the inputs were stock price of 0.635 pence (2017: 0.425 pence), exercise price of 0.635 pence (2017: 0.55 pence), time to maturity of 10 years (2017: 5 years), Volatility as 94.62% (2017: 46%) , and the Risk-Free Interest Rate as 1.665% (2017: 0.50%).

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 2017

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 2018 had a weighted average exercise price of £0.11 (Dec 17 - £0.11), and a weighted average remaining contractual life of 7.92 years.

20      Related party transactions

The Company had the following related party transactions:

a     During the year ended 31 December 2018, two Non-Executive Directors, Neill Carson (served as Executive Director until 7 October 2018 and a Non-Executive Director thereafter) and Richard Ames, held convertible loan notes in the amounts of £112,781.96 and £156,620 respectively.   Terms of the convertible loan notes are detailed in note 16.

b    Upon completion of a fundraise at the end of January 2018 the Company terminated the loan agreement it had entered into with its employees.  The agreement, effective 12 December 2017, provided for the employees to loan, each month, an amount equal to their net pay.  Upon termination, the Company repaid the employee loans at 135%.

c     During the year the Company provided funds amounting to £9,283,948 (2017: £5,958,705) to its subsidiary and received funds in the amount of £1,248,058 (2017: £842,666) from its subsidiary. The total net receivable from its subsidiary at 31 December 2018 was £8,035,890 (2017: £5,116,039).

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.

21      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: 2018

Effect on loss before tax for the year ended

Increase/(decrease) in foreign exchange rate

 

Group

 

£

 

1%

1,776

 

-1%

1,776

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 2018.

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

 

 

2018

 

Level 1

Level 2

Level 3

Total

 

£

£

£

£

Financial liabilities at FVTPL

 

 

 

 

Financial liabilities designated at FVTPL

-

-

591,562

591,562

Total

-

-

591,562

591,562

 

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 £1,821,465 as at 31 December 2018 (2017: £4,304,386) and has capital, defined as the total equity and reserves of the Group of £4,655,225 (2017: £374,690).

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 -

2018

2017

Future aggregate minimum lease payments

£

£

Not less than one year

45,000

45,000

Later than one year but not later than five years

101,250

146,250

Total lease commitment

146,250

191.250

 

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 31 December 2018, the Company had cancellation exposure to certain long-lead items for its Liberator development totalling £5,817,612 (2017: £473,757). As at 22 May 2019 the Company's cancellation exposure for long-lead items was £6,593,284 (2017: £3,794,863).

23      Ultimate controlling party

There is no ultimate controlling party of i3 Energy plc.

24      Events after the reporting period

On 10 January 2019 the Company provided an operational and funding update and announced that it had entered into a letter of intent with Dolphin Drilling Limited for a three-well appraisal and development drilling programme to be conducted in the summer of 2019.  The Company also announced that it had received indicative terms from RSRUK for Liberator's use of their leased Bleo Holm FPSO facility via Ross field infrastructure, and that the parties were working together to agree the terms for Liberator Phase I construction and tie-in, and transportation, processing and operating services agreements. These agreements are expected to be finalized alongside the 2019 field development plan approval by the UK Oil and Gas Authority ("OGA").  The Company also continued to progress its previously announced joint venture farmout process. It also continued negotiations with senior and junior lenders for the provision of loan facilities of between US$100 and US$130 million, of which up to 25% was expected to be available towards i3's planned 2019 drilling programme, with the balance drawable for the residual 2019/2020 Liberator Phase I production wells, subsea installation and field tie-in.  The Company estimated its 2019 drilling campaign to cost c.US$41 million with additional capex to 2020 first oil of c.US$90 million, inclusive of considerable contingency.

On 25 February 2019 the Company announced that it had entered into a term sheet which sets out the terms and conditions of a £24mm junior secured loan note facility with warrants.  A European Investment Manager with assets under management in excess of £1 billion agreed to subscribe for £12 million of the Loan Notes and, based on offers received, the remainder of the Loan Notes were expected to be issued to one or more syndicate members and/or offtake providers who are also potential lenders in i3's senior debt facility which was under negotiation to provide US$100 million towards the Company's Liberator oil development.

On 12 March 2019 the Company announced its intention to issue new ordinary shares of £0.0001 each in the Company via an accelerated bookbuild ("Bookbuild") to raise in aggregate gross proceeds of not less than £16 million ("Placing") at a price of 37 pence per share ("Placing Price").  It was intended that the aggregate net proceeds of the Placing and the anticipated £24 million junior secured loan note facility with warrants, announced on 25 February 2019, would fund i3's planned 2019 multi-well appraisal and development drilling programme at its 100% owned and operated Liberator oil field and Serenity prospect and its near-term working capital requirements.  The programme was expected to commence as early as June 2019 and was targeting STOIIPs of 314 and 197 million barrels at the Liberator field and Serenity prospect respectively.

On 12 March 2019 the Company announced that further to the Placing Announcement earlier in the day, the Bookbuild had been successful and was closed.  The Company had successfully placed 43,243,243 Ordinary Shares at an Issue Price of 37 pence per share, raising gross proceeds of £16 million.

On 19 March 2019 the Company announced that it had posted a circular to shareholders regarding an Open Offer to raise up to £2 million of additional funds for the Company, as announced 12 March 2019.

On 22 March 2019 the Company announced that it had contracted Gardline Limited to conduct a site survey for its 2019 and 2020 drilling program plus the pipeline route for its Liberator Phase I development.  The Company also announced that all outstanding convertible loan notes totalling approximately £433,153 in principal would be repaid with interest in accordance with the terms on the maturity date of 31 March 2019.  In addition, the Company announced that i3's management and Board, in addition to the previously announced purchase of 678,645 shares by i3's Directors in the Placing announced 12 March, would be purchasing a further 2,131,538 ordinary shares in the Company at a price of 37 pence, totalling £788,669, alongside the Open Offer and conditional upon the completion of the Placing.  The Company further announced that it had issued a total of 5,920,000 share options, granted conditionally upon the completion of the Placing as announced on 12 March, to Directors and key management in accordance with the rules of the Company's Share Option Plan.  The issue of Options to Directors is a related party transaction for the purposes of Rule 13 of the AIM Rules for Companies.

On 04 April 2019 the Company announced that the Open Offer to shareholders as announced on 19th March 2019 had closed for acceptances in accordance with its terms.  The Company had received valid applications in respect of a total of 983,059 new ordinary shares in the Company.  The aggregate amount raised pursuant to the Open Offer was approximately £363,732.

On 9 April 2019 the Company announced that it had executed a contract with Dolphin Drilling Limited ("Dolphin) to utilize the Borgland Dolphin semi-submersible drilling rig for a 94-day programme which is due to commence between 15 July and 15 August 2019.  The drilling commencement window was agreed by the Company and Dolphin to ensure the availability of necessary equipment and to provide adequate preparation time to crew and mobilise the rig from its current mooring location in Norway.  In addition to contracting the Borgland Dolphin, i3 secured the necessary wellheads and conductor pipe for mid-July delivery to align with the start of its field operations and spud of the A3 appraisal well.  The Company also provided an update on its site survey operation which was conducted using the Gardline vessel 'Ocean Observer' at the Company's drilling locations and along the potential pipeline route from Liberator to the intended host facility.  The operations were completed and were conducted without incident.  Sufficient data had been acquired to allow the Company to proceed with permitting of the 2019 drilling programme and with engineering design for the Liberator Phase I development works.

On 30 May 2019 the Company announced that it had entered into binding terms with funds managed by Lombard Odier Asset Management (Europe) Limited for a £3mm participation in the junior loan note facility, the proposed terms of which were announced by the Company on 25th February 2019, (the "Junior Facility" or "Loan Notes"), a £2mm placing of new ordinary shares priced at 37p per share and associated warrants to subscribe for new ordinary shares (collectively the "Lombard Odier Investment"). The closing of the Lombard Odier Investment was conditional, inter alia, on the closing of the Junior Facility. In light of Lombard Odier's further £2mm equity investment, it was intended that the Junior Facility be downsized from the £24mm previously indicated to £22mm, and the closing of that facility will be the subject of a further announcement.  As Lombard Odier is a substantial shareholder in the Company, its investment in the Company is a related party transaction under the AIM Rules for Companies. The Directors of the Company consider, having consulted with WH Ireland, that the terms of the transaction are fair and reasonable insofar as shareholders are concerned.


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