PRESS RELEASE                                                                                                 25 April 2019

WENTWORTH RESOURCES PLC
("Wentworth" or the "Company")

Final Results for the year ended 31 December 2018

Wentworth (AIM: WEN), the AIM listed independent, East Africa-focused oil & gas company, is pleased to announce its audited results for year ended 31 December 2018.

HIGHLIGHTS

Corporate

  • Mnazi Bay, core producing gas asset in Tanzania, produced at an average 2018 rate of 4,425 boepd net W.I.
  • 2P Reserves of 99.7 Bscf (16.6 MMboe), valued at $106 million (after-tax NPV15)
  • Completed corporate transition to the UK - completed Oslo Børs delisting, resulting in a simpler transactional platform, driving efficiencies into the business model
  • UK based management team in place from June 2018 following relocation of corporate headquarters from Canada, with Calgary office closed at the end of 2018 and Maputo office closed in March 2019
  • Refreshed UK based Board as of November 2018
  • Strong and supportive institutional shareholder register

Financial

  • Milestone Mnazi Bay gas sales revenue of $16.2 million (2017: $13.4 million)
  • Adjusted earnings ("EBITDAX") of $8.3 million (2017: $5.3 million) excluding non-recurring expenses of $76.6 million. Non-recurring expenditures include: Mozambican exploration impairment provision $41.6 million; one-off re-structuring and redomicile costs of $2.3 million comprising recruitment, severance, travel, legal and professional charges; Tanzanian tax assessments of $1.0 million for the years 2013 to 2016, provision against Tanzania Government receivables $5.0 million; and deferred tax write-downs of $26.7 million
  • Net loss of $75.2 million (2017: $0.7 million)
  • Net cash at year-end of $0.8 million, compared to net debt of $13.9 million at 31 December 2017
  • Cash and cash equivalents on hand at year-end of $11.9 million (2017: $3.75 million) 
  • Reduced outstanding long-term loans by $7.3 million to $8.6 million (2017: $15.3 million)

Operational

  • Average gross daily gas production for the period increased 70% to 83.2 MMscf/d from 49.1 MMscf/d in 2017; above annual 2018 guidance of 65-75 MMscf/d
  • Exited 2018 with an average daily production rate 92.5 MMscf/d in December, a new Company record
  • Continued operating cost reduction to $0.44 / Mscf (2017: $0.84 / Mscf), leveraging increased production volumes
  • Total cash receipts of $36.2 million from gas sales and recovery of long-term government receivables during 2018
  • On track to relinquish Tembo block in Northern Mozambique ahead of the end of the current appraisal term on 15 June 2019

Eskil Jersing, CEO, commented:

"2018 saw us make material progress in simplifying our business and portfolio. On our core Mnazi Bay asset, we achieved record average production levels of 4,425 boepd and associated gas revenue of US$16.2mm, ending the year with a 56.8% improvement in our EBITDAX of US$8.3mm and cash of US$11.9mm.

We continue to work diligently with all our Tanzanian stakeholders in unlocking the latent value of the Mnazi Bay. Wentworth will continue to improve its fundamentals through 2019; and the Board of Wentworth remains focused on its stated strategy of revenue stream diversification and maximising returns for shareholders."

Enquiries: 
Wentworth
Eskil Jersing,
Chief Executive Officer

 
Katherine Roe,
Chief Financial Officer
eskil.jersing@wentplc.com
+44 (0)118 2065427

 
katherine.roe@wentplc.com
+44 (0)118 2065428
 

Stifel Nicolaus Europe Limited
 

AIM Nominated Adviser and Joint Broker 
Callum Stewart
Ashton Clanfield
Simon Mensley
 

+44 (0) 20 7710 7600
 

Peel Hunt LLP
 

Joint Broker 
Richard Crichton
James Bavister
 

+44 (0) 20 7418 8900
 

Vigo
 

Investor Relations Adviser 
Patrick d'Ancona
Chris McMahon
 

+44 (0) 20 7390 0230

 

CHAIRMAN'S STATEMENT

2018 saw the successful completion of the strategic restructuring initiative which began in 2017.  The Company has now been legally redomiciled from the Province of Alberta in Canada to the Isle of Jersey, incorporated as Wentworth Resources plc and is trading under the new ticker, WEN, on the AIM Market of the London Stock Exchange (AIM).  The Company's Head Office in Calgary, Alberta has been closed and is now headquartered in Reading, Berkshire in the UK.  In addition, Wentworth successfully delisted from the Oslo Børs with an effective date of 13 February 2019.  These substantive changes to the corporate structure have resulted in an enhanced and more efficient management platform, allowing the Company to evaluate and ultimately transact on, growth opportunities.

This restructuring also resulted in a complete change in the Senior Executive Management and in the structure of the Board of Directors.  In line with UK Corporate Governance norms and in keeping with the QCA Corporate Governance Code, which the Company has now adopted, the make-up of the Board now constitutes an appropriate balance between Executive Directors and Non-executive Directors. We have made changes to the Non-executive Director composition to ensure continued effectiveness of the Board appropriate for the Company after its move from Canadian domicile to Jersey domicile and with a sole listing in London. The Board appointed two new Non-executive Directors, Tim Bushell and Iain McLaren, bringing new and relevant skills to replace Canadian resident directors, Neil Kelly and Cameron Barton, who agreed to step down from the Board. Neil and Cameron provided the Board with strong contributions which have helped take the Company to where it is today: a refreshed and simpler corporate platform, poised for growth. I wish to thank all the previous Wentworth management and directors for the professionalism and diligence they have demonstrated over the past year in ensuring that these changes took place.  I wish them all the good fortune that they deserve in the future.

Wentworth today is financially sound and even healthier than this time last year with an increasingly positive outlook: we expect 2019 to be a year of increasing balance sheet strength. Mnazi Bay production has grown materially in the last several years and is more predictable thanks to growing demand in Tanzania. Tanzanian Petroleum Development Company ("TPDC") and Tanzania Electric Supply Company ("TANESCO"), the Company's two primary off takers of Mnazi Bay gas, continue to fulfil their respective payment obligations whilst significantly improving on previous payment arrears. With future demand for domestic gas in Tanzania taking off and pipeline infrastructure in place with substantial spare capacity available, Wentworth and its partners can expand and meet this growing demand over the next few years.

Wentworth is now perfectly poised for growth, both by adding to its current Tanzanian production base and by seeking accretive growth opportunities outside of Tanzania.  The Company's strong, loyal institutional shareholder base, combined with its strengthening balance sheet and simplified corporate structure, is creating many new opportunities for management to pursue.

I would like to thank all shareholders for their continued support, and I would also like to thank the entire Wentworth team for their hard work and loyalty that they have demonstrated through the past year.

Robert McBean

Chairman

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

    Year ended 31 December
  Note 2018
$000
2017
$000
       
       
Total revenue 5 16,224 13,440
       
Production and operating costs   (2,290) (3,484)
Depletion 13 (7,803) (4,079)
Total cost of sales   (10,093) (7,563)
       
Gross profit   6,131 5,877
       
Recurring administrative costs 6 (6,289) (6,196)
Amounts capitalised to E&E assets   664 1,582
Impairment loss on E&E assets 12 (41,598) -
Provision for Tanzania Government receivables 11 (4,959) -
Management restructuring costs 7 (940) -
Redomicile costs   (1,393) -
Share-based payment charges 21 (98) (215)
Depreciation and depletion 13 (12) (12)
Loss on sale of PPE   (3) -
Tanzanian withholding tax costs 24 (993) -
Total costs   (55,621) (4,841)
       
(Loss)/profit from operations   (49,490) 1,036
       
Finance income 8 2,659 2,386
Finance costs 8 (1,616) (3,737)
Loss before tax   (48,447) (315)
       
Current tax expense 24 (63) -
Deferred tax expense 24 (26,714) (394)
 

 
  (26,777) (394)
Net loss and comprehensive loss   (75,224) (709)
       
Net loss per ordinary share      
Basic and diluted (US$/share) 23 (0.40) -
       

1 Adjusted earnings before interest, taxation, depreciation, depletion and amortisation, impairment, management restructuring costs, redomicile costs, share-based payments provisions and pre-licence expenditures

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

   

Note
31 December
2018
$000
31 December
2017
$000
       
ASSETS      
Current assets      
Cash and cash equivalents   11,903 3,750
Trade and other receivables 9 7,553 13,513
TPDC receivables 10 5,238 15,550
    24,694 32,813
Non-current assets      
Tanzania Government receivables 11 - 4,959
Exploration and evaluation assets 12 8,129 47,921
Property, plant and equipment 13 83,777 90,336
Deferred tax asset 24 4,036 30,751
    95,942 173,967
Total assets   120,636 206,780
       
LIABILITIES      
Current liabilities      
Trade and other payables 15 3,207 5,726
Overdraft credit facility 16 2,500 2,500
Current portion of long-term loans 17 6,946 7,260
Contingent PTTEP liability 18 848 2,189
    13,501 17,675
Non-current liabilities      
Long-term loans 17 1,688 8,636
Decommissioning provision 19 969 865
    2,657 9,501
Equity      
Share capital 22 416,426 416,426
Equity reserve   26,588 26,490
Accumulated deficit   (338,536) (263,312)
    104,478 179,604
Total liabilities and equity   120,636 206,780
       
       
       

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

   

 

Note
 

Number of shares
 

Share capital
 

Equity reserve
 

Accumulated
deficit
 

Total
 equity
      $000 $000 $000 $000
             
             
Balance at 31 December 2016   169,534,969 411,493 26,275 (261,857) 175,911
Net loss and comprehensive loss   - - - (709) (709)
Share based compensation 21 - - 215 - 215
Issued of share capital   16,953,496 5,527 - - 5,527
Share issue costs, net of tax   - (594) - - (594)
Balance at 31 December 2017 as previously reported   186,488,465 416,426 26,490 (262,566) 180,350
IFRS 9 transitional adjustment 2 - - - (746) (746)
Restated balance at 31 December 2017   186,488,465 416,426 26,490 (263,312) 179,604
 

Net loss and comprehensive loss
   

-
 

  -
 

-
 

(75,224)
 

(75,224)
Share based compensation 21 - - 98 - 98
Balance at 31 December 2018   186,488,465 416,426 26,588 (338,536) 104,478
             


CONSOLIDATED STATEMENT OF CASH FLOWS

      Year ended 31 December
  Note     2018
$000
2017
$000
           
Operating activities          
Net loss for the year       (75,224) (709)
Adjustments for:          
Depreciation and depletion 13     7,815 4,091
Impairment loss on E&E assets 12     41,598 -
Provision for Tanzania Government receivables 11     4,959 -
Finance (income)/costs, net       (1,043) 1,351
  Deferred tax expense 24     26,714 394
Share based compensation 21     98 215
Loss on sale of PPE       3 -
        4,920 5,342
Change in non-cash working capital 27     1,576 (5,363)
Net cash generated from/(utilized in) operating activities       6,496 (21)
           
Investing activities          
Additions to exploration and evaluation assets 27     (1,806) (2,383)
Additions to property, plant and equipment 27     (1,968) (1,728)
Reduction of long-term receivable 27     15,377 7,030
Proceeds from sale of office assets 13     3 -
Net cash from investing activities       11,606 2,919
           
Financing activities          
Issue of share capital, net of issue costs       - 4,933
Principal term-loan repayments 17     (6,996) (5,346)
Debt restructuring fee 17     - (83)
Drawn on overdraft credit facility       - 2,500
Interest paid 16/17     (1,612) (1,809)
Payment of contingent PTTEP liability 18     (1,341) (322)
Net cash used in financing activities       (9,949) (127)
           
           
Net change in cash and cash equivalents       8,153 2,771
Cash and cash equivalents, beginning of the period       3,750 979
Cash and cash equivalents, end of the period       11,903 3,750


1.  Incorporation and basis of preparation

Wentworth Resources Plc ("Wentworth" or the "Company") is an East Africa-focused upstream oil and natural gas company. These audited consolidated financial statements include the accounts of the Company and its subsidiaries (collectively referred to as "Wentworth Group of Companies" or the "Group"). The Company is actively involved in oil and gas exploration, development and production operations. Wentworth is incorporated in Jersey, having completed its re-domicile from Canada effective 26 October 2018. Shares of the Company as at 31 December 2018 were widely held and listed on the AIM part of the London Stock Exchange (ticker: WEN). Full details of both the re-domicile and the Oslo Børs de-listing which became effective on 13 February 2019 are available in the Directors' Report.

 

The Company's principal place of business is located at Thames Tower, 2nd Floor, Station Road, Reading RG1 1LX after being relocated from 3210, 715 - 5 Avenue, SW Calgary, Canada.

 

The Company maintain offices in Dar es Salaam, Tanzania and Reading, UK.

 

Basis of presentation and statement of compliance

These consolidated financial statements have been prepared on a historical cost basis and have been prepared using the accrual basis of accounting. The consolidated financial statements are prepared in accordance with International Financial Reporting Standard ("IFRS") as issued by the International Accounting Standards Board ("IASB"). 

 

The consolidated financial statements were approved by the Board of Directors on 24 April 2019.

 

Functional and presentation currency

These consolidated financial statements are presented in US dollars which is the functional currency the majority of its subsidiaries.

 

Basis of consolidation

These consolidated financial statements include the accounts of the Company and its subsidiaries.  Subsidiaries are entities that the Company controls. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and can affect those returns through its authority over the investee.  The existence and effect of potential voting rights are considered when assessing whether a company controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are deconsolidated from the date that control ceases. The following legal entities are within the Wentworth Group of Companies:

  

 

Legal entity Registered Holdings at December 31, 2018 Functional currency
Wentworth Resources plc Jersey Ultimate Parent US dollar
Wentworth Resources (UK) Limited United Kingdom 100% GBP
Wentworth Holdings (Jersey) Limited Jersey 100% US dollar
Wentworth Tanzania (Jersey) Limited Jersey 100% US dollar
Wentworth Gas (Jersey) Limited Jersey 100% US dollar
Wentworth Gas Limited Tanzania 100% US dollar
Cyprus Mnazi Bay Limited Cyprus 39.925% US dollar
Wentworth Mozambique (Mauritius) Limited Mauritius 100% US dollar
Wentworth Mocambique Petroleos, Limitada Mozambique 100% US dollar

 

All inter-company transactions, balances and unrealized gains on transactions between the parent and subsidiary companies are eliminated on consolidation.

 Future accounting pronouncements

The following amended standards and interpretation are effective for financial years commencing on or after 1 January 2019. The Group does not intend to adopt the standards below before their mandatory application date.

New and amended standards

 

Standard

Description Effective date EU Endorsement Status
IFRS 16 Leases 1 January 2019 Endorsed
IFRS 13 (amendments) Business combinations 1 January 2019 Endorsed
IAS 12 (amendments) Income taxes 1 January 2019 Endorsed
IFRIC 23 Uncertainties over income tax treatments 1 January 2019 Endorsed

  

The Company intends to adopt above listed standards and interpretation in its financial statements for the annual period beginning on 1 January 2019. The Company does not expect the interpretation to have a material impact on the financial statements.

 

2.  Summary of accounting policies


The principal accounting policies applied in the preparation of these Company
and Group consolidate financial statements are set below. These policies have
been consistently applied to all the years presented, unless otherwise stated.

 

Joint arrangements

The analysis of joint arrangements requires management to analyse numerous agreements and the requirements of IFRS 10 and IFRS 11. Several judgements and estimates are made by management including whether joint control exists and the extent of exposure to the underlying assets and liabilities of the joint arrangement.  The Company has a joint arrangement through its 39.925% ownership in Cyprus Mnazi Bay Limited, which is classified as a joint operation.

Financial instruments

Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred to an independent third party and the Company has transferred substantially all risks and rewards of ownership. Financial assets and liabilities are offset and the net amount is reported on the consolidated statement of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intent to settle on a net basis or realize the asset and settle the liability simultaneously.

 

All financial instruments are initially recognized at fair value on the consolidated statement of financial position depending on the purpose for which the instruments were acquired.  The Company has classified each financial instrument into one of the following categories:  i) fair value through profit and loss, ii) loans and receivables, and iii) other financial liabilities. 

 

Subsequent measurement of financial instruments is based on their classification.

(i) Financial assets and liabilities at fair value through profit and loss

A financial asset or liability classified in this category is recognized at each period at fair value with gains and losses from revaluation being recognized in profit or loss.  Additionally, a financial asset or liability is classified in this category if acquired principally for the purpose of selling or repurchasing in the short-term. Derivatives are included in this category unless they are designated as hedges.


(ii) Loans and receivables

Loans and receivables are initially measured at fair value plus directly attributable transaction costs and are subsequently recorded at amortized cost using the effective interest method.

Long-term receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Long-term receivables are initially recognized at fair value based on the discounted cash flows.  The discount rate is based on the credit quality and term of the financial instrument. The financial instrument is subsequently valued at amortized costs by accreting the instrument over the expected life of the assets. The accretion associated with instruments valued at amortized cost is reported in profit/(loss) each reporting period.  The fair value of the Company's trade and other receivables approximates their carrying values due to the short-term nature of these instruments. 

 

(iii) Other financial liabilities

Other financial liabilities are initially measured at fair value less directly attributable transaction costs and are subsequently recorded at amortized cost using the effective interest method.

Long-term loans and other long-term liabilities are non-derivative financial assets with either fixed or determinable payments or no payment terms and which are not quoted in an active market. 

Long-term loans are initially recognized at fair value based on the amounts received.

 

Cash and cash equivalents

Cash and cash equivalents include cash on hand, term deposits and short-term highly liquid investments with the original term to maturity of three months or less, which are convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of changes in value.

 

Long-term receivables

Long-term receivables plus applicable accrued interest are initially recognized at their fair value based on the discounted cash flows.  The discounted cash flows are reviewed at least every year to adjust for variations in the estimated future cash flows with the change in estimate reported in profit or loss. The discount rate is based on the credit quality and term of the financial instrument.  The financial instrument is subsequently valued at amortized costs by accreting the instrument over the life of the asset.  The accretion is reported in profit or loss.

 

E&E exploration assets

E&E costs, including costs of licence acquisition, technical services and studies, exploratory drilling, whether successful or unsuccessful, and testing and directly attributable overhead, are capitalized as E&E assets according to the nature of the assets acquired. These costs are accumulated in cost centres by well, field or exploration area pending determination of technical feasibility and commercial viability.

E&E assets are assessed for impairment if (i) sufficient data exists to determine technical feasibility and commercial viability, and (ii) facts and circumstances suggest that the carrying amount exceeds the recoverable amount.

The technical feasibility and commercial viability of extracting a resource is generally considered to be determinable when proven and/or probable reserves are determined to exist. A review of each exploration licence or field is carried out, at least annually, to ascertain whether it is technically feasible and commercially viable. Upon determination of technical feasibility and commercial viability, intangible E&E assets attributable to those reserves are first tested for impairment with the unimpaired amounts reclassified from E&E assets to a separate category within tangible assets within PP&E referred to as oil and gas interests.

Costs incurred prior to the legal awarding of petroleum and natural gas licences, concessions and other exploration rights are recognized in profit or loss as incurred.

 

PP&E - oil and natural gas properties

Items of PP&E, which include oil and gas development and production assets, are measured at cost less accumulated depletion and depreciation and accumulated impairment losses. PP&E assets include costs incurred in developing commercial reserves and bringing them into production, such as drilling of development wells, tangible costs of facilities and infrastructure construction, together with the E&E expenditures incurred in finding the commercial reserves that have been reclassified from E&E assets as outlined above, the projected cost of retiring the assets and any directly attributable general and administrative expenses. Expenditures on developed oil and natural gas properties are capitalized to PP&E when it is probable that a future economic benefit will flow to the Company as a result of the expenditure and the cost can be reliably measured. The initial cost of an asset is comprised of its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of any decommissioning obligations associated with the asset and borrowing costs on qualifying assets.  When significant parts of an asset with PP&E, including oil and gas interests, have different useful lives, they are accounted for as separate items (major components). Costs incurred subsequent to the determination of technical feasibility and commercial viability and the costs of replacing parts of PP&E are recognized as capitalized oil and gas interests only when they increase the future economic benefits embodied in the specific asset to which they relate.  Subsequent changes in estimated decommissioning obligation due to changes in timing, amounts and discount rates are included in the cost of the asset.  Such capitalized oil and gas interests generally represent costs incurred in developing proved and/or probable reserves and bringing in or enhancing production from such reserves and are accumulated on a field or geotechnical area basis. The carrying amount of any replaced or sold component is derecognized. The costs of the day-to-day operating of PP&E are recognized in profit or loss as incurred.

 

Depletion

The net carrying amount of PP&E is depleted on a field by field unit of production method by reference to the ratio of production in the year to the related proven and probable reserves. If the useful life of the asset is less than the reserve life, the asset is depreciated over its estimated useful life using the straight-line method.  Future development costs are estimated considering the level of development required to produce the proven and probable reserves. These estimates are reviewed by third party independent reserves engineers. Changes in factors such as estimates of reserves that affect unit-of-production calculations are dealt with on a prospective basis. Capital costs for assets under construction included in development and production assets are excluded from depletion until the asset is available for use, that is, when it is in the location and condition necessary for it to be capable of operating in the manner intended by management.

 

Disposals

Oil and natural gas properties are derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss on derecognition of the asset, including farm out transactions or asset sales or asset swaps, is calculated as the difference between the proceeds on disposal, if any, and the carrying value of the asset, is recognized in profit or loss in the period of derecognition.

 

PP&E - office and other equipment

Office and other equipment are carried at cost less accumulated depreciation and impairment losses.  Depreciation of the cost of these assets less residual value is charged to profit and loss on a straight-line basis over their estimated useful economic lives of between three and five years.

 

Decommissioning obligation

Decommissioning obligations are recognized for legal obligations related to the decommissioning of long-lived tangible assets that arise from the acquisition, construction, development or normal operation of such assets.  A liability for decommissioning is recognized in the period in which it is incurred and when a reasonable estimate of the liability can be made with the corresponding decommissioning provision recognized by increasing the carrying amount of the related long-lived asset.  The recognized decommissioning provision is subsequently allocated in a rational and systematic method over the underlying asset's useful life.  The initial amount of the liability is accreted by charges to the profit or loss to its estimated future value.

 

Impairment

Non-financial assets

The carrying amounts of the Company's non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment.

E&E assets are assessed for impairment when facts and circumstances suggest that the carrying amount exceeds the recoverable amount and when they are reclassified to PP&E. For the purpose of impairment testing, E&E assets are grouped by concession or field with other E&E and PP&E belonging to the same CGU. The impairment loss will be calculated as the excess of the carrying value over recoverable amount of the E&E impairment grouping and any resulting impairment loss is recognized in profit or loss.  The recoverable amount of a CGU is the greater of its value in use and its fair value less costs to sell. In 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.  In assessing fair value less costs to sell, the estimated future cash flows are discounted to their present value using an after-tax discount rate that reflects current market assessments of the time value of money and the risk specific to the asset.  Fair value less costs to sell is generally computed by reference to the present value of the future cash flows expected to be derived from production of proved and probable reserves.

PP&E will be tested for impairment whenever events and circumstances arising during the development and production phase indicate that the carrying amount of a PP&E may exceed its recoverable amount. For the purpose of impairment testing, PP&E will be grouped into the smallest group of assets that generate cash inflows that are largely independent of cash inflows from other assets or groups of assets; the CGU. The aggregate carrying value will be compared against the expected recoverable amount of the CGU. The recoverable amount of a CGU is the greater of its value in use and its fair value less costs to sell.  In 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.  In assessing fair value less costs to sell, the estimated future cash flows are discounted to their present value using an after-tax discount rate that reflects current market assessments of the time value of money and the risk specific to the asset.  Fair value less costs to sell is generally computed by reference to the present value of the future cash flows expected to be derived from production of proved and probable reserves. CGU's are generally defined by field except where a number of field interests can be grouped because the cash inflows generated by the fields are interdependent. Impairment losses recognized in respect of CGU's are allocated first to reduce the carrying amount of goodwill, if any, allocated to the units and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro-rata basis.

Impairment losses recognized in prior years are assessed at each reporting date for any indication that the loss has decreased or no longer exists. Impairments are reversed when events or circumstances give rise to changes in the estimate of the recoverable amount since the period the impairment was recorded. An impairment loss is reversed only to the extent that the CGU's carrying amount does not exceed the carrying amount that would have been determined, net of depletion, if no impairment loss had been recognized.  An impairment loss in respect of goodwill is not reversed.

 

Financial assets

A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.

All impairment losses are recognized in profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. For financial assets measured at amortized cost the reversal is recognized in profit or loss.

 

Share capital

The proceeds from the exercise of share options and the issuance of shares from treasury are recorded as share capital in the amount for which the option, warrant, or treasury share enables the holder to purchase a share in the Company.

Share capital issued for non-monetary consideration is recorded at an amount based on fair market value of the shares issued.

 

Share issuance costs

Commissions paid to underwriters, and other related share issue costs, such as legal, auditing and advisory, on the issue of the Company's shares are charged directly to share capital, net of tax.

 

Share based payments

The fair value of the options at the date of the grant is determined using the Black-Scholes option pricing model and share based compensation is accrued and charged to profit or loss, with an offsetting credit to equity reserve over the vesting periods. A forfeiture rate is estimated on the grant date and is adjusted to reflect the actual number of options that vest.

 

Capitalization of interest

The Company capitalizes interest expense incurred during the construction phase of the projects, except E&E assets which were funded by the related financing.

 

Revenue recognition

Natural gas revenues are recognized upon the transfer of control over its gas to its customers, TPDC and TANESCO, which is when delivery is made to them through the offtake network.

Investment income is accrued on a time basis by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying value.

 

Income taxes

Tax expense comprises current and deferred tax. Tax is recognized in the profit or loss except to the extent it relates to items recognized in other comprehensive income ("OCI") or directly in equity.

 

Current income tax

Current tax expense is based on the results for the period as adjusted for items that are not taxable or not deductible. Current tax is calculated using tax rates and laws that were enacted or substantively enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities.

 

Deferred income tax

Deferred taxes are the taxes expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the consolidated statement of financial position and their corresponding tax basis. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are recognized to the extent that it is probable that future taxable profits are expected to be available against which deductible temporary differences to the tax basis can be utilized. Deferred income tax assets and liabilities are not recognized if the temporary difference arises from the initial recognition of goodwill, if any, or from the initial recognition (other than in a business combination) of other assets in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognized for taxable temporary differences arising on investments in subsidiaries and joint arrangements except where the reversal of the temporary difference can be controlled, and it is probable that the difference will not reverse in the foreseeable future.

Deferred tax assets are reviewed at each reporting period and reduced to the extent that it is no longer probable that sufficient future taxable profits are expected to be available to allow all or part of the asset to be recovered. Deferred tax assets are recognized for taxable temporary differences arising on investments in subsidiaries to the extent that it is probable that the temporary difference will reverse in the foreseeable future and future taxable profits are expected to be available against which the temporary difference can be utilized.

 

Foreign currency translation

Items included in the financial statements of the Company and its subsidiaries are measured using the currency of the primary economic environment in which the legal entity operates (the "functional currency"). Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transaction.  Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities not denominated in the functional currency of an entity are recognized in profit or loss.

The functional currency of all Wentworth subsidiaries is US dollars except for Wentworth Resources (UK) Limited which is Pound Sterling.  The assets and liabilities of this Company are translated into US dollars at the period-end exchange rate.  The income and expenses of the Company are translated to US dollars at the average exchange rate for the period.

Translation gains and losses are included in other comprehensive income; however, this subsidiary has limited operations so there is no significant amount of foreign exchange gains and losses to include in other comprehensive income.  All other foreign exchange gains and losses are recognized in profit or loss.

 

Changes in accounting policies

On 1 January 2018, the Company adopted new standards with respect to IFRS 9 - Financial Instruments and IFRS - 15 Revenue from Contracts with Customers.

 

IFRS 9 - Effective 1 January 2018, the Company has adopted IFRS 9 "Financial Instruments" ("IFRS 9"). IFRS 9 sets out requirements for recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement ("IAS 39").

 

On 1 January 2018, the Company:

 

  • Identified the business model used to manage its financial assets and classified its financial instruments into the appropriate IFRS 9 category;
     
  • Applied the 'expected credit loss' ("ECL") model to financial assets classified as measured at amortized cost.

 

The following table shows the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 as at 1 January 2018 for each class of the Company's financial assets and financial liabilities.

 

  Measurement category
Financial Instrument IAS 39 IFRS 9
Cash and cash equivalents Loans and receivables Amortized cost
Trade and other receivables Loans and receivables Amortized cost
Trade and other payables Loans and receivables Amortized cost
Long-term loans(1) Loans and receivables Amortized cost

 

  1. Carrying value was adjusted by $0.75 million on adoption of IFRS 9.

 

The classification and measurement of financial instruments under IFRS 9 did not result in any adjustments to the Company's opening retained earnings as at 1 January 2018 except for an adjustment for debt modifications as the Company renegotiated the repayment terms on its long-term loan, effective 31 January 2017. Under IFRS 9, the amortized cost of the financial liability must be recalculated as the present value of the estimated future contractual cash flows that are discounted at the original effective interest rate. The difference in the carrying amount and the calculated amount is recognized in profit and loss

 

The Company calculated a modification loss of $0.75 million on the $20 million TIB Loan. The impact on the condensed consolidated interim statement of financial position is shown below:

 

 

As at: 31 December
2017
$000
Adjustments

 

$000
1 January
2018
$000
Long-term loans 15,150 746 15,896
Accumulated deficit (262,566) (746) (263,312)

 

The new standard also introduces ECL model for evaluating impairment of financial assets. On 1 January 2018, the Company applied the ECL model to financial assets classified as measured at amortized cost. The new model will result in more timely recognition of expected credit losses. The ECL model applies to the Company's receivables. As at 31 December 2018, the Company's trade accounts receivable included gas sales to TPDC and TANESCO, and 51 percent were outstanding for less than 90 days. The average ECL on the Company's trade accounts receivable was nil percent.

To effect the changes under IFRS 9, the following revised policy has been applied to current period balances effective 1 January 2018. The Company applied IFRS 9 retrospectively but elected not to restate comparative information. As such the comparative information provided continues to be accounted for in accordance with the Company's previous accounting policy as disclosed in the annual consolidated financial statements for the year ended 31 December 2017.

 

IFRS 15 - The Company adopted IFRS 15, Revenue from Contracts ("IFRS 15") on 1 January 2018 using the modified retrospective approach. The Company has completed the process of reviewing sales contracts with its two customers (TPDC and TANESCO) using the IFRS 15 principles based five step model and concluded that there is no impact on opening retained earnings as of 1 January 2018 and on revenue recognition for 2018. 

 

Earnings or loss per share ("EPS")

Basic earnings or loss per share is calculated by dividing profit or loss attributable to owners of the Company (the numerator) by the weighted average number of ordinary shares outstanding (the denominator) during the period. The denominator is calculated by adjusting the shares outstanding at the beginning of the period by the number of shares bought back or issued during the period, multiplied by a time-weighting factor.

Diluted EPS is calculated by adjusting the earnings and number of shares for the effects of all dilutive potential ordinary shares deemed to have been converted at the beginning of the period or if later, the date of issuance. The effects of anti-dilutive potential ordinary shares are ignored in calculating diluted EPS.

 

3.  Critical accounting judgements and key sources of estimation uncertainty

 

In applying the Company's accounting policies, the preparation of consolidated financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts may differ materially from these estimates due to changes in general economic conditions, changes in laws and regulations, changes in future operating plans and the inherent imprecision associated with estimates. Significant estimates and judgments used in the preparation of these consolidated financial statements include the assessment of impairment triggers related to E&E and PP&E, estimation of decommissioning obligations, collectability of trade and other receivables and of long-term receivables, and recognition of a deferred tax asset.

 

Accounting treatment of CMBL

The Group holds a 31.94% participation interest in the Mnazi Bay Concession through two subsidiaries.  Wentworth Gas Limited ("WGL"), which is a wholly owned subsidiary, owns a 25.40% participation interest and Cyprus Mnazi Bay Limited ("CMBL") owns a 16.38% participation interest of which the Group's proportionate share is 6.54% (i.e. Wentworth's interest of 39.925% interest in CMBL multiplied by 16.38% participation interest). CMBL is considered a jointly controlled entity and accounted for as a joint operation rather than a joint venture. The Group proportionately consolidates CMBL as related contractual agreements establish that the parties to the joint arrangement have rights to the assets and obligations for the liabilities of ownership in proportion to their interest in the arrangement.

 

Recoverable value of Tembo E&E and Mnazi Bay PP&E costs

E&E are inherently judgemental to value. The amounts for E&E represent active exploration projects and investments. These amounts are expensed to profit or loss as exploration costs unless the determination process is not completed and there are no indications of impairment at the reporting date or commercial reserves are established. The outcome of ongoing exploration and evaluation activities and whether the carrying value of E&E will ultimately be recovered is inherently uncertain and requires significant judgement and estimates.

Management performs impairment tests on the Company's PP&E when indicators of impairment are present. The assessment of impairment indicators is subjective and considers the various internal and external factors such as the financial performance of individual CGUs, market capitalization and industry trends. In addition, the impairment assessment is impacted by how management determines the composition of CGUs.

 

Reserve estimates

Oil and natural gas reserves, prepared by an external independent reserve evaluator as at December 31, 2018, are used in the calculation of depletion, impairment and impairment reversal determinations and recognition of deferred tax asset. Reserve estimates are based on engineering data, estimated future prices and costs, expected future rates of production and the timing of future capital expenditures; all of which are subject to many uncertainties and estimations. The Company expects that, over time, its reserve estimates will be revised upward or downward based on updated information such as the results of future drilling, oil and gas production levels and reservoir performance and may also be affected by changes in commodity prices.

 

Supply of Gas from Mnazi Bay

The gas sales price and cost base of production operations are largely fixed in nature. The associated sensitivities ensure that field production and supply volumes are critical to the commerciality of the project. Whilst the benefits of increased production volumes are clear, the opposite is equally true during operational downtime, prolonged or permanent gas supply outages which may in turn impact upon the commerciality of the project. Mnazi Bay currently has 5 producing wells and is committed to supplying a minimum quota of gas to TPDC and TANESCO of 82.5 MMscf/d, the daily committed quotient ("DCQ"). Any significant adverse change to daily production operations may trigger an impairment review under IFRS 6 and IAS 36 and a subsequent write down in the book value of the Mnazi Bay asset which currently totals $84.7 million.

 

Demand for gas from Mnazi Bay

Gas sales in Tanzania are not only constrained by the ability of the joint-venture to supply gas to TPDC and TANESCO but are also contingent upon their ability to offtake gas from the Mnazi Bay field. There are other domestic gas producers in Tanzania that sell to both TPDC and TANESCO in addition to there being alterative sources of supply such as year-round solar and seasonal hydro-electric generation. The continued commerciality of the project is contingent upon the continued demand for Mnazi Bay gas.

 

Foreign currency exposure

Foreign exchange rate risk is the risk that the Company suffers financial loss as a result of changes in the value of an asset or liability or in the value of future cash flows due to movements in foreign currency exchange rates.  Wentworth operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Tanzanian Shilling and Pound Sterling against the presentation currency of US dollars. All group revenue is generated from gas sales in Tanzania in which the Production Sharing Agreement is currently in the Gas Testing and Commissioning phase. Upon declaration of COD, which is contingent upon the establishment of certain administrative and financial milestones by the Government of Tanzania, the Production Sharing Agreement will enter the Commercial Development phase under which both TPDC and TANESCO may elect to pay the operator in either US Dollars or Tanzanian Shillings for the gas that is produced and sold. Additionally, while some costs are denominated in Tanzanian Shillings most of the operating expenditures are denominated in US Dollars which would lead to an increased currency exposure. The Company does not currently undertake any currency hedges.

 

Payment for Mnazi Gas

Payment terms for Mnazi Bay gas have improved during 2018, however there remains an arrears of approximately three months gas sales for Mnazi Bay gas. The continued receipt and settlement of gas sales invoices to TPDC and TANESCO is critical to the cash-flows of the group to enable it to meet its liabilities as they fall due.

 

Abandonment provision

Decommissioning and Abandonment obligations have been estimated using technology at current prices inflated and discounted using discount rates that reflect current market assessments of the time value of money and the risks specific to each liability. These assessments are subjective by nature and may be significantly more or less than management's current discounted cost estimations.

 

Taxes

The Group operates in countries where the legal and tax systems are less developed, which increases the requirement for management to make estimates and assumptions as to whether certain payments will be required related to matters such as income taxes, value added taxes, and other indirect taxes. A provision is recognized in the financial statements for such matters if it is considered probable that a future outflow of cash resources will be required. The provision, if any, is subject to management estimates and judgments with respect to the outcome of the event, the costs to defend, the quantum of the exposure and past practice in the country.

The commencement of commercial production and gas sales under the Gas Sales Agreement, currently in the Gas Testing and Commissioning phase, allowed for the recognition of a deferred tax asset within the financial statements. The amount that the company recognizes is subject to the following judgements and uncertainties:

 

  • The timing and discounting of the utilization of tax losses from the current tax pools which are based on management assessments and forecasts of future performance;
     
  • The effective tax rate at which the losses will be utilized at throughout the Group which is currently the prevailing tax rate of the ultimate parent company;
     
  • The status of any current tax assessments and disputes and their impact on the deferred tax pool on a probabilistic basis;
     
  • Any material changes in legislation that may impact upon the fiscal regime on which the deferred tax asset is computed.

 

Recoverability of trade and other receivables

Recoverability of the long-term receivable from TPDC and the Tanzanian Government receivable involves estimating the volume and timing of future gas production from the Mnazi Bay Concession and estimating a discount rate in addition to assessing credit risk. Timing of collection of the long-term receivables is impacted by the rate of production and the timing of the increase of production volumes. The assessment of collectability of amounts owed fromTANESCO and TPDC for past gas sales is subject to significant estimates.  Payment cycles from TANESCO and TPDC vary and are not generally consistent with traditional industry terms of payment of between 30 and 90 days. Management is required to estimate the bad debt provision for this balance based on current and historical payment patterns.  Prolonged periods of non-payment will be provided against in the balance sheet with a corresponding expense being recognised in the income statement.

 

Umoja receivable

The Company has an agreement with TANESCO, TPDC and the Ministry of Energy and Mines ("MEM") in Tanzania to be reimbursed, at cost, for past project development costs associated with transmission and distribution ("T&D") expenditures. The undiscounted face value of the receivable is $6.51 million, however there remain ongoing discussions and uncertainties with respect to final audited amount to be recovered and the timing of the ultimate recovery of this debt and it is for this reason that the Directors have taken the decision to provide in-full against the recovery of this debt in the 2018 accounts without prejudice to the ongoing commercial discussions with the Government.

 

Dissenting shareholders equity buyback

On 26 October 2018 the Company completed its redomicile from Canada to Jersey, full details of which are disclosed within the Directors' Report. As part of the redomicile process and under Canadian law, certain shareholders exercised their rights to dissent to the Continuance thereby exercising their rights to sell their shares back to the company at the fair market value on 26 October 2018. The Company has received notifications over approximately 2.3 million shares and estimates the contingent liability to be £0.7 million. Some uncertainty remains over the final share price valuation and ultimate timing of the share buy-back, albeit this is not considered to be material to these financial statements.

  

4.  Segment information

The Company conducts its business through two major operating business segments. Gas operations include the exploration, development, and production of natural gas and other hydrocarbons.  These activities are carried out in two operating segments - Tanzania ("Mnazi Bay Concession") and Mozambique ("Rovuma Onshore Block"). The Company is on track to relinquish the Tembo block in Northern Mozambique ahead of the end of the current appraisal term on 15 June 2019. The Corporate segment activities include investment income, interest expense, financing related expenses, share based compensation relating to corporate activities and general corporate expenditures.  Inter-segment transfers of products, which are accounted for at market value, are eliminated on consolidation.

 

Net income/(loss) for the year ended 31 December 2018

 

  Tanzania Operations
$000
Mozambique Operations
$000
  Corporate
$000
  Consolidated
$000
         
Total revenue 16,224 - - 16,224
         
Production and operating costs (2,290) - - (2,290)
Depletion (7,803) - - (7,803)
Total cost of sales (10,093) - - (10,093)
         
Gross profit 6,131 - - 6,131
         
Recurring administrative costs (3,151) (19) (3,119) (6,289)
Amounts capitalized as E&E assets 449 - 215 664
Impairment loss on E&E assets - (41,598) - (41,598)
Provision for Tanzania Government receivables (4,959) - - (4,959)
Management re-structuring costs - - (940) (940)
Redomicile costs - - (1,393) (1,393)
Share-based payment charges (5) - (93) (98)
Depreciation and depletion - - (12) (12)
Loss of sale of PPE (3) - - (3)
Tanzanian withholding tax costs (993) - - (993)
Total costs (8,662) (41,617) (5,342) (55,621)
         
Loss from operations (2,531) (41,617) (5,342) (49,490)
         
Finance income 2,659 - - 2,659
Finance costs (1,592) - (24) (1,616)
Loss before tax (1,464) (41,617) (5,366) (48,447)
         
Current tax expense (33) - (30) (63)
Deferred tax expense (26,714)   - - (26,714)
  (26,747) - (30) (26,777)
 

Net loss and comprehensive loss
 

(28,211)
 

(41,617)
 

(5,396)
 

(75,224)


 

Selected balances at 31 December 2018

 

         
Current assets 23,891 392 411 24,694
Exploration and evaluation assets 8,129 - - 8,129
Property, plant and equipment 83,773 - 4 83,777
Deferred tax asset 4,036 - - 4,036
 

Total assets
 

119,829
 

392
 

415
 

120,636
         
Current liabilities 12,370 428 703 13,501
Non-current liabilities 2,657 - - 2,657
 

Total Liabilities
 

15,027
 

428
 

703
 

16,158

 

Capital additions for the year ended 31 December 2018

 

         
Additions to exploration and
  evaluation assets
- 1,806 - 1,806
Additions to property, plant
  and equipment
  1,256 - 6 1,262

 

 

Net income/(loss) for the year ended 31 December 2017

 

  Tanzania Operations
$000
Mozambique Operations
$000
  Corporate
$000
  Consolidated
$000
         
Total revenue 13,440 - - 13,440
         
Production and operating costs (3,484) - - (3,484)
Depletion (4,079) - - (4,079)
Total cost of sales (7,563) - - (7,563)
         
Gross profit 5,877 - - 5,877
         
Recurring administrative costs (2,717) (27) (3,452) (6,196)
Amounts capitalized as E&E assets 590 - 992 1,582
Share-based payment charges (191) - (24) (215)
Depreciation and depletion - - (12) (12)
Total costs (2,318) (27) (2,496) (4,841)
         
Profit/(loss)/from operations 3,559 (27) (2,496) 1,036
         
Finance income 2,386 - - 2,386
Finance costs (3,622) - (115) (3,737)
Profit/(loss) before tax 2,323 (27) (2,611) (315)
         
Deferred tax expense (394) - - (394)
  (394) - - (394)
 

Net profit/(loss) and comprehensive profit/(loss)
 

1,927
 

(27)
 

(2,609)
 

(709)

 

 

Selected balances at 31 December 2017

 

         
Current assets 30,994 169 1,650 32,813
Tanzania Government receivables 4,959 - - 4,959
Exploration and evaluation assets 8,129 39,792 - 47,921
Property, plant and equipment 90,327 - 9 90,336
Deferred tax assets 30,751 - - 30,751
 

Total assets
 

165,160
 

39,961
 

1,659
 

 206,780
         
Current liabilities 17,009 84 582 17,675
Non-current liabilities 9,501 - - 9,501
 

Total Liabilities
 

26,510
 

84
 

582
 

27,176
         

 

Capital additions for year ended 31 December 2017

 

         
Additions to exploration and
  evaluation assets
- 2,383 - 2,383
Additions to property, plant
  and equipment
  1,057 - 4 1,061

 

 

5.  Revenue

 

  2018
$000
2017
$000
Revenue from gas sales 16,169 13,440
Revenue from condensate sales 55 -
  16,224 13,440

 

6.  General and administrative costs

 

  2018
$000
2017
$000
Employee salaries and benefits 2,685 2,723
Contractors and consultants 775 686
Travel and accommodation 347 443
Professional, legal and advisory 1,257 958
Office and administration 696 730
Corporate and public company costs 529 656
Total general and administrative costs 6,289 6,196

 

  

7.  Management re-structuring costs

Management re-structuring costs total $940k (2017: $nil) and comprise Calgary employee severance and travel expenses related to the re-structuring of the senior management team, which is now based in Reading, United Kingdom in alignment with the redomicile of Wentworth Resources Plc (see Directors' Report).

 

8.  Finance income and finance costs

 

 

  2018
$000
2017
$000
Finance income    
Accretion - TPDC receivable (Note 10) 2,188 2,080
Accretion - Tanzanian Government receivable (Note 11) 471 306
   

2,659
 

2,386
     
Finance costs    
Accretion - decommissioning provision (104) (92)
Accretion - other liability - (142)
Change in estimates - TPDC receivable (Note 10) - (872)
Change in estimates - Tanzanian Government receivable (Note 11) (471) (828)
Change in estimates - other liability (Note 18) - (9)
Interest expense and other finance costs (980) (1,656)
Foreign exchange loss (61) (138)
   

(1,616)
 

(3,737)

 

  

9.  Trade and other receivables

 

  2018
$000
2017
$000
     
Trade receivable from TPDC
Other receivable from TPDC 
Trade receivable from TANESCO
5,760
513
491
12,008
-
1,140
Other receivables 789 365
   

7,553
 

13,513

 

Other receivables from TPDC represent income tax $513k (2017 - $nil)  paid by Wentworth Gas Limited, a wholly owned subsidiary of the Company. The income tax will be recovered from TPDC profit gas (security revenue).

 

10.  TPDC receivables  

On 30 June 2009, the Company and TPDC entered into a Joint Operating Agreement ("JOA") related to the Mnazi Bay Concession in Tanzania.  Under the terms of the JOA, TPDC has a 20% participating interest share in the Mnazi Bay Development Area production and will pay the Company for 20% of past costs incurred in respect of the Mnazi Bay Concession from TPDC's share of future production.  This receivable from TPDC is considered a financial instrument and initially recorded at fair value based on discounted cash flows and up to 30 June 2019 its carrying amount has been adjusted for accretion and changes in the estimated timing of cash flows.

As at 31 December 2018, the undiscounted receivable from TPDC is $5.2 million ($17.3 million at 31 December 2017).

 

 

  $000
Balance at 31 December 2016 24,836
   
Accretion 2,080
Change in estimated timing of receipt (872)
Retained gas revenue to offset receivable (11,629)
Share of TPDC Mnazi Bay Concession costs paid by the Company 1,135
Balance at 31 December 2017 15,550
   
Accretion 2,188
Retained gas revenue to offset receivable (13,585)
Share of TPDC Mnazi Bay Concession costs paid by the Company 1,085
Balance at 31 December 2018 5,238

 

 

11.  Tanzania Government receivables

As at 31 December 2018, the undiscounted Tanzanian Government receivable is $6.5 million (2017 - $6.5 million). 

 

 

  $000
Balance at 31 December 2016 5,481
Accretion 306
Change in estimated timing of receipt (828)
Balance of amortized cost at 31 December 2017  4,959
Accretion 471
Change in estimated timing of receipt (471)
Provision against amortized balance (4,959)
Balance of amortized cost at 31 December 2018 -
   

 

The fair value of the Tanzanian Government receivable at 31 December 2018, calculated using 10.01% discount rate (2017 - 8.25%) was $5.0 million (31 December 2017 - $5.0 million). The discount rate is variable and is pegged to the $20.0 million credit facility interest rate.

 

The Company has an agreement with the Government of Tanzania (TANESCO, TPDC and the MEM) to be reimbursed for all the project development costs associated with T&D expenditures at cost.  An audit of the Mtwara Energy Project ("MEP") development expenditures was completed in November 2012 and costs of approximately $8.1 million were verified to be reimbursable. After deducting costs associated with the Tariff Equalization Fund and VAT input credits associated with the MEP totaling $1.6 million, the amount agreed to be reimbursed was $6.5 million.

 

During 2017, the Government initiated its first review of the costs to verify the balance owing by it. On February 8, 2018 the Government issued the results of which differed from the previously audited and approved gross receivable of $6.5 million, which the company maintains was accurate and correct.

 

The Government is currently conducting a second review and due to age and uncertainty surrounding the receivable and its recoverability the Company has made a provision in-full within the 2018 accounts against the carrying amount without prejudice to the ongoing commercial discussions with the Government. 

12.  Exploration and evaluation assets

 

  Tanzania
$000
Mozambique
$000
Total
$000
Cost      
Balance at 31 December 2016 8,129 37,409 45,538
Additions - 2,383 2,383
Balance at 31 December 2017 8,129 39,792 47,921
       
Additions - 1,806 1,806
Impairment loss - (41,598) (41,598)
Balance at 31 December 2018 8,129 - 8,129
       

 

The Company performed a technical and commercial review of the Mozambique E&E asset portfolio and determined that Tembo licence  did not provide the Company with suitable monetisation solutions in keeping with Company material growth mandate. At 31 December 2017, all Mozambique E&E assets of $41.6 million were impaired.

 

Tanzania E&E assets were $8.1 million (31 December 2017 - $8.1 million).  The Mnazi Bay Concession agreement expires in 2031.  The Mnazi Bay joint venture partners have identified several prospects within the concession area but outside of the area covering discovered gas reserves and therefore has concluded that an impairment test is not required for the Tanzanian asset. 

 

13.  Property, plant and equipment

 

  Natural gas properties Office  and other equipment  
   

$000
 

$000
Total
$000
Cost      
Balance at 31 December 2016 101,797 596 102,393
Additions 1,057 4 1,061
Balance at 31 December 2017 102,854 600 103,454
       
Additions 1,256 6 1,262
Disposal of assets (82) - (82)
Balance at 31 December 2018 104,028 606 104,634

 

 

Accumulated depreciation and depletion     
Balance at 31 December 2016 (8,448) (579) (9,027)
Depreciation and depletion (4,079) (12) (4,091)
Balance at 31 December 2017 (12,527) (591) (13,118)
       
Depreciation and depletion (7,803) (12) (7,815)
Disposal of assets 76 - 76
Balance at 31 December 2018 (20,254) (603) (20,857)

 

 

Carrying amounts      
31 December 2017 90,327 9 90,336
31 December 2018 83,774 3 83,777

 

The Company assessed triggers for impairment on the natural gas properties and determined that there were no triggers and accordingly an impairment test was not required.  Most of the Company's natural gas is sold under long-term, fixed price gas sales and purchase agreements, eliminating the current volatility in the commodity market.  In addition, the independent valuation of the Company's reserves of $106 million is in excess of the net book value of the Company's PP&E.

 

14.  Subsidiary undertakings

The subsidiary undertakings at 31 December 2018 are:

 

 

Name of Company Country of incorporation Class of shares held Types of ownership Percentage holding Nature of business
Wentworth Resources (UK) Limited United Kingdom Ordinary Direct 100% Investment holding company
Wentworth Holding (Jersey) Limited Jersey Ordinary Direct 100% Investment holding company
Wentworth Tanzania (Jersey) Limited Jersey Ordinary Indirect 100% Investment holding company
Wentworth Gas (Jersey) Limited Jersey Ordinary Indirect 100% Investment holding company
Wentworth Gas Limited Tanzania Ordinary Indirect 100% Exploration production company
Cyprus Mnazi Bay Limited Cyprus Ordinary Indirect 39.925% Exploration production company
Wentworth Mozambique (Mauritius) Limited Mauritius Ordinary Indirect 100% Investment holding company
Wentworth Moçambique Petroleos, Limitada Mozambique Ordinary Indirect 100% Exploration company

 


15.  Trade and other payables

 

  2018
$000
2017
$000
Payable to Maurel & Prom (Operator) 1,710 4,344
Trade payables 413 223
Interest 145 511
Other payables and accrued expenses 939  648
   

3,207
 

5,726

 

Interest represents accrued interest $145k (2017 - $502k) for the $20.0 million credit facility and nil (2017 - $9k) for the $6 million credit facility.

 

16.  Overdraft credit facility

The Company has a one-year, $2.5 million overdraft credit facility with a Tanzanian Government owned bank which is due and repayable on 5 April 2019. The facility can be extended for a further one year at the mutual agreement of the bank and the Company.  The overdraft facility has an interest rate of the lender's base lending rate, minus 1% per annum to be paid monthly.  At 31 December 2018, the lender's base lending rate was 9% and the overdraft credit facility was fully drawn.

Security provided to the lender includes a debenture over the fixed and floating assets of the Company's Tanzanian assets and a deed of assignment of 20% of the revenue and cash flow from sales of natural gas from the Tanzanian assets. 

During the year ended 31 December 2018, the Company paid interest expense $68k (2017 - $75k) on the overdraft credit facility.

 

17.  Long-term loans

 

Credit facilities from Tanzania based banks

On 8 December 2014, Wentworth Gas Limited, a wholly owned subsidiary of the Company, entered into two long-term credit facilities: i) a $20.0 million loan to finance field infrastructure development within the Mnazi Bay Concession in Tanzania and ii) a $6.0 million loan to repay a medium-term loan.  

The term of each loan was initially forty-eight months in duration commencing on the first draw-down date and each loan bears interest at six-month LIBOR rate plus 750 basis points subject to a minimum (floor) of 8% p.a. and a maximum (ceiling) of 9.5% p.a.  Security is in the form of a debenture creating first ranking charge over all the assets of the WGL (assets of WGL include a 25.4% participation interest in the Mnazi Bay Concession), assignment over the TPDC long-term receivable and assignment of revenues generated from the Mnazi Bay Concession.

During the year ended 31 December 2018, the Company incurred interest expense on long-term loans, inclusive of accretion of financing costs, of $0.91 million (2017 - $1.6 million).  A total of $1.5 million was settled in cash during 2018 (2017 - $1.7 million).

 

The carrying amount of the long-term loans include transaction costs of $310k (net of accretion).  At December 31, 2018, the carrying amount of the credit facilities approximates its fair value as the loan's effective interest rate approximates market rates.


 
$000
Credit facilities balance  
Principal balance as at 31 December 2016 20,667
 

Loan repayments during the year
 

(5,346)
   
Principal balance as at 31 December 2017 15,321
   
Loan repayments during the year (6,996)
 

Principal balance as at 31 December 2018
 

8,325
   
Net financing costs at 31 December 2017 (171)
 

Transitional adjustment (None - 2)
 

746
Net financing costs at 01 January 2018 575
 

Accretion during the year
 

(266)
 

Net financing costs at 31 December 2018
 

309
   
 

Carrying amount of long-term loans at 31 December 2018
 

8,634
   
Current 6,946
Non-current 1,688
   

8,634

 

The $20 million credit facility

During 2017, the Company executed amendments to the credit facility agreement, which included the restructuring of principal loan payments and added new provisions. The new provisions were not finalized at the time of the execution of the amendment to the credit facility agreement. On 06 June 2018, the Company formalised the new provisions, which became effective 6 June 2018.

The new provisions contain a requirement for the Company to maintain two financial covenants both calculated semi-annually beginning on 30 June and 31 December. The Debt Service Coverage Ratio provides that the Company has adequate cover to meet it's loan interest and principal repayment obligations for the next  twelve months, while the Loan Life Coverage Ratio provides that adequate free discounted cash flow coverage is maintained for all future loan repayments over the full life of the loan.

The $20.0 million credit facility is subject to interest rate of six-month LIBOR rate plus 750 basis points subject to a minimum (floor) of 8.5% p.a. and no maximum (ceiling). As at 31 December, the six-month interest rate was 10.30%.

Principal repayments on the credit facility are set out in the following table. 

 

 

Principal repayment date

Repayment amount
$000

30 January 2019 1,666
30 April 2019 1,665
30 July 2019 1,666
30 October 2019 1,665
30 January 2020 1,663
  8,325

 

Medium term $6 million credit facility

 

At 31 December 2018, the Medium term $6 million credit facility was fully paid with $2 million paid during the year. 

 

18.  Contingent PTTEP liability

 

  2018
$000
2017
$000
     
Balance at 1 January 2,189 2,360
Accretion - 142
Change in accounting estimate - 9
Payments to reduce liability (1,341) (322)
Balance at 31 December 848 2,189
     

 

As a result of an asset purchase and sale transaction in 2012, the Company has been obliged to make payments with a face value of $3.4 million should certain natural gas production thresholds from Mnazi Bay Concession be reached.  The payable as at 31 December 2018 is $850k (31 December 2017 - $2.2 million).

 

19.  Decommissioning and Abandonment provisions

The Company's decommissioning provisions result from net ownership interests in petroleum and natural gas assets including well sites, pipeline gathering systems, and processing facilities in Tanzania. The operator of the Mnazi Bay Concession estimated the Company's share of the undiscounted inflation-adjusted amount of cash flow required to settle decommissioning obligations for the infrastructure within the Mnazi Bay Concession have to be $4.23 million. The costs are expected to be incurred around 2030. The obligations have been estimated using existing technology at current prices inflated and discounted using discount rates that reflect current market assessments of the time value of money and the risks specific to each liability. The discount and inflation rates used in determining the value of the decommission provision at 31 December 2018 were 12.0% and 2.03%, respectively (2017 - 12.0% and 2.03%, respectively).

 

A reconciliation of the decommissioning obligations is provided below:

 

  2018
$000
2017
$000
Balance at 1 January 865 773
Accretion 104 92
Balance at 31 December 969 865

 

20.  Contingent liabilities

Following the completion of the corporate transition to UK and Oslo Børs delisting, a number of shareholders exercised certain Dissent Rights under Canadian law which would require the Company to buy back their equity holdings at fair value. The Company received Dissent Rights notices over a total of 2,329,326 shares with an anticipated fair value of $710k. As the process has yet to be finalised and fair values agreed, the buy back remains contingent at the balance sheet date.

 

21.  Share-based payments

 

 

  2018
$000
2017
$000
     
Share based compensation recognized in the statement of Comprehensive loss 98 215

 

Movement in the total number of share options outstanding and their related weighted average exercise prices are summarized as follows:

 

  2018 2017
  Number of
options
Weighted average exercise price (US$) (i) Number of
options
Weighted average exercise price (US$)
         
Outstanding at January 1 10,600,000 0.52 10,600,000 0.50
Granted 3,560,301 0.49 - -
Forfeited (1,600,000) 0.49 - -
Outstanding at 31 December 12,560,301 0.49 10,600,000 0.52
           

 

The following table summarizes share options outstanding and exercisable at 31 December 2018:

 

      Outstanding Exercisable
Exercise price (NOK) Exercise price (US$)1 Number of options Weighted average remaining life (years) Number of options
         
3.15 0.36 1,000,000 1.8 1,000,000
3.52 0.40 500,000 3.0 500,000
3.60 0.41 1,800,000 1.8 1,800,000
3.85 0.44 1,850,000 7.0 1,850,000
4.08 0.47 250,000 4.3 250,000
4.70 0.54 200,000 5.4 200,000
4.90 0.56 100,000 3.3 100,000
5.18 0.59 2,800,000 4.8 2,800,000
5.75 0.66 500,000 2.3 500,000
- - 3,560,301 9.9 -
    12,560,301   9,000,000

 

1 The US Dollar to Norwegian Kroner exchange rate used for determining the exercise price at 31 December 2018 is 0.11456.

 

 

The following table summarizes share options outstanding and exercisable at 31 December 2017:

 

      Outstanding Exercisable
Exercise price (NOK) Exercise price (US$) (i) Number of options Weighted average remaining life (years) Number of options
         
3.15 0.38 1,000,000 2.7 1,000,000
3.52 0.43 500,000 4.0 500,000
3.60 0.44 2,300,000 2.8 2,300,000
3.85 0.47 2,000,000 8.0 1,333,338
4.08 0.50 250,000 5.3 250,000
4.70 0.57 200,000 6.4 200,000
4.90 0.60 350,000 4.3 350,000
5.18 0.63 3,500,000 5.8 3,500,000
5.75 0.70 500,000 3.3 500,000
    10,600,000 5.2 9,933,338

 

 

  1. The US Dollar to Norwegian Kroner exchange rate used for determining the exercise price at 31 December 2017 is 0.12166.
     

22.  Share capital

 

  2018
$000
2017
$000
Authorised, called up, allotted and fully paid    
186,488,465 (2017 - 186,488,465) ordinary shares  416,426 416,426

 

23.  Earnings per share

 

Basic and diluted eps

 

 

2018
$000
2017
$000
     
Net loss for the period (75,224) (709)
     
Weighted average number of ordinary shares outstanding 186,488,465 179,846,410
Dilutive weighted average number of ordinary shares outstanding 186,488,465 179,846,410
Net profit/(loss) per ordinary share (0.40) -

 

  

During the year ended 31 December 2018 and 2017, 12,560,301 (2017: 10,600,000) options were excluded from the dilutive weighted average number of shares outstanding because they were anti-dilutive.

 

24.  Tax assessments and income taxes 

Tax assessments

On 16 March 2018 the Company received correspondence from the Tanzania Revenue Authority ("TRA") regarding their preliminary findings for WGL (the Company's Tanzanian subsidiary) for taxation years 2013 to 2016. On 26 June 2018, following further discussion with the TRA and exchange of information between the Company and the TRA, the TRA issued notice of adjusted assessments in respect of these taxation years. The following two matters were raised in the adjusted assessments:

 

(a)       Impairment Reversal of Mnazi Bay Costs and other denied deductions

The TRA has reassessed the 2014 income tax filing of WGL and included in taxable income an impairment reversal of $23.81 million. The impact of this reassessment is a non-cash reduction of the Company's deferred income tax asset by $7.1 million.

The TRA has also denied $6.6 million of deductions in the 2014 and 2015 income tax filings of WGL in respect of interest and other costs. The impact of this reassessment is a non-cash reduction of the Company's deferred income tax asset of $2.0 million.

 

(b)       Withholding Taxes on Loan Interest, Employment and Other Taxes

The TRA issued an adjusted assessment certificate which included the principal taxes of $1.0 million (Tsh 2.3 billion), the principal taxes have been included in the statement of net loss and comprehensive loss.

WGL was granted with TRA an interest and penalties waiver of the $740k (Tshs 1.69 billion) and made payment by instalments of principle taxes of $1.0 million (Tshs 2.3 billion).

 

Changes on Income Tax Act, 2004 (ITA) relating to petroleum operations.

Effective 2018 the TRA has introduced significant changes in respect to the computation of taxable income in Tanzania. The Miscellaneous Amendment Act, 2017 amended sections 65M and 65N of the Income Tax Act, 2004 (ITA). The Company is still evaluating the complete tax effects of the these changes, however, it has determined a reasonable estimate of the impact of them on its existing current and deferred tax balances. Based on this estimate, the Company has determined that while previously a contractor's share of cost and profit gas alongside their allowable deductions would be taxable, under the new legislation no tax would be levied or allowances recognised on the cost gas element of its revenues. Profit gas would continue to be taxed in the usual way.

Furthermore, and more significantly this new legislation would only allow up to 70% tax relief of current year profits from historic tax loss pools. The Company has calculated an estimated deferred tax asset write-down of $19.0 million with respect to these changes alone predominately with respect to timing differences and the under-utilization of tax losses at the current licence expiry date of 2031.

Whilst the Company is still evaluating the complete tax effects of the enactment of the legislation, there are a number of uncertainties and ambiguities as to the specific interpretation and application of many of the provisions. In the absence of precedence on these matters and until the 2018 tax returns are finalized, which the Company expects to occur in 2019, the Company expects to use what it believes are reasonable interpretations and assumptions in applying the legislative changes for purposes of determining its cash tax liabilities and results of operations, which may change as it receives additional clarification and implementation guidance.

 

Income taxes

The Company's income tax expense for the year end 31 December is as follows:

 

 

  2018
$000
2017
$000
Loss before income taxes (48,447) (315)
     
Expected income tax (recovery) expense at combined Tanzanian rate of 30% (2017 - Canadian federal and provincial rate of 27.0%) (14,236) (85)
Rate differentials 1,396 137
Share based compensation 29 58
2014- 2015 Tanzania tax reassessments 8,096 -
Tanzania cost gas excluded from taxable income (2,015) -
Derecognition of Mozambique and Canada tax pools 13,236 -
Movement in deferred tax assets not previously recognized and other 21,264 284
Income tax expense/(recovery) 27,770 394

 

The Company operates in multiple jurisdictions with complex tax laws and regulations, which are evolving over time. The Company has taken certain tax positions in its tax filings and these filings are subject to audit and potential reassessment after the lapse of considerable time.  Accordingly, the actual income tax impact may differ significantly from that estimated and recorded by management. 

 

The Company has unrecognized deductible temporary differences that results in unrecognized deferred income tax assets of:

 

  2018
$000
2017
$000
Non-capital losses 19,675 22,691
Property and equipment - 487
Share issue costs - 168
Accounts receivables 1,470 -
  21,145 23,346

 

The total non-capital losses of the Company are $164.4 million (2017 - $273.4 million) of which nil (2017 - $83.3 million) are in Canada, $163.6 million (2017 - $189.5 million) are in Tanzania, nil (2016 - $590k) are in Mozambique and $800k are in the UK.

 

The unrecognized non-capital losses in Canada expired in the year 2018 due to Company redomiciling to Jersey and becoming tax resident in the UK. The unrecognized non-capital losses in Mozambique they also expired due to relinquishment of the Tembo block and shutdown activities in the country. 

A deferred tax asset is recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences and the loss carry forwards can be utilized.  A deferred tax asset of $4.0 million as at 31 December 2018 (2017 - $30.8 million) is attributable to the accumulated tax loss carry-forward of the Company's Tanzanian subsidiary, which are expected to be offset against future taxable income.  Recognition of the tax asset is supported by the proven and probable reserves as determined by a third-party external reserves engineer, RPS Canada.

 

  2018
$000
2017
$000
Balance at 1 January 30,751 31,145
Deferred income tax assets recognized in profit or loss:    
Non-capital losses (27,300) (130)
Asset retirement obligations 124 28
     
Deferred income tax liabilities recognized in profit or loss:    
  PP&E 1,002 (259)
  Receivables (541) (33)
     
Balance at 31 December 4,036 30,751

 

25.  Financial instruments

The Company's activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk (currency fluctuations, interest rates and commodity prices). The Company's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company's financial performance. A full description of the risks and key risks affecting the business is noted in the Business Risks section of the Strategic Report.

 

Credit risk

Wentworth's credit risk exposure is equal to the carrying value of its cash and cash equivalents, trade, other and long-term receivables. 

Trade and other receivables are comprised predominantly of amounts due from government owned entities in Tanzania and Value Added Tax ("VAT") in Tanzania and Mozambique. 

The Company's ongoing exposure to trade receivables from TANESCO, the state power company, relates to the gas sales from the Mnazi Bay Concession to a TANESCO owned 18-megawatt gas-fired power plant located in Mtwara, Tanzania. At 31 December 2018, the Mnazi Bay Concession partners were owed four months of invoices for gas sales made to TANESCO, with $491k owing to Wentworth which includes sales revenue of $251k and the Company's share of TPDC sales revenue to recover a long-term receivable of $240k (2017 - $1.1 million representing sales revenue of $613k and the Company's share of TPDC sales revenue to recover a long-term receivable of $527k).  Subsequent to year end, TANESCO has paid $427 net to Wentworth. The receivable from TANESCO was not discounted at year end (2017 - $nil) as the receivable consisted of less than twelve months of invoices.  The Company continues to be engaged in ongoing discussions with TANESCO to accelerate payment of amounts past due.

During 2015, the Company commenced gas sales to TPDC under a long-term gas sales agreement, the operator of the new transnational gas pipeline in Tanzania. Credit risk relating to sales to TPDC is substantially mitigated through a two-part payment guarantee structure. The first part relates to a prepayment amount of approximately three to four months of gas deliveries at current sales volumes which has been received and is held by the operator of the Mnazi Bay Concession. The second part is a one-month replenishable letter of credit which is not yet executed but expected to be executed during 2019.  At 31 December 2018, the Mnazi Bay Concession partners were owed four months gas sales invoices, with $5.7 million owing to Wentworth which includes sales revenue of $2.5 million and the Company's share of TPDC sales revenue to recover a long-term receivable of $3.2 million (2017 - $12.0 million representing sales revenue of $6.4 million and the Company's share of TPDC sales revenue to recover a long-term receivable of $5.6 million).  Subsequent to year end, TPDC has paid $5.7 million net to Wentworth. The Company continues to be engaged in ongoing discussions with TPDC to accelerate payment of amounts past due.

In addition to the receivable for current gas sales to TPDC, at 31 December 2018, an undiscounted long-term receivable of $5.2 million net to Wentworth (2017 - $17.3 million) is due from TPDC, a partner in the Mnazi Bay Concession (see note 10). The Company currently receives, directly from the operator of the Mnazi Bay Concession, a significant portion of TPDC's and the Government's share of gas sales from the Mnazi Bay Concession to reduce the long-term receivable from TPDC.  The risk that future production from the Mnazi Bay Concession may not be sufficient to settle the receivable is very low.

At 31 December 2018, an undiscounted long-term receivable of $6.5 million (2016 - $6.5 million) related to the Company's disposal of transmission and distribution assets, and the costs associated with the MEP incurred in prior years by a wholly owned subsidiary of Wentworth (see note 11).  On February 6, 2012, the Company, TANESCO, TPDC and MEM reached an agreement that the Company's cost of historical operations in respect of the Mtwara Energy Project should be reimbursed. Wentworth is currently in discussions with TANESCO, TPDC and MEM on agreeing on a method of reimbursement. There is a risk that the cost reimbursement method may not be in cash, but rather in a long-term recovery from other sources. Timing of reaching an agreement on the reimbursement procedure is uncertain.

 

The Company's cash and cash equivalents are held at recognized international financial institutions.

 

The exposure to credit risk as at:

 

  2018
$000
2017
$000
Trade and other receivables 7,553 13,513
TPDC receivable (Note 10) 5,238 15,550
Tanzania Government receivable (Note 11) 4,959 4,959
Cash and cash equivalents 11,903 3,750
  29,653 37,772

 

Aged trade and other receivables

 

  Current
 1-30 days
$000
31-60
 days
$000
61-90
 days
$000
>90
 days
$000
 

Total
$000
Balance at 31 December 2018          
Trade receivables 3,007 1,507 1,420 243 6,177
Other receivables 1,376 - - - 1,376
  4,384 1,507 1,420 243 7,553
Balance at 31 December 2017          
Trade receivables 2,692 2,483 - 7,973 13,148
Other receivables 365 - - - 365
  3,057 2,483 - 7,973 13,513

 

Liquidity risk

Liquidity risk is the risk that the Company will not have sufficient funds to meet its liabilities as they become payable. Other than routine trade and other payables, incurred in the normal course of business, the Company also has long-term loans and an overdraft credit facility.

The table below summarizes the maturity profile of the Company's financial liabilities based on contractual undiscounted payments including future interest payments on long-term loans.

 

 

  Less than 1 year
$000
1 to 2 years
$000
2 to 5 years
$000
Total
$000
Balance at December 31, 2018        
Trade and other payables   3,207 - - 3,207
Contingent PTTEP liability 848 - - 848
Overdraft facility 2,500 - - 2,500
Long-term loans, including interest (1) 7,548 1,732 - 9,280
  14,103 1,732 - 15,835
         
Balance at December 31, 2017        
Trade and other payables   5,726 - - 5,726
Contingent PTTEP liability  2,189 - - 2,189
Overdraft facility 2,500 - - 2,500
Long-term loans, including interest (1) 7,940 7,099 1,701 16,740
  18,355 7,099 1,701 27,155

 

  1. Includes future interest expense at the rate in effect at December 31.

 

 

The fair value of the Company's trade and other payables approximates their carrying values due to the short-term nature of these instruments.  The fair value of the long-term loans approximates their carrying amounts as they bear market rates of interest. The fair value of the other liability approximates its carrying amount.

 

 

The Company has working capital surplus at 31 December 2018 and generated positive cash flow from operations in 2018. The Company plans to pay its financial liabilities in the normal course of operations and fund future operating and capital requirements through operating cash flows, bank debt, bank overdraft and equity raises, when deemed appropriate.  Operating cash flow of the Company is dependent upon the purchasers of natural gas, TPDC and TANESCO, continuing to meet their payment obligations on a timely manner. Any delays in collecting funds from these purchasers for an extended period of time could negatively impact the Company's ability to pay its financial liabilities on a timely manner in the normal course of business (see also Capital management section).

 

Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk is comprised of foreign currency risk, interest rate risk and other price risk (e.g. commodity price risk). The objective of market risk management is to manage and control market price exposures within acceptable limits, while maximizing returns.

 

Commodity price risk

Commodity price risk is the risk that the Company suffers financial loss as a result of fluctuations in oil or natural gas prices.  The Company's exposure to commodity price risk is mitigated as the sale prices for gas sold by the Company is fixed under the existing gas sale and purchase agreements. An increase of 1% in the gas production would result in an increase of $57k (2017 - $34k) in revenue.

 

Interest rate risk

Interest rate risk is the risk that future cash flows of a financial instrument will fluctuate because of changes in market interest rates.  The Company has a $20.0 million credit facility with a floating interest rate of six-month LIBOR plus 7.5 percentage points with a minimum 8.5% and with no maximum interest rate per annum. The $6.0 million credit facility which was fully paid in December 2018 had a floating interest rate of six-month LIBOR plus 7.5 percentage points with a minimum 8.0% and maximum 9.5% interest rate per annum. The Company's objective is to minimize its interest rate risk on its cash balances by investing for short periods of time (less than 1 year) and only in term deposits. An increase of 1% in the six-month LIBOR rate would result in an increase of $102k (2017 - $159k) in interest expense on an annualized basis.

 

Foreign exchange risk

Foreign exchange rate risk is the risk that the Company suffers financial loss as a result of changes in the value of an asset or liability or in the value of future cash flows due to movements in foreign currency exchange rates.  Wentworth operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Tanzanian shilling, Pound Sterling and Canadian dollar against its functional currency of its operating entities, the US dollar. The Company's objective is to minimize its risk by borrowing funds in US dollars as revenues are paid (or indexed) to the US dollar. In addition, the Company holds substantially all its cash and cash equivalents in US dollars and converts to other currencies only when cash requirements demand such conversion. 

 

Current receivables and liabilities denominated in various currency:

 

  Canadian
Dollar
$000
Tanzanian Shilling
$000
Other Currency
$000
United States
Dollar
$000
 

Total
$000
Balance at 31 December 2018          
Cash and cash equivalents 14 37 15 11,837 11,903
Trade and other receivables 21 106 174 7,252 7,553
Trade and other payables (42) (246) (248) (2,671) (3,207)
  (7) (103) (59) (16,418) (16,249)
           
  Canadian
Dollar
$000
Tanzanian Shilling
$000
Other Currency
$000
United States
Dollar
$000
 

Total
$000
Balance at 31 December 2017          
Cash and cash equivalents 70 102 3 3,575 3,750
Trade and other receivables 27 103 44 13,339 13,513
Trade and other payables (72) (129) (65) (5,460) (5,726)
  25 76 (18) (11,454) (11,537)

 

A 10% increase/decrease of the GBP against US dollar would result in a change in profit or loss before tax of $11k (2017: $3k).  In addition, a 10% increase/decrease of the Tanzanian shilling against the US dollar would result in a change in profit or loss before tax of approximately $5k (2017: $8k).

 

Financial instrument classification and measurement

The Company classifies the fair value of financial instruments according to the following hierarchy based on the amount of observable inputs used to value the instrument:

 

  • Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
     
  • Level 2 - Pricing inputs are other than quoted prices in active markets included in Level 1. Prices in Level 2 are either directly or indirectly observable as of the reporting date. Level 2 valuations are based on inputs, including expected interest rates, share prices, and volatility factors, which can be substantially observed or corroborated in the marketplace.
     
  • Level 3 - Valuation in this level are those with inputs for the asset or liabilities that are not based on observable market data.

 

The Company does not have any fair value measurements considered as Level 1.  The Company's long-term receivables, long-term loans, and other liability are considered Level 2 and Level 3 measurements.

 

Capital management

The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern, in order to develop its oil and gas properties and maintain a flexible capital structure for its projects for the benefit of its stakeholders. In the management of capital, the Company includes the components of shareholders' equity as well as cash and long-term liabilities.

The Company manages the capital structure and adjusts it in light of changes in economic conditions and the risk characteristics of the underlying assets. As part of its capital management process, the Company prepares budgets and forecasts, which are used by management and the Board of Directors to direct and monitor the strategy, ongoing operations and liquidity of the Company. Budgets and forecasts are subject to judgement and estimates such as those relating to future gas demand and ultimate timing of collectability of trade receivables for gas sales.  These factors may not be within the control of the Company, which may create near term risks that may impact the need to alter the capital structure. The Company continues to effectively manage its relationships with its gas purchasers to ensure timely collection and with external lenders such that lending facilities are available to the Company as and when needed. The Company may attempt to issue new shares, enter into joint arrangements or acquire or dispose of assets in order to maintain or adjust the capital structure. Management reviews the capital structure on a regular basis to ensure that the above-noted objectives are met. The Company's overall strategy remains unchanged from the prior year.

 

26.  Related party transactions

Details of Directors' remuneration, which comprise key management personnel, are provided below:

 

 

  2018
$000
2017
$000
  Short-term employee benefits 1,167 560
  Share based compensation 52 67
  1,219 627

 

 

27.  Supplemental cash flow information

 

Change in non-cash working capital:

 

  2018
$000
2017
$000
Net change in non-cash working capital related to operating activities:    
  Trade and other receivables 3,381 (3,158)
  Prepayments and deposits (300) (4)
  Trade and other payables (1,505) (2,201)
   

1,576
 

(5,363)

 

Cash movements from investing activities in the Statements of Cash Flows consists of the following:

 

 

 

Exploration and evaluation
$000
Property, plant and equipment
$000
Long-term receivable
$000
Year ended 31 December 2018

 
     
Total additions/(reductions) 1,806 1,262 (18,254)
Change in non-cash investing activities - - 2,877
Change in non-cash working capital - 706 -
Cash additions/(reductions) 1,806 1,968 (15,377)
 

Year ended 31 December 2017

 
     
Total additions/(reductions) 2,383 1,061 (8,759)
Change in non-cash investing activities - - 1,729
Change in non-cash working capital - 667 -
Cash additions/(reductions) 2,383 1,728 (7,030)
             

 

 

28.  Commitments

 

Lease payments

The Company has office locations in Reading, UK and Dar es Salaam Tanzania.  The future minimum lease payments associated with these office premises as at 31 December 2018 is $152k committed for year 2019. 

 

29.  Subsequent events

On 6 February the Company announced confirmation that from 14 February 2019, it's shares would be delisted from the Oslo Børs Stock Exchange.

On 14 February the Company announced the publication of its 2018 CPR Reserves Report.

 

 

GLOSSARY OF TERMS

 

$ or US Dollar United States Dollar
£ UK Pound Sterling
1P Proven Reserves (both proved developed reserves + proved undeveloped reserves)
2C Best estimate contingent resource
2D Two Dimensional
2P 1P (proven reserves) + probable reserves, hence "proved AND probable"
3D Three Dimensional
3P The sum of 2P (proven reserves + probable reserves) + possible reserves, all 3Ps "proven AND probable AND possible"
A&D Abandonment and Decommissioned
AIM AIM, a SME Growth market of the London Stock Exchange
AGM Annual General Meeting
Articles The Articles of Association of the Company
Bbl Barrel, equivalent to 42 US gallons of fluid
Bcf Billion standard cubic feet
Boe Barrel of oil equivalent, a measure of the gas component converted into its equivalence in barrels of oil
Bopd barrel of oil per day
Board The Board of Directors of the Company
Capex Capital expenditure
CGU Cash Generating Units
City Code The City Code on Takeovers and Mergers
COD Commercial Operations Date
Company Wentworth Resources PLC
Companies (Jersey) Law The Companies (Jersey) Law 1991
CSR Corporate Social Responsibility
DCQ Daily Committed Quotient
Directors The Directors of the Company
Dissent Rights Alberta Business Corporations Act Dissent Right in compliance with Section 191 of that Act entitling shareholders compensation for the  fair value of the common shares determined as of the close of business on the last business day (in Alberta) before the day on which the Continuance is approved by the Shareholders.
D&P Development and Production assets
E&A Exploration and Appraisal
E&E Exploration and Evaluation assets
E&P Exploration and Production
EBITDAX (Adjusted) earnings before interest, taxation, depreciation, depletion and amortisation, impairment, share-based payments, provisions, and pre-licence expenditure
ECL Expected Credit Lose
EITI Extractive Industries Transparency Initiative
EPS Earnings Per Share
EWURA Energy and Water Utilities Regulatory Authority
FA Funding Agreement
FCA Financial Conduct Authority of the United Kingdom
G&A General and Administrative
G&G Geological and Geophysical
GAAP Generally Accepted Accounting Principles
GBP UK Pounds Sterling
GDP Gross Domestic Product
GHG Greenhouse Gases
GSA Gas Sales Agreement
Group The Company and its subsidiary undertakings
HMRC Her Majesty's Revenue and Customs
HSSE Health, Safety, Security and Environment
hydrocarbons Organic compounds of carbon and hydrogen
IAS International Accounting Standards
IASB International Accounting Standards Board
INP Mozambique regulator
IFRS International Financial Reporting Standards
Index FTSE 350 Index
JV Joint Venture
K Thousands
Km Kilometre(s)
km2 Square kilometre(s)
KPIs Key Performance Indicators
Lead Indication of a potential exploration prospect
LNG Liquid natural gas
London Stock Exchange or LSE London Stock Exchange Plc
LTI Lost Time Incident
LTIP Long-Term Incentive Plan adopted in 2019??
M&A Merger and Acquisition
M Metre(s)
MEM Ministry of Energy & Minerals
MEP Mtwara Energy Project
Mcf Thousand cubic feet
Mmboe Million barrels of oil equivalent
Mscf Thousand standard cubic feet of gas
MMscf/d Million standard cubic feet per day of gas
MW Megawatt
NPV Net Present Value (at a specified discount rate and specified discount date)
OECD Organisation for Economic Cooperation and Development
OPEC Organisation of the Petroleum Exporting Countries
Ordinary Shares Ordinary shares of 10 pence each
P90 The value on a probabilistic distribution which is exceeded by 90% of the outcomes
P50 The value on a probabilistic distribution which is exceeded by 50% of the outcomes. The P50 is also the median value of the distribution
P10 The value on a probabilistic distribution which is exceeded by 10% of the outcomes
Pmean The average of the values in the probabilistic distribution between defined 'boundary conditions'. Universally regarded as the best single value to quote or communicate for any uncertain distribution of outcomes involved in repeated trial investigations
PAET Pan African Energy Tanzania
Panel or Takeover Panel The Panel on Takeovers and Mergers
Petroleum Oil, gas, condensate and natural gas liquids
Petroleum system Geologic components and processes necessary to generate and store hydrocarbons, including a mature source rock, migration pathway, reservoir rock, trap and seal
PPE Property Plant and Equipment
Prospect An area of exploration in which hydrocarbons have been predicted to exist in economic quantity. A group of prospects of a similar nature constitutes a play
PSA Production Sharing Agreement
PSC Production Sharing Contract
PT Pertamina An Indonesian state-owned oil and natural gas corporation based in Jakarta
PTTEP PTT Exploration and Production Public Company Limited is a national petroleum exploration and production company based in Thailand
PURA Petroleum Upstream Regulatory Authority
QCA Code Corporate Governance Code for Small and Mid-Size Quoted Companies 2012
RA Royalty Agreement
Reserves Reserves are those quantities of petroleum anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions. Reserves must satisfy four criteria; they must be discovered, recoverable, commercial and remaining based on the development projects applied. Reserves are further categorised in accordance with the level of certainty associated with the estimates and may be sub-classified based on project maturity and/or characterised by development and production status
Reservoir A porous and permeable rock capable of containing fluids
Seismic Data, obtained using a sound source and receiver, that is processed to provide a representation of a vertical cross-section through the subsurface layers
Shares Ordinary shares
Shareholders Ordinary shareholders of 10p each in the Company
Subsidiary A subsidiary undertaking as defined in the 2006 Act
TANESCO The Tanzania Electric Supply Company
Tcf Trillion cubic feet
TEITI Tanzania Extractive Industries Transparency Initiative
TPDC Tanzania Petroleum Development Corporation
TND Transmission and Distribution
Tsh Tansanian Shillings
TSR Total Shareholder Return (End Share Price - Opening Share Price/Opening Share Price) plus (Sum of Dividends per Share/Opening Share Price)
VAT Value Added Tax
WAF Wentworth Africa Foundation
Working Interest or WI A Company's equity interest in a project before reduction for royalties or production share owed to others under the applicable fiscal terms Working interest attributable to Wentworth

 

About Wentworth Resources

Wentworth Resources is a publicly traded (AIM: WEN), independent oil & gas company with natural gas production; exploration and appraisal opportunities in the Rovuma Delta Basin of coastal southern Tanzania.

 

Inside Information

This announcement does not contain inside information.

 

Cautionary note regarding forward-looking statements

This press release may contain certain forward-looking information. The words "expect", "anticipate", believe", "estimate", "may", "will", "should", "intend", "forecast", "plan", and similar expressions are used to identify forward looking information.

The forward-looking statements contained in this press release are based on management's beliefs, estimates and opinions on the date the statements are made in light of management's experience, current conditions and expected future development in the areas in which Wentworth is currently active and other factors management believes are appropriate in the circumstances. Wentworth undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless required by applicable law.

Readers are cautioned not to place undue reliance on forward-looking information. By their nature, forward-looking statements are subject to numerous assumptions, risks and uncertainties that contribute to the possibility that the predicted outcome will not occur, including some of which are beyond Wentworth's control. These assumptions and risks include, but are not limited to: the risks associated with the oil and gas industry in general such as operational risks in exploration, development and production, delays or changes in plans with respect to exploration or development projects or capital expenditures, the imprecision of resource and reserve estimates, assumptions regarding the timing and costs relating to production and development as well as the availability and price of labour and equipment, volatility of and assumptions regarding commodity prices and exchange rates, marketing and transportation risks, environmental risks, competition, the ability to access sufficient capital from internal and external sources and changes in applicable law. Additionally, there are economic, political, social and other risks inherent in carrying on business in Tanzania. There can be no assurance that forward-looking statements will prove to be accurate as actual results and future events could vary or differ materially from those anticipated in such statements.

 

Use of a Standard

Reserve and resource assessments in this announcement are made in accordance with the standard defined in the SPE/WPC Petroleum Resources Management System (2007) and the Canadian Oil and Gas Evaluation Handbook ("COGEH").

 

 

Notice 

The AIM Market of the London Stock Exchange has not reviewed this press release and does not accept responsibility for the adequacy or accuracy of this press release.

 

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