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Tower Resources PLC - Preliminary Results to 31 December 2019

RNS Number : 4583P
Tower Resources PLC
10 June 2020
 

 10 June 2020

 

Tower Resources plc

Preliminary Results to 31 December 2019

Tower Resources plc (the "Company" or "Tower" (TRP.L, TRP LN)), the AIM listed oil and gas company with its focus on Africa, announces its preliminary results for the 12 months ended 31 December 2019.

Highlights:

·    Thali PSC $3.9 million (2018: $1.2 million) exploration and evaluation expenditure.

·    Licence payments securing 80% operated interest in blocks 1910A, 1911 and 1912B, offshore Namibia, together with the National Petroleum Corporation of Namibia (NAMCOR) of $229k (2018: 5k);

·    Administrative costs net of impairments and share-based payment charges $987k (2018: $924k); and

·    Cash balance at year-end of $39k (2018: $331k).

 

Post-reporting period events:

 

·    January 2020: Award of extension to the initial exploration period of the Thali licence to 15 September 2020;

·    February 2020: Completion of NJOM-3 appraisal well site survey by the Geoquip Marine survey vessel MV investigator;

·   March 2020: Cameroon Reserves Report update reconfirming gross mean contingent resources of 18 MMbbls of oil across the proven Njonji-1 and Njonji-2 fault blocks, with an NPV10 of the Best Estimate Contingent Resources of $119 million using the March 10th 2020 Brent Forward Curve, and an EMV10 of $91 million;

·    March 2020: Completion of placing and subscription to raise £500k at placing price of 0.375 pence per share;

·    March 2020: Notification to the Government of Cameroon of an event of Force Majeure in respect of the Covid-19 pandemic, affecting the timing for completion of the Group's work programme in the Initial Exploration Period of the Group's Thali Production Sharing Contract.

 

 

Market Abuse Regulation (MAR) Disclosure

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.

 

Contacts

 

Tower Resources plc

+44 20 7157 9625 [email protected]

Jeremy Asher
Chairman and CEO

 

 

Andrew Matharu
VP - Corporate Affairs

 

 

 

 

 

SP Angel Corporate Finance LLP
Nominated Adviser and Joint Broker

+44 20 3470 0470

 

Stuart Gledhill

Caroline Rowe

 

 

 

 

 

Turner Pope Investments (TPI) Limited
Joint Broker

Andy Thacker

Zoe Alexander

 

+44 20 3657 0050

 

Whitman Howard Limited
Joint Broker

Nick Lovering 

 

+44 20 7659 1234

 

       

 

CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT

2019 proved to be a challenging year and so far 2020 has been even more challenging, in ways which have affected everyone in our industry and in most other sectors. The impact on oil demand of the Covid-19 lockdowns was dramatic and, at least in recent history, unprecedented, and the potential for a simultaneous price war among the OPEC nations and Russia initially exacerbated the problem. Fortunately, the dramatic collapse in prompt oil prices resulted in rapid action to cut production by both governments and private companies. The potential for a second wave of Covid-19 infections remains a concern, but the market for prompt delivery is now stabilising and much improved, with Brent for August 2020 delivery now trading at around $40 per barrel as I write.

Given our expected production profile, it is the price of Brent for forward delivery that is most important for us, and it is worth remembering that the price of Brent for forward delivery was not affected as much by the difficulties in the prompt crude market. At the end of 2019, Brent for prompt delivery was trading above $68 per barrel, but at the same time the price for delivery in December 2025 was around $58 per barrel. As noted above, Brent for August 2020 delivery is now trading at around $40 per barrel, but the price for delivery in December 2025 is still above $52 per barrel. Capital expenditure is being reduced across the industry, and the impact of the reductions in prior years' capital expenditures and shifts towards shorter-life US production have yet to be fully felt. Therefore we believe there is the potential for supply to be tighter in future if demand returns to pre-Covid-19 levels. However, even if forward prices were to slide back to the $45 range, where prices for delivery in 2022 currently stand, our projects remain attractive.

This has been reinforced by the updated Reserves and Resources Valuation report on our Thali license in Cameroon, which we received from Oilfield International Ltd in March 2020. The executive summary is available on our website, and explains that using the forward curve of 10 March 2020, the OIL estimate of the NPV10 of their Best Estimate of Contingent Resources is $119 million, with an EMV10 of $91 million. It has also been reinforced by the farm-out agreement with OilLR, announced at the end of February 2020, which we still expect to complete in the near future, and the interest from other parties in a similar transaction.

The fact that Exxon, Total, and independents like Africa Energy and their partners are pressing ahead with further exploration wells in South Africa and Namibia reinforces the attractive economics of these wells, even at current oil prices and despite their geological risks.

We raised money twice in 2019, first in January and again in October/November. I participated in both fundraisings myself and I also assisted in providing a working capital loan over the summer, which I then took over completely in November. These fundraisings provided a total of about £3.2 million and $750,000 to the company, which allowed it to complete the acquisition of all long lead items for the NJOM-3 well and to complete the well planning and design, and also to get the site survey underway, as well as keeping work underway on the our other licenses. This was reflected in the $4.7 million of net investment in oil and gas assets that we made during 2019. We also completed a further small fundraising of £500,000 in March 2020.

We had intended to appoint a further director to the board in the current quarter, to replace Graeme Thomson, and we have identified a candidate with a suitable financial background.  However, one less serious consequence of the Covid-19 pandemic is that this process is not yet complete, though we hope to complete it in the third quarter.

We do not yet know if the rest of 2020 will see us continuing to wrestle with the frustrations of the pandemic, or sprinting towards our goals as things return to normal, or somewhere in between. However, we did not wish to delay preparation of our annual report, despite the inherent uncertainties at this moment. I do believe that our assets are as attractive as they have always been; our plans are further advanced than they were a year ago; and our determination to achieve our goals is undiminished. We hope to have more concrete news for shareholders over the coming weeks and months.

STRATEGIC REPORT

Our strategy remains to shift our near-term focus towards lower risk exploration and development within proven basins, best characterised by our 2015 signature of the Thali PSC in the Rio Del Rey basin, offshore Cameroon. We have not abandoned high risk/reward exploration: we have a highly prospective license in South Africa, and we have a new license in Namibia, covering blocks that we know well from our previous license there, and a number of other companies are now investing in these areas. The Thali Production Sharing Contract ("PSC") also has a high-reward exploration upside in the deeper formations, which have not yet been tested by historical drilling. We continue to believe that all of our assets are attractive and valuable. But our strategy is to focus our current investment on the lower risk, earlier reward opportunities in Thali during this phase of the market cycle, before pursuing the other higher risk opportunities.

This strategy requires finding external finance at the asset level for our existing exploration commitments wherever possible, which is why we took the decision some time ago to convert our working interest in the SADR to a royalty interest, and why we continue to support our partner and operator, NewAge Energy Algoa (Pty) Ltd (50%), in seeking a farm-in partner for our Algoa-Gamtoos block in South Africa. Our financial strategy remains to explore asset-level financing even for assets that we could also finance with our own equity, to achieve the most economic financing for each asset and the best value for shareholders.

As an operator, we believe that the scale of local operations is also important to create savings and synergies across blocks in the same basin. To some extent, this can be achieved and reinforced through good relations with other local operators, but controlling multiple blocks oneself is the most obvious way to achieve such synergies (where they can be found) to the benefit of one's host nation, one's partners, and one's investors alike. To this end, we are continuing to discuss the possibility of a further PSC in Cameroon in the future, even while undertaking development of our existing one.

Keeping overhead costs appropriately low, and managing operating costs well, are always important, but especially so in this phase of the market cycle. We have always sought to keep fixed costs down, and total costs flexible, through outsourcing important functions such as our technical-subsurface relationship with the EPI Group, and we have reduced our corporate costs substantially since 2016, as our last few years' financial figures confirm.

OPERATIONAL REVIEW

On an operational level, most of our activity in 2019 and the first few months of 2020 has been in Cameroon.

As already explained in our Interim Results statement issued on 11 September 2019, our original plan to drill the NJOM-3 well was frustrated by the lack of adequate site survey data, which only became apparent in April 2019. Most of the rest of the year was spent specifying and preparing for the site survey, and obtaining the agreement of the Republic of Cameroon to the requisite extension of the First Exploration Period of our Thali PSC. This was obtained and the site survey was completed in February 2020.

The survey confirms the suitability of the proposed NJOM-3 well location, but unfortunately by the time we received the complete survey report the Covid-19 pandemic was already underway, and so as I write this we are not yet in a position to conclude a rig contract or other service contracts for drilling the well. As a result, we have notified the Ministry ("MINMIDT") of a state of Force Majeure, and since that time we have had meetings with both MINMIDT and the Société Nationale des Hydrocarbures ("SNH") to discuss the way forward. No-one can be certain of the progression of the pandemic, the associated restrictions, or a potential second wave. However, with the goodwill and support of all involved, we expect that we will restart the drilling preparations as soon as possible.

We received an updated Reserves and Resources Valuation report from Oilfield International Ltd in March 2020, after the initial collapse in crude oil prices which was reflected in the report, and the executive summary is available on our website.

In Namibia, the new petroleum agreement that we signed in 2018 in respect of blocks 1910A, 1911 and 1912B covering 23,297km2 in the Walvis Basin and Dolphin Graben, culminated in the issue of license PEL 96 during the course of 2019. We completed negotiation of the JOA with Namcor and our local partners, and we also received an unsolicited approach from a major oil company regarding the license in the second half of 2019. That company has told us that they remain interested in working on this project, but have not prioritised it during the first half of 2020, and we expect discussions with them to remain on the back burner in the second half of the year, or at least until the pandemic situation is clearer. This has not affected our own plans for the license, and we await with great interest the outcome of the wells currently being prepared in the area.

In South Africa, our Algoa Gamtoos block is immediately to the East of Total's block 11B/12B where it made its recent Brulpadda discovery. Our co-venturer and operator NewAge has been reprocessing existing seismic data in anticipation of acquiring new 3D data over the next exploration period. NewAge and we have been seeking a farm-in partner to fund this work, and we have had interest including a concrete proposal before the pandemic slowed everything down. Total is still planning further wells and 3D acquisition in the area immediately to the East of its Brulpadda discovery in the Outeniqua basin. Perhaps of even greater interest to us is the 2D data they intend to acquire further along the Outeniqua basin, further to the East and towards our own Algoa Gamtoos offshore block where we have our own Outeniqua prospect, with prospective resources of 364 million boe according to the Operator NewAge's estimates.

 

 

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2019

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2019

 

 

 

31 December 2019
(audited)

 

31 December 2018
(audited)

 

Note

$

 

$

Revenue

 

-

 

-

Cost of sales

 

-

 

-

Gross profit

 

-

 

-

Other administrative expenses

 

(2,240,313)

 

(1,012,303)

Impairment of exploration and evaluation assets

12

-

 

(2,813,413)

Total administrative expenses

 

(2,240,313)

 

(3,825,716)

Group operating loss

4

(2,240,313)

 

(3,825,716)

Finance income

 

703

 

4,033

Finance expense

6

(421,973)

 

-

Loss for the year before taxation

 

(2,661,583)

 

(3,821,683)

Taxation

7

-

 

-

Loss for the year after taxation

 

(2,661,583)

 

(3,821,683)

Other comprehensive income

 

-

 

-

Total comprehensive expense for the year

 

(2,661,583)

 

(3,821,683)

 

 

 

 

 

Basic loss per share (USc)

10

(0.40c)

 

(1.02c)

Diluted loss per share (USc)

10

(0.40c)

 

(1.02c)

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2019

 

Share
capital

Share
premium

1 Share-based
payments
reserve

Retained
losses

Total

 

$

$

$

$

$

At 1 January 2018

15,558,095

142,361,529

6,387,408

(141,969,571)

22,337,461

Shares issued on settlement of third party fees

41,531

14,788

-

-

56,319

Share-based payment charge for the year

-

-

137,184

-

137,184

Total comprehensive expense for the year

-

-

-

(3,821,683)

(3,821,683)

At 31 December 2018

15,599,626

142,376,317

6,524,592

(145,791,254)

18,709,281

Shares issued for cash

2,411,297

1,890,659

 

 

4,301,956

Shares issued on settlement of third party fees

240,194

255,415

-

-

495,609

Share issue costs

-

(228,263)

 

 

(228,263)

Share-based payment charge for the year

-

-

1,134,716

-

1,134,716

Total comprehensive expense for the year

-

-

-

(2,661,583)

(2,661,583)

At 31 December 2019

18,251,117

144,294,128

7,659,308

(148,452,837)

21,751,716

 

1 The share-based payment reserve has been included within the retained loss reserve and is a non-distributable reserve.

 

  

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2019

 

 

31 December 2019
(audited)

31 December 2018
(audited)

 

Note

$

$

Non-current assets

 

 

 

Property, plant and equipment

11

-

 

Exploration and evaluation assets

12

24,315,816

19,646,399

 

 

24,315,816

19,646,399

Current assets

 

 

 

Trade and other receivables

14

53,448

23,979

Cash and cash equivalents

 

38,662

331,395

 

 

92,110

355,374

Total assets

 

24,407,926

20,001,773

Current liabilities

 

 

 

Trade and other payables

15

1,815,720

1,292,492

Bridging loan facility

16

840,490

-

Total liabilities

 

2,656,210

1,292,492

Net assets

 

21,751,716

18,709,281

Equity

 

 

 

Share capital

17

18,251,117

15,599,626

Share premium

17

144,294,128

142,376,317

Retained losses

18

(140,793,529)

(139,266,662)

Total shareholders' equity

 

21,751,716

18,709,281

 

 

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2019

 

 

 

31 December 2019
(audited)

31 December 2018
(audited)

 

Note

$

$

Cash outflow from operating activities

 

 

 

Group operating loss for the year

 

(2,240,313)

(3,825,716)

Depreciation of property, plant and equipment

11

-

549

Share-based payments

20

1,134,716

137,184

Impairment of intangible exploration and evaluation assets

12

-

2,813,414

Loss on disposal of of property, plant and equipment

11

-

391

Operating cash flow before changes in working capital

 

(1,105,597)

(874,178)

(Increase) / decrease in receivables and prepayments

 

(29,469)

99,989

Increase in trade and other payables

 

523,228

239,589

Cash used in operations

 

(611,838)

(534,600)

Interest received

 

703

1,636

Cash used in operating activities

 

(611,135)

(532,964)

Investing activities

 

 

 

Exploration and evaluation costs

12

(4,669,417)

(1,345,833)

Net cash used in investing activities

 

(4,669,417)

(1,345,833)

Financing activities

 

 

 

Proceeds from bridging loan facility

16

770,480

 

Cash proceeds from issue of ordinary share capital net of issue costs

17

4,569,302

56,319

Finance costs

6

(351,963)

2,397

Net cash from financing activities

 

4,987,819

58,716

Decrease in cash and cash equivalents

 

(292,733)

(1,820,081)

Cash and cash equivalents at beginning of year

 

331,395

2,151,476

Cash and cash equivalents at end of year

 

38,662

331,395

                       

 

NOTES TO THE FINANCIAL STATEMENTS

1.         Accounting policies

a)         General information        

Tower Resources plc is a public company incorporated in the United Kingdom under the UK Companies Act. The address of the registered office is 140 Buckingham Palace Road, London, SW1W 9SA. The Company and the Group are engaged in the exploration for oil and gas.

These financial statements are presented in US dollars as this is the currency in which the majority of the Group's expenditures are transacted and the functional currency of the Company and have been prepared in accordance with International Financial Reporting Standards ("IFRS") and Interpretations ("IFRIC") as adopted by the EU.

 

b)        Basis of accounting and adoption of new and revised standards

i               New and amended standards adopted by the Group:

No standards adopted this year had a material effect on the Group or Company financial statements.

ii              Standards, amendments and interpretations, which are effective for reporting periods beginning after the date of these financial statements which have not been adopted early:

Standard
 

Description

Effective date

EU Endorsement Status

IFRS 3 (amendments

Definition of a Business

1 January 2020

Endorsed

IAS 1 and IAS 8 (amendments)

Definition of Material

1 January 2020

Endorsed

IFRS 9, IAS 39 and IFRS 7 (Amendments)

Interest Rate Benchmark Reform

1 January 2020

Endorsed

IFRS 17

Insurance Contracts

1 January 2021

Endorsed

 

The Directors have not fully assessed the impact of all standards but do not expect them to have a material impact.

c)         Going concern

The Group will need to complete its agreed farm-out and/or another asset-level transaction within the time frame presently contemplated or during the following quarter, or otherwise raise further funds, in order to meet its liabilities as they fall due, particularly with respect to the forthcoming drilling programme in Cameroon. The Directors believe that there are a number of options available to them through either, or a combination of, capital markets, farm-outs (including the farm-out already agreed) or asset disposals with respect to raising these funds. There can, however, be no guarantee that the required funds may be raised or transactions completed within the necessary timeframes which raises uncertainty as to the application of going concern in these accounts. Having assessed the risks attached to these uncertainties on a probabilistic basis, the Directors are confident that they can raise sufficient finance in a timely manner and therefore believe that the application of going concern is both appropriate and correct.

d)        Basis of consolidation

The consolidated financial statements incorporate the accounts of the Company and its subsidiaries and have been prepared by using the principles of acquisition accounting ("the purchase method") which includes the results of the subsidiaries from their date of acquisition. Intra-group sales, profits and balances are eliminated fully on consolidation.

The results of subsidiaries acquired or disposed of are included in the consolidated statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

As a Consolidated Statement of Comprehensive Income is published, a separate Statement of Comprehensive Income for the Parent Company has not been published in accordance with section 408 of the Companies Act 2006.

e)        Goodwill

Goodwill is the difference between the amount paid on acquisition of subsidiary undertakings and the aggregate fair value of their net assets, of which oil and gas exploration expenditure is the primary asset. Goodwill is capitalised as an intangible asset and in accordance with IFRS3 'Business Combinations' is not amortised but tested for impairment annually and when there are indications that its carrying value is not recoverable. Goodwill is shown at cost less any provision for impairment in value. If a subsidiary undertaking is sold, any unimpaired goodwill arising on its acquisition is reflected in the calculation of any profit or loss on sale.

f)         Jointly controlled operations

Jointly controlled operations are arrangements in which the Group holds an interest on a long-term basis which are jointly controlled by the Group and one or more ventures under a contractual arrangement. The Group's exploration, development and production activities are sometimes conducted jointly with other companies in this way. Since these arrangements do not constitute entities in their own right, the consolidated financial statements reflect the relevant proportion of costs, revenues, assets and liabilities applicable to the Group's interests.

g)         Oil and Gas Exploration and Evaluation Expenditure

Costs incurred before the acquisition of a license or permit to explore an area are expensed to the income statement.

All exploration and evaluation costs incurred following a license or permit to explore being obtained or acquired on the acquisition of a subsidiary are capitalised in respect of each identifiable project area. These costs are classified as intangible assets and are only carried forward to the extent that they are expected to be recouped through the successful development of the area or where activities in the area have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves (successful efforts).

Costs incurred by Directors' and employees of the parent Company on the exploration activities are recharged to the subsidiaries and capitalised as exploration assets accordingly.

Other costs are expensed unless commercial reserves have been established or the determination process has not been completed. Accumulated costs in relation to an abandoned area are written off in full against profit in the year in which the decision to abandon the area is made.

When production commences the accumulated costs for the relevant area of interest are transferred from intangible assets to tangible assets as 'Developed Oil and Gas Assets' and amortised over the life of the area according to the rate of depletion of the economically recoverable costs.

h)        Impairment of Oil and Gas Exploration and Evaluation assets

The carrying value of unevaluated areas is assessed when there has been an indication that impairment in value may have occurred. The impairment of unevaluated prospects is assessed based on the Directors' intention with regard to future exploration and development of individual significant areas and the ability to obtain funds to finance such exploration and development.

i)          Decommissioning costs

Where a material liability for the removal of production facilities and site restoration at the end of the field life exists, a provision for decommissioning is made. The amount recognised is the present value of estimated future expenditure determined in accordance with local conditions and requirements. An asset of an amount equivalent to the provision is also created and depreciated on a unit of production basis. Changes in estimates are recognised prospectively, with corresponding adjustments to the provision and the associated asset.

j)          Property, plant and equipment

Property, plant and equipment is stated at cost less depreciation. Depreciation is provided at rates calculated to write off the cost less estimated residual value of each asset over its expected useful life as follows:

Computers and equipment, fixtures, fittings and equipment: straight line over 4 years

Leasehold and office refurbishment costs: over duration of lease

The assets' residual values and useful lives are reviewed and adjusted if necessary at each year-end. Profits or losses on disposals of plant and equipment are determined by comparing the sale proceeds with the carrying amount and are included in the statement of comprehensive income. Items are reviewed for impairment if and when events indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset's net selling price and value in use.

k)         Investments

The Parent Company's investments in subsidiary companies are stated at cost less any expected credit loss for impairment and are shown in the Company's Statement of Financial Position.

l)          Share-based payments

The Company makes share-based payments to certain Directors, employees and consultants by the issue of share options or warrants. The fair value of these payments is calculated either using the Black Scholes option pricing model or by reference to the fair value of the remuneration settled by way of the grant of such options or warrants. The expense is recognised on a straight-line basis over the period from the date of award to the date of vesting, based on the Company's best estimate of shares that will eventually vest.

m)       Foreign currency translation

i            Functional and presentational currency

Items included in the financial statements are shown in the currency of the primary economic environment in which the Company operates ("the functional currency") which is considered by the Directors to be the U.S Dollar. The exchange rate at 31 December 2019 was £1 / $1.3204 (2018: £1 / $1.2746).

ii           Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income.

Transactions in the accounts of individual Group companies are recorded at the rate of exchange ruling on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rates ruling at the year-end. All differences are taken to the statement of comprehensive income.

n)        Taxation

i            Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible on 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 reporting date.

ii              Deferred taxation

Deferred income taxes are provided in full, using the liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income taxes are determined using tax rates that have been enacted or substantially enacted and are expected to apply when the related deferred income tax asset is realised or the related deferred income tax liability is settled.

The principal temporary differences arise from depreciation or amortisation charged on assets and tax losses carried forward. Deferred tax assets relating to the carry forward of unused tax losses are recognised to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilised.

o)        Financial instruments

The Group's Financial Instruments comprise of cash and cash equivalents, loans and receivables. There are no other categories of financial instrument.

i               Cash and cash equivalents

Cash and cash equivalents are carried at cost and comprise cash in hand, cash at bank, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less.

ii              Receivables

Receivables are measured at amortised cost unless the time value of money is immaterial. A provision for impairment of receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the assets' carrying amount and the recoverable amount. Expected credit losses for impairment of receivables are included in the statement of comprehensive income.

iii             Payables

Payables are recognised initially at fair values and subsequently measured at amortised cost using the effective interest method.

p)        Financial liabilities and equity

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the asset of the Group after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received net of direct issue costs.

q)        Share capital

Ordinary shares are classified as equity. Proceeds received from the issue of ordinary shares above the nominal value are classified as Share Premium. Costs directly attributable to the issue of new shares are shown in equity as a deduction from the Share Premium account.

r)            Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable that the Group would be required to settle that obligation. Provisions are measured at the managements' best estimate of the expenditure required to settle the obligation at the reporting date and are discounted to present value where the effect is material.

s)            Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision makers. The chief operating decision makers have been identified as the executive Board members.

t)         Leases

The Group do not have any leases with a term of 12-months or more that contain an option to purchase  or where the underlying asset has anything other than a low value and has elected for exemption to the reporting requirements of IFRS 16 (Leases).

2.            Critical accounting judgements and key sources of estimation uncertainty

The preparation of financial statements in conformity with International Financial Reporting Standards requires the use of accounting estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Although these estimates are based on managements' best knowledge of current events and actions, actual results ultimately may differ from those estimates. IFRS also require management to exercise its judgement in the process of applying the Group's accounting policies.

The prime areas involving a higher degree of judgement or complexity, where assumptions and estimates are significant to the financial statements, are as follows:

Recoverability of inter-company balances

Determining whether inter-company balances are impaired requires an estimation of whether there are any indications that their carrying values are not recoverable details of which are included in note 13.

Impairment of capitalised exploration and evaluation expenditure

The future recoverability of capitalised exploration and evaluation expenditure is dependent on a number of factors, including whether it successfully recovers the related exploration and evaluation asset through sale. Factors which could impact the future recoverability include the level of proved, probable and inferred resources, future technological changes which could impact the cost of drilling and extraction, future legal changes (including changes to environmental restoration obligations), changes to commodity prices and licence renewal dates and commitments.

To the extent that capitalised exploration and evaluation expenditure is determined to be irrecoverable in the future, this will reduce profits and net assets in the period in which this determination is made. In addition, exploration and evaluation expenditure is capitalised if activities in the area of interest have not yet reached a stage which permits reasonable assessment of the existence or otherwise of economically recoverable reserves. To the extent that it is determined in the future that this capitalised expenditure should be written off, this will reduce profits and net assets in the period in which this determination is made. Details of impairments of capitalised exploration and evaluation expenditure are included in note 12.

VAT receivable

The future ability of the Group to recover UK VAT is currently the subject of a dispute with HMRC and on 8 July 2019 the Company received a judgement in its favour from the First-Tier Tribunal (Tax Chamber). This judgement is now subject to a further appeal by HMRC to the Upper Tribunal, which will probably not be heard for some time. Whilst the Group believes that it has complied in all material respects with UK VAT legislation, and now has the benefit of the First-Tier Tribunal judgement in its favour, there can be no certainty that this judgement will be upheld by the Upper Tribunal. If the Group ultimately fails in its dispute with HMRC, it will be deregistered for VAT and unable to recover the VAT charged to it by UK suppliers. This would increase the UK element of its cost base accordingly. The Directors have made the judgement that the certainty over the Group's continued UK VAT registration status cannot be guaranteed and have therefore provided against the VAT payables in note 15.

Capital markets / going concern

The group relies on the UK equities market and the market for equity participations in oil and gas exploration assets in order to raise the funds required to operate as a listed entity and complete the respective work programmes for its oil and gas exploration assets. From time to time, and especially in light of the present Covid-19 pandemic, general economic and market conditions may deteriorate to a point where it is not possible to raise equity finance to fund exploration projects, nor debt to develop projects.

Additional financing may therefore not be available to the Group restricting the scope of operations, risking both its long-term expansion programme, its obligations under contracts which may be withdrawn or terminated for non-compliance and ultimately the financial stability of the Group to continue as a going concern.

Please see note 1 (c) for a more detailed discussion of going concern matters.

Share-based payment transactions

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using the Black Scholes model and by reference to the value of the fees or remuneration settled by way of granting of warrants. The determination of fair value using the Black Scholes methodology is based on the input parameters chosen and will therefore contain an element of judgement and uncertainty. Details of share-based payment transactions are included in note 20.

3.            Operating segments

The Group has two reportable operating segments: Africa and Head Office. Non-current assets and operating liabilities are located in Africa, whilst the majority of current assets are carried at Head Office. The Group has not yet commenced production and therefore has no revenue. Each reportable segment adopts the same accounting policies. In compliance with IFRS 8 'Operating Segments' the following table reconciles the operational loss and the assets and liabilities of each reportable segment with the consolidated figures presented in these Financial Statements, together with comparative figures for the year-ended 31 December 2019.

 

 

Africa

Head Office

Total

 

2019

2018

2019

2018

2019

2018

 

$

$

$

$

$

$

Administrative expenses 1

(187,893)

(2,845,729)

(1,249,856)

(837,425)

(1,437,749)

(3,683,154)

Pre-licence expenditures

-

-

(810)

(4,829)

(810)

(4,829)

Share-based payment charges

-

-

(801,754)

(137,184)

(801,754)

(137,184)

Depreciation of property, plant and equipment

-

-

-

(549)

-

(549)

Interest income

-

-

703

1,636

703

1,636

Financing costs

(1,031)

(991)

(420,942)

3,388

(421,973)

2,397

Loss by reportable segment

(188,924)

(2,846,720)

(2,472,659)

(974,963)

(2,661,583)

(3,821,683)

Total assets by reportable segment 2 / 3

24,342,425

19,653,744

65,501

348,029

24,407,926

20,001,773

Total liabilities by reportable segment 4

(619,810)

(359)

(2,036,400)

(1,292,133)

(2,656,210)

(1,292,492)

 

1 Administrative expenses include $65k (2018: $2.8 million) of intangible exploration and evaluation asset impairments in relation to the Africa segment.

2 Included within total assets of $24.4 million (2018: $20.0 million) are $10.8 million (2018: $6.9 million) Cameroon, $229k (2018: $5k) Namibia and $13.3 million (2018: $12.7 million) South Africa.

3 Carrying amounts of segment assets exclude investments in subsidiaries.

4 Carrying amounts of segment liabilities exclude intra-group financing.

 

4.            Loss from operations

 

Loss from operations is stated after charging/(crediting):

 

 

Total

 

 

 

 

2019

2018

 

 

 

 

$

$

Share-based payment charges

 

 

 

801,754

137,184

Staff costs

 

 

 

328,221

106,983

Rental of properties

 

 

 

-

-

Gain / (loss) on foreign currencies

 

 

 

118,916

(48,694)

Depreciation of property, plant and equipment

 

 

 

-

549

Impairment of exploration and evaluation assets

 

 

 

-

2,813,413

 

 

 

 

 

 

An analysis of auditor's remuneration is as follows:

 

 

 

 

Fees payable to the Group's auditors for the audit of the Group and subsidiary annual accounts

33,054

40,786

Fees payable to the Group's auditors for non-audit assurance services

 

 

1,749

4,843

Total audit fees

 

 

 

34,804

45,629

 

5.            Employee information

The average monthly number of employees of the Group (including Directors) was:

 

 

 

2019

2018

Head office

 

 

4

4

Africa

 

 

3

3

 

 

 

7

7

 

Group employee costs during the year (including executive Directors) amounted to:

 

 

 

2019

2018

 

 

 

$

$

Wages and salaries

 

 

315,343

92,300

Social security costs

 

 

12,878

14,683

Share-based payment charges

 

 

801,754

134,575

 

 

 

1,129,975

241,558

 

Jeremy Asher received an award of 15 million shares under the Group share incentive scheme, a charge for which has been recognised within the Group income statement of $142,266 (2018: $53,078).

Key management personnel include the executive and non-executive Directors whose remuneration, including non-cash share-based payment charges of $339k (2018: $134k), was $462k (2018: $231k); see Directors' Report for additional detail. During the year $206k (2018: $134k) of the full-year share-based payment charge of $801k (2018: $137k) related to employees and their remuneration as employees.

The highest paid Director was Jeremy Asher $350,401 (2018:$314,813).

6.            Finance costs

During the period covered by these financial statements the Group incurred costs of $422k (2018: $nil). Included within these charges is share-based payment costs of $333k (2018: $nil) relating to warrants issued on drawdown and extension of the bridging loan facility. The Company incurred costs of $416k (2018: $2k).

7.            Taxation

 

 

 

 

2019

2018

 

 

 

$

$

Current tax

 

 

 

 

UK Corporation tax

 

 

-

-

Total current tax charge

 

 

-

-

The tax charge for the period can be reconciled to the loss for the year as follows:

 

 

Group loss before tax

 

 

2,661,584

3,821,682

Tax at the UK Corporation tax rate of 19% (2018: 19.3%)

 

(505,701)

(726,120)

Tax effects of:

 

 

 

 

Expenses not deductible for tax purposes

 

 

152,333

560,613

Tax losses carried forward not recognised as a deferred tax asset

 

353,368

165,507

Current tax charge

 

 

-

-

 

8.            Deferred tax

At the reporting date the Group had an unrecognised deferred tax asset of $4.0 million (2018: $3.3 million) relating to unused tax losses. No deferred tax asset has been recognised due to the uncertainty of future profit streams against which these losses could be utilised.

9.            Parent company income statement

For the year-ended 31 December 2019 the Parent Company incurred a loss of $1.6 million (2018: $3.5 million) including the financing costs of $421k (2018: $2k). Included within these finance costs are $333k of share-based payments with respect to warrants issued to the lenders ((2018: $nil) referred to in note 6, the share-based payments charge of $801k (2018: $137k) and impairment expected credit losses against the investments in its operating subsidiaries and intercompany loans to them of $136k (2018: $3.2 million). The Company charged finance interest on intercompany loan accounts of $853k (2018: $636k) and fees with respect to the provision of strategic advice and support of $198k (2018: $34k). In accordance with the provisions of Section 408 of the Companies Act 2006, the Parent Company has not presented a statement of comprehensive income.

10.          Loss per share

The diluted weighted average number of shares in issue and to be issued as at 31st December 2019 is 671,779,970 (2018: 376,252,213). The diluted loss per share has been kept the same as the basic loss per share because the conversion of share options and share warrants would decrease the basic loss per share and is thus anti-dilutive. The number of anti-dilutive shares that have been excluded from the computation of EPS is 1,296 (2018: 6,679,923).

 

 

Basic & Diluted

 

 

2019

2018

 

 

$

$

Loss for the year

 

2,661,583

3,821,683

Weighted average number of ordinary shares in issue during the year

671,779,970

376,252,213

Dilutive effect of share options outstanding

 

-

-

Fully diluted average number of ordinary shares during the year

671,779,970

376,252,213

Loss per share (USc)

 

0.40c

1.02c

 

 

11.          Property, plant and equipment

 

 

 

Group

Company

Year-ended 31 December 2019

 

$

$

Cost

 

 

 

At 1 January 2019

 

1,046

1,046

Eliminated on disposal

 

-

-

At 31 December 2019

 

1,046

1,046

Depreciation

 

 

 

At 1 January 2019

 

1,046

1,046

Eliminated on disposal

 

-

-

Charge for the year

 

-

-

At 31 December 2019

 

1,046

1,046

Net book value

 

 

 

At 31 December 2019

 

-

-

At 31 December 2018

 

-

-

 

 

 

Group

Company

Year-ended 31 December 2018

 

$

$

Cost

 

 

 

At 1 January 2018

 

3,368

3,368

Eliminated on disposal

 

(2,322)

(2,322)

At 31 December 2018

 

1,046

1,046

Depreciation

 

 

 

At 1 January 2018

 

2,428

2,428

Eliminated on disposal

 

(1,931)

(1,931)

Charge for the year

 

549

549

At 31 December 2018

 

1,046

1,046

Net book value

 

 

 

At 31 December 2018

 

-

-

At 31 December 2017

 

940

940

 

12.          Intangible Exploration and Evaluation (E&E) assets

 

 

 

Exploration and evaluation assets

Goodwill

Total

Year-ended 31 December 2019

 

$

$

$

Cost

 

 

 

 

At 1 January 2019

 

91,654,861

8,023,292

99,678,153

Additions during the year

 

4,669,417

-

4,669,417

At 31 December 2019

 

96,324,278

8,023,292

104,347,570

Amortisation and impairment

 

 

 

 

At 1 January 2019

 

(72,008,462)

(8,023,292)

(80,031,754)

Impairment during the year

 

-

-

-

At 31 December 2019

 

(72,008,462)

(8,023,292)

(80,031,754)

Net book value

 

 

 

 

At 31 December 2019

 

24,315,816

-

24,315,816

At 31 December 2018

 

19,646,399

-

19,646,399

 

 

 

 

Exploration and evaluation assets

Goodwill

Total

Year-ended 31 December 2018

 

$

$

$

Cost

 

 

 

 

At 1 January 2018

 

90,309,028

8,023,292

98,332,320

Additions during the year

 

1,345,833

-

1,345,833

Disposals during the year

 

-

-

-

At 31 December 2018

 

91,654,861

8,023,292

99,678,153

Amortisation and impairment

 

 

 

 

At 1 January 2018

 

(69,195,048)

(8,023,292)

(77,218,340)

Impairment during the year

 

(2,813,414)

-

(2,813,414)

Disposals during the year

 

-

-

-

At 31 December 2018

 

(72,008,462)

(8,023,292)

(80,031,754)

Net book value

 

 

 

 

At 31 December 2018

 

19,646,399

-

19,646,399

At 31 December 2017

 

21,113,980

-

21,113,980

 

During the year the Group capitalised amounts totalling $4.7 million (2018: $1.3 million) with respect to the following assets:

 

2019

2018

 

$

$

Cameroon

3,908,484

1,214,414

Namibia

223,962

4,697

Zambia

-

16,297

South Africa

536,971

110,425

Total

4,669,417

1,345,833

 

In Cameroon the $3.9 million comprised the acquisition of long-lead items, the environmental and social impact assessment and preparation for the site survey required for the NJOM-3 appraisal well.

Activities in Zambia have been limited to licence maintenance while a hiatus remains in-place pending confirmation by Government of the new fiscal regime.

In South Africa, Rift Petroleum Limited, Tower's wholly owned subsidiary continues its efforts to seek a farm-in partner in and reprocess existing sub-surface data. This effort is being led by the operator of the licence New African Global Energy SA (Pty) Ltd.

On 7 November 2018, the Group announced the completion of its applications for blocks 1910A, 1911 and 1912B offshore Namibia. During 2019 the Group secured its tenure to these blocks by completing its various regulatory payments to the Government of the Republic of Namibia, culminating on the issue of the new license PEL 0096

In accordance with the Group's accounting policies and IFRS 6 the Directors' have reviewed each of the exploration license areas for indications of impairment. Having done so, it was concluded that a full impairment review was not required on the Cameroon, South Africa or Namibian licences, however, in-line with the treatment adopted at 31 December 2018, full ongoing impairment of the Zambian licences is considered appropriate at this time.

The Directors have not provided for any impairment of the Group's investment in the Thali license, because potential transactions and funding discussions with third parties support the Directors' view that the current carrying value is recoverable.

In South Africa, Tower's wholly-owned subsidiary Rift Petroleum Limited and its partner, New African Global Energy SA (Pty) Ltd, agreed in 2018 to enter the next phase of the Algoa-Gamtoos licence, the net commitment for which was approximately $2.5 million to Tower for 2019 and beyond and is disclosed in note 19.

In the case of the Group's Zambian license, the Directors continue to await the review of the country's petroleum law and have  not yet agreed with the Government of Zambia the next phase of work, if any, in respect of Blocks 40 and 41. This uncertainty has led the Directors to fully impair these assets in accordance with IAS 36 "Impairment of Assets" due to the lack of clarity regarding both future work programme and the fiscal terms.

In Namibia, the Company's investment in the current license is currently just $224k, which appears well supported by the valuations implied by recent transactions in the region, allowing for the early stage of the evaluation and appraisal process. Furthermore, the Directors continue to believe firmly that the relatively modest amounts of expenditure incurred on acquiring and securing tenure to the licence is fully supported by the their initial view of its prospectivity based on the information that is currently available.

13.          Investment in subsidiaries

 

Loans to subsidiary undertakings

Shares in subsidiary undertakings

Total

Company

$

$

$

Cost

 

 

 

At 1 January 2019

74,363,024

37,519,722

111,882,746

Net advances during the year

5,310,120

-

5,310,120

At 31 December 2019

79,673,144

37,519,722

117,192,866

Provision for impairment

 

 

-

At 1 January 2019

(64,726,246)

(19,908,973)

(84,635,219)

Provision for impairment

(135,879)

-

(135,879)

At 31 December 2019

(64,862,125)

(19,908,973)

(84,771,098)

Net book value

 

 

-

At 31 December 2019

14,811,019

17,610,749

32,421,768

At 31 December 2018

9,636,778

17,610,749

27,247,527

 

Included within loans made to subsidiary undertakings during the year of $5.3 million are amounts of $3.5 million Cameroon (2018: $1.4 million), $1.2 million South Africa (2018: $24k) and $563k (2018: $393k) Namibia.

Loans made by the parent company to subsidiary undertakings are interest-bearing in accordance with loan agreements made in 2015, and are repayable to the parent company on demand.

The subsidiary undertakings at the year-end are as follows (these undertakings are included in the Group accounts):

 

 

Country of

Class of

Proportion of voting rights held

Nature of business

 

incorporation

shares held

 

2019

2019

2019

2018

2019

Tower Resources Cameroon Limited 1

England & Wales

Ordinary

100%

100%

Holding company

Tower Resources Cameroon SA 2

Cameroon

Ordinary

100%

100%

Oil and gas exploration

Rift Petroleum Holdings Limited 1

Isle of Man

Ordinary

100%

100%

Holding company

Rift Petroleum Limited 3

Zambia

Ordinary

100%

100%

Oil and gas exploration

Rift Petroleum Limited 3

Isle of Man

Ordinary

100%

100%

Oil and gas exploration

Tower Resources (Namibia) Holdings Limited 1

England & Wales

Ordinary

100%

100%

Holding company

Tower Resources (Namibia) Limited 4

England & Wales

Ordinary

100%

100%

Oil and gas exploration

Wilton Petroleum Limited 1/5

England & Wales

Ordinary

100%

100%

Oil and gas exploration

1 Held directly by the Company, Tower Resources plc

 

 

 

 

 

2 Held directly or indirectly through Tower Resources Cameroon Limited

 

 

 

 

3 Held directly or indirectly through Rift Petroleum Holdings Limited

 

 

 

 

 

4 Held directly or indirectly through Tower Resources (Namibia) Holdings Limited

 

 

 

 

5 In liquidation

 

 

 

 

 

 

 

14.          Trade and other receivables

 

 

Group

Company

 

2019

2018

2019

2018

 

$

$

$

$

Trade and other receivables

53,448

23,979

53,446

23,977

 

15.          Trade and other payables

 

 

Group

Company

 

2019

2018

2019

2018

 

$

$

$

$

Trade and other payables

1,398,597

1,246,863

1,150,226

1,246,506

Accruals

417,123

45,629

45,686

45,629

Loans from subsidiary undertakings

-

-

6,617,600

6,617,600

 

1,815,720

1,292,492

7,813,512

7,909,735

 

Included within trade and other payables are amounts totalling $1.2 million / £903k (2018: $1.1 million / £843k) with respect to UK VAT payable.

HMRC has issued assessments totalling £843k excluding interest and penalties for VAT it has historically repaid to the Company and was the subject of the initial appeal which was referred to the first-tier tribunal, in which regard a hearing took place at the end of May 2019, and a first-instance decision was issued in favour of the Company on 8 July 2019.

VAT which was incorrectly charged to the Company for land-related services totaling £903k has been reimbursed to the Company by various suppliers and is due to HMRC, but has been withheld by the Company while HMRC has withheld VAT repayments totaling £1.069 million to 31 December 2019.

Taking into consideration all of the above, the net position at 31 December 2019 following the decision of the first-tier tribunal in favour of the Company, if upheld, should be a net repayment to the Company of £166k as of end of 2019. However, following HMRC's subsequent petition and the court's granting of leave to appeal to the Upper Tribunal, a date for which is yet to be confirmed, the Company has not reflected the net receivable of £166k which it believes is due from HMRC in the financial statements, but instead the Company has made full provision for VAT payable to HMRC as if it were not entitled to claim for input tax which has been reimbursed by suppliers as outlined above.

Group creditor payment days are approximately 37 days (2018: 28 days).

16.          Borrowings

 

 

 

 

 

 

Group

Company

 

2019

2018

2019

2018

 

$

$

$

$

Principal balance as at 3 May

Further amounts drawndown during the year

20,480

-

20,480

-

Principal balance as at 31 December

 

Net facility costs at 3 May

Amortisation during the year

(57,966)

-

(57,966)

-

Net financing costs as at 31 December

 

 

During the year, the Company incurred interest expense on long-term loans, inclusive of accretion of facility costs, of $70k (2018: $nil).  A total of $nil was settled in cash (2018 - $nil) with all interest being rolled forwards to be settled on redemption of the loan on 30 June 2020.

In addition to the interest charge, 90 million warrants were awarded over the ordinary shares in the company on drawdown of the facility, plus a further 3 million warrants on its extension to 31 August 2020. The charge recognised for these warrants within the financial statements was $333k (2018: $nil).

The carrying amount of the borrowings includes transaction costs of $15k (net of accretion).  At 31 December 2019, the carrying amount of the bridging loan facility approximates its fair value as the loan's effective interest rate approximates market rates commercially available.

The loan is secured by a fixed and floating charge over the Company's assets in favour of Pegasus Petroleum Ltd, including the shares of the Company's Cameroon intermediary holding subsidiary, Tower Resources Cameroon Limited, as referred to in note 21.

The Board are currently in discussions with respect to extending the loan beyond 30 June 2020.

 

 17.         Share capital

 

 

 

2019

2018

 

 

 

$

$

Authorised, called up, allotted and fully paid

 

 

 

 

1,104,605,208 (2018: 378,335,427) ordinary shares of 0.001p

 

18,251,117

15,599,626

 

At 31 December 2018 and 2019 there were 163,370,833,248 Deferred Shares and 56,515,033,595 B Deferred Shares in issue. The shares carry no entitlement to receive dividends, participate in any way in the income or profits of the company and carry no entitlement to receive notice of, attend, speak or vote at any general meeting of the Company. The Company is proposing to cancel both the Deferred Shares and the B Deferred Shares at the forthcoming 2020 AGM, subject to shareholder approval.

 

The share capital issues during 2019 are summarised as follows:

 

 

Number of shares

Share capital at nominal value

Share premium

 

 

 

$

$

 At 1 January 2019

 

377,335,427

15,599,626

142,376,317

 Shares issued for cash

 

646,538,461

2,411,297

1,890,659

 Shares issued in lieu of fees payable

 

80,731,320

240,194

255,415

 Share issue costs

 

-

-

(228,262)

 At 31 December 2019

 

1,104,605,208

18,251,117

144,294,129

 

In June 2019  the Company subdivided and re-designated its existing share capital and amended its  articles of association, in order to achieve a reduction in the par value of each Existing Ordinary Share from £0.01 to £0.00001 per share. This enabled the Company to issue shares in the future at an issue price which exceeds their nominal value, while maintaining the same number of ordinary shares in issue.

The reorganisation involved the subdivision and redesignation of 565,716,052 ordinary shares of £0.01 each in the capital of the Company into 565,716,052 New Ordinary Shares of £0.00001 each and 565,150,335,948 B Deferred Shares of £0.00001 each in the capital of the Company. The B deferred shares have very limited rights and are effectively valueless. CREST accounts of shareholders were not credited in respect of any entitlement to B deferred shares and the Company did not issue any share certificates in respect of B deferred shares which it proposes to cancel at the 2020 AGM.

18.          Reserves

Reserves within equity are as follows:

Share capital

Amounts subscribed for share capital at nominal value.

Share premium account

The share premium account represents the amounts received by the Company on the issue of its shares which were in excess of the nominal value of the shares.

Retained losses

Cumulative net gains and losses recognised in the Statement of Comprehensive Income less any amounts reflected directly in other reserves.

19.          Financial instruments

Capital risk management and liquidity risk

Capital structure of the Group and Company consists of cash and cash equivalents held for working capital purposes and equity attributable to the equity holders of the Parent, comprising issued capital, reserves and retained losses as disclosed in the Statement of Changes in Equity. The Group and Company uses cash flow models and budgets, which are regularly updated, to monitor liquidity risk.

Significant accounting policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each material class of financial asset, financial liability and equity instrument are disclosed in note 1 to the financial statements.

Due to the short-term nature of these assets and liabilities such values approximate their fair values at 31 December 2019 and 31 December 2018.

 

 

Carrying amount / fair value

 

 

2019

2018

Group

 

$

$

Financial assets (classified as loans and receivables)

 

 

Cash and cash equivalents

 

38,662

331,395

Trade and other receivables

 

53,448

23,979

Total financial assets

 

92,110

355,374

Financial liabilities at amortised cost

 

 

 

Trade and other payables

 

1,815,720

1,292,492

Bridging loan facility

 

840,490

-

Total financial liabilities

 

2,656,210

1,292,492

 

 

 

 

 

 

Carrying amount / fair value

 

 

2019

2018

Company

 

$

$

Financial assets (classified as loans and receivables)

 

 

Cash and cash equivalents

 

12,055

324,052

Trade and other receivables

 

53,446

23,977

Loans to subsidiary undertakings

 

14,811,019

9,636,778

Total financial assets

 

14,876,520

9,984,807

Financial liabilities at amortised cost

 

 

 

Loans from subsidiary undertaking

 

6,617,600

7,909,735

Bridging loan facility

 

840,490

-

Total financial liabilities

 

7,458,090

7,909,735

 

Financial risk management objectives

The Group's and Company's objective and policy is to use financial instruments to manage the risk profile of its underlying operations. The Group continually monitors financial risk including oil and gas price risk, interest rate risk, equity price risk, currency translation risk and liquidity risk and takes appropriate measures to ensure such risks are managed in a controlled manner including, where appropriate, through the use of financial derivatives. The Group and Company does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

Interest rate risk management

The Group and Company borrowings carry a fixed interest rate of 1% per month and are therefore not exposed to any sensitivity risk.

Interest rate sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to interest rates at the reporting date and assuming the amount of the balances at the reporting date were outstanding for the whole year.

A 100-basis point change represents management's estimate of a possible change in interest rates at the reporting date. If interest rates had been 100 basis points higher and all other variables were held constant the Group's profits and equity would be impacted as follows:

 

 

Group

Company

 

Increase

Increase

 

2019

2018

2019

2018

 

$

$

$

$

Cash and cash equivalents

4,869

11,912

4,646

11,648

 

The Group's exposure to interest rate risk, which is the risk that a financial instrument's value will fluctuate as a result of changes in market interest rates on classes of financial assets and financial liabilities, was as follows:

 

 

Floating interest rate

Non-interest bearing

Floating interest rate

Non-interest bearing

 

$

$

$

$

Cash and cash equivalents

35,626

3,036

330,870

525

 

Foreign currency risk

The Group's and Company's reporting currency is the US dollar, being the currency in which the majority of the Group's revenue and expenditure is transacted. The US dollar is the functional currency of the Company and the majority of its subsidiaries. Less material elements of its management, services and treasury functions are transacted in pounds sterling. The majority of balances are held in US dollars with transfers to pounds sterling and other local currencies, as required to meet local needs. The Group does not enter into derivative transactions to manage its foreign currency translation or transaction risk as it does not believe such risks are material.

At the year-end the Group and Company maintained the following cash reserves:

 

 

Group

Company

 

2019

2018

2019

2018

Cash and cash equivalents

$

$

$

$

Cash and cash equivalents held in US$

-

313,288

100

313,000

Cash and cash equivalents held in GBP

13,954

10,103

11,470

10,103

Cash and cash equivalents held in XAF

23,571

6,818

-

-

Cash and cash equivalents held in other currencies

1,137

1,186

485

949

 

38,662

331,395

12,055

324,052

 

Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group or Company. The Group and Company reviews the credit risk of the entities that it sells its products to or that it enters into contractual arrangements with and will obtain guarantees and commercial letters of credit as may be considered necessary where risks are significant to the Group or Company.

 

20.          Share-based payments

 

 

 

2019

2018

 

 

$

$

In the statement of comprehensive income the Group recognised the following charge with respect to its share-based paments

1,134,716

137,184

 

The share-based payments include the cost of warrants issued in respect of the company's equity financings and bridging loan, and also share-based payments for a number of services to the Group's various contractors and brokers and payments in lieu of Director fees.

On 24 January 2019, the Board of the Company determined that all of the award criteria for the Chief Executive's Share Incentive Plan had been fulfilled and 15 million shares were issued to Jeremy Asher, a charge for which has been included within these financial statements of $142,266 (2018: 53,078). The performance conditions provided that 5 million of the shares would only be payable if, during the 3 year vesting period, the Company's stock achieves a closing price at least 25% above the 14 November 2017 Placing Price; and 5 million of the shares will only be payable if, during the vesting period, the Company's stock achieves a closing price at least 50% above the November 2017 Placing Price. In each case the target share price had to be achieved for a minimum of five (not necessarily consecutive) trading days during the vesting period.

 

Options

Details of share options outstanding at 31 December 2019 are as follows:

 

 

 

Number in issue

At 1 January 2019

 

 

1,617,400

Lapsed during the year

 

 

(16,000)

Awarded during the year

 

 

70,000,000

At 31 December 2019

 

 

71,601,400

 

Date of grant

Number in issue 1

Option price (pence)

Latest           exercise date

09 Dec 15

48,000

0.475

09 Dec 20

16 Mar 16

53,400

0.475

16 Mar 21

26 Oct 16

1,500,000

0.023

25 Oct 21

24 Jan 19

70,000,000

1.250

24 Jan 24

 

71,601,400

 

 

 

1 These options vest in the beneficiaries in equal tranches on the first, second and third anniversaries of grant.

The following Directors held interests in share options at the year-end:

 

 

 

2019

2018

 

 

No.

No.

Jeremy Asher

 

60,000,000

-

Total

 

60,000,000

-

 

Warrants

Details of warrants outstanding at 31 December 2019 are as follows:

 

 

 

Number in issue

At 1 January 2019

 

 

43,439,692

Awarded during the year

 

 

400,844,797

At 31 December 2019

 

 

444,284,489

 

Date of grant

Number in issue

Warrant price (pence)

Latest           exercise date

09 Nov 17

31,853,761

1.000

09 Nov 22

01 Jan 18

2,542,372

1.000

01 Jan 23

01 Apr 18

2,083,333

1.500

01 Apr 23

01 Jul 18

2,272,726

1.780

30 Jun 23

01 Oct 18

4,687,500

1.575

30 Sep 23

24 Jan 19

112,211,999

1.250

23 Jan 24

16 Apr 19

90,000,000

1.000

14 Apr 24

30 Jun 19

4,285,714

1.000

28 Jun 24

30 Jul 19

3,000,000

1.000

28 Jul 24

15 Oct 19

191,347,084

1.000

13 Oct 24

 

444,284,489

 

 

 

The following table shows the interests of the Directors in the share warrants in issue (excluding Graeme Thomson's interest at December 2018, which was 9,976,128):

 

 

2019

2018

 

 

No.

No.

Jeremy Asher

 

166,376,171

16,412,436

Peter Taylor

 

22,276,628

9,976,128

Total

 

188,652,799

24,833,238

 

The weighted average exercise price of the share warrants was 1.22p (2018: 1.13p) with a weighted average contractual life of 4.0 years (2018: 4.0 years). At 31 December 2019 and 2018 all warrants had fully vested.

In its Statement of Comprehensive Income, the Company recognised share-based payment charges of $801k (2018: $137k).

In compliance with the requirements of IFRS 2 on share-based payments, the fair value of options or warrants granted during the year is calculated using the Black Scholes option pricing model. For this purpose, the volatility applied in calculating the above charge varied between 20% and 143% (2018: 20% and 143%), depending upon the date of grant, and the risk-free interest rate was 0.50% and the Dividend Yield was nil% for 2019 and 2018.

The Company's share price ranged between 0.3p and 1.0p (2018: 0.8p and 1.8p) during the year. The closing price on 31 December 2019 was 0.4p per share. The weighted average exercise price of the share options was 1.2p (2018: 6.8p) with a weighted average contractual life of 4.0 years (2018: 2.8 years). The total number of options vested at the end of the year was 1.6 million (2018: 1.6 million).

21.          Related party transactions

The key management of the Group comprises the Directors of the Company. Except as disclosed, there are no transactions with the Directors other than their remuneration and interests in shares, share options and warrants. As noted in the Directors' Report, Pegasus Petroleum Ltd ("Pegasus"), a company owned and controlled by Jeremy Asher, received $201,300 (2018: $201,300) in fees for management services, and provided initially 50% and subsequently 100% of the loan facility set out in note 16: Borrowings. Further information on Directors' remuneration is detailed in the Directors' Report and their total remuneration in each of the categories specified in IAS 24 'Related Party Disclosures' is shown below:

 

 

 

Group

Company

 

 

2019

2018

2019

2018

 

 

$

$

$

$

Short-term employee benefits

 

130,337

96,980

130,337

96,980

Fees charged by companies associated with Jeremy Asher 1

448,666

201,300

-

-

Interest charged on borrowings by companies associated with Jeremy Asher 1

 

70,010

-

70,010

-

Share-based payments 2

 

556,178

134,455

556,178

134,455

Share incentive scheme awards 3

 

142,266

 

 

 

Finance interest on intercompany loan accounts

 

-

-

853,202

636,650

Fees charged with respect to the provision of strategic advice and support  by the parent

-

-

198,768

33,396

 

 

1,347,457

432,735

1,808,495

901,481

 

1 Charged by Pegasus Petroleum Limited ("Pegasus"), a company registered in the Channel Islands, to Rift Petroleum Holdings Limited, a wholly owned subsidiary of Tower Resources plc and registered in the Isle of Man. Pegasus Petroleum Limited ("Pegasus") is owned and controlled by a family trust of which Jeremy Asher is the settlor and lifetime beneficiary. Included in the Group's operating loss is an amount of $253,555 (2018: $201,300) paid to Pegasus in respect of charges for management services received during 2019 plus $195,111 of fees with respect to performance uplift charges relating to 2018.

2 Includes $174,202 of charges for warrants issued with respect to shares subscribed for by Mr Asher during equity placings in January and October 2019, and $166,481 of charges for share warrants arising from the issue and extension of the loan facility made to Tower Resources plc by Pegasus in 2019; also includes $85,153 in respect of Director warrants issued in lieu of fees to Jeremy Asher and to Peter Taylor, and the 2019 charge for 60 million share options issued to Jeremy Asher at 1.25 pence per share on 24 January 2019 vesting in equal tranches in 1 year, 2 years and 3 years respectively.

The warrants issued to Pegasus and Mr Asher were on identical terms to those issued to third parties participating in the loan facility and share subscriptions.

3 Share incentive plan award to Jeremy Asher for 15 million shares on 24 January 2019.

22.          Control

The Company is under the control of its shareholders and not any one party.

23.          Leases and capital commitments

The Group is committed to funding the following exploration expenditure commitments as at 31 December 2019:

 

Country

Interest

Net commitment 2020

Net commitment 2021 onwards

Cameroon Thali 1

Cameroon

100%

$5.21 million

-

South Africa Algoa-Gamtoos

South Africa

50%

$447k

$2.43 million

Namibia Blocks 1910A, 1911 and 1912B 2

Namibia

80%

-

$4.50 million

Zambia Blocks 40 and 41 3

Zambia

100%

-

-

 

 

 

$5.66 million

-

1 1 year to 15 September 2020.

 

 

 

 

2 4 years to 5 November 2022

 

 

 

 

3 Renewal pending confirmation of petroleum legislation

 

 

 

 

 

24.          Subsequent events

January 2020: Award of extension to the initial exploration period of the Thali licence to 15 September 2020;

February 2020: Completion of NJOM-3 appraisal well site survey by the Geoquip Marine survey vessel MV investigator;

March 2020: Cameroon Reserves Report update reconfirming gross mean contingent resources of 18 MMbbls of oil across the proven Njonji-1 and Njonji-2 fault blocks, with an NPV10 of the Best Estimate Contingent Resources of $119 million using the March 10th 2020 Brent Forward Curve, and an EMV10 of $91 million;

March 2020: Completion of placing and subscription to raise £500k at placing price of 0.375 pence per share;

March 2020: Notification to the Government of Cameroon of an event of Force Majeure in respect of the Covid-19 pandemic, affecting the timing for completion of the Group's work programme in the Initial Exploration Period of the Group's Thali Production Sharing Contract.

 

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
 
END
 
 
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Tower Resources CEO updates on Cameroon farm-out and £500k fundraise

Tower Resources PLC's (LON:TRP) Jeremy Asher speaks to Proactive London's Andrew Scott soon after announcing they've raised £500,000 to provide working capital while waiting for a farm-out agreement for its Thali block in Cameroon to complete. Asher also talks to the recent coronavirus...

on 9/3/20