Interim Results: Strong Revenue Growth, Cash Generation and Profitability

Source Press Release
Company Amerisur Resources Plc 
Tags Exploration, Upstream Activities, Financial & Operating Data, Strategy - Corporate
Date September 14, 2018

Amerisur Resources Plc, the oil and gas producer and explorer focused on South America, is pleased to announce its interim results for the six months ended 30 June 2018 (the "Period").

Highl ights:

 Financial

·     Strong revenue growth of 93% to $67.9m (H1 2017: $35.1m)

·     Generated profit after tax of $10.8m (H1 2017: loss of $2.3m)

·     Adjusted EBITDA of $24.3m (H1 2017: $7.6m)

·     Increase in net cash from operating activities to $12.5m (H1 2017: $7.8m)

·      Robust cash position of $49.3m (H1 2017: $29.0m)

Production and OBA

·     H1 2018 average production increased 33% to 5,959 BOPD, with an average realised price per barrel of $64.2 (compared to $47.2 in H1 2017)

·     H1 2018 OBA throughput average of 4,987 BOPD

·     Concluded negotiations with Petroamazonas bringing Amerisur's guaranteed minimum carrying capacity through the OBA to 9,000 BOPD

·     Post-period end, completed construction of Chiritza (re-pumping) station, with commissioning expected shortly

·     Continuing focus on strong HSE practices, with no reported lost time incidents

Exploration and Appraisal

·     Strong progress made performing preparatory works and civil works across Platanillo, Put-8 and CPO-5

·     Post period end, the spudding of Pintadillo-1 occurred

·     Completion of civil works at Indico-1 well in the CPO-5 block

·     Signed value-accretive low-cost acquisition of 100% working interest in Put-14 post period end

Outlook

·     Advancing near term exploration activities, with Indico-1 expected to spud in October

·     Drilling plan continues, targeting prospective resources of 131.53 MMBO net. The eventual split between exploration and appraisal/development wells will depend upon success and choices made during the programme. A range of between 8 to 12 exploration wells and 2 to 6 appraisal wells are planned to be drilled between now and Q3 2019.

Giles Clarke, Chairman of Amerisur, said:

"The first half of 2018 has been a period of significant revenue growth for Amerisur, with our low-cost production and excellent netbacks delivering strong cash generation and profitability. As the owner and operator of the strategic OBA pipeline, we continue to deliver highly competitive operating margins and during the period, we were able to secure an increase in guaranteed minimum carrying capacity through the pipeline. We have now spudded the Pintadillo-1 well in the Platanillo block, the first of three fully-funded wells targeting the N Sand A anomaly, estimated to hold P50 resources of 11.44 MMBO."

For the remainder of the year and into 2019, we remain focused on growing production levels from existing reserves and executing our drilling plan, which is targeting resources of 131.53 MMBO net."

Enquiries:

Nick Harrison, CFO Amerisur Resources Plc  Tel: +44 (0)330 333 8246 
   
Billy Clegg / Georgia Edmonds / Kimberley Taylor  Tel: +44 (0)203 757 4980 
Camarco   
Callum Stewart / Nicholas Rhodes / Ashton Clanfield Stifel Nicolaus Europe Limited  Tel: +44 (0)20 7710 7600 
   
Chris Sim / Alexander Ruffman  Tel: +44 (0)207 597 4000 
Investec   
   
Paul Shackleton / Dan Gee-Summons Arden Partners plc  Tel: +44 (0)20 7614 5900 

CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT

Introduction

We are pleased to announce Amerisur's 2018 half-year financial results, a period of strong revenue growth, cash generation and profitability from our low-cost production with excellent cash netbacks which have capitalised on the higher oil price compared to the prior period.

We achieved a number of important milestones during the period and are currently drilling the first of three near term exploration wells, the first being Pintadillo-1, which is targeting total P50 resources of 11.44 MMBO (net).  With the commencement of our drilling programme, the ability to have additional pipeline capacity in Ecuador has been one of our strategic priorities. In this regard, we brought negotiations with Petroamazonas earlier in the year to a successful conclusion with the signing of an agreement to bring Amerisur's guaranteed minimum carrying capacity through the OBA to a total of 9,000 BOPD. The Chiritza station construction was completed post period end and commissioning is expected to begin in September followed by full operation.  Our delivery of this important project, on budget and ahead of schedule, is a timely milestone for Amerisur. We also transported our two millionth barrel through the OBA system, with the pipeline paying for itself in just 15 months of operation in February 2018.

Production Growth

Average production from our two producing fields, the Platanillo field and the Mariposa-1 Long term Test ("LTT"), increased 33% to 5,959 BOPD in the first half with peak daily production of 7,142 BOPD. This delivered $67.9 million of revenue, $12.5 million of net cash from operations and $24.3 million of adjusted EBITDA. Mariposa-1 continued to produce at a stable rate of 3,200 BOPD (gross), 960 BOPD (net working interest), during the period.

Following solid production at Platanillo in the first quarter, it somewhat reduced in the second quarter as a result of a number of workovers, the ongoing treatment and maintenance programme and a reduction in certain key wells, including Platanillo-22 which required further investigation as we worked to optimise production in a responsible operational manner for the long term. The remedial workover and cement repair at Platanillo-22 was successful and it is now producing 415 BOPD, with further work planned to increase production rates while assuring the integrity of the well.

Being dependent on Platanillo production and the constraints of equipment maintenance activities, production throughput of the OBA averaged 4,987 BOPD. Total investment in the OBA was $22 million and to date has delivered $26.6 million in savings through the reduction in transport costs.  Our focus remains on increasing the throughput of this low-cost route to commercialisation which will generate further cost savings for the Company.

As at the end of August, we were producing in excess of 4,000 BOPD at Platanillo, alongside Mariposa-1 at 960 BOPD (net working interest), and we continue to work towards delivering increased production in the second half of the year, both from developed reserves and potential additions including from Pintadillo-1, the first well of our exploration programme which is now drilling.

Exploration Activity Ramping Up

Despite experiencing delays to our drilling campaign in the period due to a number of factors beyond our control, we progressed our preparations at the different well locations (Platanillo, Put-8 and CPO-5) to ensure that on receipt of regulatory and environmental approvals and weather permitting, we could begin drilling.

On 30 August 2018, the N Sand anomaly well Pintadillo-1 was spudded. This is one of four N Sand anomalies identified by the Company in the central part of the Platanillo block. The A anomaly has estimated P50 resources of 11.44 MMBO. At the time of writing 9.5-inch casing has been set and cemented at 5,486 feet. It is expected that we will have electric logs from the well in the weeks ahead.

In addition, following completion of civil works at Indico-1 well in CPO-5, located to the south of the prolific Llanos 34 block, rig E-2029, owned by Estrella, is currently mobilising to the site. Indico-1 is targeting the same play as the successful Mariposa-1 well, but is further up dip with P50 recoverable resources of 10.3 MMBO (gross). The well is expected to spud in October, and the operator currently expects to drill Aguila-1 (targeting 2.7 MMBO gross) and Sol-1 (targeting 4.0 MMBO gross) thereafter.

The operator of block Putumayo-8 ("Put-8"), Vetra, has informed the Company that due to organisational changes within Ecopetrol, the drilling of Miraparriba-1 (4.4 MMBO gross) from the Cohembi 2 pad is under review, and the Company expects to be updated in the course of September.

At Putumayo-12 ("Put-12"), after review of existing data and local weather and social related issues, Amerisur and its partner (Pluspetrol) had previously decided to proceed with the drilling of the Coendu prospect without acquiring further 2D seismic data over the prospect. However, due to recent improvements in the area this seismic acquisition is now underway, and will allow the location of Coendu-1 and subsequent wells to be optimised, reduce drilling risk and potentially fine-tune the resources estimate for this prospect. The programme is six lines of approximately 43-kilometre total extension, and is located in the north western corner of Put-12, adjacent to the Platanillo field. Two of these lines are located within block Put-9 which is 100% owned by the Company, with the intention of enhancing mapping of structural closure. The seismic acquisition is expected to be complete in the coming weeks, followed by processing and incorporation within our regional data set. This work is not expected to affect the chronogram for the drilling of Coendu.  As previously reported, the Coendu prospect is shared between the block Put-12 and Put-9. Amerisur has also initiated the processes required for the preparation of the Drilling Environmental Licence at Coendu.

Board, Governance and People

We are grateful to Dr Douglas Ellenor, who is retiring from the Board on 31 December 2018, for his wise advice during his ten years with Amerisur. The Board and Nominations Committee are in the process of improving the Board diversity balance and appointed external consultants to assist in the recruitment of a new Director with Corporate Social Responsibility ("CSR") and developing world experience in the natural resources industry.

Political and Social Developments

As the country's transition to peace continues, Amerisur remains steadfast in its support of the process and continues to play a central, long term role in the implementation of social programmes within the local communities in the Putumayo, in particular sustainable alternative farming programmes. The peace agreement was signed in December 2016, and the FARC guerrilla group has, in the main, demobilised. However, a number of dissident groups continue, in tandem with other groups, to dedicate themselves to the illegal drug trade. This situation means that access into some of our prospective areas is still limited, leading to delays in gathering social and environmental information.

During the period the Company continued to focus on its CSR programme, with activities including:

·     Community empowerment;

·     Supporting local education;

·     Sustainable productive projects with good agricultural and environmental practices;

·     Strengthening institutional structures and management; and

·     Strengthening opportunities for recreation, sport and culture.

As an example of our work in local education, in February 2018 we inaugurated a secondary education facility at Santa Isabel, comprising four academic classrooms and two chemistry and physics laboratories together with three new sanitary blocks. These new facilities allow students to progress beyond Colombian grade 9 education, previously only available on a boarding basis at considerable distance, which had not been a viable option for the majority of students.

The illegal crop substitution programme led by Government continues to advance. The programme is verified by the United Nations, which recently visited the area, observing growing adherence to the programme. Within the productive projects related to condiment pepper, part of the illegal crop substitution programme, an important advance was made in terms of product marketing, by the creation of the Production Committee, an integrated body which includes the Governor of Putumayo and the Secretary of Agriculture. The products generated in the communities are now more fully supported in terms of access to markets with the Committee studying supply and demand trends together with sales price. Additionally, a work agenda was established with ANDI (the National Industrial Association) to expand the market for these products, which are now becoming an important feature of Putumayo agriculture.

In addition, in the area of cattle rearing, an analysis was made of the farms and stock previously provided by Amerisur as social investment in the Peneya, Alea, Bajo Mansoyá and Sevilla areas, which suggested a number of potential improvements in the farming systems based on the experience gained to date.  These include better grass yield and fencing subdivisions within the farms. This improvement plan is being structured to ensure its sustainability over time.

These investments are important in terms of demonstrating our commitment to CSR and fostering improved conditions for local stakeholders. However, they also bring tangible benefits to the Company.

The new Colombian government, led by Ivan Duque, which took office on 7 August 2018 represents a centrist position, with an ambitious manifesto of social equality, economic development, fiscal stability and the continuation of the peace process. Following legal change in 2015, the President may only serve a single term of four years. The President has shown himself to be extremely committed to supporting industry, and has underlined the importance of hydrocarbon exploration and production to the nation and the fulfilment of the aims of his administration. Government is currently canvassing the industry for suggestions to improve the efficiency of the agencies and Ministries, with the commitment to attack bureaucracy and minimise delays to oil projects. We expect the impact of this programme to become apparent in the coming months and these are potentially positive in terms of our activity plans in the future. In addition, President Duque has indicated that he considers the peace treaty must be adjusted to ensure that there be no impunity for crimes committed by FARC. This has led to an increase in the number of dissident groups, formed by ex-FARC members, who are responsible for increased rural insecurity. This situation affects the Company by again creating difficulty in accessing some areas for environmental and social studies, leading to potential delays in obtaining drilling and other environmental permits. However, we continue to monitor the situation in the field and in recent meetings with the new administration we are encouraged by the full support offered by government to ameliorate these situations.

Current Trading and Outlook

Operationally the second half has continued at pace and the team remains focused on creating further value. In July we signed a value-accretive low-cost acquisition consolidating our acreage position further in the Putumayo, adding a 100% operated working interest in Putumayo 14 ("Put-14"), which is contiguous to the south of our 100% owned Terecay block and contains attractive follow on prospectivity. 

Amerisur benefits from an extensive acreage position, built opportunistically but prudently in the oil price downturn, with a number of high value prospects and a fully funded, ongoing drilling programme to exploit these. This ensures we are well placed in the near term, to increase our reserves and low-cost production base materially as our exploration activity ramps up and in turn delivers sustainable growth.

We are currently drilling Pintadillo-1 on the Platanillo block, the first of our three near term exploration wells targeting 11.44 MMBO in the A anomaly, with Indico-1 in the CPO-5 block also spudding shortly. The drilling programme continues from there with near term new wells to be drilled targeting a further 131.5 MMBO net in aggregate.

  Target start date  Cost ($m net)  Targeting (MMBO net WI) 
Platanillo N Sands (100%) - 3 Wells  Q3 2018  13.7  11.44 
CPO-5 (30%) - 3 Wells  Q4 2018  6.0  5.1 
Put-8 (50%) - 2 Wells  Q4 2018  8.2  5.63 
Put-12 (60%) - 3 Wells  Q3 2019  14.4  71.56 
Put-9 (100%) - 3 Wells  Q2 2019  19  37.8  

FINANCIAL REVIEW

Results summary

  H1 2018  H1 2017  FY 2017 
Average daily production (BOPD)  5,959  4,475  4,857 
Revenue ($m)  67.9  35.1  85.2 
Realised average selling price ($/bl)  64.2  47.2  50.0 
Profit/(loss) before tax ($m)  12.5  (1.6)  0.6 
Adjusted EBITDA ($m)  24.3  7.6  19.8 
Net cash from operating activities ($m)  12.5  7.8  30.0 
Net assets ($m)  220.8  206.8  209.1 
Operating netback ($/bl) ⊃;  43.7  28.7  31.4 
Cash and cash equivalents (inc. restricted cash) ($m)  49.3  29.0  41.3 
Average cash lifting costs ($/bl) ⊃;  17.0  14.6  14.7 
Average transport costs ($/bl)  3.5  3.9  3.9 

⊃;Non-GAAP terms - see glossary for definition in Note 6.

Business performance

Revenue for the period of $67.9m almost doubled compared to the same period in 2017 due to both higher production levels and average oil prices. This has resulted in an adjusted EBITDA for the period of $24.3 million compared to $7.6 million for H1 2017.

$m  H1 2018  H1 2017 
Operating profit/(loss)  12.8  (0.8) 
Add: Amortisation and depreciation  10.8  7.8 
Add: share option charges  0.7  0.6 
Adjusted EBITDA  24.3  7.6 

Revenue in H1 2017 and FY 2017 has been restated for the adoption of the new revenue standard 'IFRS 15' by $3.0 million and $7.3 million respectively in relation to royalties no longer being presented gross. An equal and opposite adjustment has been made to cost of sales hence this has is no impact on gross profit. See note 2 for further details.

Production and commodity prices

Average daily production of 5,959 BOPD in H1 2018 represents a 33.2% increase on the same period in 2017 and 22.7% increase over FY 2017, despite being impacted by planned well maintenance and workovers. Peak daily production in the six-month period was 7,142 barrels.

Oil prices have continued to be generally volatile during the first half of 2018 with Brent crude prices averaging $70.6 per barrel, compared to $51.7 for the corresponding period in 2017. Average realised sales prices for the half year period were up by 36% to $64.2 per barrel, compared to $47.2 in H1 2017 and $50.0 for FY 2017.

Operating costs

Cost of sales comprise cost of operations, transport costs, inventory movement, high prices tariffs and depreciation. Cost of sales was $47.0 million for H1 2018 compared to $28.8 million for H1 2017 (as restated for the impact of the adoption of IFRS 15). The increase is principally due to higher production costs in line with increased activity, higher high price tariff charges and maintenance and workover costs.

Transport costs in H1 2018 have continued to decrease and for the half year were $3.5 per barrel (H1 2017: $3.9) due to higher volumes transported through the OBA pipeline and the impact of CPO-5 production that is sold direct from the well-head.

Average cash lifting costs per barrel in H1 2018 increased to $17.0 (H1 2017: $14.6) due to the impact of infrastructure improvements and maintenance related production variations during the period. As a result of improved selling prices, operating netback has increased from $31.4 per barrel in FY 2017 to $43.7 per barrel in H1 2018.

$ per barrel  H1 2018  H1 2017  FY 2017 
Revenue  64.2  47.2  50.0 
Average cash lifting costs  (17.0)  (14.6)  (14.7) 
Average cash transport costs  (3.5)  (3.6)  (3.9) 
Operating netback  43.7  28.7  31.4 


Administrative expenses were $8.2 million during the period, an increase of $0.9 million against the comparative period in 2017 reflecting general cost increases and minor changes in overhead allocation.

Finance and similar charges of $178,000 were significantly lower than in the same period in 2017 (H1 2017: $922,000) as a result of the finance charges for the RBL facility coming to an end in September 2017 following its cancellation.

Taxation

The Group has a current tax charge for the period of $1.7 million (H1 2017: $0.7 million), of which $0.7 million relates to deferred tax.

Cash and funding

At the period end, the Group's cash position (inclusive of restricted cash deposits) was $49.3 million (2017: $41.3 million).

During the period, the Group entered into a prepayment and offtake agreement with Shell Western Supply and Trading Limited (Shell). Under the terms of the agreements Shell will purchase 100% of the Group's oil production from the Platanillo field. At the period end, Shell had made a prepayment of $7.5 million, classified as deferred income within trade and other payables in the balance sheet. 

The first half of 2018 continued to generate positive operating cashflows largely as a result of higher oil prices and higher average production, which alongside existing cash resources have funded the capital expenditure and maintenance programmes in the year to date.

The commitments and planned discretionary programmes for the remainder of 2018 are expected to be fully funded from existing cash resources and operational cashflow generated in the second half of the period. The Company remains focused on efficient cost management.

Capital expenditure

The Group has incurred total capital expenditure of $4.6 million during the period, relating to civil works and infrastructure upgrades in the Platanillo field.

Other balance sheet items

Trade and other receivables have increased by $12.3 million since 31 December 2017 principally due to longer payment terms associated with the Shell offtake agreement. This is however compensated for by the $7.5 million deferred income balance from Shell within Trade and other payables. After adjusting for this $7.5 million, trade and other payables have decreased by $8.4 million as result of reduced capital expenditure and timing of supplier and royalty payments.

Dividends

The Directors will not be recommending payment of a dividend although dividend policy is kept under regular review.

Going concern 

The Group monitors its liquidity risk throughout the year to ensure it has access to sufficient funds to meet forecast cash requirements. Cash forecasts are regularly produced based on the Group's latest production and expenditure forecasts and latest estimates of future commodity prices.  Accordingly, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis of accounting in preparing these consolidated financial statements.

CONSOLIDATED INCOME STATEMENT

      Restated 
    6 months to 30 June  6 months to 30 June 
    2018  2017 
$'000  Note  Unaudited  Unaudited 
Revenue    67,916  35,137 
Cost of sales    (46,993)  (28,750) 
Gross profit    20,923  6,387 
Administrative expenses    (8,168)  (7,233) 
Operating profit/(loss)    12,755  (846) 
Net foreign exchange (losses)/gains    (261)  42 
Finance and similar charges    (178)  (922) 
Finance income    208  165 
Profit/(loss) before taxation    12,524  (1,561) 
Taxation    (1,714)  (730) 
Profit/(loss) attributable to equity holders of the parent    10,810  (2,291) 
       
Earnings/(loss) per share       
Basic (cents per share)  0.89  (0.19) 
Diluted (cents per share)  0.88  (0.19) 
All amounts relate to continuing operations        
 
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 
    6 months to 30 June  6 months to 30 June 
    2018  2017 
$'000    Unaudited  Unaudited 
Profit/(loss) attributable to equity holders of the parent    10,810  (2,291) 
Other comprehensive income:       
Other comprehensive income to be classified to profit or loss in subsequent periods:       
Foreign exchange differences on retranslation of foreign operations    86  821 
Total comprehensive income/(expense) attributable to equity holders of the parent    10,896  (1,470) 

All amounts relate to continuing operations

CONSOLIDATED BALANCE SHEET

       
     30 June  31 December 
    2018  2017 
$'000    Unaudited  Audited 
ASSETS       
Non-current assets       
Exploration and evaluation assets    27,531  44,568 
Property, plant and equipment    160,955  151,763 
Deferred tax asset    4,904  5,077 
Restricted cash    1,904  1,836 
    195,294  203,244 
Current assets       
Inventories    4,238  5,176 
Trade and other receivables    28,639  16,343 
Derivative financial instruments    23 
Restricted cash    9,521  9,496 
Cash and cash equivalents    37,853  29,930 
    80,274  60,945 
Total assets    275,568  264,189 
       
LIABILITIES       
Current liabilities       
Trade and other payables    (36,325)  (37,228) 
Short-term provisions    (563) 
    (36,888)  (37,228) 
Non-current liabilities       
Long-term provisions    (5,277)  (5,736) 
Deferred tax liability    (12,620)  (12,079) 
    (17,897)  (17,815) 
Total liabilities    (54,785)  (55,043) 
       
Net assets    220,783  209,146 
       
EQUITY       
Issued capital    1,761  1,761 
Share premium    144,941  144,941 
Merger reserve    13,532  13,532 
Other reserve    13,227  12,485 
Foreign exchange reserve    9,344  9,258 
Retained earnings    37,978  27,169 
Total equity    220,783  209,146 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

$'000  Share capital  Share premium  Merger reserve  Other reserves  Foreign exchange reserve   Retained earnings  Total equity 
At 1 January 2017  1,761  144,941  13,532  11,112  9,544  14,597  195,487 
Loss for the period  (2,291)  (2,291) 
Foreign exchange differences  821  (394) 
Total comprehensive income/(loss)  821  (2,291)  (1,470) 
Equity settled share options  604    604 
Transactions with owners  604  604 
At 30 June 2017 (restated)  1,761  144,941  13,532  11,716  10,365  12,306  194,621 
Profit for the period  14,863  14,863 
Foreign exchange differences    (1,107)  (1,107) 
Total comprehensive (loss)/income    (1,107)  14,863  13,756 
Equity settled share options  769  769 
Transactions with owners  769  769 
At 1 January 2018  1,761  144,941  13,532  12,485  9,258  27,169  209,146 
Profit for the period  10,810  10,810 
Foreign exchange differences  86  86 
Total comprehensive income  86  10,810  10,896 
Equity settled share options  742  742 
Transactions with owners  742  742 
At 30 June 2018 (unaudited)  1,761  144,941  13,532  13,227  9,344  37,978  220,783 

CONSOLIDATED CASHFLOW STATEMENT

    6 months to 30 June  6 months to 30 June 
    2018  2017 
$'000    Unaudited  Unaudited 
CASH FLOWS FROM OPERATING ACTIVITIES:       
Profit/(loss) for the period    10,810  (2,291) 
Adjustments for:       
Finance income    (208)  (165) 
Finance charges    131  922 
Movement in hedging instruments    47 
Taxation    1,714  730 
Depreciation    10,836  7,837 
Share options charge    742  604 
Decrease/(increase) in inventory    938  (5) 
Increase in trade and other receivables    (11,538)  (6,939) 
Increase in trade and other payables    1,805  7,792 
Net cash generated by operations    15,277  8,485 
Tax paid    (2,742)  (724) 
Net cash generated by operating activities    12,535  7,761 
       
CASH FLOWS FROM INVESTING ACTIVITIES:       
Interest received    208  165 
Increases in restricted cash    (93)  (2,382) 
Expenditure on property, plant and equipment    (3,660)  (12,455) 
Expenditure on exploration and evaluation assets    (984)  (8,397) 
Net cash used in investing activities    (4,529)  (23,069) 
       
CASH FLOWS FROM FINANCING ACTIVITIES:       
Premium payable on hedging instruments    (70) 
Finance charges    (13)  (338) 
Net cash used in financing activities    (83)  (338) 
       
Net increase/(decrease) in cash and cash equivalents    7,923  (15,646) 
Cash and cash equivalents at the start of the period    29,930  40,051 
Cash and cash equivalents at the end of the period    37,853  24,405 
       

1.  THE COMPANY

Amerisur Resources Plc ("the Company") is a public limited company incorporated and domiciled in the United Kingdom. The address of its registered office is  Amerisur Resources Plc, Lakeside, St. Mellons, Cardiff, CF3 0FB. The primary activity of the Group is the exploration for and production of oil and gas in Colombia, South America. 

The Company has its listing on the Alternative Investment Market ("AIM") of the London Stock Exchange.

2.  BASIS OF PREPARATION

These unaudited consolidated interim financial statements are for the six months ended 30 June 2018.  They do not include all the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2017, which were prepared under International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU").

The consolidated interim financial statements have been prepared under the historical cost convention except for certain fair value adjustments required by certain standards. The Group's presentation currency is the US Dollar and amounts are rounded to the nearest thousand dollars ($'000) except as otherwise indicated.

These consolidated interim financial statements have been prepared in accordance with accounting policies consistent with those set out in the Group's financial statements for the year ended 31 December 2017, except for the adoption of new standards as described further below. These statements do not constitute statutory accounts under s434 of the Companies Act 2006 (the "Act").

The consolidated statutory accounts for the year ended 31 December 2017 have been filed with the Registrar of Companies. Those accounts have received an unqualified audit report and did not contain statements or matters to which the auditors drew attention under the Act.

The financial information contained in this report is unaudited. The consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and the consolidated cash flow statement for the six months to 30 June 2018, and the consolidated balance sheet as at 30 June 2018 and related notes, have been reviewed by the auditors, BDO LLP, and their report to the Company is attached.

The Directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, these interim financial statements have been prepared on a going concern basis as the Directors are of the opinion that the Group has sufficient funds to meet their ongoing working capital and committed capital expenditure requirements. In making this assessment, the Directors considered the budgets, the cash flow forecasts and associated risks.

New standards issued and amendments made under IFRS, effective for periods beginning on 1 January 2018, are as follows.

·    IFRS 15 'Revenue from Contracts with Customers';

·    IFRS 9 'Financial Instruments';

·    Conceptual framework for Financial Reporting 2018 (no stated effective date, therefore effective from the date of issue March 2018);

·    Amendment to IFRS 2 'Share based payments', regarding the classification and measurement of share-based payment transactions;

·    Amendment to IAS 40, 'Investment Property', regarding the transfer of property to, or from, investment property; and

·    Annual improvements 2014-2016 IAS 28, 'Investments in associates and joint ventures'

The accounting policies adopted are consistent with those of the previous financial year except those changed as a result of adopting the new standards IFRS 15 'Revenue from Contracts with Customers' and IFRS 9 'Financial Instruments'.

Adoption of IFRS 15

The Group has adopted IFRS 15 'Revenue from Contracts with Customers' from 1 January 2018. In accordance with the transition provisions in IFRS 15, the Group has adopted the new rules retrospectively and has restated the 2017 comparatives. The Group did not adopt any of the transitional provisions available on adoption of the new standard.

The only impact of adopting IFRS 15 is in relation to the presentation in the income statement of production-based royalties paid to the Colombian oil authorities (the "ANH"). Under previous accounting policy, royalties payable to the ANH were shown gross in revenue and cost of sales. Under IFRS 15, this contract does not meet the definition of a customer and as such the royalty income can no longer be presented as revenue. For the six month period to 30 June 2017, revenue and cost of sales have both been adjusted by $3.02 million and has no net quantitative impact on profits or retained earnings.

The Group's accounting policy under IFRS 15 is that revenue is recognised when the Group satisfies a performance obligation by transferring title to oil to a customer. The title typically transfers to a customer at the same time as the customer takes physical possession. Typically, at this point in time, the performance obligations of the Group are fully satisfied. Other than the presentational change described above, the accounting for revenue under IFRS 15 does not, therefore, represent a substantive change from the Group's previous accounting policy for recognising revenue from sales to customers.

Adoption of IFRS 9

IFRS 9 'Financial Instruments' replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting. The Group has amended its accounting policies for its adoption of IFRS 9 although there has been no impact on the Group's financial statements.

IFRS 9 introduces an impairment model requiring the recognition of 'expected credit losses', in contrast to the requirement to recognise 'incurred credit losses' under IAS 39. Trade receivables are generally settled on a short time frame without material credit risk concerns at the time of transition, so this change in policy had no impact on the amounts recognised in the financial statements.

3. EARNINGS/(LOSS) PER SHARE

  6 months to  30 June  6 months to  30 June 
$'000  2018  2017 
Profit/(loss) for the period attributable to equity shareholders of the parent  10,810  (2,291) 
Earnings/(loss) per share     
Basic (cents per share)  0.89  (0.19) 
Diluted (cents per share)  0.88  (0.19) 
     
  Shares  Shares 
Issued ordinary shares at start and end of the period  1,213,205,768  1,213,205,768 
     
Weighted average number of shares in issue for the period  1,213,205,768  1,213,205,768 
Dilutive effect of options in issue     20,030,074 
Weighted average number of shares for diluted earnings per share  1,233,235,842  1,213,205,768  
Source: EvaluateEnergy® ©2019 EvaluateEnergy Ltd