TIDMIGAS
RNS Number : 0508H
Igas Energy PLC
23 May 2011
23 May 2011
IGAS ENERGY PLC ("IGas" or "the Company")
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2010
"A Step Change in Activity"
The Board of IGas is pleased to announce its financial results
for the year ended 31 December 2010 and to provide a strategic and
operational update.
Highlights
Strategic
o Gained control
o Secured 100%ownership of assets and operatorship through
acquisition of Nexen Exploration UK Ltd
o The acquisition more than doubled the Company's resource base
to 1.7tcf of technically recoverable gas (mid case); equivalent to
290 million barrels of oil
o Secured funding
o Completed GBP20.6m (gross) placing to fund accelerated
drilling programme
o Enhanced execution capability
o Experienced team augmented to deliver objectives
o Investment in rig capacity through Meehan Drilling JV
Operational
o HSEQ
o OSPAR (Environmental Management System) accreditation
achieved
o Exploration and appraisal
o DECC approval for Licence extension at Point of Ayr
o Planning in place for two additional sites
o Development
o Established generic production site plan
o FEED study for full production facilities on-going
o Production
o Continued at Doe Green with 94% up-time 2H 2010
o 2nd pilot site completed at Keele, work over under
evaluation
o Resources
o Initial evaluation of Shale potential at up to 4.6tcf
Financial
o Revenue - GBP656k (2009 GBP828k)
o Operating loss - GBP1,713k (2009 GBP515k loss)
o Loss for the year - GBP1,543k (2009 GBP504k loss)
o Cash
o GBP12.08m at 31st December 2010 (2009 GBP17.5m)
o Capital raise in February 2011 of GBP20.6m gross
o GBP30.6m at 30th April 2011
o Capital expenditure in 2011 planned to be in the range GBP14m
to GBP19m
2011 Accelerated Programme,
o Site works scheduled at Doe Green, additional well to be
drilled this year alongside export facilities upgrade and potential
second well targeted
o Ground works to begin shortly at Barton with objective of
drilling one well with potential for a second
o Preparation in hand at Ince Marshes and Ellesmere Port,
objective of drilling a well at each site
o Second rig being procured for four well programme
Francis Gugen, Chairman said :
"As I said in the last annual report, 2010 and 2011 were going
to be critical years for IGas to grow. We have made an excellent
start, taking control of our assets and becoming operator, putting
funding in place for an accelerated drilling programme and hiring
experienced personnel alongside experienced drilling and equipment
partners. We are now totally focused on a step change in activity.
During the next nine months we will be operational at five sites
and will have more wells being drilled than in the previous four
years. I look forward to the next year with optimism. "
For further information please contact:
IGas Energy Plc Tel: +44 (0)20 7993 9901
Francis Gugen , Non Executive
Chairman
RBS Hoare Govett Tel: +44 (0)20 7085 5000
Stephen Bowler/ John MacGowan
Kreab Gavin Anderson Tel: +44 (0)20 7074 1800
Ken Cronin/ Kate Hill/ Anthony
Hughes
Notes to editors
IGas Energy produces and markets domestically sourced gas,
primarily from coal bed methane (CBM). It is currently focussed on
delivering commercial CBM production through an accelerated
development programme.
IGas Energy has licences to extract hydrocarbons across the
north of Wales and the north of England, covering an area of
1,756km(2) (equivalent to approximately 434,000 acres). IGas is the
operator and sole owner of each of its licences.
IGas's unique position offers more than 1.7 Trillion Cubic Feet
(Tcf) of technically recoverable gas (equivalent to 290 million
barrels of oil) with customers located conveniently close to its
operations, which includes the national gas network. IGas is
therefore in a strong position to secure optimum gas prices from
its production and to contribute to the UK's security of
supply.
Further technical and quantitative information can be found on
our website: www.igasplc.com/
Chairman's Statement
We have now completed the important step of taking control of
day to day operations by acquiring Nexen Exploration UK Ltd, a
transaction that closed on 9 March 2011. As a consequence IGas is
now 100% owner and operator of all of its assets and Nexen is a
24.77% shareholder in IGas. In March 2011 we took the opportunity
to strengthen our capital base. Following the acquisition of Nexen
Exploration we placed 27.5 million shares for gross proceeds of
GBP20.6 million. In doing so we have also widened our institutional
shareholder base. These measures, being the increased asset base,
the control afforded by operatorship and the additional funding,
when taken together, put IGas in a strong position to pursue
aggressively its primary goal, to demonstrate commercial
production. To support this goal we have been recruiting a wider
team and developing arrangements with key suppliers. We now have
in-house capability supplemented by arrangements with quality
service and equipment providers
Looking at the wider energy market in the UK we have been seeing
rising prices for gas and electricity and an increasing focus on
security of supply. Against this backdrop, IGas' portfolio of
domestic assets, close to customers and distribution networks, is
uniquely positioned. Security of supply is a growing political
issue in the UK and it is my view that gas fired power generation
will be an increasingly material part of the mix. With a growing
demand for gas and the UK increasingly relying on importing gas,
the benefits of supplying local gas to local consumers, via
existing infrastructure, are considerable. Our gas also has a lower
carbon footprint as it does not suffer the high environmental
penalty that comes from transporting gas over long distances.
2011 and beyond will see us concentrating on delivering secure
gas onshore , commercially, using the assets, the team,
the control and the funds that have now been put in place.
I would like to thank the whole IGas team for having brought the
Company to the point of being able to now focus on demonstrating
commercial production. I would also like to thank Brent Cheshire
one of the founders who is now retiring from the Board but will
continue his involvement as an advisor to the Company.
Francis Gugen
Non-Executive Chairman
CEO Statement
Since our last annual report, the most important change in our
business has been the acquisition of Nexen Exploration Ltd and the
consequential assumption of operatorship and 100% ownership of all
of our assets. This highly accretive deal has increased our 2C
contingent resource from 893bcf to 1,736bcf.
Our financial results show an expected drop in revenue and an
increase in our operating loss. The majority of our revenue since
2006 had resulted from a Management Services Agreement with Nexen,
which expired at the end of 2009, though in the financial year
under review we continued to generate revenues from Nexen for a
range of services. In 2011 with the acquisition of Nexen
Exploration Ltd we will, by definition, see a significant drop in
revenue as these services will now all be in-house.
The acquisition of Nexen Exploration Ltd transforms our
business. During 2010 we were already building the team and
capacity to ensure we are able to deliver on our plans to
demonstrate commercial production in 2011. To this end we recruited
a team that has skills in drilling and completions, geology, and
reservoir engineering, as well as land experts and facilities
specialists; while additional knowledge and expertise is available
via our secondment agreement with Nexen Petroleum. In addition to
this, we have a close knit team of contractors who work with our
staff and assist in the execution of our plans. We are also in the
process of establishing a joint venture with an Irish drilling
contractor, Meehan Drilling, whereby we jointly own drilling
equipment and IGas will have preferential access to drilling
capacity. The rig we are using is a Schramm TXD 200 which is a
design of rig which has been extensively used in North America for
drilling for unconventional gas.
As part of this transaction we have managed to secure ancillary
equipment such as mud pumps, mud tanks, shakers and blow out
preventers in continental Europe and this equipment is now being
assembled in Market Rasen (Lincolnshire) in advance of beginning
drilling operations in the second half of 2011. We are also signing
up a second rig, the BDF Rig 28 for a four well programme. This is
a rig and crew that we have worked successfully with before and
look forward to working with again in our programme this year.
Our operations at Doe green continue with a very encouraging 94%
uptime in the second half of 2010, despite some very challenging
weather conditions. We have also seen a significant increase in the
price we are receiving for the electricity we are generating at the
site though this will not have a material effect on our revenue
since this is still a pilot production site.
This has gone from GBP36 per megawatt hour in the summer of 2010
to a rate of GBP58 per mega watt hour this year. This translates
into an effective gas price of $11.00per mcf. Our ability to
achieve high prices for our gas is a consequence of our proximity
to the grid and customers which remains one of our key strengths.
We are now looking to drill two additional wells at Doe Green in
the coming months. This will involve drilling a lateral and
branches off that lateral into a different seam from that which is
the source of the production at DG2z. Following site works which
will begin shortly where we will set two cellars and conductors, we
will be upgrading the production facilities to deal with the
increased production we expect from the site.
We will shortly be commencing ground works at our site at Barton
having complied with the planning conditions. This site within PEDL
193 is one of the sites that we have access to under our framework
agreement with the Peel estate. Here we plan to initially drill two
wells with lateral sections in the coals.
Site preparation will also begin shortly at both Ince Marshes
and Ellesmere Port in PEDLs 190 and 184 respectively. We are
looking to initially drill a single well on each site, which we
will log and core in advance of committing to further drilling. At
each site, however, we will ensure that the site construction and
well configuration allows us the option to convert these
exploration wells into production.
We drilled a pilot production well at Keele in July 2010 and put
it into production test in September of last year. We have been
de-watering and producing some gas from this test. While there have
been some mechanical issues to overcome, which we believe have
considerably constrained the productive section of the coal, we
remain encouraged by the quality of the coal and are planning a
work- over to re-enter the well. As part of this process, we are
also considering drilling a second well at the site.
At Point of Ayr we had identified a suitable brown field site
but unfortunately were unable to agree access terms with the owner
of the business occupying the site. However, we continue to work
with local landowners to secure access to a suitable site and have
a number of negotiations on-going. In recognition of the
difficulties we encountered, we have been granted an extension by
DECC on the first term of this licence and now have until March
2012 to fulfill the obligation. We are also now considering
drilling this obligation well from offshore which will reduce the
technical complexity of the well. A decision on this will be made
before the end of 2011.
Finally I would like to thank all of the team at IGas, staff,
contractors, the board and advisors for their hard work throughout
2010, particularly in delivering the acquisition of Nexen
Exploration. I am confident we have the right people, skills and
relationships in place to operate our first commercial sites and to
deliver secure gas, onshore.
Corporate responsibility
People , Health and Safety
Our people and our neighbours are central to our business,
without the contribution of our staff and contractors and the
support of the communities in which we operate we would be unable
to deliver.
Providing healthy and safe working conditions for our employees
and contractors is vital to our success. We have now instigated a
Company Management System, which is there to ensure that all the
activities we undertake are done so safely and with a minimal
impact on the environment in which we operate. A summary of the
principles and objectives of the system are given in the extract
opposite.
In March 2011 IGas was awarded OSPAR accreditation which means
that we have in place systems audited and acceptable to DECC and
the HSE to operate both on-shore and offshore in the UK. We intend
to apply for both ISO14001 (environment) and ISO9001(quality)
certification in the course of 2011 as a further step in
demonstrating our commitment to Health, Safety, Environment,
Social, Quality and Security performance.
Places and environment
IGas has obtained permission to drill twenty-five wells at
fourteen sites. To date we have drilled nine wells and have
reinstated five sites. In all locations our objectives are to have
as minimal impact as possible while operating and to leave the
environment as we found it. To this end we have developed site
construction techniques and practices that ensure our ability to
deliver on this promise. Groundwater management and aquifer
protection are always at the core of our site construction and well
plans. Above are some images from our activities at Doe Green in
Cheshire, showing our tree planting schemes, our ground water
monitoring system and the hedges we are cultivating from natural
indigenous species.
In total we have now planted 460 trees, 75 Oaks, 50 Ash, 25
Birch, 110 Field Maple, 100 Hazel and 100 Willow as well as more
than 5,000 indigenous hedging plants.
We have also now established a community liaison groups in areas
where we are looking to establish production sites. As part of the
permitting and well planning process we engage with groups
including the Environment Agency, local and parish councils, the
Countryside Commission of Wales, English Nature and many others. In
all locations, whether we are only on site for a short period as an
appraisal well or on sites where we will be producing for many
years, our priority is to be a good neighbour and contribute to the
environmental development of the area.
Directors
1. Francis Gugen
Non-Executive Chairman
Francis is a founder and Non-Executive Chairman and has over 30
year's oil and gas industry experience. Between 1982 and 2000 he
helped grow Amerada Hess in North West Europe, ultimately becoming
CEO. Currently he is also non-executive chairman of Petroleum
Geophysical Services ASA, of Chrysaor Limited and of CEOC Limited;
and a board member of SBM offshore NV all involved in conventional
oil and gas. Until 2006 he served as non-executive chairman of
North Sea gas fields and pipelines operator CH4 Energy Limited
before it was acquired in 2006 by Venture Petroleum Plc. He is a
member of the CBI's Economic Affairs Committee, past president of
the UK Offshore Operators Association, past chair of the industries
representation on the UK Government Oil & Gas Task Force
(Pilot) and past chair of the CBI's Environmental Affairs
Committee. Francis is a chartered accountant having worked for
Arthur Andersen for eight years until 1982, principally as an oil
and gas specialist.
2. John Bryant
Senior Independent Non-Executive Director
John is the Chairman of AIM listed Weatherly International plc.
He was until recently a board member of the Attiki Gas Company,
which supplies natural gas to Athens and the surrounding districts.
John previously served as president of Cinergy Global Resources
Corp, responsible for all international business and global
renewable power operations of this US based electricity and gas
utility provider. Before joining Cinergy, John was executive
director with Midlands Electricity plc. He has been involved in
developing a number of large gas fired power stations both in the
UK and overseas, together with both electricity and gas
distribution in Europe and Africa, renewable power in Europe and
North America and gas and electricity trading. His prior experience
was at British Sugar plc, Drexel Limited, the British Oxygen
Company and Unilever plc. Drexel, where he was president, was a
global oil and gas equipment manufacturing and servicing company.
John is a Fellow of the Institute of Directors and a Fellow of the
Royal Society of Arts.
3. Andrew Austin
Chief Executive Officer
Andrew is one of the founders and the Chief Executive Officer
and previously he specialised in energy projects in the gas,
electricity and renewables sector. Andrew has been an Executive
Director since 2004 and for the last four years has been CEO with
full time responsibility for day to day operations and business
development. Prior to joining IGas Andrew has been
involved in ventures as principal and has also raised
substantial funds from private and public equity for clients during
the
course of his career to date. Andrew spent 17 years working in
investment banking in the City of London with Merrill Lynch,
Nomura, Citibank and Barclays Capital. Latterly he was general
manager of Creditanstalt Investment Bank in London. He also has six
years of management and consultancy experience with clean tech
companies including Generics Group and
Whitfield Solar.
4. John Blaymires
Chief Operating Officer
John has 27 years of international experience in the oil and gas
industry gained with the Hess Corporation and Shell International.
Before joining IGas he was director of Technology Development for
Hess based in Houston, where he helped develop a global engineering
and geoscience technology group responsible for providing support
across the E&P (exploration and production) business, from
deepwater to unconventional resources. Prior to that John was
Technical Director for Hess' operations in West Africa, and
subsequently South East Asia with responsibility for several major
oil and gas developments. John has a BSc and PhD in Mining
Engineering from Leeds University.
5. John Hamilton
Non-Executive Director
John is the Managing Director of Levine Capital Management
Advisors Limited, a UK incorporated company and Interim Chairman of
President Petroleum Corporation Plc. John was previously the Group
Finance Director of Imperial Energy Corporation Plc. Prior to
joining Imperial Energy, John held senior positions at ABN
AMRO.
6. Richard Armstrong
Non-Executive Director
Richard is an associate with Fiske plc, the AIM quoted
stockbrokers. He is a former equity analyst with extensive
experience in reconstructing and raising capital for turnaround
situations especially in the quoted microcap sector, such as
Weatherly International plc and Artilium plc. In most cases, he has
joined the Board of these companies and has played a major role in
helping them to acquire or establish operating businesses. He is
currently a Director of a number of unquoted companies.
Corporate governance
The Board of Directors support high standards of corporate
governance and the guidance set out in the Combined Code on
Corporate Governance (the "Combined Code"). As a Company that is
quoted on AIM, it is not required to comply with the Combined Code
but all the Directors intend to comply with its main provisions as
far as is practicable having regard to the size and composition of
the Group.
The Board and its committees
The Board of the Company consists of two Executive Directors and
four Non-Executive Directors; with Mr Armstrong and Mr Bryant being
considered to be independent. The Senior Independent Non-Executive
Director is John Bryant and biographies of all the Directors are
included on page 16.
The Board retains full and effective control over the Group. The
Board meets regularly at least eight times a year to consider
reports on the operational and financial performance of the Group
and to decide on matters reserved unto itself, which include
formulating, reviewing and approving the Group's strategy, budgets,
major items of capital expenditure and senior personnel
appointments.
The Directors have established separate committees each chaired
by a Non-Executive Director as follows:
Audit committee
The committee comprises only Non-Executive Directors; being
chaired by Richard Armstrong and having as other members: John
Bryant and John Hamilton. The Chairman and Chief Executive Officer
may attend only at the invitation of the committee.
The committee receives and reviews reports from management and
the Group's auditors relating to the Group's annual report and
accounts and from management relating to interim results
announcements. The committee focuses particularly on compliance
with legal requirements, accounting standards and the AIM Rules and
on ensuring that effective systems of internal financial and
non-financial controls (including for the management of risk and
whistle-blowing) are maintained. However, the ultimate
responsibility for reviewing and approving the annual report and
accounts remains with the Board of Directors. The committee is also
responsible for making recommendations to the Board of Directors on
the appointment of the external auditors and their remuneration.
The committee keeps under review the external auditors'
independence and considers the nature, scope, and results of the
auditor's work and develops policy on and reviews (reserving the
right to approve) any non-audit services that are provided by the
external auditors.
The committee normally meets at least three times a year and
meets the external auditors at least annually without the presence
of the Executive Directors.
Remuneration committee
The committee comprises only Non-Executive Directors; being
chaired by John Bryant and having as other members Richard
Armstrong and John Hamilton. The committee, which normally meets at
least twice a year, has responsibility for making recommendations
to the Board of Directors on the Company's policy on the
remuneration of the Chairman, Executive Directors and other senior
executives (as are delegated to the committee to consider) and for
determining, within agreed terms of reference, specific
remuneration packages for each of them, including pension rights,
any compensation payments and the implementation of executive
incentive schemes. In accordance with the committee's terms of
reference, no Director may participate in discussions relating to
their own terms and conditions of service or remuneration.
Nomination committee
The Nomination committee is chaired by the Senior Independent
Non-Executive Director, John Bryant, and its other members are the
Non-Executive Director, Richard Armstrong, and the Chairman,
Francis Gugen. The committee, which meets as required throughout
the year, has responsibility for considering the size, structure
and composition of the Board of Directors, retirements and
appointments of additional and replacement Directors and making
appropriate recommendations to the Board of Directors. The
committee is also tasked with ensuring that plans are in place for
orderly succession to the Board of Directors and senior management
positions, so as to maintain an appropriate balance of skills and
experience within the Group and the Board of Directors. The Chief
Executive Officer of the Company is invited to attend meetings of
the committee when the committee is discussing matters related to
executive management and such other matters as the committee
chairman deems appropriate.
At each Annual General Meeting at least one-third of the
Directors shall retire from office by rotation. The Directors to
retire by rotation shall include, firstly, any Director who wishes
to retire at the meeting and not offer himself for re-election and,
secondly, those Directors who have been longest in office since
their last appointment or reappointment, provided always that each
Director shall be required to retire and offer himself for
re-election at least every three years. Directors appointed by the
Board hold office only until the dissolution of the Annual General
Meeting of the Company next following such appointment.
Internal control
The Board acknowledges that it is responsible for establishing
and maintaining the Group's system of internal controls and
reviewing its effectiveness. The procedures that include, inter
alia, financial, operational and compliance matters and risk
management are reviewed on an ongoing basis. The internal control
system can only provide reasonable and not absolute assurance
against material misstatement or loss. The Board has considered the
need for a separate internal audit function but, bearing in mind
the present size and composition of the Group, does not consider it
necessary at the current time.
UK Bribery Act
IGas is aware of the draft legislation for the Bribery Act and
is ensuring that it has in place appropriate policies, procedures
and will be reporting in full in the 2011 Annual Report and
Accounts.
Relations with shareholders
Communications with shareholders are considered important by the
Directors. The primary contact with shareholders, investors and
analysts is the Chief Executive Officer. The other Executive
Directors, however, regularly speak to investors and analysts
during the year. Company circulars and press releases have also
been issued throughout the year in relation to various proposals
and for keeping investors informed about the Group's progress.
The Company also maintains a website on the internet
(www.igasplc.com) that is regularly updated and contains a wide
range of information about the Group.
Directors' remuneration report
This report explains our remuneration policy for Directors and
sets out how decisions regarding Directors' pay for the year under
review have been taken.
Remit of the Remuneration committee
The remit of the Remuneration Committee is provided in the
Corporate Governance section on page 15.
In 2010, the committee engaged PricewaterhouseCoopers LLP
("PwC") to provide wholly independent advice on executive
compensation and to assist the committee in the implementation of
its long term incentive arrangements. There were no other services
provided by PwC to the Group during the period.
Remuneration policy
The Company's policy is to maintain levels of remuneration
sufficient to attract, motivate and retain senior executives of the
highest calibre who can deliver growth in shareholder value.
Executive remuneration currently consists of basic salary,
benefits, annual bonus (based on annually set targets), and long
term incentives (to reward long term performance). The Company
seeks to strike an appropriate balance between fixed and
performance-related reward, therefore, the total remuneration
package is structured so that a significant proportion is subject
to the achievement of performance targets, forming a clear link
between pay and performance. The performance targets are aligned to
the key drivers of the business strategy, thereby creating a strong
alignment of interest between executives and shareholders.
The committee has recently conducted a review of the Company's
remuneration arrangements, which has resulted in changes to the
remuneration policy for 2010 in recognition that the Company has
developed rapidly since its reverse in December 2007 and the
farm-ups in 2009. In this regard, a number of changes have been
made to ensure that the policy is more compliant with best practice
and institutional shareholder guidelines.
The committee does not intend to make further changes to the
remuneration policy for 2011, however, the committee will continue
to review the Company's remuneration package and make amendments,
if necessary, to ensure it remains fit for purpose for the Company,
driving high levels of executive performance and remains
competitive against the market.
Base salary
When setting the salary of the Directors, the committee has
considered the following:
-- levels of salary for similar positions in similar
organisations (based on size, complexity and sector);
-- the performance of the individual Director; and
-- the individual Director's experience and
responsibilities.
Bonus
Executives and employees are eligible to participate in a
discretionary bonus plan. The percentage of maximum bonus
entitlement received is based on the achievement of challenging
corporate and personal targets.
For 2011, the maximum potential bonus entitlement for certain
Directors under the plan will be increased to up to 100% of base
salary.
Benefits
The Company does not provide significant levels of benefits in
kind.
Long Term Incentives
The review of the Company's remuneration arrangements undertaken
by the committee identified a gap in the Company's remuneration
structure compared to the market as the Company did not have a long
term incentive in place. In October 2010, the Board approved the
introduction of the IGas Energy Plc Super Long Term Incentive Plan
("LTIP") and the IGas Energy Plc Share Option Plan ("Share Option
Plan") to fill this gap in the remuneration package and also to
drive high long-term performance.
LTIP
The LTIP is intended to drive the performance of members of the
executive team. Under the LTIP, participants can each be granted
nil cost options over up to 1.5% of the issued share capital of the
Company (subject to an overall plan limit of 7.5% of the issued
share capital of the Company for all participants). The LTIP has a
three year performance period and awards vest subject to the
achievement of stretching share price targets. On a change of
control prior to the third anniversary of the grant date, a revised
share price target reflecting the reduction in the performance
period shall instead be used to determine the extent to which LTIP
options vest. Other than on a change of control, 50% of vested
awards can be exercised and sold on vesting, with the remaining 50%
becoming exercisable on the first anniversary of vesting.
Share Option Plan
Both executives and employees may participate in the Share
Option Plan. Typically each individual participant can be granted
options under the Share Option Plan with a market value at grant of
up to 100% of his base salary, although this limit can be exceeded
in exceptional circumstances. Share options vest in three equal
tranches over a three year period from the date of grant and vested
options are exercisable subject to the attainment of a Company
share price target.
2010 grants under the Share Option Plan are subject to an
exercise price of 70p per share.
The Groups share price as at 31 December 2010 was 65.75p per
share. The highest price during the period was 91p per share and
the lowest share price during the period was 61p per share.
Current arrangements
Executive Directors
The Executive Directors are employed under evergreen contracts
with notice periods of twelve months or less from the Company or
executive.
Directors' emoluments for the year were as follows:
Taxable 2010 2009 Salary Bonus Benefits Pensions Total Total
Executive Directors GBP000 GBP000 GBP000 GBP000 GBP000
GBP000
F Gugen - Executive Chairman (to 19 October 2010) 83 - - - 83
150
A Austin - Chief Executive Officer 235 117 1 - 353 300
B Cheshire - Executive Technical Director 100 25 - - 125 150
J Blaymires - COO (Appointed 19 October 2010) 29 9 1 - 39 -
Total - Executive Directors 447 151 2 - 600 600
Each of the Executive Directors devotes such time as is required
to discharge his duties, which in the case of A Austin and J
Blaymires is full time.
Each Executive Director is entitled to receive a cash bonus
dependent on the achievement of various objective targets and
milestones as set by the Remuneration Committee.
As at 31 December 2010, the outstanding long term incentives
held by the Directors who served during the year was as set out in
the tables below:
Under the LTIP:
At 1 As at 31 Earliest
Date of January December vesting
Grant 2010 Granted Exercised Lapsed 2010 date
A Austin
19 October
19.10.10 - 700,000 - - 700,000 2013
J Blaymires
19 October
19.10.10 - 375,000 - - 375,000 2013
Under the Share Option Plan:
At 1 As at 31 *Earliest
Date of January December vesting
Grant 2010 Granted Exercised Lapsed 2010 date
J Blaymires
1/3(rd) 6
April 2011
1/3(rd) 6
April 2012
1/3(rd) 6
April
19.10.10 - 910,930 - - 910,930 2013
*Vested Options will become exercisable when the Company's'
share price target has been achieved for an average of five
consecutive days.
LTIPs and Share Options issued expire 10 years from date of
grant.
Non-Executive Directors
The Non-Executive Directors are employed under evergreen
contracts with notice periods of twelve months or less, under which
they are not entitled to any pension, benefits or bonuses.
2010 2009 Emoluments Total Emoluments Total GBP000 GBP000
F Gugen - Non-Executive Chairman (from 19 October) 17 -
J Bryant - Senior Independent 35 20
R Armstrong 35 20
J Hamilton 35 1
Former Directors* - 29
Total - Non-Executive Directors 122 70
* Relates to P Redmond.
Warrants held by Non-Executive Directors are detailed in Note 5
of the financial statements.
John Bryant
Chairman Remuneration Committee
20 May 2011
Directors' report
The Directors present their report together with the Group and
Parent Company financial statements for the year ended 31 December
2010.
Business review and future developments
A review of the business and the future developments of the
Group are presented in the Chairman's statement on page 4 and the
Chief Executive's statement on pages 6 and 7 .
Results and dividends
The Group's loss for the year after taxation was GBP1.5 million
(2009: loss GBP0.5 million). The Directors do not recommend the
payment of a dividend for the year.
Going Concern
After reviewing the Group's budgets and cash flow projections
for 2011 and 2012, and taking into consideration the acquisition of
Nexen Exploration UK Ltd and the placing in March 2011, the current
operating environment, the risks outlined in Note 15 and the
Group's liquidity risk management as set out below, the Directors
are satisfied that the Group has adequate resources to continue as
a going concern. It is therefore appropriate to adopt the going
concern basis in preparing the 2010 Annual Report and Financial
Statements.
Principal activity
The Group's principal area of activity is unconventional gas
including coal bed methane ("CBM"), intended to result in the
production and marketing of methane gas for industrial and domestic
use from virgin seams within its UK acreage. This requires acreage
to be explored, appraised and developed and in connection with
which the Group also provides technical and other related services
details of which are outlined in Note 2 of the consolidated
financial statements.
Share Capital
Details of changes to share capital in the period are set out in
Note 16 to the consolidated financial statements.
Directors and their interests
The Directors who served during the year were as follows:
F R Gugen Non-Executive Chairman
A P Austin Chief Executive Officer
B Cheshire Executive Technical Director
J M Blaymires Chief Operating Officer - Appointed 19 October
2010
J Bryant Non-Executive
R J Armstrong Non-Executive
J A Hamilton Non-Executive
The interests of the Directors in the shares of the Company at
31 December 2010 were as follows:
31 December 2010 31 December 2009 31 December 31 December
Ordinary 50p Shares Ordinary 50p Shares 2010 2009
Number % Number % Warrants(*) Warrants(*)
F R Gugen 27,615,764 29.66 27,615,764 30.34 - -
A P Austin** 11,429,253 12.28 11,429,253 12.56 - -
B Cheshire 11,429,253 12.28 11,429,253 12.56 - -
J Bryant 50,370 0.05 50,370 0.06 - 110,000
R J Armstrong 58,460 0.06 58,460 0.06 - 110,000
J A Hamilton 85,000*** 0.09 85,000 0.09 - -
Former Directors - - - - - ***
* On 31 December 2010 warrants issued to Non-Executive Directors
lapsed.
** On 22 March 2011, A Austin disposed of 770,000 Shares.
*** J Hamilton is beneficially interested in 85,000 Ordinary
Shares out of a total of 12,080,000 held by Peter Levine and Levine
Capital Management Ltd, the latter of whom he is deemed to be
associated for these purposes.
**** Former Directors was in relation to P Redmond who still
held the same shares and warrants as at 31 December 2009 but these
were not reported as he was no longer a Director.
Rotation and re-election of Directors
In accordance with the Articles of Association A Austin, J
Bryant, R Armstrong and J Blaymires retire by rotation and being
eligible offer themselves for re-election.
Directors' insurance and indemnity provisions
Subject to the conditions set out in the Companies Act 2006, the
Company has arranged appropriate directors and officers Insurance
to indemnify the directors and officers against liability in
respect of proceedings brought by third parties. Such provision
remains in force at the date of this report.
The Company indemnifies the Directors against actions they
undertake or fail to undertake as Directors or officers of any
Group company, to the extent permissible for such indemnities to
meet the test of a qualifying third party indemnity provision as
provided for by the Companies Act 2006. The nature and extent of
the indemnities is as described in Section 60 of the Company's
Articles of Association as adopted on 10 July 2009. These
provisions remained in force throughout the year and remain in
place at the date of this report.
Substantial shareholders
At 20 May 2011 the company had received notification from the
following institutions, in accordance with Chapter 5 of the
Disclosure and Transparency Rules, of interests in excess of 3
per cent of the company's issued Ordinary Shares with voting
rights:
Number of Shares %
Peter Levine and Levine
Capital Management Ltd 14,429,135 9.00
Baillie Gifford & Co 8,088,217 5.04
Artemis Investment
Management LLP 5,298,333 3.30
Principal risks and uncertainties
-- The Group is exposed, through its operations, to liquidity
risk, which is managed by the Board who regularly review the
Group's cash forecasts and the adequacy of available facilities to
meet the Group's cash requirements. At the Group's current stage of
development, the Board does not consider foreign currency and
credit risks to be material.
-- The Group is exposed to market price risk through variations
in the wholesale prices of gas and electricity in the context of
its future production volumes. Currently the Group has not entered
into any forward contracts to fix the prices of these commodities.
The Board will continue to monitor the benefit of entering into
such contracts.
-- The Group is exposed to risks associated with geological
uncertainty. No guarantee can be given that gas can be produced
from any or all of the Group's assets or that gas can be delivered
economically.
-- The Group is exposed to planning, environmental, licensing
and other permitting risks associated with its operations and, in
particular, with drilling and production operations.
-- The Group is exposed to capital risk resulting from its
capital structure. Currently the Group has no borrowings and is
solely equity funded. However, the capital structure is continually
monitored to ensure it is in line with the business needs and
ongoing asset development. Further details of the Group's capital
management policy are disclosed in note 14 to the consolidated
financial statements.
-- The Group is also exposed to a variety of other risks
including those related to:
- operational matters (including cost increases, availability of
equipment and successful project execution);
- competition;
- key personnel; and
- litigation.
Financial instruments
The Group's principal financial instruments comprise cash
balances and other debtors and creditors that arise through the
normal course of business as set out in Notes 11 to 13 to the
consolidated financial statements. The Group's financial risk
management objectives are set out in Note 15 to the consolidated
financial statements and the Operational review .
Employment policy
It is the policy of the Group to operate a fair employment
policy. No employee or job applicant is less favourably treated
than another on the grounds of their sex, sexual orientation, age,
marital status, religion, race, nationality, ethnic or national
origin, colour or disability and all appointments and promotions
are determined solely on merit. The Directors encourage employees
to be aware of all issues affecting the Group and place
considerable emphasis on employees sharing in its success.
Creditor payment policy and practice
It is the Group's normal practice to agree payment terms with
its suppliers and abide by such terms. Payment becomes due when it
can be confirmed that goods and/or services have been provided in
accordance with the relevant contractual conditions. The amount
owed by the Company to trade creditors at the end of the financial
year represented 15 days of daily purchases for the Company (2009:
17 days).
Charitable and political contributions
During the year, the Group made no donations (2009: nil).
Status
The Company is not a close company as defined in the Income and
Corporation Taxes Act 1988.
The Company is domiciled in the UK and incorporated and
registered in England.
Board committees
Information on the Audit, Remuneration and Nomination committees
is included in the Corporate Governance section of the annual
report.
Auditors
A resolution to reappoint Ernst & Young LLP as auditor will
be proposed at the Annual General Meeting at a fee to be agreed in
due course by the Audit Committee and the Board.
Directors' statement as to disclosure of information to the
auditors
So far as each person who was a Director at the date of
approving this report is aware, there is no relevant audit
information, being information needed by the auditor in connection
with preparing its report, of which the auditor is unaware. Having
made enquiries of fellow Directors, each Director has taken all the
steps that a Director might reasonably be expected to have taken as
a Director in order to make himself aware of any relevant audit
information and to establish that the Company's auditor is aware of
that information.
Annual General Meeting
The Annual General Meeting will be held on 20 June 2011 as
stated in the Notice of Meeting which accompanies this Annual
Report.
By order of the Board
Mofo Secretaries Limited
Secretary
20 May 2011
Consolidated financial statements - Directors' statement of
responsibilities in respect thereof
The Directors are responsible for preparing the Annual Report
and Group financial statements in accordance with applicable United
Kingdom law and those International Financial Reporting Standards
as adopted by the European Union ("IFRSs").
Under Company Law the directors must not approve the Group
financial statements unless they are satisfied that they present
fairly the financial position of the Group and the financial
performance and cash flows of the Group for that period. In
preparing those Group financial statements the Directors are
required to:
-- select suitable accounting policies in accordance with IAS 8:
Accounting policies, Changes in Accounting Estimates and Errors and
then apply them consistently;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRSs is insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the Group's financial position and financial
performance;
-- state that the Group has complied with IFRSs, subject to any
material departures disclosed and explained in the financial
statements; and
-- make judgments and estimates that are reasonable and
prudent.
The Directors are responsible for keeping proper accounting
records that disclose with reasonable accuracy at any time the
financial position of the Group and to enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Group and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors confirm that they have complied with these
requirements and, having a reasonable expectation that the Group
has adequate resources to continue in operational existence for the
foreseeable future, will continue to adopt the going concern basis
in preparing the accounts Independent auditor's report to the
members of IGas Energy plc
We have audited the group financial statements of IGas Energy
plc for the year ended 31 December 2010 which comprise the
Consolidated Income Statement, the Consolidated Statement of
Comprehensive Income, the Consolidated Balance Sheet, the
Consolidated Statement of Changes in Equity, the Consolidated Cash
Flow Statement and the related notes 1 to 20. The financial
reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
This report is made solely to the company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
Respective responsibilities of directors and auditors
As explained more fully in the Directors' Statement of
Responsibilities set out on page 22, the directors are responsible
for the preparation of the group financial statements and for being
satisfied that they give a true and fair view. Our responsibility
is to audit and express an opinion on the group financial
statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those standards require us
to comply with the Auditing Practices Board's (APB's) Ethical
Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the group's circumstances and have been consistently
applied and adequately disclosed; the reasonableness of significant
accounting estimates made by the directors; and the overall
presentation of the financial statements. In addition, we read all
the financial and non-financial information in the Annual Report to
identify material inconsistencies with the audited financial
statements. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for
our report.
Opinion on financial statements
In our opinion the group financial statements:
-- give a true and fair view of the state of the group's affairs
as at 31 December 2010 and of its loss for the year then ended;
-- have been properly prepared in accordance with IFRSs as
adopted by the European Union; and
-- have been prepared in accordance with the requirements of the
Companies Act 2006.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Directors' Report
for the financial year for which the financial statements are
prepared is consistent with the group financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if, in
our opinion:
-- certain disclosures of directors' remuneration specified by
law are not made; or
-- we have not received all the information and explanations we
require for our audit.
Other matter
We have reported separately on the parent company financial
statements of IGas Energy plc for the year ended 31 December
2010.
Gary Donald (Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP, Statutory
Auditor
London
20 May 2011
Consolidated income statement
For the year ended 31 December 2010
2010 2009 Notes GBP000 GBP000
Revenue 2 656 828
Cost of sales (589) (671)
Gross profit 67 157
Administrative expenses (1,780) (672)
Operating loss (1,713) (515)
Finance income 6 170 11
Loss on ordinary activities before tax (1,543) (504)
Tax on loss on ordinary activities 7 - -
Loss from continuing operations attributable to equity
shareholders of the Group (1,543) (504)
Basic and diluted (loss) per share (GBP/share) 8 (0.0169)
(0.0076)
Consolidated statement of comprehensive income
For the year ended 31 December 2010
2010 2009 GBP000 GBP000
Loss for the year (1,543) (504)
Other comprehensive income for the year - -
Total comprehensive loss for the year (1,543) (504)
Consolidated balance sheet
As at 31 December 2010
2010 2009 Notes GBP000 GBP000
Non-current assets
Intangible exploration and evaluation assets 9 4,644 1,334
Property, plant and equipment 10 205 -
4,849 1,334
Current assets
Trade and other receivables 11 589 258
Cash and cash equivalents 12 12,087 17,501
12,676 17,759
Current liabilities
Trade and other payables 13 (797) (931)
Net current assets 11,879 16,828
Total assets less current liabilities 16,728 18,162
Net assets 16,728 18,162
Capital and reserves
Called up share capital 16 19,665 18,617
Share premium account 18 2,500 2,203
Share plan/warrant reserve 17 63 131
Treasury shares 18 (1,299) -
Retained earnings/(accumulated deficit) (4,201) (2,789)
Shareholders' funds 16,728 18,162
These financial statements were approved and authorised for
issue by the Board on 20 May 2011 and are signed on its behalf
by:
Francis Gugen Andrew Austin
Chairman Chief Executive Officer
Consolidated statement of changes in equity
For the year ended 31 December 2010
Retained Called up Share Share Treasury earnings/ share capital
premium plan/warrant shares (accumulated (Note 16) account reserve
deficit) Total GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1 January 2009 4,275 420 167 - (2,285) 2,577
Changes in equity for 2009
Total comprehensive loss for the year - - - - (504) (504)
Transfer to Share premium account - 36 (36) - - -
Issue of shares during year 14,342 2,868 - - - 17,210
Share issue costs - (1,121) - - - (1,121)
Balance at 31 December 2009 18,617 2,203 131 - (2,789)
18,162
Changes in equity for 2010
Total comprehensive loss for the year - - - - (1,543)
(1,543)
Lapse of warrants - - (131) - 131 -
Employee share plans - cost under IFRS2 (note 17) - - 63 - -
63
Issue of shares during year 1,048 297 - (1,299) - 46
Balance at 31 December 2010 19,665 2,500 63 (1,299) (4,201)
16,728
Consolidated cash flow statement
For the year ended 31 December 2010
2010 2009 Notes GBP000 GBP000
Operating activities:
Loss for the year (1,543) (504)
Depreciation, depletion and amortisation 3 9 -
Share based payment charge 37 -
Finance income 6 (170) (11)
Increase in trade and other receivables (331) (408)
Increase in trade and other payables, net of accruals related to
investing activities 196 338
Net cash used in operating activities (1,802) (445)
Investing activities
Acquisition of exploration and evaluation assets (3,608)
(432)
Acquisition of property, plant and equipment (220) -
Interest received 6 170 11
Net cash used in investing activities (3,658) (421)
Financing activities
Cash proceeds from issue of Ordinary Share Capital 16 46
17,210
Share issue costs 18 - (1,121)
Net cash from financing activities 46 16,089
Net (decrease)/increase in cash and cash equivalents in the year
(5,414) 15,223
Cash and cash equivalents at the beginning of the year 17,501
2,278
Cash and cash equivalents at the end of the year 12 12,087
17,501
Consolidated financial statements - notes
As at 31 December 2010
1 Accounting policies
(a) Basis of preparation of financial statements
The consolidated financial statements of IGas Energy plc (the
"Company") and subsidiaries (the "Group") have been prepared under
the historical cost convention in accordance with International
Financial Reporting Standards, adopted for use by the European
Union ("IFRSs") as they apply to the Group for the year ended 31
December 2010, and with the Companies Act 2006. The accounts were
approved by the board and authorised for issue on 20 May 2011. IGas
Energy plc is a public limited company incorporated and registered
in England and Wales.
The Group financial statements are presented in UK pound
sterling and all values are rounded to the nearest thousand
(GBP000) except when otherwise indicated.
During the year, the Group adopted the following new and amended
IFRS which were applicable to the Group's activities as of 1
January 2010.
International Accounting Standards (IFRS/IAS):
IFRS 2 Amendment to IFRS 2 - Group Cash-settled Share-based 1 January
Payment Transactions - This amendment clarifies 2010
that there shall now be included transactions
where the transfer of cash or other assets is
based on the price (or value) of the equity
instruments of another group entity. The Group
has considered the effect of this interpretation
and has concluded that it is not expected to
have any impact on the financial statements.
Certain new standards, interpretations and amendments to
existing standards have been published and are mandatory only for
the Group's accounting periods beginning on or after 1 January 2011
or later periods but which the Group has not adopted early. Those
that may be applicable to the Group in future are as follows:
Effective date
International Accounting Standards (IFRS/IAS)
IAS 24 Amendment to IAS 24 - Related Party Disclosures 1 January
- This amendment clarifies the definition of 2011
a related party to simplify the identification
of such relationships and to eliminate inconsistencies
in its application. The revised standard introduces
a partial exemption of disclosure requirements
for government-related entities. The Group has
considered the effect of this interpretation
and has concluded that there is no impact on
the financial statements.
IFRS 9 IFRS 9 - Financial Instruments: Classification 1 January
and Measurement - IFRS 9 as issued reflects 2013
the first phase of the IASB's work on the replacement
of IAS 39 and applies to classification and
measurement of financial assets as defined in
IAS 39. The standard is effective for annual
periods beginning on or after January 2013.
In subsequent phases, the IASB will address
classification and measurement of financial
liabilities, hedge accounting and derecognition.
The adoption of the first phase of IFRS 9 will
have an effect on the classification and measurement
of the Group's financial assets. The Group will
quantify the effect in conjunction with the
other phases, when issued, to present a comprehensive
picture.
The Directors do not anticipate that the adoption of these
standards and interpretations will either individually or
collectively have a material impact on the Group's financial
statements in the period of initial application. The Group does not
anticipate adopting these standards and interpretations ahead of
their effective date.
Improvements to IFRS
In May 2010 the IASB issued an omnibus of amendments to its
standards. The amendments have not been adopted as they become
effective for annual periods starting on or after either 1 July
2010 or 1 January 2011:
-- IFRS 3 Business Combinations
-- IFRS 7 Financial Instruments: Disclosures
-- IAS 1 Presentation of Financial Statements
-- IAS 27 Consolidated and Separate Financial Statements
The Group, however, expects no impact from the adoption of the
amendments on its financial position or performance.
(b) Going concern
After reviewing the Group's budgets and cash flow projections
for 2011 and 2012, and taking into consideration the acquisition of
Nexen Exploration UK Ltd and the placing in March 2011, the current
operating environment, the risks and the Group's liquidity risk
management outlined in Note 15, the Directors are satisfied that
the Group has adequate resources to continue as a going concern. It
is therefore appropriate to adopt the going concern basis in
preparing the 2010 Annual Report and Financial Statements.
(c) Basis of consolidation
The consolidated financial statements present the results of
IGas Energy plc and its subsidiaries as if they formed a single
entity. The financial statements of subsidiaries used in the
preparation of consolidated financial statements are based on
consistent accounting policies to the parent. All intercompany
transactions and balances between Group companies, including
unrealised profits arising from them, are eliminated in full. Where
shares are issued to an Employee Benefit Trust, and the Company is
the sponsoring entity it is treated as an extension of the
entity.
At 31 December 2010 the Group comprised the Company and its
subsidiaries Island Gas Limited and Island Gas Operations Limited
(formerly KP Renewables (Operations) Ltd).
(d) Joint ventures
The Group's licence interests are all held jointly with others
under arrangements whereby unincorporated and jointly controlled
ventures are used to explore, evaluate and ultimately develop and
produce from its gas interests. Accordingly, the Group accounts for
its share of assets, liabilities, income and expenditure of these
jointly controlled assets, classified in the appropriate balance
sheet and income statement headings, except where its share of such
amounts remain the responsibility of another party in accordance
with the terms of the carried interests as described at (h) below.
Where the Group enters into a farm-up agreement involving a licence
in the exploration and evaluation phase, the Group records all
costs that it incurs under the terms of the joint operating
agreement as amended by the farm-up agreement as they are
incurred.
(e) Significant accounting judgements and estimates
Critical judgements in applying the Group's accounting
policies
The Group invests in the exploration, evaluation, development
and production of gas in the UK. Costs are capitalised in
accordance with the accounting policy as described at (h). Initial
capitalisation of costs is based on management's judgement that
capitalisation of such costs is in accordance to applicable
standards and that over time there will be an economic benefit
associated with such cost.
Estimates and assumptions:
The key assumptions concerning the future and other key sources
of estimation uncertainty at the balance sheet date, that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year
are discussed below:
-- Carrying value of intangible exploration and evaluation
assets:
The Group has capitalised intangible exploration and evaluation
assets in accordance with IFRS 6, which are evaluated for
impairment as described at (h) below. Any impairment reviews, where
required, involves estimates and assumptions related to matters
(when appropriate), such as recoverable reserves; production
profiles; review of forward gas and electricity prices;
development, operating and off-take costs; nature of land access
agreements and planning permissions; application of taxes; and
other matters. Where the final outcome or revised estimates related
to such matters differ from the estimates used in any earlier
impairment reviews, the results of such differences, to the extent
that they actually affect any impairment provisions, are accounted
for when such revisions are made. Details of the Groups Intangible
exploration and evaluation assets are disclosed in note 9.
(f) Exceptional items
Exceptional items are material items of income or expenditure
which, in the opinion of the Directors, due to their nature and
infrequency require separate identification on the face of the
income statement to allow a better understanding of the financial
performance in the year. A full explanation of such items is given,
where applicable, in the notes to the financial statements
(g) Revenue
Revenue comprises the invoiced value of goods and services
supplied by the Group, net of value added tax and trade discounts.
Revenue is recognised in the case of gas and electricity sales when
goods are delivered and title has passed and in the case of
services rendered only once a legally binding contract is in place.
Amounts billed for services where the contract provides for their
delivery over a period of time are recognised evenly over the
relevant period; amounts due for all other services are recognised
as the services are provided.
(h) Non-current assets (intangible exploration and evaluation
assets and property plant and equipment)
Intangible exploration and evaluation assets
The Group accounts for exploration and evaluation costs in
accordance with the requirements of IFRS 6 "Exploration for and
Evaluation of Mineral Resources" as follows:
-- Exploration and evaluation assets are carried at cost less
any impairment and are not depreciated or amortised.
-- Expenditures recognised as exploration and evaluation assets
comprise those related to acquisition of rights to explore;
topographical, geological, geochemical and geophysical studies;
exploratory drilling (including coring and sampling); activities in
relation to evaluating the technical feasibility and commercial
viability of extracting gas (including appraisal drilling and
production tests); any land rights acquired for the sole purpose of
effecting these activities. These costs include employee
remuneration, materials and consumables, equipment costs and
payments made to contractors.
-- Any costs incurred prior to obtaining the legal rights to
explore an area are expensed immediately to the Income Statement.
Expenditures related to development and production activities are
not recognised as exploration and evaluation assets.
-- Tangible assets acquired for use in exploration and
evaluation activities are classified as property, plant and
equipment. However, to the extent that such tangible assets are
consumed in developing an intangible exploration and evaluation
asset, the amount reflecting that consumption is recorded as part
of the exploration and evaluation asset.
-- Expenditures recognised as exploration and evaluation assets
are initially accumulated and capitalised by reference to
appropriate geographic areas (cash generation units or CGU), which
may not be larger than a business segment, currently the entirety
of the Group's UK gas business.
-- Expenditure recognised as exploration and evaluation assets
are transferred to property plant and equipment, interests in oil
and gas properties when technical feasibility and commercial
viability of extracting gas is demonstrable. Exploration and
evaluation assets are assessed for impairment (on the basis
described below), and any impairment loss recognised, before
reclassification.
-- Expenditures recognised as exploration and evaluation assets
are tested for impairment whenever facts and circumstances suggest
that they may be impaired, which includes when a licence is
approaching the end of its term and is not expected to be renewed;
there are no substantive plans for continued exploration or
evaluation of an area; the Group decides to abandon an area; whilst
development is likely to proceed in an area there are indications
that the exploration and evaluation asset costs are unlikely to be
recovered in full either by development or through sale.
-- Net proceeds from any disposal of exploration and evaluation
assets are initially credited against previously capitalised costs,
with any surplus proceeds being credited to the consolidated Income
Statement.
Property plant and equipment, interests in oil and gas
properties
Property plant and equipment, interests in oil and gas
properties are accounted for as follows:
-- Expenditure relating to evaluated properties is depleted on a
unit-of-production basis, commencing at the start of commercial
production. The depletion charge is calculated according to the
proportion that production bears to the recoverable reserves for
each property.
-- The Group's property plant and equipment, interests in oil
and gas properties are assessed for indications of impairment
whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable, when impairment
is computed on the basis as set out below. Any impairment in value
is charged to the Income Statement as additional depreciation.
-- Net proceeds from any disposal of development/producing
assets are compared to the previously capitalised costs for the
relevant asset or group of assets. A gain or loss on disposal of a
development/producing asset is recognised in the Income Statement
to the extent that the net proceeds exceed or are less than the
appropriate portion of the net capitalised costs of the asset or
group of assets.
Impairment
Impairment reviews, when required as described above, are
carried out on the following basis:
-- By comparing the sum of any amounts carried as exploration
and evaluation assets and as property plant and equipment as
compared to the recoverable amount.
-- The recoverable amount is the higher of an asset's fair value
less costs to sell and its value in use. The Group generally relies
on fair value less cost to sell assessed either by reference to
comparable market transactions between a willing buyer and a
willing seller or on the same basis as used by willing buyers and
sellers in the oil and gas industry. When assessing value in use,
the estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to
the asset or CGU.
-- Where there has been a charge for impairment in an earlier
period, that charge will be reversed in a later period where there
has been a change in circumstances to the extent that the
recoverable amount is higher than the net book value at the time.
In reversing impairment losses, the carrying amount of the asset
will be increased to the lower of its original carrying value and
the carrying value that would have been determined (net of
depletion) had no impairment loss been recognised in prior
periods.
Decommissioning
Where a liability for the removal of production facilities or
site restoration exists, a provision for decommissioning is
recognised. The amount recognised is discounted to its present
value and is reflected in the Group's non-current liabilities. A
corresponding asset is included in the appropriate category of the
Group's Non-current assets (intangible exploration and evaluation
assets and property plant and equipment), depending on the
accounting treatment adopted for the underlying operations/asset
leading to the decommissioning provision. The asset is assessed for
impairment and or depleted in accordance with the Group's policies
as set out above.
Carried interests
Where the Group has entered into carried interest agreements and
the Group's interest is being carried by a third party, no amounts
are recorded in the financial statements where expenditure incurred
under such agreements is not refundable. Where expenditure is
refundable, out of what would but for the carry agreements have
been the Group's share of production, the Group records amounts as
non-current assets, with a corresponding offset in current
liabilities or non-current liabilities, as appropriate, but only
once it is apparent that it is more likely than not that future
production will be adequate to result in a refund under the terms
of any carry agreement; the Group records refunds only to the
extent that they are expected to be repayable.
Non oil and gas related property plant and equipment
Other property plant and equipment is stated at cost less
accumulated depreciation. Depreciation is provided at rates
calculated to write off the cost of fixed assets, less their
estimated residual values, over their estimated useful lives at the
following rates, with any impairment being accounted for as
additional depreciation:
Computer equipment - over three years on a straight line
basis
Motor Vehicles - over four years on a straight line basis
Furniture and fixtures - over five years on a straight line
basis
Equipment used for exploration and evaluation - between six and
twelve years on a straight line basis
Leasehold property improvements - over the period of the
lease
The Group does not capitalise amounts considered to be
immaterial.
(i) 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 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 trade receivables, 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 Group 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.
(j) Leases
The determination of whether an arrangement is, or contains a
lease is based on the substance of the arrangement at inception
date including whether the fulfilment of the arrangement is
dependent on the use of a specific asset or assets or the
arrangement conveys a right to use the asset.
Operating leases
Rentals are charged to the Income Statement on a straight line
basis over the period of the lease.
(k) Taxation
The tax expense represents the sum of current tax and deferred
tax.
Current income tax assets and liabilities for the current and
prior periods are measured at the amount expected to be recovered
or paid to the tax authorities. Taxable (loss)/profit differs from
the (loss)/profit before taxation as reported in the Income
Statement because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes items
that are never taxable or deductible. The Group's liability for
current tax is calculated using tax rates that have been enacted or
substantively enacted by the balance sheet date.
Deferred tax is recognised in respect of all temporary
differences that have originated but not reversed at the balance
sheet date. Temporary differences arise from differences at the
balance sheet date between the tax bases of assets and liabilities
and their carrying amounts for financial reporting purposes..
Deferred tax liabilities are not discounted. Deferred tax assets
are recognised to the extent that it is regarded as more likely
than not that they will be recovered.
(l) Share based payments
Where share options or warrants are awarded to employees
(including Directors), the fair value of the options or warrants at
the date of the grant is recorded in equity over the vesting
period. Non-market vesting conditions, but only those related to
service and performance, are taken into account by adjusting the
number of equity instruments expected to vest at each balance sheet
date so that, ultimately, the cumulative amount recognised over the
vesting period is based on the number of options that eventually
vest. All other vesting conditions, including Market vesting
conditions, are factored in to the fair value of the options or
warrants granted. As long as all other vesting conditions are
satisfied, the amount recorded is computed irrespective of whether
the Market vesting conditions are satisfied. The cumulative amount
recognised is not adjusted for the failure to achieve a Market
vesting condition; although equity no longer required for options
or warrants may be transferred to another equity reserve.
Where the terms and conditions of options or warrants are
modified before they vest, the increase in the fair value of the
options, measured immediately before and after the modification, is
also recorded in equity over the remaining vesting period.
Where equity instruments are granted to persons other than
employees, the amount recognised in equity is the fair value of
goods and services received.
Charges corresponding to the amounts recognised in equity are
accounted for as a cost against profit and loss unless the services
rendered (and discharged by share based payments) relate to an
issuance of equity or qualify for capitalisation as a non-current
asset. In the case of an issuance of equity, the charge is to the
same equity reserve as cash costs related to such an issuance would
be charged. Costs may be capitalised within non-current assets in
the event of services being rendered in connection with an
acquisition or intangible exploration and evaluation assets or
property plant and equipment.
Where shares are issued to an Employee Benefit Trust, and the
Company is the sponsoring entity, the value of such shares at issue
will be recorded in share capital and share premium account in the
ordinary way, but will not affect shareholders' funds since this
same value will be shown as a deduction from shareholders' funds by
way of a separate component of equity (Treasury shares).
(m) 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.
(n) Foreign currency
Transactions denominated in currencies other than the functional
currency UK pound sterling 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.
2 Revenue and segment information
IFRS 8 requires operating segments to be identified on the basis
of internal reports about components of the Group that are
regularly reviewed by the Chief Operating Decision Maker ("CODM")
to make decisions about resources to be allocated to the segment
and assess its performance, and for which financial information is
available. In the case of the Group the CODM are the Chief
Executive Officer and the Board of Directors and all information
reported to the CODM is based on the consolidated results of the
Group as a single operating segment as the Group's activities all
relate to unconventional gas, including CBM in the UK. Therefore
the Group has only one operating and reportable segment as
reflected in the Group's consolidated financial statements.
All revenue which represents turnover arises within the United
Kingdom and relates to external parties. The revenue for 2010 and
2009 related to the supply of CBM services and expertise under
management service contracts (GBP536 thousand), to the supply of
electricity generation services and to sales of electricity
associated with CBM production (GBP120 thousand). GBP592 thousand
of the Group's revenue was derived from a single customer (2009:
GBP816 thousand).
All the Group's non-current assets are in the United
Kingdom.
3 Operating loss
2010 2009 GBP000 GBP000
Operating loss is stated after charging:
Staff Costs (see notes 4 and 5) 1,123 807
Depreciation 9 -
Auditor's remuneration:
Audit of the financial statements 57 35
Other fees paid to Ernst & Young LLP - Audits of
subsidiaries 10 43
GBP39 thousand of the Group's remuneration costs has been
capitalised in accordance with the Group's accounting policy.
4 Employee information
2010 2009 GBP000 GBP000
Staff costs comprised:
Wages and salaries 923 718
Social Security Costs 137 89
Employee share based cost under IFRS 2 63 -
1,123 807
No. No.
Average number of employees in the period:
Operations, including services 4 3
Administrative 2 2
6 5
GBP39 thousand of the Group's remuneration costs has been
capitalised in accordance with the Group's accounting policy.
5 Directors' emoluments
The remuneration of the Directors for the year was as
follows:
Taxable 2010 2009 Salary/Fees Bonus Benefits Pensions Total
Total Executive Directors GBP000 GBP000 GBP000 GBP000 GBP000
GBP000
F Gugen - Executive Chairman (to 19 October) 83 - - - 83 150
A Austin - Chief Executive Officer 235 117 1 - 353 300
B Cheshire - Executive Technical Director 100 25 - - 125 150
J Blaymires - COO (Appointed 19 October 2010) 29 9 1 - 39 -
Total - Executive Directors 447 151 2 - 600 600
Non-Executive Directors
F Gugen - Non-Executive Chairman (from 19 October) 17 - - - 17
-
J Bryant - Senior Independent 35 - - - 35 20
R Armstrong 35 - - - 35 20
J Hamilton - (Appointed 10 December 2009) 35 - - - 35 1
P Redmond (Resigned 10 December 2009) - - - - - 29
Total - Non-Executive Directors 122 - - - 122 70
Directors' share schemes/warrants
At 31 December 2010 the Executive Directors held the following
awards under the Long Term Incentive Plan and the Share Option
scheme as follows;
Long Term Incentive Plan
2010 Exercise price 2009 Exercise price Number (p/share) Number
(p/share)
A Austin 700,000 - - -
J Blaymires 375,000 - - -
Share Option Plan
2010 Exercise price 2009 Exercise price Number (p/share) Number
(p/share)
J Blaymires 910,930 70 - -
Warrants
At 31 December 2010 the Directors held the following warrants
over the Ordinary Shares of 50p each of the Company as follows;
2009 Exercise price Lapsed in 2010 Number (p/share) year
Number
R J Armstrong 82,500 55 (82,500) -
27,500 75 (27,500) -
J Bryant 82,500 55 (82,500) -
27,500 75 (27,500) -
6 Finance income
2010 2009 GBP000 GBP000
Interest receivable comprised:
Interest on short-term deposits 170 11
7 Tax on loss on ordinary activities
2010 2009 GBP000 GBP000
UK corporation tax:
Current tax on income for the year - -
Total UK taxation - -
Tax on loss on ordinary activities - -
Factors affecting the tax charge
The tax assessed for the year does not reflect a credit
equivalent to the loss on ordinary activities multiplied by the
small profits rate of corporation tax in the United Kingdom of 21%
(2009: 21%). A reconciliation of the UK small companies statutory
corporation tax rate applicable to the Group's loss before tax to
the Group's total tax charge is as follows:
2010 2009 GBP000 GBP000
(Loss) on ordinary activities before tax (1,543) (504)
(Loss) on ordinary activities multiplied by the small profit
rate of corporation tax
in the UK for small companies of 21% (2009: 21%) (324) (106)
Tax effect of expenses not allowable for tax purposes 6 1
Net increase in unrecognised losses carried forward 318 105
Tax on loss on ordinary activities - -
Tax losses
The Group's tax losses amount to:
2010 2009 GBP000 GBP000
Not considered sufficiently certain of utilisation to set up
deferred tax assets*:
Company:
Excess management expenses 4,830 3,488
Related to Share based payment transactions 13 -
IGL:
Petroliferous - Trading loss 156 17
Island Gas Operations Limited ("IGO"):
Trading loss 1,200 1,200
Not affecting deferred taxes, as they relate to undepreciated
capitalised costs**:
IGL:
Petroliferous - Minerals extraction allowances 4,644 1,386
* Deferred tax losses have not been recognised in respect of
temporary differences of Group companies whose future profits are
not considered sufficiently certain to offset these temporary
differences.
** As at 31 December 2010 no temporary difference arises as a
result of Minerals Extraction Allowances as they have not been
claimed and depreciation of the related capitalised costs has not
commenced (2009: nil).
In 2009 IGL was awarded a Field Development Plan and so
commenced a Petroliferous Trade (as defined for tax purposes),
which will enable it to offset its losses against any future
Petroliferous Trade profits. IGO's losses may only be offset
against future profits of IGO, if any. The tax losses have no
expiry date.
8 Earnings per share (EPS)
Basic EPS amounts are calculated by dividing the loss for the
year attributable to ordinary equity holders of the parent by the
weighted average number of Ordinary Shares outstanding during the
year.
Diluted EPS amounts are calculated by dividing the loss
attributable to the ordinary equity holders of the parent by the
weighted average number of shares outstanding during the year plus
the weighted average number of Ordinary Shares that would be issued
on the conversion of all the dilutive potential Ordinary Shares
into Ordinary Shares.
The following reflects the income and share data used in the
basic and diluted earnings per share computations:
2010 2009
Basic EPS - Ordinary Shares of 50p each (GBP) (0.0169)
(0.0076)
Diluted EPS - Ordinary Shares of 50p each (GBP) (0.0169)
(0.0076)
(Loss) for the year attributable to equity holders of the parent
- GBP000 (1,543) (504)
Weighted average number of Ordinary Shares in the year - basic
EPS 91,070,160 66,412,564
Weighted average number of Ordinary Shares in the year - diluted
EPS 91,070,160 66,412,564
There are 2,447,304 potentially dilutive warrants and options
over the Ordinary Shares at 31 December 2010 (2009: 440,450), which
are not included in the calculation of diluted earnings per share
because they were anti-dilutive for the year as their conversion to
Ordinary Shares would decrease the loss per share.
9 Intangible exploration and evaluation assets
2010 2009 GBP000 GBP000
Cost
At 1 January 1,334 476
Additions 3,310 858
At 31 December 4,644 1,334
Amortisation
At 1 January - -
Charge for the year, including impairment - -
At 31 December - -
Net book amount
At 31 December 4,644 1,334
At 1 January 1,334 476
Under certain agreements which the Group had in place with Nexen
Exploration U.K. Limited ("Nexen" and the "Nexen Carry Agreements")
as at 31 December 2010, Nexen provides 100% of the funding required
for work programmes up to a gross spend of GBP26.5 million. The
repayment to Nexen of any amounts carried under these arrangements
was dependent, on a licence by licence basis, on successful
operations yielding sufficient production to support repayment in
accordance with terms of the Nexen Carry Agreements. At 31 December
2010 GBP5.6 million had been carried (2009: GBP5.1 million), which
has not been recorded as either non-current assets or liabilities,
since to 31 December 2010 expenditure has been mainly related to
appraisal work and repayment was not then sufficiently certain.
On 5 August 2009 and 11 December 2009 the Group entered into
farm-up agreements with Nexen (the "Farm-up Agreements"), under
which the Group had agreed to meet 100% of certain costs incurred
in relation to certain licences, thereby discharging what, but for
these agreements, would have been Nexen's share of such licence
costs. The Group's commitment was for up to GBP2 million of gross
costs in the case of the agreement of 5 August 2009 and for GBP5
million of gross costs in the case of the agreement of 11 December
2009. In return the Group's interest in the Swallowcroft licences
in Staffordshire (excluding PEDL 78-2) rose from 20% to 35%, in the
Point of Ayr licences from 50% to 75% and in Northwest licences
from 20% to 35%.
10 Property, plant and equipment
Used for Fixtures,
Exploration fittings
and Evaluation and equipment Motor vehicles Total
GBP000 GBP000 GBP000 GBP000
Cost
At 1 January 2009
and 1 January
2010 - - - -
Additions 179 21 20 220
Disposals - - - -
At 31 December
2010 179 21 20 220
Accumulated
depreciation
At 1 January 2009
and 1 January
2010 - - - -
Charge for the
year 6 4 5 15
Disposals - - - -
At 31 December
2010 6 4 5 15
Carrying amount 173 17 15 205
At 31 December
2010
At 31 December - - - -
2009
11 Trade and other receivables
2010 2009 GBP000 GBP000
VAT recoverable 375 99
Trade debtors 61 114
Accrued income 73 -
Other debtors - 3
Prepayments 80 42
589 258
The carrying value of each of the Group's financial assets being
trade debtors is considered to be a reasonable approximation of its
fair value.
All of the Group's financial assets are from debtors of good
credit standing and have been reviewed for indicators of impairment
and no impairment provision was found to be required (2009:
GBPnil).
The maximum exposure to credit risk at the reporting date is the
carrying value of each class of assets listed in the table
above.
The trade debtor balance reported above is from one customer
which represents a concentration of credit risk.
Of the Group's financial assets as stated above GBP61 thousand
(2009: GBP114 thousand) were past due but not impaired at the
reporting date, of which the ageing was:
2010 2009 GBP000 GBP000
Not more than three months 61 50
More than three months but not more than six months - 64
More than six months but not more than one year - -
61 114
12 Cash and cash equivalents
2010 2009 GBP000 GBP000
Cash at bank and in hand 12,087 17,501
12,087 17,501
The carrying value of the Group's cash and cash equivalents as
stated above is considered to be a reasonable approximation of
their fair value.
The Group only deposits cash surpluses with major banks that
have acceptable credit ratings of "AA" or better, except that the
Group will make deposits with banks where the UK government is the
major shareholder.
13 Current liabilities
2010 2009 GBP000 GBP000
Trade and other payables:
Trade creditors 240 109
Employment related taxation 42 102
Deferred revenue - 89
Accruals and other creditors 515 631
797 931
The carrying value of each of the Group's financial liabilities
being trade creditors is considered to be a reasonable
approximation of its fair value. All creditors are payable within
one month and no creditors have been outstanding for longer than
three months (2009: all within one month).
14 Commitments
The Group's capital and lease commitments comprised:
2010 2009
GBP000 GBP000
--------------------------------------------------------- ------- ----------
Capital Commitments:
Obligation under 13(th) licensing round 1,000 1,000
Decommissioning 26 26
Less: Amounts covered by Nexen Carry Agreements (141) (637)
--------------------------------------------------------- ------- ----------
885 389
Obligation under the 11 December 2009 farm-up agreement
with Nexen 2,036 5,000
--------------------------------------------------------- ------- ----------
Total capital commitments 2,921 5,389
--------------------------------------------------------- ------- ----------
The Nexen Carry Agreements and the farm-up agreements
are as further described in note 9, including
the up to GBP2 million provided for by the first farm-up
agreement, which is not a firm binding commitment.
Operating lease commitments:
Minimum lease payments under operating leases recognised
in income for the year 63 35
--------------------------------------------------------- ------- ----------
At the balance sheet date the Group had outstanding
commitments for future minimum lease payments under
non cancellable operating leases, all falling due
in under one year 45 64
--------------------------------------------------------- ------- ----------
15 Financial instruments
The Group's financial instruments principally comprise cash at
bank, and various items such as trade debtors and creditors that
arise directly from operations. The main purpose of these financial
instruments is to provide finance for the Group's operations.
Financial assets and liabilities
The Group's policy is to ensure that adequate cash is available
and the Group does not trade in financial instruments and has not
entered into any derivative transactions.
Liquidity risk
Liquidity risk arises from the Group's management of working
capital and is the risk that the Group will not be able to meet its
financial obligations as they fall due. Cash forecasts and plans
are updated frequently and reviewed regularly by management and the
Board. The Groups liquidity requirements have been met principally
through the Nexen Carry Agreements and internal cash resources. The
Group has no long-term borrowings, and based on current projections
the Group has sufficient funds to meet current obligations as they
fall due. Details of the maturity dates of the Group's financial
liabilities are provided in note 13.
Interest rate risk profile of financial assets
Cash at bank earns interest at floating rates related to the
published rate of the bank.
Interest rate sensitivity analysis
The Group is exposed to interest rate risk from changes in
interest rates impacting future cash flows arising from its
financial instruments, principally cash balances held at the
balance sheet date. A sensitivity analysis has been performed to
demonstrate the sensitivity of financial assets and financial
liabilities to a reasonably possible change in interest rates
applied to a full year from the balance sheet date, assuming the
amount of the assets at balance sheet date are available for the
whole year. An increase/ decrease in interest rates of 50 basis
points, with all other variables held constant, results in an
decrease/ increase in the Group's loss before tax of GBP60 thousand
/GBP(60) thousand respectively (2009: decrease/ increase of GBP88
thousand /GBP(88) thousand). There is no effect on the Group's
equity other than the equivalent effect to that on loss before tax.
This is wholly attributable to the Group's exposure to interest
rates on its variable rate cash and cash equivalents.
Credit risk
The maximum exposure to credit risk is equal to the balances as
disclosed for trade debtors in note 11 and for cash in note 12.
Cash and Treasury
Cash and treasury credit risks are mitigated through the
exclusive use of institutions that carry published grade "AA" or
better credit ratings so as to minimise counterparty risk, except
that the Group will make deposits with banks where the United
Kingdom government is the major shareholder. GBP11.7 million (2009:
GBP16 million) of cash and cash equivalents is deposited with a
single institution.
Trade receivables
Trade receivables credit risks are mitigated by only dealing
with institutions that have investment grade credit ratings. GBP61
thousand (2009: GBP111 thousand) of trade receivables are due from
a single counterparty.
Capital management
The Group considers its capital to comprise its Ordinary Share
capital and share premium. In managing its capital, the Group's
primary objective is to ensure its continued ability to provide a
return to equity shareholders, principally through capital growth.
The Group currently has no borrowings. The Group's principal cash
source has been the issuance of share capital.
16 Share capital
On 31 December 2007 the Company completed a reverse takeover
whereby IGL became a wholly-owned subsidiary of the Company but
with IGL's shareholders acquiring 94% of the Ordinary Share capital
of the combined entity (the "Reverse").
In accordance with the required accounting for a reverse, the
nominal value of the Company's share capital is not reflected in
the Group's consolidated equity. For the purposes of the
consolidated accounts share capital was recorded at the date of the
Reverse at a value equal to the deemed cost of the Reverse, being
the adjusted market value of the Company as last quoted immediately
prior to the announcement of the Reverse, plus the equity of IGL;
the effective acquiring company.
Accordingly, share capital and the share capital account
comprised:
Ordinary Shares Deferred shares
GBP000 GBP000 No. Nominal value No. Nominal value
Authorised
1 January 2009, Ordinary Shares of 50p each 89,114,796
44,557
1 January 2009, Deferred Shares of .95p each : 46,589,662
443
10 December 2009 new Ordinary Shares created 22,916,667
11,459
31 December 2009 112,031,463 56,016 46,589,662 443
31 December 2010 112,031,463 56,016 46,589,662 443
Ordinary Shares Deferred shares
GBP000 GBP000 No. Nominal value No. Nominal value
Issued and fully paid
1 January 2009, Ordinary Shares of 50p each 62,329,642
31,165
14 July 2009 shares issued 5,766,666 2,883
10 December 2009 shares issued 22,916,667 11,459
31 December 2009, Ordinary Shares of 50p each 91,012,975 45,507
- -
23 April 2010 shares issued 82,500 41
26 October 2010 shares issued 2,013,956 1,007
31 December 2010, Ordinary Shares of 50p each 93,109,431 46,555
- -
GBP000
Share capital account
At 1 January 2009 4,275
Shares issued during the year 14,342
At 31 December 2009 18,617
Shares issued during the year 1,048
At 31 December 2010 19,665
The following share transactions took place since 1 January
2009:
-- 14 July 2009 - The Company issued 5,766,666 Ordinary 50p
Shares at a price of 60p each;
-- 10 December 2009 - The Company issued 22,916,667 Ordinary 50p
Shares at a price of 60p each;
-- 23 April 2010 - The Company issued 82,500 Ordinary 50p Shares
at a price of 55p each; and
-- 26 October 2010 - The Company issued 2,013,956 Ordinary 50p
shares at a price of 64.5p each
Deferred shares have no voting rights and shall not be entitled
to any dividends or any other right or participation in the profits
of the Group.
17 Share plan/warrant reserve
The Company has made equity settled share based payments, valued
as follows:
2010 2009 GBP000 GBP000
Directors:
Balance 1 January 131 167
Transfer to retained earnings/(accumulated deficit) account re
warrants (131) (36)
Employee share plans - cost under IFRS 2 63 -
Balance 31 December 63 131
Warrants
All warrants vested on grant and accordingly the key assumptions
made in arriving at the Black-Scholes valuations were: share price
on date of grant, adjusted for subsequent consolidations where
appropriate and the length of time for which the warrants were
expected to remain exercisable. A long-term risk free interest rate
of 5% and an implied volatility of 20% were used in valuing the
warrants at the time of granting. It was also assumed that no
dividends would be paid during the life of the warrants.
Movement in the Share warrant reserve during the year was as
follows:
2010 2009 Weighted Weighted average average exercise exercise
2010 price 2009 price No (pence) No (pence)
At 1 January 440,000 60 523,830 58
Exercised in Period (82,500) 55 - -
Lapsed in Period (357,500) 60 (83,830) 50
Outstanding at 31 December - 440,000 60
Exercisable at 31 December - 440,000 60
The weighted average remaining contractual life for the warrants
outstanding as at 31 December 2010 is nil (2009: 12 months) with no
maximum remaining term of options granted, (2009: 12 months).
Employee share plans - Equity settled
Long Term Incentive Plan ("LTIP")
In October 2010 the Company adopted a Long Term Incentive Plan
scheme for certain key employees of the Group. Under the LTIP,
participants can each be granted nil cost options over up to 1.5%
of the issued share capital of the Company (subject to an overall
plan limit of 7.5% of the issued share capital of the Company for
all participants). The LTIP has a three year performance period and
awards vest subject to the achievement of stretching share price
targets. On a change of control prior to the third anniversary of
the grant date, a revised share price target reflecting the
reduction in the performance period shall instead be used to
determine the extent to which LTIP options vest. Other than on a
change of control, 50% of vested awards can be exercised and sold
on vesting, with the remaining 50% becoming exercisable on the
first anniversary of vesting.
Details of the LTIPs outstanding during the year are as
follows:
2010 2009
Weighted Weighted
average average
exercise exercise
Number price price
of LTIPs (in GBP) LTIPs (in GBP)
Outstanding at beginning of year - - - -
Granted during the year 1,125,000 nil - -
Forfeited during the year - - - -
Exercised during the year - - - -
Outstanding at the end of the year 1,125,000 nil - -
Exercisable at the end of the year - - - -
There were no LTIPs exercised during the year. The LTIPs
outstanding at 31 December 2010 had both a weighted average
remaining contractual life and maximum term remaining of 9.75
years.
The total charge for the year was GBP6 thousand. Of this amount,
GBP2 thousand was capitalised and GBP4 thousand was charged to the
income statement in relation to the fair value of the awards
granted under the LTIP scheme measured at grant date using a Monte
Carlo Simulation Model.
The inputs into the Monte Carlo model were as follows:
2010
Weighted average share price 64.5p
Weighted average exercise price Nil
Expected volatility 35%
Expected life 6.5 years
Risk-free rate 1.09%
Expected dividends 0%
The expected life is the period from date of grant to the
assumed exercise date. Expected volatility was determined by
calculating the historical volatility of the Company's share price.
The weighted average fair value of the awards granted in 2010 was
6p (2009: nil).
Share Option plan
In October 2010 the Company adopted a Share option plan for
certain key employees of the Group. Both executives and employees
may participate in the Share Option Plan. Typically each individual
participant can be granted options under the Share Option Plan with
a market value at grant of up to 100% of his base salary, although
this limit can be exceeded in exceptional circumstances.Share
options vest in three equal tranches over a three year period from
the date of grant and vested options are exercisable subject to the
attainment of a Company share price target.
2010 grants under the Share Option Plan are subject to an
exercise price of 70p per share.
Details of the Share options outstanding during the year are as
follows:
2010 2009
Weighted Weighted
average average
Number exercise Number exercise
of share price of share price
options (in GBP) options (in GBP)
Outstanding at beginning of year - - - -
Granted during the year 1,322,204 0.70 - -
Forfeited during the year - - - -
Exercised during the year - - - -
Outstanding at the end of the
year 1,322,204 0.70 - -
Exercisable at the end of the - - - -
year
There were no Options exercised during the year. The unvested
Options outstanding at 31 December 2010 had both a weighted average
remaining contractual life and maximum remaining term of 9.75
years.
The total charge for the year was GBP57 thousand. Of this
amount, GBP24 thousand was capitalised and GBP33 thousand was
charged to the income statement in relation to the fair value of
the awards granted under the Share Option scheme measured at grant
date using a Monte Carlo Simulation Model.
The inputs into the Monte Carlo model are as follows:
2010
Weighted average share price 64.5p
Weighted average exercise price Nil
Expected volatility 35%
5 - 6.5
Expected life years
Risk-free rate 1.09%
Expected dividends 0%
The expected life is the period from date of grant to the
assumed exercise date. Expected volatility was determined by
calculating the historical volatility of the Company's share price.
The weighted average fair value of the awards granted in 2010 was
12p (2009: nil).
18 Other reserves
-- Share premium account - The share premium account of the
Group arises from the capital that the Company raises upon issuing
shares for consideration in excess of the nominal value of the
shares net of the costs of issuing the new shares. During the year
the Company issued 82,500 and 2,013,956 Ordinary 50p Shares at a
price of 55p and 64.5p each (2009: 28,683,333 Ordinary 50p Shares
at a price of 60p each). The cost of the issue was nil (2009:
GBP1,121 thousand). Together these events resulted in a net
movement in the Share Premium reserve of GBP297 thousand (2009:
GBP1,783 thousand).
-- Treasury shares - The Treasury shares of the Group has arisen
in connection with the shares issued to the IGas Employee Benefit
Trust, of which the Company is the sponsoring entity. The value of
such shares is recorded in share capital and share premium account
in the ordinary way and is also shown as a deduction from equity in
this separate other reserve account; and so there is not net effect
on shareholders" funds. During the period 2,013,956 shares were
issued to the Employee Benefit Trust.
-- Retained earnings/(accumulated deficit) - This represents the
historic accumulated losses less profits made by the Group
accounted for under reverse accounting as explained in Note 1(m)
and from transfers from the Share plan/warrant reserve, when
warrants lapse.
19 Related party transactions
Key management personnel
There are no key management personnel other than Directors of
the Company.
2010 2009 GBP000 GBP000
Short-term employee benefits 854 746
Share plan 22 -
876 746
Short-term employee benefits
These amounts comprise fees paid to the Directors in respect of
salary and benefits earned during the relevant financial year, plus
bonuses awarded for the year.
Share plan
This is the cost to the Group of Directors' participation in
LTIPs and Share Option plans, as measured by the fair value of
LTIPs and options granted, accounted for in accordance with IFRS
2.
Further details regarding transactions with the Directors of the
Group are disclosed in Note 5.
There are no other related party transactions.
20 Subsequent events
On 9 March 2011, the Company acquired the entire issued share
capital of Nexen Exploration UK Limited (renamed IGas Exploration
Limited) for a consideration of GBP25.6 million (the
"Acquisition"). 39,714,290 new ordinary shares of 50p were allotted
to Nexen Petroleum U.K. Limited credited as fully paid in
consideration for the Acquisition. The acquisition is aligned with
the Group's strategy by securing 100% ownership of assets and
operatorship through the purchase of Nexen Exploration UK
Limited.
The Company raised gross proceeds of GBP20.625 million for
27,500,000 new ordinary 50p shares when the Acquisition became
unconditional on 9 March 2011.
Following completion of the Placing and the Acquisition, the
Company's current issued share capital is 160,323,721 ordinary
shares.
On 22 March 2011, A Austin disposed of 770,000 shares.
Parent Company financial statements - Directors' statement of
responsibilities in respect thereof
The Directors are responsible for preparing the Annual Report
and Parent Company financial statements in accordance with
applicable United Kingdom law and those International Financial
Reporting Standards as adopted by the European Union ("IFRSs").
Under Company Law the directors must not approve the Group
financial statements unless they are satisfied that they present
fairly the financial position of the Parent Company and its
financial performance and cash flows for that period. In preparing
the Parent Company financial statements the Directors are required
to:
-- select suitable accounting policies in accordance with IAS 8:
Accounting policies, Changes in Accounting Estimates and Errors and
then apply them consistently;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRSs is insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the Parent Company's financial position and financial
performance;
-- state that the Parent Company has complied with IFRSs,
subject to any material departures disclosed and explained in the
financial statements; and
-- make judgments and estimates that are reasonable and
prudent.
The Directors are responsible for keeping proper accounting
records that disclose with reasonable accuracy at any time the
financial position of the Parent Company and to enable them to
ensure that the financial statements comply with the Companies Act
2006. They are also responsible for safeguarding the assets of the
Parent Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors confirm that they have complied with these
requirements and, having a reasonable expectation that the Group
has adequate resources to continue in operational existence for the
foreseeable future, will continue to adopt the going concern basis
in preparing the accounts
Independent auditor's report to the members of IGas Energy
plc
We have audited the parent company financial statements of IGas
Energy plc for the year ended 31 December 2010 which comprise the
Parent Company Statement of Comprehensive Income, the Parent
Company Balance Sheet, the Parent Company Statement of Changes in
Equity, the Parent Company Cash Flow Statement and the related
notes 1 to 14. The financial reporting framework that has been
applied in their preparation is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European
Union and as applied in accordance with the provisions of the
Companies Act 2006.
This report is made solely to the company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
Respective responsibilities of directors and auditors
As explained more fully in the Directors' Responsibilities
Statement set out on page 43, the directors are responsible for the
preparation of the parent company financial statements and for
being satisfied that they give a true and fair view. Our
responsibility is to audit and express an opinion on the parent
company financial statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board's
(APB's) Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the parent company's circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the directors; and the
overall presentation of the financial statements. In addition, we
read all the financial and non-financial information in the Annual
Report to identify material inconsistencies with the audited
financial statements. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for
our report.
Opinion on financial statements
In our opinion the parent company financial statements:
-- give a true and fair view of the state of the company's
affairs as at 31 December 2010;
-- have been properly prepared in accordance with IFRSs as
adopted by the European Union and as applied in accordance with the
provisions of the Companies Act 2006; and
-- have been prepared in accordance with the requirements of the
Companies Act 2006.
Opinion on other matters prescribed by the Companies Act
2006
In our opinion the information given in the Directors' Report
for the financial year for which the financial statements are
prepared is consistent with the parent company financial
statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if, in
our opinion:
-- adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
-- the parent company financial statements and are not in
agreement with the accounting records and returns; or
-- certain disclosures of directors' remuneration specified by
law are not made; or
-- we have not received all the information and explanations we
require for our audit.
Other matter
We have reported separately on the group financial statements of
IGas Energy plc for the year ended 31 December 2010.
Gary Donald (Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP, Statutory
Auditor
London
20 May 2011
Parent Company statement of comprehensive income
For the year ended 31 December 2010
20010 2009 GBP000 GBP000
Loss for the year (1,401) (500)
Other comprehensive income for the year - -
Total comprehensive loss for the year (1,401) (500)
Parent Company balance sheet
As at 31 December 2010
2010 2009 Notes GBP000 GBP000
Non-current assets
Investments in subsidiaries 2 50,555 50,512
Property, plant and equipment 3 32 -
Loans to subsidiaries 4 5,013 436
55,600 50,948
Current assets
Trade and other receivables 4 289 102
Cash and cash equivalents 5 11,772 17,485
12,061 17,587
Current liabilities
Trade and other payables 6 (530) (112)
(530) (112)
Net current assets 11,531 17,475
Total assets less current liabilities 67,131 68,423
Net assets 67,131 68,423
Capital and reserves
Called up share capital 10 46,555 45,507
Merger reserve 12 22,222 22,222
Share premium account 12 6,392 6,095
Share plan/warrant reserve 11 63 131
Treasury shares 11 (1,299) -
Retained earnings (accumulated deficit) (6,802) (5,532)
Shareholders' funds 67,131 68,423
These financial statements were approved and authorised for
issue by the Board on 20 May 2011 and are signed on its behalf
by:
Francis Gugen Andrew Austin
Chairman Chief Executive Officer
Parent Company statement of changes in equity
For the year ended 31 December 2010
Retained
Called up Share Share Treasury earnings share capital Merger
premium plan/warrant shares (accumulated (Note 10) reserve account
reserve deficit) Total GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
GBP000
Balance at 1 January 2009 31,165 22,222 4,312 167 - (5,032)
52,834
Changes in equity for 2009
Loss for the year - - - - - (500) (500)
Transfers to Share premium account - - 36 (36) - - -
Issue of shares: 14,342 - 2,868 - - - 17,210
Share issue costs - - (1,121) - - - (1,121)
Balance at 31 December 2009 45,507 22,222 6,095 131 - (5,532)
68,423
Changes in equity for 2010
Loss for the year - - - - - - (1,401) (1,401)
Lapse of warrants - - - (131) - 131 -
Employee share plans cost under IFRS2 (note 11) - - - 63 - -
63
Issue of shares 1,048 - 297 - (1,299) - 46
Balance at 31 December 2010 46,555 22,222 6,392 63 (1,299)
(6,802) 67,131
Parent Company cash flow statement
For the year ended 31 December 2010
2010 2009 Notes GBP000 GBP000
Operating activities:
Loss for the year (1,401) (500)
Depreciation, depletion and amortisation 9 -
Share based payment charge 20 -
Finance income (170) (11)
(Increase)/decrease in trade and other receivables (86) 37
Increase/(decrease) in trade and other payables 418 (140)
Decrease in creditors due after one year - -
Net cash used in operating activities (1,210) (614)
Investing activities
Acquisition of property, plant and equipment (41) -
Loans granted to subsidiaries (4,678) (211)
Interest received 170 11
Net cash used investing activities (4,549) (200)
Financing activities
Cash proceeds from issue of Ordinary Share Capital 10 46
17,210
Share issue costs 10 - (1,121)
Net cash from financing activities 46 16,089
Net (decrease)/increase in cash and cash equivalents in the year
(5,713) 15,275
Cash and cash equivalents at the beginning of the year 17,485
2,210
Cash and cash equivalents at the end of the year 5 11,772
17,485
Parent Company financial statements - notes
As at 31 December 2010
1 Accounting policies
(a) Basis of preparation of financial statements
The Parent Company financial statements of IGas Energy plc (the
"Company") have been prepared under the historical cost convention
in accordance with International Financial Reporting Standards,
adopted for use by the European Union ("IFRSs") as they apply to
the Company for the year ended 31 December 2010, and with the
Companies Act 2006. The financial statements were approved and
authorised for issue by the Board of Directors on 20 May 2011. IGas
Energy plc is a public limited company incorporated and registered
in England and Wales.
The Company's financial statements are presented in UK pound
sterling and all values are rounded to the nearest thousand
(GBP000) except when otherwise indicated.
As a Consolidated income statement is published in this Annual
Report, a separate income statement for the Company is not
presented within these financial statements as permitted by Section
408 of the Companies Act 2006.
During the year, the Company adopted the following new and
amended IFRS which were applicable to the Company's activities as
of 1 January 2010.
International Accounting Standards (IFRS/IAS):
IFRS 2 Amendment to IFRS 2 - Cash-settled Share-based 1 January
Payment Transactions - This amendment clarifies 2010
that there shall now be included transactions
where the transfer of cash or other assets is
based on the price (or value) of the equity
instruments of another group entity. The Company
has considered the effect of this interpretation
and has concluded that it is not expected to
have any impact on the financial statements.
Certain new standards, interpretations and amendments to
existing standards have been published and are mandatory only for
the Company's accounting periods beginning on or after 1 January
2011 or later periods but which the Group has not adopted early.
Those that may be applicable to the Company in future are as
follows:
Effective date
International Accounting Standards (IFRS/IAS)
IAS 24 Amendment to IAS 24 - Related Party Disclosures 1 January
- This amendment clarifies the definition of 2011
a related party to simplify the identification
of such relationships and to eliminate inconsistencies
in its application. The revised standard introduces
a partial exemption of disclosure requirements
for government-related entities.
IFRS 9 IFRS 9 - Financial Instruments: Classification 1 January
and Measurement - IFRS 9 as issued reflects 2013
the first phase of the IASBs work on the replacement
of IAS 39 and applies to classification and
measurement of financial assets as defined in
IAS 39. The standard is effective for annual
periods beginning on or after January 2013.
In subsequent phases, the IASB will address
classification and measurement of financial
liabilities, hedge accounting and derecognition.
The completion of this project is expected in
early 2011. The adoption of the first phase
of IFRS 9 will have an effect on the classification
and measurement of the Group's financial assets.
The Group will quantify the effect in conjunction
with the other phases, when issued, to present
a comprehensive picture.
The Directors do not anticipate that the adoption of these
standards and interpretations will either individually or
collectively have a material impact on the Group's financial
statements in the period of initial application. The Group does not
anticipate adopting these standards and interpretations ahead of
their effective date.
Improvements to IFRS
In May 2010 the IASB issued an omnibus of amendments to its
standards. The amendments have not been adopted as they become
effective for annual periods starting on or after either 1 July
2010 or 1 January 2011.
-- IFRS 7 Financial Instruments: Disclosures
-- IAS 1 Presentation of Financial Statements
None of the amendments that are effective for the year ended 31
December 2010 had any impact on the accounting policies, financial
position or performance of the Company. None of the amendments that
are effective for the year beginning 1 January 2011are expected to
have any impact on the accounting policies, financial position or
performance of the Company.
(b) Going concern
After reviewing the Company's budgets and cash flow projections
for 2011 and 2012, and taking into consideration the acquisition of
Nexen Exploration UK Ltd and the placing in March 2011, the current
operating environment, the risks and the company's liquidity risk
management outlined in Note 9, the Directors are satisfied that the
Company has adequate resources to continue in business as a going
concern. It is therefore appropriate to adopt the going concern
basis in preparing the 2010 Annual Report and Financial
Statements.
(c) Significant accounting estimates
The principal activity of the Company's major subsidiary, IGL,
which has been accounted for at fair value at acquisition less
provision for impairment, is Coal Bed Methane ("CBM").
The key assumptions concerning the future and other key sources
of estimation uncertainty at the balance sheet date, that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year
are discussed below:
-- Carrying value of investment in subsidiaries: The Company
evaluates investments in subsidiaries that have been accounted for
at fair value at acquisition less provision for impairment as
described in (d) below. Any impairment review, where required,
involves estimates and associated assumptions related to matters
(when appropriate), such as recoverable reserves; production
profiles; review of forward gas and electricity prices;
development, operational and offtake costs; nature of land access
agreements and planning permissions; application of taxes, and
other matters. Where the final outcome or revised estimates related
to such matters differ from the estimates used in any earlier
impairment reviews, the results of such differences, to the extent
that they actually affected any impairment provisions, are
accounted for when such revisions are made. Details of the
Company's investments are disclosed in note 2.
(d) Non-current assets
Investments in subsidiaries
Investments held as non-current assets are held at cost less
provision for impairment unless the investments were acquired in
exchange for the issue or part issue of shares in the Company, when
they are initially recorded in the Company's balance sheet at the
fair value of the shares issued together with the fair value of any
consideration paid, including costs of acquisition less any
provision for impairment which may subsequently be required.
The Company's investments held as non-current assets are
assessed for impairment whenever events or changes in circumstances
indicate that the carrying value of an asset may not be
recoverable, when impairment is calculated on the basis as set out
below. Any impairment in is charged to the income statement.
Impairment
Impairment reviews, when required as described above, are
carried out on the following basis:
-- By comparing any amounts carried as investments held as
non-current assets with the recoverable amount.
-- The recoverable amount is the higher of an asset's fair value
less costs to sell and its value in use. The Company generally
relies on fair value less cost to sell assessed either by reference
to comparable market transactions between a willing buyer and a
willing seller or on the same basis as used by willing buyers and
sellers in the oil and gas industry. When assessing value in use,
the estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to
the asset or cash-generating unit.
Where there has been a charge for impairment in an earlier
period that charge will be reversed in a later period where there
has been a change in circumstances to the extent that the
recoverable amount is higher than the net book value at the time.
In reversing impairment losses, the carrying amount of the asset
will be increased to the lower of its original carrying value and
the carrying value that would have been determined had no
impairment loss been recognised in prior periods.
Property, plant and equipment
Other property, plant and equipment is stated at cost less
accumulated depreciation. Depreciation is provided at rates
calculated to write off the cost of fixed assets, less their
estimated residual values, over their estimated useful lives at the
following rates, with any impairment being accounted for as
additional depreciation:
Computer equipment - over three years on a straight line
basis
Motor Vehicles - over four years on a straight line basis
Furniture and fixtures - over five years on a straight line
basis
(e) 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 receivables are initially recognised at fair value when
related amounts are invoiced, 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
received.
Impairment of financial assets
In relation to trade receivables, 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 the
receivable is reduced through use of an allowance account. Impaired
debts are derecognised when they are assessed as uncollectible.
(f) Leases
The determination of whether an arrangement is, or contains a
lease is based on the substance of the arrangement at inception
date including whether the fulfilment of the arrangement is
dependent on the use of a specific asset or assets or the
arrangement conveys a right to use the asset.
Operating leases
Rentals are charged to the Income Statement in the year on a
straight line basis over the period of the lease.
(g) Taxation
The tax expense represents the sum of current tax and deferred
tax.
Current income tax assets and liabilities for the current and
prior periods are measured at the amount expected to be recovered
or paid to the tax authorities. Taxable (loss)/profit differs from
the (loss)/profit before taxation as reported in the Income
Statement because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes items
that are never taxable or deductible. The Company's liability for
current tax is calculated using tax rates that have been enacted or
substantively enacted by the balance sheet date.
Deferred tax is recognised in respect of all temporary
differences that have originated but not reversed at the balance
sheet date. Temporary differences arise from the inclusion of items
of income and expenditure in taxation computations in periods
different from those in which they are included in the financial
statements. Deferred tax liabilities are not discounted. Deferred
tax assets are recognised to the extent that it is regarded as more
likely than not that they will be recovered.
(h) Share based payments
Where share options or warrants are awarded to employees
(including Directors), the fair value of the options or warrants at
the date of the grant is recorded in equity over the vesting
period. Non-market vesting conditions, but only those related to
service and performance, are taken into account by adjusting the
number of equity instruments expected to vest at each balance sheet
date so that, ultimately, the cumulative amount recognised over the
vesting period is based on the number of options that eventually
vest. All other vesting conditions, including Market vesting
conditions, are factored in to the fair value of the options or
warrants granted. As long as all other vesting conditions are
satisfied, the amount recorded is computed irrespective of whether
the market vesting conditions are satisfied. The cumulative amount
recognised is not adjusted for the failure to achieve a market
vesting condition; although equity no longer required for options
or warrants may be transferred to another equity reserve.
Where the terms and conditions of options or warrants are
modified before they vest, the increase in the fair value of the
options, measured immediately before and after the modification, is
also recorded in equity over the remaining vesting period.
Where equity instruments are granted to persons other than
employees, the amount recognised in equity is the fair value of
goods and services received.
Charges corresponding to the amounts recognised in equity are
accounted as a cost against the profit and loss which will usually
be to the parent company Income Statement unless the services
rendered (and discharged by share based payments) relate to an
issuance of equity or qualify for capitalisation as a non-current
asset. In the case of an issuance of equity, the charge is to the
same equity reserve as cash costs related to such an issuance would
be charged. Costs may be capitalised within non-current assets in
the event of services being rendered in connection with an
acquisition or intangible exploration and evaluation assets or
property, plant and equipment.
Where shares are issued to an Employee Benefit Trust, and the
Company is the sponsoring entity, the value of such shares at issue
will be recorded in share capital and share premium account in the
ordinary way, but will not affect shareholders' funds since this
same value will be shown as a deduction from shareholders' funds by
way of a separate component of equity (Treasury shares).
(i) 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, share premium accounts or merger
reserve as appropriate.
(j) Foreign Currency
Transactions denominated in currencies other than the functional
currency UK pound sterling 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.
2 Non-current assets - investments in subsidiaries
Investments in subsidiaries comprises:
GBP000
At 1 January 2009 50,512
Acquisition in the year, at fair value _
Employee share based payment cost under IFRS 2 43
Disposals in the year -
At 31 December 2009 50,555
At 31 December 2010 50,555
The subsidiary undertakings of the Company at 31 December 2010
and 2009 which are all 100% owned directly by the Company and are
all incorporated in England and Wales, were:
Name Principal activity
Island Gas Limited Production and marketing of unconventional
gas , including Coal Bed Methane
Island Gas Operations Limited Electricity Generation
3 Property, plant and equipment
Fixtures,
fittings
and equipment Motor vehicles Total
GBP000 GBP000 GBP000
Cost
At 1 January 2009 and 1 January
2010 - - -
Additions 21 20 41
Disposals - - -
At 31 December 2010 21 20 41
Accumulated depreciation
At 1 January 2009 and 1 January
2010 - - -
Charge for the year 4 5 9
Disposals - - -
At 31 December 2010 4 5 9
Carrying amount 17 15 32
At 31 December 2010
At 31 December 2009 - - -
4 Trade and other receivables
2010 2009 GBP000 GBP000
Amounts falling due within one year:
VAT recoverable 131 59
Other debtors 2 3
Amounts due from subsidiary undertakings 101 -
Prepayments 55 40
289 102
Amounts falling due after more than one year:
Amounts due from subsidiary undertakings 5,013 436
5,013 436
The carrying value of each of the Company's financial assets as
stated above being amounts due from subsidiary undertakings is
considered to be a reasonable approximation of its fair value.
All of the Company's financial assets are from debtors of good
credit standing and have been reviewed for indicators of impairment
and no impairment provision was found to be required (2009:
GBPnil).
The maximum exposure to credit risk at the reporting date is the
carrying value of each class of assets listed in the table
above.
The financial assets reported above are from the Company's
subsidiary undertakings which represents a concentration of credit
risk.
5 Cash and cash equivalents
2010 2009 GBP000 GBP000
Cash at bank and in hand 11,772 17,485
11,772 17,485
The carrying value of the Company's cash and cash equivalents as
stated above is considered to be a reasonable approximation of
their fair value.
The Company only deposits cash surpluses with major banks that
have acceptable credit ratings of "AA" or better, except that the
Company will make deposits with banks where the UK government is
the major shareholder.
6 Current liabilities
2010 2009 GBP000 GBP000
Trade and other payables:
Trade creditors 76 32
Taxation and social security 42 -
Accruals and other creditors 412 80
530 112
The carrying value of each of the Company's financial
liabilities being trade creditors is considered to be a reasonable
approximation of its fair value. All creditors are payable within
one month and no creditor has been outstanding for longer than
three months (2009: all within one month).
7 Taxation
Tax losses, none of which is considered sufficiently certain of
utilisation to set up deferred tax assets, amount to:
2010 2009 GBP000 GBP000
Trading loss - -
Excess management expenses 4,830 3,488
Related to share based payment transactions 13 -
Excess management expenses may only be offset against future
profits, if any, of the Company generated in its capacity as a
Group holding company.
8 Commitments
At the balance sheet date the Company had outstanding
commitments for future minimum lease payments under non cancellable
operating leases, all falling due in under one year of GBP45
thousand (2009: GBP48 thousand).
9 Financial instruments
The Company's financial instruments principally comprise cash at
bank, and various items such as trade debtors and creditors that
arise directly from operations. The main purpose of these financial
instruments is to provide finance for the Company's operations.
Financial assets and liabilities
The Company's policy is to ensure that adequate cash is
available and the Company does not trade in financial instruments
and has not entered into any derivative transactions.
Liquidity risk
Liquidity risk arises from the Company's management of working
capital and is the risk that the Company will not be able to meet
its financial obligations as they fall due. Cash forecasts and
plans are updated frequently and reviewed regularly by management
and the Board. The Company's liquidity requirements have been met
principally through internal cash resources. The Company has no
long-term borrowings, and based on current projections the Company
has sufficient funds to meet current obligations as they fall due.
Details of the maturity dates of the Company's financial
liabilities are provided in note 6.
Interest rate risk profile of financial assets
Cash at bank earns interest at floating rates related to the
published rate of the bank.
Interest rate sensitivity analysis
The Company is exposed to interest rate risk from changes in
interest rates impacting future cash flows arising from its
financial instruments, principally cash balances held at the
balance sheet date. A sensitivity analysis has been performed to
demonstrate the sensitivity of financial assets and financial
liabilities to a reasonably possible change in interest rates
applied to a full year from the balance sheet date, assuming the
amount of the assets at balance sheet date are available for the
whole year. An increase/ decrease in interest rates of 50 basis
points, with all other variables held constant, results in a
decrease/ increase in the Company's loss before tax of GBP59
thousand /GBP(59) thousand respectively (2009: decrease/ increase
of GBP87 thousand /GBP(87) thousand). There is no effect on the
Company's equity other than the equivalent effect to that on loss
before tax. This is wholly attributable to the Company's exposure
to interest rates on its variable rate cash and cash
equivalents.
Credit risk
The maximum exposure to credit risk is equal to the balances as
disclosed for amounts due from subsidiary undertakings in note 4
and cash in note 5.
Cash and Treasury
Cash and treasury credit risks are mitigated through the
exclusive use of institutions that carry published grade "AA" or
better credit ratings so as to minimise counterparty risk, except
that the Company will make deposits with banks where the United
Kingdom government is the major shareholder. GBP11.7 million (2009:
GBP16 million) of cash and cash equivalents is deposited with a
single institution.
Trade receivables
Trade receivables credit risks are mitigated by only dealing
with institutions that have investment grade credit ratings or that
are subsidiaries where risks are managed as explained in the
Directors Report under the heading "Principal risks and
uncertainties" on page 17.
Capital management
The Company considers its capital to comprise its ordinary share
capital and share premium. In managing its capital, the Company's
primary objective is to ensure its continued ability to provide a
return to equity shareholders, principally through capital growth.
The Company currently has no borrowings. The Company's principle
cash sources have been the issuance of share capital.
10 Share capital
Ordinary Shares Deferred shares
GBP000 GBP000 No. Nominal value No. Nominal value
Authorised
1 January 2009, Ordinary Shares of 50p each 89,114,796
44,557
1 January 2009, Deferred shares of .95p each 46,589,662 443
10 December 2010 new Ordinary Shares created 22,916,667
11,459
31 December 2009 112,031,463 56,016 46,589,662 443
31 December 2010 112,031,463 56,016 46,589,662 443
Ordinary Shares Deferred shares
GBP000 GBP000 No. Nominal value No. Nominal value
Issued and fully paid
1 January 2009, Ordinary Shares of .50p each 62,329,642
31,165
14 July 2009 shares issued 5,766,666 2,883
10 December 2009 shares issued 22,916,667 11,459
31 December 2009, Ordinary Shares of 50p each 91,012,975
45,507
23 April 2010 shares issued 82,500 41 - -
26 October 2010 shares issued 2,013,956 1,007
31 December 2010, Ordinary Shares of 50p each 93,109,431 46,555
- -
The following share transactions took place since 1 January
2009:
-- 14 July 2009 - The Company issued 5,766,666 Ordinary 50p
Shares at a price of 60p each;
-- 10 December 2009 - The Company issued 22,916,667 Ordinary 50p
Shares at a price of 60p each;
-- 23 April 2010 - The Company issued 82,500 Ordinary 50p Shares
at a price of 55p each; and
-- 26 October 2010 - The Company issued 2,013,956 Ordinary 50p
shares at a price of 64.5p each
The costs of all share issues have all been charged to the share
premium account and are as disclosed in the parent company
statement of changes in equity.
Deferred shares have no voting rights and shall not be entitled
to any dividends or any other right or participation in the profits
of the Company.
11 Share plan/warrant reserve
The Company has made equity settled share based payments, valued
as follows:
2010 2009 GBP000 GBP000
Balance 1 January 131 167
Transfers to Share Premium re: warrants (131) (36)
Employee share based payment cost under IFRS 2 63 -
Balance 31 December 63 131
Warrants
All warrants vested on grant and accordingly the key assumptions
made in arriving at the Black-Scholes valuations were: share price
on date of grant, adjusted for subsequent consolidations where
appropriate and the length of time for which the warrants will
remain exercisable. A long-term risk free interest rate of 5% and
an implied volatility of 20% were used in valuing the warrant at
the time of granting. It was also assumed that no dividends would
be paid during the life of the warrants.
Movements in warrants during the year were as follows:
2010 2009 Weighted Weighted average average exercise exercise
2010 price 2009 price No (pence) No (pence)
At 1 January 440,000 60 523,830 58
Exercised in Period (82,500) 55 - -
Lapsed in Period (357,500) 60 (83,830) 50
Outstanding at 31 December - - 440,000 60
Exercisable at 31 December - - 440,000 60
The weighted average remaining contractual life for the warrants
outstanding as at 31 December 2010 is nil (2009: 12 months) with no
maximum remaining term of options granted, (2009: 12 months).
Employee share plans - Equity settled
Long Term Incentive Plan ("LTIP")
In October 2010 the Company adopted a Long Term Incentive Plan
scheme for certain key employees of the Group. Under the LTIP,
participants can each be granted nil cost options over up to 1.5%
of the issued share capital of the Company (subject to an overall
plan limit of 7.5% of the issued share capital of the Company for
all participants). The LTIP has a three year performance period and
awards vest subject to the achievement of stretching share price
targets. On a change of control prior to the third anniversary of
the grant date, a revised share price target reflecting the
reduction in the performance period shall instead be used to
determine the extent to which LTIP options vest. Other than on a
change of control, 50% of vested awards can be exercised and sold
on vesting, with the remaining 50% becoming exercisable on the
first anniversary of vesting.
Details of the LTIPs outstanding during the year were as
follows:
2010 2009
Weighted Weighted
average average
exercise exercise
Number price price
of LTIPs (in GBP) LTIPs (in GBP)
Outstanding at beginning of year - - - -
Granted during the year 1,125,000 nil - -
Forfeited during the year - - - -
Exercised during the year - - - -
Outstanding at the end of the year 1,125,000 nil - -
Exercisable at the end of the year - - - -
There were no LTIPs exercised during the year. The LTIPs
outstanding at 31 December 2010 had both a weighted average
remaining contractual life and maximum remaining term of 9.75
years.
The total charge for the year was GBP6 thousand. Of this amount,
GBP3 thousand was charged to the subsidiary and GBP3 thousand was
charged to the income statement in relation to the fair value of
the awards granted under the LTIP scheme measured at grant date
using a Monte Carlo Simulation Model.
The inputs into the Monte Carlo model are as follows:
2010
Weighted average share price 64.5p
Weighted average exercise price Nil
Expected volatility 35%
Expected life 6.5 years
Risk-free rate 1.09%
Expected dividends 0%
The expected life is the period from date of grant to the
assumed exercise date. Expected volatility was determined by
calculating the historical volatility of the Company's share price.
The weighted average fair value of the awards granted in 2010 was
6p (2009: nil).
Share Option plan
In October 2010 the Company adopted a Share option plan for
certain key employees of the Group. Both executives and employees
may participate in the Share Option Plan. Typically each individual
participant can be granted options under the Share Option Plan with
a market value at grant of up to 100% of his base salary, although
this limit can be exceeded in exceptional circumstances.Share
options vest in three equal tranches over a three year period from
the date of grant and vested options are exercisable subject to the
attainment of a Company share price target.
2010 grants under the Share Option Plan are subject to an
exercise price of 70p per share.
Details of the Share options outstanding during the year are as
follows:
2010 2009
Weighted Weighted
average average
Number exercise Number exercise
of share price of share price
options (in GBP) options (in GBP)
Outstanding at beginning of year - - - -
Granted during the year 1,322,204 0.70 - -
Forfeited during the year - - - -
Exercised during the year - - - -
Outstanding at the end of the
year 1,322,204 0.70 - -
Exercisable at the end of the
year - 0.70 - -
There were no Options exercised during the year. The unvested
Options outstanding at 31 December 2010 had both a weighted average
remaining contractual life and maximum remaining term of 9.75
years.
The total charge for the year was GBP57 thousand. Of this
amount, GBP40 thousand was charged to the subsidiary and GBP17
thousand was charged to the income statement in relation to the
fair value of the awards granted under the Share Option scheme
measured at grant date using a Monte Carlo Simulation Model.
The inputs into the Monte Carlo model are as follows:
2010
Weighted average share price 64.5p
Weighted average exercise price Nil
Expected volatility 35%
5 - 6.5
Expected life years
Risk-free rate 1.09%
Expected dividends 0%
The expected life is the period from date of grant to the
assumed exercise date. Expected volatility was determined by
calculating the historical volatility of the Company's share price.
The weighted average fair value of the awards granted in 2010 was
12p (2009: nil).
12 Other reserves
-- Merger reserve - The merger reserve arose as a result of a
reverse acquisition on 31 December 2007 whereby IGL became a wholly
owned subsidiary of the Company but with IGL's shareholders
acquiring 94% of the Ordinary Share Capital of the Company. The
reserve represents the difference in the fair value and the nominal
value of the shares issued. The reserve is not distributable.
-- Share Premium account - The share premium account of the
Company arises from the capital that the Company raises upon
issuing shares for consideration in excess of the nominal value of
the shares net of the costs of issuing the new. During the year the
Company issued 82,500 and 2,013,956 Ordinary 50p Shares at a price
of 55p and 64.5p each (2009: 28,683,333 Ordinary 50p Shares at a
price of 60p each). The cost of the issue was nil (2009: GBP1,121
thousand). Together these events resulted in a net movement in the
Share Premium reserve of GBP297 thousand (2009: GBP1,783
thousand).
-- Treasury shares - The Treasury shares of the Company has
arisen in connection with the shares issued to the IGas Employee
Benefit Trust of which the Company is the sponsoring entity. The
value of such shares is recorded in share capital and share premium
account in the ordinary way and is also shown as a deduction from
equity in this separate Treasury shares account; and so there is
not net effect on shareholders' funds.
-- Retained Earnings/(accumulated deficit) - This represents the
historic accumulated losses made by the Company shares and from
transfers from the Share plan/warrant reserve, when warrants
lapse.
13 Related party transactions
(a) With Group companies
A summary of the transactions in the year is as follows:
2010 2009 GBP000 GBP000
Subsidiaries:
Amounts due from/(to) subsidiary:
Island Gas Limited :
Balance 1 January 436 225
Services performed by subsidiary - (112)
Net cash advances 4,046 (196)
Services performed for subsidiary 531 519
Balance 31 December 5,013 436
Island Gas Operations Limited :
Balance 1 January - -
Net cash advances 101 519
Balance 31 December 101 225
A summary of year end balances is as follows:
Amounts due from Subsidiary:
Island Gas Limited 5,013 436
Island Gas Operations Limited 101 -
Payment terms are as mutually agreed between the Group's
companies.
(b) With Directors
Key management are those persons having authority and
responsibility for planning, controlling and directing the
activities of the Group. In the opinion of the Board, the Group's
key management are the Directors of the Company. Information
regarding their compensation is given in Notes 5 and 19 to the
consolidated accounts.
14 Subsequent events
On 9 March 2011, the Company acquired the entire issued share
capital of Nexen Exploration UK Limited (renamed IGas Exploration
Limited) for a consideration of GBP25.6 million (the
"Acquisition"). 39,714,290 new ordinary shares of 50p were allotted
to Nexen Petroleum U.K. Limited credited as fully paid in
consideration for the Acquisition. The acquisition is aligned with
the Group's strategy by securing 100% ownership of assets and
operatorship through the purchase of Nexen Exploration UK
Limited.
The Company raised gross proceeds of GBP20.625 million for
27,500,000 new ordinary 50p shares when the Acquisition became
unconditional on 9 March 2011.
Following completion of the Placing and the Acquisition, the
Company's current issued share capital is 160,323,721 ordinary
shares.
On 22 March 2011, A Austin disposed of 770,000 shares.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR PGUQCAUPGGQU
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