ANNUAL REPORT 2014
CONTENT
CHAIRMAN’S REMARKS
Chairman’s remarks......................................................................................................... 3
The Group was faced with increasing financial difficulties in 2014 as a result of a high debt
CEO’s statement to the shareholders.............................................................................. 4
burden and the negative developments in Peru and Colombia.
Company introduction .................................................................................................... 6 Norway............................................................................................................................. 7
On 23 December 2014 the Board announced a comprehensive restructuring (the
Colombia.......................................................................................................................... 8
“Restructuring”) proposal to improve its strategic position in Latin America, mitigate the
Board of Directors´ report ............................................................................................ 10
Company’s liquidity constraints and strengthen its balance sheet and this was completed
Responsibility Statement............................................................................................... 16 Board of and management organizational structure.................................................... 18 Interoil Exploration and Production group consolidated financial statements............. 20 Consolidated statement of comprehensive income................................................. 21 Consolidated statement of financial position........................................................... 22 Consolidated statement of changes in equity.......................................................... 23 Consolidated cash flow statement............................................................................ 24 Notes ........................................................................................................................ 25 Interoil Exploration and Production ASA financial statements..................................... 68 Statement of comprehensive income....................................................................... 69 Statement of financial position................................................................................. 70 Statement of changes in equity................................................................................ 71 Cash flow statement.................................................................................................. 72 Notes......................................................................................................................... 73
on 20 January 2015. The Restructuring involved an equity issue directed towards Andes Energia Plc (“Andes”) and the restructuring of existing Company debt. The new equity was raised by way of a private placement of new shares for NOK 36.3 million, pursuant to which Andes subscribed for 330 million shares in Interoil at NOK 0.11 per share. The old NOK 310 million bond and the USD 6.2 million debt due to Proseis AG was replaced with a new USD 32 million bond loan. The Restructuring resulted in Interoil reducing its debt by approximately NOK 120 million. As part of the Restructuring, holders of the old NOK 310 million bonds accepted 65 million new shares in Interoil in part settlement of the bond, equivalent to approximately 10 per cent of the shares outstanding after the Restructuring. Following the Restructuring, Andes holds 51 per cent of the outstanding share capital. Andes is a Latin American company, active in exploration, development and production of
Auditor´s report for 2014............................................................................................... 84
conventional and unconventional oil and gas resources. The Company is listed on the AIM
Sustainability report 2014.............................................................................................. 86
London Stock Exchange and Buenos Aires Stock Exchange.
Corporate governance................................................................................................... 98 Share information........................................................................................................ 106
We believe that Andes becoming the majority shareholder of IOX, will provide the
Contact......................................................................................................................... 107
Company with management and technical capabilities and experience already established in the region, which combined with IOX’s existing operational base and personnel will contribute to accelerating the development of the Company’s acreage in Colombia. On behalf of the Board, I want to thank our employees, who have shown dedication and great spirit through a very challenging period for the company. Best regards
Nicolas Mallo Huergo Chairman of the Board
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CEO’S STATEMENT TO THE SHAREHOLDERS Following the successful restructuring completed in January 2015 we believe the Group is now in a better position to develop the remaining assets of the Group in Colombia and create value for shareholders. In November 2014 Interoil transferred ownership of its Peruvian operations to United Oilfield Colombia Inc. The transaction allowed Interoil to discontinue its business in Peru in an orderly fashion without any material impact on its liquidity or financial position. As previously communicated, Interoil would not be qualified to continue as an operator in Peru or be able to repatriate any additional cash from Peru, and the business therefore did not represent any value for the company. In these financial statements, the Peruvian business is reported as discontinued business. Following the sale in Peru, all Interoil’s exploration and production assets are in Colombia. Key assets include the Puli-C and Altair producing fields and the LLA-47 license, all in prolific onshore hydrocarbon provinces in the country. In December the Puli-C field produced around 1,550 barrels of oil equivalents per day net to Interoil, but requires new investments to maintain output at current levels. The LLA-47 license is expected to hold well above 30 million barrels in recoverable reserves and represents a significant value driver for the company.
Key Figures (in million USD) Average production per day (boed)** Proven reserves (P2) (mmboe)
2014
2013
1 598 5,6
1 470* 5,7
Net revenues EBITDAx*** EBIT Net income
41 19 1 6
44* 28* 14* 19*
Cash flow from operating activities Capex
8 11
11 18
Net interest-bearing debt
43
49
5 102
82 116*
Market capitalization at year end Number of employees at year end *
Numbers are restated as Peruvian operations are sold and presented as discontinued
** Average daily working interest production before royalty *** EBITDA adjusted for exploration expenses
Whilst the Group continues to face challenges, the benefits of working with Andes have already enabled us to provide the National Agency of Hydrocarbons(ANH) with the required guarantee of USD 7.2 million for the LLA-47 license without posting cash collateral, and has enabled us to reach a settlement with Trayectoria Oil & Gas regarding the non- performance of Trayectoria’s obligations under the assignment agreement to sell to Trayectoria Interoil’s interests in the Altair and COR-6 licences. Over the last few months, Interoil’s new management has focused its efforts on critical aspects of the Group, including an analysis and review of the Group´s cost structure. The results of this review are summarised below: – Reduction of monthly operating costs from USD 1,1 million in November 2014 to USD 0,8 million in February 2015. – Reduction of monthly salary expenditures from USD 0,5 million in January 2015 to USD 0,3 million in March 2015. – Reduction of monthly general and administrative expenditure from USD 0,4 million in November 2014 to USD 0,2 million in February 2015. Furthermore, management is focused on developing and enhancing our relationship with the regulator in Colombia. The continued work related to sustainability, especially the focus on creating a great place to work and improved relations to the communities where we operate, are seen as key to reach our goals. We can now look forward with more optimism and look to develop the potential of the Colombian assets to enhance the value of the Group. Best regards
Alejandro Jotayan Chief Executive Officer
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COMPANY INTRODUCTION Interoil Exploration & Production ASA is an international, independent petroleum company and is engaged in the development and operation of oil and natural gas properties. The company is an operator and license partner in exploration and production licenses in Colombia, with an average net production of 1,598 boepd in 2014, compared to 1,470 in 2013. The average production increased during 2014 as a result of the drilling campaign ending late 2013, and a development program initiated in the beginning of 2014. However, due to system pressure restrictions and historical lack of maintenance on operational equipment and infrastructure, the underlying production decreased.
position. Interoil would not be qualified to continue as an operator in Peru or be able to repatriate any additional cash from Peru, and the business therefore did not represent any value for the company. Interoil experienced increasing difficulties in obtaining necessary funding and obtaining guarantees to support operations during 2014, and a restructuring process was expedited. The restructuring was completed in January 2015, and resulted in reductions in debt of approximately NOK 120 million, and new equity of NOK 36.3 million.
In November 2014 Interoil transferred ownership of its Peruvian operations to United Oilfield Colombia Inc. The transaction allowed Interoil to discontinue its business in Peru in an orderly fashion without any material impact on its liquidity or financial
Interoil E&P has drilled more than 150 wells since 2006, with a 95% drilling success rate and more than doubled the production since 2006. Interoil employs approximately 100 professionals in Colombia. The headquarter is in Oslo, Norway. The company’s shares are registered on the Oslo Stock Exchange and are traded under the ticker-code “IOX”.
Highlights 2014 and early 2015
Key Facts as of 31.12.2014
• NOK 36.3 million raised in new equity in January 2015
• • • • • • •
• Approximately NOK 120 million reduction in debt in January 2015 • New main shareholder with presence in Latin America in January 2015 • Sale of Peruvian operations
Listed on the Oslo Stock Exchange, ticker: IOX Market capitalization USD 5 million Total shares 251.9 million EBITDAx USD 19 million, net income USD 6 million Investments of USD 11 million in exploration activities Net debt USD 43 million 102 professionals
Number of employees: 4
CORPORATE STRUCTURE: INTEROIL EXPLORATION AND PRODUCTION ASA Norway
UP Colombia Holding AS Norway
NORWAY Interoil E&P ASA, based in Oslo, Norway, is the Holding company and headquarters of the group. The company acts as an active owner of its assets in Colombia and is heavily involved in the operations.
Interoil E&P ASA strives to create value for its shareholders and simultaneously contribute to the future of its host countries, through successful development and production of oil and gas resources.
Interoil Peru Holding AS Norway
Interoil Colombia E&P Inc BVI
Interoil Colombia E&P Inc Colombia branch office
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COLOMBIA Due to the production depletion higher than expected from the 2013 drilling campaign, the company decided to stop the ongoing development campaign. The main focus in 2014 was to build the static and dynamic model for PuliC to design a better development program to increase production results. The static model was finished in October last year. On LLA-47 the geological model was finished and the Company is in the process of building a strong exploration portfolio for this block.
OFFICIAL NAME: Republica of
Colombia POPULATION: 46.3 mill (2014) AREA:
1,138,914 km2
POLITICAL: Republic; execu-
tive branch dominates government structure CAPITAL:
Bogotá
LANGUAGE:
Spanish
RELIGION:
Roman Catholic
CURRENCY: Colombian
Pesos (COP) GDP (PPP): $526.5 billion
(2013 est.) GDP PER CAPITA: $11,100
(2013 est.) MAJOR EXPORTS: Petroleum,
coal, petroleum derivatives, gold, coffee, cut flowers, bananas, sugar cane, gas, medicines, nickel, emeralds and apparel OIL PRODUCTION: 998,100 bbl/day
(2014 est.) OIL CONSUMPTION: 287,000 bbl/day
(2011 est.) OIL PROVED 2.44 billion bbl RESERVES:
(2014 est.)
SOURCES: Colombian Minis-
try of Mines and Energy and CIA World Factbook
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Since acquiring Mercantile’s Colombian Assets in late 2005, Interoil Colombia has been successful in increasing production and the resource base through enhanced recovery from existing wells, successful drilling of new production wells, extension of existing fields as well as discovery of new accumulations through exploration. Interoil operates four licenses in Colombia; Puli C, COR-6, Altair and LLA-47. The blocks COR-6 and LLA-47 are in the First Phase of Exploration under ANH contracts. The Puli C is comprised of Mana, Ambrosia and Rio Opia fields. The 72 km2 producing block is located in the Middle Magdalena Valley Basin. Interoil holds 70% working interest and the remainder is held by Ecopetrol. The royalty rate is 8%. The Altair block is located in the Llanos Foreland Basin, and it is producing from one single well, Altair-1.
community issues, it has not been possible for the Group to commence work on the licence and is currently in discussions with ANH regarding these issues. Significant efforts have been made relating to QHSE and CSR issues during 2014 and social responsibilities are of high priority. Interoil Colombia is ISO 9001, 14001 and OHSAS 18001 certified.
Interoil Colombia is an active operator in the Colombia upstream oil and gas industry with a diversified portfolio of operated production, development and exploration assets. The Company is a limited liability corporation registered in the British Virgin Islands (“BVI”) operating through the Colombian Branch. The Company is a 100% ultimately owned subsidiary of Interoil Exploration & Production ASA.
Interoil holds a 100% working interest in the LLA-47 exploration block, acquired in the 2010 ANH open round. As per the ANH commitments, Interoil has completed shooting, processing and interpreting of 350 square kilometers of 3D seismic. Interoil is obligated to drill eight exploration wells by october 2016.
Interoil Colombia has its main office in Bogotà with licenses in the Middle Magdalena Valley, Upper Magdalena Valley and in the Llanos basins. Interoil Colombia is a fully integrated company and has a management, staff and technical team covering all aspects of operating oil and gas exploration and production. As of 31st December 2014, Interoil Colombia employs 98 persons.
COR-6 block is located in the Upper Magdalena Valley Basin and it was acquired in the 2010 ANH open round. The Group had investment obligations of USD 22 million on the COR-6 licence to be completed by November 2014. However, due to environmental and in particular
Interoil’s reserves in Colombia have been audited and approved by Gaffney, Cline and Associates as of 31st December 2014. Interoil’s probable reserves (P2) were 3,4 million barrels of oil and 12.4 BCF of Natural Gas. All numbers represent Interoil’s working interest after royalties.
Interoil in Colombia number of employees:
annual production:
98
630´700 (net production before royalty)
approx. 47
1´728
209’298 acres (1’189 km2)
USD 0
total number of wells: area:
average daily production: capex:
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BOARD OF DIRECTORS’ REPORT In 2014, Interoil Exploration and Production ASA (“Interoil”) generated an EBITDA adjusted for exploration expenses of USD 19 million and a profit before tax of USD 6 million. Interoil encountered increasing financial difficulties during 2014 as a result of high debt burden and negative developments in both Peru and Colombia. The negative ruling from the ICC arbitration tribunal regarding the licenses for Peru, and the final conclusion that the company was not qualified to participate in the bid round, confirmed that Interoil Colombia would be the only operating company in the Group. Interoil Colombia in turn faced an underlying decrease in production due to system pressure restrictions and historical lack of maintenance on operational equipment and infrastructure. This, together with the decrease in oil price and changes in the financial market, made it difficult to obtain necessary guarantees to support operations. In December 2014 the Board announced a comprehensive restructuring proposal to improve the liquidity constraints and strengthen the balance sheet. The refinancing was completed in January 2015, and involved an equity issue towards Andes Energia Plc (Andes) resulting in new equity of NOK 36.3 million and a reduction in debt of approximately NOK 120 million. As part of the Restructuring, holders of the old NOK 310 million bonds accepted 65 million new shares in Interoil in part settlement of the bond, equivalent to approximately 10 per cent of the shares outstanding after Restructuring. Following the Restructuring, Andes holds 51 per cent of the outstanding share capital. The new Board believes that Andes becoming the majority shareholder of IOX, will provide the Company with management and technical capabilities and experience already established in the region, which combined with IOX’s existing operational base and personnel will contribute to accelerating the development of the Company’s acreage in Colombia.
The National Agency of Hydrocarbons (ANH) has threatened to terminate the Cor-6 and LLA-47 licenses and impose penalties, unless Interoil provides the required bank guarantees under these license contracts. Working with Andes has already enabled us to provide ANH with the required guarantee of USD 7.2 million for the LLA-47 license without posting cash collateral. On Cor-6, it has not been possible for Interoil to conduct E&P activities due to environmental and in particular community issues. Interoil is in discussions with ANH regarding these issues and is working to find a solution satisfactory to both parties.
COLOMBIA Interoil Colombia delivered an average net production of 1,598 boepd in 2014, compared to 1,470 in 2013. The average production increased during 2014 as a result of the drilling campaign ending late 2013, and a development program initiated in the beginning of 2014. However, due to system pressure restrictions and historical lack of maintenance on operational equipment and infrastructure, the underlying production decreased. On the LLA-47 exploration license, the 3D seismic is processed and analyzed. The LLA-47 geological model is developed, and the company is building a strong exploration portfolio for the license. In 2013 Interoil Colombia signed an assignment agreement with Trayectoria Oil & Gas to sell Interoil’s interests in the Altair and Cor-6 exploration licenses. Trayectoria was in breach of the contract and Interoil initiated legal action against Trayectoria to claim damages.On 4 March 2015 a settlement agreement with Trayectoria was announced, and the arbitration process
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was terminated. Trayectoria will pay USD 4,0 million in four installments as follows: • • • •
30 June 2015 30 September 2015 30 December 2015 30 March 2016
USD 500 000 USD 1 000 000 USD 1 000 000 USD 1 500 000
The payment is guaranteed by 5 tradable promissory notes.
PERU In November 2014 Interoil transferred ownership of its Peruvian operations to United Oilfield Colombia Inc. The transaction allowed Interoil to discontinue its business in Peru in an orderly fashion without any material impact on its liquidity or financial position. As previously communicated, Interoil would not be qualified to continue as an operator in Peru or be able to repatriate any additional cash from Peru, and the business therefore did not represent any value for the company. In these financial statements, the Peruvian business is reported as discontinued business.
KEY ACHIEVEMENTS 2014 - April 2015 • • • • •
NOK 36.3 million raised in new equity. Approximately NOK 120 million reduction in debt New main shareholder with presence in Latin America Bank guarantee of USD 7 million secured for LLA-47 Sale of Peruvian operations
INTEROIL’S BUSINESS Interoil is an upstream oil exploration and production company, headquartered in Oslo, with production in Latin America. The Company is an operator of 2 production licenses and 2 exploration licenses in Colombia. Interoil acquired the Colombian assets in 2005 from Mercantile. The production licenses in Colombia have been developed significantly since the acquisition and production has doubled since 2006.
FINANCIAL OVERVIEW (Group) Consolidated financial statements Continuing Operations Production increased from 1,470 barrels per day in 2013 to 1,598 barrels per day 2014. However the average oil price fell from USD 99 per barrel in 2013 to USD 86 in 2014, and thus revenues fell from USD 44 million in 2013 to USD 41 in 2014.
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EBITDA adjusted for exploration expenses reached USD 19 million in 2014 against USD 28 million in 2013. Depreciation charge is stable at USD 5 million in 2014 and 2013. As a result, Interoil recorded an operating profit of USD 22 million for 2014, down from USD 27 million in 2013. Exploration expenses came in at USD 13 million for 2014, and USD 4 million for 2013, most of it related to shooting and interpreting seismic on LLA-47. Other income decreased from USD 9 million in 2013, reflecting compensatory damages and reversal of provision in relation to liquidation of the African subsidiaries, to USD 1 million in 2013.
Cash flows from investing activities were USD -4 million for 2014, reflecting the proceeds from divested subsidiaries, compared to USD -18 million for 2013, reflecting capex for the 12 well drilling campaign. Cash flows from financing activities amounted to USD 2 million, , relating to bank financing in Colombia offset by interest expense. For 2013 the net proceeds from the private placement of USD 33 million were offset by interest expenses of USD 10 million and debt repayments of USD 10 million, and ended at USD 13 million. Total change in cash for the year was USD 1 million, against USD 6 million in 2013.
PARENT COMPANY ACCOUNTS Interoil recorded net financial expenses of approximately 0 for 2014, compared to USD 6 million for 2013. The majority of the difference is related to exchange rate gain.
The profit and loss account for the period for the parent company, Interoil Exploration and Production ASA, showed a net profit of USD 8 million compared to USD 0,5 million in the previous year.
After a net profit of USD 6 million from the discontinued Peruvian operations, the Group reported a net profit for the year of USD 6 million, compared to 19 million for 2013 including a USD 14 million contribution from the discontinued Peruvian operations.
The parent company’s equity totalled USD -2 million as of December 31, 2014. The parent company has therefore no distributable reserves as of year end 2014. The equity was USD -10 million at the end of 2013. Improved equity is related to a profit of USD 8 million for 2014.
Total assets amounted to USD 67 million, compared to USD 85 million in 2013. The decrease is a result of the divestment of the USD 20 million Peruvian assets. Cash at end of the year was USD 17 million, of which USD 6 million was restricted, mostly related to cash collaterals for guarantees in Colombia and loan agreements with bondholders. As of year end 2014, Interoil had interest-bearing debts of USD 61 million, of which USD 40 million relates to the NOK bond loan, USD 14 million relates to the bank loans in Colombia and USD 6 million to the final installment on the Interoil E&P Switzerland AG acquisition. The payment of the bond coupon on 14 December 2014 was deferred until 16 March 2015 with the payment of an additional coupon of 5% per annum, and Interoil Colombia has not met the debt service coverage ratio covenant on the Colpatria loan. Colpatria bank has granted a waiver until the next covenant report date 15 May, and no default has been declared. As a consequence of the covenant breach regarding the Colpatria loan, and a cross default clause in the bond loan agreement, the Group’s interest bearing liabilities are, in accordance with IFRS, classified as current. Operating cash flows for the year were USD 8 million against USD 11 million in 2013, mainly reflecting the expensed exploration cost related to the seismic on LLA-47.
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Although the book equity for the Company is negative, Gaffney, Cline & Associates has evaluated Interoil’s proven and probable reserves in Colombia and has calculated that the net present value of the company’s assets exceed all liabilities in the group. In addition the refinancing of the Company has increased the equity and reduced the debt substantially. The increase in equity relating to the capital increase and the debt reduction is approximately USD 19 million.
GOING CONCERN The financial statements in the 2014 Annual Report have been prepared under the going concern assumption in accordance with the Norwegian Accounting Act §3-3 and the Board of Directors hereby confirms that this assumption is valid.
work on the license and is currently in discussions with ANH regarding these issues.
As reported in the stock exchange notice 27 October 2014 and in the Company’s Q3 financial report, Interoil was facing financial and strategic challenges. The Company was suffering from a heavy debt burden that was undermining its ability to support initiatives, which would protect and potentially increase the value of the Interoil’s assets.
Following the Restructuring, referred above, the Group’s liquidity situation has significantly improved.
However, the Board believes that the USD 10,5 million guarantee will be secured without posting cash collateral and the Board is confident that a satisfactory solution can be reached in the discussions with ANH on COR-6 that will not require a commitment to be made in the near future.
There are however significant risk elements related to the going concern assumptions, and in particular, the following on-going discussions and negotiations.
The Board believes that the Interoil Group has sufficient cash flow generation to meet its obligations for the 12 month period from 31 December 2014.
On 23 December 2014 the Board announced a comprehensive restructuring (the “Restructuring”) proposal to improve its strategic position in Latin America, mitigate the Company’s liquidity constraints and strengthen its balance sheet and this was completed on 20 January 2015.
1) T he Group has to post a USD 10.5 million guarantee by the end of April 2015 relating to the investment commitments at LLA-47. Currently, the Group is in discussions with financial institutions regarding providing this guarantee without posting cash collateral.
ORGANIZATION
As a result of this Restructuring the Group’s liquidity situation has improved with total debt significantly reduced. Further information regarding financial risk factors is described in note 3 and 4 in the financial statement.
2) T he Group had investment obligations of USD 22 million on the COR-6 license to be completed by November 2014. However, due to environmental and in particular community issues, it has not been possible for the Group to commence
FINANCIAL RISK
Interoil has its main office in Oslo, Norway. At year end 2014, there were a total of 102 employees (4 in Norway and 98 in Colombia) in the Group. Considerable efforts have been made during 2014 to improve our management system. The Interoil Management handbook, which describes the most important principles, policies and requirements for how we work and behave, was developed and implemented during the year.
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OUTLOOK
Further information related to Interoil`s corporate governance principles are included on page 98 in the annual report.
total of 12 000 000 options to management and key employees. The board issued 10 500 000 options in June 2013 and 1 500 000 options in November 2013. The options are free of charge, based on requirements of reduced salaries. Options cannot be exercised before 30 June 2015 and not later than 30 June 2016. The options are fully vested at 30 June 2015. Exercise price is NOK 1,68 per share for all options issued in 2013.
REMUNERATION OF SENIOR EXECUTIVES
Pension Scheme:
The Board of Directors of Interoil Exploration and Production ASA hereby submits its statement on remunerations to management in accordance with the Public Limited Company Act §6-16 A.
The Norwegian employees participate in a defined benefit plan. The pension includes retirement pension, disability pension and widows’ pension.
Working with Andes has already enabled us to provide the National Agency of Hydrocarbons in Colombia (ANH) with the required guarantee of USD 7.2 million for the LLA-47 license without posting cash collateral and has enabled us to reach a settlement with Trayectoria Oil & Gas regarding the nonperformance of Trayectoria’s obligations under the assignment agreement to sell to Trayectoria Interoil’s interests in the Altair and COR-6 licenses.
equal opportunities and rights, and prevent discrimination based on ethnicity, national origin, ancestry, colour, language, religion or belief.
A new HR Manager to help us attract and retain the best people, foster a high performance culture with excellent leadership behaviours and high employee engagement in addition to promote open communication as well as safe operations and diverse and sustainable work environment was employed. We have continued the efforts to increase our Geological & Geophysical and operational competence during 2014, in addition to implementing a visible leadership model to improve the QHSE performance.
CORPORATE GOVERNANCE
Divisional and functional descriptions for every employee are in place, and will be basis for a career plan for employees.
HEALTH, SAFETY AND ENVIRONMENT Interoil is committed to excellence in operations and standards of Quality, Health, Safety and Environment (QHSE) throughout its activities. Interoil will strive towards our QHSE vision: Systematically promote work environment, zero accident and zero incident operations, promote environmental protection and reduce negative influence on local communities and optimize raw material and energy consumption to minimize waste. The company aims to be in line with industry practices and all statutory requirements. Interoil operates and is certified according to the OHSAS 18001 management standard. Through the standard we have focused on managing safety in critical processes, implemented a visible leadership model and strived to live the QHSE culture in the organization. These activities, together with further focus on training of workers, have resulted in reduced number of accidents and reduced number of barrels spilt in 2014 compared to previous years. The working environment is considered to be good, and efforts for improvements are made on an ongoing basis. Time lost due to employee illness or accidents was approxi mately 5,6 % for the company and 1,48 % for the Group, respectively a total of 474 days. Interoil Colombia is ISO 9001, 14001 and OHSAS 18001 certified. Interoil promotes equal opportunities, and has a policy of equal pay for the same type of work. Due to the nature of the industry, the organization is male dominated. As per today 72 % of all employees are male. The group has recruitment and personnel policies to ensure
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Interoil Group management as of April 2015: Alejandro Jotayan, Chief Executive Officer Pablo Arias, Chief Financial Officer Nigel Duxbury, General Manager
Salary Payments after Termination of Employment:
General Managers of operating subsidiaries: Carlos Guerrero Moreno, Colombia
Thomas J. Fjell’s, the former CEO of the Company, employment terminates on 30 April 2015 and he has a right to a severance payment of 18 months. Erik Sandoy, former CFO of the Company, has a right to a severance payment of 6 months. Kari Kaugerud, former COD, has a right to a severance payment of 6 months.
General:
Other:
Our guidelines for future stipulation of management remuneration is to follow the general salary adjustments in our local society and, at the same time, consider the measures necessary to avoid losing our key personnel and maintain a level of remuneration enabling us to recruit the kind of professionals needed for us to develop the Company according to plans.
We are of the opinion that all terms and conditions have been negotiated on an arm’s length basis at market conditions, enabling Interoil to recruit the kind of professionals it needs to succeed with its strategy, to the benefit of its shareholders.
This report contains forward looking statements. These statements are based upon various assumptions, many of which are based, in turn, upon further assumptions, including Interoil examination of historical operating trends. Although Interoil believes that these assumptions were reasonable when made, these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict with certainty and are beyond our control, Interoil cannot give assurance that it will achieve or accomplish these expectations, beliefs or intentions.
Oslo, 28 April 2015
Bonus Program: Interoil has a bonus based compensation program for the management and key personnel. The program is based on individual performance targets and key performance indicators. The compensation structure and guidelines for executive managers and key employees are subject to annual review and approval by the Board of Directors.
We believe that Andes becoming the majority shareholder of IOX, will provide the Company with management and technical capabilities and experience already established in the region, which combined with IOX’s existing operational base and personnel will contribute to accelerating the development of the Company’s acreage in Colombia.
The Board of Interoil Exploration and Production ASA
Ricardo Nicolas Mallo Huergo
Alejandro Oscar Jotayan
Jose Francisco Chalela
Nigel Duxbury
Board Member
Board Member
General Manager
Matthieu Milandri
Mimi Berdal
Dolores Rivas
Maria Rosa Siles Moreno
Board Member
Board Member
Board Member
Board Member
Chairman
Option Program: The Group has introduced a share-based payment agreement for the members of the Group Management or other key employees. The stock option program has been designed to align the interest of the Group Management and other key personnel with those of the company’s stakeholders. Further, the Group Management and other key personnel are vital for the further development of the Company: In 2013 the Board of Interoil, in accordance with the approval of a shareholders’ meeting held on 21 June 2013, granted a
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RESPONSIBILITY STATEMENT We confirm, to the best of our knowledge, that the financial statements for the period 1 January to 31 December 2014 have been prepared in accordance with current applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and profit and loss of the group taken as a
whole. We also confirm that the Board of Directors’ Report includes a true and fair review of the development and performance of the business and the entity and the group, together with a description of the principal risks and uncertainties facing the entity and the group.
Oslo, 28 April 2015 The Board of Interoil Exploration and Production ASA
Ricardo Nicolas Mallo Huergo
Alejandro Oscar Jotayan
Jose Francisco Chalela
Nigel Duxbury
Board Member
Board Member
General Manager
Matthieu Milandri
Mimi Berdal
Dolores Rivas
Maria Rosa Siles Moreno
Board Member
Board Member
Board Member
Board Member
Chairman
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BOARD AND MANAGEMENT ORGANIZATIONAL STRUCTURE BOARD OF DIRECTORS Chairman: Board member: Board member: Board member: Board member: Board member: Board member:
Ricardo Nicolas Mallo Huergo Alejandro Jotayan Matthieu Milandri Jose Francisco Chalela Dolores Rivas Maria Rosa Siles Moreno Mimi K. Berdal
General Manager
CEO
CFO
Nigel Duxbury
Alejando Jotayan
Pablo Arias
Colombia General Manager Colombia
Carlos Guerrero Moreno
MR. RICARDO NICOLAS MALLO HUERGO, CHAIRMAN Nicolas graduated from the Universidad Católica Argentina in 1993 with a law degree, and obtained a Master in Law (LLM.) with honours at Northwestern University School of Law, Chicago, U.S.A., in 1999. Within his area of specialization, he has advised private and public international companies and organizations, in connection with cross-border corporate and financial matters, including oil & gas transactions, debt restructurings, securities offerings, structured financing, unsolicited bids, tender offers, exchange offers and proxy fights for other companies, adoption of stock option plans, leveraged buy-outs, spinoffs, recapitalizations and other restructuring transactions, strategic investmentst, as well as mergers and acquisitions and joint ventures. He has been a Director of local and foreign companies, enterprises, representing international companies, lenders, multilateral institutions and investors, telecom, water, transport and other infrastructure projects (debt and equity). His professional activities focus on the field of business consulting, where he has applied his expertise in the energy sector, specifically in the areas of exploration, extraction, transportation and commercialization of oil and gas.
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MR. ALEJANDRO OSCAR JOTAYAN, BOARD MEMBER AND CHIEF EXECUTIVE OFFICER Alejandro Jotayan is an Industrial Engineer with a Master Degree in Business administration. He has 20 years of experience in the oil and gas industry in the Americas and Europe. He was Head of Strategy and Business Development of YPF until leaving in 2012. Previously, Alejandro had held several managerial positions in the exploration and production departments of Repsol-YPF working on many exploration and development prospects in South America. Between 1995 to 2006 Alejandro has held several planning, technical and commercial managing positions in Tenaris Group, the world leading steel tubes producer for oil and gas. Alejandro is currently the Chief Executive Officer of Andes Energia plc. MR. MATTHIEU MILANDRI, BOARD MEMBER Matthieu Milandri has been Investment Director at Mercuria Energy Trading SA (“Mercuria”) since December 2011, with a particular focus on upstream oil and gas assets. Prior to joining Mercuria, Matthieu was CFO of Candax Energy Inc, a TSX-listed upstream company and Business Development and Financing Manager at Geopetrol, a private upstream group. Matthieu spent nine years with BNP Paribas in Frankfurt, Paris, New York, Houston and Geneva working in the oil and gas and commodities groups. He graduated from ESSEC Business School in 1998 with a degree equivalent to an MBA with a specialization in finance.
MR. JOSE FRANCISCO CHALELA, BOARD MEMBER Jose Chalela is presently Professor of Hydrocarbons Legislation of the School of Law of University of Rosario in Bogotá and the Director of the Specialization on Hydrocarbons Law of the Faculty. Dr. Chalela is a graduate of the School of Law of Universidad del Rosario of Bogotá - Colombia in 1972 where he obtained a Juris Doctor title. He holds a title of Master in Civil Law from the Faculty of Law of Louisiana State University (U.S.A.) in 1975. He has more than 35 years experience in the Colombian oil and gas industry. MS. DOLORES RIVAS, BOARD MEMBER Dolores Rivas has been employed by Andes Energia plc since 2007 and supported the CEO and CFO at the time of the reverse in 2007 and continues to provide support to senior executives in other merger and acquisition activity. Prior to 2007 Dolores was employed by the British Argentine Chamber of Commerce. MS. MARIA ROSA SILES MORENO, BOARD MEMBER Rosa Siles is Chief Strategy Officer of the A Leadership Foundation, an international organization developing the next generation of business, social and political leaders. Rosa has a Master of Arts in Political Science and Sociology from the University of Granada, a MBA from the EOI and a graduate of the Senior Management Program from the IE Business School in Madrid.
NIGEL DUXBURY, GENERAL MANAGER Nigel Duxbury is Company Secretary and Non-Executive Director of Andes Energia plc. Nigel has experience both as a finance director and senior executive in small and large quoted and unquoted companies within Europe, Asia and the USA. He has a background in finance and accountancy, having qualified as a chartered accountant with Touche Ross, London. PABLO ARIAS, CHIEF FINANCIAL OFFICER Mr Arias is also Financial Planning Manager in Andes Energia plc. Mr. Arias holds an International Economics and Affairs Bachelor degree and a Master in Finance degree from Universidad Torcuato Di Tella and a Master In Business Administration degree from New York University. His professional experience includes positions at the Argentinean Central Bank, JP Morgan and Integra Investment. He has a UK FSA approval for financial advising. CARLOS GUERRERO, GENERAL MANAGER COLOMBIA. Mr Guerrero is a Geologist and Geophysicist and holds a PhD in Geophysics from the University of Leeds and an MBA from Thunderbird School of Global Management. He has more than 24 years of experience in the Latin American oil and gas industry. He has held various managerial positions with Ecopetrol and Gran Tierra Energy Colombia prior to his current role.
MS. MIMI BERDAL, BOARD MEMBER Mimi Berdal runs an independent legal and corporate counseling business. She has extensive experience as a board member of listed companies, including previous directorships in Rocksource ASA (Chairman), Renewable Energy Corporation ASA (Chairman) and Copeinca ASA. Ms Berdal currently holds the directorship in several companies, such as Itera ASA, Gassco AS, Gjensidige Pensjon og Sparing AS, REC Solar ASA and Intex Resources ASA. She has previously served as a legal advisor with Total Norge and partner in the Arntzen de Besche law firm. Ms Berdal holds a Cand.jur (law) degree from the University of Oslo and is admitted to the Bar, Norwegian Bar Association.
19
IN T E ROIL NOTES TO THE E XP LORAT CONSOLIDATED IO N AN D PRO FINANCIAL DU CTIOSTATEMENTS N G RO U P C O N S O L IDAT E D F INA NCIAL STATEM EN TS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Amounts in USD 1 000 unless otherwise stated
31 D E CE MBE R 2 0 1 4
Restated* For the year ended 31 December
Sales Cost of goods sold
Notes
2014
2013
6
41 344
44 020 -12 706
7
-14 352
17
-4 920
-4 607
Gross profit
22 072
26 707
Depreciation
Exploration cost expensed
8
-13 163
-3 930
Administrative expense
9
-8 997
-11 464
Other income
13
972
8 601
Result from operating activities
884
19 914
Finance income
15
12 412
8 320
Finance costs
15
-12 195
-14 321
Net finance income / costs
217
-6 001
Profit / (loss) before income tax
1 101
13 913
Income tax expense
16
-1 621
-8 940
Profit from continuing operations
-520
4 973
Profit/ (loss) from discontinued operations
14
6 440
14 147
Profit
5 920
19 120
Other comprehensive income / (loss)
19
-88
-116
Other comprehensive income / (loss) for the year, net of tax
-88
-116
Total comprehensive income for the year, net of tax
5 832
19 004
Attributable to: Equity holders of the parent
5 832
19 004
5 832
19 004
Earnings per share (expressed in USD per share) – basic – total
24
0.02
0.10
– basic – continuing operations
24
0.00
0.03
– diluted – total
24
0.02
0.09
– diluted – continuing operations
24
0.00
0.02
* 2013 numbers are restated as Peruvian operations are sold and presented as discontinued, see note 14
20
21
NOTES TO THE CONSOLIDATED CONSOLIDATED STATEMENT OF FINANCIAL FINANCIAL STATEMENTS POSITION
NOTES TO THE CONSOLIDATED CONSOLIDATED STATEMENT OF FINANCIAL CHANGES IN STATEMENTS EQUITY
Amounts in USD 1 000
Amounts in USD 1 000
as of 31 December
Notes
2014
2013
ASSETS Non-current assets Property, plant and equipment
17
44 073
50 215
Deferred tax asset
16
751
2 981
Total non-current assets
44 824
53 196
Current assets Inventories
20
575
1 499
Prepaid taxes
2 047
0
Trade and other receivables
18
2 438
13 873
Cash and cash equivalents, non-restricted
22
10 887
11 575
Cash and cash equivalents, restricted
22
6 449
4 829
Total current assets
22 396
31 776
TOTAL ASSETS
67 220
84 972
EQUITY Share capital and share premium
23
Other paid-in equity
123 901
123 901
2 476
2 192
Retained earnings
-131 234
-137 066
Total equity
-4 857
-10 973
Share capital Other and share paid-in Retained Notes premium equity earnings
Total equity
Balance at 31 December 2012
90 985
1 742
-156 069
-63 342
Issue of share capital, cash increase
23
34 993
0
0
34 993
Share issuance cost
23
-2 077
0
0
-2 077
Share options
11
0
450
0
450
– continuing operations
0
0
4 857
4 857
14
0
0
14 147
14 147
Balance at 31 December 2013
123 901
2 192
-137 066
-10 973
11
0
284
0
284
– continuing operations
0
0
-608
-608
Total comprehensive income for the period Total comprehensive income for the period – discontinued operations
Share options Total comprehensive loss for the period Total comprehensive income for the period – discontinued operations
14
0
0
6 440
6 440
Balance at 31 December 2014
123 901
2 476
-131 234
-4 857
LIABILITIES Non-current liabilities Borrowings/Non-current interest-bearing liabilities
25
0
54 977
Retirement benefit obligation
19
150
81
Provisions for other liabilities and charges
26
2 437
2 277
Total non-current liabilities
2 587
57 335
Current liabilities Borrowings/Current interest-bearing liabilities
25
60 503
10 467
Trade and other payables
27
7 896
20 477
Income tax liabilities
0
4 284
26
1 091
3 382
Total current liabilities
69 490
38 610
TOTAL LIABILITIES
72 077
95 945
TOTAL EQUITY AND LIABILITIES
67 220
84 972
Provisions for other liabilities and charges
Oslo, 28 April 2015 The Board of Interoil Exploration and Production ASA
Ricardo Nicolas Mallo Huergo
Alejandro Oscar Jotayan
Jose Francisco Chalela
Nigel Duxbury
Board Member
Board Member
General Manager
Matthieu Milandri
Mimi Berdal
Dolores Rivas
Maria Rosa Siles Moreno
Board Member
Board Member
Board Member
Board Member
Chairman
22
23
NOTES TO THE CONSOLIDATED CONSOLIDATED CASH FLOW STATEMENT FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Amounts in USD 1 000
1.
For the year ended 31 December
Notes
2014
2013
Cash generated from operations Comprehensive (loss)/income for the period- continuing operations
-608
4 857
Comprehensive income for the period- discontinuing operations
6 440
14 147
Total comprehensive income for the period
5 832
19 004
Income tax expense
7 327
19 999 7 231
Depreciation, amortization and impairment
5 009
Amortization of debt issuance cost
602
567
Fee regarding tax claim/bond loan
0
-385
Share based payment and change in retirement benefit obligation
354
598
Interest income
15
-26
-15
Interest expense
15
8 404
9 682
Unrealized exchange gain from revaluation of borrowings
25
-10 078
-5 472
Gain from sale of PP&E
0
294
Gain/loss on disposal of subsidiary
6 211
0
corporate information
Interoil Exploration and Production ASA (the “Company”) and its subsidiaries (together the “Group” or Interoil) is an upstream oil exploration and production company focused on South America. The Company is the operator of several production and exploration assets in Colombia. The Company is a Norwegian Public limited liability company incorporated and domiciled in Norway. The Company is listed on the Oslo Stock Exchange. The Company is registered in the Register of Business
2.
703
-458
Financial liabilities at FVtPL
0
-4 393
Trade and other receivables
5 878
-1 757
Trade and other payables and provision for other liabilities
-8 781
-13 303
Taxes paid
-13 788
-20 650
Net cash generated from operating activities
7 647
10 942
Cash flows from investing activities Interest received
26
Sale of subsidiary
-4 430
15 0
Investment in exploration, production and other assets
-9
-18 192
Net cash used in investing activities
-4 413
-18 177
Cash flows from financing activities Interest paid
-6 676
-9 682
Repayment of borrowings
-10 895
-18 342
Proceeds from new bank financing
15 269
8 545
Proceeds from issuance of ordinary shares
0
32 916
Net cash (used in)/generated from financing activities
-2 302
13 437
Net increase in cash and cash equivalents
932
6 201
22
16 404
10 203
Cash and cash equivalents at end of the year
17 336
16 404
Whereof cash and cash equivalents, non-restricted
10 887
11 575
Whereof cash and cash equivalents, restricted
6 449
4 829
Cash and cash equivalents at beginning of the period
24
The principal activities of the Group are described in note 5. These consolidated financial statements have been approved for issue by the Board of Directors on 28 April 2015.
summary of significant accounting policies
The principal accounting policies applied in preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
Changes in assets & liabilities Inventories
Enterprises with organization number 988 247 006. The Company’s registered office is Kronprinsensgate 17, 0251 Oslo, Norway.
2.1 Basis of preparation The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. The consolidated financial statement is presented in USD and is rounded up to thousands (1 000). The consolidated financial statements have been prepared under the historical cost convention, except for financial assets and liabilities at fair value through profit or loss.
compared with the requirements that were in IAS 27. In the standard an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. IFRS 10 did not impact the financial statements for the Group.
Changes in accounting policies and disclosures The accounting policies adopted are consistent with those of the previous financial year, except for the following amendments to IFRS effective as of 1 January 2014:
IFRS 11 Joint arrangements IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly-controlled Entities – Non-monetary Contributions by Venturers. IFRS 11 uses some of the terms that were used IAS 31, but with different meanings. Thus, there may be some confusion as to whether IFRS 11 is a significant change from IAS 31. For example, whereas IAS 31 identified three forms of joint ventures (i.e., jointly controlled operations, jointly controlled assets and jointly controlled entities), IFRS 11 addresses only two forms of joint arrangements (joint operations and joint ventures) where there is joint control. IFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method. For joint operations (which includes former jointly controlled operations, jointly controlled assets, and potentially some former JCEs), an entity recognizes its assets, liabilities, revenues and expenses, and/or its relative share of those items, if any. IFRS 11 did not impact the financial statements for the Group.
IFRS 10 Consolidated Financial statement presentation IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC-12 Consolidation — Special Purpose Entities. IFRS 10 establishes a single control model that applies to all entities. The changes introduced by IFRS 10 will require management to exercise significant judgement to determine which entities are controlled, and therefore are required to be consolidated by a parent,
IFRS 12 Disclosure of involvement with other entities IFRS 12 includes all of the disclosures that were previously in IAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 31 and IAS 28 Investment in Associates. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required. One of the most significant changes introduced by IFRS 12 is that an entity is now required to disclose the judgements made
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 2.20.
25
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS to determine whether it controls another entity. The new disclosures will assist the users of the financial statements to make their own assessment of the financial impact in cases were management where to reach a different conclusion regarding consolidation – by providing more information about unconsolidated entities. IFRS 12 did not impact on the disclosures for the Group. IAS 28 Investments in Associates and Joint Ventures (as revised in 2011) As a consequence of the new IFRS 11 and IFRS 12, IAS 28 has been renamed IAS 28 Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. IAS 28 as revised in 2011 becomes effective for annual periods beginning on or after 1 January 2014. IAS 32 Financial Instruments - Presentation (amendment) The amendments to IAS 32 clarify the meaning of “currently has a legally enforceable right to set-off” and also clarify the application of the IAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneously. The amendments to IAS 32 has not had any impact on the financial statements for the Group. IAS 36 Impairment of assets – Amendments The amendments result in a disclosure requirement regarding the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal. The amendment is a consequential amendment as a result of the issuance of IFRS 13 Fair Value Measurement. The amendments in IAS 36 did not impact the financial statements for the Group. IAS 39 Financial Instruments: Recognition and Measurement The IASB has implemented amendments in the hedge accounting under IFRS. The amendments result in a relief from discontinuing hedge accounting when a derivative designated as a hedging instrument is novated to provide clearing with a central counterparty as a result of law or other regulation, when certain criteria are met. The amendments in IAS 39 did not impact the financial statements for the Group. 2.2 Consolidation The consolidated financial statements compromise the financial statement of the Group and its subsidiaries as at 31 December 2014. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.Thus, the Group controls an entity if and only if the Group has all the following: • power over the entity; • exposure, or rights, to variable returns from its involvement with the entity; and
26
• the ability to use its power over the entity to affect the amount of the Group’s returns. There is a presumption that if the Group has the majority of the voting rights in an entity, the entity is considered as a subsidiary. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over the entity, including ownership interests, voting rights, ownership structure and relative power, as well as options controlled by the Group and shareholder’s agreement or other contractual agreements The assessments are done for each individual investment. The Group re-assesses whether or not it controls an entity if facts and circumstances indicate that there are changes to one or more of the three elements of control. Business combinations are accounted for by using the acquisition method. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Transaction costs other than share and debt issuance cost are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. Any excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill if applicable. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. Non-controlling interests is presented separately under equity in the Group’s balance sheet. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. The consideration is recognised at fair value and the difference between the consideration and the carrying amount of the non-controlling interests is recognised at the equity attributable to the parent.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS In cases where changes in the ownership interest of a subsidiary lead to loss of control, the consideration is measured at fair value. Assets (including goodwill) and liabilities of the subsidiary and non-controlling interest at their carrying amounts are derecognized at the date when the control is lost. The fair value of the consideration received is recognised and any investment retained is recognised at fair value. Gain or loss is recognised in profit and loss at the date when the control is lost. Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Consolidated subsidiaries Consolidated subsidiaries are specified in note 10. 2.3 Foreign currency translation (a) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in USD, which is the functional currency for the parent company and all significant companies in the Group. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. 2.4 Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Financial Officer and the Chief Executive Officer. They are responsible for strategic decisions and together with local management allocating resources and assessing performance of the operating segments. 2.5 Revenue recognition Sales revenue related to sale of oil and gas is recognised when the ownership rights are transferred to the customer at the time of delivery based on contractual terms in the sales agreements, i.e. when deliveries are made at a sales transfer point. Sales are presented net of royalty payments.
Revenues related to test production for new wells in association contract are recognised as revenues according to the principles above. Revenues related to services is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is made. 2.6 Tax Current income tax Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, by the reporting date, in the countries where the Group operates and generates taxable income. Current income tax relating to items recognised directly in other comprehensive income or equity is recognised in other comprehensive income or equity and not in profit or loss The income tax expense consists of the tax payable and changes to deferred tax. Deferred income tax Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting, nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Other tax On 29 December 2011 the Colombian Congress passed a law that imposed a 6% equity tax on Colombian operations. The tax has been paid in eight equal instalments over a four year period ending in 2014. The
27
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS equity tax did not qualify as an income tax, hence the Group recognized the present value of the entire amount of the equity tax payable as an operating expense in 2011. In 2015 a wealth tax of 1,15% will have to be paid based on the company’s equity. 2.7 Classifications Classification in the statement of financial position Interoil separately presents current and non-current assets and liabilities in its statement of financial position. Assets and liabilities are classified as current when it is expected to be realized (or is intended for sale or consumption) in the normal operating cycle, is held primarily for being traded, or is expected to be realized within twelve months after the reporting period. Also, cash or cash equivalent asset are classified as current assets, unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. A liability is classified as a current liability if it does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. Terms of a liability that can be settled with equity instruments at the option of the counterparty, do not affect its classification. Other balance sheet items are classified as non-current assets / non-current liabilities. Classification of income and expenses Operating expenses in the statement of comprehensive income are presented by function. Cost of goods sold includes lifting costs, changes in inventory and depreciation and amortization of production assets. Exploration cost expensed includes seismic acquisitions, internal cost incurred, including salaries for geographical and geophysical analysis and administration, and cost of dry wells. Administrative expenses include employee benefit expenses, general and administration expenses and depreciation and amortization of non-oil assets. Other income/ (expense) include refund of operating expenses based on association contracts and jointly controlled operations, gain/loss on sale of PP&E and other income and expense. Information of the nature of expenses is presented by their nature in the notes to the financial statements. 2.8 Property, plant and equipment Other property, plant and equipment are other assets not classified as either development or oil producing assets and are stated at historical cost less depreciation and impairment. Historical costs include expenditures that are directly attributable to the acquisition of the items. Depreciation is calculated using the straight-line method to allocate their cost to their values over their estimated useful lives (3 – 10 years). The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each end of the reporting period. Assets that are subject to depreciation are reviewed for impairment whenever events or changes in circumstances
28
indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. 2.9 Intangible assets (a) Exploration and evaluation assets Some exploration and evaluation assets are classified as intangible assets according to IFRS 6, for example license acquisition costs and capitalized exploration cost. When technical feasibility and commercial viability of the assets are demonstrable, the assets are reclassified to development assets within property plant and equipment. The exploration and evaluation assets which are classified as intangible are assessed for impairment before reclassification. (b) Other intangible assets Acquired computer software licences are capitalised on the basis of the cost incurred to acquire and bring to use the specific software. These costs are amortised over the estimated useful lives (three to five years). All intangible assets in the Group are fully amortised. Proceeds from sale of oil and gas licenses in the exploration stage are offset against the related capitalized costs of each cost centres with any excess of net proceeds over all costs capitalized included in other income/(expense) in the statement of comprehensive income. 2.10 Oil and Gas assets Exploration and production rights assets Oil exploration expenditures are accounted for using the successful efforts method of accounting. Some exploration and evaluation assets should be classified as intangible, for example license acquisition costs and capitalized exploration assets. Costs are accumulated on a fieldby-field basis. Geological and geophysical costs are expensed as incurred, except for costs connected to areas with proven reserves which are capitalised. Costs directly associated with an exploration well are capitalised until the determination of reserves is evaluated. Each individual exploration well is considered being a cash generating unit (CGU) when considering impairment of the evaluation and exploration asset. If the commercial discovery has not been achieved, these costs are charged to expense.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS recoverable amount is the higher of the assets’ fair value less costs to sell and their value in use. For the purposes of assessing impairment, the assets subject to testing are tested for impairment on a production field (CGU) by production field basis. Development assets Expenditure on the construction, installation or completion of infrastructure facilities such as production equipment, pipelines and the drilling of commercially proven development wells is capitalised within tangible assets. When development is completed on a specific field, it is transferred to production assets. No depreciation and/or amortisation are charged during the development phase. Oil production assets Oil production assets are aggregated exploration, production rights assets and development expenditures associated with the production of proved reserves. Furthermore, the oil production assets include property leasehold acquisition costs directly attributable to production assets. Oil production assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, the proved oil and gas properties subject to testing are tested for impairment on a production field (CGU) by production field basis. Depreciation and amortisation Oil and Gas assets that are purchased are depreciated and amortised using the unit-of-production method based on proved reserves (P2). Exploration and development assets transferred to production assets are depreciated and amortised using the unit-of-production method based on proved and probable developed reserves, which are oil mineral reserves estimated to be recovered from existing facilities using current operating methods.
Once commercial reserves are found, exploration and production rights assets are tested for impairment and transferred to development assets. No depreciation and/or amortisation are charged during the exploration phase.
2.11 Financial Instruments (i) Financial assets The Group initially recognizes loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognized initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument.
Production rights, exploration and development assets (see below) are tested for impairment whenever facts and circumstances indicate impairment. An impairment loss is recognised for the amount by which the assets’ carrying amount exceeds their recoverable amount. The
The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the
financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognized as a separate asset or liability. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. The Group classifies financial assets into the following categories: financial assets at fair value through profit or loss, loans and receivables. Financial assets at fair value through profit or loss (FVtPL) A financial asset is classified at fair value through profit or loss if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated at fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Group’s documented risk management or investment strategy. Attributable transaction costs are recognized in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss, presented as finance income (loss). This category includes derivative financial instruments that are not designated as hedging instruments in hedge relationships. Financial instruments included in the financial assets at FVtPL category for the Group comprise commodity-based derivative contracts (oil swaps) to reduce the risks in overall earnings and cash flows. Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss. Changes in the fair value of separated embedded derivatives are recognized immediately in profit or loss. Financial assets designated at fair value through profit or loss comprise equity securities that otherwise would have been classified as available for sale. The Group currently holds no derivatives or other financial instruments classified as FVtPL. Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable transaction costs.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Loans and receivables comprise cash and cash equivalents and trade and other receivables. Cash and cash equivalents - comprise cash balances, cash in hand and call deposits with original maturities of three months or less. All cash and cash equivalents not available to the Group at the end of the reporting period is classified as restricted as specified in note 22. (ii) Financial liabilities The Group initially recognizes debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities (including liabilities designated at fair value through profit or loss) are recognized initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument. The Group derecognizes a financial liability when its contractual obligations are discharged, cancelled or expire. The Group classifies non-derivative financial liabilities into the other financial liabilities category. Such financial liabilities are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method. Other financial liabilities comprise loans and borrowings, bank overdrafts, and trade and other payables. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are, if any, included as a component of cash and cash equivalents for the purpose of the statement of cash flows. Borrowings Any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the statement of comprehensive income over the period of the borrowings using the effective interest method. Gains and losses are recognized in the statement of comprehensive income when the liabilities are derecognized as well as through the effective interest rate method amortization process. Other financial liabilities are presented as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. Other borrowing costs are recognized as an expense. To the extent that Interoil Group borrows funds generally and uses them
30
for the purpose of obtaining a qualifying asset, the Group will determine the amount of borrowing costs eligible for capitalization by applying a capitalization-rate to the expenditures on that asset. The capitalizationrate shall be the weighted average of the borrowing costs applicable to the borrowings of the entity that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. (iii) Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognized as a deduction from equity, net of any tax effects. 2.12 Inventories Inventories are valued at the lower of cost and net realizable value. Cost is determined by the first-in, first-out (FIFO) method. Inventory cost includes raw material, freight, and direct production expenses together with a portion of indirect expenses. 2.13 Employee benefits Defined benefit plan: The Group operates one defined benefit plan for the employees in the holding company, Interoil Exploration and Production ASA. The scheme is funded through payments to insurance companies, determined by periodic actuarial calculations. Typically, defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method. Re-measurements, comprising of actuarial gains and losses, the effect of the asset ceiling, excluding net interest (not applicable to the Group) and the return on plan assets (excluding net interest), are recognised immediately in the statement of financial position with a corresponding debit or credit to retained earnings through OCI in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods. Past service costs are recognised in profit or loss on the earlier of: • The date of the plan amendment or curtailment, and • The date that the Group recognises restructuring-related costs. Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognises the following changes in the net defined benefit obligation under “cost of sales”, “administration expenses” and “selling and distribution expenses” in consolidated statement of profit or loss (by function):
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS • Service costs comprising current service costs, pastservice costs, gains and losses on curtailments and non-routine settlements • Net interest expense or income. Defined Contribution plan: The Group’s subsidiary in Colombia has a defined contribution plan in accordance with local legislation. The plan covers employees employed in the years from 19911994. The plan will result in payments if the employee has not collected 20 years in the governmental social security system. The liability is recognized as provision for other liabilities and charges. 2.14 Share-based payment The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation model, such as Black-Scholes model. The fair value determined at grant date is expensed on a straight-line basis over the vesting period, based on the company’s estimate of shares that will ultimately vest. The cost is recognized as employee benefit expenses included in administrative expenses, together with a corresponding increase in other capital reserves in equity. Cancellations or settlement of equity settled share-based payments are treated as an acceleration of vesting and as a result any amounts that otherwise would have been recognized for services received over the reminder of the vesting period are recognized immediately in the income statement. When options are exercised the payments from employees are recognized as an increase in the groups share capital and share premium reserve. The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share. 2.15 Provisions General: A provision is recognised in the statement of financial position when the Group has a present legal or constructive obligation as a result of past events and it is more likely than not that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.
Abandonment and decommissioning liabilities: In accordance with the terms of the license concessions for licenses where the Group has ownership interest, the local authorities may instruct the license holders to partly or completely remove the facilities at the end of production or when the concession period expires. Upon initial recognition of a liability when the Company has a constructive obligation, the company calculates and records the net present value related to future abandonment and decommissioning. The same amount is capitalised as part of the cost price of the asset and depreciated using the unit of production method. The change in the time value of the liability related to the abandonment and decommissioning is charged to expense as other expenses and increases the future liability related to the abandonment and decommissioning. Any change in the estimate related to expenditures associated with abandonment and decommissioning liabilities are accounted for prospectively (remaining production) based on the unit of production method. 2.16 Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of comprehensive income on a straight-line basis over the period of the lease. 2.17 Non-current assets held for sale and discontinued operations Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale or distribution rather than through continuing use, are classified as held for sale. Immediately before classification as held for sale, the assets, or components of a disposal group, are remeasured in accordance with the Group’s accounting policies. Thereafter generally the assets, or disposal group, are measured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss on a disposal group first is allocated to goodwill, and then to remaining assets and liabilities on pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets and employee benefit assets, which continue to be measured in accordance with the Group’s accounting policies. Impairment losses on initial classification as held for sale and subsequent gains and losses on remeasurement are recognised in profit or loss. Gains are not recognised in excess of any cumulative impairment loss. The Group does not classify non-current assets (or disposal groups) that are to be abandoned as held for sale, since its carrying amount will be recovered principally through continuing use. However, if the disposal group to be abandoned represents a separate major line of business or geographical area of operations; is part of a single coordinated plan to dispose of a separate major
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS line of business or geographical area of operations; or is a subsidiary acquired exclusively with a view to resale, the Group will present the results and cash flows of the disposal group as discontinued operations at the date on which it ceases to be used. Intangible assets and property, plant and equipment once classified as held for sale or discontinued operations are not amortised or depreciated. 2.18 Accounting for association contract with Ecopetrol (Colombia) Revenues connected to test production for non-commercial new wells in the association contract with Ecopetrol are recognised as revenue. Capital expenditures are capitalized as incurred and operating expenses connected to such test production are expensed as incurred. Ecopetrol has the right to participate in the non-commercial wells and normally they will declare participation when the well is determined commercial. If commercialisation is reasonable, a provision is recognized for 30% of the net margin. At the time Ecopetrol declares participation in accordance with the association contract, the effect applies retrospectively and Ecopetrol will receive the net margin up until that point in time. As a consequence, 30% of the expenditures that has been capitalized initially are recognized as a reduction to property, plant and equipment. The corresponding cost is recorded as exploration cost. 30% of the net margin is recognized to profit and loss. 2.19 Interest in jointly controlled operations Certain of the Group’s activities, particularly exploration and production, are conducted through unincorporated joint ventures where the ventures have a direct ownership interest in and jointly control the assets of the venture. The Group recognises, on a line by line basis, its share of the assets, liabilities and expenses of a jointly controlled operation, along with the Group’s income from the sale of its share of the output and liabilities and expenses incurred in relation to the venture. Licences are funded through cash calls from the operator to the licence partners. The net of total cash called and total payments made under the licence, the over-/under call, is recognised in the statement of financial position as other short-term receivables or other current liabilities respectively. When the Group, acting as an operator, receives reimbursement of direct costs recharged to the joint venture, such recharges represent reimbursements of costs that the operator incurred as an agent for the joint venture and therefore have no effect on profit or loss. 2.20 Critical accounting estimates and judgments The preparation of the Group’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of reported amounts of assets, liabilities, and
32
the disclosure of contingent liabilities, at the end of the reporting period and amounts of revenues and expenses recognized during the reporting period. Estimates and judgments are continuously evaluated and are based on management’s experience, historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods. (a) Impairment of exploration and other oil related assets The Group tests whether exploration assets and oil related assets have been subject to any impairment, in accordance with the accounting policy stated in note 2.10. The recoverable amounts of cash-generating units and individual assets have been determined based on value-in-use calculations as net present value (before tax). These calculations require the use of estimates and assumptions such as management evaluations in addition to discount rates, expected future cash flows and future market conditions, including production, remaining proved and probable reserves (P2), future capital expenditures, lifting cost and forward oil price. It is reasonably possible that these assumptions may change, which may then impact the estimated life of the field and may then require a material adjustment to the carrying value of exploration assets and oil related assets. The Group monitors internal and external indicators of impairment relating to its tangible and intangible assets. Current oil price have decreased steeply during the second half of 2014 due to an oversupplied market and weaker than expected demand. However, the impairment test does not indicate impairment of any of the oil producing assets at 31 December 2014 and in 2014 and 2013, no impairment charges are recognized. (b) Abandonment and decommissioning liabilities Abandonment and decommissioning costs will be incurred by the Group at the end of the operating life of some of the Group’s facilities and properties. The ultimate decommissioning costs are uncertain and cost estimates can vary in response to many factors including changes to relevant legal requirements, the emergence of new restoration techniques or experience at other production sites. The expected timing and amount of expenditure can also change, for example, in response to changes in reserves or changes in laws and regulations or their interpretation. As a result, there could be significant adjustments to the provisions established which would affect future financial results. The carrying amount of provisions for abandonment and decommissioning at 31 December 2014 is USD 0,8 million (2013: USD 1,3 million). See note 26. (c) Hydrocarbon reserves and resource estimates Oil and gas production properties are depreciated on units of production basis at a rate calculated by reference
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS to total proved developed and un-developed reserves determined in accordance with Society of Petroleum Engineers rules and incorporating the estimated future cost of developing those reserves. The Group estimates its commercial reserves based on information compiled by appropriately qualified persons relating to the geological and technical data on the size, depth, shape and grade of the hydrocarbon body and suitable production techniques and recovery rates. Commercial reserves are determined using estimates of oil in place, recovery factors and future oil prices, the latter having an impact on the total amount of recoverable reserves and the proportion of the gross reserves which are attributable to the host government under the terms of the Production-Sharing Agreements. Future development costs are estimated using assumptions as to the number of wells required to produce the commercial reserves, the cost of such wells and associated production facilities, and other capital costs. As the economic assumptions used may change and as additional geological information is produced during the operation of a field, estimates of recoverable reserves may change. Such changes may impact the Group’s reported financial position and results which include: • T he carrying value of exploration and evaluation assets, oil and gas properties and property, plant and equipment may be affected due to changes in estimated future cash flows. • Depreciation and amortisation charges in profit or loss may change where such charges are determined using the units of production method, or where the useful life of the related assets change. • Provisions for decommissioning may change - where changes to the reserve estimates affect expectations about when such activities will occur and the associated cost of these activities. • The recognition and carrying value of deferred income tax assets may change due to changes in the judgements regarding the existence of such assets and in estimates of the likely recovery of such assets. See note 30 for an overview of the approved reserves as of 31 December 2014 and 2013. 2.21 Changes in standards and interpretations issued, but not yet effective Standards and interpretations that are issued up to the date of issuance of the consolidated financial statements, but not yet effective are disclosed below. The Group’s intention is to adopt the relevant new and amended standards and interpretations when they become effective, subject to EU approval before the consolidated financial statements are issued. IFRS 9 Financial instruments In July 2014 the IASB published the final element in IFRS 9 and the standard is now complete. IFRS 9 results in amendments to classification and measurement, hedge
accounting and impairment. IFRS 9 will replace IAS 39 Financial Instrument: Recognition and Measurement. The parts of IAS 39 Financial Instruments: Recognition and Measurement that have not been amended as part of this project has been transferred and included in IFRS 9. The amendment is not yet approved by the EU. The amendments are not considered to have a material effect on the Groups Financial Statements. IFRS 15 Revenue from Contracts with Customers The IASB and FASB has published a new converged standard for revenue recognition; IFRS 15 Revenue from Contracts with Customers. The standard replaces all existing standards and interpretations relating to revenue recognition. The core principle of IFRS 15 is for companies to recognise revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods or services. The standard is applicable for all revenue contracts and includes a model for recognition and measurement of sale of individual non-financial assets (e.g. sale of property, plant and equipment). The amendments is not yet approved by the EU. The amendments are not considered to have a material effect on the Groups Financial Statements. IFRS 10 and IAS 28 Amendments – transactions between investor and its associate or joint venture The amendments address an inconsistency between the requirements in IFRS 10 Consolidated Financial Statements and those in IAS 28 Investments in Associates and Joint Ventures (2011), in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. The amendments is not yet approved by the EU. The amendments are not considered to have a material effect on the Groups Financial Statements. IFRIC 21 Levies IFRIC 21 Levies is an interpretation of IAS 37 Provisions, Contingent Liabilities and Contingent Assets. IAS 37 sets out criteria for the recognition of a liability, one of which is the requirement for the entity to have a present obligation as a result of a past event (known as an obligating event). The Interpretation clarifies that the obligating event that gives rise to a liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy. The Interpretation includes guidance illustrating how the Interpretation should be applied. The amendments will be effective for accounting periods starting on or after 17 June 2014 within the EU/EEA. The amendments are not considered to have a material effect on the Groups Financial Statements.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3.
ings issued at variable rates expose the group to cash flow interest rate risk. Borrowings issued at fixed rates expose the group to fair value interest rate risk. During 2014 and 2013, the group’s borrowings at variable rate were denominated in COP while the borrowings at fixed rates were denominated in NOK and USD.
financial risk management objectives and policies
The Group’s principal financial liabilities, other than derivatives, comprise accounts payable, bank loans and overdrafts, and debentures. The main purpose of these financial instruments is to manage short-term cash flow and raise finance for the Group’s capital expenditure program. The Group has various financial assets such as trade and other receivables and cash and short-term deposits, that arise directly from its operations. The Group manages its exposure to key financial risks in accordance with its financial risk management policy. The objective of the policy is to support the delivery of the Group’s financial targets while protecting future financial security. The main financial risks that could adversely affect the Group’s financial assets, liabilities or future cash flows are: market risks, comprising commodity price risk, cash flow interest rate risk and foreign currency risk; and liquidity risk and credit risk. The Group’s overall risk management plan focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. Risk management is carried out by the administration and finance department supervised by the Chief Financial Officer. The Board of Directors reviews and agrees policies for managing each of these risks summarised below. The Group is continuously updating and reviewing its financial manual to ensure proper and uniform entries and reporting of all transactions, in accordance with IFRS and Group policy. The Board provides management with guidelines for overall risk management. (a) Market risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise three types of risk: commodity price risk, interest rate risk and currency risk. Financial instruments affected by market risk include: loans and borrowings, deposits, trade receivables, trade payables, accrued liabilities and derivative financial instruments. Foreign exchange risk; The Group operates internationally and is, to some extent, exposed to foreign exchange risk arising from various currency exposures with respect to the following currencies; NOK, PEN and COP, in which NOK and COP are the most significant exposures. Revenue is invoiced to the customers in USD, while operating expenses are mostly denominated in USD, NOK, PEN and COP. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and the investment of excess liquidity. Currently, the Company uses no derivative financial instruments to hedge the above mentioned risk exposures.
34
At 31 December 2014, if the USD had weakened / strengthened by 10% against NOK and COP with all other variables held constant, post-tax profit for the year would have been respectively USD 3,9 million and 0,1 million (2013 USD 4,7 million and 0,6 million) higher / lower, mainly as a result of foreign exchange gains / losses on translation of NOK and COP denominated cash and NOK and COP denominated borrowings. The impact on the Group equity would have been the same as for the post tax profit. The impact related to PEN would be immaterial, because receivables and most cash are in USD, while suppliers are in both PEN and USD. Price risk; The Group is exposed to changes in oil prices. The results of Interoil’s operations largely depend on a number of factors, most significantly those that affect the price Interoil receive for the sold products. Specifically, such factors include the level of crude oil and some extent natural gas prices. Interoil’s results will also be affected by trends in the international oil industry, including possible actions by governments and other regulatory authorities in the jurisdictions in which we operate, or possible or continued actions by members of the Organization of Petroleum Exporting Countries (OPEC) that affect price levels and volumes; increasing cost of oilfield services, supplies and equipment; increasing competition for exploration opportunities and operatorship’s, and deregulation of the markets, which may cause substantial changes to the existing market structures and to the overall level and volatility of prices. If the net oil price of the oil sold had been USD 10 per barrel higher/lower than the net realized price received, the net operating income effect would be USD 3,9 million (2013: USD 3,7 million restated). The net income effect of an increased oil price of USD 10 per barrel would have been the same, USD 3,9 million (while for 2013 it would have been USD 1,4 million, as an increase in oil price would result in a financial loss of MUSD 2,3 million). The impact on the Group equity would have been the same as for net income. The estimated sensitivity of each of the factors on the financial results has been estimated based on the assumption that all other factors would remain unchanged. The estimated effects on the financial results would differ from those that would actually appear in the Group’s consolidated financial statements because the consolidated financial statements would also reflect the effect on depreciation, trading margins, exploration expenses, inflations and potential tax system changes. Interest rate risk; As the Group has no significant interest-bearing assets, the group’s income and operating cash flows are substantially independent of changes in market interest rates. The group’s interest rate risk arises from borrowings. Borrow-
The group analyses its interest rate exposure on a dynamic basis. The group calculates the impact on profit and loss of a defined interest rate shift. The scenarios are run only for liabilities that represent the major interest-bearing positions. Based on the simulations performed, the impact on posttax profit of a 1.0% shift in interest rates on borrowings issued at variable rates would be a maximum increase / decrease in interest expense of USD 123 000 (2013: USD 153 000) at 31 December 2014. Borrowings at variable rates at the end of 2014 are USD 14,1 million (2013: USD 10,4 million). (b) Credit risk Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions. Credit risk is, in other words, the risk that Interoil’s customers or counterparties will cause financial loss by failing to honour their obligations. Interoil Colombia sells the oil to Ecopetrol, the state owned company, to Hocol S.A and CI International Fuels Ltda, two private companies. The revenue from Ecopetrol in 2014 was USD 17,1 million(2013: 9,5 million), revenue of USD 16,7 million (2013: USD 20,3 million) was recognised based on sales to Holcol S.A while sale to CI International Fuels Ltda amounted to USD 0,8 million in 2014 (2013: USD 6,0 million). The credit risk is considered to be low due to the credit worthiness of these customers. No credit limits were exceeded during the reporting period, and management does not expect any losses from non-performance by these counterparties. Maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in note 21. See note 18 for an ageing analysis of trade and other receivables and impairment of non-current receivables. A minimum of the current trade and receivables are past due. No impairment charges are made. (c) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and develop operations according to budget. Liquidity risk is the risk that the Group will not be able to meet all obligations when due. The purpose of liquidity and short term liability management is to make certain that the Group at all times has sufficient funds available to cover financial and operational obligations in addition to fund the Group’s drilling program. Funding needs arise as
a result of the Group’s general business activity. Liquidity forecasts serve as tools for financial planning. New noncurrent funding will be initiated if liquidity forecasts reveal non-compliance with given limits, unless further detailed considerations indicate that the non-compliance is likely to be temporary. In this case, the situation will be further monitored. Management monitors rolling forecasts of the Group’s expected cash flow from operations. Weekly, monthly and quarterly reports are reviewed and analysed by management and all cost categories are matched with budgets and historical figures. All important accounts are reconciled on a continuous basis. As a consequence of negative developments in Peru and Colombia, together with its high leverage, Interoil experienced increasing difficulties in obtaining necessary funding and financial guarantees to support operations, and the board of directors decided to initiate a refinancing. In December 2014, a refinancing proposal of Interoil was proposed, whereby Interoil’s NOK 310 million bond loan and debt to Proseis AG was to be restructured and Andes Energia plc was to subscribe NOK 36.3 million in new equity in Interoil, securing 51% ownership post transaction. Both the extraordinary shareholder meeting and the bondholder meeting on 20 January 2015 approved the refinancing proposal announced in December 2014. In the debt restructuring, the old NOK 310 million bond and the USD 6.2 million debt due to Proseis AG were replaced with a new USD 32 million bond loan, which resulted in Interoil reducing its debt by approximately NOK 120 million. Holders of the old NOK 310 million bonds also accepted 65,000,000 new shares in Interoil in part settlement of the bond, equivalent to approximately 10 per cent of the shares outstanding after restructuring. The liquidity situation in the Group has been to some extent solved with the restructuring. The cash flows from operations is sufficient to support normal activities, dependent on an oil price on the same level as of today or above. However the Group will still have certain events that can cause liquidity constraints, such as the bank guarantee for LLA-47, and the unsolved COR-6 license terms. (d) Capital Management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in the short run and to provide returns for shareholders, benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital in the long run. See note 4 for additional information on going concern. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Due to tight liquidity over several years, the Group has not had the capability to declare dividends.
35
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The Group’s cash flow from operations may not be sufficient to fund its ongoing activities and implement its business plans. From time to time the Group may enter into transactions to acquire assets or the shares of other companies. These transactions, along with the Group’s ongoing operations, may be financed partially or wholly with debt, which may increase the Group’s debt levels above industry standards. Depending on future exploration and development plans, the Group may require additional financing, which may not be available or, if available, may not be available on favourable terms. Failure to obtain such financing on a timely basis could cause the Group to forfeit or forego various opportunities. The Group has a significant amount of debt. A breach of the terms relating to the Colombia subsidiary, see note 25, at the end of 2014 is not seen as a default, as a waiver was granted until the middle of May. However the Group’s current or future financing agreements may cause the lenders to require repayment of the financing immediately and to enforce security granted over the Group’s assets, including its subsidiaries. If the Group is unable to comply with the terms of the financing agreements and accordingly is required to obtain additional amendments or waivers from its lenders relating to an existing or prospective breach of one or more covenants in its financing agreements, the lenders may require the Group to pay significantly higher interest going forward. See note 4, 25 and 29 for information regarding refinancing of the Group’s debt. The operations of the Company are conducted through its subsidiary in Colombia and a bank facility is secured on the Colombian assets. In the event of insolvency, liquidation or a similar event relating to the Company’s subsidiaries, all creditors of such subsidiary would be entitled to payment in full out of the assets of such subsidiary before the Company, as a shareholder, would be entitled to any payments. Defaults by, or the insolvency of, certain subsidiaries of the Group could result in the obligation of the Company to make payments under parent financial or performance guarantees in respect of such subsidiaries or the occurrence of cross defaults on certain borrowings of the Company or other Group companies. Additionally, the Company or its assets may become directly subject to a bankruptcy or similar proceeding initiated against a subsidiary. There can be no assurance that the Company and its assets would be protected from any actions by the creditors of any subsidiary of the Group, whether under bankruptcy law, by contract or otherwise. The exploration and development of hydrocarbon reserves are highly capital intensive, and are associated with considerable uncertainty in terms of the relationship between budgeted costs and actual costs. The Group
36
may therefore, from time to time, experience that the actual costs of one or more of its developments and/ or undertakings are materially higher than the projected costs. The Group will also be required to make substantial capital expenditure for the acquisition of oil and gas reserves in the future. The Group may hence require additional funding in the future to cover working capital and investment needs for future development and growth. There can be no assurance that the Group will be able to obtain necessary funding in a timely manner and on acceptable terms. Should the Group not be able, at any time, to obtain the necessary funding in a timely manner and on acceptable terms, the Group may be forced to reduce or delay capital expenditures or sell assets or businesses at unanticipated times and/or at unfavourable prices or other terms, or to seek additional equity capital (having a dilutive effect on existing shareholders) or to restructure or refinance its debt, There can be no assurance that such measures would be successful or would be adequate to meet debt and other obligations as they come due, or would not result in the Group being placed in a less competitive position. Interoil’s total assets as of 31 December 2014 amount to USD 67,2 million (2013: USD 85,0 million).Total cash and cash equivalents were USD 17,3 million (2013: USD 16,4 million), whereof USD 6,4 million is restricted (2013: USD 4,8 million). As at 31 December 2014 the Group’s equity is USD -4,9 million (2013: USD -11,0 million). The current equity level is below the Group’s objectives for managing capital. The negative equity as at 31 December 2014 is highly affected by the: • d ecline in production due to under-investments in oil production assets. • decline in prices due to market conditions • significant refinancing expenditures and significant capital cost The book equity improved by USD 6,1 million during 2014 related to a net income of USD 6,1 million. The restructuring of the company in January 2015 has a significant impact on the equity situation. A total of 395 million new shares were issued, pursuant to a private placement to Andes Energia plc and the bond restructured. The cash consideration relating to the private placement was USD 4,7 million and the bond restructure led to a net increase in equity of approximately USD 14,7 million. After share issue costs of approximately USD 0,5 million, equity improved by approximately USD 19 million. Fees of USD 0,5 million will be amortizised over the new bond period.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4.
going concern
The financial statements in the 2014 Annual Report have been prepared under the going concern assumption in accordance with the Norwegian Accounting Act §3-3 and the Board of Directors hereby confirms that this assumption is valid. In Q4, The National Agency of Hydrocarbons in Colombia (Agencia Nacional de Hidrocarburos or ANH) informed Interoil that it was considering terminating the two licenses LLA-47 and COR-6 and impose penalties, unless necessary bank guarantees were provided for its existing exploration commitments on the two blocks. In Peru, Interoil lost the arbitration case regarding the license rights to operate Block III and Block IV. The Company was however given a 12 month license contract for the blocks until 5 April 2015. Interoil transferred the ownership of its Peruvian operations to United Oilfield Colombia Inc in November 2014. The transaction allowed Interoil to discontinue its business in Peru in an orderly fashion without any material impact on its liquidity or financial position. As Interoil would not be qualified to continue as an operator in Peru, or be able to repatriate any additional cash from Peru, the business did not represent any value for the company. Based on the negative developments in both Peru and Colombia, together with the high debt burden, Interoil experienced increasing difficulties in obtaining necessary funding and financial guarantees to support operations. In December 2014, the Board announced a comprehensive restructuring (the “Restructuring”) proposal to improve its strategic position in Latin America, mitigate the Company’s liquidity constraints and strengthen its balance sheet, and this was completed on 20 January 2015. Both the extraordinary shareholder meeting and the bondholder meeting on 20 January 2015 approved the refinancing proposal. In the debt restructuring, the old NOK 310 million bond and the USD 6.2 million debt due to Proseis AG was replaced with a new USD 32 million bond loan, which resulted in Interoil reducing its debt by approximately NOK 120 million. Holders of the old NOK 310 million bonds also accepted 65 million new shares in Interoil in part settlement of the bond, equivalent to approximately 10 per cent of the shares outstanding after restructuring. In addtition, NOK 36.3 million of new equity was raised through a placing of 330 million shares at NOK 0.11. Following completion of the Restructuring, a new board of Interoil was elected and subsequenlty new management. The new management with the right technical capabilities and experience already established in the region
combined with IOX’s existing operational base and personnel, will contribute to accelerating the development of the Company’s acreage in Colombia. After the balance sheet date the required guarantee of USD 7,2 million for the LLA-47 license was provided without posting any cash collateral. The company is currently in full compliance with the terms of the license. After the balance sheet date Interoil also reached a settlement with Trayectoria Oil & Gas (“TOG”) in relation to the Altair and COR-6 exploration licenses in Colombia. Interoil and TOG entered into an assignment agreement in February 2013 regarding the rights of the exploration and production contracts Altair and COR-6. A dispute arose under the assignment agreement, which was referred to arbitration in March 2014. Interoil and TOG have now agreed to settle the dispute and have entered into a settlement agreement under which TOG will pay Interoil USD 4.0 million The Board of Interoil believes that the restructuring of the Group, together with recent development regarding guarantees and the settlement agreement with Trayectoria, will make the Group able to concentrate on development of the licenses. There are however significant risk elements related to the going concern assumptions, and in particular, the following on-going discussions and negotiations. 1) The Group has to post a USD 10.5 million guarantee by the end of April 2015 relating to the investment commitments at LLA-47. Currently, the Group is in discussions with financial institutions regarding providing this guarantee without posting cash collateral. 2) The Group had investment obligations of USD 22 million on the COR-6 license to be completed by November 2014. However, due to environmental and in particular community issues, it has not been possible for the Group to commence work on the license and is currently in discussions with ANH regarding these issues. However, the Board believes that the USD 10,5 million guarantee will be secured without posting cash collateral and the Board is confident that a satisfactory solution can be reached in the discussions with ANH on COR-6 that will not require a commitment to be made in the near future. The Board believes that the Interoil Group has sufficient cash flow generation to meet its obligations for the 12 month period from 31 December 2014.
37
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5.
As of 31 December 2013
segment information
The Group’s organizational structure reflects the different activities in which Interoil is engaged. Management has determined the operating segments based on reports that are reviewed and used to make strategic decisions. The Group has one reportable segment, Colombia, which consists of upstream activities including oil and natural gas exploration, field development and production from the Group’s licenses in Colombia, which is the Group’s strategic business unit. The business is considered both from a geographic and development phase perspective. Geographically, management considers the performance of the activities in Colombia and Corporate. For the strategic business unit, the management and other decision makers review internal management reports on a day to day basis. Interoil Peru was divested in 2014. Peru consists of upstream activities including oil and natural gas exploration, field development and production from the Group’s licenses in Peru, and is presented as discontinued
No operating segments have been aggregated to form the above reportable operating segments. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on production, operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements. Segment revenues and segment results include transactions between business segments. These transactions and any unrealized profits and losses are eliminated. Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties. Corporate/unallocated consists of other business and Corporate activities. See note 3 (b) for more information regarding third-party customers.
As of 31 December 2014 Group Corporate/ continuing Amounts in USD 1 000 Colombia unallocated Elimin. business
Total Revenue 41 344 0 0 Cost of goods sold -14 352 0 0 Depreciation -4 920 0 0 Gross profit 22 072 0 0 Exploration cost expensed -13 163 0 0 Administrative expense -4 661 -4 336 0 Other income / (expenses) 972 0 0 Result from operating activities 5 220 -4 336 0 Finance income 2 606 11 241 -1 435 Finance costs -3 996 -9 634 1 435 Profit / (loss) before income tax 3 830 -2 729 0 Income tax expense -1 621 0 0 Profit / (loss) for the period 2 209 -2 729 0 Other comprehensive income 0 -88 0 Total comprehensive income, net of tax 2 209 -2 817 0
38
41 344 -14 352 -4 920 22 072 -13 163 -8 997 972 884 12 412 -12 195 1 101 -1 621 -520 -88 -608
Group Corporate/ continuing Amounts in USD 1 000 Colombia unallocated Elimin. business
Total Revenue 43 643 377 0 44 020 Cost of goods sold -12 638 -68 0 -12 706 Depreciation -4 607 0 0 -4 607 Gross profit 26 398 309 0 26 707 Exploration cost expensed -3 930 0 0 -3 930 Administrative expense -3 660 -7 804 0 -11 464 Other income / (expenses) 4 324 4 277 0 8 601 Result from operating activities 23 132 -3 218 0 19 914 Finance income 3 993 5 236 -910 8 320 Finance costs -4 118 -11 113 910 -14 321 Profit / (loss) before income tax 23 007 -9 094 0 13 913 Income tax expense -8 940 0 0 -8 940 Profit / (loss) for the period 14 067 -9 094 0 4 973 Other comprehensive income 0 -116 0 -116 Total comprehensive income, net of tax 14 067 -9 210 0 4 857
As of December 2014 Group Corporate/ continuing Amounts in USD 1 000 Colombia unallocated Elimin. business
Property, plant and equipment Other assets Total segment assets Total segment liabilities Capital expenditure
44 044 17 436 61 480 22 949 -292
29 5 711 5 740 49 127 6
Other segment information Lifting cost 14 206 0
0 0 0 0 0
44 073 23 147 67 220 72 077 -286
0
14 206
As of December 2013 Group Corporate/ continuing Amounts in USD 1 000 Colombia unallocated Elimin. business
Property, plant and equipment Other assets Total segment assets Total segment liabilities Capital expenditure
49 353 10 920 60 273 24 926 17 367
29 4 160 4 189 56 557 -14
0 0 0 0 0
49 382 15 080 64 462 81 483 17 353
Other segment information Lifting cost 12 089
0
0
12 089
39
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6.
8.
sales and royalty agreements
For the year ended 31 December
For the year ended 31 December
Amounts in USD 1 000
Amounts in USD 1 000
2014
Sale of oil – before royalty 37 546 Royalty -3 121 Sale of oil – net, barrels 34 425 Sale of gas 3 249 Sale of services 3 670 Total sales 41 344 Sale in barrels – see note 30.
2013
40 074 -3 267 36 807 2 848 4 365 44 020
cost of goods sold
For the year ended 31 December Amounts in USD 1 000
2014
2013
Seismic acquisitions, analysis and general G&G 10 782 3 137 Other exploration cost expensed 2 381 793 Total exploration cost expensed 13 163 3 930 The seismic acquisition, analysis and general G&G is related to seismic cost in the LLA-47 exploration licence.
9.
Royalty agreements in Colombia The royalty payment in percentage of gross oil price in accordance with royalty agreement with Ecopetrol in Colombia varies between 8 – 20%, depending on contract.
7.
2014
Other exploration cost is related to environmental licenses, indigenous consultations, guarantee costs, peer-reviews and adjustments related to Ecopetrol declaring commerciality.
Royalty: The royalty payments have been deducted from total sales reported by the Group.
2013
Lifting costs *) 14 206 12 089 Changes in inventory 146 617 Total cost of goods sold 14 352 12 706 *) Lifting costs, specifications: Field production costs 7 784 6 449 Tariffs and transportation 2 469 2 036 Insurance 259 235 Production costs external consultants 565 1 178 Well services and workovers 2 377 1 731 Repairs and maintenance of installations/equipment 752 460 Other production costs 0 0 Total lifting costs 14 206 12 089
40
exploration cost expensed
administrative expenses
For the year ended 31 December Amounts in USD 1 000
2014
2013
Employee benefit expenses 3 656 6 381 General and administration expenses 5 239 4 878 Depreciation non-oil assets (note 17) 102 205 Total administrative expenses 8 997 11 464 Employee benefit expenses directly related to the operation are reclassified to cost of goods sold in the statement of comprehensive income. Employee benefit expenses, specifications:
2014 2013
Salaries and wages employees Other personal expenses Share options granted to directors and employees Other payroll related expenses Pension cost – defined contribution plan (note 19) Pension cost – defined benefit plan (note 19) Total employee benefit expense
4 343 513 284 899 364 114 6 517
6 025 827 450 1 483 496 194 9 475
Reclassified to lifting cost -2 861 -3 094 Employee benefit expense – Administrative expenses 3 656 6 381 Average number of employees 104 116
41
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10.
11.
transactions with related parties
remuneration of senior executives
Consolidated subsidiaries Interoil Exploration and Production ASA has 100% (direct and indirect) shareholding and voting rights in the following subsidiaries:
The Group Management consists of the Group Directors. Group Directors are the CEO, CFO and COD.
Bonus related to Expensed Amounts in 2014, paid Pension option USD 1 000 Period Salary 2015 scheme cost
Registered
Company
business address
Direct and indirect shareholding and voting rights
UP Colombia Holding AS Norway 100% Interoil Colombia Exploration and Production Inc. (Branch office) Colombia 100% Interoil Colombia Exploration and Production Inc. BVI 100% Interoil Peru Holding AS Norway 100% All subsidiaries are included in the consolidated financial statements for 2014 and 2013. See note 2.2 for consolidation principles. Transfer prices with consolidated subsidiaries are on an arm’s length basis in a manner similar to transactions with third parties. The following assets have been pledged as security for the interest-bearing borrowings (see note 25) • Assets owned by Interoil Exploration and Production ASA: All shares invested in subsidiaries (see Parent Company note 10) with a total book value of USD 25 278 (2013: 27 268). • Assets owned by UP Colombia Holding AS: Shares in Interoil Colombia Exploration and Production Inc with a total book value of USD 31 339 (2013: 31 339).
Shareholders Shares in Interoil Exploration and Production ASA directly and indirectly owned by related parties at 31 December 2014 (note 23): Position
Thomas J Fjell Erik Sandøy Kari Kaugerud
Chief Executive Officer Chief Financial Officer Chief of Organizational Development
Other (company car)
T.J. Fjell CEO 01.01-31.12 598 0 29 103 47 E. Sandøy CFO 01.01-31.12 376 0 27 46 0 K. Kaugerud * COD 01.01-31-12 211 0 44 11 0 * As from June 2014 Kari Kaugerud was appointed Chief of Organizational Development.
Management remuneration 2013 Bonus related to Expensed Amounts in 2013, paid Pension option USD 1 000 Period Salary 2014 scheme cost
Other (company car)
T.J. Fjell CEO 01.01-31.12 804 143 20 278 47 E. Sandøy CFO 01.01-31.12 427 184 18 124 0 K. Kaugerud * COAA 01.01-31-12 203 103 26 31 0 * As from 1 September 2013 Kari Kaugerud was appointed Chief of Corporate Organisation, Audit and Accounting.
Transactions with subsidiaries For more information regarding transactions with subsidiaries see Parent Company note 12.
Name
Management remuneration 2014
Shares in %
0.12% 0.10% 0.02%
There are no transactions between related parties and IOX except ordinary salary and board fees – see note 11. Force Capital Partners AS/Interoil Angola Lda In 2013 Interoil Block 5 Company Ltd and Interoil Block 6 Company Ltd were sold to Interoil Angola Lda for USD 1. Nils Trulsvik is board member of Interoil Angola Lda., and a former board member of the Company. Interoil Block 5 Company Ltd and Interoil Block 6 Company Ltd were under liquidation when sale was assessed and accordingly of no value for Interoil.
Payments to Tom Wolden, the COO until his resignation in December 2012, for the period from January to March 2013 is USD 238 in total. Payments to Rene Graf in 2013, the CEO until his resignation of the position in December 2012, is USD 181. Interoil has an incentive scheme for the Management and key personnel. The program is based on individual performance targets and key performance indicators. The collective and individual bonus schemes may in total constitute to around 50% of the base salary. The compensation structure and guidelines for executive Management and key employees are subject to annual review and approval by the Board of Directors. The Group Management takes part in the general pension scheme described in the note regarding pension. According to this scheme, they are entitled to 66% of the basis for calculating entitlement to pension up to 12G from the age of 67. The scheme also consists of disability pension and dependents’ pension. The mentioned pension cost equals the gross pension cost, and it is calculated based on the principles and assumptions stated in the note regarding pensions. Thomas J Fjell, the CEO of the Company, has a right to severance payment of 18 month salary. Erik Sandøy, the CFO and Kari Kaugerud, the COD have the right to 6 month severance payment. No members of the Board of Directors have any right to severance payment. No member of the Group Management has received remuneration or economic benefits from other companies in the Group. No additional remuneration has been given for special services outside the normal functions of a Group Director. No loans have been given to, or guarantees given on behalf of, any members of the Group Management, the Board or other elected corporate bodies.
42
43
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Group has a share-based payment agreement with the members of the Group Management and other key employees. The stock option program has been designed to align the interests of Group Management and other key personnel with those of the Company’s stakeholders. Furthermore, the Group Management and other key personnel are vital for the further development of the Company:
Board member remuneration paid 2014 The board members that served for the period from July 2014 till December 2014 were entitled to remuneration in accordance with the following annual rates: Chairman of the Board: NOK 800 000, Board member : NOK 400 000 and deputy board members, NOK 50 000
The Board of Interoil has, in accordance with the approval of the shareholders meeting held on 21 June 2013, granted a total of 12,000,000 options to management and key employees. The Board issued 10 500 000 options in June 2013 and 1,500,000 options in November 2013. The options were free of charge, based on requirements of reduced salaries. Options cannot be exercised before 30 June 2015 and not later than 30 June 2016. The options are fully vested at 30 June 2015. Exercise price is NOK 1,68 per share for all options issued in 2013.
The fair value of the options granted during 2013 was determined using the Black & Scholes valuation model. USD 284 000 is expensed in 2014 (2013: USD 450 000). The significant inputs in the model were share price at the grant date, exercise price of NOK 1.68 per share, volatility of 50%, risk-free interest rate, and expected exercise at 30 June 2016. An analysis of the volatility for shares in comparable companies were used to calculate the expected volatility in the future for the shares in Interoil.
Amounts in USD 1 000
Leif Salomonsen Mimi Berdal Ragnhild Wiborg Eystein Koppang
Chairman Member Member Member
Period 2014
fee from subsidiary
Consultancy fee
01.07-31.12 01.07-31.12 01.07-31.12 01.07-31.12
63 33 33 33
0 0 0 0
0 0 0 0
Thomas J. Fjell Erik Sandøy Kari Kaugerud Carlos Guerrero
awarded 2013
options
21 June 21 June 21 June 2 December
6 750 3 000 750 1 500
Exercise price
1.68 1.68 1.68 1.68
Vesting Options period vested
21.06.13->30.06.15 21.06.13->30.06.15 21.06.13->30.06.15 02.12.13->30.06.15
Options exercised
6 194 2 753 688 1 342
0 0 0 0
Average exercise price is NOK 1.68 per share. The weighted average fair value of options granted during the year was NOK 0.41 per share. Declaration regarding the determination of salary and other remuneration to senior employees Guidelines for 2015 The declaration applies for the coming financial year in accordance with the Norwegian Public Limited Companies Act, § 6-16 a). The content of the declaration is summarized in the Board of Directors Report – cf the Act relating to Annual Accounts, etc §7-31b (7). Remuneration of senior executives in 2014 was in accordance with the declaration that was submitted to the General meeting in 2014. The principles for 2015 are not yet formalized. The declaration for 2015 will, in accordance with the Norwegian Public Limited Companies Act, § 6-16 a), be enclosed in the notice convening the general meeting.
44
/audit committee
0 0 0 0
The board members that served for the period from January to June 2014 were entitled to remuneration in accordance with the following annual rates: Board chair: USD 100 000, Board member: USD 60 000.
Share based remuneration to key management Date Total
Board Nomination
Board member fee
Amounts in USD 1 000
A.G. Ellingsen T.K. Haugnaess N.N. Trulsvik H. Sandby S.K. Jakobsen Elisa Palazzo
Period 2014
Board member fee
Board Nomination fee from subsidiary
Consultancy fee
Chairman 01.01-30.06 54 0 0 Member 01.01-30.06 29 0 0 Member 01.01-30.06 29 0 0 Member 01.01-30.06 29 0 0 N Committee N Committee
/audit committee
0 0 0 0 2 2
Board member remuneration paid 2013 For 2013 the new Board received extra compensation for the extra work-load during the period from 20 December 2012 to the ordinary general meeting 2013. Except from this, the board members are entitled to remuneration in accordance with the following rates: Board chair: USD 100 000, Board member: USD 60 000. Total fee paid for 2013 is USD 621 000, and relates to board member fee from 6 June 2012 to 20 December 2012, and from 20 December to 21 June 2013. In addition the ordinary general meeting preapproved the board fee for the period from the ordinary general meeting 2013 to the ordinary general meeting 2014, and the fee from 21 June to 31 December 2013 is included. The board member fee for 2013 is including audit committee fee.
45
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Board fee paid for by the producing subsidiaries for 2013 is USD 194 000.
12.
Amounts Board in USD 1 000 Period 2013 member fee
A.G. Ellingsen A.G. Vilas P. Nicol H. Sandby
Chairman Member Member Member
22.06-31.12 22.06-31.12 22.06-31.12 22.06-31.12
55 30 30 30
Amounts Board in USD 1 000 Period 2012-2013 member fee
A.G. Ellingsen T.K. Haugnaess N.N. Trulsvik H. Sandby
Chairman Member Member Member
20.12-21.06 20.12-21.06 20.12-21.06 20.12-21.06
97 58 58 58
Amounts Board in USD 1 000 Period 2012 member fee
M. Rød G.A. Perrucci Thor Håkstad B. Kjøll P. Guerra K.S. Jakobsen
Chairman Dep. Chairman Member Member Member Deputy member
06.06-20.12 06.06-20.12 06.06-20.12 06.06-20.12 06.06-20.12 06.06-20.12
49 29 29 29 29 28
Board Nomination fee from Consultancy /audit subsidiary fee committee
0 0 0 0
0 0 0 0
0 0 0 0
Board Nomination fee from Consultancy /audit subsidiary fee committee
0 0 0 0
0 0 0 0
0 0 0 0
Board Nomination fee from Consultancy /audit subsidiary fee committee
118 0 0 0 0 0
8 0 0 0 0 0
0 0 3 4 0 0
external audit remuneration
Ernst & Young AS (“EY”) is the Group’s principal auditor. The following table shows total audit and non-audit fees expensed in the period, excluding VAT: For the year ended 31 December 2014 Other Other assurance Tax non-assurance Amounts in USD 1 000 Audit fee services services services
E&Y Norway E&Y Abroad Total
182 59 241
6 9 15
0 0 0
7 0 7
For the year ended 31 December 2013 Other Other assurance Tax non-assurance Amounts in USD 1 000 Audit fee services services services
E&Y Norway E&Y Abroad Total
215 104 319
- - -
1 44 45
160 0 160
Total
195 68 262
Total
376 148 524
Other non-assurance services relates to a review of related party transactions for former years. The review indicated no further actions.
13.
other income
/ (expense)
For the year ended 31 December Amounts in USD 1 000
2014
2013
Refund of operating expenses (see principle note 2.17 and 2.18) 99 1 959 Other income 873 6 929 Total other income 972 8 888 Other expenses 0 287 Total other expense 0 287 Total other income / (expense) 972 8 601 Other income for 2013 includes compensatory damages of USD 2,5 million in contract with Petromagdalena Energy Corp regarding the farm out of LLA-47 that was not fulfilled and reversal of provisions regarding liquidation of Interoil Exploration and Production Ghana AS and Interoil Exploration and Production Africa AS of USD 4,3 million.
46
47
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
14.
15.
consolidated statement of comprehensive income- discontinued operations
The ownership in Interoil Exploration and Production Latin America AS(LATAM), which was the owner of the operating companies Interoil Peru SA and North Oil Services SA, was sold to United Oilfield Inc.(UOC) on 19 November 2014.
finance income and cost
For the year ended 31 December Amounts in USD 1 000
UOC subscribed for new shares in LATAM in a private placement, and acquired the remaining shares through a share purchase agreement. The consideration was USD 1. In addition, UOC also assumed the debtor position of an intercompany debt of USD 2 million that Interoil had towards LATAM. Profit of USD 6,4 million (2013: USD 14,1 million) from discontinued operations has been recognised in the consolidated income statement for the year. Consolidated statement of comprehensive income
2014
2013
1 January-
1 January-
Amounts in USD 1 000
19 November
31 December
(Unaudited) (Unaudited) Sales 36 643 53 355 Cost of goods sold ex depreciation -13 739 -15 682 Depreciation 13 -2 299 Gross profit 22 917 35 374 Exploration cost expensed 0 0 Administrative expense -4 576 -6 168 Other income / (expense) 998 -2 812 Loss on sale of subsidiary -6 211 0 Result from operating activities 13 129 26 394 Finance income 383 1 039 Finance cost -1 365 -2 227 Finance expense – net -982 -1 188 Profit before income tax 12 146 25 206 Income tax expense -5 706 -11 059 Profit 6 440 14 147 Other comprehensive income 0 0 Other comprehensive income for the period, net of tax 0 0 Total comprehensive income for the period, net of tax 6 440 14 147 Attributable to: Equity holders of the parent 6 440 14 147 6 440 14 147 Earnings per share (expressed in USD) – basic and diluted – discontinued operations 0.02 0.07
2014
2013
Interest income 26 15 Realized/unrealized exchange rate gain 12 161 8 305 Other financial income 225 0 Total financial income 12 412 8 320 Interest expenses 8 404 9 682 Amortisation of debt issue cost 602 567 Realized loss on oil swaps 0 908 Realized/unrealized exchange rate loss 2 768 2 463 Other financial expenses 421 700 Total financial expenses 12 195 14 321 Finance income/(expenses) – net 217 -6 001 Most of the net realized/unrealized exchange gain/loss is related to variation in the NOK/USD regarding the Bond Loan and the variation in the USD/COP regarding the suppliers and unsecured debt in Colombia.
16.
taxes
The major components of income tax expense are: For the year ended 31 December Amounts in USD 1 000
2014
2013
Consolidated income statement: Current income tax: Current income tax charge 1 753 11 081 Adjustments in respect of current income tax of previous year 0 1 923 Deferred tax: Relating to origination and reversal of temporary differences -132 -4 064 Income tax expense reported in the income statement 1 621 8 940 A reconciliation between tax expense and the product of accounting profit and the nominal tax rate : For the year ended 31 December Amounts in USD 1 000
2014
2013
Profit from continuing operations 1 101 13 913 Accounting profit before income tax 1 101 13 913
The net cash flows incurred are as follows:
2013
1 January-
1 January-
Amounts in USD 1 000
19 November
31 December
Operating Investing Financing Net (decrease)/increase in cash and cash equivalents
48
2014
5 541 -4 725 -10 000 -9 184
8 078 -453 0 7 625
49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2014 2013 17. property, plant and equipment Expected income tax according to nominal tax rate (27%, 34%) 405 5 497 Adjustment of previous years 20 1 951 Period ended 31 December 2013 Adjustment of deferred tax assets not recorded -1 742 2 407 Oil production Permanent differences 2 938 -922 Amounts in USD 1 000 Assets Other Total Other items 0 7 Opening net book amount 28 318 11 230 39 548 Total income taxes 1 621 8 940 Exchange differences 0 -110 -110 Additions 20 043 -921 19 122 Effective income tax rate 147% 64% Disposals, net -956 -158 -1 114 Income tax expense reported in the consolidated income statement 1 621 8 940 Depreciation charge -6 522 -709 -7 231 Total income taxes 1 621 8 940 Closing net book amount 40 883 9 332 50 215 Nominal tax rate in Norway and Colombia is respectively 27% and 34% for 2014 and 28% and 33% 2013. Period ended 31 December 2014 Deferred tax relates to the following: Opening net book amount 40 883 9 332 50 215 Amounts in USD 1 000 2014 2013 Additions 932 174 1 106 Deferred tax assets recognized in balance sheet: Disposals, net -1 375 -850 -2 225 Fixed assets 76 2 312 Depreciation charge -4 116 -907 -5 023 Provisions 675 215 Closing net book amount 36 324 7 749 44 073 Other 0 453 Deferred tax assets 751 2 981 Cost 122 592 16 026 138 618 Accumulated depreciation and impairment -86 268 -8 277 -94 545 Deferred tax assets not recognized in balance sheet. Net book amount 36 324 7 749 44 073 Amounts in USD 1 000
Amounts in USD 1 000
2014
2013
Deferred tax assets not recognized in balance sheet: Fixed assets 7 12 Provisions 40 22 Tax losses 36 946 45 432 Deferred tax assets not recognized in balance sheet 36 993 45 466 The tax rate in Colombia is adjusted from 34% in 2014 to 39% in 2015, and the tax rate in Norway is adjusted from 28% in 2013 to 27 % from 2014. A deferred tax asset of gross USD 37 023 (2013: USD 45 466), related to tax loss carried forward has not been recognized as the recognition criteria in IAS 12 have not been met. UP Colmbia Holding AS and Interoil Exploration and Production ASA have a history of recent losses. As of 31 December 2014, there is not convincing evidence that sufficient taxable profit will be available against which the unused tax losses could be utilized. The loss carry forward not recognized has no expiry date.
The depreciation expense has been charged as follows: Amounts in USD 1 000
Notes
Depreciation Administrative expenses 9 Total depreciation expense
2014
2013
4 920 102 5 023
4 607 205 4 812
Impairment testing of individual cash-generating units are performed when impairment triggers are identified. The significant decrease in market prices for oil and gas products is considered to represent an impairment trigger, and an impairment test of fixed assets has been performed. Impairment is recognized when the book value of an asset of cash generating unit exceeds the recoverable amount. The recoverable amount is the higher of the asset’s fair value less cost to sell and value in use. Impairment testing for 2014 has been based on value in use. The expected future cash flow after tax is discounted to the net present value by applying a discount rate after tax that reflects the current market valuation of the time value of money, and the specific risk related to the asset. The discount rate is derived from the weighted average cost of capital(WACC) for a market participant. Cash flows are projected for the estimated lifetime of the field, which is until 2028 for the producing license in Colombia. The future price level is a key assumption that has significant impact on the net present value. The prices used is based on management estimates and available market data. The nominal oil price based on the forward curve and reduced for any specific differences applied in the impairment test is as follows: 2015: USD 56,23, 2016: USD 63,35, 2017: USD 71,07, 2018: USD 78,79, 2019: USD 86,51 and for 2020 and forward: USD 88,35. The reserves used in the impairment testing is based on the proven and probable reserves. The recoverable amount is sensitive to changes in the reserves. See note 2.20 and 30 for further information. The discount rate represent the current market assessment of the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate is derived from the company’s WACC, and for the impairment test is set to 11,32%.
50
51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
18.
trade and other receivables 19. retirement benefit Period ended 31 December Defined benefit plan Interoil Exploration & Production ASA (Norway) has a defined benefit plan for employees in the Norwegian parent com pany. The Norwegian company meets the Norwegian requirements for mandatory occupational pension. Amounts in USD 1 000 2014 2013
Trade receivables Trade receivables – net Joint operations accounts Prepayments VAT receivable Other short-term receivables Less: provision for impairment of receivables Total trade and other receivables
2 233 2 233 -607 731 82 0 0 2 438
12 811 12 811 -145 348 64 1 795 -1 000 13 873
Trade and other receivables are non-interest bearing and are generally on 15 – 90 days-terms. As of 31 December 2014 trade receivables of USD 188 (2013: USD 0,7 million) were past due, whereof USD 0 is impaired. The ageing analysis of trade receivables is as follows: Amounts in USD 1 000
2014
2013
Not due Up to 3 months Over 3 months Total
2 045 188 0 2 233
12 111 687 13 12 811
The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of the receivables mentioned above. The Group does not hold any collateral as security.
The following tables summarise the components of the defined benefit plan: Amounts in USD 1 000
2014
2013
Defined benefit obligation at the end of the year Fair value of plan assets Unrecognised net actuarial loss Retirement benefit obligation liability
469 -319 150
318 -237 0 81
The movement in the defined benefit obligation over the year is as follows: Beginning of the year Current service cost Interest cost Settlements/curtailments Expected return on plan assets Contribution by plan participants Exchange rate differences Net actuarial loss(gain) recognized over OCI Retirement benefit obligation liability
81 121 13 0 -7 -133 -13 88 150
-66 196 14 -120 -6 -53
121 0 13 -13 -7 114
196 -120 14
The amounts recognised in profit or loss are as follows: Current service cost Settlements/curtailments Interest cost Exchange rate differences Expected return on plan assets Total defined benefit plan, expense
116 81
-6 84
The principal actuarial assumptions use were as follows Discount rate 2,30 % 4.10% Expected return on plan assets 2,30 % 4.10% Future salary increases 2,75 % 3.75% Future pension increases 0,00 % 0.60% Increase of social security base amount (G) 2,50 % 3.50% Defined contribution plan The Group’s subsidiary in Colombia have defined contribution plans in accordance with local legislation. The defined contribution plans cover full-time employees. The contributions recognised as expenses: Amounts in USD 1 000
Contributions
52
2014
2013
364
431
53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
20.
Fair value hierarchy inventories The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Period ended 31 December Amounts in USD 1 000
Spare parts etc Crude oil Total inventories
2014
2013
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.
424 151 575
0 1 499 1 499
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly. Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data
21.
financial instruments
Period ended 31 December 2014 Other financial liabilities at Loans and amortized Amounts in USD 1000 Notes receivables cost
The bond loan is included in level 2, the rest of assets and liabilities are included in level 3.
Total carrying amount
During the reporting period ending 31 December 2014, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers in and out of Level 3 fair value measurements. Fair value
Current: Trade and other receivables 18 2 438 0 2 438 2 438 Cash and Cash equivalents 22 17 336 0 17 336 17 336 Total financial assets 19 774 0 19 774 19 774 Current: Trade and other payables 27 0 7 896 7 896 7 896 Interest bearing liabilities 25 0 19 750 19 750 19 750 Bond loan denominated NOK 0 40 753 40 753 15 299 Total financial liabilities 0 68 399 68 399 42 945
Period ended 31 December 2013 Other financial liabilities at Loans and amortized Amounts in USD 1000 Notes receivables cost
Total carrying amount
The carrying amount of trade and other payable is considered to approximate their fair value. The fair value of the other non-current interest bearing liabilities equals their carrying amount. The carrying amount of the current interest bearing liabilities approximates the fair value. The fair value of the Bond Loan has been calculated using the prevailing interest rates. The bond is valued by a third party using the Hull-White model for the pricing, and a linear rate model to price the interest of the bond. The historical volatility of the iTRAXX is assumed to be a good approximation of the volatility, and the total value of the bond is set to NOK 113,8 million, corresponding to USD 15,3 million.
22. Fair value
Current: Trade and other receivables 18 13 873 0 13 873 13 873 Cash and Cash equivalents 22 16 404 0 16 404 16 404 Total financial assets 30 277 0 30 277 30 277 Non-current: Interest bearing liabilities 25 0 6 085 6 085 6 085 Bond loan denominated NOK 25 0 48 892 48 892 52 439 Current: Trade and other payables 27 0 20 477 20 477 20 477 Interest bearing liabilities to financial institutions 25 0 10 467 10 467 10 467 Total financial liabilities 0 85 921 85 921 89 468
54
The carrying amount of trade and other receivables approximate their fair value.
cash and cash equivalents Period ended 31 December
Amounts in USD 1 000
2014
2013
Bank deposits denominated in USD 12 142 12 160 Bank deposits denominated in NOK 3 045 2 236 Bank deposits denominated in COP 2 149 1 433 Bank deposits denominated in CHF 0 161 Bank deposits denominated in PEN 0 414 Total cash and cash equivalents 17 336 16 404 Whereof bank deposit classified as restricted 6 449 4 829 Of the USD 6,5 million (2013: USD 4,8 million) of restricted cash, USD 1,7 million (2013: USD 1,9 million) is related to the Bond loan (see note 25) while the rest mainly relates to the cash collateral for guarantees in Colombia. For 2013 USD 1,8 million was related to the Colpatria loan and USD 0,9 million was related to unsecured debt in Colombia.
55
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
23.
24.
paid in capital
Amounts in USD 1 000
Number of Shares (1 000)
Share capital
Share premium
Total
At 31 December 2012 47 765 366 Capital increase 09.04.2013 200 000 1 714 Capital increase 19.04.2013 4 138 36 Cost capital increase At 31 December 2013/2014 251 903 2 116
90 619 32 566 677 -2 077 121 785
90 985 34 280 713 -2 077 123 901
All issued shares are paid in full. All shares give equal rights in the company. Nominal value per share is NOK 0,05. The total number of authorised shares as of 31 December 2014 consists of the following: 1. The 251,903 thousands issued shares mentioned above; 2. The Board of Directors have been authorised to increase the share capital by 15 million shares regarding the stock option program for management and key employees. The authorisation was given by the ordinary general meeting held on 21 June 2013 and is valid until the ordinary general meeting 2015, however no longer than 30 June 2015 Based on this, total authorised share capital as of 31 December 2014 amounts to 266,903 thousand shares (2013: 266,903 shares). The Company carries other paid-in equity of USD 2,5 million per year end 2014, which consists of subscription rights. op 20 shareholders & consolidated nominee accounts T As of 31 December 2014
56
earnings per share
Company
Shares held
Nordnet Bank AB Danske Bank AS 3887 Operations Thunder Invest AS Avanza Bank AB meglerkonto Giamonti Thomas Kårstad Nordnet Pensjonsfor Sandquist Patricia Rodrigues D Technology & Process Rødset Joakim Hellestø Arne Fredrik Sunnfjord Invest AS Bakke-Erichsen Eyolf Strømsvåg Egil J&J Investment AS Six Sis AG 25pct account Mosvold Roy Torvild Soltvedt Bjørn Inge Mosand Sturla UBS AG A/C Omnibus-disclose Hanoma Holding AS Total 20 largest shareholders Other Total
7 174 584 4 728 244 4 483 875 4 192 588 4 064 591 4 044 537 3 329 000 3 252 333 2 882 364 2 697 707 2 200 000 2 007 000 2 000 000 2 000 000 1 508 881 1 500 000 1 436 748 1 379 387 1 377 648 1 330 010 57 589 497 194 313 648 251 903 145
% of total shares
2,85 % 1,88 % 1,78 % 1,66 % 1,61 % 1,61 % 1,32 % 1,29 % 1,14 % 1,07 % 0,87 % 0,80 % 0,79 % 0,79 % 0,60 % 0,60 % 0,57 % 0,55 % 0,55 % 0,53 % 22,86 % 77,14 % 100,00 %
Basic Basic earnings per share are calculated by dividing the profit for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period. For the year ended 31 December
Amounts in USD 1 000
Profit attributable to owners of the Company Weighted average number of ordinary shares in issue (thousands) Basic earnings per share (USD per share) - total Amounts in USD 1 000
Profit / (loss) attributable to owners of the Company Weighted average number of ordinary shares in issue (thousands) Basic earnings per share (USD per share) – continuing operations
2014
2013
5 832 251 903 0,02
19 004 196 217 0,10
2014
2013
-608 251 903 0,00
4 857 196 217 0,03
Diluted Diluted earnings per share are calculated by dividing the profit/(loss) for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares (conversion rights) into ordinary shares. When total comprehensive income is negative, the dilutive instruments described above will have an antidilutive effect when calculating dilutive earnings per share. This antidilutive effect will not be considered when presenting dilutive earnings per share. For the year ended 31 December
Amounts in USD 1 000
2014
2013
Profit / (loss) attributable to owners of the Company 5 832 19 004 Profit used to determine diluted earnings per share 5 832 19 004 Weighted average number of ordinary shares in issue (thousands) 251 903 196 217 Adjustment for subscription rights – share options 10 978 6 795 Weighted average number of ordinary shares for diluted earnings per share (thousands) 262 881 203 012 Calculated Diluted earnings per share (USD per share) 0,02 0,09 Presented Diluted earnings per share (USD per share) – total 0,02 0,09
Amounts in USD 1 000
2014
2013
(Loss) / profit attributable to owners of the Company -608 4 857 Profit used to determine diluted earnings per share -608 4 857 Weighted average number of ordinary shares in issue (thousands) 251 903 196 217 Adjustment for subscription rights – share options 10 978 6 795 Weighted average number of ordinary shares for diluted earnings per share (thousands) 262 881 203 012 Calculated Diluted earnings per share (USD per share) 0,00 0,02 Presented Diluted earnings per share (USD per share) – continuing operations 0,00 0,02
57
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
25.
In addition, a new call structure was implemented, whereby Interoil can redeem the loan, in whole or in part, as follows: a) from 14 September 2012 to14 March 2015, at a price equal to 105.00 % plus accrued interest on redeemed amount; and b) from 14 March 2015 to the final Maturity Date at a price equal to 101.00 %, plus accrued interest on redeemed amount.
borrowings
Period ended 31 December
Amounts in USD 1 000
2014
Non-current: Bond loan denominated NOK 0 Other non-current interest bearing liabilities 0 Total non-current borrowings 0
2013
48 892 6 085 54 977
Current Liabilities to financial institutions 14 069 10 452 Bond loan denominated NOK 40 753 0 Other current interest bearing liabilities 5 681 15 Total current interest-bearing liabilities 60 503 10 467 Total borrowings 60 503 65 444
Period ended 31 December
Amounts in USD 1 000
2014
2013
0-12 months Between 1 and 2 years Between 2 and 5 years Over 5 years Total borrowings
60 503 0 0 0 60 503
10 467 0 54 977 0 65 444
The terms and conditions of outstanding loans are summarized as follows: Period ended 31 December Interest rate
Maturity
2014
2013
Non-current: Other interest bearing liabilities 0 0 0 0 Total non-current borrowings 0 0 0 0
58
Amounts in USD 1 000
Bond Loan at issue date, 14 September 2010 Borrowing costs (fees and legal expenses) Amortisation of debt issue cost Revaluation gains at end of reporting period Balance at 31 December 2014
50 617 -4 966 3 794 -8 693 40 753
The Group has recognized a foreign exchange gain of USD 10,1 million (2013: gain USD 5,5 million) related to the revaluation of borrowings for the Bond loan and the Colpatria loan. Main covenants The main financial covenants related to the Bond loan are as follows: • Secured/Unsecured debt and leasing Colombia < USD 20 million
The maturity of the Group’s borrowings is as follows:
Amounts in USD 1 000
The Bond Loan recognised in the statement of financial position is calculated as follows:
Colpatria loan USD 15 million On 3 April 2014 the Group entered into a USD 15 million loan agreement with Banco Colpatria Cayman Inc. The loan bears an interest of LIBOR + 4.5 % per annum payable quarterly. The new loan matures in February 2016, and will be repaid in quarterly instalments ending on maturity date The Colpatria loan recognised in the statement of financial position is calculated as follows: Amounts in USD 1 000 Face value of loan issued Repayments performed Balance at 31 December 2014
15 000 - 3 750 11 250
The main financial covenants related to the USD 15 million Colpatria loan are as follows: • Senior Debt / EBITDA < 1.25x • Debt Service Coverage ratio > 2.0x • Total Liabilities / Total Net Worth < 1.5x • Tangible equity: minimum COP 65 000 000 000
Current: Bond Loan NOK 310 million 15,0% March 2016 40 753 48 892 Banco Colpatria USD 15 million LIBOR + 4,5% April 2016 11 250 3 375 Other interest bearing liabilities - - 8 500 13 177 Total current interest-bearing liabilities 60 503 65 444 Total borrowings 60 503 65 444
Restructuring and breach of covenants In January 2015 the bondholders approved a restructuring proposal, where a portion of the loan was converted into equity and a portion was converted into a new bond loan. See subsequent events, note 29.
Bond Loan NOK 310 million The Group issued a 3.5 year Senior Secured Bond Loan with a total loan amount of NOK 310 million on 14 September 2010. The Bond Loan would initially mature on 14 March 2014, but was extended to 14 March 2016 – or earlier (see below). The Bond Loan shall be repaid at the final maturity date at 100 % of par value, plus accrued and unpaid interest. The bonds have a nominal value of NOK 500,000, and carries a fixed rate interest of 15.00 % payable quarterly in arrears. The effective interest rate on the loan for 2014 is 18.0%.
Interoil Colombia has not met the debt service coverage ratio covenant. Colpatria bank has granted a waiver until the next covenant report are scheduled on 15 May, and no default has been declared.
The payment of the bond interests coupon on 14 December 2014 was deferred until 16 March 2015 with the payment of an additional coupon of 5% per annum.
As a consequence of the covenant breach regarding the Colpatria loan, and a cross default clause in the bond loan agreement, the Group’s interest bearing liabilities are in accordance with IFRS classified as current.
59
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Other interest bearing liabilities Other interest bearing liabilities consist of
26.
For the year ended 31 December
Amounts in USD 1 000
Banco de Occidente - Interoil Colombia Branch 2 819 Other non-current interest bearing liabilities 5 681 Total other interest bearing liabilities 31 December 2014 8 500 Proseis debt Other non-current interest bearing liabilities includes USD 5.7 million related to the final payment to Interoil E&P Switzerland AS acquired in 2006. The loan matures on 14 March 2016. Interest of Swiss Libor +4% per annum payable on maturity. The Proseis debt is part of the approved restructuring, where a portion of the loan was converted into a new bond loan. See note 29. The table below sums up the maturity profile of the Group’s financial liabilities at 31 December 2014 based on contractual undiscounted payments. Year ended 31 December 2014
Less than 1 year
Between 1 and 2 years
Between 2 and 5 years
Total
Borrowings including interest 61 438 0 0 61 438 Trade and other payables 7 896 0 0 7 896 Other interest bearing liabilities 0 0 0 0 Year ended 31 December 2013
provisions for other liabilities and charges
Less than 1 year
Between 1 and 2 years
Between 2 and 5 years
Amounts in USD 1 000
2014
2013
Non-current: Asset retirement obligations 782 1 281 Other long term obligations 1 655 996 Total non-current provisions for other liabilities and charges 2 437 2 277 Current Other provisions and charges 1 091 3 382 Total current provisions for other liabilities and charges 1 091 3 382 Total provisions for other liabilities and charges 3 528 5 659 Asset retirement obligation is a liability for plugging, abandonment and decommissioning costs that are recognized since the Group has an obligation to dismantle and remove facilities and restore the site on which it is located. The amount recognized is the present value of the estimated future expenditure determined in accordance with local conditions and requirements. The discount rate used for 2014 was 6.9% (2013: 6,6%). Of the total provision USD 0,3 million (2013: 0,8 million), is expected to be executed within the next five years. Other long term obligations are provisions based on local statutory requirements in connection with employees, USD 0,8 million (2013: 1 million).The rest, USD 0,8 million, is related to net present value of voluntary agreements regarding contributions to education for local communities. See further details in the sustainability report. Other provisions and charges are related to the accounting of the association contract as outlined in note 2.18.
Total
Borrowings including interest 18 067 7 600 60 552 86 219 Trade and other payables 20 477 0 0 20 477 Other interest bearing liabilities 0 0 0 0 As the amounts included in the above table are the contractual undiscounted cash flows, these amounts will not reconcile to the amounts disclosed on the statement of financial position for borrowings which is recorded at amortised cost. The specific time buckets presented are not mandated by the standard, but are based on choice by management.
27.
trade and other payables
For the year ended 31 December Amounts in USD 1 000
2014
Trade creditors Public duties payable Debt to employees and shareholders Other accrued expenses Total trade and other payables
3 846 685 385 2 980 7 896
2013
10 014 2 460 2 668 5 335 20 477
Other accrued expenses for 2014 include the deferred interest payment of USD 1,9 million related to the bond loan, see note 25.
60
61
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 28.
commitments and contingencies
The Group is involved in a number of legal proceedings in various forms. While acknowledging the uncertainties of litigation, the Group is of the opinion that based on the information currently available, these matters will be resolved without any material adverse effect individually or in aggregate on the Group’s financial position. No provisions have been made for the legal disputes discussed in this note. For legal disputes, in which the Group assesses to be probable (more likely than not) that an economic outflow will be required to settle the obligations, provisions have been made based on management’s best estimate. Interoil Peru In November 2014, the Company divested its Peruvian assets by selling the Norwegian holding company, Interoil Exploration and Production Latin America AS (“LATAM”) to United Oilfield Colombia Inc. (“UOC”). Until the expiration of the contract on 4 April 2015, the Company had an exposure to a parent company guarantee issued to secure certain work obligations under the license agreements for blocks III and IV. The guarantee was secured under a back-toback arrangement with UOC. Interoil and LATAM will both continue to be parties to a litigation against PetroCarbon Investment SA (see below). LATAM is also involved in a tax case against LATAM’s tax obligations in Norway. Although not expected to have any cash effects, these tax issues may have an impact on IOX by that carried forward tax losses could be reduced. The Company will manage both the tax case and the case against PetroCarbon Investment SA and cover costs related to advisors involved with these cases. Dispute PetroCarbon Invest SA On 11 June 2013, Interoil received a payment claim of USD 40,5 million on behalf of PetroCarbon Investment SA (“PetroCarbon”), a company owned by Jamie Mur Campoverde, the former director and acting general manager of Interoil Peru. The claim was based on the intercompany loan from Interoil Peru to LATAM. On 13 June, Interoil filed a writ to Oslo District Court disputing the claim. PetroCarbon submitted a promissory note related to the intercompany loan agreement, which allegedly transferred the loan from Interoil Peru to PetroCarbon, and Interoil ASA allegedly acted as guarantor for the claim. The promissory note had the State of New York as legal venue. Interoil disputed the existence of the promissory note, and claimed that PetroCarbon is unauthorized to dispose of or recover the claim against LATAM. On 14 February 2014, the Oslo District Court concluded that Norwegian courts is the correct legal venue for the dispute. The court concluded preliminarily that there is a clear presumption that the promissory note is invalid/false. The ruling has not been appealed. The main hearing, where the Oslo District court will address the validity of the promissory note, took place in late April 2015, and the judgement is not yet pronounced. Environmental administrative investigations The environmental authorities in Colombia, Cortolima, is currently reviewing a case against Interoil Colombia regarding alleged contamination of the Opia river due to washing a water vehicle and oil spots. The sanction may vary between verbal sanction to a USD 1,6 million fine. As Interoil Colombia does not have previous environmental sanction record, it is low probability that there will be any material sanctions. Further, Interoil is of the opinion that the oil spots are due to natural hydrocarbons swipe. Labor proceedings In Colombia, there are certain claims from third party employees regarding certain social security contributions and indemnification for disability by virtue of work accidents. As there is a lack of legal relationship between the plaintiff and the company, there is low probability for success for the plaintiff. There are also certain claims from employees against Interoil Colombia, however, the claims are of limited size. Tax administrative proceedings The Colombian tax authorities, DIAN, has opened an audit of 2011 related to income tax submitted by Interoil Colombia. DIAN does not accept the transfer pricing principles used. Interoil Colombia has previously chosen to settle a similar claim from DIAN related to 2006-2008, based on legal advice given by tax counsel and an amnesty granted by the Colombian government. No formal claim related to 2011 has been presented by DIAN, and Interoil Colombia has disputed DIAN’s position. If DIAN chose to confirm its claim, Interoil will appeal DIAN’s decision. The contingency related to this matter is USD 4 million (included potential fines).
62
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Colombian branch has the following contract obligations: Interoil is obligated to drill one well in the Altair license by 31 October 2015 and the estimated cost is USD 2,5 - 3 million. Interoil is further obligated to have in place a USD 300 000 bank guarantee for these commitment, which Interoil is compliant with. LLA-47 is located in the prolific Llanos basin and covers an area of 447 km². Interoil has completed its obligation to acquire 350 km² of 3D seismic. Interoil is obligated to drill eight exploration wells before October 2016. The estimated cost is USD 18-20 million. Interoil Colombia is obligated to have in place a bank guarantee amounting to USD 10,8 million for investment commitments in LLA-47, and is currently in compliance with the comittment. Interoil Colombia is required to post an additional of USD 10,5 million bank guarantee by the end of April 2015. From the drilling of the second well in LLA-47, the guarantee will be reduced with amount corresponding to the investment commitments for each well. In the 2010 Colombian licensing round, Interoil signed two licenses with the ANH, for Cor-6 and LLA-47. The Branch is committed to acquire 150 km² of 3D seismic and to drill two exploration wells during the initial exploration phase of 36 months. Estimated cost is USD 10 million and USD 12 million respectively. Additionally, the Colombian branch is obligated to have in place a USD 16,6 million bank guarantee for the investment commitments. The company currently has a USD 600 000 bank guarantee in place for these commitments. According to the license contract, the seismic and wells should have been finalized within November 2014 However, due to environmental and in particular community issues, it has not been possible for the Group to commence work on the licence and is currently in discussions with ANH regarding these issues. Subject to the outcome of these discussions with ANH, which is uncertain at this point in time (both with respect to the result and timing), the Group may potentially be requested to put forward bank guarantees and carry out the USD 22 million investment. However, the Group is confident that a satisfactory solution can be reached with ANH that will not require this commitment to be made in the immediate future. In February 2013, Interoil Colombia signed an assignment agreement with Trayectoria Oil & Gas, to sell Interoil’s interest Altair and Cor-6 exploration licenses in Colombia. Trayectoria was in breach of the contract and Interoil initiated legal action against Trayectoria to claim damages. In February 2015, the parties reached a settlement agreement, and Trayectoria will pay Interoil damages of USD 4 million. The income will be recognized in 2015. The payment will be in 4 installments ending in March 2016, and is secured by 5 tradable promissory notes. The Group leases offices and machinery under non-cancellable operating lease agreements. The future aggregate minimum lease payments under non-cancellable operating leases are USD 0,8 million.
29.
subsequent events
On 20 January 2015 the shareholders and bondholders approved the proposed restructuring of the Company which included the issuance of a total of 395 million new shares, the conversion of a portion of the current bond (“Bond”) to equity and the remaining outstanding portion of the Bond and a debt relating to Proseis AG (“Proseis Debt”) into a new USD 32 million bond with new terms. The new equity was be raised by way of a private placement of new shares for NOK 36.3 million, whereby Andes Energia plc (“Andes”) subscribed for 330 million shares in Interoil at NOK 0.11 per share. Andes is a Latin American company, active in exploration, development and production of conventional and unconventional oil and gas resources. The company is listed on the AIM London Stock Exchange and Buenos Aires Stock Exchange with a market cap of approximately GBP 135 million. Following the private placement and approval of the restructuring as set out below, Andes holds 51 per cent of the outstanding share capital. The debt restructuring resulted in Interoil reducing its debt by approximately NOK 120 million. The NOK 310 million Bond and the USD 5,7 million Proseis Debt were replaced with a new USD 32 million bond (the “New Bond”). As part of the restructuring, existing bondholders agreed to convert part of the Bond to 65 million new shares in Interoil, equivalent to approximately 10 per cent of the shares outstanding after the private placement.
63
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The main terms of the New Bond are: • Currency USD • The aggregate amount of the new bond is USD 32 million • Coupon 6% per annum • Maturity date in 2020 • Option to satisfy coupon payments in the first 2 years by issuing New Bonds
30.
As a result of the restructuring new directors and management have been appointed. The Board of Directors has the following composition. Mr. Ricardo Nicolas Mallo Huergo Mr. Alejandro Jotayan Mr. Matthieu Milandri Mr. Jose Francisco Chalela Ms. Dolores Rivas Ms. Maria Rosa Siles Moreno Ms. Mimi Berdal
Oil Reserves by geographical region
The new management include: Mr. Alejandro Jotayan – CEO Mr. Nigel Duxbury – General Manager (“daglig leder” as defined in the Norwegian Public Limited Liabilities Act section 6-2) Mr. Pablo Arias – CFO
oil and gas reserves
(unaudited)
The reserves have been estimated and classified according to the “Petroleum Resources Management System”, developed and approved in March 2007 jointly by the Society of Petroleum Engineers, World Petroleum Council, American Society of Petroleum Geologists and Society of Petroleum Evaluations Engineers, hereafter referred to as the “2007 PRMS“ and have been audited by the independent petroleum engineering firm of Gaffney, Cline & Associates Inc.
Developed Producing reserves as of 31 December 2014 1P
Gross
Colombia
Interest
Equity
Oil Gas (mmbbl)
(BCF)
2.5
9.5
(mmboe)
2P
Gross Interest
Equity
Oil Gas
%
(mmboe)
(mmbbl)
(BCF)
4.2 70 %
2.9
2.8
9.6
(mmboe)
%
(mmboe)
4.5 70 %
2.9
Developed Non-Producing reserves as of 31 December 2014 1P
Gross
Colombia
Interest
Equity
Oil Gas (mmbbl)
(BCF)
0.0
2.3
(mmboe)
2P
Gross Interest
Equity
Oil Gas
%
(mmboe)
(mmbbl)
(BCF)
(mmboe)
0.4 70 %
0.3
0.1
2.4
0.5
%
70%
(mmboe)
0.3
On 29 January 2015 Interoil announced that it had provided the ANH in Colombia with the required guarantee of USD 7.2 million without posting cash collateral. Interoil is now in full compliance with the terms of the LLA-47 license. Non-Developed reserves as of 31 December 2014 On 4 March 2015 a settlement agreement with Trayectoria regarding the assignment agreement for the rights of the exploration and production contracts for Altair and COR 6 was announced, and the arbitration process was terminated. Trayectoria will pay USD 4,0 million in four installments as follows:
1P
Gross
• • • •
30 June 2015 30 September 2015 30 December 2015 30 March 2016
USD 500 000 USD 1 000 000 USD 1,000 000 USD 1 500 000
The payment is guaranteed by 5 tradable promissory notes.
Colombia
Interest
Equity
Oil Gas (mmbbl)
(BCF)
(mmboe)
0.9
2.7
1.4
% (mmboe)
60%
2P
Gross Interest
Equity
Oil Gas
(mmbbl)
(BCF)
(mmboe)
%
(mmboe)
2.4
7.0
3.6
70%
2.4
Gross Interest
Equity
0.9
Total reserves as of 31 December 2014 1P
Gross
Colombia
Interest
Equity
Oil Gas (mmbbl)
(BCF)
(mmboe)
3.7
14.4
6.3
%
70%
2P
Oil Gas
(mmboe)
(mmbbl)
(BCF)
(mmboe)
4.1
5.2
18.9
8.6
%
70%
(mmboe)
5.6
Notes mmboe = m illion stock tank barrels of oil equivalent Gross Reserves are Operated Reserves Equity Reserves: Working Interest varies per concession; reported percentages are averages Gas converted to oil equivalent based on 5.30 Mscf equals 1 boe
For a full description of the “2007 PRMS”, please refer to the Society of Petroleum Engineers website: www.spe.org
64
65
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Aggregated equity oil and gas Reserves, Production, Developments and Adjustments
Production and sales for the period from 1 January to 31 December 2014
(mmboe)
1P 2P Devel- Devel- Non- Devel- Devel- Nonoped oped Non- Devel- oped oped Non- DevelProducing Producing oped Total Producing Producing oped Total
Reserves at 31.12.13 3,1 0.3 0.7 Production -0.6 0 0 Acquisition / Disposals 0 0 0 Extensions & Discoveries 0 0 0 New Developments 0 0 0 Transfer to/from Contingent Resources 0 0 0 Revisions 0.4 0 0.2 Total Changes -0.2 0.0 0.2 Reserves at 31.12.14 2,9 0.3 0.9 Notes mmboe = million stock tank barrels of oil equivalent Gross Reserves are Operated Reserves Equity reserves: Colombia - Net after Royalty
66
4.1 -0.6 0 0 0
3.1 -0.6 0 0 0
0.3 0 0 0 0
2.3 0 0 0 0
5.7 -0.6 0 0 0
0 0.6 0.0 4.1
0 0.4 -0.2 2.9
0 0.0 0.0 0.3
0 0.1 0.1 2.4
0 0.5 -0.1 5.6
Colombia Peru Total
Sale of oil in barrels – net Sale of oil, barrels 387 888 362 806 750 694 Total sale in barrels – net 387 888 362 806 750 694 Sale of gas in barrels – net Sale of gas, barrels 180 662 0 180 662 Total sale in barrels – net 180 662 0 180 662 Production in barrels – net Working interest, barrels 437 685 717 616 1 155 301 Working interest, gas (boe) 193 015 0 193 015 Royalty -47 368 -354 531 -401 899 Total production in barrels – net of royalty 583 332 363 085 946 417 Production and sales for the period from 1 January to 31 December 2013
Colombia Peru Total
Sale of oil in barrels – net Sale of oil, barrels 372 024 489 436 861 460 Total sale in barrels – net 372 024 489 436 861 460 Sale of gas in barrels – net Sale of gas, barrels 155 816 0 155 816 Total sale in barrels – net 155 816 0 155 816 Production in barrels – net Working interest, barrels 413 775 968 637 1 382 412 Working interest, gas (boe) 169 370 0 169 370 Royalty -46 660 -479 189 -525 849 Total production in barrels – net of royalty 536 485 489 448 1 025 933
67
IN T E ROIL E XP LORAT IO N AN D PRO DU CTIO N ASA
N OT E S TO T OF STATEMENT H E COMPREHENSIVE FI NAN CI AL S TAT E INCOME MENTS
FINA N CIAL S TAT E ME N TS Amounts in USD 1 000 unless otherwise stated
31 D E CE MBE R 2 0 1 4
For the year ended 31 December
Sales
Notes
2014
2013
4
656
1 019
Gross profit
656
1 019
Exploration cost expensed
5
0
-82
Administrative expenses
6
- 4 336
-6 316
Result from operating activities
-3 680
-5 379
Finance income
7
Impairment of intercompany investments and receivables 7
20 587
41 567
0
-25 551
7
-8 955
-10 126
Net finance income
11 632
5 890
Finance costs
Profit / (loss) before income tax
7 952
511
Income tax expense
8
0
0
Profit / (loss) from continuing operations
7 952
511
Other comprehensive income (group note 19)
-88
-116
Other comprehensive income for the year, net of tax
-88
-116
Total comprehensive income for the year, net of tax
7 864
395
Attributable to:
68
Retained earnings
7 864
395
7 864
395
69
STATEMENT OF FINANCIAL POSITION
S TAT E M E N T O F CH AN G E S I N E Q U I T Y
Amounts in USD 1 000
Amounts in USD 1 000
As of 31 December
Notes
2014
2013
ASSETS Non-current assets Property, plant and equipment
9
29
29
10
25 278
27 268
12,13
16 343
15 997
Total non-current assets
41 650
43 294
Investments in subsidiaries Intercompany receivables
Current assets Trade and other receivables
11,13
753
198
Cash and cash equivalents, restricted
13,14
1 722
2 115
Cash and cash equivalents, non-restricted
13,14
3 218
1 353
Total current assets
5 693
3 666
TOTAL ASSETS
47 343
46 960
Share capital Other and share paid-in Retained premium equity earnings
2 880 -137 472
Total equity
Balance at 31 December 2012
90 985
Issue of share capital, cash increase
34 993
0
0
-43 607 34 993
Share issuance cost
-2 077
0
0
-2 077
Share options
0
450
0
450
Total comprehensive income of the year
0
0
395
395
Balance at 31 December 2013
123 901
3 330 -137 078
-9 847
Share options
0
284
0
284
Total comprehensive income of the year
0
0
7 864
7 864
Balance at 31 December 2014
123 901
3 614 -129 214
-1 699
Other paid-in equity – consist of subscription rights.
EQUITY Share capital and share premium
15
123 901
Other paid-in equity
3 614
123 901 3 330
Retained earnings
-129 214
-137 078
Total equity
-1 699
-9 847
LIABILITIES Non-current liabilities Long term borrowings
16
0
Retirement benefit obligations
150
54 977 82
Total non-current liabilities
150
55 059
Current liabilities Trade and other payables
13,17
2 458
Borrowings/Current interest-bearing liabilities
13,16
46 434
1 748 0
Total current liabilities
48 892
1 748
TOTAL LIABILITIES
49 042
56 807
TOTAL EQUITY AND LIABILITIES
47 343
46 960
Oslo, 28 April 2015 The Board of Interoil Exploration and Production ASA
Ricardo Nicolas Mallo Huergo
Alejandro Oscar Jotayan
Jose Francisco Chalela
Nigel Duxbury
Board Member
Board Member
General Manager
Matthieu Milandri
Mimi Berdal
Dolores Rivas
Maria Rosa Siles Moreno
Board Member
Board Member
Board Member
Board Member
Chairman
70
71
C A S H F LOW S TAT E ME NT
N OT E S TO T H E FI NAN CI AL S TAT E M E N T S
Amounts in USD 1 000
1.
For the year ended 31 December
Notes
2014
2013
Total comprehensive income for the year
7 864
395
Cash generated from operations Depreciation, amortization and impairment
6,9
6
66
Fee regarding taxclaim/bondloan
0
-385
602
566
Amortization of debt issuance cost
7
Change in retirement benefit obligation/options
6
353
598
Interest income
7
-785
-15
Other finance income
7
-10 225
0
Interest expense Unrealized exchange (gain) from revaluation of borrowings
7
7 553
8 676
7,16
-9 304
-4 672
summary of significant accounting policies
The financial statements for Interoil Exploration and Production ASA (the “Company”) are prepared in accordance with simplified IFRS according to the Norwegian Act relating to Annual Accounts § 3-9. This mainly implies that recognition and measurements in the financial statements are in accordance with IFRS, while the notes disclosures are presented in accordance with the Norwegian Accounting Act. The Company’s accounting policies are specified in Group note 2 (consolidated financial statements). These financial statements are presented in USD, which is the Company’s functional currency, and rounded up to thousands (1 000). Shares in subsidiaries are recorded in accordance with the cost method in the parent company accounts. The investments are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Changes in assets & liabilities Change in intercompany accounts
1 575
-30 377
Trade and other receivables
152
25
Trade and other payables
-805
115
Net cash generated from operating activities
-3 014
-25 007
2.
going concern
The financial statements have been prepared based on the going concern assumption. For further details, we refer to the Board of Director’s report and Group notes 3, 4 and 29.
Cash flows from investing activities Sales of subsidiary, net of cash acquired
10
215
-11
Interest received
7
3
15
Investment in property, plant and equipment (PPE)
9
-6
-29
Dividends received
7
10 000
0
Net cash used in investing activities
-10 213
-25
3.
financial risk management
The Company’s activities are exposed to a variety of financial risks: market risk (including currency risk, price risk and interest rate risk), credit risk and liquidity risk. See Group note 3 for more information regarding Financial Risk Management.
Cash flows from financing activities Interest paid Proceeds from issuance of ordinary shares
-5 727
-8 273
15
0
32 916
Net cash used in financing activities
-5 727
24 643
Net increase in cash and cash equivalents
1 472
-390
14
3 468
3 858
Cash and cash equivalents at end of the year
Cash and cash equivalents at beginning of the period
4 940
3 468
Whereof cash and cash equivalents, non-restricted
14
3 218
1 353
Whereof cash and cash equivalents, restricted
14
1 722
2 115
The table below sums up the maturity profile of the Company’s financial liabilities at 31 December 2014 based on contractual undiscounted payments. Year ended 31 December 2014
Borrowings including interest Trade and other payables
Less than 1 year Between 1 and 2 years
Between 2 and 5 years
Total
0 0
0 0
47 369 2 458
Less than 1 year Between 1 and 2 years
Between 2 and 5 years
Total
60 552 0
75 752 1 748
47 369 2 458
Year ended 31 December 2013
Borrowings including interest Trade and other payables
7 600 1 748
7 600 0
As the amounts included in the above table are the contractual undiscounted cash flows, these amounts will not reconcile to the amounts disclosed on the statement of financial position for borrowings which is recorded at amortised cost. The specific time buckets presented are not mandated by the standard, but are based on choice by management. See notes 13, 16 and 17 for the carrying amounts.
72
73
N OT E S TO T HE F INANCIAL STATEM EN TS 4.
N OT E S TO T H E FI NAN CI AL S TAT E M E N T S 7.
sales
For the year ended 31 December
For the year ended 31 December Amounts in USD 1 000
Management fee Total sales
5.
2014
2013
656 656
1 019 1 019
exploration cost expensed
For the year ended 31 December Amounts in USD 1 000
Analysis and general G&G Total exploration cost expensed
6.
2014
2013
0 0
82 82
administrative expenses
For the year ended 31 December Amounts in USD 1 000
Notes
2014
2013
Employee benefit expenses *) 1 864 3 494 Depreciation 9 6 66 Professional fees 1 626 1 552 General administration expenses 840 1 203 Total administrative expenses 4 336 6 316 * Employee benefit expenses, specifications: 2014
net finance income
Amounts in USD 1 000
Notes
2014
2013
Interest income 3 15 Interest income, inter-company loan 782 0 Exchange rate gain, unrealized items 9 577 5 001 Group contribution from subsidiary 12 10 000 36 550 Other financial income 10 225 1 Total financial income 20 587 41 567 Impairment of investment in subsidiaries 0 25 250 Impairment of intercompany receivables 12 0 301 Total impairment 0 25 551 Interest expenses 7 400 8 162 Interest expenses, inter-company loan 153 514 Amortisation of debt issue cost 602 566 Exchange rate loss, unrealized items 626 763 Other financial expenses 174 121 Financial expenses 8 955 10 126 Total financial expenses 8 955 35 677 Net finance income 11 632 5 890 The Group performed its annual impairment test as at 31 December 2014. The Group considers the relationship between its recoverable amount and its book value, among other factors, when reviewing for indicators of impairment. For 2013, Impairment charges of USD 25.6 million were recognized. USD 0.3 million was related to receivables from Interoil Exploration and Production Switzerland AG , which was liquidated in 2013. USD 25.3 million was related to the investment in Interoil Exploration and Production Latin America which was impaired due to organizational changes in the Group.
2013
Salaries and wages of employees 1 187 2 418 Social expenses 223 489 Share options granted to directors and employees 284 450 Other payroll related expenses 56 53 Pension cost – defined benefit plan (Group note 19) 114 84 Total employee benefit expense 1 864 3 494 The average number of employees during the period 4 10.0 Pensions Interoil has a defined benefit plan for employees in the Company. Interoil meets the Norwegian requirements for mandatory occupational pension. See Group note 19 for further information. Remuneration of senior executives, and declaration regarding the determination of salary and other remuneration to senior employees - see Group note 11 For remuneration to Board of Directors and related party disclosure, see Group note 10 and 11. Auditor Remuneration Ernst & Young (EY) is the principal auditor of the Company. EY was paid USD 195 excluding VAT for audit service for the parent company in 2014 (2013: USD 215). See Group note 12 for further specifications.
74
75
N OT E S TO T HE F INANCIAL STATEM EN TS
N OT E S TO T H E FI NAN CI AL S TAT E M E N T S
8.
taxes 9. property, plant and equipment For the year ended 31 December Office Machines Period ended 31 December 2013 Notes and furniture Total Amounts in USD 1 000
2014
2013
Income statement: Current income tax charge 0 Deferred tax 0 Income tax expense reported in the income statement 0
0 0 0
Reconciliation of tax expense:
Opening net book amount 66 66 Addition 29 29 Disposal, net 0 0 Depreciation charge 6 -66 -66 Closing net book amount 29 29 Office Machines Period ended 31 December 2014 Notes and furniture Total
Opening net book amount Additions Profit / (loss) before tax 7 952 511 Disposal, net Depreciation charge 6 Expected income tax according to nominal tax rate (2014: 27%, 2013: 28%) 2 147 143 Closing net book amount Adjustment of deferred tax assets 13 34 Amounts in USD 1 000
2014
2013
29 6 0 -6 29
29 6 0 -6 29
Adjustment of deferred tax assets not recorded -6 187 -1 387 Cost 35 35 Adjustment tax effect Group contribution 0 -3 090 Accumulated depreciation -6 -6 Adjustment deferred tax due to tax rate change from 28% to 27% 0 1 585 Net book amount 29 29 Expenses not deductible for tax purposes -2 182 3 173 Exchange rate effect 6 209 -458 Useful life 3-5 years Total income taxes 0 0 Effective income tax rate - % -%
10. subsidiaries Profit / (loss) before tax 7 952 511 Period ended 31 December Adjustment of deferred tax assets 49 121 Adjustment tax effect Group contribution 0 -11 035 Amounts in USD 1 000 Company’s Company’s Company’s Expenses not deductible for tax purposes -8 082 11 331 Registered Interest share equity profit / Book Book Adjustment previous years -211 0 business and voting capital in USD (loss) in value value Exchange rate effect 22 997 -1 634 address rights held in 1 000 1 000 USD 1 000 2014 2013 Total taxable income 22 705 -706 Interoil Peru Holding AS Norway 100% NOK 100 11 -2 21 21 Up Colombia Holding AS Norway 100% NOK 900 25 243 -128 25 257 25 257 Tax losses -22 705 706 Interoil SA* Switzerland 100% CHF 100 0 78 Total taxable income 0 0 Interoil Exploration and Production Latin America AS*) Norway 100% NOK 1 000 0 1 912 Deferred income tax: Total book value 25 254 -130 25 278 27 268 Temporary differences Fixed assets -25 -45 All shares invested in subsidiaries with at total book value of USD 25 278 (2013: 27 268) have been pledged as security for Provisions -150 -81 the interest-bearing borrowings (see note 16 and Group note 10). Total temporary differences -175 -126 Tax loss Total temporary differences Deferred tax liability/asset Deferred tax included in the balance sheet Deferred tax not included in the balance sheet
-135 652 -135 827 - 36 673
-158 357 -158 483 -42 790
0 36 673
0 42 790
As of 31 December 2014, shares in UP Colombia Holding AS with book value USD 25,3 million (2013: USD 25,3 million) were tested for impairment. For 2014 and 2013, no impairment charges were recognized. *) Interoil Exploration and Production Latin America AS was sold in November 2014 and Interoil SA has been liquidated in 2014. Gain on sale of subsidiary is recorded as other financial income, note 7.
Net deferred tax assets have not been recognized, as the recognition criteria in IAS 12 has not been met. As of 31 December 2014, there is not convincing evidence that sufficient taxable profit will be available which the unused tax losses could be utilized against.
76
77
N OT E S TO T HE F INANCIAL STATEM EN TS
N OT E S TO T H E FI NAN CI AL S TAT E M E N T S
11.
trade and other receivables
13.
Period ended 31 December
Other financial Amounts in USD 1000 liabilities at Loans and amortized Period ended 31 Dec 2014 Notes receivables cost
Amounts in USD 1 000
2014 2013 Current: Trade receivables 0 1 Prepaid expenses 671 133 Vat receivables 82 64 Total trade and other receivables 753 198
12.
intercompany Non-current intercompany receivables Period ended 31 December Amounts in USD 1 000
2014 2013 Interoil Colombia Exploration and Production Inc. 707 707 Interoil Peru Holding AS 3 4 Up Colombia Holding AS 15 633 14 950 Interoil Peru SA 0 336 Less; impairment of intercompany receivables 0 0 Total non-current intercompany receivables 16 343 15 997
Intercompany interest and management fee Period ended 31 December
Amounts in USD 1 000
UP Colombia Holding AS Interest income Interoil Peru SA Management fee/interest cost Interoil Exploration and Production Latin America AS Interest cost Total net management fee and interest
2014
2013
782 403
0 1 019
0 1 185
-514 505
financial instruments
Total carrying amount
Fair value
Non-current: Intercompany receivables 12 16 343 0 16 343 16 343 Current Trade and other receivables 11 753 0 753 753 Cash and Cash equivalents 14 4 940 0 4 940 4 940 Total financial assets 22 036 0 22 036 22 036 Current: Trade and other payables 17 0 2 458 2 458 2 458 Bond loan 40 753 40 753 15 299 Borrowings 16 0 5 681 5 681 5 681 Total financial liabilities 0 48 892 48 892 23 438 Other financial Amounts in USD 1000 liabilities at Loans and amortized Period ended 31 Dec 2013 Notes receivables cost
Total carrying amount
Fair value
Non-current: Intercompany receivables 12 15 997 0 15 997 15 997 Current: Trade and other receivables 11 198 0 198 198 Cash and Cash equivalents 14 3 468 0 3 468 3 468 Total financial assets 19 663 0 19 663 19 663 Non-current: Interest bearing liabilities 0 6 085 6 085 6 085 Bond loan 16 0 48 892 48 892 52 439 Current: Trade and other payables 17 0 1 748 1 748 1 748 Borrowings 16 0 0 0 0 Total financial liabilities 0 56 725 56 725 60 272
As of 31 December 2014, intercompany receivables of USD 16.3 million (2013: USD 16.0 million) were tested for impairment. For 2014 and 2013, no impairment charges were recognized at year end. For 2013 impairment charges of USD 0.3 million related to receivables from Interoil Exploration and Production AG, which was liquidated during 2013, were recognized. The Company received dividends of USD 10.0 million from Interoil Exploration and Production Latin America AS during 2014. Interoil Exploration and Production Latin America AS was sold in November 2014, and is no longer a subsidiary of the company. The Company received group contribution of USD 11.3 million from Up Colombia Holding AS and USD 25.3 million from Interoil Exploration and Production Latin America AS for 2013. Shares in Interoil Colombia BVI and debt amounting to net 25.3 million were transferred to UP Colombia Holding AS as a contribution in kind as part of a restructuring of the Group. Thereafter the shares in UP Colombia Holding AS were transferred to the Company as a group contribution. Also see Group note 10 for more information regarding transactions with related parties.
78
79
N OT E S TO T HE F INANCIAL STATEM EN TS
N OT E S TO T H E FI NAN CI AL S TAT E M E N T S
Fair value hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
14. cash and cash equivalents
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities. Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly. Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. The bond loan is included in level 2, the rest of assets and liabilities are included in level 3. During the reporting period ending 31 December 2014, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers in and out of Level 3 fair value measurements. The carrying amount of intercompany receivables, trade and other receivables approximate their fair value. The carrying amount of trade and other payable is considered to approximate their fair value. The carrying amount of the current interest bearing liabilities approximates the fair value. The fair value of the other non-current interest bearing liabilities equals their carrying amount. The fair value of bond loans has been calculated using the prevailing interest rates. The bond is valued by a third party using the Hull-White model for the pricing, and a linear rate model to price the interest of the bond. The historical volatility of the iTRAXX is assumed to be a good approximation of the volatility, and the total value of the bond is set to NOK 113,8 million, corresponding to USD 15,3 million. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of financial assets mentioned above and the carrying amount of investments in subsidiaries (see note 10). The Company does not hold any collateral as security.
Period ended 31 December Amounts in USD 1 000
2014
2013
Bank deposits denominated in USD 3 028 1 257 Bank deposits denominated in NOK 190 96 Bank deposits denominated in NOK, restricted 1 722 2 115 Total cash and cash equivalents 4 940 3 468 The restricted bank deposits are placed as collateral for the interest-bearing borrowings, (see note 16 and Group note 25) deposit for rent and withheld employee taxes.
15.
paid in capital Amounts in USD 1 000
Number of Shares (1 000)
Share
Share
capital
premium
Total
At 31 December 2012 47 765 366 Capital increase 09.04.2013 200 000 1 714 Capital increase 19.04.2013 4 138 36 Cost capital increase At 31 December 2013/2014 251 903 2 116
90 619 32 566 677 -2 077 121 785
90 985 34 280 713 -2 077 123 901
Nominal value per share is NOK 0,05. The total number of authorised shares as of 31 December 2014 consists of the following: 1. 251.903 thousands issued shares mentioned above; 2. The Board of Directors have been authorised to increase the share capital by 15 million shares regarding the stock option program for management and key employees. The authorisation was given by the Ordinary General Meeting held on 21 June 2013 and is valid until the ordinary General Meeting 2015, however no longer than 30 June 2015 Based on this, total authorised share capital as of 31 December 2014 amounts to 266.903 thousand shares (2013: 266.903 thousands shares). For specifications of top 20 shareholders, see Group note 23. For specification of shares owned by board and executive management, see Group note 10.
80
81
N OT E S TO T HE F INANCIAL STATEM EN TS
N OT E S TO T H E FI NAN CI AL S TAT E M E N T S
16.
borrowings
17.
Period ended 31 December
For the year ended 31 December
trade and other payables
Amounts in USD 1 000
Amounts in USD 1 000
2014
2013
Non-current: Other non-current interest bearing liabilities 0 6 085 Bond loan-denominated NOK 0 48 892 Total non-current interest-bearing liabilities 0 54 977 Current: Other current interest bearing liabilities 5 681 0 Bond loan denominated NOK 40 753 0 Total current interest-bearing liabilities 46 434 0 Total borrowings 46 434 54 977
Trade creditors Public duties payable Accrued interest Other accrued expenses Total trade and other payables
281 122 1 943 112 2 458
403 267 0 1 078 1 748
The maturity of the Company’s borrowings is as follows:
18.
Period ended 31 December
See Group note 29 for information regarding subsequent events.
2014
2013
Accrued interest includes the deferred interest payment of USD 1,9 million related to the bond loan, see note 16 and Group note 25.
subsequent events
Amounts in USD 1 000
2014
2013
0-12 months Between 1 and 2 years Between 2 and 5 years Over 5 years Total borrowings
46 434 0 0 0 46 434
0 0 54 977 0 54 977
Breach of covenants/restructuring of debt The payment of the bond interests coupon on 14 December 2014 was deferred until 16 March 2015 with the payment of an additional coupon of 5% per annum. Interoil Colombia has not met the debt service coverage ratio covenant. Colpatria bank has granted a waiver until the next covenant report is scheduled on 15 May, and no default has been declared. As a consequence of the covenant breach regarding the Colpatria loan, and a cross default clause in the bond loan agreement, the Company’s interest bearing liabilities are in accordance with IFRS classified as current. In January 2015 the bondholders approved a restructuring proposal, where a portion of the loan was converted into equity and a portion was converted into a new bond loan. See subsequent events, Group note 29 Proseis debt Other current interest bearing liabilities includes USD 5.7 million related to the final payment to Intreroil E&P Switzerland AS acquired in 2006. The loan matures on 14 March 2016. Interest of Swiss Libor +4% per annum payable on maturity. The Proseis debt is included in the approved restructuring. For terms and conditions of outstanding loans per year end 2014, see Group note 25.
82
83
AU D ITOR ´S RE P ORT F OR 2014
84
85
SUSTAINABILITY REPORT 2014 One of Interoil’s core values is openness because we believe that being transparent in our business practices is vital to our ability to deliver on our vision to become one of the strongest E&P companies operating in Colombia. We are therefore delighted to share with our stakeholders the Corporate Social Responsibility plan that we implemented in 2014 and the results we achieved. Our Corporate Social Responsibility (CSR) work is based on internationally recognized standards and guidelines such as ISO 26 000, Transparency International and UN Global Impact. The reporting is based on the Global Reporting Initiative, G4 guidelines. During 2014 our main focus has been on strengthening the governance structure and management system of the Interoil group. The new governance structure and management system is described in the Interoil Management Handbook. The new governance structure and management system is based on our values, which forms the fundament of how we shall work in order to achieve our strategic goals. The Interoil Management Handbook also includes our operating model which sets out how we work together and make decisions. Together this document is the tool we use to ensure good corporate governance throughout our organization.
In line with the long term strategy Interoil supported various medical campaigns, maintenance of agricultural machinery, irrigation, electricity production, educational materials and social events. In 2014 Interoil Peru also joined The Extractive Industries Transparency Initiative, a global standard that promotes openness and accountable management of natural resources. The main objective of this initiative is to disclose the taxes and other payments made by the industry. This gives the residents of communities affected by the E&P industry in Peru insight into how much the government of Peru is receiving from their country’s natural resources. The disclosures are meant to contribute in the debate about the country’s resource wealth managed. Our CSR coordinator was elected as a representative from the oil and mining industry in Piura to be a member of the EITI-Piura.
Peru is no longer a part of the IOX Group. Nevertheless Peru was part of our operations until 19 November 2014. The CSR initiatives implemented in Peru was based on a long term strategy on how and what Interoil will contribute to the local communities. Interoil ensured that this strategy was communicated to employees and residents of the local communities in order to align expectations and ensure that contributions from Interoil were made systematically and with complete transparency. In 2014 Interoil therefore developed a formal procedure for granting requests and contributions to the local communities.
86
Organizational
The CSR initiatives that Interoil implemented in 2014 significantly improved the relationship between our company and the local communities in the Talara region, as a direct consequence conflicts between the residents of the local communities and Interoil were eliminated and we had no incidents that caused disruption to our operations in 2014. Interoil Peru is not included in the reporting below.
It is part of Interoil’s strategy to become the employer of choice for E&P professionals in Colombia and systematically contribute to the development of the local communities affected by our operations. Therefore another important focus area in 2014 has been improving the relationship between Interoil and our employees and the relationship between Interoil and the communities in which we operate.
Subjects and principles for Interoil’s CSR policy
Ethical behaviour
Code of conduct Comunity involvement and development
CSR POLICY
Work environment
CSR
Interoil considers social and environmental challenges as opportunities for business development. As part of Interoil’s commitment to sustainable development we aim to conduct our business in an economically, efficient, socially and environmentally responsible way. The policy, that has been further developed and implemented as part of our management system during 2014, describes our ambitions and our most important target areas, and how we will achieve this.
Transparency Respect for stakeholders interest Respect for law
HSE
Environment
Respect for human right
Human rights
The Board of directors has adopted Interoil’s CSR Policy. The local general manager is responsible for ensuring the follow up of and compliance with the content of the Policy, and each Interoil employee is responsible for abiding the core CSR principles and the day-to-day practice of the Policy.
See complete CSR Policy on www.Interoil.no
The subjects and principles for Interoil’s CSR Policy are illustrated below. The policy aims to provide a framework to help to put these principles into practice, and allocates responsibility for their implementation.
During 2014 Interoil developed a new CSR Model based on the CSR Policy. The CSR Model is divided into 5 phases: evaluation, alignment, implementation, communication and monitoring. This
Gover nance
five-phase approach to CSR introduces a process and provides tools for the planning and management of Interoil’s CSR initiatives. The CSR Model will be implemented in the coming years.
87
Materiality Interoil Exploration and Production 1
1 8
HIGH
2
Universities
6
7
Oil and gas industry
Local communities
Clients
Partners
Critical Supplier
National Authorities Non Critical Suppliers Employees families
Medium
0,6
0,4
Compliance
Employment
4
Security and Health
5
Diversity
6
Discrimination
0,2
0
Environmental Regulatory
3
7
LOW
NGO
9
5
Importance for Business Sucess
Management Shareholders
2 4
Administrative personnel
Local Authorities
3
1
0,8
Emissons
0
LOW
0,2
0,4
0,6
0,8
Medium
Child labour in the supply chain management
8
Local Communities
9
Anti-corruption
1
HIGH
Importance for stakeholders
Mass Media
BUSINESS CONDUCT Stakeholders Engagement In order to ensure that Interoil’s CSR initiatives meets the stakeholders needs and are effective, a stakeholder mapping was conducted. Employees were engaged in workshops to categorize stakeholders and to determine the respective relationship. The diagram above shows us the classification of our stakeholders. Interoil believes that transparency towards our stakeholders is vital to our ability to deliver on our strategic goals. Interoil therefore actively keeps our stakeholders informed through quarterly and annual reports, press releases and presentations, questions and answers sessions, formal advisory groups, cross-industry forums, newsletters to local communities and employees, road shows, one-to-one meetings with shareholders, and meetings with suppliers and authorities.
be important by our stakeholders. Through the diagnosis we identified different ways to improve our corporate reputation, abilities to attract and retain the human talent and business partners, and expand relationships of trust with investors, governments, suppliers and the community where we operate. The methodology for diagnosis was based on ISO 26000. Interviews were conducted with Interoil´s management, and external stakeholders. Based on the stakeholder identification and the CSR analysis, Interoil has and will develop different activities, actions or programs, with the objective of building a strong culture of social responsibility. Activities with employees in the operational field, dialogues with communities and local authorities, meetings with shareholders among others, will make our CSR culture stronger.
WORK ENVIRONMENT Human Resources Diagnostics
As part of the development of a new governance and management system Interoil updated the Code of Conduct that outlines the commitment to high ethical standards and compliance with applicable laws wherever we operate. Interoil has held several workshops to train our employees in the content and practical implications of our Code of Conduct and Anti-Corruption Policy. Upon completion of the training, all employees are required to sign a statement in which they confirm that they have read, understood and will comply with the Interoil Management Handbook, the Code of Conduct and the Anti-Corruption Policy.
Interoil has conducted a Human Resources (HR) Diagnostics to analyze how the internal human resource management system is performing. Based on the results of this analysis a new matrix organization and operational model were developed. The main principles behind the matrix organization is sharing of knowledge across the organization. The operating model describes the requirements and responsibilities the division is expected to perform in addition to the functional descriptions for each individual position.
Any deviations from the Interoil Management Handbook, the Code of Conduct and the Anti-Corruption Policy are reported to a separate and independent Ethics Committee. The Ethics Committee has been in operation for a full year, and is an important tool in avoiding corruption, ensuring good corporate governance and increasing transparency.
In addition a new position as HR Manager was created. Together with corporate management, a HR Policy was developed and implemented, (see chapter HR Policy). The company has also started a project to define a methodology that integrates strategic planning- organizational structure – processes – documentation and personnel with the components of the integrated management system.
Human Resources Policy
CSR Diagnosis
Based on the analysis Interoil mapped which of the specific CSR issues had the highest impact on Interoils strategy and its stakeholders.
During 2014 we conducted a CSR diagnosis to identify which CSR issues Interoil needed to focus on in order to achieve its strategic goals and which CSR issues were deemed to
The Materiality Matrix shows the relevant topics identified, and the importance of the topics for Interoil and its stakeholders.
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Code of Conduct, Anti-Corruption Policy and Values
The emphasis on transparency and good corporate governance from Interoil’s management, have led to a couple of “whistle blowing” issues during the year. A complete forensic audit was performed by a third party during 2014. The audit outlined some internal control weaknesses that have been mitigated.
It is part of Interoil’s strategy to become the employer of choice for E&P professionals in Latin America. The work we do is what creates value for Interoil.
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Our policy for human resources describes our ambitions and our most important target areas. We believe that achieving outstanding results and fulfilling our strategy depends on the commitment and skills of our employees and leaders. Interoil’s Values – Openness, Trust, Resilience and Integrity – provide a framework of expectations on how Interoil employees perform their tasks. How we treat our people and each other within the group is crucial, and Interoil will strive towards our Human Resources Vision: • • • • • •
Attract and retain the best people; Foster a high performance culture; Ensure excellent leadership behaviours; Create and sustain high employee engagement; Promote open dialogue and communication; Operate a safe, diverse and sustainable work environment;
To achieve this we have: • Established clear HR objectives, strategies and action plans; • Have clear roles and responsibilities for HR at all levels of the organization; • Complied with the regulatory requirements and build and maintain relationships of mutual respect and trust within the organisation and with relevant stakeholders; • Allowed employees and others acting on behalf of Interoil to express all kind of input and feedback, and especially concerns related to ethics and corruption; • Monitored our HR performance by applying measurements and impact assessments and constantly pursue continuous performance improvement; and • Promoted a culture with highly motivated and engaged employees led by talented management in a workforce environment that is stimulating and attractive to both current and prospective employees.
Employee Conditions
Distribution: Out of a total workforce of 89 persons, 84% of the employees are in positions related to exploration and operation of oil wells; while 16% are in administrative areas (management, finance, legal). In addition, on average 13 employees from the community work in the operating fields.
Local Management: Interoil believes that most of our work force should be local, as this provides an organization with the best knowledge of local conditions and culture. In Colombia, most of the top management and workforce are Colombian.
Age: The average age of employees is 37 years.
We believe that our integrity and standards are critical to our human resources and development.
Workforce composition by employment type, employment contract and region. Locals in management Employees Full-time Part-time Type of contract: Indefinite or permanent contract Temporary Contracts related to Community Agreements * Type of position: Administrative Operative Age: < 30 30-50 >50 Employee Category: Level 1-2 Level 3-4 Level 5-6 Level 7
2012
2013
2014
100% 80 80 0
100% 86 86 0
77,7% 89 89 0
75 5 10
77 9 26
84 5 13
37 43
38 48
42 47
25 44 11
30 44 12
31 44 14
5 20 51 4
5 25 51 4
7 31 48 3
* The contracts with employees related to community agreements are not included in total numbers of employees in the table above, or in the statistics below, as these are short-term contracts renewed every quarter. Internal categorization of employees based on a hierarchy where level 1-2 is top management and 5-8 are operators and certain administrative.
Diversity: Interoil is an equal opportunity employer where all shall have the same rights and opportunities regardless of gender, age and religious beliefs. This is defined in our HR Policy. Due to the nature of the industry and the type of work executed, the organization is male dominated. The gender ratio is 28% female and 72% male.
Interoil considers its strategic groups to be the Board of Directors, the Group Executive Committee (CEO, CFO and COD), the participants in the management meetings between the Corporate Headquarters and Colombia, the local management groups and the Ethics Committee. There is a strong female presence in these groups as shown in the following graphic:
There have been no reported incidents of discrimination in 2014.
Composition 2014 Interoil Exploration and Production ASA Board of Director Interoil Colombia BVI Group Executive Committee Management Colombia Ethics Committee
Employee development
Remuneration
2014 employee development was focused on technical training for the exploration department. During the year we made a review of all job descriptions with the objective of clarifying functions and responsibilities of each position. The descriptions will be used as an input for the development of career plans for Interoil employees.
Remuneration in Interoil is based on capabilities and individual performance. Interoil promotes equal opportunities, and men and women are paid equal for the same type of work.
Distribution between men and women
Total remuneration over base salary:
100
100%
80
80%
60
60%
40
40%
20
20%
0
Men 57,14% 75,00% 80,00% 66,67% 75,00%
Women 42,86% 25,00% 20,00% 33,33% 25,00%
The graphic points out the percentage of total remuneration over base salary.
0% 2013 Men
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Governance bodies
2014 Women
2012 Men
2013
2014
Women
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HEALTH AND SAFETY Management Model OHSAS 18001 Interoil considers the occupational safety as the most important priority, therefore we comply with legal requirements and we work hard to improve the working conditions for everyone. Interoil operates and is certified according to the OHSAS 18001 Management System.
Through the standard we have focused on managing safety in critical processes, implemented a visible leadership model and strived to live the Quality, Health, Security and Environment (QHSE) culture in the organization.
Lost time injury frequency:
Sickness absence:
1,5
1,5
1,30% 1,0
1,0
1,02 0,83 0,66%
0,5
0,5
0,55%
0,37 0,0
0,0 2012
Focus on managing safety in critical processes
Implementation of a visible leadership model in the organization
Live the QHSE culture within the organization
2013
2012
2014
2013
2014
Definition: Lost-time injury frequency: # accidents / total hours worked x 200,000
Definition: The total number of days absent as percentage of planned days worked.
The number of absences increased during 2014. Most of the increase was due to common flu and fever because of the weather in Colombia. A special mosquito that lives in the tropic called Chikunguña, makes the flu worse in the operational fields. Focus on QHSE helped us reduce the number of accidents, and we believe that further focus on QHSE and HR will reduce future absence.
Interoil continues to focus on QHSE training in order to preserve health, wellbeing and life of every employee. This type of training is key to ensure personnel safety and to improve in the daily operations. The table shows the average hours of training per employee, gender and employee category for 2012, 2013 and 2014
Training - average hours of training per year per employee by gender and by employee category
Incidents and absence During 2014 we intensified the development and implementation of strong QHSE policies and activities towards our goal, zero incidents and zero accidents.
risk matrixes, emergency preparedness, legal requirements, handling chemicals, energy control, working at heights and personal protective equipment.
Based on QHSE reviews, we realized that the procedures were not up to date, there was fear of reporting and employees had low perception of risk. In order to mitigate this we developed an QHSE action plan and additional resources were allocated to QHSE in addition to support from general management.
Focus on reporting of incidents and risk observations, including follow-up and closing of actions as results of investigations, is important to learn and improve.
We worked intensively in training our workers in the field, and we promoted and managed employee’s health and safety campaigns and talks. Training was focused on risk analysis and
Inspections of equipment and tools, and maintenance of facilities like painting and signaling, also help us to raise awareness and minimize occupational accidents. In 2014 we were able to achieve a reduction in number of accidents, and we will continue the same practice in the years to come to improve further.
Number of accidents:
2012
2013
2014
Total numbers of hours
752
1705
1635
Average hours of training per employee category Senior Management Middle Management Production Employees Other Employees
1,3 25,6 4,2 6,5
17,6 25,8 17,0 27,0
19,3 18,2 26,0 1,4
Average hours of training by gender Women Men
27,4 1,2
31,7 15,0
21,2 17,3
Total number of hours – training:
2012
3
2012
2013
3
2013
2014
92
0,5
1,0
1,5
3 1 705
2014
2 0,0
752
2,0
2,5
3,0
3
1 635 0
200
400
600
800
1000
1200
1400
1600
1800
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ENVIRONMENT Management model ISO 14001 Our commitment is to minimize the impact that our business has on the environment. Interoil will act responsibly with ambition to reduce direct and indirect negative influences on the environment. Interoil is certified according to ISO 14001, Environmental Management System. The standard provides practical tools for companies looking to identify and control their environmental impact and constantly improve their environmental performance according to their business activity. In addition, the system helps to minimize how operations affect the environment, comply with applicable laws, regulations and other environmental requirements. Interoil has conducted an internal audit of the system which showed that the model is working well.
Water consumption (cubic meters) 20 000
15 000 1,02 10 000
5 000
0
Water consumption Even though water in Colombia is an abundant natural resource, we treat it with responsibility and in accordance with the law. We conduct responsibility campaigns in order to be aware, reduce and limit the use of water as much as possible. A strategy to reuse the water is initiated and will hopefully start in in 2015.
2012
2013
2014
The graphic shows water consumption for 2012, 2013 and 2014. Operations performed in 2012 and 2014 required less water than operations in 2013.
Emissions The emission of gas is controlled by governmental authorities to ensure that Interoil is operating within the relevant limits of emissions, periodic reporting and methodology. The diagram
below provides an overview of the emissions compared to legal limits and measured over time at the different locations throughout the year.
Emissions/national limits or standards 80 70 60 50 40 30 20
Energy consumption
Oil Spills
In order to promote sustainability, we are conscious about the energy sources required for operation fields and office facilities. In Colombia, approximately 90% of the pump units are operated by gas that is re-directed from the wells. Interoil focuses on maximizing the benefit of gas produced. The goal is to reduce the gas flared as much as possible and continue to sell the gas produced.
In general Interoil has few oil spills, and the well locations are constructed to reduce the impact on surrounding areas as much as possible. For 2014 we only had one spill over one barrel. The major spill Interoil experienced in 2013, caused by several breaches of operating procedures and human errors, led to increased focus on QHSE processes. Training of employees and the continuous work to improve QHSE in general have improved the situation. This will continue to be a focus area for Interoil in the years to come.
We also promote responsible use of energy consumption in Interoil´s offices. In 2014 we created a campaign, which promotes a culture of energy conservation.
10 0 PST 2012
SO2 2013
NO2
CO
Number of barrels spilt for spills over one barrels: 1 4
2014
PST: Particulate material SO2: Petroleum contains sulphur compounds and combustion generates So2 gas CO: Carbon monoxide, which is generated during combustion processes when there is not enough oxygen to produce CO2. NO2: Nitrogen dioxide.
480
2012
94
2013
2014
95
Activities with the community Interoil participate in and sponsor recreation, sports and culture programs. In addition Interoil organizes various social events for the communities. Interoil employees are encouraged to participate in these social events. Financial contributions to the local communities can be split into four categories: 1. Payments related to the right to use land owned by the communities. 2. Payments related to purchasing goods and services from local communities.
12 521**) 14 307**)
30 846 15 749
4 760 1 320 6 187***) 548
Number of employees
47 470*) 46 910*)
Salaries and social benefit
National National
Voluntary social contribution
2014 2013
Contractual social contribution
Sponsorship for the best students that graduate from local schools. For 2014, enrollment fee to university/institution approved by government and minimum local wages were paid for 26 local students.
Royalties
Education
Indirect taxes paid****)
The Rural House Gas Project connected the houses of 545 families to a domestic gas grid.
Purchase of goods and services
Rural House Gas Project
Investments
Bellow we have highlighted a few specific projects that were funded by Interoil in 2014:
Income taxes paid ***)
The total of taxes and royalties paid by Interoil in 2014 was USD 9,2 million. Below, we present Interoil’s economic contributions for 2014:
Revenues
The community had expectations on what Interoil should contribute to the local community which were different from what the company was able to fulfil. Through a number of initiatives such as increased and targeted communications, appointing a dedicated CSR coordinator and the implementation of a formal procedure for granting requests and contributions to the local communities, Interoil has been able to avoid conflicts with the local communities in Piedras.
BUSINESS RELATIONSHIPS Economic Performance
Amounts in USD 1 000
In the beginning of 2014 Interoil experienced several conflicts with the communities in our fields in Piedras that effected our operations.
3. Hiring local residents on short-term contracts to do maintenance and construction work in the field. 4. Donations related to education, infrastructure, health and fitness granted at the request of the local communities.
Years
COMMUNITY INVOLVEMENT AND DEVELOPMENT Relations with local community
3 121 3 267
281 195
17 39
4 743 4 946
98 86
*) Revenues, net working interest before royalties **) Costs related to land permits, seismic, civil jobs and rig (materials and services)
Maintenance of infrastructure
***) Income taxes paid as correction for the years 2006 – 2008 amounts to USD 1,851 and is included in the amount.
Interoil funded the maintenance and construction of bridges and roads. This project benefitted Interoil as well as the local communities as Interoil uses this infrastructure in their operations.
****) Indirect taxes excluding VAT
Supply Chain Management Health Care Services Interoil funded and organized 3 health care campaigns for the local communities in Piedras. In 2015 these campaigns will be replaced by a permanent health care services located at the local hospital.
Social contribution: Year 2014
Year 2013
Culture, recreation and sports
Culture, recreation and sports
Investments in projects to increase income in communities
Investments in projects to increase income in communities
Education
Education
Strengthening community organisations
Strengthening community organisations
Training of governmental authorities
Training of governmental authorities
Health
Health
Other
Other
Roads
Roads
Gas investment project
Gas investment project
The procurement procedures described in Interoil’s Financial Manual ensure that investments fulfil our requirements to compliance, ethical standards and other criteria. Further details are included in the Anti-Corruption Policy. Any supplier and subsupplier signing a contract with Interoil, confirm their compliance with the Interoil Code of Conduct and the Anti-Corruption Policy.
Further, Interoil aims to purchase goods and services locally whenever viable. Hiring and buying goods and services locally builds and enhances local development as well as creates jobs. In the Tolima region, where Interoil’s main operating block is located, the supplier industry is limited. The activity in the area is not extensive enough for large suppliers to establish. Thus, there is a natural limitation to local purchases. Generic services like transport, catering, hotels and cleaning are always purchased locally. However, services and maintenance of facilities are acquired through hiring of local people on short-term contracts, and is part of salaries, and will not be shown in the graphics below. As can bee seen from the graphics, the goods and services which is not available locally, is mostly bought nationally:
Procurement 2014
National Suppliers
Interoil is certified according to the ISO 9001 Quality Management System. The ISO system helps organizations to ensure that they meet the needs of customers and other stakeholders and obtain satisfaction according to business activity.
2% 4% 32%
33%
94%
34%
Year 2012 Culture, recreation and sports
Local
National
International
2012
2013
2014
Investments in projects to increase income in communities Education Strengthening community organisations Training of governmental authorities Health Other Roads Gas investment project
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CORPORATE GOVERNANCE
Interoil`s corporate governance principles aim to contribute to value creation over time, benefitting shareholders as well as other stakeholders. As an international exploration and production company, Interoil aims to conduct its business in an economically efficient, socially responsible and environmentally acceptable way. The corporate governance principles are based on the Norwegian Code of Practice for Corporate Governance, dated 30 October 2014. The recommendation from NUES can be found at: www.nues.no. The following presentation is structured after the 15 guidelines in the Code of Practice, and is also available on the company’s web pages.
2. Business Interoil’s objective, as defined in article 2 of the company’s articles of association, is “activities such as exploration, development, production, purchase and sale of oil and natural gas deposits and production licenses, as well as any activities related thereto, including investments in equal and similar enterprises”. Interoil’s vision and strategy is adopted, both for Interoil as a group and for each business area, to support the company’s objective. Interoil’s vision and strategy is to become one of the strongest E&P companies operating in Colombia. Our corporate vision and strategy have the following pillars:
Interoil`s board of directors strongly believes sound principles for corporate governance are an important prerequisite for building trust between the company and its stakeholders and securing shareholder value. Owners, investors, customers, employees and other stakeholders should in the future be confident that Interoil`s business activities are characterized by reliability, control, transparency and high environmental and ethical standards. Interoil will in all material aspects follow the Norwegian Code of Practice for Corporate Governance and report the company’s Corporate Governance in the annual report. Any deviations from the Code of Practice will be explained in the report.
• Maintain a strong balance sheet by adopting a disciplined financial philosophy that balances profitability and sustainable growth. • Allocate and deploy capital with a focus on achieving returns well in excess of Interoil’s cost of capital. • Grow oil and gas production primarily through development programs focused on maximizing the value of our asset portfolio and secondary by acquiring new assets with a balanced risk profile. • Become the employer of choice for E&P professionals in Latin America. • Systematically contribute to the development of stakeholders in areas we operate. • Continuously focus on improving our HSE performance in line with best practices in the Latin American E&P sector.
Values and ethical guidelines
3. Equity and dividends
Interoil’s corporate values are presented on the company’s website (www.interoil.no).Our values guide us in how we shall act and make decisions when we conduct our everyday work in Interoil.
As of 31 December 2014, Interoil had 251,903,145 shares outstanding. Interoil`s book equity as of 31 December 2014, was USD -1,7 million.
1. Implementation and reporting on Corporate Governance:
Interoil is conscious of the effect its business has on the society. The basic principles for corporate social responsibility that the Company strives to follow, are outlined in the corporate social responsibility policy, which is available at the company’s website. We also refer to the sustainability report incorporated in the annual report and made available on the company’s website.
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In October 2014, the board of directors considered the equity and liquidity of the company not to be satisfactory. The board therefore resolved to initiate a refinancing process to explore strategic opportunities to improve the situation. As a result, the company completed in January 2015 a comprehensive restructuring, which involved a private placement to
Andes Energia plc and a restructuring of Interoil’s existing bonds issued under ISIN NO 001 0584683 by converting part of the bonds into equity and part into a new bond. The transaction has resulted in the company’s equity being strengthened and the company’s debt restructured. The board of directors believes that the restructuring will increase opportunities for Interoil to create future value for its shareholders, and considers Interoil’s equity and liquidity to be adequate to meet Interoil’s objectives, strategies and risk profile. Due to the equity situation and the financial results of 2014, Interoil will not pay any dividend in the near future.
Authorizations for the board of directors Board authorisations are limited to defined issues, and are dealt with as separate agenda items at the general meeting. The company’s annual general meeting held in June 2013 resolved to authorize the board of directors to increase the
share capital by up to NOK 750,000. This mandate is valid for 24 months until 30 June 2015, not for one year as recommended by the Code. The authorization is to be used in relation to the company’s stock options scheme. The board issued 10,500,000 options for executive management and key personnel in June 2013 and 1 500 000 options in 2013 November. The options had a pre-established subscription price of NOK 1.68. At the end of 2014, the company has 3,000,000 remaining options for allocation by the board. For more information on the stock option scheme, please refer to annual report note 11 in the financial statements.
4. Equal treatment of shareholders and transactions involving related parties Interoil has one class of shares representing one vote at the annual general meeting. Each share has a nominal value of NOK 0.05. The articles of association has no restriction regarding the rights to vote. Equal treatment is of high importance for the company, and the board of directors must justify any waiver of these rights in capital increases.
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Should the board of directors wish to propose to the general meeting that a departure be made from the pre-emptive right of existing shareholders in the event of a capital increase, such a proposal will be justified by the common interests of the company and the shareholders, and the grounds for the proposal will be presented in the notice of the general meeting. In the private placement completed in January 2015, the board was given the right to deviate from existing shareholders’ preemptive rights. This was due to the severe financial conditions faced by the company and the need to rapidly raise equity to be able to meet its commitments in Colombia. Material transactions between the company and shareholders, a shareholders parent company, members of the board of directors, executive personnel or close associates of any such parties, shall be evaluated by an independent third party. Any transactions with closely related parties, primary insiders or employees wishing to trade in Interoil shares must be cleared prior to the purchase of shares in the company, and are firmly regulated in Interoil’s own Directives for Insider Trading. Interoil focuses on transparency and independent verification of any transactions with related parties. The company’s ethical guidelines, which apply to all employees, contain guidelines for handling potential conflicts of interest.
The deadline for registering intended attendance is as close to the general meeting as possible, but no later than four days prior to the general meeting. Shareholders who are unable to attend are encouraged to vote by proxy. Information concerning both the registration procedure and the filing of proxies is included in the notice. The proxy form allows separate voting instructions to be given for each item on the agenda. The general meeting elects the chair of the meeting. The board generally proposes that a person independent from the company chairs the meeting. The general meeting elects the members of the nomination committee. The nomination committee focuses on composing a board that works optimally as a team, and on ensuring that board members’ experience and qualifications complement each other and that statutory gender representation requirements are met. The general meeting is therefore requested to vote for a complete set of proposed board members, and shareholders cannot vote in advance for individual candidates. The general meeting otherwise deals with the matters it is required to consider pursuant to legislation or the company’s articles of association. The company allows shareholders to propose matters for consideration at the general meeting, and shareholders can also ask questions and propose decisions at the general meeting itself.
There has not been any transaction of significance with closely related parties during 2014.
The minutes from the meeting are released as soon as practical as a stock exchange notification (ticker: IOX) and on our website www.interoil.no.
5. Freely negotiable shares
7. Nomination Committee
Interoil’s shares are listed on the Oslo Stock Exchange and are freely transferable. There are no restrictions on trade in the company’s articles of association.
The articles of association stipulate that the company shall have a nomination committee, elected by the general meeting. The nomination committee shall consist of three members, who shall normally serve for a term of two years. The current members of the nomination committee, which were elected at the extraordinary general meeting held 20 January 2015, are Ricardo Nicolas Mallos Huergo, Juan Carlos Esteban and Neil Arthur Bleasdale.
6. General Meetings Interoil encourages as many shareholders as possible to exercise their rights by participating in the annual general meeting of the company. Notices convening general meetings will be distributed no later than 21 days before a general meeting. The final date for giving notice of attendance is four days prior to the general meeting. Interoil endeavors in general to make the detailed supporting documentation relating to the items on the agenda available on the company’s web site no later than on the date of the distribution of the notice of the general meeting. The notice is also distributed as a stock exchange notification. The calling notice includes a reference to Interoil’s website where the notice calling the meeting and other supporting documents are made available. As the supporting documents are made accessible for the shareholders on Interoil’s website, the documents will normally not be enclosed in the calling notice sent to the shareholders, cf. Interoil’s articles of association section 9.
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All members of the nomination committee in place for 2014 were independent both of Interoil’s executive management and the board of directors. Of the current nomination committee, Ricardo Nicolas Mallo Huergo and Juan Carlos Esteban are board members of Andes Energia plc and therefore related to the main shareholder of Interoil. Ricardo Nicolas Mallo Huergo is also chairman of the board of Interoil. The purpose of the committee is to recommend candidates for election to the board of directors and propose the fee payable to the board members. The committee shall emphasis that the candidates for the board have the necessary experience, competence and capacity to perform their duties in a satisfactory
manner. A reasonable presentation regarding gender and background should also be emphasized. The nomination committee shall ensure that the recommendations are endorsed by the largest shareholders. The justified recommendations are endeavored to be made available together with the notification to the general meeting, no later than 21 days prior to the general meeting.
8. Corporate assembly and the board of directors; composition and independence The company is not required to have a corporate assembly, cf. the Public Limited Liabilities Companies Act section 6-35 (1). Thus, the general meeting elects the representatives to the board of directors directly. According to the articles of association, the board of directors shall consist of one to seven members. Currently, there are seven members. The members are elected for a term of two years and may stand for re-election. The proposal for nominations are generally distributed to the shareholders together with the notice of the general meeting. Up until June 2014, the board of directors consisted of Anne Grete Ellingsen, Peter Nicol and Arturo G. Vilas, with Håkon Sandby as deputy. A new board was appointed in June 2014 and consisted of Leif Chr. Salomonsen (chairman), Mimi K. Berdal, Eystein Koppang and Ragnhild Wiborg. The current board was elected at the extraordinary general meeting in January 2015 and consists of Ricardo Nicolas Mallo Huergo (chairman), Alejandro Oscar Jotayan, Matthieu Milandri, Jose Francisco Chalela, Dolores Rivas, Maria Rosa Siles Moreno and Mimi Berdal, and were elected for a two-year term. In 2014, all board members have been independent of the main shareholders of the company, and the executive personnel and important business associates of the company. Of the current board, all board members except for three persons, as well as the CEO, CFO and the general manager are also employed or in other ways connected to the main shareholder of the Company, Andes. As such there can be no guarantee that no conflicts of interest may arise between these persons duties to the Company and their duties to Andes. The composition of the board of directors as a whole, represents sufficient diversity of background and expertise to help ensure that the board carries out its work in a satisfactory manner. The company’s website and annual report provides detailed information about the board members expertise and capacities. The board of directors is aware of the need for diversification of its members, in order to add value and to best serve the common interest of Interoil and its shareholders (particularly with
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respect to expertise, experience, social skills, and independence, flexibility and time capacity). The composition of the board of directors also contents the diversity of both genders. In 2014, the board held 24 board meetings, with an average attendance of 95.4%. Up until June 2014, the board held nine meetings. The board elected in June 2014, held 15 meetings, all meetings being attended by all board members. The board members are encouraged to own shares in the company.
9. The work of the board of directors The board of directors has established an annual schedule for the board meetings and an annual plan for its work. The plan covers both the control functions and the strategy focus of the company in addition to implementation of decisions made by the board. The board of directors leads the company’s strategic planning, and make decisions that form the basis for the executive personnel to prepare for and implement investments and structural measures.
Following the election of the new board, the Company has not yet established either a separate audit committee nor a remuneration committee and has not yet made any evaluations as to the establishment of these.
10. Risk Management and internal control The board of directors focuses on risk management and internal control to support the company’s corporate values, business development and the quality of the financial reporting encompassing ethical guidelines and guidelines for social responsibility. The Interoil management system covers all areas of operation of the company. The documents for risk management, internal control and financial reporting are incorporated in Interoil’s management handbook, which forms a part of the management system. The financial manual describes how financial management and reporting is performed in Interoil. Interoil has developed an authorization matrix that forms a part of its governing documents. Special expenditure approval procedures have also been developed.
The board of directors has issued instructions for its own work as well as for the executive personnel with particular emphasis on clear internal allocation of responsibilities and duties. The chairman of the board ensures that the board’s duties are undertaken in an efficient and correct manner.
In governing documents included in the management handbook, emphasis is placed on highlighting the requirements to Interoil’s operations, and who is responsible for following up on the requirements. Interoil manages risk through this internal framework comprising of guidelines, procedures and tools intended to ensure safe and stable business operations and provide unified and reliable financial reporting, which is applicable throughout the group. This enables the operating businesses to manage the day-to-day risk related to their operations. The operating company in Colombia is ISO-certified. Interoil has implemented a system for reporting serious matters such as breaches of ethical guidelines and violations of the law. Information on the reporting system and contact details is included in Interoil’s anti-corruption policy and program.
The chief executive officer and general manager are responsible for the company’s daily operations and ensures that all necessary information is presented to the board.
Each group function in corporate have a global responsibility for following up their respective areas of specialization and frameworks associated therewith.
The board of directors evaluates its performance and expertise annually.
The audit committee, which consists of the whole board, assists with safeguarding the quality of the internal control and risk management, particularly in relation to financial reporting. The audit committee, holds regular meetings, at least once every quarter.
The board is engaged in the financing of the company. The board shall ensure that the activities in Interoil are soundly organized. This includes drawing up plans and budgets for the activities of the company, keeping itself informed of the company’s financial position and ensuring that its activities, accounts and asset management are subject to adequate control.
As the board for 2014 consisted of only four members, all independent, the audit committee consisted of the board members. A separate remuneration committee was considered, but not appointed, due to the fact that all board of directors members were independent form the company’s executive personnel.
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The board of directors provides in note 3 in the annual report the main features of the company’s internal control and risk management systems as they relate to the company’s financial reporting.
11. Remuneration of the board of directors
12. Remuneration of the executive personnel
The remuneration of the board of directors should reflect the responsibilities, the expertise and the time commitment, as well as the complexity of business. The remuneration is proposed by the nomination committee. The remuneration is not linked to the company’s performance or linked to options in Interoil.
The board of directors of Interoil suits its statement on remunerations to management in accordance with the Public Limited Companies Act §6-16 a.
The board of directors instructions clearly states that the members should not take on specific assignments for the company in addition to their appointments as a board member. The remuneration to the board of directors for 2014 is described in note11 in the financial statement. The remuneration to the board of directors for 2015 is not yet formalized.
Our guidelines for future stipulation of management remuneration is to follow the general salary adjustments in our local society and, at the same time, consider the measures necessary to avoid losing our key personnel and maintain a level of remuneration enabling us to recruit the kind of professionals needed for us to develop the company according to plans. The compensation structure and guidelines for executive personnel and key employees are subject to annual review and
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approval by the board of directors. In 2013, Interoil introduced an option program for executive personnel. More information is included in the financial statement note 11.The compensation structure and guidelines for executive personnel and key employees are described in “Remuneration of Senior Executives” in the board of directors report. Interoil negotiates all terms and conditions on an arm’s length basis at market conditions, enabling Interoil to recruit the professionals the company seeks. The remuneration to the executive management is described in note 11 in the consolidated financial statements.
13. Information and communications Interoil’s information policy is based on transparency and on providing the shareholders, investors and financial market with correct and timely information, in a way that safeguards the principle of equal treatment of all shareholders, and satisfies the regulations and practice applicable to listed companies. Interoil’s key communication objectives are visibility, transparency and openness, and the company will achieve these objectives through precise, relevant, timely and consistent information. Interoil co-ordinates its external and internal communication activities to ensure that the company is presented in a clear and consistent manner, and that the company’s brand and reputation is managed properly. All sensitive information will be controlled and disclosed in compliance with statutory laws and the relevant stock exchange rules and regulations. The board of directors has approved a designated IR (Investor Relations) policy which covers guidelines for the company’s contact with shareholders other than through general meetings. Interoil reports the financial result each quarter, in addition to presentations at conferences in Norway and abroad. Our quarterly reports and investor presentations are made available on Interoil’s web site, www.interoil.no. The company also reports its monthly average production the first trading day at Oslo Børs after the 10th of each month. • Interoil’s website, www.interoil.no contains comprehensive information regarding the company, its activity and contact information, and is updated on a regular basis. In addition, all presentation materials and financial reports are available on the website. • Interoil distributes all sensitive press releases as well as all reports through Hugin and Oslo Stock Exchange (www. newsweb.no). • Interoil publishes an annual financial calendar which can be consulted on the Oslo Stock Exchange website, through news agencies and on the company’s website.
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14. Takeovers The board of directors has established guideline principles for how it will act in the event of a take-over bid: • In a bid situation, the company’s board of directors and management has an independent responsibility to ensure that shareholders are treated equally, and that the company’s business activities are not disrupted unnecessarily. • The board has a particular responsibility to ensure that shareholders are given sufficient information and time to form a view of the offer. • The board of directors should not hinder or obstruct take-over bids for the company’s activities or shares. • In the event of a take-over bid for the company’s shares, the company’s board of directors should not exercise mandates or pass any resolutions with the intention of obstructing the take-over bid unless this is approved by the general meeting following announcement of the bid. • If an offer is made for the company’s shares, the company’s board of directors should issue a statement making a recommendation as to whether shareholders should or should not accept the offer. The board’s statement on the offer should make it clear whether the views expressed are unanimous, and if this is not the case it should explain the basis on which specific members of the board have excluded themselves from the board’s statement. • The board should arrange a valuation from an independent expert. The valuation should include an explanation, and should be made public no later than at the time of the public disclosure of the board’s statement.
The auditor annually submits the audit plan for the audit committee. The auditor participates in meetings of the board of directors that deal with the annual accounts. In this meeting, the auditor reviews any material changes in accounting principles, comments on estimated figures and report material matters regarding disagreement with the executive management. The board of directors also meets with the auditor at least once a year without presence of the executive management. The auditors presents once a year to the audit committee a review of the company’s internal control procedures, identifying weaknesses and proposals for improvement. The board of directors reports the remuneration paid to the auditor at the ordinary general meeting. The fee is detailed in fee paid for audit and fee paid for other specific assignments. The board of directors of the company has not established guidelines for the executive management’s use of the auditors for services other than the audit, contrary to what is recommended by the Code of Practice.
Any transaction that is in effect a disposal of the company’s activities should be decided by the general meeting.
15. Auditor The auditor shall be independent of the company. The remuneration for auditors is presented in note 12 in the financial statement. EY was appointed as auditor on the general meeting 27 May 2009. The audit committee, will meet with the auditor regularly. The objective of the committee is to focus on internal control, independence of the auditor, risk management and the company’s financial standing, including the quarterly and annual financial statements. The auditor will send a complete Management Letter/Report to the Board – which is a summary report with comments from the auditors including suggestions of any improvements if needed. This is an important tool for the board in order to get a better overview and fulfil the control duties. The auditor is also present in at least one board meeting each year.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THE FINANCIAL CALENDAR FOR INTEROIL EXPLORATION AND PRODUCTION ASA IN 2015 IS AS FOLLOWS:
Contact
Interim Reports
Date
4th Quarter Report Annual Report 1st Quarter Report Annual General Meeting 2nd Quarter Report 3rd Quarter Report
27.02.15 29.04.15 28.05.15 26.06.15 26.08.15 25.11.15
Main Office Interoil Exploration and Production ASA Kronprinsensgate 17, 0251 Oslo +47 67 51 86 50 www.Interoil.no
Colombia Office
ANALYST COVERAGE Company Analyst Pareto Platou Swedbank First Securities Sparebanken 1 Markets
Interoil E&P Colombia Carrera 7 No. 113-43 oficina 1202, Edificio Torres Samsung Bogotá, Colombia +57 16205450
Thomas Aarrestad Alex Gheorghe Teodor Sveen Nilsen Kristoffer Dahlberg
OWNERSHIP 20 largest shareholders as of per 24 april 2015
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Share held
% of total shares
330 042 176 29 506 441 6 290 322 5 870 967 5 183 875 4 469 974 4 398 347 4 361 764 4 200 000 4 152 333 4 008 400 3 628 018 3 416 000 3 322 000 3 147 707 2 804 106 2 412 115 2 365 000 2 330 000 2 309 177 428 218 722 251 903 145
51,02 4,56 0,97 0,91 0,80 0,69 0,68 0,67 0,65 0,64 0,62 0,56 0,53 0,51 0,49 0,43 0,37 0,37 0,36 0,36 66,19% 100%
Shareholder Andes Energia PLC EUROCLEAR BANK S.A./ 25% CLIENTS BCEE LUX - SICAV LUX C/O Deutsche Bank Ag MP PENSJON PK THUNDER INVEST AS DANSKE BANK A/S 3887 OPERATIONS SEC. NORDNET LIVSFORSIKRI NORDNET BANK AB J&J INVESTMENT AS TECHNOLOGY & PROCESS MSCO Equity Firm Acc Morgan Stanley & Co. CLEARSTREAM BANKING RØDSET JOAKIM SANDQUIST PATRICIA RODRIGUES D ARNE HELLESTØ AS HOVLAND RUNE AVANZA BANK AB MEGLERKONTO NEDREGAARD TORE BURGER KENNETH SOLTVEDT BJØRN INGE
www.Interoil.no
www.mariannegrafiskdesign.no
Interoil Exploration and Production ASA Kronprinsensgate 17, NO-0251 Oslo, Norway
