PIVOTING TOWARDS
GROWTH AND
CLEANER ENERGY
Annual Report & Accounts 2021
Nostrum Oil & Gas is an
independent exploration &
production company based
innorth-west Kazakhstan
owningworld-class facilities
capable of processing
4.2bcmof gas per annum.
Our purpose
To work as a close-knit and
well-integrated team across all
disciplines to deliver excellence
across the whole of our value chain.
Our vision
To add value to the region
through the utilisation of our
state-of-the-art infrastructure hub.
Our values
We are trustworthy and reliable,
take our corporate, social and
ecological responsibilities
extremely seriously, and are
dedicated tothe health, safety
and wellbeing of our employees.
2021 OVERVIEW
Production
boepd
17,032
2020: 22,337
Operating cash flow
US$ m
117.4
2020: 82.7
Revenue
US$ m
195.3
2020: 175.9
Cash at year end
US$ m
165.2
2020: 78.6
Employees
559
2020: 564
Total greenhouse gas
emissions
tCO
2
e
187
2020: 188
LTIR, incidents
per million man-hours
0.81
2020: 0.84
Hazard observation cards
1,278
2020: 665
Contents
Strategic report
02 At a glance
04 Value potential
10 Business model
12 Executive Chairman’s statement
14 Market review
16 Strategic review
24 Key performance indicators
26 Bond restructuring
28 Chief Executive Officer’s
statement
30 Strategy
32 Stakeholder engagement
34 Sustainability review
51 Taskforce on Climate-related
Financial Disclosure (TCFD)
60 Risk management
62 Principal risks and uncertainties
67 Viability statement
70 Financial review
77 Five-year summary
Corporate governance
79 Introduction to corporate
governance
82 Board of Directors
84 Senior management team
86 Governance framework
90 Board activities and achievements
92 Audit Committee report
99 Nomination and Governance
Committee report
101 Health, Safety, Environment and
Communities Committee report
103 Remuneration Committee report
105 2021 annual report on
remuneration
113 Directors’ Remuneration Policy
120 Directors’ report
Financial report
126 Independent auditor’s report
135 Consolidated financial statements
164 Parent Company financial
statements
Regulatory information
179 Investor information
183 Glossary
Additional disclosures
188 Structure chart
For more details please visit
www.nostrumoilandgas.com
8.50 GBp
CHANGE
-0.42 GB p (-4.71%)
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 01
RAIL LOADING
TERMINAL
AND CRUDE/
CONDENSATE
STORAGE
80KM
100KM
Uralsk
CONDENSATE
EXPORTS VIA RAIL
NOSTRUM OIL
PIPELINE
Stepnoy
Leopard
fields
Rostoshinskoye
KAZAKHSTAN
LPG EXPORTS VIA RAIL
GAS EXPORT PIPELINE
Orenburg-Novopskov
Rozhkovskoye
field
– Sinopec
– MOL Group
– KazMunaiGas
NOSTRUM
GAS EXPORT
PIPELINE
Chinarevskoye
field
40KM
60KM
Karachaganak
– Shell
– Eni
– Lukoil
– Chevron
– KazMunaiGas
Aksai
NOSTRUM
PROCESSING FACILITY
OIL EXPORTS PIPELINE
Atyrau-Samara
At a glance
Gearing up for future growth and
contributing to cleaner energy solutions
Nostrum is working with stakeholders and potential
business partners with an eye to increase utilisation
ofitsstate-of-the-art infrastructure hub.
This hub is a unique asset in north-western Kazakhstan that provides a processing
answer to regional energy companies with stranded upstream assets to develop them
and contribute to supporting the national goal of producing more gas and improving
the clean-energy mix.
Our fully commissioned gas processing facilities, with a combined capacity of 4.2bcm
per year, are ideally located to support the production and sale of our own produced
and third party gas. We have access to multiple transportation routes as well as full
control of liquid transportation logistics with 120km of liquids pipeline and an
automated rail loading terminal.
Fully-commissioned
4.2bcm GTF
Unique to north-western
Kazakhstan, state-of-the-art
infrastructure, of which around
15% is utilised. There is an
opportunity to construct a
high-sulphur gas sweetening
planttied-back within 200km
ofour existing gas processing
infrastructure which will provide
job opportunities and investment
and will be a significant
contribution to the RoK’s
ambitionto develop cleaner
energy resources.
02 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
KAZAKHSTAN
Area
shown
RUSSIA
RAIL LOADING
TERMINAL
AND CRUDE/
CONDENSATE
STORAGE
80KM
100KM
Uralsk
CONDENSATE
EXPORTS VIA RAIL
NOSTRUM OIL
PIPELINE
Stepnoy
Leopard
fields
Rostoshinskoye
KAZAKHSTAN
LPG EXPORTS VIA RAIL
GAS EXPORT PIPELINE
Orenburg-Novopskov
Rozhkovskoye
field
– Sinopec
– MOL Group
– KazMunaiGas
NOSTRUM
GAS EXPORT
PIPELINE
Chinarevskoye
field
40KM
60KM
Karachaganak
– Shell
– Eni
– Lukoil
– Chevron
– KazMunaiGas
Aksai
NOSTRUM
PROCESSING FACILITY
OIL EXPORTS PIPELINE
Atyrau-Samara
Attractive
accessroutes
Located in north-western
Kazakhstan with multiple
transportation routes and full
control of liquid transportation
logistics, including our own
connections to the Intergas
Central Asia gas pipeline and
theKazTransOil (KTO) oil pipeline,
and our own automated rail
loading terminal.
Bond restructuring
iswell advanced
Approximately 77.73% of
noteholders signed up or acceded
to the Lock-up Agreement in
December 2021 and January 2022
and we plan to complete our
restructuring in Q3 of 2022.
Committed to ESG
We are committed to health
andsafety, our people, social
responsibility, the environment
and transparent governance.
Wecompare favourably to our
regional competitors with zero
fatalities in three successive years
and no losses of life amongst our
staff to COVID. We pride
ourselves in ensuring that safety
isingrained into our culture and
into the processes we employ
across our organisation. We strive
to ensure that our employees are
proud of who they work for and
are rewarded in a fair and
equitable manner across our
diverse workforce. We see an
opportunity to further increase
cleaner-energy mix.
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 03
Value potential
• Our strategies to commercialise the spare capacity
inour world-class gas processing facilities;
• A comprehensive and cohesive environmental,
socialand governance performance; and
• On our promises so that we restore investor confidence.
DELIVERING ON
OURSTRATEGIES
1,278
Hazard Observation Cards issued
in2021, an increase of nearly 92%
versus 2020.
Numerous
engagements
withstakeholders
Top management, executives
anddirectors are continuously
meeting with stakeholders and
delivering the message that we
are a capable, competent and
eager business partner willing to
invest substantial capital to more
fully utilise our asset base for the
benefit of all stakeholders and
secure the long-term viability
andstability of our business.
131 tonnes
Reduction in GHG emissions
in2021 versus 2020.
“C” grade
in an annual CDP submission for
the third year in a row which shows
our commitment in climate
disclosure area. The Group also
made its inaugural Water Security
CDP submission in 2021.
04 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
99.99 %
Shareholders approving
the terms of the restructuring.
77.73 %
of noteholders signed uporacceded
to the Lock-upAgreement.
US$165.2m
cash at
yearend
Through cost control, substantially
achieving our production and sales
plans, a robust commodities pricing
backdrop and prudent investment
wewere able to increase our cash
reserves in the year by US$86.6m.
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 05
Value potential continued
We are extremely cost sensitive and endeavour
to spend in cost effective ways with a goal to
squeeze value out of our remaining reserves
and improve our liquidity and balance sheet
while we restructure our debt and prepare
ourselves to execute our growth plan.
15.0 %
Reduction in G&A costs in 2021.
2
11.8 %
Reduction in the combined total
ofOpex, G&A and Marketing
&Transportation costs in 2021.
1
OPTIMISING OUR
PERFORMANCE
1. G&A and Marketing & Transportation costs
excluding DD&A. Opex excluding D&A and
inventory adjustment.
2. G&A costs excluding DD&A.
06 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
17,032
boepd
Production in 2021, exceeding our
guidance of 17,000 boepd.
7 wells
worked over
with a rig
and additional 21 rigless
operationsduring 2021.
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 07
Value potential continued
Output from the Chinarevskoye field and
adding Proved Developed Producing reserves
by exploiting the current low cost per barrel,
high-confidence infill opportunities through
best-in-class well and reservoir management.
MAXIMISING
OURPOTENTIAL
US$600m high-
sulphur gas
sweetening
plant
Project opportunity in north-
western Kazakhstan which will
playa pivotal role in supporting
national goals of balancing the
clean-energy mix.
US$117. 4 m
Operating cash flow generated in
2021, a 42% increase year-on year.
US$165.2m
Cash balance as at 31 December
2021 doubled year-on year.
08 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
91%
Kazakhstan
nationals
in the total headcount
asat31December 2021.
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 09
Business model
Our value potential
Key strengths What we do Value we create
We seek to develop
energy resources in
north-western Kazakhstan
through monetising the
spare capacity of our gas
treatment facility to deliver
value to our stakeholders.
Our purpose
To work as a close-knit and well-
integrated team across all disciplines
to deliver excellence across the
whole of our value chain.
Our vision
To add value to the region through
the utilisation of our state-of-the-art
infrastructure hub.
Our values
We are trustworthy and reliable, take
our corporate, social and ecological
responsibilities extremely seriously,
and are dedicated to the health,
safety and wellbeing of our
employees.
World-class infrastructure
Well located to develop regional resources. Multiple
transportation routes to market and full control of liquid
transportation logistics.
Workforce
We are one of the leading
employers in north-western
Kazakhstan, and we hold a
valuable key to unlocking
future development of
otherwise stranded natural
resources.
Low operating costs
Operations streamlined in 2021 and costs reduced.
Investors
Significant progress has been
made on the restructuring
which is planned to be
finalised in 2022 which will
allow the Company to focus on
realising its whole potential
with an improved capital
structure.
High-quality local input
A significant number of our contractors and suppliers are
local Kazakh entities, meaning that we support the local
economy. This also means that we are well positioned to
maintain operations if access to Kazakhstan is restricted.
Local communities
We are a proud community
partner and strive to foster
aculture of openness and
engagement, offering social
and financial support to
promote the wellbeing of
localresidents.
Experienced management team
Nostrum’s management team is seasoned, close-knit and
well-integrated across critical disciplines, with proven skills
in project execution and production operations.
Suppliers, contractors
and customers
Deliver on our production
andproject plans. Constant
communication with our key
customers and suppliers.
Responsible operations
Safety is a personal and shared responsibility.
Everybodyworking at or visiting our facilities
hasarighttoreturn home safely and to perform
theirdutiesunder safe working conditions.
Governments and
regulators
We paid US$12.7m of tax in
2021 to governments. We offer
an opportunity for US$600m
of investment in facilities to
process over 3.5 bcm of Kazakh
sourced gas that is currently
not commercially developed.
Please see our website
for more information at
www.nostrumoilandgas.com
10 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Key strengths What we do Value we create
We seek to develop
energy resources in
north-western Kazakhstan
through monetising the
spare capacity of our gas
treatment facility to deliver
value to our stakeholders.
Our purpose
To work as a close-knit and well-
integrated team across all disciplines
to deliver excellence across the
whole of our value chain.
Our vision
To add value to the region through
the utilisation of our state-of-the-art
infrastructure hub.
Our values
We are trustworthy and reliable, take
our corporate, social and ecological
responsibilities extremely seriously,
and are dedicated to the health,
safety and wellbeing of our
employees.
World-class infrastructure
Well located to develop regional resources. Multiple
transportation routes to market and full control of liquid
transportation logistics.
Workforce
We are one of the leading
employers in north-western
Kazakhstan, and we hold a
valuable key to unlocking
future development of
otherwise stranded natural
resources.
Low operating costs
Operations streamlined in 2021 and costs reduced.
Investors
Significant progress has been
made on the restructuring
which is planned to be
finalised in 2022 which will
allow the Company to focus on
realising its whole potential
with an improved capital
structure.
High-quality local input
A significant number of our contractors and suppliers are
local Kazakh entities, meaning that we support the local
economy. This also means that we are well positioned to
maintain operations if access to Kazakhstan is restricted.
Local communities
We are a proud community
partner and strive to foster
aculture of openness and
engagement, offering social
and financial support to
promote the wellbeing of
localresidents.
Experienced management team
Nostrum’s management team is seasoned, close-knit and
well-integrated across critical disciplines, with proven skills
in project execution and production operations.
Suppliers, contractors
and customers
Deliver on our production
andproject plans. Constant
communication with our key
customers and suppliers.
Responsible operations
Safety is a personal and shared responsibility.
Everybodyworking at or visiting our facilities
hasarighttoreturn home safely and to perform
theirdutiesunder safe working conditions.
Governments and
regulators
We paid US$12.7m of tax in
2021 to governments. We offer
an opportunity for US$600m
of investment in facilities to
process over 3.5 bcm of Kazakh
sourced gas that is currently
not commercially developed.
Please see our website
for more information at
www.nostrumoilandgas.com
Gas condensate wells Crude oil wells
Crude oil
Third-party
hydrocarbons
Gas treatment
facilities (GTF)
Oil treatment
facility (OTF)
Power
generation
Associated
gas
Final
destination
Final
destination
Gas Oil
Liquefied
petroleum
gas (LPG)
Dry gas Stabilised
condensate
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 11
Executive Chairman’s statement
We emerged from 2021 in relatively good shape following ayear
ofrecovery from the onset of the COVID-19 crisis and the related
energy commodity price crash experienced in 2020. Restructuring
the Group’s outstanding bonds has been a huge strategic focus and
Iampleased that we have reached an agreement with our bondholders
and shareholders to move forward with a new, more manageable
capital structure.
We are continuing our efforts to close out the remaining completion
steps so that the Company’s next evolutionary chapter can be
realised. Our future strategic initiatives include profitably filling
ourworld class 4.2 bcma gas processing facilities. I’ll talk more
abouttherestructuring and this strategic effort later in my note.
Pivoting towards growth
In 2022, we look forward to streamline
our capital structure and work alongside
all key stakeholders as we pivot towards
renewed growth.”
Operationally, the Group performed
well despite difficult circumstances and
successfully delivered over US$86.6m in
positive cash flow in the year, leaving us
with US$165.2m in unrestricted cash in the
bank at the end of 2021. We benefited from
a high hydrocarbon price backdrop across
all our products and have been meticulous
in cost optimisation, creating operating
leverage which allowed us to enjoy the
upward swing in prices and this served
the Group well in offsetting the natural
production decline exhibited from our
mature Chinarevskoye field.
Environmental, Social and Corporate
Governance was a focus area in 2021 and
we intend to progress our efforts on this
in 2022. We’re absolutely committed to
continuous improvement in reducing the
environmental impact from operations and
ensuring transparency in our reporting –
on point, I am pleased that our reporting
is in line with the recommendations of the
Task Force on Climate-related Financial
Disclosures (TCFD). Please refer to pages
51 – 59 for our responses. We will continue
to invest in efforts to ensure an ever cleaner
environment in all the areas in which we
operate as we are a business designed for
the future in the face of a changing climate.
In 2022, we look forward to streamline our
capital structure and work alongside all key
stakeholders as we pivot towards renewed
growth.
Strategic pillars
Our strategic pillars remained the same
during 2021: Delivering, Optimising and
Maximising.
• Bond restructuring: the restructuring is
progressing very well and we are aiming
to close out all remaining milestones over
the next few months. The process has
taken longer than all would have liked,
but 2021 has seen all stakeholders pull
together and come to a mutually
beneficial agreement. Delivering on this,
post completion, we’ll have a leaner
12 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
balance sheet with a more manageable
debt structure, allowing us to re-build
equity value through pursuit of the
strategic initiatives outlined below.
Please refer to pages 26 – 27 for a summary
of the restructuring process to date.
• GTU capacity utilisation: filling the spare
capacity of our 4.2 bcma gas processing
facility remains a top priority. We’ve
engaged with several regional raw gas
producers and stakeholders to discuss
our capabilities and have invited them to
visit our world class facilities in the field.
We strongly believe that our processing
capabilities will prove a key contributor
to the energy security and needs of
Kazakhstan and will continue to push
this partnership agenda during 2022.
Delivering on this strategy of Maximising
capacity utilisation at our gas processing
facility will not only be value accretive for
Nostrum and its shareholders but will
also generate benefits for Kazakhstan in
increased tax payments and enhanced
local employment opportunities.
• Optimisation of capital and resources:
cost control was a key focus in 2021 and,
to continue this theme, we’ve set
management KPIs in 2022 to reduce
operating costs and general &
administrative expenses. Diligent liquidity
management in 2021 enabled us to more
than double our unrestricted cash
reserves to US$165.2m by the year end.
The 2021 workover and well intervention
programs helped enhance production as
well as reserves in our latest reserve
audit. We have retained a workover
rig to continue this targeted reservoir
management and are hopeful we will
continue to offset some of the natural
reservoir decline.
Sustainability
I am proud of our ongoing commitment to
ESG and other socially responsible goals.
The safety of our people and assets
remains our number one priority. No
employee was severely injured in operations
throughout 2021 and we intend to continue
the safeguarding of employees in 2022.
In light of the ongoing global COVID-19
pandemic, we maintained our strict testing
regimes for all employees working at the
field and in the offices. As a Company, we
constantly monitor the global, national, and
regional situation and make workplace
changes as necessary to ensure the safety
of our staff. We have also considered the
possible impact on the Group of US, UK,
EU and other sanctions on Russian
infrastructure, state and other businesses,
banks and individuals following the recent
Russia-Ukraine conflict. At the date of this
report, whilst current sanctions may disrupt
transactions with certain customers and
suppliers, any impact on the Group has
been minimal as the current sales routes
for the Group remained unaffected.
We will continue to evaluate the potential
effects and mitigating actions, such
as identification of alternative sales
routes, as the conflict and corresponding
international reactions to it evolve.
I’m pleased to announce the Company
is reporting its first year under the
recommendations of the TCFD. The
Company is supportive of improved
transparency in corporate reporting
relating to climate-related risks and
opportunities, and the TCFD exercise has
made us conscious of the wider risks and
opportunities facing us in the future. We
reaffirmed a ‘C’ rating for our Climate
Change response of the Carbon Disclosure
Project (‘CDP’) and submitted our very first
Water Security module response. We aim
to build on both ratings over time by
engaging with CDP to ascertain areas for
business improvement. I believe there is
room for improvement in our reporting and
transparency, but I also believe our efforts
in 2021 demonstrate our committed
adherence to evolving regulatory
requirements and our openness to
stakeholders.
Finally, as we move forward, our aim is to
align our strategy with Kazakhstan’s wider
gasification strategy. Not only will this allow
us to play an integral role in the energy
security of Kazakhstan, but we will also
transition away from high emitting
hydrocarbon products thereby reducing
our overall carbon intensity.
Board and Management
Our Chief Executive Officer, Arfan Khan,
was appointed on 26 January 2021 and he
brought with him a wealth of operational
and management experience across
exploration and production. 2021 marked
his first full year in the job and I am pleased
how quickly he has settled in; bringing
great energy and ideas to the Board. In
addition, Martin Cocker stepped down
from his interim role as Chief Financial
Officer, with Shane Drader joining as his
replacement on 30 August 2021. Martin
continues on the Board and I would like
to thank him for his efforts in supporting
management during the intervening
period. We are confident both Arfan
and Shane will navigate the remaining
milestones of the restructuring and
propel the Company towards growth.
I’d also like to thank my fellow Board
members for their continued support and
guidance in what has been a difficult few
years for the Company. We’ll continue to
work hard to ensure the restructuring is
closed and Nostrum is left in a fantastic
position from which to realise its strategic
ambitions.
Our Team
Nostrum has always valued its people – we
firmly believe our employees are our most
valuable asset. I’m immensely grateful to all
our staff for their commitment, dedication,
and flexibility in these very challenging
times. We will continue to strive to have
a lean and highly skilled team who are
committed to safely and smartly driving
value for our investors, our host
government and each other.
Key objectives for 2022
Moving forward, we remain committed to
keeping our people and the environment
safe, maximising output from the
Chinarevskoye field, delivering on the
completion of the capital restructuring, and
improving utilisation of our gas processing
facilities. We will focus on what is in our
control to deliver on the operational and
financial targets we have set. We are
confident that the restructuring reset to our
balance sheet will unlock our path to value
growth. We look to build on our ESG
ratings and transparency initiatives,
learning from feedback and peer reviews.
Finally, costs discipline will be a mindset we
adopt and continue into the foreseeable
future as we look to deliver cash from
Chinarevskoye and beyond.
I would like to thank our investors, our host
governments and our staff for the support
you have provided us over the course of
this difficult and challenging year.
Atul Gupta
Executive Chairman
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 13
KAZAKHSTAN
CHINA
RUSSIA
Market review
Competitive analysis and market share – benchmarking our business against our peers
Strengths and opportunities Weaknesses and threats
Multiple export routes. Nostrum is subject to fluctuations in the market prices for its
products, although we have a variety of sales products.
Kazakhstan is a landlocked country that relies on its neighbours
foraccess to markets.
100% ownership of Chinarevskoye licence, infrastructure on the
field, pipelines and rail loading terminal used for transportation to
export routes.
Increased geological risks due to deep, tight, highly fractured
reservoirs.
Production declining at around 20% per annum.
Extensive infrastructure allows Nostrum to process raw gas
deposits in north-west Kazakhstan, where there are no
comparable processing facilities or capacity.
Seasonal temperature fluctuations in a harsh operating
environment.
Onshore field with low operating costs. Lack of significant population reduces the size of the skilled
workforce locally.
Celebrating our 25th year in 2022 and have excellent employer/
employee relationships.
Social tension associated with being an emerging market
economy and a fledgling democracy.
Strong relationships with local and National Government, as well
as with the community through a number of local initiatives.
US, UK, EU and other sanctions on Russian infrastructure,
businesses, banks and individuals following the recent Russia-
Ukraine conflict may disrupt transactions with certain customers
andsuppliers.
Since its independence
in1991, Kazakhstan has
established itself as one
ofthe world’s most prolific
hydrocarbon centres.
The oil & gas market in
Kazakhstan
The foundation of Kazakhstan’s oil & gas
industry consists of three supergiant fields,
Tengiz, Karachaganak and Kashagan,
situated in the north-west of the country.
Together, these fields hold the majority of
the country’s reserves and production and
have allowed Kazakhstan to attract more
foreign direct investment than any other
country in the Former Soviet Union (FSU)
over the past three decades, including
Russia.
As the world’s largest landlocked country,
Kazakhstan depends on an extended
network of pipelines and railways to deliver
its products to export markets. Pipeline
exports are primarily delivered via Russia
(Atyrau-Samara and the Caspian Pipeline
Consortium pipelines); via Azerbaijan and
Turkey (the Baku-Tbilisi-Ceyhan pipeline);
and one via China (Atasu-Alashankou). Rail
exports utilise Kazakhstan’s extensive rail
network, reaching markets throughout the
FSU and beyond (please refer to page 15
where we discuss the impact of Russian
sanctions resulting from the Russia-Ukraine
conflict on our business).
Expansion projects at the Tengiz and
Karachaganak fields, which have been
producing for over two decades, are
currently being developed to increase
liquid recovery rates as the fields mature.
What it means for us
Nostrum’s assets are located in the
Pre-Caspian Basin close to the Russian
border and in close proximity to some of
the most significant hydrocarbon resources
in the FSU. This advantageous position
means that the Company has access to
multiple export markets for its products,
aswell as labour and specialist equipment
providers. In addition, Nostrum has a
substantial amount of spare processing
capacity in a region where there is a
significant amount of stranded gas and
soagrowing need for gas processing.
Nostrum’s markets
Solid export potential
14 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Key macroeconomic and microeconomic trends
Oil prices
Oil prices trended upwards through
2021 led largely by the global rollout of
COVID-19 vaccines and the subsequent
easing of restrictions and re-opening of
global economies. The recovery in oil
prices has been largely demand led. The
resumption of air travel and general
economic activity has provided some
confidence in the future demand for oil.
Prices rose over $20/bbl in the year,
closing around $75/bbl by the year end.
Prices have continued to tick upwards
into 2022, and has seen large volatility on
the back of the Russia-Ukraine conflict.
Prices reached in excess of $130/bbl.
OPEC+ countries unanimously agreed in
2021 to relax production output cuts
introduced in 2020. Whilst global supply
has increased in 2021, this has done little
to restrict the growth in prices led by
positive demand-side factors.
Kazakh economy
The Kazakh economy is bouncing back
from its pandemic-driven decline in 2020.
GDP has expanded 3.5% in 2021, boosted
by household consumption, the easing of
COVID-19 restrictions, and supportive
fiscalmeasures. Higher than average
inflation across day-to-day items such as
food stuffs and fuel has led to demands
forwage adjustments. This, coupled with
the release of pent-up demand caused
byCOVID-19 restrictions, raised inflation
to8.4%. TheKazakhstan Tenge (KZT)
depreciated by 3% in 2021 ending the
yearat 431.67 KZT per US$.
Competitive environment
Kazakhstan and Azerbaijan are the two main
oil-producing countries in the Caspian region
whilst Turkmenistan and Uzbekistan are the
predominant gas producers. Russia plays an
important role in the region by providing a
transportation corridor between the Caspian
Sea and the Black Sea, although this part of
Russia is not a substantial source of crude oil.
Russia-Ukraine conflict
The recent Russia-Ukraine conflict has led
towidespread sanctions being imposed on
various Russian institutions and individuals.
Bodies and nations imposing sanctions
todayinclude the US, UK and EU and these
sanctions have been sequentially expanding.
What it means for us
The rise in oil prices has led to increased
free cash flow generation for the
Company. The completion of the debt
restructuring will further stabilise the
Group, as will our continued focus on
reducing our cost base to ensure we can
maintain adequate liquidity whilst we
pursue the opportunities to fill the spare
capacity in our gas processing facilities.
Atthe end of 2021 we had cash reserves
in excess of US$165.2m (31 December
2020: US$78.6m) excluding US$22.7m
placed into a secured cash account
underthe terms of the Forbearance
Agreement with the informal ad-hoc
noteholder group.
What it means for us
Whilst the economy of Kazakhstan has
beenaffected by COVID-19, oil and gas
production, which dominates the economy,
has been classified as an essential business
in Kazakhstan and so operations are
continuing. It is expected that the industry
will be central to the Government’s attempts
to grow the economy as the threat of
COVID-19 recedes and so the support that
has been shown to operators to date is
expected to continue.
Cost pressures on our supply chain and
staff base will impact our profitability. As a
Company we will continue to be pragmatic
in our negotiations with employees and
suppliers with respect to wage and general
cost inflation, to ensure we maintain our
margins.
What it means for us
Vast distances between Central Asian
markets, long-established trading
relationships and in-place infrastructure
promote co-dependency between FSU
exporters. Kazakhstan naturally benefits from
its geo-strategic position between Russia
and China. Nostrum is situated at the heart of
the export corridor that exists between
Russia and multiple markets to the west of
the Caspian.
Given our geographical position, we are very
close to the evolving situation in Ukraine.
Whilst Kazakhstan is not directly involved in
the ongoing conflict, nor have any Western
sanctions been imposed on it, the country is
connected to Russia through infrastructure,
banking, and other business links. Nostrum
currently sends c.40% of its products through
Russia via Russian transport infrastructure
and ports. Furthermore, the Company
contracts with a limited number of Russian
service companies. We will need to be
cognisant of the current and evolving
sanctions list to ensure we are conducting
business in compliance with these sanctions
and, if we foresee that we will not be, we will
need to set up the necessary alternatives to
be compliant whilst continuing to conduct
our ordinary course of business.
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 15
Strategic review
Our products
CRUDE AND STABILISED CONDENSATE PRODUCTION (BOEPD) AND PRODUCT SPLIT (%)
6,877
40%
8,476
2021
2020
2019
2018
2017
9,798
11,490
14,937
38%
34%
37%
38%
Crude oil Stabilised condensate LPG Dry gas
Quality
• Density – 0.828g/cm
3
• API – 39.3 degrees
• Average sulphur – 0.55%
• Density – 0.740g/cm
3
• API – 59.6 degrees
• Average sulphur – <0.06%
• Field-grade quality
• No olefins and low sulphur content
Sales
• PSA requires at least 15% to be sold domestically with
remaining 85% exported
• In 2021, 23.5% was sold domestically and the remaining
volumes exported in accordance with the PSA, which is in
line with the past few years and expectations (i.e. up to 25%
of crude oil could be supplied to the domestic market)
• 100% exported
• Destinations are the Russian port of Kaliningrad and the
Dutch port of Rotterdam
• 100% exported
• Destinations include the Russian Black Sea ports, Ukraine
and Tajikistan
• 100% sold to KazTransGas
Pricing
• Urals-based pricing for pipeline exports
• Domestic sales at over 60% discount
• Prices negotiated directly with the purchaser
• Brent-based pricing, negotiated directly with the purchaser
• International Mediterranean LPG price Sonatrach for Black
Sea deliveries
• Argus quotations for specified destinations (Ukraine,
Tajikistan, Kyrgyzstan, Belorussia and Poland)
• Price formula agreed until the end of 2024
Transportation
• During 2021, all exported crude oil volumes were sold
through the KazTransOil (KTO) pipeline
• Crude exports are delivered to the KTO pipeline through
an extension to our own 120km pipeline from the field site.
From here the crude is delivered to Russian ports (please
refer to page 15 where we discuss the impact of Russian
sanctions resulting from the Russia-Ukraine conflict on
our business)
• Sent through our own 120km pipeline from the field site
to our own rail loading terminal in Uralsk
• From here it is loaded onto railcars and sent abroad
• Loaded onto LPG trucks from the field site to our rail
loading terminal in Uralsk
• From here the LPG is loaded onto railcars and sold to
third parties
• Sent through our own 17km pipeline from the field site
to the connection point with the Intergas Central Asia
gas pipeline
• Sold at the connection point
Reserves
The Chinarevskoye field (Chinarevskoye) is
the only field owned by the Group. Its PSA
was grandfathered from 1997 and the
licence is valid until the end of 2031. Initial
hydrocarbon discoveries at Chinarevskoye
were made during the Soviet era. There
have been 103 wells and side-tracks drilled
under the PSA between 2004 and 2021.
The licence is owned 100% by Zhaikmunai,
the Group’s Kazakh operating company.
Chinarevskoye is a multi-layer structure with
17 reservoirs and 53 compartments spread
over three areas. Commercial hydrocarbons
have been found in the Lower Permian,
Bashkirian, Bobrikovski, Tournaisian,
Frasnian, Mullinski, Ardatovski, and
Biyski-Afoninski reservoirs.
Group Management provided an estimate
of the Chinarevskoye Proven, Probable and
Possible reserves as of 31 December 2021,
which were audited by independent
engineers Ryder Scott (RS) and under the
guidelines set forth in the 2018 Petroleum
Resources Management System (SPE-
PRMS). The audit covered volumes of
reserves, production and discounted future
net income estimated by Management.
Production and future net income were
derived from a drilling and well intervention
programme to extract the estimated
Proven, Probable and Possible reserves at a
long-term oil price of US$65 from 2022.
This field development is dependent on the
Group being able to both refinance its
liabilities and maintain sufficient liquidity to
fund such a programme. There is no
guarantee that the Group will be able to
achieve this, which could have a material
impact on the Group’s ability to develop
the remaining Proven and Probable
Reserves at Chinarevskoye.
16 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
LPG PRODUCTION (BOEPD) AND PRODUCT SPLIT (%)
2,065
12%
2,795
2021
2020
2019
2018
2017
3,569
3,865
4,615
13%
13%
12%
12%
DRY GAS PRODUCTION (BOEPD) AND PRODUCT SPLIT (%)
8,090
48%
11,065
2021
2020
2019
2018
2017
15,173
15,900
19,647
50%
51%
51%
50%
Crude oil Stabilised condensate LPG Dry gas
Quality
• Density – 0.828g/cm
3
• API – 39.3 degrees
• Average sulphur – 0.55%
• Density – 0.740g/cm
3
• API – 59.6 degrees
• Average sulphur – <0.06%
• Field-grade quality
• No olefins and low sulphur content
Sales
• PSA requires at least 15% to be sold domestically with
remaining 85% exported
• In 2021, 23.5% was sold domestically and the remaining
volumes exported in accordance with the PSA, which is in
line with the past few years and expectations (i.e. up to 25%
of crude oil could be supplied to the domestic market)
• 100% exported
• Destinations are the Russian port of Kaliningrad and the
Dutch port of Rotterdam
• 100% exported
• Destinations include the Russian Black Sea ports, Ukraine
and Tajikistan
• 100% sold to KazTransGas
Pricing
• Urals-based pricing for pipeline exports
• Domestic sales at over 60% discount
• Prices negotiated directly with the purchaser
• Brent-based pricing, negotiated directly with the purchaser
• International Mediterranean LPG price Sonatrach for Black
Sea deliveries
• Argus quotations for specified destinations (Ukraine,
Tajikistan, Kyrgyzstan, Belorussia and Poland)
• Price formula agreed until the end of 2024
Transportation
• During 2021, all exported crude oil volumes were sold
through the KazTransOil (KTO) pipeline
• Crude exports are delivered to the KTO pipeline through
an extension to our own 120km pipeline from the field site.
From here the crude is delivered to Russian ports (please
refer to page 15 where we discuss the impact of Russian
sanctions resulting from the Russia-Ukraine conflict on
our business)
• Sent through our own 120km pipeline from the field site
to our own rail loading terminal in Uralsk
• From here it is loaded onto railcars and sent abroad
• Loaded onto LPG trucks from the field site to our rail
loading terminal in Uralsk
• From here the LPG is loaded onto railcars and sold to
third parties
• Sent through our own 17km pipeline from the field site
to the connection point with the Intergas Central Asia
gas pipeline
• Sold at the connection point
Total 2P (Proven plus Probable) reserves
are34.3 mmboe as of 31 December 2021,
this represents a reserves replacement ratio
of 25% after adjusting for production of
6.2mmboe in 2021. Our ability to replace
reserves in the year is due to better-than-
expected production from the Tournaisian
and Biyski-Afoninski North-East reservoirs,
as well as production associated from the
2021 workover and rigless intervention
campaign. The Proven and Probable
reserves volume requires 17 CAPEX
interventions of which five are rigless,
withan additional seven OPEX well
interventions for production maintenance
(2020: 39.0 mmboe requiring 15 CAPEX
interventions).
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 17
Management’s estimates of reserves of 31st December 2021 and a comparison with the reserves of 31st December 2020 are summarised
in Table 1.
Table 1 – Nostrum Reserves, mmboe
2021 2020 Change
Total PDP 24.8 27.7 -2.9
Total PUD/PDNP 1.4 1.2 0.2
Total 1P 26.2 28.9 -2.7
Total Probable 8.1 10.1 -1.9
Total 2P 34.3 39.0 -4.6
Possible 9.7 n/a n/a
Total 3P 44.0 n/a n/a
Note: Barrel of oil equivalent (boe) totals are management estimates using a conversion factor of 5.327 mcf/boe.
The Total 1P (Proven) reserves for Chinarevskoye stood at 26.2 mmboe, 9.3%or 2.7 mmboe down year-on-year due to 6.2mmboe of
production in 2021 which was partially offset by a positive revision in the main Tournaisian North-East oil reservoir and Biyski-Afoninski
North-East reservoirs as well as production associated from the 2021 workover and rigless intervention campaign. 1P reserves volumes are
comprised of 24.8 mmboe for Proven, Developed Producing (PDP) from 44 current wells and 1.4 mmboe for the Proven, Undeveloped
(PUD) category. It should also be noted that there has been some increase in volumes in undeveloped reservoirs associated with
additional interventions and improved economics associated with higher realised hydrocarbon prices compared to the previous year.
The current 2P case drilling assumptions include the side-tracking of four existing wells, the deepening of one well, and drilling one well in
the Mullinski and Bashkirian reservoirs respectively along with five workover recompletions and five rigless interventions. The Company
has suspended all drilling on the field since 2020 and has since executed a targeted well workover and rigless well intervention
programme to offset some of the field production decline. In 2022, Nostrum plansto continue this workover and well intervention
programme by targeting sevenwells at an estimated cost of US$7.1m (US$7.7m in 2021). This programme, together with the 44 existing
producers, cover the estimated 2P reserves as at 31December 2021.
In addition to Proven and Probable categories, the Company has for the first time in more than 10 years, evaluated its Possible reserves
and these were included in the annual reserves audit at 9.7 mmboe resulting in a total 3P (Proven plus Probable plus Possible) reserves of
44.0 mmboe.
Table 2 shows the breakdown of each reserves category by products.
Table 2 – Nostrum Reserves, by product and by reserves category
Fluid Unit
Proven
Producing
(PDP)
Proven
Non-
Producing &
Undeveloped
(PDNP & PUD)
Total
Proven (1P) Probable (P2)
Total Proven
plus Probable
(2P) Possible (P3)
Total Proven,
Probable and
Possible (3P)
Oil/condensate barrels 9,879,068 978,334 10,857,402 3,710,908 14,568,310 5,292,213 19,860,523
Plant products (LPG) barrels 3,013,320 111,398 3,124,718 840,674 3,965,392 920,862 4,886,254
Gas (after shrink) mmcf 63,445 1,626 65,071 19,014 84,085 18,381 102,466
Gas (after shrink) boe 11,911,178 305,331 12,216,509 3,569,758 15,786,267 3,450,806 19,237,073
Total boe 24,803,566 1,395,063 26,198,629 8,121,340 34,319,969 9,663,881 43,983,850
Strategic review continued
Reserves continued
18 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Reserves by reservoir
The breakdown by reservoir is given in Table 3. A summary and comparison of the workover and drilling programme by reservoir is given
in Table 4.
Table 3
1
– Comparison of reserves by reservoir 2021 versus 2020
Reservoir
31 December 2021 31 December 2020 Change
Proven,
mmboe
Probable,
mmboe
Possible,
mmboe
Tota l 3P,
mmboe
Proven,
mmboe
Probable,
mmboe
Possible,
mmboe
Tota l 2P,
mmboe
Proven,
mmboe
Probable,
mmboe
Possible,
mmboe
Tota l 2P,
mmboe
Biyski/Afoninski NE 11.5 1.9 1.1 14.5 13.8 2.1 n/a 15.9 -2.3 -0.2 n/a -2.4
Tournaisian NE – oil 8.9 1.9 1.6 12.4 8.7 2.2 n/a 10.9 0.2 -0.3 n/a -0.1
Tournaisian NE – WI 0.0 1.2 0.0 1.2 0.0 1.1 n/a 1.1 0.0 0.1 n/a 0.1
Tournaisian South 0.7 0.3 0.9 1.8 0.9 0.2 n/a 1.1 -0.1 0.0 n/a -0.1
Tournaisian West 0.3 0.0 0.2 0.5 0.1 0.0 n/a 0.1 0.2 0.0 n/a 0.2
Ardatovski NE 2.5 1.8 0.3 4.6 2.8 2.0 n/a 4.8 -0.3 -0.1 n/a -0.5
Ardatovski S 0.3 0.0 0.0 0.4 0.2 0.0 n/a 0.2 0.1 0.0 n/a 0.2
Frasnian N 0.4 0.4 2.8 3.5 1.3 0.7 n/a 2.0 -0.9 -0.3 n/a -1.3
Mullinski South 0.0 0.0 0.7 0.7 0.0 0.0 n/a 0.0 0.0 0.0 n/a 0.0
Mullinski North 0.0 0.0 0.0 0.0 0.0 0.0 n/a 0.0 0.0 0.0 n/a 0.0
Mullinski NE 0.7 0.1 1.1 1.8 0.3 0.1 n/a 0.4 0.3 0.0 n/a 0.3
Bashkirian NE & W 0.5 0.3 0.1 0.9 0.7 0.1 n/a 0.8 -0.2 0.2 n/a 0.0
Filippovski 0.3 0.2 0.9 1.4 0.1 1.6 n/a 1.7 0.1 -1.3 n/a -1.2
Bobrikovski South 0.1 0.0 0.0 0.1 n/a n/a n/a n/a 0.1 0.0 n/a 0.1
Total 26.2 8.1 9.7 44.0 28.9 10.1 n/a 39.0 -2.7 -1.9 n/a -4.6
1. Some differences due to rounding
Biyski-Afoninski North-East
2P reserves are estimated at 13.4 mmboe,
down by 2.5 mmboe compared to 2020
year end (15.9 mmboe) which includes
3.3mmboe of production in 2021.
Thisrepresents a slight positive increase
due tohigher condensate volumes
observed which resulted in some of the
former Probable reserves being upgraded
to the Proven category in the 2021 Reserves
Report. Gas production in 2021 was in line
with expectations.
Gas Lift was successfully introduced on
three wells in 2020-2021 to maintain
production levels with increasing water cut
and this is planned to be expanded across
five further wells in 2022-2024 mainly
through low cost rigless interventions and
using the planned expanded Gas Lift
system due for commissioning later in 2022.
Probable and Possible Developed volumes
are attributed to existing producing wells,
with lower declines interpreted respectively.
No new drilling is planned in this area. The
2019 Schlumberger study concluded that
the potential of further infill drilling is
limited, which corresponds with
management’s opinion.
Tournaisian North-East,
WestandSouth
The Tournaisian North-East has a total 2P
of12 mmboe, representing a 0.1 mmboe
decline year-on year, despite 1.8 mmboe
production in 2021. Production decline was
offset by a positive revision based on
performance of existing wells and two
workovers with two rigless interventions
(additional perforations).
Proven Undeveloped volumes are associated
with one deepening and one sidetrack well
in 2023 whilst Probable Undeveloped
Reserves are associated with one sidetrack
producer, one waterflood sidetrack and two
workover recompletions for the extension of
the water-flood all in the period 2022-2024.
Possible Undeveloped volumes are
associated with two planned workover
recompletions in 2022 in the Tournaisian
North-East and Tournaisian West,
respectively.
In the Tournaisian South, there are limited
PDP volumes associated with the three
remaining producers and Possible reserves
associated with one new well currently
planned for 2026.
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 19
Ardatovski North-East and South
Proven Producing volumes are associated
with three current producers. One Probable
side-track well is planned for the Ardatovski
North-East reservoir in 2025. No further
reserves development is planned for the
Ardatovski South reservoir, beyond the
current producer.
Frasnian North
During 2021 a re-mapping of the seismic,
assessment of the in-place volumes and
analysis of well performance resulted in
arevised distribution of reserves and
resources and associated development plan
with a total of three Possible Undeveloped
side-tracks planned for 2024-2025.
Proven Producing, Probable Producing and
Possible Producing reserves are attributed
to the existing well and in light of studies
confirming that this well is in a compartment
and not accessing the total Frasnian oil
inplace volume, forecasts have been
downgraded compared to last year.
Mullinski North-East,
NorthandSouth
Proven Developed Producing reserves
remain for two wells in the North-East and
North respectively. Proven Undeveloped
volumes are attributed to one new well
inthe North-East block which is now
estimated to be economic based on higher
current and expected hydrocarbon pricing
and planned for drilling in 2024.
Two Possible Undeveloped category well
locations have been identified in the
North-East block and are side-tracks of
existing wells, while one new Possible well
is planned for drilling in the Mullinski South.
All three wells are planned for 2025-2026.
Bashkirian North-East & West
PDP reserves remain for two wells produced
via Electric Submersible Pumps (ESPs).
OneProbable new vertical well is proposed
in the Bashkirian North-East which was
formerly in resources but upgraded due
toimproved realised oil price.
Filippovski
Five low-cost workover recompletions
(oneProbable and four Possible) have
beenidentified for the Filippovski reservoir.
These are planned, subject to further
technical and economic evaluation, to be
carried out in 2022-2023. The previous
report assumed a total of eight Filippovski
wells in the Probable category, however,
due to an unsuccessful Workover
recompletion in 2021 the majority of these
wells have been re-categorised either as
Possible Undeveloped or as contingent
resources which has resulted in a reduction
of the 2P total by 1.1 mmboe.
Bobrikovski South
PUD volumes are assigned to one well to
be worked over in 2022. There were no
undeveloped reserves considered in this
reservoir in the previous years’ audit due
topoorer economics associated with lower
hydrocarbon pricing.
Table 4 – Summary of the 31 December 2021 well programme supporting the reserves estimates compared
to the previous year (excluding rigless interventions)
Reservoir
31 December 2021 31 December 2020
Proven
wells
Probable
wells
Possible
wells Appraisal Total
Proven
wells
Probable
wells
Possible
Wells Appraisal Total
Biyski/Afoninski NE 1 − − − 1 − − n/a − −
Tournaisian NE – oil 2 1 1 − 4 3 − n/a − 3
Tournaisian NE – WI − 3 − − 3 − 2 n/a − 2
Tournaisian South − − 1 − 1 − − n/a − −
Tournaisian West − − 1 − 1 − − n/a − −
Mullinski South − − 1 − 1 − − n/a − −
Mullinski North − − − − 0 − − n/a − −
Mullinski NE 1 − 2 − 3 − − n/a − −
Bashkirian NE & W − 1 − − 1 − − n/a − −
Ardatovski NE − 1 − − 1 − 1 n/a − 1
Ardatovski S − − − − 0 1 − n/a − 1
Frasnian N − − 3 − 3 − − n/a − −
Filippovski − 1 4 − 5 − 8 n/a − 8
Bobrikovski South 1 − − − 1 − − n/a − −
Appraisal 5 5 − − n/a 6 6
Total 5 7 13 5 30 4 11 n/a 6 21
Strategic review continued
Reserves continued
20 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
2021 development
Production in 2021 was 17,032 boepd,
which represents a 24% decline compared
to 2020, and materially in line with plan
(greater than 98% of plan achieved in 2020
and 2021).
No drilling took place in 2021 as Nostrum
decided to halt drilling in an effort to
manage financial liquidity and to focus
instead on lowering costs and lowering the
investment risk by focussing on activities
such as production maintenance, workovers
and rigless recompletions.
The rig workover campaign in 2021
consisted of nine interventions on a range
of horizons for oil and gas-condensate
wells. Rigless recompletions, additional
perforations and acid stimulations were
also carried out on a number of oil,
gas-condensate and water-injection wells.
At this time, Nostrum does not plan to
resume drilling during 2022. However, in
2022, there are plans to continue the work
over and well intervention programme
with one workover rig and associated
equipment for low-cost rigless recompletions
that will contribute to the development of
remaining reserves and appraisal of some
horizons.
As noted in the Reserves section, extraction
of the 2P volumes will require further
interventions. More workover activities are
planned in the period from 2022 to 2024
with drilling operations starting again in
Chinarevskoye from 2023. However,
execution of the programme to recover
the2P reserves is dependent on Nostrum
successfully refinancing its liabilities and
maintaining sufficient liquidity to fund such
a programme. There is no guarantee that
Nostrum will be able to achieve this, and
that could have a material impact on
Nostrum’s ability to develop the remaining
Proven and Probable Reserves at
Chinarevskoye.
Planned shut-downs for regular
maintenance were performed in the last
three quarters of 2021 in compliance with
RoK regulations. The work included inter
alia inspection and maintenance of
compressors, vessels and incinerators and
inspection and calibration of instruments.
The turnaround was faster than planned
resulting in lower production deferment
and cost savings in excess of US$700,000.
No significant material losses were
attributable to weather and/or electricity
supply issues during the year, mainly
due to upgrades of the overhead lines
infrastructure in 2020. COVID-19 had no
discernible impact on production in 2021
either, despite changes to work schedules
and strict compliance with special practices
entering the Field, creating a safe operating
bubble. Office staff where possible were
allowed to work remotely.
As at 31 December 2021, the Company
had44 production (26 oil and 18 gas
condensate) wells in operation in the
Chinarevskoye field.
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 21
Strategic review continued
Demonstrating the value of our
infrastructure
Over the last 16 years we have built a
world-class infrastructure processing hub
that is currently underutilised but that can
support the production and sale of billions
of cubic meters of gas in north-western
Kazakhstan for years to come.
The core strategy for Nostrum to create
value for its stakeholders is to commercialise
the investment made in its infrastructure,
the focus being on filling the spare capacity
with third-party hydrocarbons. The first step
towards achieving this was made in 2018,
when Nostrum entered into binding
agreements to process third-party
hydrocarbons starting in 2023 to be
delivered by Ural Oil & Gas LLP (“Ural OG”)
from the Rozhkovskoye field, which is
situated less than 20km from the
Chinarevskoye field. Ural OG will fund
theconnection of existing wells at the
Rozhkovskoye field to Nostrum’s licence
area after which Nostrum will process all
ofthe hydrocarbons coming into the field.
To tie the production into our facility,
Nostrum plans to spend US$4.1m in 2022
out of a total spend of US$4.6m with an
expected completion date in October
2023.Ural OG is a company owned by
KazMunaiGas (KMG) (50%), Sinopec (27.5%)
and MOL Group (MOL) (22.5%).
In July 2021, Zhaikmunai and Ural OG
haveagreed to extend the deadline under
the agreements for Ural OG’s first delivery
of gas and liquid gas-condensate
hydrocarbons to Zhaikmunai by
approximately six months, from 9 April
2023 to 31 October 2023. The extension
was requested by Ural OG as a result of
circumstances relating to the COVID-19
pandemic.
Zhaikmunai and Ural OG have also agreed
to co-operate in order to achieve first
deliveries as foreseen in the original
agreements and in any case by the
amended deadline set out therein.
Oil Treatment Facility
The oil treatment facility (OTF) has a
maximum throughput capacity of 400,000
tonnes per annum. The OTF associated
infrastructure includes a gas-lift facility that
was commissioned in 2015 and a liquid
hydrocarbons pumping station transferring
crude oil and stabilised condensate via the
liquids pipeline to the rail loading terminal.
In 2021, 1.297 mmboe of condensate and
1.270 mmboe of oil was transferred through
the pipeline. Up to 560km
3
recycled lift-gas
per day was compressed and made
available to enhance oil production.
Raw Gas Treatment Facility
The gas treatment facility (GTF) is designed
to treat raw gas from gas condensate
reservoirs (and the associated gas coming
from the OTF) into condensate, LPG and
dry gas with a by-product of granulated
sulphur. The gas treatment facility includes
three gas treatment units (GTU1,2 & 3)
which have the capacity to treat 4.2 billion
cubic metres of raw gas per annum.
Gas Lift System
A Gas Lift system (GL) has been installed to
enhance well production; current installed
capacity is 23,000 standard cubic metres
per hour with a plan to further increase to
38,000 standard cubic metres per hour in
Q4 2022 as future demand is expected to
increase as the Chinarevskoye field matures.
Low-Pressure System
A low-pressure system (LPS) has been
installed to facilitate the reduction of the
GTF inlet pressure from 42 to 10 bar, so
astoprolong the run-life of wells, primarily
gas-condensate. Installed capacity of gas
compression is 48,000 standard cubic
metres per hour in total with 19 wells flowing
through the LPS as of the end of 2021.
Infrastructure
22 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Power generation plant
The gas-fired power generation plant is
linked to the GTF and has an output of
26megawatts electrical power. The
generation capacity of the plant is sufficient
to meet the existing and maximum need in
the future if the plant is run at its maximum
capacity. Backup generation capacity
ofupto 15 megawatts is available at the
processing facilities.
Storage facilities
Nostrum has over 35,000 cubic metres of
storage capacity for liquids at its field site
and rail loading terminal.
Gas pipeline
Nostrum has its own 17km dry gas pipeline
which is linked to the Orenburg-Novopskov
gas pipeline. The pipeline has sufficient
capacity to export the entire GTF maximum
production capacity dry gas volumes.
Liquids pipeline
Nostrum has its own 120km liquids pipeline
that runs from the field to the Company’s
rail loading terminal near Uralsk. The
pipeline has a maximum annual throughput
capacity of over three million tonnes.
Rail Loading Terminal
Nostrum has its own automated rail loading
terminal at Beles, located near the city of
Uralsk, that receives all produced crude
oiland condensate and has a capacity of
approximately four million tonnes of liquid
hydrocarbons per annum.
KTO pipeline connection
Nostrum has constructed a secondary
crude oil pipeline to enable export sales
from its rail loading terminal via the
Atyrau-Samara export pipeline operated by
KazTransOil (KTO). The connection to the
KTO pipeline has enhanced the Company’s
ability to maximise crude oil netbacks
through the commodity cycle.
Additional third-party volumes
Nostrum is focused on entering into
additional agreements which can fill all
theremaining capacity at its GTF. Nostrum
is working with counterparties to secure
long-term streams of raw gas from which
itcan generate significant revenues.
Gas
Oil
Gas condensate wells
Crude oil wells
Oil
Third-party
hydrocarbons
Gas treatment
facilities (GTF)
GTU 1&2
1.7bcm
H
2
S 2,500ppm
LPG 65%
GTU 3
2.5bcm
H
2
S 400ppm
LPG 95%
Oil treatment
facility (OTF)
400kt
LPG
Stabilised condensate
Dry gas
Storage
5km
3
Storage
25km
3
Storage
10km
3
3km
3
/d
Water injection
41MHw
Power generation
48m
3
/h
Low-pressure system
560km
3
/d
Gas lift
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 23
Key performance indicators
Tight financial discipline and
responsible, safe operations
Financial KPIs
Whilst Nostrum has successfully
built infrastructure and
produced over 100 mmboe
from the Chinarevskoye field,
ithas incurred substantial debts
of over US$1bn and has faced
declining production from its
producing field. This has
subsequently led the Group to
embark on a restructuring of its
debt and to reinforce its tight
financial discipline to maintain
liquidity and safeguard our
corebusiness.
US$
165.2m
CASH AT THE YEAR END (US$M)
165.2
78.6
2021
2020
2019
2018
2017
93.9
121.8
127.0
US$/boe
3.84
SELLING AND TRANSPORTATION
COSTS PER BOE (US$ PER BOE)
3.84
3.57
2021
2020
2019
2018
2017
4.25
4.64
4.82
US$/boe
5.13
OPERATING COSTS PER BOE
(US$ PER BOE)
5.13
3.91
2021
2020
2019
2018
2017
3.98
4.37
3.93
US$/boe
1.92
G&A COSTS PER BOE
(US$ PER BOE)
1.92
1.72
2021
2020
2019
2018
2017
1.86
1.78
2.17
24 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Non-financial KPIs
Performing responsibly and
safely is integral to our strategy
and to the sustainability of our
business. We believe that long-
term value comes from seeing
success as a part of a bigger
picture, encompassing people
and the environment.
We have set ourselves specific
non-financial KPIs to track our
progress, as we believe this to
be the best way to monitor our
achievements in relation to
environmental, social and
governance matters. In 2021,
Nostrum ESG KPIs were:
• Reduce GHG emissions to
below 200,000 tonnes CO
2
equivalent and implement
GHG action plan.
• Assessment by the Health,
Safety, Environment and
Communities Committee
of achievement of the HSE
Plan for 2021.
15,330
boepd
SALES VOLUMES
(BOEPD)
15,330
21,514
2021
2020
2019
2018
2017
26,671
29,516
37,844
1.46
0.72
2021
2020
2019
2018
2017
0.72
0.80
1.86
1.46
ROAD TRAFFIC INCIDENT FREQUENCY
(INCIDENTS
2
)
1,278
units
HAZARD OBSERVATION CARDS
(UNITS)
1,278
665
2021
2020
2019
2018
2017
216
0
1
0
1
0.81
0.84
2021
2020
2019
2018
2017
1.39
1.05
2.48
0
.81
LOST TIME INJURY FREQUENCY
(INCIDENTS
3
)
187
188
2021
2020
2019
2018
2017
223
255
255
1
87tCO2e
TOTAL GREENHOUSE GAS EMISSIONS
(tCO
2
e)
1. Hazard Observation Card initiative introduced in 2019.
2. Per million km driven.
3. Per million hours.
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 25
On 23 December 2021 the Group
signed a lock-up agreement (the
“Lock-up Agreement” or “LUA”)
and terms of a restructuring
agreement with holders of its
8.0% Senior Notes due 2022 and
7.0% Senior Notes due 2025
(together, the “Existing Notes”).
The Company’s shareholders later
voted in favour of the restructuring
agreement (the “Restructuring
Resolution”) at a General Meeting
on 29 April 2022; paving the way
for implementation of the
restructuring by early Q3.
Background and engagement
with stakeholders
Appointing advisors
In May 2020, the Group engaged
Rothschild & Cie (“Rothschild”) as financial
advisers and White & Case LLP (“White
& Case”) as legal advisers to assist in
the restructuring of the Existing Notes.
Since then, the Company has been in
restructuring discussions with an informal
ad hoc group of noteholders (the “Ad Hoc
Group” or “AHG”), who are advised by PJT
Partners (“PJT”) (financial) and Akin Gump
LLP (legal). The Company has also been in
discussions with its largest shareholder ICU,
also a holder of the Existing Notes, and
their legal advisors Dechert LLP from 2021.
Forbearance Agreements
The Company signed its First Forbearance
Agreement (“First FBA”) with the AHG on
23 October 2020 and a new Forbearance
Agreement (“Second FBA”) on 19 May 2021.
The First and Second FBA were on
substantially the same terms and prohibited
the AHG from exercising certain rights and
remedies under the Existing Note
indentures. The FBAs were intended to
provide the Group with a short-term
solution to its liquidity issues and a platform
to engage in discussions with the
noteholders in relation to a potential
restructuring. The Company has not made
coupon payments due under the Existing
Notes since March 2020 and this has
helped free cash flow generation in 2021.
As part of the signing of the First and
Second FBA, the Company agreed to pay
consent fees to existing noteholders as
well as agreeing to deposit a portion of
the missed initial coupon payments into a
Restricted Account. A total of $6,701,973
was paid in consent fees during the signing
and various extensions of the First and
Second FBA ($1,116,990 was paid in 2021).
A total of US$22,658,980 has been deposited
into the Restricted Account under the terms
of the FBAs, with Nostrum having access to
the funds under certain circumstances (i.e.
liquidity falling below an agreed threshold).
Bond restructuring
Update on Bond restructuring
26 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Lock-up Agreement
On 23 December 2021, the Group entered
into a Lock-up Agreement with the AHG
and subsidiaries of ICU Holdings Limited
(“ICU”), the Company’s largest shareholder,
collectively holding in excess of 54% of the
Existing Notes. An accession period was
made available until 14 January 2022
allowing other noteholders and shareholders
to accede to the Lock-up Agreement.
Following the accession period, holders
of approximately 76.29% of the 2022 Notes
and 80.35% of the 2025 Notes had signed
or acceded to the Lock-up Agreement,
which comprises 77.73% of the total
aggregate principal amount of both series
of Notes. A fee of 50bps is payable to each
noteholder and shareholder who signed or
acceded to the LUA – this accession fee will
be paid upon closing of the restructuring.
The Company has also in parallel with the
Lock-up Agreement extended the Second
Forbearance Agreement with the AHG on
substantially similar terms to the existing
forbearance agreement. The terms and
conditions continue to remain in effect
during the restructuring until the earlier of
the successful closing of the restructuring
and the longstop date (23 August 2022).
The agreement of the LUA, and the
percentage of noteholders that either
signed or acceded to the LUA, enables the
Group to launch the restructuring with a
greater degree of certainty. The LUA
commits signees to take steps necessary to
support, facilitate, implement, consummate,
or otherwise give effect to the restructuring.
In addition, noteholders also commit to
vote in favour of the scheme at the relevant
creditor meeting further in the process. We
describe the key terms agreed in the
Lock-up Agreement in the section below.
Shareholder Circular and General
Meeting Vote
On 13 April 2022, the Company issued a
Circular and gave notice convening a
General Meeting of its shareholders
on 29 April 2022, at which shareholders
voted on the terms of the restructuring (the
“Restructuring Resolution”). The Circular
and General Meeting also included a
resolution to vote in favour of the Related
Party Transactions with ICU in respect of
new ordinary shares being issued to ICU
pursuant to the restructuring – only
independent shareholders (excluding
ICU) are required to vote on this specific
resolution (the “RPT Resolution”).
At the General Meeting, 99.99% voted for
the implementation of the restructuring
which means the restructuring will proceed
under a UK scheme of arrangement under
Part 26 of the Companies Act 2006.
Further, 99.89% voted in favour of the
RPT Resolution, allowing ICU as a related
party to receive the issuance of new
securities under the scheme.
The Circular is published on our website,
and we refer readers to the document for
further details on the Resolutions and
scheme details.
Terms of the Restructuring
The LUA was signed on 23 December 2021
and shareholders voted in favour of the
Restructuring Resolution at a General
Meeting convened on 29 April 2022.
The agreed, go forward terms which will
proceed under a UK scheme of
arrangement, are as follows:
1. Partial reinstatement of the Existing
Notes in the form of new:
a) Senior Secured Notes (“SSNs”)
• Principal amount of US$250,000,000;
• Cash coupon of 5.00% per annum;
• Interest accrues from 1 January 2022;
• Maturing on 30 June 2026; and
• SSNs are not convertible upon maturity.
b) Senior Unsecured Notes (“SSNs”)
• Principal amount of US$300,000,000;
• Cash coupon of 1.00% per annum;
• Payment-in-kind interest of 13.00% per
annum;
• Interest accrues from 1 January 2022;
• Maturing on 30 June 2026; and
• If not repaid in cash at maturity, the SUNs
will be repayable in specie through the
issuance of equity of the Company based
on the value of the SUNs outstanding on
the issuance date as a percentage of the
fair market value of the Company (up to a
maximum of 99.99% of the Company’s
fully diluted equity).
2. Conversion of the remainder of the
Existing Notes and accrued interest into
equity by way of a UK scheme of
arrangement:
• Existing noteholders will own 88.89%
of the expanded share capital of the
Company on closing of the restructuring;
• Existing noteholders will also own
warrants (to be held by trustee) allowing
them to subscribe for an additional 1.11%
of the share capital of the Company upon
exercise – increasing noteholder
ownership of the Company to 90.00%
• The existing shareholders will hold 11.11%
upon closing of the restructuring
• The existing shareholders will be diluted
to 10.00% if the warrants held by existing
noteholders are exercised;
3. New corporate governance
arrangements in respect of the Group
and certain arrangements regarding
future utilisation of the Group's
cashflows, including the proposal to
transfer the Company's listing to the
Standard Listing segment of the London
Stock Exchange.
For material terms of the restructuring,
we refer readers to the Regulatory News
Service (“RNS”) announcement issued on
23 December 2021 and the published
restructuring Circular to shareholders
which can be found on our website.
Next steps
The implementation of the restructuring
is still subject to satisfaction of certain
conditions precedent, negotiation and
execution of all necessary implementation
documentation and obtaining all required
regulatory consents. The Company has
made relevant applications for consents –
the results of some of these have been
obtained.
We continue to work with our advisors
to close out the remaining milestones
pursuant to closing the restructuring, which
we currently expect to be Q3 2022.
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 27
Chief Executive Officer’s statement
Ready to move forward
In addition to 2021 being my first year as CEO of Nostrum,
it proved to be another challenging year for the Group and
certain of our local stakeholders. Our team made a collective
effort to focus on our strategic pillars of Delivering, Optimising
and Maximising and herein I will expand upon the progress
madeagainst these pillars.
I re-confirm my commitment to pivoting
Nostrum to growth and continuing to be a
reliable and trustworthy partner to the
Republic of Kazakhstan (“ROK”) in its
ongoing evolution to secure cleaner
and more reliable energy sources.
Notwithstanding the global focus on
reducing the use of fossil fuels, I believe
that oil and gas will remain an integral part
of the energy mix for some time to come,
generating material wealth and social and
economic advantages for our host country.
The logical conclusion is that there is a
need for oil and gas resources to be
developed and produced in a responsible
way minimising environmental impact while
providing employment and multiple other
benefits to the community in which we
operate.
Our strategy
The key priority in meeting two of our
strategic pillars of Delivering and
Maximising is to utilise the spare capacity
in our world-class 4.2 bcma gas processing
plant by sourcing nearby third-party
stranded or underrealised gas resources
and/or acquiring additional nearby
reserves. First gas from the neighboring
Ural Oil & Gas project is expected to reach
our facilities by Q4 2023 and this will be a
significant milestone in our transition.
I have met on a regular basis with other
potential partners and stakeholders to
explore how we can further utilise our
processing facilities to everyone’s
advantage. The positive message that
filling up our plant with gas resources
produced locally is certainly gaining
traction. Our vision includes making
additional investment potentially including
the construction of a sour gas sweetening
plant and these investments would
contribute to the profitability of the Group
and to the industrial development of our
region and the ROK as a whole. The ROK
has already announced its plans to increase
the share of gas used for electricity
generation from 20% to 25% by 2030 and
The key ... is to complete the restructuring
thereby unlocking Nostrum’s future,
delivering on maximising shareholder
value ... without compromising safety.”
28 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
to redirect gas exports to domestic
processing and manufacturing facilities.
The country is set to benefit from utilisation
of the full capacity of our facilities as this
directly correlates to Kazakhstan’s effort to
increase the gasification level.
We also continue to maximise output from
our sole producing field, Chinarevskoye.
Although on a declining production curve
we endeavor to delay this decline through
low-cost, high-impact workover and well
intervention activities. In addition, we
remain on the lookout for viable targets in
the region for further development.
Our third priority pillar, Optimisation,
is being met by managing costs while
ensuring that we are sufficiently resourced
to meet our strategies of maximising
Chinarevskoye production and delivering
on projects to fully utilise our gas
processing facility.
HSE/Sustainability
The health and safety of our employees and
host communities is always a key priority
and COVID-19 remained a key focus for us
at Nostrum during 2021. We were
continually testing all employees between
shift changes and are performing regular
testing when they arrive on site. We
encourage our employees and contractors
to take the vaccine and its booster when
offered. As at the end of 2021, 78% of
Nostrum’s employees were vaccinated,
which is significantly greater than the 43%
of eligible Kazakh citizens being vaccinated
at the same date. So far, we’ve been
successful in our mitigation efforts and
continue to see no material impact from
COVID-19 on our operations and more
importantly no loss of life to any of our staff
from this pandemic.
In January 2022 there was political and
civil unrest in the ROK that culminated in
significant loss of life, arrests and property
damage and resulted in a state of
emergency being declared and military
units from surrounding former CIS
countries being called in to assist the
local security forces. During this period
no Group employees were harmed and
we experienced no disruptions to our
operations in the field or at the head office.
Environment and climate change is of the
upmost priority and I and the team are
committed to constantly challenging
ourselves and the organisation to reduce
our impact on the environment.
The Company made its third consecutive
annual CDP climate change submission in
August 2021 and was graded a “C”, which is
in line with our peers, but lower than our
ambition which we will address in 2022 and
beyond.
We have also initiated several projects on
our emission reduction journey including
the installation of automatic emissions
monitors, moving to a single train of
operation at the gas processing facility and
upgrading our water treatment process to
ensure full capture of hydrocarbon vapors.
I intend to keep HSE at the top of my
strategic and operational agenda and will
ensure that each member of my senior
management team and employees
embraces this as well.
Our operations
Production of 17,032 boepd was 24% lower
year-on-year but in line with our guidance
for the second year in a row. The decline in
production was flattened out to some
extent in 2020 and 2021 because of the
successful well intervention work-over
campaign that helped mitigate the decline.
The well interventions have been successful
with rigless operations providing production
uplifts at very little cost. These workovers
and well intervention campaigns are not
game changers, but rather they represent a
very cost-effective means to enhance
production and have a very rapid payback.
We continue to explore commercial and
cost-effective targets in the field and may
look to reintroduce a drilling rig on site if
viable opportunities are identified, but no
such activity has been included in the
financial forecast for 2022.
Our financial stability and
restructuring
As a result of the robust commodity prices,
combined with our cost discipline and
liquidity management, our cash balance
atthe year-end doubled from 2020 to
$165.2m. This does not include an
additional $22.7m cash held in a restricted
account under the terms of our
Forbearance Agreement.
At the end of the year we were able to
agree the terms of the proposed
restructuring with the majority of the
holders of our outstanding Notes who
entered into a Lock-up Agreement on the
basis of those terms.
This was then followed up by 99.99% of
voting shareholders voting in favour of
those same restructuring terms. The
restructuring has been a long and arduous
process and, with the signing of the
agreement, we are now on target to
complete the restructuring in 2022.
This is key to unlocking our ability to move
forward with execution of our strategy
and to rebuild shareholder value
in Nostrum.
Conclusion
After my first full year as the CEO, I can
say with certainty that Nostrum has a
substantial opportunity set, with committed
and talented people, and a promising
future. I believe the road ahead is an
exciting and potentially rewarding one.
The key task ahead is to complete the
restructuring thereby unlocking Nostrum’s
future, delivering on maximising
shareholder value, of course without
compromising safety, from an optimised
cost and resource base. I am certain that
you will witness over the course of 2022
how committed we are to those goals and
that the decisive actions we have already
taken are only our first steps towards
ensuring ever stronger foundations for
an attractive and profitable future.
I would like to thank all our stakeholders
for your support during 2021 and I look
forward to working with you to drive
success in 2022.
Arfan Khan
Chief Executive Officer
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 29
Strategy
A strategy for the future
Strategic pillars 2022 priorities KPIs Risks Forecasts, objectives and
prospects for 2022-2024
DELIVERING
• On our strategies to commercialise
the spare capacity in our world-
class gas processing facilities;
• A comprehensive and cohesive
environmental, social and
governance performance; and
• On our promises so that we restore
investor confidence.
• Advance ongoing discussions
with third parties interested in
supplying raw gas to take
advantage of the Group’s
spare capacity.
• Ensure the safety of
employees, contractors and
the environment.
• Continue adherence to
“Golden Rules”.
• Develop methane emissions
management policy and a
policy on energy use and
resource efficiency.
• Conclude commercial processing
contracts.
• Total recordable injury frequency.
• Lost time injury frequency.
• Road traffic incidents.
• Greenhouse gas emissions.
• HSE Stop Cards.
• Focus on improvements across ESG
and ultimate upgrade in rating.
• Ongoing negotiations with various
counterparties are complex and
commercially sensitive, and there can
be no certainty that agreement will
be reached.
• Legal framework for environmental
protection and operational safety still
being developed in Kazakhstan.
• Impact of equipment failure.
• Execute binding commercial
contracts to fill the Group’s spare gas
processing capacity with third-party
volumes.
• Improve contractor safety
management.
• Improve Supervisor HSE
competence.
OPTIMISING production and
cost efficiencies to safeguard both
our base business and liquidity.
We also seek to optimise our
ability to operate successfully in
the future through our recently
agreed sustainable restructuring
terms with our noteholders and
key shareholder that leaves
sufficient headroom for raising
further capital for our growth
projects.
• Complete the restructuring
process.
• Continue to challenge costs
whilst pivoting towards
growth and transitioning into
a multi-asset energy company.
• Evaluate all sales routes for
sustainability and profitability.
• Manage Opex and reduce G&A.
• Balance sales mix and maximise
netbacks.
• Sustained higher prices can lead to
cost inflation in Kazakhstan.
• Continued COVID-19 restrictions
may impact operations.
• Restructuring charges may offset
effect of some cost reductions.
• Further spend on reservoir
assessment might be needed.
• Manage cash resources to ensure
that the Company can continue to
operate at the levels required to
achieve its objectives.
MAXIMISING output from the
Chinarevskoye field and adding
Proved Developed Producing
reserves by exploiting the current
low cost per barrel, high-
confidence infill opportunities
through best-in-class well and
reservoir management.
• Utilise workover rig and
rigless activities as well as
other technologies to
minimise existing production
decline.
• Continue studies to identify
viable opportunities for future
drilling planning.
• Maximise uptime of existing wells
and production facilities.
• Deliver gaslift expansion project.
• At low production levels, unexpected
sub-surface events could severely
impact the Group’s operating cash
flow forecast.
• Reduce decline rates in existing
producing wells.
• Identify technologies to increase well
productivity and reduce sub-surface
risk for future drilling programmes at
Chinarevskoye.
The Company’s strategy
remains intact for 2022
asitwas for 2021 and
Nostrumadheres to the
three strategic pillars set
outfor 2021: Delivering,
Optimising, Maximising.
Our purpose
To work as a close-knit and well-
integrated team across all disciplines
to deliver excellence across the whole
of our value chain.
Our vision
To add value to the region through the
utilisation of our state-of-the-art
infrastructure hub.
Our values
We are trustworthy and reliable, take
our corporate, social and ecological
responsibilities extremely seriously,
and are dedicated to the health, safety
and wellbeing of our employees.
30 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Strategic pillars 2022 priorities KPIs Risks Forecasts, objectives and
prospects for 2022-2024
DELIVERING
• On our strategies to commercialise
the spare capacity in our world-
class gas processing facilities;
• A comprehensive and cohesive
environmental, social and
governance performance; and
• On our promises so that we restore
investor confidence.
• Advance ongoing discussions
with third parties interested in
supplying raw gas to take
advantage of the Group’s
spare capacity.
• Ensure the safety of
employees, contractors and
the environment.
• Continue adherence to
“Golden Rules”.
• Develop methane emissions
management policy and a
policy on energy use and
resource efficiency.
• Conclude commercial processing
contracts.
• Total recordable injury frequency.
• Lost time injury frequency.
• Road traffic incidents.
• Greenhouse gas emissions.
• HSE Stop Cards.
• Focus on improvements across ESG
and ultimate upgrade in rating.
• Ongoing negotiations with various
counterparties are complex and
commercially sensitive, and there can
be no certainty that agreement will
be reached.
• Legal framework for environmental
protection and operational safety still
being developed in Kazakhstan.
• Impact of equipment failure.
• Execute binding commercial
contracts to fill the Group’s spare gas
processing capacity with third-party
volumes.
• Improve contractor safety
management.
• Improve Supervisor HSE
competence.
OPTIMISING production and
cost efficiencies to safeguard both
our base business and liquidity.
We also seek to optimise our
ability to operate successfully in
the future through our recently
agreed sustainable restructuring
terms with our noteholders and
key shareholder that leaves
sufficient headroom for raising
further capital for our growth
projects.
• Complete the restructuring
process.
• Continue to challenge costs
whilst pivoting towards
growth and transitioning into
a multi-asset energy company.
• Evaluate all sales routes for
sustainability and profitability.
• Manage Opex and reduce G&A.
• Balance sales mix and maximise
netbacks.
• Sustained higher prices can lead to
cost inflation in Kazakhstan.
• Continued COVID-19 restrictions
may impact operations.
• Restructuring charges may offset
effect of some cost reductions.
• Further spend on reservoir
assessment might be needed.
• Manage cash resources to ensure
that the Company can continue to
operate at the levels required to
achieve its objectives.
MAXIMISING output from the
Chinarevskoye field and adding
Proved Developed Producing
reserves by exploiting the current
low cost per barrel, high-
confidence infill opportunities
through best-in-class well and
reservoir management.
• Utilise workover rig and
rigless activities as well as
other technologies to
minimise existing production
decline.
• Continue studies to identify
viable opportunities for future
drilling planning.
• Maximise uptime of existing wells
and production facilities.
• Deliver gaslift expansion project.
• At low production levels, unexpected
sub-surface events could severely
impact the Group’s operating cash
flow forecast.
• Reduce decline rates in existing
producing wells.
• Identify technologies to increase well
productivity and reduce sub-surface
risk for future drilling programmes at
Chinarevskoye.
See KPIs section on page 24 – 25
See Risk Management section on page 60
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 31
Stakeholder engagement
Understanding our stakeholders
Key stakeholders
Why we engage
How we engage
Established relationships
with our stakeholders are
essential for the long-term
success of our business.
We engage by sharing
information about our
activities and discussing
with them their interests
and concerns.
Section 172(1) statement
The Directors are fully aware of their
responsibilities to promote the success of
the Company in accordance with section
172 of the Companies Act and to have
regard for the interests of the Company’s
employees and other stakeholders,
including the impact of the Company’s
activities on the community and the
environment, when making decisions at
Board level. The Directors, acting fairly
between members, and acting in good
faith, consider what is most likely to
promote the success of the Company
forits members in the long term.
Read more about our governance on
pages 79 – 125
Read more about delivering our
responsible business practices on
pages 34 – 50.
Workforce
The Group had a workforce of 559
full-time employees at 31 December
2021, the majority based in
Kazakhstan and of whom 91%
were Kazakhstan nationals.
• The physical and mental wellbeing of our
employees is essential to the continued safe
operation of our Group.
• COVID-19 required that we introduce urgent
measures to ensure that our employees
remained safe.
• Increased interactions between management and the workforce including
cooperation meetings and town hall events.
• Annual wage indexation to help alleviate effects of inflation including moving
indexation from April 1st to January 1st in 2022.
• Successful management of operations through the Covid pandemic.
• Functioning hot line.
Investors
Investors and bondholders have
provided some of the financing
required for the construction of
theGroup’s infrastructure.
• Shareholders and bondholders have seen
their investment in Nostrum reduce in recent
years as a result of the disappointing results
from successive drilling programmes.
Engagement with our stakeholders,
including minority shareholders, is crucial
for their understanding of Nostrum’s plans
to monetise the infrastructures.
• In addition, further financing will be required
if Nostrum is to be successful in those plans.
• Signed the Lock Up Agreement in December 2021. Shareholders voted in favour
of the terms in April 2022. On track to complete the restructuring in 2022.
• Regular update and disclosure around results including conference calls and press
releases as and when required.
• Financial reports and extensive other shareholder information, including Russian
translations of all press releases, are available on our website.
• Our Annual General Meeting provides an opportunity for all shareholders, including
minority shareholders, to ask questions of the Board.
Local communities
Nostrum co-exists with diverse
communities in Kazakhstan, and
wetry to strengthen community
engagement and promote long-term
development in the areas
immediately surrounding our
operations.
• To successfully co-exist with the
communities within which Nostrum
operates, we need to understand what is
important to them and how we are able to
contribute.
Throughout 2021, the Company actively interacted with the local community. During
the year sponsorship and charitable assistance was provided to various public
associations and local communities.
The Company supported the following:
• Partial financing of the repair of secondary schools in settlements near to the
infrastructure of Zhaikmunai.
• Financing of socially significant events on the territories of the Company’s activities.
• Sponsoring the participation of talented children in Republican sports competitions.
• Purchase of school supplies for children from low-income families (Republican charity
event “Road to School”).
• Purchase of New Year gifts for children from low-income families.
• Support for the local hospital by purchasing wheelchairs.
• Assistance in providing residential mobile wagons to the Border Service of the
Republic of Kazakhstan.
• Assistance to local community representatives in the organisation of environmental
studies of the areas surrounding Chinarevskoye field.
Suppliers and
contractors
We are committed to building
sustainable relationships with
our suppliers, contractors and
customers.
• Our suppliers must meet high safety, legal
and ethical standards.
• We recognise our role as a leading
contributor to the local and national
economy, therefore we continue to engage
local suppliers to meet our operating needs.
• Where commercially attractive, contracts were extended ensuring continuation of
relationships and building further on raising HSE and operating standards.
• In some cases contract scopes were split to maintain relationships with the service
providers, in particular new construction.
Governments and
regulators
Governments and regulators set the
framework within which we operate
and changes to policies, regulations,
legislation and personnel can have
major impacts on the Group’s
business.
• A number of the Board’s decisions require
careful consideration of governmental and/
or regulatory issues.
• We pay substantial amounts of taxes and
social contributions.
• Formal and informal discussions are held on a regular basis with local and national
government, regulatory and tax officials and ministers across a variety of levels within
Nostrum. In this way we can be aware of and responsive to proposed changes in
legislation or the interpretation of existing laws and regulations.
• Increasing engagements to bring the reality of Nostrum’s current situation to light as it
moves through restructuring and on the path to growth that will benefit all
stakeholders.
32 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Key stakeholders
Why we engage
How we engage
Established relationships
with our stakeholders are
essential for the long-term
success of our business.
We engage by sharing
information about our
activities and discussing
with them their interests
and concerns.
Section 172(1) statement
The Directors are fully aware of their
responsibilities to promote the success of
the Company in accordance with section
172 of the Companies Act and to have
regard for the interests of the Company’s
employees and other stakeholders,
including the impact of the Company’s
activities on the community and the
environment, when making decisions at
Board level. The Directors, acting fairly
between members, and acting in good
faith, consider what is most likely to
promote the success of the Company
forits members in the long term.
Read more about our governance on
pages 79 – 125
Read more about delivering our
responsible business practices on
pages 34 – 50.
Workforce
The Group had a workforce of 559
full-time employees at 31 December
2021, the majority based in
Kazakhstan and of whom 91%
were Kazakhstan nationals.
• The physical and mental wellbeing of our
employees is essential to the continued safe
operation of our Group.
• COVID-19 required that we introduce urgent
measures to ensure that our employees
remained safe.
• Increased interactions between management and the workforce including
cooperation meetings and town hall events.
• Annual wage indexation to help alleviate effects of inflation including moving
indexation from April 1st to January 1st in 2022.
• Successful management of operations through the Covid pandemic.
• Functioning hot line.
Investors
Investors and bondholders have
provided some of the financing
required for the construction of
theGroup’s infrastructure.
• Shareholders and bondholders have seen
their investment in Nostrum reduce in recent
years as a result of the disappointing results
from successive drilling programmes.
Engagement with our stakeholders,
including minority shareholders, is crucial
for their understanding of Nostrum’s plans
to monetise the infrastructures.
• In addition, further financing will be required
if Nostrum is to be successful in those plans.
• Signed the Lock Up Agreement in December 2021. Shareholders voted in favour
of the terms in April 2022. On track to complete the restructuring in 2022.
• Regular update and disclosure around results including conference calls and press
releases as and when required.
• Financial reports and extensive other shareholder information, including Russian
translations of all press releases, are available on our website.
• Our Annual General Meeting provides an opportunity for all shareholders, including
minority shareholders, to ask questions of the Board.
Local communities
Nostrum co-exists with diverse
communities in Kazakhstan, and
wetry to strengthen community
engagement and promote long-term
development in the areas
immediately surrounding our
operations.
• To successfully co-exist with the
communities within which Nostrum
operates, we need to understand what is
important to them and how we are able to
contribute.
Throughout 2021, the Company actively interacted with the local community. During
the year sponsorship and charitable assistance was provided to various public
associations and local communities.
The Company supported the following:
• Partial financing of the repair of secondary schools in settlements near to the
infrastructure of Zhaikmunai.
• Financing of socially significant events on the territories of the Company’s activities.
• Sponsoring the participation of talented children in Republican sports competitions.
• Purchase of school supplies for children from low-income families (Republican charity
event “Road to School”).
• Purchase of New Year gifts for children from low-income families.
• Support for the local hospital by purchasing wheelchairs.
• Assistance in providing residential mobile wagons to the Border Service of the
Republic of Kazakhstan.
• Assistance to local community representatives in the organisation of environmental
studies of the areas surrounding Chinarevskoye field.
Suppliers and
contractors
We are committed to building
sustainable relationships with
our suppliers, contractors and
customers.
• Our suppliers must meet high safety, legal
and ethical standards.
• We recognise our role as a leading
contributor to the local and national
economy, therefore we continue to engage
local suppliers to meet our operating needs.
• Where commercially attractive, contracts were extended ensuring continuation of
relationships and building further on raising HSE and operating standards.
• In some cases contract scopes were split to maintain relationships with the service
providers, in particular new construction.
Governments and
regulators
Governments and regulators set the
framework within which we operate
and changes to policies, regulations,
legislation and personnel can have
major impacts on the Group’s
business.
• A number of the Board’s decisions require
careful consideration of governmental and/
or regulatory issues.
• We pay substantial amounts of taxes and
social contributions.
• Formal and informal discussions are held on a regular basis with local and national
government, regulatory and tax officials and ministers across a variety of levels within
Nostrum. In this way we can be aware of and responsive to proposed changes in
legislation or the interpretation of existing laws and regulations.
• Increasing engagements to bring the reality of Nostrum’s current situation to light as it
moves through restructuring and on the path to growth that will benefit all
stakeholders.
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 33
Sustainability review
Ensuring that sustainability
isembeddedinallwe do
Sustainability is integral to
our business and underpins
everything we do. Nostrum
is in close communication
with our key stakeholder
groups including host
governments and
communities, shareholders,
bondholders and
our employees on
sustainability initiatives.
We work together to ensure that first and
foremost we provide a safe work place for
our employees while operating in a
sustainable and ethical manner for the
benefit of the community, our stakeholders
and the environment.
Our approach to sustainability
Sustainability has been a primary focus of Nostrum since inception, but has gained even
more prominence with the evolution of stakeholder expectations. The framework that we
deploy for sustainability is outlined below and is constantly evaluated taking into account
our performance, ambitions and stakeholder interests. By focussing on Health and Safety,
Our People, Social Responsibility and the Environment, we are able to progress our
sustainability agenda. Within each focus area we establish actionable activities and
projects which are monitored by all levels of management and the board. This approach
and some of the results are described below and in the remainder of this report.
Sustainability focus areas
Focus area Material issues
Relevant UN Sustainable
Development Goals
More
information
Health and
safety
• Health and safety
• Responsible
production
Read more
onpages
35 – 39.
Our people • Promoting
diversity and
equality
• Training and
development
Read more
onpages
40 – 42.
Social
responsibility
• Tax contribution
• Community
engagement
• Local content and
responsible
procurement
Read more
onpages
43 – 44.
Environment • GHG emissions
• Water
management
• Energy efficiency
Read more
onpages
45 – 50,
including
TCFD
report on
pages
51– 59.
34 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Health and safety
Providing a safe work
environment for our employees
and contractors is mission critical
for Nostrum. Our QHSE training
and procedures are rigorous
and of an international standard.
We take no shortcuts in our
approach to safety and strive to
continuously improve awareness
and execution in this regard.
Safety Culture
The Group implements safety practices
to maintain a positive safety culture.
We recognise that our operations cannot
be successful without an appropriate
level of safety culture. The continuous
improvement of the safety culture involves
all personnel of Nostrum and contractors
at all levels to improve safety performance
including risk identification and awareness.
We have established four pillars in our
approach: HSE leadership; rigorous
incident investigation; process safety/asset
integrity and contractor HSE management.
In addition to the pillars, wehave
implemented “Golden Rules”, provide
extensive training on safety practices and
apply a comprehensive Governance
framework (please see TCFD Governance
recommendations on pages 52 – 53).
In order to effectively manage the
“GoldenRules”, Nostrum applies rigorous
consequence management which means
that we take a risk based approach to guide
people and leaders through the processes
required when they witness or have
reported to them inappropriate behaviour
in the workplace. For serious violations of
safety rules, staff or contractors risk
immediate dismissal. For that purpose,
consequence management is split into
twocategories. The more serious category
which results in immediate dismissal is
applied in case of alcohol/drug abuse. Less
severe cases, such as safety belt violation,
result initially in a warning followed by
dismissal if a repeat violation isobserved.
Golden Rules
1. Seatbelts must always be worn by the
driver and all passengers
2. Do not exceed the speed limit and
reduce speed for impaired road
conditions
3. Do not use phones or operate devices
while operating a motor vehicle
4. Alcohol and drugs of any kind
(excluding approved medicines) are
forbidden
5. Where required work with a
valid permit
6. Obtain authorisation before entering
a confined space
7. Confirm that hazardous energy sources
have been isolated, enclosed and
tagged
8. Obtain authorisation before overriding
or disabling safety controls
9. Never walk under a suspended load
10. Protect yourself against a fall when
working at heights
Incidence rates and investigation
In 2021, as was the case in 2020, there were
two lost time injuries (LTIs), however
Nostrum did achieve a significant milestone
by working one full year since its last Lost
Time incident (which occurred in April
2020). The Group registered four road
traffic incidents in 2021 versus three in
2020. For all incidents we follow our
incident investigation procedure based on
the “five whys” methodology to determine
the root causes, and apply SMART
principles to mitigate future risks.
The Group’s activities are potentially
hazardous. Nostrum’s management,
employees and contractors are trained to
understand that no accidents are inevitable
as we strive to culture an environment
where safety consciousness and mitigating
actions are such that zero incidents are
possible and achievable.
LOST TIME INJURY INCIDENTS (LTIS) AND
TOTAL RECORDABLE INCIDENTS (TRIS)
LTI cases TRI cases
25
0
2018 2019 2020 2021
10
5
15
20
The number of LTIs and total recordable
incidents (TRIs) were:
2018 2019 2020 2021
LTI cases
Nostrum 1 0 1 1
LTI cases
Contractors 8 8 1 1
TRI cases
Nostrum 3 4 4 2
TRI cases
Contractors 19 13 3 4
Total 31 25 9 8
The LTIR for 2021 was 0.81 incidents per
million man-hours, against a target of 1.3.
The TRI rate for 2021 was 2.4 incidents per
million man-hours, 37% lower than in 2020.
For the third consecutive year the Group
and its contractors had zero fatalities across
its operations, significantly better than what
our regional peers’ experience.
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 35
Sustainability review continued
Contractors
Since contractors represented 60% of the
total hours worked at Nostrum facilities in
2021, effective contractor selection,
communication and training in our safety
culture and practices as well as strong
monitoring are essential to maintain the
high level of safety embraced by Nostrum.
In 2021 we continued with our contractor
HSE management implementation. We
ensured that matters identified in 2020
were closed out and learning incorporated
throughout operations including at our
contractors. Although COVID-19 limited
the number of audits that we could conduct
in 2021, we managed to perform four
external contractor HSE management
audits and two internal management
system audits to test compliance with our
HSE management system. In 2021 we also
implemented formal bi-annual HSE
performance meetings with six of our key
contractors. In these meetings our senior
operations management discussed with
senior contractor representatives HSE
issues and stressed the importance of
good Health, Safety, Environment and
Communities management.
In 2021 two new major local contractors
(KazGeotech for Coil Tubing operations
and Kaspiy for Electric Wire Line
operations) were introduced into our
operations along with our New Contractor
HSE Management System, which included
two assessments of each contractor
performed during the year. Review audits
and bi-annual HSE performance meetings
with our key contractors will continue to be
conducted in 2022.
Nostrum seeks to promote safe behaviour
among its contractors and has established
a wide range of methods to ensure that
operations at facilities are carried out in full
compliance with local legislation and
Nostrum rules and regulations. In addition
to the measures already discussed Nostrum
continues to use the hazard observation
cards initiative introduced in 2019
(described more fully on pages 36 – 37).
In our operations there are several stages
to ensure contractor compliance with HSE
spanning from pre-contract award to
contract close-out with significant roles
for the contract owner, contract holder,
contracts and procurement and HSE staff.
This process is more fully described below:
Pre-Award
Stage 1 – Vendor Qualification
To be a qualified bidder, vendors must
meet our Qualification standards, which
includes five fundamental HSE criteria. This
process is meant to help us select those
vendors that both adhere to and support
our basic HSE culture.
Stage 2 – Scope of Work preparation by
contract holders
Our procurement group has developed a
standard checklist which is used by contract
holders in compiling specifications for
scope of work/services. This checklist
includes HSE issues identified by contract
holders as mandatory and which must be
complied with by the selected contractor.
The depth of these questions depends on
the complexity and risk profile of the
services to be provided with more
comprehensive questioning of potential
contractors that would be engaged in
safety critical operations or where the HSE
risk is considered high. HSE risk ratings
(ranging from high to low) are assigned to
all services to be tendered. The contracts
and procurement department ensures all
these requirements are properly addressed
in the Invitation to Tender (ITT) Package.
Stage 3 – Tender
Our standard ITT Package includes:
• Tender Evaluation Questionnaire, with
appropriate HSE related questions
depending on the HSE risk rating;
• Standard Model Contract with HSE
Schedule. Tenderers must confirm in
writing their acceptance of the terms of
this Schedule when submitting their
Tender Proposal, otherwise they are
automatically disqualified;
Stage 4 – Contract execution
The selected contractor signs the contract
which incorporates a HSE Schedule as an
integral part.
Post-Award
Stage 5 – Contract Performance
The contract holder, with support of HSE
representatives, is responsible for the
management of HSE performance of the
Contractor.
All new contractors start their engagement
with Nostrum with kick-off meetings
organised by the contract supervisor and
supported by HSE representatives at which
Nostrum’s expectations are explained in
detail. Further topics of discussions are
clear identification of KPIs related to HSE,
introduction of HSE responsible staff from
both sides, and induction into our
procedures and regulations.
Hazard Observation Cards
From 2019 the Company has engaged in
the filling out of Hazard Observation Cards
in line with our established Golden Rules.
All employees and contractors are
encouraged to report any unsafe
conditions observed in the workplace. This
helps to ensure that our employees and
contractors are always mindful of safe
working conditions and continuously
improve the safety of our operations.
In 2021 we focussed on ensuring that our
staff and contractors were engaging with
and supporting the filling out of Hazard
Observation Cards. For the year, the goals
included to have 500 cards submitted by
our staff, of which greater than 50% would
be created by different individuals, and 100
cards to be received from the four largest
contractors by contract value.
Health and safety continued
Nostrum Contractors
1,500
1,000
500
0
Jan
71
52
132
187
261
332
157
411
192
873
405
838
365
786
328
627
303
529
259
491
235
19 42
50
Feb
174
Mar
237
Apr
316
May
489
Jun
603
Jul
726
Aug
788
Sep
930
Oct
1,114
Nov
1,203
Dec
1,278
55
HAZARD OBSERVATION CARDS BY NOSTRUM AND ITS CONTRACTORS
(CUMULATIVE)
36 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
HAZARD OBSERVATION CARDS
IN2019– 2021 (UNITS)
1,500
1,000
500
0
2019
216
2020
665
2021
1,278
In 2021, Nostrum and the four main
contractors’ personnel raised 1,278 hazard
observation cards.
In-house HSE training and
examination process
In 2020, Nostrum introduced an in-house
HSE training and examination process
designed to improve the HSE competencies
of both Nostrum and contract personnel
performing safety-critical activities. To
facilitate this, Nostrum acquired an
industrial safety accreditation which allows
the Group to conduct in-house HSE training
and examination in areas such as industrial
and labour safety. In 2021, a special facility
dedicated for training was built at Camp-3.
HSE communication and awareness
In addition to the 2021 initiatives outlined
above, Nostrum also introduced the
following communication and awareness
initiatives:
• Daily safety awareness pop-up windows
on each individual computer screen at
first log-in each day.
• HSE posters published at all locations.
• Issuance of monthly QHSE reports to
communicate HSE performance.
In 2022, additional spot checks and audits
will be introduced to ensure compliance,
especially with respect to transportation.
This initiative was tested in Q4 2021 and
resulted in a dramatic improvement in
compliance from the initial spot check to a
follow-up check performed a couple of
weeks later.
Process safety
In 2021, there were no Tier 1 or Tier 2
process safety events registered at
Nostrum’s production facilities. As defined
by the American Petroleum Institute, a Tier
1 and Tier 2 safety incident is an unplanned
or uncontrolled release of any materials,
including non-toxic and non-flammable
materials, from a process that results in one
or more of the following consequences:
• An employee, contractor or
subcontractor incurs days away from
work, injury and/or fatality.
• A hospital admission and/or fatality of a
third party.
• An officially declared community
evacuation or community shelter put in
place, including precautionary
community evacuation or community
shelter in place.
• Fire or explosion damage of at least
US$100,000.
The selection of appropriate maintenance
strategies, and the classification of
equipment as safety critical or non-safety
critical, is based on the impact that such
equipment failure has on safety. Nostrum
employs a specific safety critical equipment
maintenance program whereby resources
are allocated in order of priority with the
critical systems taking precedence.
Our response to COVID-19
A significant amount of effort was spent
during 2020-2021 on reducing the risk of
COVID-19 infection and to comply with
governmental notices. All employees were
provided with masks, gloves and antiseptic
and office staff were transferred to remote,
online work patterns. Regular quartz
treatments with UV lamps were conducted
in the main office in Uralsk and the field
offices. All staff working on a rotational
basis were given a pre-shift PCR test with
daily thermometry before the start of work
each day, and medical staff were provided
with protective coveralls.
The situation with respect to COVID in
Kazakhstan was quite severe with cases
elevating in Q2 and the summer months,
after which the number of cases dropped
significantly from October onwards.
The vaccination campaign in the country
kicked-off slowly at the beginning of the
year, however it has ramped-up steadily
throughout the year. In accordance with our
own COVID measures as well as all
Kazakhstan guidelines, we implemented
stringent precautionary measures to ensure
the safety of our employees and
contractors and the community at large.
Within Nostrum the vaccination of our staff
started in April 2021 and reached above
78% of employees fully vaccinated by the
end of 2021, which was considerably higher
than the national fully vaccinated rate of
approximately 43%.
200
150
100
50
0
Jan Feb Mar Apr May
Jun Jul Aug
Sep
Oct
Nov Dec
COVID-19 CASES IN KAZAKHSTAN IN 2021
(‘000)
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 37
Sustainability review continued
Health and safety continued
All field personnel, both employees and
contractor staff, were required to test
negative before being allowed to return to
their shift at the field. Regular temperature
checks were conducted whilst they
remained at the production facilities. At
various times during the year, and in full
compliance with the regional and national
directives, employees were again restricted
from being present in the office in Uralsk.
Our London office, which adopted remote
working practices in March 2020, remained
this way throughout 2021.
For 2022, our primary focus will remain to
safeguard our employees and contractors
and reduce the risk of contagion from and
distribution of the virus in addition to
complying with governmental legislation.
Kazakhstan Nostrum
100
75
50
25
0
Jun 1st
6
20
Jul 1st
10
22
Aug 1st
20
27
28
37
65
34
Sep 1st
43
Nov 1st
78
Dec 1st
VACCINATION FROM COVID-19 PROGRESS IN 2021
(%)
Non-essential events were postponed. Other activities, such as contractor audits, were
significantly curtailed. As of the date of this report, no production has been lost and, more
importantly, no employee has died due to COVID-19, which unfortunately was not the case
for many of our peers.
Progress against 2021 initiatives and 2022 targets and initiatives
COVID-19-related activities necessarily required an immense amount of our HSE resources. However, focus was not lost on the other
initiatives that were planned for 2021. The below table summarises the achievements from 2021 and lays out our 2022 targets for HSE
and other focus areas:
Focus area 2021 initiatives What we achieved in 2021 2022 targets and initiatives
Health & Safety LTIR of no more than 1.3 per
million-man hours worked and
Road Traffic Accidents of no
more than 0.8 incidents per
million km driven.
LTIR data for 2021 was 0.81, compared to
an LTIR of 0.84 for 2020. This single LTI
occurred in Kazakhstan and involved a
male employee.
We did not meet the target on Road traffic
incidents and the actual RTI rate was 1.46.
TRIR was 2.4 in 2021 (compared to a TRIR
of 3.8 in 2020). All of Nostrum’s total
recordable injuries occurred in Kazakhstan.
The gender of those involved was not
recorded.
Our contractors’ LTIR and TRIR were
not recorded.
TRIR of no more than 2.0 per
million-man hours worked, Lost time
incident frequency of no more than
1.0 per million working hours, and
Road Traffic Accidents of no more
than 0.8 incidents per million km
driven.
At least 600 Hazard
Observation Cards to be issued
of which at least 500 should be
issued by more than 50% of
Nostrum employees and at
least 100 cards by the four
largest Nostrum contractors
by contract value.
In total 1,278 Hazard Observation cards
were issued by Nostrum and its contractors
in 2021.
355 cards were issued by our four major
contractors. However, only 35% of Nostrum
staff issued cards with the shortfall versus
target being at least due partly to the
remote working that characterised
much of 2021.
At least 1,000 Hazard Observation
Cards to be issued of which at least
500 should be issued by more than
60% of Nostrum employees and at
least 500 cards by the four largest
Nostrum contractors by contract
value.
38 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Focus area 2021 initiatives What we achieved in 2021 2022 targets and initiatives
Health & Safety Verification that the incident
investigation procedure was
applied to all incident
investigations in 2020.
Procedure to be updated and
re-issued if required as a result
of the review findings.
Completed. Report back on 2021 Golden rules
compliance & consequence
management to HSEC committee
meetings.
Establish contract HSE
management plan for all new
services contracts with a value
in excess of US$100,000 per
annum.
Kick-off HSE meetings with the new
contractors and HSE management system
audits with existing Nostrum contractors
have been held with involvement of
contract holders.
Continued adherence to the
developed Contract Management
procedures.
Two Contract HSE performance
meetings for major contractors (2 per
year for each scope). Contract Holder
to present outcome when requested
in internal HSE meetings. Set up
Contract HSE management plan for
all new services contracts with value
in excess of US$100,000 per annum.
Implement the vessel
inspection programme in 2021
and develop a new vessel
inspection programme for 2022
and 2023.
Completed in Q2 as part of shutdown and
finalised in Q3 after all vessels not requiring
shutdown were inspected.
Plan has been established for 2022
and will be implemented.
Environment
Maximum of 200,000 tonnes
of CO
2
emissions.
Target has been achieved with actual CO
2
emissions of around 187,479 tonnes.
Reduce GHG emissions by 5% of the
2021 actual CO
2
equivalent level.
Develop methane emissions
management policy and a policy on
energy use and resource efficiency.
Installation of air pollutant and
GHG emission sensors and
systems to enable real-time
measurement and monitoring
of GHGs in exhaust fumes from
major emission sources in the
Chinarevskoye field.
Based on new RoK regulation installation
is required at one unit (GTS 26mW).
Tendering process completed and
successful bidder selected in Q4 2021,
with the installation by Q3 2022.
Documentation/installation of air
pollutant and GHG emission sensors
as per RoK directive (completion
in 2022).
Develop surveillance program for
26 MW gas turbine, develop 2022
planned compressor maintenance
system and track effect on emissions
against targets.
Participate in CDP
questionnaire for climate
change and aim for “C” level
evaluation score.
Nostrum obtained “C” score for the climate
change module and participated for the
first time in the water security module.
Participate in CDP questionnaire for
(1) Climate Change and (2) water
security module and aim for at least
one “C” level and one “B” level
evaluation score.
Diversity Increase female representation
in the workforce from the
current 23% at Group level.
Female representation is 23% at Group
level. We increased our female recruitment
ratio from 7% to 13%. We also reduced the
pay discrepancies between male and
female employees.
Further increase female representation
at the senior management and at the
department head level.
Encourage female job promotions
in case of equal competences and
capacities. Conduct a formal
evaluation of any existing gender
pay gap discrepancies and develop
a mitigation plan.
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 39
Sustainability review continued
Our people
Fostering equality and cultural
diversity is a top challenge and
opportunity the world is facing in
these times. Businesses play a
significant role by focusing on
good principles and acting as
positive role models. Improving
equality and diversity within our
Group is not only the correct
thing to do, we believe that it
enhances the qualities that make
companies better and stronger
as there are synergies created.
To that end, Nostrum is proud to provide a
home to a diverse and inclusive workforce.
With respect to anti-discrimination
measures, the Nostrum Code of Conduct
protects all employees and contractors
against illegal discrimination on the basis
of race, religion, national origin, age,
gender, disability, sexual orientation
or political opinion.
Our people really are the most important
element of our success. We need a
motivated, engaged, and diverse workforce
to deliver our purpose and strategy.
Engaging in people with different
assessments and perceptions leads to
better decision-making, more innovation,
and a deeper commitment in the workplace.
It is for these reasons that we pay particular
attention to the continuous improvement of
diversity in our Company.
NUMBER OF EMPLOYEES
as at 31December
LTI cases TRI cases
25
0
2018 2019 2020 2021
10
5
15
20
1,000
750
500
250
0
20192018
820
2020
668
2021
559
564
Strength through diversity
Whilst we are encouraged by our diversity
at Board and department head levels, we
do recognise that diversity remains an
ongoing issue in the oil and gas industry,
particularly with regard to gender diversity.
We strive to be an attractive place to
work with an inclusive environment that
celebrates diversity. Nostrum is committed
to improving the gender balance at all levels
of the Company and we engage with
interest groups to better understand how
we might do this. Additionally, Nostrum
has for several years adopted a corporate
Equality and Diversity Policy to further
support these ambitions. At the end of
2021, 23% (2020: 23%) of Group employees
based in Kazakhstan were female. In the UK,
25% of employees were female (2020: 20%).
GENDER DIVERSITY
as at 31December
LTI cases TRI cases
25
0
2018 2019 2020 2021
10
5
15
20
1,000
750
500
250
0
20192018
820
24%
25%
75%
23%
77%
23%
77%
76%
2020
668
2021
559
564
Male Female
Diversity of employees, 2021,
by gender
Male Female
Senior Management 7 2
Department heads 23 8
Employees 401 118
Total 431 128
BREAKDOWN OF EMPLOYEES
ANDTOPMANAGEMENT BY AGE,
31DECEMBER 2021 (%)
LTI cases TRI cases
25
0
2018 2019 2020 2021
10
5
15
20
216
665
5%
5%
43%
30%
17%
<30 30–39 40–49
50–59 60+
The Board recognises the importance of
continued improvement in this area and
is committed to giving due regard to
the benefits of diversity in our future
appointments, including ensuring Kazakh
nationals are properly represented at senior
levels of the Company. Currently 26% of
employees at department head level
are female (2020: 24%). Our Senior
Management Team includes 22% of
females (2020: 0%). In 2021, two women
joined the Senior Management Team as
opposed to the 2020 year end when no
females were in the Senior management
team. The Company also pays particular
attention to diversity in terms of
nationalities. Although there have been
changes in the team, we have been able to
maintain diversity by having six different
nationalities within our team. The Senior
Management Team includes three Kazakh
nationals out of the nine members.
40 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Our Human Resources department is
working towards a policy of promotion from
within and building a pipeline of diverse
employees at all levels of the business.
In this regard, in 2021, 12.90% of Group
recruitment was female while in 2020 only
7% of Group recruitment was female.
There were no recorded discrimination
incidents raised by any of the Group’s
employees in 2021.
In 2021, six employees took parental leave
and three employees returned from
parental leave, all female.
Employee relations and social
guarantees
Nostrum prides itself on being an integral
community partner and is one of the largest
employers in western Kazakhstan, with 99%
of Group employees engaged locally and
91% RoK nationals. At 31 December 2021,
Nostrum had a total of 559 staff from 16
countries, broken down by gender as
follows (data by age group was not
recorded):
• Uralsk: 422 males, 124 females.
• Nur-Sultan: 1 female.
• London: 3 males, 1 female.
• Brussels: 4 males, 1 female.
• Amsterdam: 1 male.
• Almaty: 1 male, 1 female.
We offer all staff members competitive
benefits and remuneration packages in
compliance with all regulatory bodies,
guidelines and requirements, which (to the
extent applicable) are also applied to those
hired as temporary or part-time employees.
In 2021 locally engaged employees had
their salary in tenge increased by 7.5% in
accordance with the Company's annual
wage indexation policy.
In an effort to promote gender equality,
we continued to monitor gender pay
discrepancies. In 2021, the average
employee salary in Kazakhstan was 7%
higher for males and the median employee
salary in Kazakhstan was 3% higher for
males. In 2022 we will continue to address
the issue of any gender pay discrepancy
by having a calculation methodology
determined and agreed with the Board in
the first half of the year followed up by
defined targets and activities to address
any inequalities discovered.
Education and training
We believe investing in our people is key to
economic self-empowerment in the
communities in which we operate. Under
the terms of the PSA, we are required to
accrue 1% of our annual Chinarevskoye
field development costs to be spent on
education and training.
In 2021, 446 employees benefited from
education and training programmes (2020:
537 employees). Our total Group training
costs in 2021 were US$0.5 million (2020:
US$0.9 million) and the total number of
training days in 2021 was 5,026 days (2020:
7,214 days). The reduced training in 2021
relative to 2020 was due to reduced
training budget in line with the PSA.
In 2021, Nostrum supported numerous
educational programs, including gas
processing and product quality
improvement, intercasing pressure
management, well completion and
workover and other engineering and
geology topics.
Training was undertaken by operational
teams, department heads, specialist
engineers and other technicians at different
levels across the organisation.
HSE training (including fire safety) is carried
out at least annually in accordance with our
operating practices and as required by
the PSA.
Hiring and staff turnover
In 2021, 36 employees were released or
resigned, and their positions not filled
(2020: 118 employees). This was the main
cause of staff turnover. The number and
percentage of new employees hired in
2021 was 31 or 5.5% (of which 4 were
female and 27 were male).
Workforce representation
In 2018, the Company put collective
agreements in place to provide for
workforce representation. Sir Christopher
Codrington was designated to serve as the
Board’s liaison for engagement with the
workforce. Due to COVID-19 restrictions,
no meetings between Sir Christopher and
the workforce took place in 2020 and 2021,
although a mechanism for feedback from
the workforce has been maintained.
The Board of Directors strives to adopt
best practices in corporate governance,
including engagement with the Group’s
workforce. In particular, the Board wishes
to understand the views of the Group’s
workforce and to take such views into
consideration in Board discussions and
decision-making. Communication between
the workforce and the Board is often
referred to as the “employee voice”, and it is
hoped that a wide selection of views from
the workforce can be gathered through a
range of formal and informal channels.
Such channels are intended to help the
workforce share ideas and concerns with
senior management and the Board. This
communication provides useful feedback
about business practices from those
delivering them and can help empower
colleagues. The Board encourages
individuals to raise any concerns they may
have. Doing so acts as an early warning
system for actual or potential problems and
helps to manage risk. The Board actively
listens to workforce concerns and
subsequently provides feedback on how
the matter raised has been considered,
including any action taken. The Board
emphasised that the workforce should feel
safe to raise concerns.
There is no requirement under applicable
laws for the Group to notify its employees
of significant changes relating to its
activities.
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 41
Sustainability review continued
Nostrum Code of Conduct
Nostrum is committed to maintaining a
Group-wide culture that recognises
international standards of human rights.
Human Rights Policy
Throughout 2021, the Company had a
Human Rights Policy which reflects the
desire to comply with industry best
practice.
The Human Rights Policy is in addition to
the Nostrum Code of Conduct (the Code),
which defines the principles that guide
business conduct and provides a non-
exhaustive outline of what Nostrum
considers permissible conduct by its
employees. These principles include
provisions relating to human rights and
diversity in the workplace, insider dealing
and insider information.
A copy of the Code is available on the
Group’s website in both Russian and
English and can be downloaded from our
website: www.nostrumoilandgas.com.
Modern Slavery Act Statement
There are no divisions of the Group (or its
vendors) believed to have significant risk
of child/forced labour/hazardous work
performance by young employees.
Under the Group’s standard supply
contracts, the Group is entitled to require
suppliers to demonstrate compliance
with the Code and to hold its suppliers
responsible for compliance by their
supply chain with equivalent terms.
A copy of our Modern Slavery and
Transparency Statement is available on our
website: www.nostrumoilandgas.com.
Whistleblowing Policy
We have a Whistleblowing Policy which
takes into account the Whistleblowing
Arrangements Code of Practice issued by
the British Standards Institute and Public
Concern at Work, and which applies to all
individuals working for the Group at all
levels and grades.
The Whistleblowing Policy sets out details
of two compliance liaison officers who
speak a variety of languages for the
purposes of reporting any concerns. The
Whistleblowing Policy is also mentioned in
the Code, and a person who reports any
matter in good faith will be protected
against any sanctions. More information
on this matter is provided on page 89.
A copy of the Whistleblowing Policy is
available in both Russian and English and
on the Company’s website. At the time of
writing, we have received no reports under
our Whistleblowing Policy of forced/
involuntary labour or human trafficking in
relation to our business or supply chains.
For further details, please see our website:
www.nostrumoilandgas.com.
Diversity Action Plan
The Company aims to establish KPIs for HR
on improving diversity at all levels. In terms
of diversity statistics, we would like to stand
out by improving female representation at
all levels. At the end of 2021, the Group was
represented by 77% male and 23% female
employees (2020: 77% male and 23%
female employees). As mentioned above,
in 2021, two women joined the Senior
Management Team as opposed to 2020
year end when no females were in the
Senior Management Team. We are
targeting to further increase female
representation at the senior management
and at the department head level. We
encourage female job promotions in case
of equal competences and capacities. More
rapid progress is hampered by the lack of
qualified female candidates willing to work
in the field, where most of our jobs are
situated, or on a rotational shift basis.
The improvement initiatives are the
following:
• Establish gender diversity as a strategic
business focus;
• Consult experts to build diversity
programmes;
• Conduct a gender audit that evaluates
how gender equality is incorporated into
policies, procedures, budgets, etc;
• Identify an internal pool of female talent.
This has already started with our
succession planning identification
programme;
• Continuing to provide equal
opportunities for men and women;
• Conclude gender pay gap analysis;
• Encourage work-life balance for female
employees, including flexible work
schedules in jobs and locations where
they can be accommodated; personal
leave days; maternity retention;
• Create and implement work-life policies
that make the Company more
accommodating for women; and
• Determine mentoring and coaching for
female employees with potential for
career development.
In our resolutions for 2022, the Company
places particular emphasis on diversity and
inclusion. It is a priority for us to lead this
project both by working on the strategy
that the management will adopt, making
equity, diversity and inclusion the
responsibility of all leaders and managers
and committing our Senior Management
Team to zero tolerance of harassment and
bullying. We are also establishing key steps
to take in communication throughout the
organisation to ensure alignment amongst
all our people. Each individual in the
Company will be required to be aware of
and sensitive to ensuring we continue to
have an inclusive and diverse workplace.
Labour practices
There were two complaints filed against the
Group for violation of labour practices in
2021. One case was settled amicably. The
court found against the Group in the other
case and the Group is appealing. The
details of the complaints system existing in
the Group are set out on pages 32 – 33
and 42.
Our people continued
42 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Social responsibility
Firms that embrace social
responsibility are organised in
amanner that empowers them
to be and act in a positive and
socially responsible way.
Nostrum is a proud community
partner and strives to foster
aculture of the highest social
responsibility promoting
environmental cleanliness,
highethical standards,
philanthropy and economic civic
responsibility. We are pleased
that we were able to contribute
towards these objectives to
promote the wellbeing of local
residents and the communities
we operate in.
Philanthropy: 2021 key initiatives
Throughout 2021, the Company actively
interacted with the local community.
Sponsorship and charitable assistance was
provided to various public associations and
local communities, including:
• Partial financing of the repair of
secondary schools in settlements near
to the infrastructure of Zhaikmunai;
• Financing of socially significant events on
the territories of the Company’s activities;
• Sponsoring the participation of talented
children in Republican sports
competition;
• Purchase of school supplies for children
from low-income families through the
nationwide charity event “Road to
School”;
• Purchase of New Year gifts for children
from low-income families;
• Support to the local hospital through
purchasing wheelchairs;
• Assistance in providing residential mobile
wagons to the Border Service of the
Republic of Kazakhstan;
• Assistance to local community
representatives in the organisation
of environmental studies of areas
surrounding the Chinarevskoye field.
In addition, Nostrum provides support on
an as-needed basis, such as lending special
machinery in emergency situations in rural
districts on occasions of extreme snow or
infrastructure accidents and providing
transport for rural children to participate
in excursions to historical places within
the region.
Civil duty: Payment to governments
Nostrum is committed to transparency
initsbusiness activities and payments to
governments. We have a formal public
relations and government relations
procedure which regulates our relationships
with the local community and with
government, and details how and why we
engage with various stakeholder groups.
In 2021, a total of US$12.65 million was
paidto governments by Nostrum and its
subsidiary undertakings. We will report on
2022 payments to governments in the first
half of 2023. For more details, please see
the Governance page of our website.
Nostrum takes this civic responsibility
seriously with the knowledge that paying
the right amount of taxes is directly linked
to local economic development and the
ability of local government to support its
residents.
Economic responsibility:
Spend with local suppliers
We are committed to partnering with local
companies and in 2021 we spent 64.3%
(in2020, 73%) of our supplier budget with
Kazakh national suppliers.
Environmentally friendly:
Liquidation fund contribution
Under the terms of the Chinarevskoye PSA,
Nostrum must accumulate a cash reserve of
liquidation funds by the end of the PSA
totalling US$12.0 million to eliminate
the consequences of our operating
activities, namely the conservation of the
environment, the liquidation of drilled wells
and the elimination of other facilities. These
projects will be subject to confirmatory
approval by the Nostrum, the local
community, and government. At the end of
2021, US$7.8 million was held on restricted
cash accounts in respect of the liquidation
fund deposits for Chinarevskoye (2020:
US$7.7 million, which included liquidation
fund deposits for Chinarevskoye and a
deposit for the subsoil use agreement
forRostoshinskoye).
High ethical standards: Anti-
Corruption and Bribery Policy
For more information on the Group’s
Anti-Corruption and Bribery Policy, please
see pages 32 – 33 and 89.
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 43
Sustainability review continued
Non-financial information statement
This section of the strategic report constitutes the Company’s Non-Financial Information Statement, produced to comply with sections
414CA and 414CB of the Companies Act. The information is incorporated by cross reference.
Reporting requirements Policies and standards which govern our approach
Information necessary to understand our business and
its impact, policy due diligence and outcomes
Environmental matters
Annual environmental objectives Environment, pages 45 – 50
Liquidation fund contribution Communities and social review, pages 43 – 44
Employees
Group Code of Conduct and Human Rights Our people, pages 40 – 42
Whistleblowing policy Health and safety, pages 35 – 39
Health and Safety policy Total Recordable Injury Frequency, page 35
Respect for human rights
Modern Slavery Statement Our people, pages 40 – 42
Equality and Diversity Policy
Social matters
Sponsorship of community events Communities and social review, pages 43 – 44
Anti-corruption and anti-bribery
Anti-corruption and bribery policy Communities and social review, pages 43 – 44
Anti-facilitation of tax evasion policy Our Governance Framework, pages 86 – 89
Payments to governments
Description of principal risks
andimpact of business activity
Principal risks and uncertainties, pages 62 – 66
Performance review, pages 16 – 23
Description of the business model
Business model, pages 10 – 11
Non-financial key performance
indicators
Key performance indicators, pages 24 – 25
Our strategic priorities, pages 30 – 31
Social responsibility continued
44 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Nostrum recognises its impact
on the environment and is
committed to a transition that
results in a cleaner energy mix.
We are focused on being a
responsible operator whose
activities are structured and
conducted in a manner that
minimises any adverse impacts
on the environments in which we
work. We abide by RoK
regulatory requirements which
are modelled on international
environmental protection
standards and are actively
working on GHG emission
reduction initiatives. There were
no fines or other sanctions
against the Group as regards
non-compliance with
environmental requirements
in2021.
Climate change
The nature of our business as a producer
contributes to GHG emissions and we
recognise that we must work to responsibly
minimise impact on the climate. Reducing
emissions is a corporate goal of top
importance.
Nostrum recognises that hydrocarbon
exploration and production is a major
contributor to GHG emissions and,
consequently, we have a responsibility to
work to address climate change. One of our
key corporate social responsibility goals in
2021 was to minimise the impact of our
operations on climate change. This remains
a key goal for Nostrum.
Most of our emissions are generated as a
result of combustion of fuel gas within gas
turbine units, boilers, process heaters and
compressors. There are additional
emissions resulting from flaring which
happens when there is absolutely no other
alternative. Our levels of emissions are
decreasing year-on-year and can be viewed
in the chart below. These are currently
monitored on behalf of the Board by the
Health, Safety, Environment and
Communities Committee.
Current and future technological
investment is necessary for Nostrum to
continue to detect, monitor and prevent
excessive GHG emissions. The Company
has the following technology in place to
proactively monitor, limit and reduce its
GHG emissions:
• 397 methane detectors to monitor
equipment maintenance and pressure
valve replacement exercises;
• Mobile methane detectors in gas
flowlines;
• Automated Reporting System (ARS)
which integrates the above monitors and
provides real-time information to
Management;
• Vapour Recovery Systems (VRS) installed
in oil and condensate tanks to inhibit
hydrocarbon evaporation during storage
and transfer;
• Hydrocarbon Recovery System (HCRS)
installed in LPG loading terminal to
prevent hydrocarbon ‘bleeding’ into the
atmosphere;
• 26 MW power station generates
electricity for use in the field and
therefore limits use of diesel-powered
heaters;
• Well stock has local skids that will
automatically shut-in the well bore to
prevent full blowdown of the surface lines
and resultant GHG emitting;
The Company is also appraising and
investing in the following technologies to
assist in the reduction and detection of
GHG emissions:
• Fuel gas flowmeters to allow
quantification of CO
2
emissions;
• Upgrade of water treatment system to
mitigate methane and other light
hydrocarbon vapour being released;
• GHG emission quantification tools that
give a holistic view of the entire
hydrocarbon value chain as well as
forecasting capabilities.
The technology for GHG detection and
quantification is constantly evolving,
however the Company continues to explore
key technologies that will assist with the
objective of GHG emissions reduction.
Nostrum structures its activities to ensure
compliance with the emissions limits that
are established in the Environmental
Emissions Permit issued by Kazakhstan and
apply internal stretch targets that are much
more stringent than those approved by the
authorities.
When applying for an Environmental
Emissions Permit, draft norms of maximum
permissible emissions are calculated and
take into consideration the last 2-3 years of
historical data.
Environment
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 45
Sustainability review continued
The Health, Safety, Environment and
Communities Committee is responsible for
ensuring that Nostrum complies fully with
Listing Rule 14.3.27R and Listing Rule
9.8.6R(8) in this annual report. In addition,
the Committee is also responsible for the
governance, strategies, risk assessment,
management systems and KPIs that have
been established for climate change and
GHG emissions.
GHG emissions reporting
approach
Nostrum seeks to minimise all GHG
emissions and continues to invest in new
technologies to improve GHG emissions
performance. Nostrum strictly adheres to
both UK and Kazakhstan regulatory
requirements with regard to GHG
emissions and has been monitoring and
reporting GHG emissions since 2011. In
2021, we participated for the third time in
the CDP disclosure process demonstrating
our commitment to improvement and
transparency in this area.
In the first half of 2022, Nostrum will expand
on its ARS by including approximately 700
“tags” in the process calculations, allowing
real time readout of data directly related to
process related GHG emissions. By the
second quarter of 2022, data will be added
on a daily basis to the non-processing
related GHG emissions, reconciled and
reported. In addition, Nostrum will install
one external GHG emission measuring unit
near the main gas turbine unit. This unit will
be used to calibrate the ARS calculations.
As a dual-listed entity, Nostrum adheres
to both UK and Kazakhstan reporting
requirements. The Company’s GHG
reporting period is aligned with the
period in respect of which the Directors’
Report is prepared.
According to the 2021 Kazakhstan National
GHG allocation Plan, 212,998 tonnes of CO
2
were allocated to Nostrum. Our actual CO
2
emissions in 2021 were 180,922 tonnes
and our actual GHG emissions in CO
2
equivalent were 187,479 tonnes, which
include three other gas types as provided
in Table 1 on page 49.
A new national GHG allocation Plan for
2022-2025 is presently under approval by
the RoK. More detailed information on
GHG emissions in 2021 are presented
onpages 48 – 50.
GHG EMISSIONS FOR
SCOPE1&SCOPE2 (TCO
2
E)
300,000
200,000
100,000
0
201920182017
254,972
2020
254,715
223,305
2021
187,479
187,667
Scope 1 & Scope 2 emissions, tCO
2
e
Future GHG reduction initiatives
Nostrum is committed to minimising flaring
activity and flares only in accordance with
the terms of Kazakhstan Ministry of Energy
gas flaring permits. Timely maintenance
work conducted at our gas treatment
facilities has been shown to reduce the
risks of emergency or technical flaring,
and the implementation of a gas utilisation
programme has led to a decrease in gas
flaring. A small increase in gas flaring in
2021 relative to 2020 was due to the greater
scope of planned maintenance in 2021
relative to 2020.
In recent years, the Company has
implemented a number of projects which
have had a continuous GHG reduction
effect, such as:
• Well automation flaring prevention on
three wells during processing – 1,983.61
tCO
2
/year;
• Electric driven LPS compressor instead
offuel gas driven – 1,697.76 tCO
2
/year;
• Waste Heat Recovery project at GTU-3
with an annual GHG reduction of 2,072
tonnes of CO
2
.
In order to further reduce GHG emissions,
the transportation of personnel working at
production facilities is via buses rather than
the use of personal vehicles.
In line with the RoK President’s message
about widespread greening of the country
(planting of 2 billion trees in the forest
fundand 5 million trees in villages)
andtoimplement the Nostrum’s
2021 Environmental Protection Plan
approximately 230 trees were planted
inOctober 2021 close to Nostrum’s oil
terminal near Beles village.
Environment continued
Petroleum hydrocarbons
(C2-C19)
Nitrogen oxides (Nox)
Dust, suspended solids,
particulate matter (PM)
Metals and inorganic
compounds (Metals)
Volatile organic
compounds (VOCs)
Permitted
Hydrogen sulphide (H2S)
Sulphur dioxide (SO2) Acids and other organic
chemicals (Organics)
Carbon monoxide (CO) Methane (CH4)
4,234
11,102
7,9 28
5,568
4,3 05 6,609
2021
2020
2019
AIR EMISSIONS ACTUAL/PERMITTED (TONNES)
46 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
This green initiative will continue over the
next few years near Beles. Nostrum is also
considering various additional GHG
reduction initiatives for 2022 and
future years.
Climate disclosures
In 2021, our main environmental objectives
included participation in the CDP (formerly
Carbon Disclosure Project), which is a key
medium for companies to disclose
their environmental impact and risk
management, as well as continue to focus
on greenhouse gas (GHG) emission
reduction strategies. Nostrum made
submissions under the Climate Change
andfor the first time ever under the Water
Security modules of CDP in 2021.
Our Climate Change response was
independently assessed and Nostrum
received a “C” grade for the third
consecutive year. This score evidences
thatthe policies and procedures we have
developed over recent years are positioning
the Company to deal with the issue of
climate change now and into the future.
We will continue to engage with the CDP
initiative to maintain an open dialogue,
both internally and externally, on this
important issue.
An ambitious KPI target of “B” has been set
for 2022 for the Climate Change module
and Nostrum management will be
reporting to the Committee on their
actions and progress towards obtaining
this improved grade.
The Group also made its inaugural Water
Security CDP submission in 2021 and
received a "no score" to indicate the
Company has made an inaugural
submission. Our first official scoring will
bemade in 2022, at which point we intend
to engage with CDP to identify reporting
improvements.
Waste, water and soil
management
The impact of Nostrum’s operational
activities on the environment are monitored
through detailed waste, water and soil
management systems. The Group
undertakes air, soil and sub-surface
watertesting to ensure sanitary and
epidemiological compliance with
Kazakh legislation.
Waste management
Waste management includes the daily
control of sites for temporary storage
ofproduction and consumption waste,
accounting, transportation and transfer
toathird-party contractor.
All generated waste is transferred under
acontract to the following third-party
specialised organisations:
• West Dala LLP
• Help Ecoil LLP
• TuranPromResurs LLP
• Trans-Ecology IE
In 2021, the volume of waste generated
atthe Company’s facilities totalled 2,876
tonnes, consisting of 40 different types of
industrial (used filters, cartridges, medical
wastes, batteries, etc.) and domestic waste
(plastic bottles, used paper), 93.8% of
which was transferred for processing by the
abovementioned contracted companies.
Drilling waste was processed in the Field
byHelp Ecoil. Soil and water survey results
demonstrated compliance with all
applicable environmental legislation.
Year 2019 2020 2021
Waste generated,
tonnes 21,855 2,151 2,876
Transferred for
processing, tonnes 15,059 1,496 2,699
Transferred for
processing, % 68.9% 69.5% 93.8%
Water management
We operate in a region with scarce water
resources and recognise that availability
offresh water is valuable. Therefore, it is a
priority for us to efficiently manage water
consumption and we endeavour to
implement the most efficient water
management methods in order to handle
fresh water in a rational and sustainable way.
Nostrum’s water injection requirements are
up to 1,200 m
3
per day (average injection
approximately 900 m
3
per day), of which
500-650 m
3
per day are injected from the
formation water production. The deficit is
compensated through production from
water ground wells. None of these water
wells competes with fresh water supply to
nearby communities. Five out of seven
injectors are currently in operation with one
disposal well used as a backup. The current
system has sufficient capacity and flexibility
to handle forecasted water injection
volumes. The Company has initiated a
series of measures to improve formation
water treatment and injection processes.
These measures include focusing its
resources on process improvement in the
treatment of water usedin upstream
operations which will leadto combating
corrosion, reducing oil contamination,
reducing growth of sulfate, reducing
bacteria and the formation of inorganic
scale. A full review was initiated in 2021
on process effectiveness and chemical
efficiencies and mitigating actions taken.
The deliverable of this review is to ensure
compliance with Kazakhstan’s environmental
regulations and has the additional benefit
ofreducing water treatment costs.
Gas Flaring Gas Utilisation
150
100
50
0
2018
21.2
2019
130.5
17.7
81.3
11.7
77.6
15.3
74.0
2020
2021
Trend (Gas Utilisation)
GAS UTILISATION AND FLARING IN 2018-2021
(MCM)
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 47
Sustainability review continued
Currently, efforts are being undertaken to
optimise existing water treatment and
injection capacities (at no/minor additional
cost) as part of Phase 1 and include:
• Assessment of water quality
• Modification of injection points of
applied chemicals
• Introduction of a second water storage
tank with a capacity of 1,000 m
3
at the Oil
Treatment Unit
• Work with vendors of oilfield chemicals to
select less harmful chemicals for oil and
water treatment. Lab tests are currently in
progress to be followed by field trials in
February-March 2022.
Based on the results of Phase 1, the Phase 2
scope will be defined.
Wastewater discharges
To prevent the negative impact of wastewater on the environment, we process wastewater using special artificial reservoirs such as
evaporation ponds, filtration fields and a landfill for formation water and industrial wastewater.
We have the following artificial ponds:
• Evaporation ponds GTP-1,2,3 “conditionally clean” storm wastewater;
• Polygon for formation water and industrial wastewater disposal;
• Filtration fields, domestic wastewater after treatment at the liquid mud plant.
Disposal of Domestic and Sanitary Wastewater in 2019-2021
Disposal indices
2019 2020 2021
Permitted Actual Permitted Actual Permitted Actual
Disposed Sanitary Wastewater, m
3
85,775 48,830 85,775 25,090 85,775 26,188
Discharges to ponds evaporators, m
3
GTU-1,2,3 16,074 16,074 84,810 21,398 84,810 22,338
Drilling wastewater and associated water, m
3
46,132 14,603 45,900 1,740 45,900 4,573
For more detailed information, please visit our website at www.nostrumoilandgas.com.
Energy and resource efficiency policy and methane emissions management policy
We are developing our policies on energy use and improving efficiency and methane emissions management. These policies will be
finalised and issued in 2022.
GHG emission results
The baseline in the GHG emissions allocation plan was set as the mean value of total emissions for the years 2017-2019 (in carbon dioxide
emissions equivalent). According to the established limit, GHG emissions for 2021 should not exceed the baseline. Direct GHG emissions
(Scope 1) sources are flares, heaters, incinerators, boilers, gas turbine plants, electric power stations and compressors.
Total direct GHG emissions (Scope 1) subdivided by gas types and by sources are summarised below in Tables 1 and 2.
No further ecological data is available for publication. Consequently, additional disclosures in relation to materials used, products and
services, waste management, water consumption, energy consumption and energy efficiency, emergency and intermittent pollution
episodes, wastewater discharges, atmospheric emissions of greenhouse gases and other pollutants, environmental protection and
biodiversity are not possible. There were no fines or other sanctions against the Group as regards non-compliance with environmental
requirements in 2021.
Environment continued
1,600
1,200
800
400
0
2010 2011 2012 2013 2014 2015
2016 2017
2018
2019
2020
2021
AvgWatProd m
3
/d AvgWatInj m
3
/d
FORMATION WATER PRODUCTION AND AVERAGE DAILY WATER PROFILE
(MCM)
48 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Table 1: Scope 1 GHG emissions subdivided by gas type (tCO2e)
2015 2016 2017 2018 2019 2020 2021
Carbon dioxide 208,466 195,453 242,276 244,379 213,520 180,527 180,922
Methane 13,920 10,817 10,723 8,436 8,429 6,133 5,614
Nitrous oxide 126 1,046 1,305 1,304 1,034 917 903
Hydrofluorocarbons 34 345 28 37 24 28 28
Total 222,546 207, 350 254,332 254,156 223,008 187, 598 187,467
A breakdown of GHG emissions by gas type is shown in Table 1. The GHG emissions predominantly consisted of carbon dioxide and
methane. Scope 1 emissions are generated directly by equipment owned and operated by the Group. The equipment includes boilers,
heaters, diesel stations, gas turbine units and compressors. Scope 1 emissions also include flaring and hydrofluorocarbons emitted by
refrigeration units and climate control systems, such as air conditioners.
Table 2: Scope 1 GHG emissions subdivided by source types (tCO2e)
2015 2016 2017 2018 2019 2020 2021
Stationary combustion 205,702 195,576 243,001 245,362 214,536 181,403 181,765
Mobile combustion 1,498 758 435 105 89 66 86
Fugitive sources 15,346 11,016 10,896 8,536 8,359 6,130 5,616
Total 222,546 207, 350 254,332 254,003 223,008 187,599 187,467
Stationary combustion sources formed the majority of emitted GHGs.
Indirect GHG emissions (Scope 2)
Nostrum does not use purchased steam, heating or cooling. Electrical power is the only purchased power related to indirect GHG
emissions and it is supplied to Nostrum facilities via the Zelenovskaya distribution network (ZapKazREK JSC), through its subsidiary
Batys Energoresursy LLC. The regional emission factor (0.27086 tCO
2
/MWh) was calculated using Methodological Guidelines for the
Calculation of GHG Emissions from Electrical Power Stations and Boiler Houses (Astana, 2010) and the regional net thermal efficiency
of Urals Natural Gas Fired Power Plants (73.3%).
Total direct and indirect GHG emissions (Scope 1 and Scope 2) and total GHG emissions are summarised in Table 3.
Table 3: Scope 1, Scope 2 and total GHG emissions (tCO2e)
2015 2016 2017 2018 2019 2020 2021
Direct energy (Scope 1) 222,546 207,350 254,332 254,156 223,008 187,599 187,467
Indirect energy (Scope 2) 5,482 2,263 640 559 297 68 12
Total 228,029 209,613 254,972 254,715 223,305 187,667 187, 479
Emissions intensity ratio
Tonnes of CO
2
per tonne of output is a recommended intensity ratio for the oil and gas sector, as per Appendix F of the UK Government’s
Defra Environmental Reporting Guidelines (2013). Taking into account the variety of products of Nostrum – crude oil, stabilised
condensate, LPG and dry gas – the chosen intensity ratio is expressed in metric tonnes of CO
2
e (mtCO
2
e) per tonne of oil equivalent
(mmboe).
Table 4 shows intensity ratios for total (Scope 1 and Scope 2) emissions in the period 2015-2021.
Table 4: Emissions intensity ratios for total GHG emissions
2015 2016 2017 2018 2019 2020 2021
Production, tonnes of oil equivalent
(toe) 2,152,421 2,156,171 2,088,917 1,878,026 1,520,928 1,186,383 907,648
tCO
2
/toe 0.106 0.097 0.122 0.136 0.1 0.2 0.2
Production, mmboe 14.7 14.8 14.3 12.9 10.0 8.1 6.2
tCO
2
/mmboe 15,467 14,193 17,820 19,801 21,434 23,094.8 30,157
2018 2019 2020 2021
Gross emissions of air pollutants into atmosphere 0.0037 0.0037 0.0035 0.0048
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 49
Sustainability review continued
Table 5: Global GHG emissions and energy use data
Current reporting year 2021 Comparison reporting year 2020
UK and offshore
1
Global (excluding UK
and offshore) UK and offshore
1
Global (excluding UK
and offshore)
Emissions from activities which the Company
owns or controls, including combustion of
fuel & operation of facilities (Scope 1) tCO
2
e No data collection 187,467.0 No data collection 187,598 .6
Emissions from purchase of electricity, heat,
steam and cooling purchased for own use
(Scope 2, location-based) tCO
2
e No data collection 12.2 No data collection 68.0
Total gross Scope 1 + Scope 2 emissions
tCO
2
e No data collection 187,479.3 No data collection 187,666.6
Energy consumption used to calculate
Scope 1 emissions: kWh
No data collection No data collection No data collection No data collection
Energy consumption used to calculate
Scope 2 emissions: kWh
No data collection No data collection No data collection No data collection
Total energy consumption used to calculate
Scope 1 and Scope 2 emissions: kWh No data collection 377,064,532.4 No data collection 377,270,6 41.4
Intensity ratio: tCO
2
e (gross Scope 1 + 2)/
mmboe No data collection 30,157.0 No data collection 23,094.8
Methodology No data collection
Kazakhstan methodical
guidelines. KwH calculated
based on 1.36E+15 J own
generated energy plus
purchased electricity.
No data collection
Kazakhstan methodical
guidelines. KwH calculated
based on 1.36E+15 J own
generated energy plus
purchased electricity.
Principal measures taken for the purpose of
increasing the Company’s energy efficiency.
None None None
Nostrum replaced oil
heaters with heaters
powered by gas; installed
devices at well-sites to
automatically close the
wells in the case of
shutdown, preventing
blowdown by flaring; and
installed measuring devices
in flowlines and other
devices allowing for future
optimisation. Following an
energy efficiency audit,
Nostrum replaced
115fluorescent lamps
withLED lamps.
1. In Belgium, the Netherlands and the UK, the Group rents serviced office space but the owner does not collect the data required to be reported.
Environment continued
50 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Taskforce on Climate-related Financial Disclosure (TCFD)
Taskforce on Climate-related
FinancialDisclosure (TCFD)
This is the inaugural TCFD
disclosure made by the
Company, and we intend
tobuild onthe disclosures
in future years as well as
respond to evolving TCFD
guidance. In this section,
Nostrum reports on a
‘comply orexplain’
basis against TCFD
Recommendations and
Recommended Disclosures
for the year ended
31December 2021.
Below, we provide our disclosures against
each TCFD Recommendation and
Recommended Disclosure – noting where
the Company is in full or partial compliance
or where further work is planned to be
undertaken in 2022 soasto be fully
compliant in next year’s Annual Report
& Accounts.
The Company believes the disclosures
below are compliant with all TCFD
Recommendations and Recommended
Disclosures and therefore are compliant
with Listing Rule 9.8.6R.
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 51
Taskforce on Climate-related Financial Disclosure (TCFD) continued
Governance
TCFD recommendation:
Disclose the organisation’s
governance around climate
related risks and
opportunities.
a) Describe the board’s oversight
of climate-related risks and
opportunities, and
b) Describe management’s role in
assessing and managing climate-
related risks and opportunities.
Read more about our governance
on pages 86 – 89.
The board and its associated committees,
including the HSEC, Audit and Nomination
and Governance Committees, where
appropriate, have oversight of climate-
related matters, which include climate risks
and opportunities. Material issues and
principal risks, including climate change
indicators, are reviewed on a regular basis.
Nostrum has a Board-level HSEC
Committee which meets at least quarterly.
Emerging risks are flagged by the HSEC
Committee to the Board or by the Board to
the Committee/CEO for transmission to
line management. Annual KPIs relating to
climate change and emissions targets are
approved by the Board and progress
against those KPIs monitored. The
Company has set for 2022 the following
climate-related KPIs: improvement across
ESG assessment score and reducing GHG
emissions. Any significant capex or
operating expenditure is assessed for its
climate related impact.
The Chief Operating Officer and Chief
Financial Officer have standing invitations
to attend the HSEC Committee meetings.
The HSEC Committee assists the Board in
ensuring that appropriate policies and
management systems are in place and,
provides a deep-dive in HSEC areas
(including climate change) as required
by the Board. The Committee also:
• Monitors progress against goals and
implementation of climate change
initiatives;
• Identifies any emerging issues and agrees
proposed remedial actions;
• Ensures adequate capital spend on
climate change areas such as waste and
water management and emission and air
quality monitoring and measurement
systems;
• Assesses preparedness and ensures
focus in respect of statutory reporting
requirements and changing legislative
environments in the UK, Kazakhstan and
internationally, and
• Ensures that emerging climate change
risks are identified and properly
evaluated.
The Group Head of QHSE is responsible for
the day-to-day management of HSE matters
including climate change related risks.
The Chief Operating Officer is responsible
for day-to-day operations, including
identification and evaluation of climate
related risks and opportunities. Both the
Chief Operating Officer and Group Head of
QHSE report directly to the CEO. The CEO
reports to each Board meeting (currently at
least eight per annum) on HSEC matters
including performance against climate
change related KPIs.
In addition to HSEC Committee meetings
which are held at least four times per year,
the CEO, Chief Operating Officer and
Group Head of QHSE together with
appropriate operational staff meet at least
four times a year in the Senior Management
HSE Group (the ‘HSE Group’). The HSE
Group monitors all HSE matters including
those relating to climate change,
monitoring and reducing emissions,
progress against KPIs, water and waste
management, compliance with Kazakh
statutory emissions, climate related impact
of any significant capex or operating
expenditure and identifying and agreeing
a course of action on climate related
initiatives, including energy reduction/
transition, emission management and
prevention of unnecessary flaring. The HSE
Group also assesses preparedness and
ensures focus in respect of statutory
reporting requirements such as TCFD
and changing legislative environments
and investor requirements in the UK,
Kazakhstan and internationally. Climate
related matters discussed at the HSE Group
drive climate related KPIs proposed by
management to the Board.
52 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Climate Change Organisational Structure
Audit
Committee
Nomination &
Governance
Committee
Remuneration
Committee
Health, Safety,
Environment and
Communities
Committee
Group Head of Quality,
Health, Safety &
Environment department
Board of Directors of
Nostrum Oil & Gas
Chief Executive
Officer
Senior
Management
Functional
leaders & staff
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 53
Taskforce on Climate-related Financial Disclosure (TCFD) continued
Strategy
TCFD recommendation:
Disclose the actual and
potential impacts of
climate-related risks and
opportunities on the
organisation’s businesses,
strategy, and financial
planning where such
information is material.
a) Describe the climate-related
risks and opportunities the
organisation has identified over
the short, medium, and long term.
Read more about our strategy
on pages 30 – 31.
The table below outlines the principal
climate-related risks (transition and
physical) and opportunities identified as
relevant to Nostrum. These risks and
opportunities have been categorised into
the short, medium, and long term. Short,
medium and long-term horizons are
defined below the table, and we provide
explanations for our risk assessments.
Transition Risks
Short
term
Medium
term
Long
term
Policy
andLegal
• Regulatory and statutory reporting obligations
by the Republic of Kazakhstan leading to higher
compliance costs.
• Global and regional litigation relating to climate
change that lead to present or future financial
obligations for the Group. These include, but
not limited to, imposition of carbon taxation,
fines for flaring or more punitive mineral
extraction State taxation.
• Policy changes that potentially lead to early asset
retirement. Such policy changes may include
Kazakhstan committing to net zero emissions
targets which will put pressure on E&Ps to cease
operations. Further changes include carbon
pricing which may make operations commercially
unviable and fast-track the retirement of our assets.
Technology
• New capital investments that reduce emissions
may lead to reallocation of internal funds for
investment purposes. Capital may be dedicated
to non-value accretive ventures and there may
be ongoing costs associated to adopting the
technology.
Market
• Changing global demand for products may
result in lower demand for Nostrum’s product
base and decrease in revenues.
• Hydrocarbon market prices across all Nostrum’s
products (Brent crude oil, stabilised condensate,
LPG, dry gas).
• Increased cost of raw materials due to climate-
related supply disruptions.
Reputation
• Increased stakeholder concerns may result in
key stakeholders becoming disengaged with
the investment story.
• Changing perception of climate change may
result in an inability for Nostrum to access to
capital markets for future growth opportunities.
Physical Risks
Acute
• Severe weather events such as floods from
localrivers that lead to disruption in our field
production and sales to final off-taker customers.
Chronic
• Severe weather events such as increased snow
and rain can lead to disruption in our field
production and sales to final off-taker customers.
Opportunities
Resource
efficiency
• Reduced water usage and consumption can
lead to reduced operating costs.
• Making head office and field buildings energy
efficient will lead to lower costs, higher fixed
asset valuations and increased employee
satisfaction.
Energy
source
• Continued use of own gas for electricity needs
means no exposure to power price increases in
the regions.
• Investment in new technologies to become
energy efficient may result in lower GHG
emissions.
Key
Risk/opportunity present but has
a potentially minor financial impact
Risk/opportunity is present and has
a potentially medium financial impact
Risk/opportunity persists and has potentially
material financial impact
54 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
The Board and Senior Management
Team define time horizons as the
following:
Short term: 5-year period to the end of
2026 as defined by a detailed business
plan covering the period of the debt as
it is expected to be amended by the
restructuring. The Company has a
detailed financial plan which is actively
managed and adapted according to
changes in external circumstances.
The International Energy Agency’s
Sustainable Development Scenario
forecasts fossil fuels to remain in the
energy mix for a reasonable period; and
as such we deem the climate-related
risks to be present in the short-term but
not as prevalent as they would be in the
medium and long term.
Medium term: 10-year period to the end
of 2031. This covers the full term of the
PSA and is defined by annual cash
flow and valuation models for the
Chinarevskoye field and the signed
Ural Oil & Gas offtake agreement.
Projections over the medium term will
adjust according to the longer-term
Sustainable Development Scenarios.
Climate-related risks are factored
into investment decisions on the
Chinarevskoye field. Economics
assessments are performed on various
hydrocarbon price and off-take demand
scenarios and, where investment
hurdles are not met, the Board will not
incorporate those field investment
proposals into the Group’s strategy.
Long term: period covering beyond
2031. This is defined by opportunities
identified in line with the Group’s
strategic initiatives. We believe that the
biggest climate-related risks will impact
our strategy in the long term. To execute
our strategic initiatives, may require
access to financial and capital markets.
As the shift towards a cleaner global
economy accelerates, we may find
finance providers want to reduce their
exposure to the oil and gas sector and
our ability to borrow to fund large-scale
investment programmes may be limited.
Other risks include the ability to access
the insurance markets for standard oil
and gas insurance which might leave the
Company exposed to an extreme
negative event.
Policy and legal risks facing Nostrum and
other players in the oil & gas industry
through increased statutory regulation
through carbon taxes or punitive
flaring fines or outright bans in various
jurisdictions. These pressures may lead to
increased financial costs for the business
through future taxes, penalties and fines.
We believe this risk is relatively small in the
short-term but grows over time as the
global movement towards net zero
strengthens.
Technological risks are highlighted as a
risk that will impact the Company in the
medium and long-term. We believe as
global and jurisdictional legislation evolves,
we may need to allocate capital into
emissions reduction investments such as
carbon capture and storage. The financial
impact on the Company is investing capital
into non-value accretive projects (i.e.
projects that do not provide direct revenue)
and therefore impacting the medium-long
term value of the Company. In the short-
term, we do not face pressures to invest in
such technologies.
Market risks exist through reduction in
fossil fuel demand and, hence, a reduction
in our revenues, although we view this risk
to be more prevalent in the medium and
long term. In the short-term, the Company
has long-standing off-takers which
guarantees short-term demand for
products. However, we note in the longer
term our customers may transition away
from fossil fuels and, hence, the financial
impact on the Company will be through
reduced revenues.
Reputational risks include facing
increasing pressure from our shareholders
and noteholders to transition towards
cleaner hydrocarbons and energy sources,
but also increasing difficulty in accessing
financing for various projects. We believe
this risk is less of a concern in the short-term
since the Company has longstanding
relations with its key shareholders (and
noteholders through the restructuring) and
has no concern over pressures to adopt
stricter measures, nor has access to the
capital markets been restricted. We do
however feel this becomes a bigger risk
in the medium and long term.
Physical risks we face today include severe
snow conditions that make operating the
field difficult and can lead to disruptions to
production. As climate change continues
on the path it is today, we believe these
severe weather events will occur more
regularly and during unexpected periods
of time; further impact the business
operationally and financially. Today, we
operate successfully in the middle of winter
where temperatures on the ground can
drop to -300 C. If temperatures were to
drop lower due to climate change, this
could impact operations negatively.
Further, flood events with overflowing
riverbanks can severely impact our ability
to transport LPG to the market and hence
reduce our revenues.
Opportunities exist through the use of our
own gas for electricity needs. We do this
today and will continue to do this in the
medium and longer-term to be as
resourceful as possible. Financially, this
saves us money by not purchasing electricity
from the grid. Making our offices energy
efficient is an opportunity that has been
identified for the medium-to-long term.
b) Describe the impact of climate-
related risks and opportunities
on the organisation’s businesses,
strategy, and financial planning.
Read more on page 65.
We acknowledge that the transition to a
lower carbon economy presents both risks
and opportunities for Nostrum. As
described above, the impact on our
short-term strategy and financial planning
remains minimal, but we have in place the
necessary flexibility to adapt as and when
we see the risks evolve. In respect of
medium term and long-term financial
planning, we are cognisant of the climate-
related risks and our ability to execute
various projects. Hurdle rates have
increased on various investment proposals
with carbon intensity, stressed hydrocarbon
price scenarios and energy demand
scenarios factored into decision papers.
With respect to physical risks, we have
factored this into our strategic planning
through extended and more frequent
maintenance periods. This reflects a period
of downtime during which operations and
revenues cease.
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 55
Taskforce on Climate-related Financial Disclosure (TCFD) continued
Strategy continued
We deem all transition risks (policy and
legal, market, technological and reputation)
to be material for the business in our
strategic and financial planning. The
transition risks, as outlined in (a) above,
impact (i) reduced demand and lower
pricing for our final products – resulting in
lower future revenues, (ii) higher supply and
material costs in our supply chain as
suppliers shift away from servicing the oil
and gas industry leaving a small number of
viable options, (iii) high investment spend
relating to climate risk mitigation activities
through increased spend on climate-
related research and development and
operationally through increased downtime
due to extreme weather events.
All transition risks are provided equal
weighting in our future business, strategy
and financial planning. Physical risks, while
important from a governance perspective,
we apply a slightly lower weighting in our
planning. Whilst present, we deem the
financial and operational impact to be lower
as we currently operate successfully in
extreme weather today and believe we will
do so going forwards. We take a conservative
approach in our forward planning and
therefore do not factor in opportunities
thatmay arise in the short, medium or
long-term through climate change.
As described in the Governance section, we
have a robust climate-change governance
matrix in place to consider these risks widely.
We have now devoted more resources into
this governance matrix (including reporting)
and this features in our future strategic and
financial planning. The matrix looks at the
strength of the risks and opportunities
identified in a) above across the short,
medium and long-term and assesses which
of those risks has a direct financial impact.
In our CDP Climate Change submission for
2021, we estimated the financial impact of
several of the transition and physical risks
outlined above. Since the 2021 disclosure
we have further refined our risk assessment
pursuant to the materiality table outlined in
section (a) and intend to conduct a detailed
financial impact assessment in 2022. This will
be also reflected in this year’s CDP Climate
Change disclosure, and we intend to publish
these results in next year’s TCFD report.
c) Describe the resilience of the
organisation’s strategy, taking
into consideration different
climate-related scenarios,
including a 2°C or lower scenario.
Read more on pages 67 – 69 and 75 – 76.
We adopted the Sustainable Development
Scenarios (SDS) referenced in the World
Energy Outlook 2021. The SDS represents
agateway to the outcomes targeted by the
Paris Agreement and is based on a surge
inclean energy policies, investment in clean
technologies and assumes all net zero
pledges are achieved in full (advanced
economies by 2050, China by 2060 and
allother countries by 2070). Under SDS,
global temperatures rise to 1.65°C with
50% probability and a rise of 1.5°C reached
by 2100.
We refer to the Going Concern and Viability
Statement sections where we consider the
resilience of our strategy in the short term
pursuant to the SDS. Below we outline
the key SDS policy assumptions and the
specific policy measure assumptions that
will impact the business:
Sustainable Development Assumptions Specific measure impacting Nostrum’s strategy
Application of measure to Nostrum Viability
assessment
Cross-cutting policies
• Staggered introduction of CO
2
prices
• Maximum sulphur content of oil and gas
products capped
• Policies promoting production and use of
alternative fuels and technologies
(including CCUS)
• Flat reduction in hydrocarbon demand
by 20% in the next three years.
• Flat reduction in all hydrocarbon pricing
by 20% in next three years
• Compliance cost increase of $5-10
million per annum to account for
breaches in sulphur requirement
(estimate)
• 10% higher operating costs for
CO
2
pricing
Power sector policies
• Efficiency and emissions standards that
prevents the refurbishment of old
inefficient fossil fuel plants
• Stringent pollution emissions limits
• 10% higher operating expenses and 10%
higher capital expenses assumed for
upgrade works and ongoing
maintenance to make Nostrum’s facilities
efficient.
• $5-10 million per annum compliance
cost for pollution limit breaches.
Buildings sector policies
• Phase out least efficient appliances
by 2030
• Mandatory energy performance
standards for appliances
• Net zero requirements for all new
buildings by 2030
• Energy efficiency and CO
2
emissions
reduction measures in buildings
• 10% higher general & administrative
costs for efficiency appliances in the
head and regional offices as well as
energy performance standard
impositions.
Transport sector policies
• On road vehicle stock emissions
intensity limits
• Emission limit restrictions on light and
heavy-duty vehicles
• GHG emissions reduction strategy for
international shipping
• 10% reduction in sales volumes as LPG
sales are delayed due to renting/
purchasing emission compliant vehicles
for transportation.
• 10% higher capex for upgrading fleet of
LPG trucks to meeting the emissions
intensity limits.
• 10% reduction in crude and condensate
volumes as shipping offtakers for those
products face difficulty in chartering
ships whilst meeting international
emissions quotas.
Industry sector policies
• Policies to support CCUS
• Mandatory energy management systems
or energy audits
• 5% higher capital expenditures as the
Company begins research and
development into emissions-reducing
technology.
• 5% higher general & administrative costs
as more frequent emissions-based
audits are run throughout the business.
56 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
The Group’s application of the SDS policy
measure assumptions (shown in the third
column) is a high-level conservative
estimate. In the absence of detailed analysis,
we chose extreme scenarios to test our
short-term strategy against the SDS
scenario. We intend to perform a detailed
assessment of these specific policy
measures and the likely quantitative impact
to our strategy across all time horizons in
2022. Our detailed assessment will involve
working out our strategy and operational
activities around this climate change
scenario, setting targets and communicating
those in next year’s TCFD Report.
Stressing our short-term financial projections
for these high-level conservative policy
measure assumptions demonstrates that
theCompany’s strategy in the short-term
isresilient taking into account a 1.65°C
climate-related scenario. Furthermore,
itisour view that the Company has a solid
financial base and sufficient flexibility in its
business plan to be able to adjust adequately
to extreme climate-related impacts. Please
refer to the Viability section on pages
67 – 69 forfurther details of the assessment.
Our strategy is validated annually by the
Board of Directors to ensure it remains
relevant and resilient. Please refer to the
Governance process for further details.
Thestrategy will be adjusted during the
year if there are significant changes in the
wider global environment. For example,
ifthe push to decarbonise the economy
escalates in the medium term, the
Company notes its strategic initiative of
shifting towards becoming a mid-stream
operator by processing stranded raw gas
streams in the region.
The Company is working on the medium
andlonger-term resilience of our strategy
inlight of the SDS. The analysis will assess
thefinancial viability of the company in the
medium and long term; building on the
short-term resilience analysis covered in
theGoing Concern and Viability sections
ofthe Annual Report. The Company will
usethe same SDS assumptions in assessing
longer-term strategy resilience; building
upon the assessment conducted for the
short-term horizon. As highlighted in section
(a), we deem longer-term financial and
operational risks to be more prevalent to
ourbusiness generally and therefore the SDS
sensitivities applied may be more punitive
tostress-test the viability of our longer-term
strategy. We look forward to reporting on our
medium and long-term strategy resilience in
next year’s TCFD report, as well as reporting
again on our short-term assessment.
Sustainable Development Assumptions Specific measure impacting Nostrum’s strategy
Application of measure to Nostrum Viability
assessment
Cross-cutting policies
• Staggered introduction of CO
2
prices
• Maximum sulphur content of oil and gas
products capped
• Policies promoting production and use of
alternative fuels and technologies
(including CCUS)
• Flat reduction in hydrocarbon demand
by 20% in the next three years.
• Flat reduction in all hydrocarbon pricing
by 20% in next three years
• Compliance cost increase of $5-10
million per annum to account for
breaches in sulphur requirement
(estimate)
• 10% higher operating costs for
CO
2
pricing
Power sector policies
• Efficiency and emissions standards that
prevents the refurbishment of old
inefficient fossil fuel plants
• Stringent pollution emissions limits
• 10% higher operating expenses and 10%
higher capital expenses assumed for
upgrade works and ongoing
maintenance to make Nostrum’s facilities
efficient.
• $5-10 million per annum compliance
cost for pollution limit breaches.
Buildings sector policies
• Phase out least efficient appliances
by 2030
• Mandatory energy performance
standards for appliances
• Net zero requirements for all new
buildings by 2030
• Energy efficiency and CO
2
emissions
reduction measures in buildings
• 10% higher general & administrative
costs for efficiency appliances in the
head and regional offices as well as
energy performance standard
impositions.
Transport sector policies
• On road vehicle stock emissions
intensity limits
• Emission limit restrictions on light and
heavy-duty vehicles
• GHG emissions reduction strategy for
international shipping
• 10% reduction in sales volumes as LPG
sales are delayed due to renting/
purchasing emission compliant vehicles
for transportation.
• 10% higher capex for upgrading fleet of
LPG trucks to meeting the emissions
intensity limits.
• 10% reduction in crude and condensate
volumes as shipping offtakers for those
products face difficulty in chartering
ships whilst meeting international
emissions quotas.
Industry sector policies
• Policies to support CCUS
• Mandatory energy management systems
or energy audits
• 5% higher capital expenditures as the
Company begins research and
development into emissions-reducing
technology.
• 5% higher general & administrative costs
as more frequent emissions-based
audits are run throughout the business.
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 57
Taskforce on Climate-related Financial Disclosure (TCFD) continued
Risk Management
TCFD recommendation:
Disclose how the
organisation identifies,
assesses, and manages
climate-related risks.
a) Describe the organisation’s
processes for identifying and
assessing climate-related risks;
b) Describe the organisation’s
processes for managing climate-
related risks, and
c) Describe how processes for
identifying, assessing, and
managing climate-related risks
are integrated into the
organisation’s overall risk
management.
Read more about our risk management
on pages 60 – 61.
Nostrum has a robust governance structure
through which climate-related risks are
identified and managed. Specifically, the
HSEC Committee is the conduit through
which climate-related risk management
is enacted. The HSEC Committee operates
under the principals of 5 pillars: (i) HSE
leadership; (ii) rigorous incident investigation;
(iii) process safety and asset integrity;
(iv) contractor HSE management and (v)
environment and climate change including
a commitment to reduce GHG emissions.
The fifth pillar is an integral part of our
climate-related risk identification,
assessment, and management process.
Both classifications of climate-related risks
(transition risks and physical risks) are
considered as part of the process. More
information is presented on pages 101 – 102.
The HSEC Committee oversees the
design and implementation of systems
of climate-related risk management and
internal controls and manages and reports
on risks. The Group Head of QHSE
supports the Board in its oversight and
monitoring role and performs management
and reporting on the risks.
The QHSE department is responsible for
identifying climate-related risks which
include potential effects on operations at
asset level, performance and Group level
and developments at regional level from
transition to lower carbon economy or
extreme weather events.
The processes described above are
embedded into our overall Group Risk
Management framework and form an
integral part of Nostrum’s risk management
and internal controls system. We include
“climate change risks” as a principal risk and
uncertainty on our Company risk register
(see page 65) thus allowing the HSEC
Committee to manage any identified
risks. This risk covers both physical and
transitional climate-related risks and is
reviewed annually by the Nostrum Board
ofDirectors.
58 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Metrics and Targets
TCFD recommendation:
Disclose the metrics and
targets used to assess
and manage relevant
climate-related risks and
opportunities where such
information is material.
a) Disclose the metrics used by
the organisation to assess climate-
related risks and opportunities in
line with its strategy and risk
management process.
Read more on pages 45 – 50.
Key climate-related metrics and targets are
set out in the Climate Change section of
this report.
Nostrum uses several metrics across the
transition and physical risks spectrum to
assess climate-related risks. For climate
change our key risk metric is focussing on
carbon emissions, air quality and flaring
frequency. All of these are measured,
managed and reported to the Board with a
specific KPI around reduction in GHG (see
(c) below). Beyond KPIs we have identified
certain activities and projects to help
reduce emissions that have included but
are not limited to reducing vehicles at head
office and encouraging the sharing of
vehicles, eliminating taking private vehicles
to the field by making buses mandatory,
promoting work from home and electric
replacing diesel for heaters, boilers and
other devices.
Climate change-related risks and
opportunities are incorporated into
the overall remuneration of the senior
management. Please refer to the
Remuneration Committee Report for
details on climate change KPIs.
Moving forwards, the Company intends
to include carbon pricing into its
economic evaluation of future investment
opportunities both within Chinarevskoye
and outside. Following a benchmarking
analysis of our peers, majors in the sector
and research on regional plans for carbon
pricing, we’ll incorporate an appropriate
carbon price (cost to the business) in our
investment decisions – implicitly increasing
the hurdle rate for project approvals.
b) Disclose Scope 1, Scope 2,
and, if appropriate, Scope 3
greenhouse gas (GHG) emissions,
and the related risks.
Read more on pages 49 – 50.
In the Environment (GHG Emissions Results)
section of this report, we disclose our
Scope 1 and Scope 2 GHG emissions. For
more information please see pages 49 – 50.
Scope 1 and scope 2 GHG emissions have
been reported on an annual basis in our
Annual Report and Company website. The
level of reporting has expanded in line with
our commitment to being transparent to
our stakeholders. Furthermore, GHG
emissions reporting is a State legislative
requirement as required by the Republic of
Kazakhstan (the country is in alignment with
the GHG Protocol).
We are working towards Scope 3 reporting
that is relevant and reliable to the end user.
We intend to report Scope 3 emissions in
our 2022 Annual Report subject to finding
an appropriate service provider to assist us
and also developing within our Company
skills required to appropriately identify,
measure and communicate our Scope 3
emissions. This further strengthens our
commitment to further expand our
reporting and transparency amongst the
investor community.
With respect to other activities that we
will focus on with respect to reducing
emissions, it is our plan to continue to work
with our contractors to identify energy
efficient opportunities in their supply chain
and assist them to implement sustainable
initiatives. Internal focus will also be placed
on reducing emissions from business and
commuting travel.
c) Describe the targets used
by the organisation to manage
climate-related risks and
opportunities and performance
against targets.
Read more on pages 45 – 50.
Nostrum is making efforts to not exceed
the quota for greenhouse gas emissions set
by Kazakhstan and sets this target as a KPI
in the annual HSE plan in order to reduce
the actual value of greenhouse gas
emissions by 5% compared to the previous
year. While our approved quota of GHG
emissions for 2021 was 212,998 tonnes of
CO
2
, the Nostrum HSEC Committee set a
goal of maximum 200,000 tonnes of CO
2
for 2021 and both targets were met since
the actual GHG emissions for 2021 were in
the order of 187,479 tonnes of CO
2
. For
more information please see pages 45 – 46.
Furthermore, Nostrum continues to provide
transparent disclosure through participating
in the Carbon Disclosure Project (CDP). The
Company is targeting a B score for the
Climate Change module in 2022 and also a
minimum “C” score for its first scored Water
Module submission in 2022 following on
from the initial submission of this report
in 2021.
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 59
Risk management
Risk management
The Group has a system of
internal controls consisting of
itsgovernance framework,
segregation of authorities and
duties, various policies and
procedures, training and internal
communications as well
as monitoring by senior
management and the Board
ofthe planning and decision-
making processes. The
risk management system is
embedded in these components
of the system of internal controls
in order to identify, manage and
report on the relevant risks that
may impact achievement of the
Group’s strategic objectives,
andensure compliance with
applicable regulatory
requirements.
Risk management framework
The Board, supported by the Audit
Committee and senior management, has
ultimate responsibility for risk management
and internal control, including
responsibility for the determination of the
nature and extent of the principal risks it is
willing to take to achieve its strategic
objectives, and for ensuring that an
appropriate risk-awareness culture has
been embedded throughout the Group.
Operational day-to-day risks are inherent in
the various business functions and processes
of the Group. These are categorised as
business function risks and are identified and
managed by the relevant staff and managers
in the course of their activities to ensure
safety, compliance, and efficiency. The
members of the Senior Management Team
have overall responsibility for managing such
business function risks aggregated at the
level of their functional responsibility, but can
delegate such responsibilities to their direct
reports. At the highest level the identified
risks are aggregated and categorised into
the following categories of principal risks
anduncertainties: strategic, operational,
financial, compliance and other, which are
respectively managed and monitored at
Board level.
Based on risk registers, related analysis and
discussions, senior management and the
Board periodically review previously
identified significant risks, update their
likelihood of occurrence and potential
impact, and identify potential new
significant risks emerging as a result of the
changing environment. These significant
risks are discussed in more detail below in
the Principal Risks and Uncertainties section.
In 2021, the processes related to risk
management and internal control systems
were consistent with the UK Corporate
Governance Code and FRC Guidance on
Risk Management, Internal Control and
Related Financial and Business Reporting
issued in September 2014.
Following the year end, the Board has
acknowledged the weaknesses in internal
control over financial reporting relating to
the prior year errors identified in relation to
impairment as well as the non-disclosure of
related party balances. Responding to this
weakness, the Board has carefully
considered the wider implications for
governance and controls relating to the
Group’s management of their impairment
testing and related party identification and
disclosure processes. A number of
improvements have been implemented
including additional oversight of both
processes.
Environmental, social and
governance (ESG) matters
ESG matters form an integral part of the
areas covered by the Group’s systems of risk
management and internal controls, and the
Board recognises their significance and
importance. Identified ESG risks and related
responses can be seen within Operational,
Climate Change and Other risks in the
“Principal risks and uncertainties” disclosure
on pages 62 – 66.
The Board receives appropriate information
for managing such risks. Management is
responsible for ensuring that systems of risk
management and internal control are in
place to effectively manage and monitor
energy risks and other ESG matters. More
detailed disclosure on the established
policies and procedures in these areas
can be found in the Sustainability review
starting on page 34.
Changes from prior-year risk assessment
Key developments in the global economic, political, regulatory, social and environmental environments in 2021 and early 2022 led to
certain changes in how the Board and senior management define, assess and monitor principal risks and uncertainties. The following
table summarised these updates:
2020 Principal risks and uncertainties 2021 Principal risks and uncertainties
Strategic risks
Business and market environment
Geopolitical factors
Strategic risksProduct price volatilities
Strategic development initiatives Filling the spare gas processing capacity
Operational risks
Oil and gas reserves and operations Oil and gas reserves and production
Operational risks
Cybersecurity risks
Operational risks Health, safety and the environment
Risks of incidents, including risk of explosion
Environmental, social
and governance risks
COVID-19
Governance risks
Environmental risks
Climate change risks Climate change Climate change Climate change risks
Compliance risks
Subsoil use agreements Subsoil use agreements
Compliance risks
Compliance with laws and regulations Compliance with laws and regulations
Financial risks
Liquidity risks Liquidity risks
Financial risksRefinancing risk Refinancing risks
Tax risks and uncertainties Tax risks and uncertainties
Other risks Other significant risks Other significant risks Other risks
60 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Principal risks
and uncertainties
Risks
Business function
risks
1. Risk identification
2. Risk assessment
3. Risk response (tolerate, treat, transfer, terminate)
4. Resourcing controls
5. Reaction planning
Heads of
business
sub-functions
Risk management
Compliance, QHSE,
Security, Controlling
6.
Reporting
and monitoring
Internal audit,
process audits
and investigations
7.
Reviewing risk
management
framework
Senior management team
Risk universe
Risk management process
Roles and responsibilities (The Three Lines of Defence)
1st line of defence 2nd line of defence 3rd line of defence
ReportsStrategic goals/KPIs
Board (supported by Audit Committee)
The Board oversees the design and
implementation of systems of risk
management and internal control
andmanages and reports on
principalrisks.
The Senior Management Team
supports the Board in its oversight
andmonitoring role and perform
management and reporting on the
level of Director’s risks.
Heads of business functions, being the
1st line of defence, own and manage
operational risks related to their
respective area of activity.
2nd line of defence has a general
oversight function to ensure that the
risk management practices followed
are effective.
Internal audit, acting as the 3rd line
ofdefence, provides independent
assurance over the effectiveness of
thesystems of risk management and
internal control.
During 2021 the Group did not have a dedicated internal audit function, as was the case for the past few years where the Group has relied
on third party audits and ad-hoc audits/process reviews performed by employees and overseen by management with results reported
into the relevant Board committee. To mitigate this exposure, the Group has identified and strengthened internal processes providing
assurance to management, the Audit Committee and the Board about the effectiveness of systems of internal control and risk
management, such as contracts board meetings, monthly reports to the Board on operations, liquidity and legal issues and assurance
provided by QHSE and security personnel. In 2022 the Group has approved a budget amount to hire a dedicated Head of Internal Audit.
The risks listed on the following pages do not comprise all those associated with the Group’s business and are not set out in any order of
priority. Additional risks and uncertainties not presently known to management, or currently deemed to be less material, may also have an
adverse effect on the Group’s business. The risks listed above are continuously monitored by the management team and assessed when
making business decisions.
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 61
Risk management continued
Description of risk Risk management
Strategic risks
Geopolitical factors
The Group’s operations are exposed to risks associated with the political
and business environment in Kazakhstan, being the Group’s sole country of
commercial operations, as well as its neighbouring countries.
In January 2022, following a rise in fuel prices, certain mass demonstrations
and gatherings occurred in various cities across Kazakhstan. Such political
and civil unrest and the occurrence of any such factors could result in new
regulatory requirements that can be onerous and expensive, and other
related changes that could have a material and adverse effect on the
Group’s business, results of operations, financial condition and prospects.
On the one hand, Nostrum has historically benefited from its geo-strategic
position in the heart of an export corridor between Russia and markets to
the west of the Caspian, but on the other hand, the Group has been
respectively exposed to the risks associated with the economic and political
situation in Russia, being reliant on its transport routes and ports. Severe
sanctions and trade restrictions imposed by, among others, the US, UK and
EU on Russia in March 2022 as a response to Russia’s actions in Ukraine,
have increased the economic and political uncertainty and may have a
material adverse impact on the Group’s business, results of operations,
financial condition and prospects.
Nostrum’s Senior Management Team is pro-actively engaged with key
stakeholders among state authorities to address and resolve any potential
issues at early stages. In addition, the Group endeavours to identify
legislative changes at early stages before their introduction and to the
extent possible participate in the relevant working groups engaged in
development of such changes.
To mitigate geopolitical, regional and customer risks, the Group continues
to strengthen customer relationships through establishing long-term
off-take agreements whilst also looking at possibilities to geographically
diversify its customer portfolio.
The Group is currently analysing the impact of sanctions imposed on Russia
on its transportation of crude oil, condensate and LPG via rail or pipeline,
and also assessing alternative routes and destinations as a potential
mitigating action, if needed.
Due to the US, UK and EU sanctions, the senior management and the Board
have also decided that it would be in the best interest of the Group to
terminate its relationships with the Sberbank subsidiary in Kazakhstan. In
addition, the Group is also evaluating and implementing control processes
and procedures around compliance with the sanctions imposed on Russia
and Belarus as well as institutions and individuals specifically identified in
those sanctions. These include evaluation of counterparties and their banks,
contract procedures, and liaising with external legal advisers.
Such actions also include collating and regularly updating lists of all
persons/entities sanctioned in order to ensure Nostrum does not enter into
transactions with any of the persons/entities on these lists.
Product price volatilities
The Group’s operations and financial performance are exposed to changes
in the market prices for its products driven by external business and political
factors, which are outside the Group’s control.
Oil and gas prices are subject to volatility due to a variety of factors beyond
the Group’s control. Factors affecting crude oil prices include supply and
demand fundamentals, economic outlooks, production quotas set by OPEC
and political events. In recent years, as a result of factors including weaker
outlook for global demand growth combined with excess supply, oil and
gas prices worldwide have been subject to significant volatility and there
can be no assurance that the recent recovery in oil prices or the recent high
gas prices relative to historical averages will continue for extended periods
of time.
In addition, dry gas prices are also influenced by the price for dry gas paid
by GazProm at the Kazakh border and the prices of various oil-based
products. Also, the Group could be compelled by governmental authorities,
purportedly acting based on Kazakh legislation, to sell its oil, condensate,
LPG and gas domestically at prices determined by the Kazakh Government,
which could be significantly lower than prices which the Group could
otherwise achieve.
Lower oil and gas prices may reduce the economic viability of the Group’s
operations and proposed operations and materially adversely affect its
business, results of operations, financial condition and prospects. In
particular, the Group’s ability to produce economically from the
Chinarevskoye Field or any prospective fields will be determined, in large
part, by the difference between the revenue received for its products and
the operating costs, taxation costs, royalties and costs incurred in
transporting and selling those products.
The Group’s strategy and business model are not directly influenced by any
significant risk resulting from Brexit.
The Group quarterly revisits the product price assumptions used in its
short-term, medium-term and long-term financial models, and performs
stress testing of such forecasts to fluctuations in product prices and these
are monitored by senior management and the Board.
In early 2020, given the uncertainties caused by a low oil price environment,
the Group took prudent, mitigating actions to protect liquidity. These
included cancelling uncommitted capital expenditures and identifying
reductions in operating costs, general and administrative, and selling and
transportation costs that could be implemented without having a negative
impact on production or operations in the going concern period.
The Group continued these optimisation initiatives throughout 2021 and as
a result is now able to withstand a period of prolonged low oil prices. Also,
senior management constantly monitors the Group’s exposure to foreign
currency exchange rate changes and makes plans for necessary measures.
In previous years, the Group has entered into hedging instruments to
mitigate the volatility of commodity prices. The last such instrument expired
in 2018. In 2021 the Group has produced a draft hedging policy and
updated its relationships with multiple financial institutions which would
allow for hedges to be placed. In light of the favourable commodity pricing
environment, backwardation of the forward oil price curve, cash resources
available to meet its operational and capital requirements for the next fiscal
year and other factors the Board has not taken the decision to enter into any
hedges in 2021.
Principal risks and uncertainties
62 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Description of risk Risk management
Filling the spare gas processing capacity
The activities in the Chinarevskoye oil and gas condensate field are currently
the Group’s sole source of revenue. The field is a mature declining asset with
a proved and probable reserves base at a level that will produce volumes
of hydrocarbons including raw gas sufficient to utilise the less than 15
percent of capacity available at the Group’s gas treatment facilities, which
have a combined 4.2 billion cubic meters capacity per annum.
The Company is therefore reliant on acquiring and developing nearby
assets with significant resource potential and/or processing third party gas
through its processing facilities to continue to produce free cash flows and
build sufficient cash reserves to repay future indebtedness. The ability to
negotiate and secure these strategic acquisitions is highly uncertain and the
ability to fund the development of such projects, the costs of which may be
substantial and require external funding, may not materialise.
Oil and gas exploration and production activities are capital intensive and
subject to financing limitations and inherent uncertainty in their outcome.
Further, significant expenditure is required to establish the extent of oil and
gas reserves through seismic and other surveys and drilling. Therefore,
there can be no certainty that further commercial quantities of oil and gas
will be discovered or acquired by the Group to enable it to utilise the spare
capacity in its treatment facilities.
From end of 2019 the Board came to conclusion that diversification of its
sources of feedstock to the processing facilities would provide the Group
with an opportunity to gain from expanding the use of available capacities,
technological resources and human capital, and ultimately benefit from its
underutilised infrastructure.
The Group signed agreements with Ural OG in 2018 for the purchase of gas
and processing of condensate from the Rozhkovskoye field for a period of
four years with first deliveries planned for Q4 2023.
The Group continues to actively engage in discussions with other third
parties interested in supplying raw gas to completely fill its spare processing
capacity.
Also, the Group continues to mature its assessment of the Stepnoy Leopard
licences for acquisition and development, as well as a number of additional
area-wide opportunities under review that may serve to strengthen the
Group’s upstream and midstream portfolio in the coming years.
Operational risks
Oil and gas reserves and production
Estimating the value and quantity of economically recoverable oil and
natural gas reserves and resources, and consequently the rates of
production, necessarily depend upon a number of variables and
assumptions, such as ultimate reserves recovery, interpretation of
geological and geophysical data, marketability of oil and gas, future
product prices, operating costs, development and production costs and
workover and remedial costs, all of which may vary from actual results, which
would affect the Group’s financial performance and achievement of
strategic objectives. The recent reclassifications of significant amounts of oil
and gas reserves from 2P to contingent resources were result of crystallising
of such risks.
Even if the Group is able to discover or acquire commercial quantities
of oil and gas in the future, there can be no assurance that these will be
commercially developed. Appraisal and development activities involving
the drilling of wells across a field may be unpredictable and may not result in
the outcome planned, targeted or predicted, as only by extensive testing
can the properties of an entire field be more fully understood.
Completion of the Group’s development plans does not ensure a profit on
the investment or recovery of drilling, completion and operating costs, as
various field operating conditions may adversely affect production from
successful wells including delays in obtaining governmental approvals, shut
ins of connected wells, other unusual or unexpected geological,
oceanographic and mechanical conditions.
Finally, given that the Chinarevskoye reservoir is a mature and declining
asset, the Group has been actively performing well workover and
intervention to reduce the rate of decline of the reservoir. Such activities,
as well as construction, operation and maintenance of surface facilities,
are subject to various risks, including the availability of adequate services,
technologies and expertise, which may adversely affect the fulfilment of the
Group’s strategic objectives.
The Group has a department of geologists who perform periodic
assessments of its oil and gas reserves in accordance with international
standards on reserve estimations and prepare production forecasting using
advanced exploration risk and resource assessment systems. The results
of the assessments are audited by the Group’s independent reserves
consultant, Ryder Scott.
For well workover activities, the Group engages skilled personnel and
leading service suppliers, as well as employing internationally accredited
operations and cost monitoring systems, based on which management
oversees the work progress. A successful well workover and intervention
programme was completed in 2020 which reduced the rate of decline of
production in the year. A similar programme in 2021 is still being evaluated.
In addition, a low-pressure system, introduced in 2019 and expanded in
2020, continues to allow production from wells that would otherwise require
to be shut in.
Maintenance of wells and surface facilities is scheduled in advance, in
accordance with technical requirements, and all necessary preparations are
performed in a timely manner ensuring a high quality of work. In addition,
the Group has emergency response and disaster recovery plans in place
and periodically conducts necessary training and testing procedures.
KPIs are in place to monitor risk management in operations, including
completion of the well workover and intervention programme according to
budget and production targets.
Cybersecurity risks
Nostrum may be vulnerable to the unauthorised or inappropriate access to
data, or the unlawful use, disclosure, disruption, deletion, corruption,
modification, inspection, recording, or devaluation of information. Such
cybersecurity failures may significantly adversely affect the Group’s
operations and financial results through disruptions, shutdowns and
delays in production and other activities.
The Group uses a number of dashboards such as MS Secure and MS
Compliance, which monitor security and compliance, and also help
to identify areas where security might be enhanced. At the start of
employment each new employee is briefed on the Group’s Information
Security Policy and signs a confidentiality agreement. All mailboxes and
data are placed on Microsoft servers with appropriate levels of protection.
Passwords have complexity requirement and double authorisation has
been introduced for most users. All data traffic, servers and computers are
subject to scanning and protection by anti-virus software. Physical access
to data storages is restricted to authorised personnel.
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 63
Risk management continued
Description of risk Risk management
Environmental, Social and Governance risks
Risks of incidents, including risk of explosion
The Group’s operations are subject to hazards and risks common in its
industry, including encountering unusual or unexpected rock formations or
geological pressures, fires, explosions or power shortages, equipment
failures or accidents, premature declines in reservoirs, blowouts,
uncontrollable flows of oil, gas or well fluids, or water cut levels, pollution
and other environmental risks.
Failure to prevent or adequately mitigate these hazards can have a broad
range of results, including, but not limited to, injury of employees or local
residents, a partial or total shutdown of operations, significant damage to
equipment, suspension or withdrawal of licences and relevant sanctions.
Any of the above could materially and adversely affect the Group’s business,
results of operations, financial condition and prospects.
It should also be noted that the legal framework for operational safety is
not yet fully developed in Kazakhstan and given the changing nature of
environmental regulations, there is a risk that the Group will not be in full
compliance with all such regulations at all times.
The Group’s QHSE policies are periodically revised to ensure compliance
with changes and new requirements in this area. Periodic training on the
requirements of policies and regulations is held for employees. Nostrum’s
operations are based on the five QHSE pillars: HSE leadership; rigorous
incident investigation; process safety-critical elements identified and
maintained; contractor HSE management; and environment and climate
change.
The Health, Safety, Environment and Communities Committee was formed
for oversight of HSE matters at the Board level. Monthly QHSE reports are
issued to communicate HSE performance. Management KPIs include lost
time injury frequency, total recordable injury frequency and numbers of
Hazard Observation Cards submitted.
Through the system of Hazard Observation Cards, employees and
contractors report any unsafe conditions observed in the workplace, which
helps to ensure their awareness of safe working conditions at all times. All
incidents are investigated, their causes identified and corrective action
plans developed.
There is a classification of equipment as critical or non-critical. Safety critical
elements are devices, equipment or systems that are required to ensure
process conditions are maintained within safe operating limits, or the
purpose of which is to prevent malfunctioning. For example, devices are
installed at well-sites to automatically close the wells in the case of
shutdown, preventing blowdown by flaring.
Contractor HSE performance is managed by identifying and mitigating
risks, setting HSE performance criteria, monitoring, auditing and reporting
HSE performance, and subsequently using this information for continuous
development and feedback into the process of contractor selection.
COVID-19
The spread of coronavirus (COVID-19) significantly affected the world
economy, including the oil and gas industry in 2020. The global economy
has been gradually recovering and 2021 showed some positive
developments in global markets of oil and gas. However, any further
outbreaks of COVID-19 may have a disruptive effect. For example,
uncontrolled spread of the coronavirus among employees on the field site
could lead to the mass quarantine of workers and could have a negative
impact on the Group’s operations and financial results.
The senior management and the Board continued to closely monitor
COVID-19 throughout the Group’s operations, and assess the impact of the
pandemic on all stakeholders. No production was lost as a result of
COVID-19 during 2021 and thankfully none of the Group’s workers
succumbed to the disease.
Extensive measures remain in place to protect the safety of employees and
contractors and mitigate the impact on operations arising from COVID-19.
These include:
• Testing of all personnel prior to being transferred to the field;
• Regular temperature checks whilst at the field site;
• Isolation and testing of any employees and contractors identified as being
in contact with individuals tested as positive for COVID 19;
• Strict enforcement of maximum personnel quotas in our office in Uralsk as
determined by official local and Kazakhstan national directives; and
• Remote working for all London staff.
Governance risks
By virtue of being a dual-listed entity, Nostrum must adhere to both UK and
Republic of Kazakhstan corporate governance and reporting requirements.
Governance risk factors are usually related to board composition and
structure, executive remuneration, internal controls and risk management
framework, corporate policies and procedures, risks of corruption and
bribery, and others.
Lack of adequate controls and policies, or a failure of those to operate
effectively, could lead to loss of company resources, non-compliance with
regulations, and respective significant fines, penalties, as well as
reputational damage.
As described on pages 86 – 89, the Group has established a robust
governance framework which covers all aspects of the Group’s activities
through respective Board committees and functional teams under senior
management. Although the composition of the Board and its committees
was not ideal during the reporting period due to the transition period,
compensating controls and procedures were put in place such as additional
scrutiny over the Board decisions and more frequent Board meetings.
The corporate governance framework is supported by an extensive range
of policies and procedures covering division of responsibilities, bribery,
corruption and whistle-blowing, anti-facilitation of tax evasion, as described
on page 89 and various other policies and practices related to social and
environmental matters described across other section of the report. Such
policies and procedures are designed and implemented to ensure
that all required compliance obligations are met.
Principal risks and uncertainties continued
64 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Description of risk Risk management
Environmental risks
The Group’s operations are subject to environmental risks inherent in oil
andgas exploration and production industries. Examples of environmental
risks include risks stemming from more intense extreme weather events,
rising energy intensity in the oil and gas industry, the changing regulatory
landscape, the risk of fugitive emissions and climate change policies driving
down demand.
Compliance with environmental regulations may make it necessary for the
Group at substantial cost to undertake measures in connection with the
storage, handling, transportation, treatment or disposal of hazardous
materials and waste and the remediation of contamination.
In addition, the legal framework for environmental protection and
operational safety is not yet fully developed in Kazakhstan. Stricter
environmental requirements may be adopted in the near future, and the
environmental authorities may move towards a stricter interpretation of
existing legislation. The costs associated with compliance with such
regulations could have a material adverse effect on the Group’s business,
results of operations, financial condition and prospects.
The Group actively plans and manages projects designed to mitigate
certain environment-related risks. Limiting GHG emissions is a
management KPI.
The Group’s operations continuously put effort and commitment into
improving energy efficiency, reducing flaring, venting and leaks, and
monitoring and effectively managing emissions and waste. Also, the Group
has recently started recycling utilised water at the campsite.
The Senior Management Team actively evaluates opportunities to further
adapt and implement cost-effective mitigation measures.
The HSEC committee currently has responsibility for ESG related matters.
A review of the Group’s public ESG related information is being conducted
to identify and rectify gaps.
In 2022, the Company intends to issue a Nostrum policy which addresses
energy use and improving efficiency and a methane emissions management
policy.
Climate change risks
Climate change
Continued attention to climate change issues by governments, investors
and customers and relevant developments in laws and regulations, investor
and customer preferences may have significant adverse impact on the
Group’s business.
New requirements, laws, policies and regulations may result in substantial
additional expenditures on capital construction, compliance, operations
and maintenance. The level of expenditure required to comply with these
laws and regulations is uncertain.
In addition, any perceived weakness in environment related policies,
procedures and efforts, sub-optimal assessment by an ESG rating agency
and comparison to peers, might adversely impact the Group’s access to
capital markets, reduce ability to raise additional financing, increase
financing costs and have a negative impact on the Group’s business
plans and financial performance.
The Group is actively planning and managing projects designed to mitigate
certain climate change related risks. For instance:
• To decrease its exposure to rising fuel prices, drilling rigs have been
retooled to derive more power from electricity rather than diesel;
• In operations there is a permanent effort and commitment improve
energy efficiency and to reduce flaring, venting and leaks; and
• At campsite most of the water the Group utilises now is recycled.
Climate change is on the Board’s agenda. The Senior Management Team
actively evaluates opportunities to further adapt and implement cost-
effective mitigation measures.
Compliance risks
Subsoil use agreements
As the Group performs exploration, development and production activities
in accordance with related licences for the oil and gas fields, there are
related risks that the Group might not be able to obtain extensions or agree
amendments to the field development plan, when necessary, risks of
non-compliance with the licence requirements owing to ambiguities, risks of
alteration of the licence terms by the authorities and others. These risks may
result in the Group’s inability to fulfil scheduled activities; fines, penalties,
suspension or termination of licences by authorities; and, respectively,
significant and adverse impact on the Group’s business, financial
performance and prospects.
The Group has procedures and processes in place for the timely application
for extension of licence periods or for amendments to the field development
plan, when it is considered appropriate however, uncertainty remains in
relation to timing and results of decisions of authorities. The Group
maintains an open dialogue with Kazakh governmental authorities
regarding its subsoil use agreement. In the event of non-compliance
with a provision of the agreement, the Group endeavours to have such
terms modified and pays any penalties and fines that may apply.
Compliance with laws and regulations
The Group carries out its activities in a number of jurisdictions and,
therefore, must comply with a range of laws and regulations, which exposes
the Group to the respective risks of non-compliance. In addition, the
Group must comply with the Listing Rules, the Disclosure Guidance and
Transparency Rules, FRC guidance and requirements, as well as KASE and
bond indenture requirements, in light of its publicly traded shares and
notes. Hence, there are non-compliance risks, including reputational,
litigation and government sanction risks, to which the Group is exposed.
The impact of these risks may vary in magnitude and include regulatory
actions, fines and penalties by authorities, diversion of management time,
and may have an overall adverse effect on the Group’s performance and
activities towards achieving its strategic objectives.
For the purpose of effective corporate governance and compliance with
laws, regulations and rules, the Group has adopted a number of policies
and procedures, as mentioned above. The Group also performs periodic
updates based on the changes in regulatory requirements and carries
out related communications and training for employees.
Necessary communication lines are established with authorities to
ensure timely and adequate inbound and outbound flow of information.
Management and the Board monitor significant matters related to legal and
compliance matters in order to act promptly in response to any actions. In
addition, management maintains an open dialogue with its sponsors in
relation to any matter related to non-compliance with Listing Rules and
other regulatory requirements.
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 65
Risk management continued
Description of risk Risk management
Financial risks
Liquidity risks
Forecasting to maintain an adequate liquidity position is subject to the risk
that inaccurate information or assumptions are used for forecasts, and to
risks of counterparty delay or a counterparty’s failure to meet their
contractual obligations owing to severe market conditions.
Moreover, the Group’s current and planned expenditures are subject to
unexpected problems, costs and delays, and the economic results and
actual costs may differ significantly from the Group’s current estimates.
Prices for the materials and services the Group depends on to conduct and
expand its business may increase to levels that no longer enable the Group
to operate profitably.
All the above factors in combination with a significant negative movement in
world energy prices could result in the Group’s liquidity position becoming
more strained than the severe but plausible downside scenario in the Going
Concern assessment.
Management and the Board constantly monitor the Group’s actual and
forecast liquidity position to ensure that sufficient funds are available to
meet any commitments as they arise.
In addition, management and the Board assess key financial ratios,
sensitivity tests of its liquidity position for changes in crude oil price,
production volumes and timing of completion of various ongoing projects,
to understand the resilience of the business and to be prepared for taking
necessary remedies.
Further efforts are made on cost optimisation to reduce capital
expenditures, operating costs and general and administration costs.
Refinancing risks
The Group has US$1.125bn of debt principal outstanding, US$725m of
whichmatures in July 2022. From May 2020 the Group has been engaged
with its bondholders in connection with a possible restructuring of its debt
and has not been making interest payments from mid-2020.
In December 2021, the Group entered into a Lock-Up Agreement and
agreed the terms of a restructuring with bondholders. These terms were
supported by our shareholders at a General Meeting in April 2022.
The successful implementation of restructuring depends on certain conditions
that need to be fulfilled or waived, such as permission for the proposed
restructuring from its shareholders, and permission for the restructuring and
awaiver from the Government of the Republic of Kazakhstan. Moreover, the
Lock-up Agreement contains termination provisions allowing for termination
incertain, specified circumstances. Hence, the ability of the Group to refinance
the outstanding debt represents a material uncertainty. There is a significant
risk that the Group will not be able to refinance the bonds which will negatively
impact the Group’s ability to continue as a going concern.
Successful restructuring of the Group’s outstanding debt is the primary
focus of the Board and Senior Management Team. Work continues towards
this objective with all stakeholders.
Following the original accession period for the Lock-Up Agreement, holders
of approximately 76.29% of the 2022 Notes and 80.35% of the 2025 Notes
had signed or acceded to the Lock-up Agreement, which comprises
approximately 77.73% of the total aggregate principal amount of both series
of Notes.
99.99% of voting shareholders voted in favour of the restructuring on the
same terms following the convening of a General Meeting on 29 April 2022.
However, the necessary steps are not yet finalised and so the outcome is
uncertain and, to a large extent, outside the control of the Group.
Tax risks and uncertainties
The uncertainty of application, including retroactive application, of tax laws
and the evolution of tax laws in Kazakhstan create risks related to additional tax
liabilities from assessments and risks related to the recoverability of tax assets.
Kazakhstan’s tax legislation and regulations are subject to ongoing changes
and varying interpretations. Instances of inconsistent opinions between
local, regional, and national tax authorities are not unusual. The current
regime of penalties and interest related to reported and discovered
violations of Kazakhstan’s tax laws are severe and where the tax authorities
disagree with the positions taken by the Group the financial outcomes could
be material. Fiscal periods remain open to review by tax authorities for five
calendar years preceding the year of review. Under certain circumstances
reviews may cover longer periods.
Tax risks and uncertainties may adversely affect the Group’s profitability,
liquidity and planned growth.
The Group has policies and procedures related to various tax assessments
and positions, as well as other control activities to ensure the timely
assessment and filing of tax returns, payment of tax obligations and
recovery of tax assets.
The Group regularly challenges, either with the Kazakh tax authorities or
through the Kazakh courts, tax assessments that it believes are inapplicable
to it, pursuant to the terms of either its subsoil use agreements or
applicable law.
Other risks
Other significant risks, including emerging risks
Other risks are those that are not specifically identified within any of the
principal risks and uncertainties but may be related to several such areas
or be organisation wide. These include risks related to:
• Fraudulent activities;
• The Group’s supply chains;
• Accounting and reporting management systems; or
• The availability of human resources.
They may also significantly impact the Group’s financial performance,
reputation and achievement of its strategic objectives.
The Group has an Anti-Bribery and Corruption Policy, and provisions
relating to the same are included in the Group’s Code of Conduct. Related
training and updates are periodically provided for employees in relation to
their obligations in this area.
The Group has a wide range of internal controls over its supply chains
andaccounting and reporting processes, including policies, procedures,
segregation of duties for authorisation of matters, periodic training for
employees and so on. The Contracts Board was established to meet weekly
to review and approve the placement of all contracts with a potential value
in excess of $10,000.
Senior management and the Board stay alert to emerging challenges
related to various management systems and related governance matters
and, when necessary, initiate change initiatives to ensure enhancement and
integration of certain management systems.
Principal risks and uncertainties continued
66 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Viability statement
Viability statement
In accordance with provision 31 of the UK
Corporate Governance Code 2018, the
Directors have assessed the future
medium-term viability of the Group over a
period longer than 12 months (see Note 1
for entities that are included in the Group).
The Directors believe a period of three
years is sufficient as a viability assessment
period as it represents a period in which
management can make reasonable
estimates of future Group performance
and financial position.
The Group’s viability assessment is built
through integration of the principal risks
and uncertainties (described on pages
62 – 66) into a financial model, based on
the elements of corporate planning and
modelling process, which includes:
• Medium-term development planning
based on three-year financial projections,
using Management’s internal estimate
of forecast production from the
Chinarevskoye field. No third-party
volumes or strategic initiative projects
have been included in the viability
assessment as there is currently no
certainty they will arrive prior to the
end of 2024; and
• Annual budgeting and forecasting
process incorporating preparation of
an annual budget for the following year,
which is reviewed and approved by the
Board, and followed up with quarterly
forecasts, which are monitored by senior
management and the Board.
Viability time horizon
Considering the uncertainties inherent to
the Group’s operations as well as the
medium-term development planning
mentioned above, the Board concluded
that a viability assessment over a three-year
period provides a robust and realistic
evaluation of the Group’s future performance.
With this approach the Board continues to
believe that the assessment:
• Improves the optimal balance between a
reasonable degree of confidence and an
appropriate longer-term outlook;
• Is aligned with medium-term development
planning mentioned above;
• Is consistent with other current and/or
recent communications (e.g. production
forecasts etc.); and
• Is appropriate for the current stage of
development of the Group and gives
an opportunity to reasonably assess
sensitivity of the Group’s performance to
principal risks during the period where
the Group looks to work on implementing
its major strategic objectives (described
on pages 30 – 31).
Material uncertainty
In preparing this viability assessment, the
Board has assumed that the Group’s
US$725 million 8.0% Senior Notes due July
2022 and its US$400 million 7.0% Senior
Notes due February 2025 (together the
“Existing Notes”) are restructured in line
with the terms agreed in the Lock-up
Agreement (“LUA”) with noteholders
representing over 77% of the aggregate
principal of both sets of Notes and also
voted in favour of by shareholders at the
recent General Meeting. The LUA was
signed on 23 December 2021 and commits
acceded noteholders and our largest
shareholder ICU (c.24% holder, also a
noteholder) to pursue the restructuring on
an agreed set of terms. Nostrum
shareholders were invited to vote on these
terms (“Restructuring Resolution”) at a
General Meeting held on 29 April 2022.
99.99% of voting shareholders voted in
favour of the Restructuring Resolution at
the General Meeting; allowing the Group to
proceed with the restructuring via a UK
scheme of arrangement under Part 26 of
the Companies Act 2006.
The below outlines the key terms of the
Restructuring Resolution as agreed
between the Group, acceded noteholders
and ICU in the LUA and also voted in favour
of by Nostrum shareholders:
• Partial reinstatement of debt in the form
of US$250 million Senior Secured Notes
(SSNs) bearing interest at a rate of 5.00%
per year payable in cash and maturing
on 30 June 2026. The SSNs are not
convertible;
• Partial reinstatement of debt in the form
of US$300 million Senior Unsecured
Notes (SUNs) bearing interest at a rate
of 1.00% per year payable in cash and
13.00% per year payable in kind and
maturing on 30 June 2026. The SUNs are
repayable in specie through the issuance
of equity in the Group on maturity;
• The remainder of the Group’s existing
debt along with accrued but unpaid
interest will be exchanged for equity in
the Group, thereby significantly diluting
the interests of the current equity
holders;
• New corporate governance
arrangements in respect of the Group
and certain arrangements regarding
future utilisation of the Group’s cashflows.
This includes a cash sweep mechanism
into which cash above US$30 million is
swept into a debt service retention
account (to fund the next two cash
interest payments due) and a restricted
cash account which the Group can
access with approval of the majority of
Independent Non-Executive Directors
of the Company; and
• Transfer the Group’s listing to the
Standard Listing segment of the London
Stock Exchange.
There are several milestones that must be
completed prior to the successful closing
of the restructuring including UK Court
sanction for the scheme of arrangement
procedure and Republic of Kazakhstan
consent and pre-emption waivers. Please
refer to the “Going Concern” and “Update
on Bond Restructuring” sections of this
Annual Report and the Restructuring
Circular published on 13 April 2022, where
these are discussed in more detail.
The Board highlighted in its Going Concern
assessment that the ability to restructure
the Existing Notes by satisfying the above
milestones is a material uncertainty. This is
because the remaining milestones have not
yet concluded and because the outcomes
of those milestone are uncertain and
largely outside of the Group’s control.
The same material uncertainty may also
cast significant doubt over the future
viability of the Group.
Based on the current progress of the
restructuring closing steps, the Directors’
view is that there is a reasonable prospect
that the restructuring will be executed
around July 2022.
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 67
Viability statement continued
Viability assessment
For the purpose of our viability assessment a three-year financial model was used as a
base-case scenario reflecting the following:
• The assumption that the Existing Notes are restructured on the agreed terms set out
above: all remaining milestones are executed and the restructuring closes in July 2022;
• Production forecasts reflecting management’s internal view of Chinarevskoye
production under a no further field activity scenario. This production forecast is more
conservative than that used in the impairment testing process (proved and probable
reserves base used) as the viability assessment basis is more akin to the proven
developed producing reserves base as outlined in the Ryder Scott reserves audit
for 2021;
• Exclusion of throughput volumes from the signed agreement with Ural Oil & Gas LLP and
we assume we do not utilise the spare capacity of our Gas Treatment Facilities despite
being a key strategic focus of Management for the medium-term horizon; and
• Price assumptions used assume a Brent oil price of $72/bbl, $68/bbl and $67/bbl, for
2022, 2023, and 2024 respectively. This is the Brent average broker consensus forward
curve as at 31 December 2021 and, due to conservatism, does not consider the recent
upward shift in the forward curve following the Russia-Ukraine conflict and the impact on
global oil supplies.
For the purpose of sensitivity testing, several principal risks and uncertainties were
selected (from those described on pages 62 – 66), which were deemed to have the highest
potential financial impact on the Group’s future performance, taking into account prior
period assessments. The effect of those principal risks and uncertainties or their
combination on the base-case scenario were analysed within the following scenarios:
Principal risk and
uncertainty Description Viability assessment
Strategic risks Deterioration in the business
and market environment and
geopolitical risks
10% reduction in oil, LPG and gas
prices over the period of assessment
Operational risks Production issues from the
field and/or transportation
issues along the sales routes
10% reduction in forecast production
and sales volumes over the period of
assessment
Liquidity risks Cost pressures in the
ordinary course of business
supply chain and with Group
personnel
10% increase in capital expenditures
and operating cost over the period of
assessment
Compliance risks Unexpected and
unbudgeted fines and
penalties for various
non-compliance issues
$5 million per annum Work
Programme non-fulfilment fines and
$10 million per annum legal claim
over the period of assessment
The Directors considered severe but plausible scenarios where a combination of two or
three of the risks noted above occurred together.
The scenarios took into account the availability and likely effectiveness of any mitigating
actions that might be required if the Group was exposed in the medium term to
downwards volatility and that are in place or could be implemented to avoid or reduce the
impact or occurrence of the underlying risks which would realistically be available to the
Group in such circumstances. In considering the likely effectiveness of such actions, the
conclusions of the Board’s regular monitoring and review of risk and internal control
systems were taken into account.
Viability statement continued
Other viability assessment
considerations
The Directors have also considered any
additional risks to liquidity posed by the
ongoing Russia-Ukraine conflict and
COVID-19:
Russia-Ukraine conflict: please refer to
the “Going Concern” and “Governance”
sections for details of the Russia-Ukraine
conflict and related sanctions, and the
relevance to the Group’s operations.
Nostrum currently sends approximately
40% of its products by volume produced
via Russian transport infrastructure and
ports and the Group also contracts with
a limited number of Russian service
companies. In its going concern and
viability assessment, the Group sensitised
its base case by adjusting for zero oil
and condensate sales through Russian
infrastructure; noting that even with zero
sales for these products, there is forecast to
be sufficient cash reserves at the end of
the viability assessment period. There is
currently no material impact on the Group’s
future viability at the time of publication of
these consolidated financial statements as
a result of the ongoing Russia-Ukraine
conflict and resultant Russian sanctions.
The Directors have concluded that even
under this severe scenario modelled, the
Group would have sufficient liquidity over
the viability assessment period.
COVID-19: There was no loss of production
as a result of COVID-19 in 2020 or 2021 and
contingency plans are in place to protect
the workforce and ensure that there are
sufficient personnel to continue operations.
Therefore, the Directors have concluded
that there is currently no material impact on
the Group’s operations and liquidity at the
time of publication of this Annual Report,
nor do the Directors foresee a material
impact in the viability period, however, it is
recognised that there is uncertainty around
the future developments of COVID-19.
68 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Taskforce on Climate-related
Financial Disclosure
As per the requirements of the Taskforce
on Climate-related Financial Disclosure
(“TCFD”), the Directors are required to
describe the resilience of the organisation’s
strategy, taking into consideration different
climate-related scenarios, including a 2°C
or lower scenario (TCFD Strategy (c)). The
Directors performed this resilience analysis
in the viability assessment. The Directors
chose the Sustainable Development
Scenarios (“SDS”) referenced in the World
Energy Outlook 2021 as the preferred
climate-related scenario and, on page
56 – 57, we list the specific policy measures
required to limit global temperature
rises to 1.65ºC by 2050.
The following sensitivities were applied
to the base case to quantify the policy
measures per SDS: reduction in
hydrocarbon demand by 20% to account
for change in consumer demand, 20%
product price reduction as fossil fuel
demand falls, $10mn sulphur and other
pollution compliance breaches per annum,
10% higher operating costs for CO
2
taxation, 10% higher capital expenditures
for facility upgrade works, upgrading the
Group’s LPG truck fleet and research and
development into emissions reducing
technology, 10% higher general &
administrative costs to improve energy
performance standards and 10% lower
crude and condensate sales as ship
chartering becomes increasingly difficult.
Please refer to page 56 – 57 for further
details of the SDS policy measures and the
Group’s application to the base case.
The Group maintains sufficient cash
reserves at the end of the viability period
when sensitising the base case for the
above climate-related assumptions.
Following the assessment, the Directors
confirm the future strategy and future
viability remain resilient against the chosen
climate-related scenario.
Longer term viability
The Directors also considered the viability
of the business beyond the medium term.
The new instated Notes following the
conclusion of the restructuring mature in
June 2026 and, under the base case
scenario in the current viability assessment
model, the Directors have a reasonable
expectation the SSNs ($250 million) will
be repaid in full at maturity. Under no
reasonable scenario do the Directors
believe the SUNs (accruing 13.00%
payment in kind interest until maturity) will
be repaid in cash at maturity, and therefore
reasonably expects this to either be repaid
in specie through the issuance of new
shares (further diluting the existing
shareholders at the time) or have its
maturity extended through another
restructuring exercise (or a combination of
equity issuance and debt restructuring).
The implementation of the major strategic
initiatives described on pages 30 – 31 will
inevitably support future long-term viability
of the Group, however the Directors note
this is not required in the base case
scenario to repay the SSN at maturity
in 2026.
Viability statement conclusion
Considering the above, the following
conclusions can be drawn from the viability
assessment:
• In the event that the Group is able to
successfully close out the remaining steps
to restructure its Existing Notes, the
Group’s viability conclusion is not
exposed to plausible downside risks
arising in isolation relating to the Group’s
strategy, operations, liquidity or
compliance;
• In the event that the Group is able to
successfully close out the remaining steps
to restructure its Existing Notes, but a
combination of the risks occur, then the
Group’s viability conclusion is not
exposed in the event that a combination
of any three of the four considered
plausible downside scenarios arise;
• It is not plausible that all four risks would
arise together, since, in the event of the
strategic, operational and compliance
risks manifesting, the Group would take
mitigating actions to reduce costs and
manage liquidity and so the likelihood
of an increase in costs occurring
concurrently with the other three
scenarios is considered remote; and
• In the event that the remaining steps
to complete the restructuring are not
achieved, then under all reasonable
assumptions the Group is unable to
meet its US$725m debt liability due
in July 2022.
Based on these assessments and other
matters considered by the Board during
the year, on the assumption that
the Existing Notes are successfully
restructured, the Directors confirm that
they have a reasonable expectation that the
Group will continue in operation and meet
its restructured liabilities as they fall due
through the three-year viability assessment
period ending 31 December 2024.
Nevertheless, as highlighted above, the
material uncertainty referred to in respect
of the Going Concern assessment may cast
significant doubt over the future viability of
the Group.
This strategic report is approved by
the Board.
Arfan Khan
Chief Executive Officer
4 May 2022
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 69
Financial review
Financial review
Results of operations for the years ended 31 December 2021 and 2020
The table below sets forth the line items of the Group’s consolidated statement of comprehensive income for the years ended
31December 2021 and 2020 in US Dollars and as a percentage of revenue.
In thousands of US Dollars 2021 % of revenue 2020* % of revenue
Revenue 195,285 100.0% 175,939 100.0%
Cost of sales (87,849) (45.0)% (125,392) (71.3)%
Gross profit 107, 4 36 55.0% 50,547 28.7%
General and administrative expenses (12,124) (6.2)% (14,671) (8.3)%
Selling and transportation expenses (23,066) (11.8)% (31,037) (17.6)%
Taxes other than income tax (17,083) (8.7)% (14,113) (8.0)%
Finance costs (116,696) (59.8)% (102,067) (58.0)%
Employee share options – fair value adjustment 247 0.1% 496 0.3%
Impairment reversal/(charge) 74,186 38.0% (286,569) (162.9)%
Foreign exchange loss, net (285) (0.1)% (1,827) (1.0)%
Interest income 319 0.2% 253 0.1%
Other income 5,886 3.0% 4,757 2.7%
Other expenses (13,218) (6.8)% (7,606) (4.3)%
Profit/(loss) before income tax 5,602 2.9% (401,837) (228.4)%
Income tax (expense)/benefit (31,720) (16.2)% 37,478 21.3%
Loss for the year (26,118) (13.4)% (364,359) (207.1)%
Currency translation difference (203) (0.1)% 253 0.1%
Total comprehensive loss for the year (26,321) (13.5)% (364,106) (207.0)%
* Certain amounts shown here do not correspond to the 2020 report and reflect adjustments made. For more details, please see page 145 (correction of errors
andreclassifications).
General note
For the year ended 31 December 2021 (the “reporting period”) the total comprehensive loss amounted to US$26.3 million, a decrease
in loss by US$337.8 million from US$364.1 million for 2020. The decrease in total comprehensive loss is mainly driven by the reversal of
impairment in 2021 in the amount of US$74.2 compared to $286.6 million impairment charge in 2020, which was offset by income tax
expense in the current period, as opposed to income tax benefit in the previous period. In addition, increase in revenues primarily
resulting from higher hydrocarbon prices, as well as lower operating costs and selling and transportation expenses have also contributed
to the decrease in loss during the reporting period as compared to 2020. These are explained in more detail below.
As noted elsewhere in the Annual Report, on 23 December 2021, the Group signed a Lock-up Agreement with a majority of holders of the
aggregate principal amount of the Group’s outstanding Notes (including largest shareholder ICU Holdings Limited (“ICU”)) with the terms
of a proposed restructuring agreed by the parties. For more details on the key terms of restructuring please refer to pages 26 – 27.
70 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Revenue
The Group’s revenue increased by 11.0% to US$195.3 million for the reporting period (2020: US$175.9 million). This is mainly explained by
the higher product prices which was offset by lower sales volumes derived from a decrease in production during 2021 as shown in the table
below. The average Brent crude oil price increased by 64.4% from US$43.2 /bbl during 2020 to US$ 71.0 /bbl during the reporting period.
The pricing for all the Group’s crude oil, condensate and LPG is, directly or indirectly, related to the price of Brent crude oil.
Revenues from sales to the Group’s largest three customers amounted to US$143.1 million, US$18.2 million and US$8.7 million
(2020: US$118.9 million, US$29.7 million and US$7.4 million).
The Group’s revenue breakdown by products for the reporting period and 2020 is presented below:
In thousands of US Dollars 2021 2020 Variance Variance, %
Revenue from oil and gas condensate sales 150,290 123,861 26,429 21.3%
Revenue from gas and LPG sales 44,978 52,078 (7,100) (13.6)%
Revenue from sulphur sales 17 − 17 100.0%
Total revenue 195,285 175,939 19,346 11.0%
Average Brent crude oil price (US$/bbl) 71.0 43.2 28 64.2%
The following table shows the Group’s revenue breakdown by export/domestic sales for the reporting period and 2020:
In thousands of US Dollars 2021 2020 Variance Variance, %
Revenue from export sales 169,825 140,843 28,982 20.6%
Revenue from domestic sales 25,460 35,096 (9,636) (27.5)%
Total revenue 195,285 175,939 19,346 11.0%
The Group’s sales volumes by products and production volumes for the reporting period and 2020 is presented below:
In boe 2021 2020 Variance Variance, %
Oil and gas condensate sales volumes 2,378,019 3,274,374 (896,354) (27.4)%
Gas and LPG sales volumes 3,217,443 4,601,467 (1,384,024) (30.1)%
Total sales volumes 5,595,462 7,875,841 (2,280,379) (29.0)%
Production volumes 6,216,764 8,175,342 (1,958,578) (24.0)%
Cost of sales
In thousands of US Dollars 2021 2020* Variance Variance, %
Depreciation, depletion and amortisation 55,569 86,296 (30,727) (35.6)%
Payroll and related taxes 14,603 14,083 520 3.7%
Repair, maintenance and other services 6,610 7,717 (1,107) (14.3)%
Materials and supplies 4,561 4,219 342 8.1%
Well repair and maintenance costs 2,726 3,360 (634) (18.9)%
Transportation services 2,559 1,908 651 34.1%
Environmental levies 201 114 87 76.3%
Change in stock 403 7, 279 (6,876) (94.5)%
Other 617 416 201 48.3%
87,8 49 125,392 (37,543) (29.9)%
* Certain amounts shown here do not correspond to the 2020 report and reflect adjustments made. For more details, please see page 145 (correction of errors and
reclassifications).
Cost of sales Cost of sales decreased by 29.9% to US$87.8 million for the reporting period (2020: US$125.4 million). On a barrel of oil
equivalent (boe) basis, cost of sales decreased by US$0.22 from US$15.92 in 2020 to US$15.70 for the reporting period and cost of sales
excluding depreciation increased by US$0.74 to US$5.70 in the reporting period (2020: US$4.96).
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 71
Financial review continued
The main components of the decrease in cost of sales are:
Depreciation, depletion and amortisation decreased by 35.6% to US$55.6 million for the reporting period (2020: US$86.3 million).
Depreciation is calculated applying the units of production method. The decrease in depreciation in 2021 in comparison with the prior
period is a consequence of the impairment charge recognised as at 31 December 2020, which substantially reduced the depreciable
asset base from 1 January 2021. This has been offset, in part, by the increase in the ratio of the production volumes to the proven
developed reserves, which increases the charge per barrel of oil produced.
Repair, maintenance and other services decreased by 14.3% from US$7.7 million to US$6.6 million for the reporting period. These
expenses include costs of repairs and maintenance services on the facilities, specifically the gas treatment facility, as well as related spare
parts and other materials. These costs fluctuate depending on the timing of the periodic scheduled maintenance works. However, most
of the reduction is derived from the cost optimisation efforts that were initiated in 2020 and ran throughout the 2021.
Well repair and maintenance costs decreased by 18.9% to US$2.7 million for the reporting period (2020: US$3.4 million), which was
driven by the cost optimisation efforts by the Group that were initiated in 2020 and ran throughout the 2021.
Change in stock for the year mainly represents the movement in oil and condensate inventories. The negative adjustment of
US$-0.4 million in 2021 is a result of a build-up of oil and condensate inventories as at 31 December 2021 which were then sold early in
2022. The charge of US$7.3 million in 2020 is the result of sale of oil and condensate volumes which were built-up as at 31 December 2019
and sold during 2020.
The above-mentioned decrease in costs was partially offset by increase in the following components of cost of sales:
Payroll and related taxes increased by 3.7% from US$14.1 million in 2020 to US$14.6 million for 2021, resulting from annual salary
indexation, which was partially offset by changes in foreign exchange rates.
Transportation services increased by 34.1% to US$2.6 million for the reporting period (2020: US$1.9 million), which is caused by the
change in terms of the transport lease agreements. In 2020, part of the transportation expenses were capitalised as lease liabilities and
respective right-of-use assets, and therefore reflected through depreciation and unwinding of interest. In 2021, due to changes in the
terms of lease agreements they did not meet the requirements for recognition under lease accounting in accordance with IFRS16 Leases,
and therefore the related costs were directly expensed as transportation services in the income statement.
General and administrative expenses
In thousands of US Dollars 2021 2020 Variance Variance, %
Payroll and related taxes 6,123 7,102 (979) (13.8)%
Professional services 4,113 4,655 (542) (11.6)%
Insurance fees 601 633 (32) (5.1)%
Short-term leases 290 567 (277) (48.9)%
Business travel 204 128 76 59.4%
Communication 182 183 (1) (0.5)%
Depreciation and amortisation 170 600 (430) (71.7)%
Materials and supplies 144 139 5 3.6%
Bank charges 71 95 (24) (25.3)%
Other 226 569 (343) (60.3)%
12,124 14,671 (2,547) (17.4)%
General and administrative expenses decreased by 17.4% to US$12.1 million for the reporting period (2020: US$14.7 million). This was
driven by decrease in payroll and related taxes (by US$1.0 million or 13.8%), professional services (by US$0.6 million or 11.6%),
depreciation and amortisation (by US$0.4 million or 71.7%), short-term leases (by US$0.3 million or 48.9%). This reflected a reduction in
headcount, non-core activities and office space as a result of the cost optimisation programme.
Selling and transportation expenses
In thousands of US Dollars 2021 2020 Variance Variance, %
Transportation costs 9,545 12,760 (3,215) (25.2)%
Loading and storage costs 6,869 8,813 (1,944) (22.1)%
Marketing services 2,167 3,724 (1,557) (41.8)%
Depreciation of right-of-use assets 1,556 2,881 (1,325) (46.0)%
Payroll and related taxes 1,520 1,501 19 1.3%
Other 1,409 1,358 51 3.8%
23,066 31,037 (7,971) (25.7)%
Selling and transportation expenses decreased by 25.7% to US$23.1 million for the reporting period (2020: US$31.0 million), primarily
due to decrease in the volumes sold, marketing services fees and other costs. Depreciation costs resulting from the recognition of
right-of-use assets for rented railway tank cars also decreased due to the reduction in the number of leased railway tank cars due to
reduced volumes being sent to market.
72 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Taxes other than income tax
In thousands of US Dollars 2021 2020 Variance Variance, %
Royalties 7,786 7,016 770 11.0%
Export customs duty 7,655 5,017 2,638 52.6%
Government profit share 1,628 2,044 (416) (20.4)%
Other taxes 14 36 (22) (61.1)%
17,083 14,113 2,970 21.0%
Royalties, which are calculated based on production volumes and market prices for the different products, increased by 11.0% to
US$7.8million for the reporting period (2020: US$7.0 million), which corresponds to the increase in hydrocarbon revenues.
Export customs duty on crude oil increased by US$2.6 million or 52.6% to US$7.7 million for the reporting period (2020: US$5.0 million),
mainly owing to the corresponding higher export custom duties rates caused by higher hydrocarbon prices.
Government profit share decreased by US$0.4 million to US$1.6 million for the reporting period (2020: US$2.0 million), which
corresponds to the related decrease in hydrocarbon production.
Impairment charge
In 2021, as a result of the higher hydrocarbon prices being reflected in the impairment model the Group reversed the impairment on the
property, plant and equipment in the amount of US$74.2 million.
In 2020, as a result of the reserves downgrade and respective reflection of the updated future production profiles in the impairment
model the Group recognised non-cash impairment charge of US$ 286.6 million. Further details of impairment testing and assumptions
used are disclosed in the Note 4 to the consolidated financial statements of the Group on page 147.
Finance costs
In thousands of US Dollars 2021 2020 Variance Variance, %
Interest expense on borrowings 103,115 92,794 10,321 11.1%
Other finance costs 12,386 7,968 4,418 55.4%
Unwinding of discount on amounts due to Government of Kazakhstan 762 793 (31) (3.9)%
Unwinding of discount on lease liability 157 354 (197) (55.6)%
Unwinding of discount on abandonment and site restoration provision 276 158 118 74.7%
116,696 102,067 14,629 14.3%
Finance costs increased by US$14.6 million to US$116.7 million for the reporting period (2020: US$102.1 million) mainly due to higher
interest expense on borrowings of US$103.1 million (2020: US$92.8 million) and higher other finance costs of US$12.4 million (2020:
US$8.0 million). Increase in interest expense on borrowings is due to the additional interest cost in the amount of US$9.1 million, which
was calculated on the interest on Notes as per the terms of the Notes. Other finance costs primarily represent bondholder consent fees
inthe amount of US$2.9 million and advisor fees of US$9.3 million (2020: US$3.8 million and US$4.1 million, respectively) incurred by the
Group in relation to the forbearance agreements, lock-up agreement and discussions with its bondholders regarding the restructuring
ofthe Group’s outstanding bonds. For more details on the restructuring and related information see Note 1 to the consolidated financial
statements.
Other
Other expenses increased to US$13.2 million for the reporting period (2020: US$7.6 million). The increase is mainly attributable to the write-off
of and loss allowance for the advances for other non-current assets in the amount of US$9.1 million, which mainly comprised costs associated
with the development of new opportunities, including technical, legal, advisory and other professional fees. This increase was partially offset
by relatively smaller amounts of additional taxes and penalties in 2021 assessed in relation to prior periods considering new information,
whichwas not available at the time of preparation of respective financial information, and relevant interpretations by the management.
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 73
Financial review continued
Income tax
Income tax expense amounted to US$31.7 million for the reporting period, a difference of US$ 69.2 million as compared to income tax
benefit of US$37.5 million in 2020. Such a significant amount of income tax benefit in 2020 corresponds to respective impairment charges
recognised as of 31 December 2020 and corresponding derecognition of deferred tax liabilities. An impairment reversal was booked in
2021 and the increase in the difference between the IFRS base and the tax base of the property, plant and equipment resulted in
additional deferred tax liabilities and corresponding income tax charge.
Liquidity and capital resources
During the period under review, Nostrum’s principal source of funds was cash from operations. Following the negotiations to restructure
the Notes, during 2020 and 2021, the focus turned to preservation of cash by optimising the spend on capital expenditures and working
capital requirements.
Cash Flows
The following table sets forth the Group’s consolidated cash flow statement data for 2021 and the prior year:
In thousands of US Dollars 2021 2020
Cash and equivalents at the beginning of the period 78,583 93,940
Net cash flows from operating activities 117,415 82,746
Net cash used in investing activities (19,778) (40,101)
Net cash used in financing activities (10,862) (58,431)
Effects of exchange rate changes on cash and cash equivalents (112) 429
Cash and equivalents at the end of the period 165,246 78,583
Net cash flows from operating activities
Net cash flow from operating activities was US$117.4 million for the reporting period (2020: US$82.7 million) and was primarily attributable to:
• loss before income tax for the reporting period of US$5.6 million (2020: US$401.8 million), adjusted by a non-cash charge for
depreciation, depletion and amortisation of US$57.3 million (2020: US$89.8 million), finance costs of US$116.7 million (2020:
US$102.1 million) and impairment reversal of US$74.2 million (2020: impairment charge of US$286.6 million).
• US$7.0 million decrease in working capital (2020: US$8.3 million) is primarily attributable to decrease in trade receivables of
US$6.9 million (2020: US$17.7 million), decrease in inventories of US$2.5 million (2020: US$7.0 million), partially offset by the decrease in
trade payables of US$1.7 million (2020: US$9.2 million), and decrease in other current liabilities of US$0.1 million (2020: US$6.0 million).
• income tax paid of US$2.7 million (2020: US$2.0 million).
Net cash used in investing activities
Net cash used in investing activities for the reporting period was US$19.8 million (2020: US$40.1 million) due primarily to payment of
expenditures related to well workover & intervention programme of US$3.6 million for the reporting period (2020: US$12.7 million), gas
lift infrastructure development of US$2.8 million (2020: US$0.5 million), the low-pressure system of US$1.0 million (2020: US$2.8 million)
and transfer to the restricted cash of US$9.8 million as required by the forbearance agreements and the subsoil use rights for
abandonment and site restoration liabilities of the Group (2020: US$13.5 million).
Net cash used in financing activities
Net cash used in financing activities during the reporting period made up US$10.9 million (2020: US$58.4 million), and was mainly
represented by the payment of fees related to forbearance agreement and restructuring negotiations of US$9.1 million (2020: US$10.0
million) and the payment of US$1.7 million under lease agreements (2020: US$5.4 million). In 2020, net cash used in financing activities
also included the payment of US$43.0 million of the finance costs on the Group’s Notes.
74 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Going concern
The Group monitors on an ongoing basis its liquidity position, near-term forecasts, and key financial ratios to ensure that sufficient funds
are available to meet its commitments as they arise and liabilities as they fall due. The Group reforecasts its rolling 24-month cashflows on
a monthly basis and stress tests its future liquidity position for changes in product prices, production volumes, costs and other significant
events. Whilst looking for new opportunities to fill the spare capacity of the Group’s infrastructure, the Directors are also focused on a
range of actions aimed at improving the liquidity outlook in the near-term. These include the ongoing efforts to restructure the Existing
Notes, as well as further cost optimisation to reduce capital expenditures, operating costs and general and administration cost.
The Directors’ going concern assessment is supported by future cash flow forecasts for the going concern period to 30 June 2023. The
base case going concern assessment reflects production forecasts consistent with the Board approved plans and published guidance
and assumes a Brent oil price of $72/bbl for 2022 and $68/bbl for 2023. The favourable hydrocarbon pricing in 2021 and forbearance of
making interest payments under the terms of the Forbearance Agreement with noteholders (refer to “Update on Bond Restructuring”
section for further details) meant that the Group was able to grow its unrestricted cash reserves by over US$86 million. As a result, the
Group had unrestricted cash balances of US$165.2 million as at 31 December 2021, with a further $22.7 million in a restricted bank
account with limited access as per the terms of the Forbearance Agreement. Under the base case going concern assessment to the
period to 30 June 2023, the Group is forecast to have total cash reserves of over U$$200 million, inclusive of cash swept into the restricted
account, as explained below.
In 2020, the Group began formal proceedings for the restructuring of its Existing Notes, the largest of which would become due and
repayable in July 2022. A Forbearance Agreement was entered into with an informal ad hoc committee of noteholders (the “AHG”) in the
same year which, amongst other things, forbears the AHG from accelerating the Existing Notes’ obligations as a result of missed interest
payments. During this period of forbearance the Company and the AHG endeavoured to agree on the terms of a consensual restructuring
of the Existing Notes. On 23 December 2021, the Group announced the execution of a Lock-Up Agreement (“LUA”) and terms of a
restructuring agreement initially with the AHG and ICU Holdings Limited ("ICU") (the Company’s largest shareholder, holding c.24% of
the share capital). Subsequently, the LUA was acceded to by holders of over 77% of the total aggregate principal amount of the Existing
Notes. On 13 April 2022, the Group issued a Circular and served notice convening a General Meeting of its shareholders to vote on the
restructuring terms (“Restructuring Resolution”). On 29 April 2022, 99.99% of voting shareholders voted in favour of the Restructuring
Resolution at the General Meeting; allowing the Group to proceed with the restructuring via a UK scheme of arrangement under Part 26
of the Companies Act 2006 (refer to “Update on Bond Restructuring” section and Note 1 to the consolidated financial statements for the
latest on the Bond Restructuring process).
The below outlines the key terms of the restructuring as agreed between the Group, acceded noteholders and ICU in the LUA and also
voted in favour of by Nostrum shareholders:
• Partial reinstatement of debt in the form of US$250 million Senior Secured Notes (SSNs) bearing interest at a rate of 5.00% per year
payable in cash and maturing on 30 June 2026. The SSNs are not convertible;
• Partial reinstatement of debt in the form of US$300 million Senior Unsecured Notes (SUNs) bearing interest at a rate of 1.00% per year
payable in cash and 13.00% per year payable in kind and maturing on 30 June 2026. The SUNs are repayable in specie through the
issuance of equity in the Company on maturity;
• The exchange of the remainder of the Group’s existing debt along with accrued but unpaid interest for equity in the Company, thereby
significantly diluting the interests of the current equity holders;
• New corporate governance arrangements in respect of the Group and certain arrangements regarding future utilization of the Group's
cashflows. This includes a cash sweep mechanism into which cash above US$30 million is swept into a debt service retention account
(to fund the next two cash interest payments due) and a restricted cash account which the Company can access with approval of the
majority of Independent Non-Executive Directors of the Company; and
• Transfer the Company's listing to the Standard Listing segment of the London Stock Exchange.
The forecast financing cashflows assume that the Existing Notes are restructured per the agreed terms as set out in the Lock-up
Agreement and outlined above. Therefore, in forming an assessment on the Group’s ability to continue as a going concern, the Board has
made a significant assumption about the Group being able to close out the successful restructuring of the Existing Notes.
Whilst the signing of the LUA and shareholders voting in favour of the Restructuring Resolution marked key milestones in the Company’s
restructuring journey and paves an agreed go forward strategy to restructure the Existing Notes, the Company notes there remain several
other milestones to achieve prior to successful completion. These include:
• The Company receiving all authorisations including securing a waiver from the Government of the Republic of Kazakhstan for the right
to pre-empt newly issued shares in the Company on closing of the restructuring.
• The UK Court sanctioning the UK scheme of arrangement.
As at the date of publication of these consolidated financial statements, the above milestones have not concluded, with the outcomes
uncertain and largely outside of the Group’s control. If one or all of the milestones above are not achieved, the restructuring may not
proceed on the agreed set of terms. Therefore, the assumption that the Group can successfully complete the restructuring by satisfying
the above milestones represents a material uncertainty that the Existing Notes will not be restructured. This may cast a significant doubt
on the Group’s and Company’s ability to continue as a going concern for the going concern period to 30 June 2023.
The Directors have also considered any additional risks to liquidity posed by the ongoing Russia-Ukraine conflict, which has led to
widespread sanctions being imposed on various Russian institutions and individuals. Bodies and nations imposing sanctions include the
US, UK and EU and these sanctions have been sequentially expanding. Given the geographical position of the Group’s operations, it is
very close to the evolving situation in Ukraine. Whilst Kazakhstan is not directly involved in the ongoing conflict, nor have any Western
sanctions been levelled at it, the country is connected to Russia through infrastructure, banking, and other business links. Nostrum
currently sends approximately 40% of its products by volume produced via Russian transport infrastructure and ports and the Group also
contracts with a limited number of Russian service companies. The Directors are cognisant of the current and evolving sanctions list to
ensure the Group is conducting business in compliance with these sanctions.
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Financial review continued
In its going concern assessment, the Group sensitised its base case by adjusting for zero oil and condensate sales through Russian
infrastructure; noting that even with zero sales for these products, there is forecast to be cash reserves in excess of US$100 million at the
end of the going concern period to 30 June 2023, inclusive of cash swept into the restricted account. There is currently no material impact
on the Group’s operations and liquidity at the time of publication of these consolidated financial statements as a result of the ongoing
Russia-Ukraine conflict and resultant Russian sanctions. The Directors have concluded that even under this severe scenario modelled,
the Group would have sufficient liquidity over the going concern review period.
Additionally, the Directors remain vigilant on risks to liquidity posed by any resurgence in COVID-19. Contingency plans have been put in
place both to protect the workforce and ensure that there are sufficient personnel to continue operations. There was no loss of production
as a result of COVID-19 in 2020 and 2021. Therefore, the Directors have concluded that there is currently no material impact on the
Group’s operations and liquidity, nor do the Directors foresee a material impact in the going concern period, however, it is recognised
that there is uncertainty around the future developments of COVID-19.
After careful consideration of the material uncertainty in connection with the restructuring of the Existing Notes, and on the basis of
the successful execution of the LUA, shareholders voting in favour of the Restructuring Resolution, advice from our financial and
legal advisors, and our assessment of the likelihood that the remaining milestones can be achieved, the Directors have a reasonable
expectation that the Group and Company have sufficient resources to continue in operation for the going concern period to 30 June
2023. For these reasons, they continue to adopt the going concern basis in preparing the consolidated financial statements. Accordingly,
these consolidated financial statements do not include any adjustments to the carrying amount or classification of assets and liabilities
that would result if the Group were unable to continue as a going concern.
Notwithstanding that the going concern period has been defined as the period to 30 June 2023, the Directors have considered events
and conditions beyond the period of assessment which may cast doubt on the Group’s ability to continue as a going concern. The
Directors draw attention to the Viability Statement on page 67 – 69 which highlights that the material uncertainty referred to in respect
of the going concern assessment will inevitably cast significant doubt over the future viability of the Group.
Commitments
Liquidity risk is the risk that the Group will encounter difficulty raising funds to meet commitments associated with its financial liabilities.
Liquidity requirements are monitored on a regular basis and management seeks to ensure that sufficient funds are available to meet any
commitments as they arise. The table below summarises the maturity profile of the Group’s financial liabilities as at 31 December 2021
based on contractual undiscounted payments:
In thousands of US Dollars On demand
Less than
3months 3-12 months 1-5 years
More than
5years Total
As at 31 December 2021
Borrowings 1,298,926 43,000 43,000 − − 1,384,926
Trade payables 7,853 − 546 − − 8,399
Other current liabilities 14,636 − − − − 14,636
Due to Government of Kazakhstan − 258 773 4,124 4,381 9,536
1,321,415 43,258 44,319 4,124 4,381 1,417,497
As at 31 December 2020
Borrowings 1,203,633 43,000 43,000 − − 1,289,633
Lease liabilities − 760 2,279 40 − 3,079
Trade payables 7,774 − 728 − − 8,502
Other current liabilities 16,491 − − − − 16,491
Due to Government of Kazakhstan − 258 773 4,124 5,412 10,567
1,227,898 44,018 46,780 4,164 5,412 1,328,272
Capital commitments
During the reporting period, Nostrum’s cash used in capital expenditures for purchase of property, plant and equipment (excluding VAT)
was approximately US$8.6 million (2020: US$25.8 million). This mainly reflects costs associated with well workover/intervention program
and other field infrastructure development projects (2020: well workover/intervention program and other field infrastructure
development projects).
Gas Treatment Facility
Following the successful completion of the first phase of the gas treatment facility, consisting of two units, the Group achieved full
commissioning of a third unit during 2019. This unit is in hot stand-by mode and a discrete maintenance scope for 2022 was approved
toimprove further recovery efficiency of products from the raw gas stream.
Dividend policy
The Group currently pays no dividend and has not done so since 2015, as the Board determined it was not in the Company’s best interests
to do so. This will be reviewed annually by the Board.
76 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Five-year summary
In millions of US$ (unless mentioned otherwise) 2021 2020 2019 2018 2017
EBITDA reconciliation
Profit/(loss) before income tax 5.6 (401.8) (1,343.1) (92.2) 26.0
Add back
Finance costs 116.7 102.1 43.0 49.4 59.8
Impairment charge (74.2) 286.6 1,354.7 150.0 −
Employee share options – fair value adjustment (0.2) (0.5) 0.6 (1.3) (2.1)
Foreign exchange loss/(gain), net 0.3 1.8 (0.4) 1.0 0.7
Loss on derivative financial instrument − − − 12.4 6.7
Interest income (0.3) (0.3) (0.1) (0.5) (0.4)
Other expenses 13.2 7.6 12.5 8.5 22.0
Other income (5.9) (4.8) (7.2) (4.4) (4.1)
Depreciation, depletion and amortisation¹ 57. 3 89.8 143.3 117.1 123.0
Purchase of derivative financial instruments² − − (3.7) (8.6) −
EBITDA 112.5 80.5 199.6 231.3 231.6
Operating costs reconciliation
Cost of sales 87.8 125.4 172.0 165.1 177.2
Less:
Depreciation, depletion and amortisation (55.6) (86.3) (136.8) (115.2) (120.7)
Change in stock³ (0.4) (7. 3) 6.2 (0.1) (0.3)
Operating costs 31.8 31.8 41.4 49.8 56.3
G&A reconciliation
General and administrative expenses 12.1 14.7 21.4 22.2 33.3
Adjusted for:
Depreciation and amortisation (0.2) (0.6) (2.0) (1.9) (2.3)
G&A 11.9 14.1 19.4 20.3 31.0
Net debt reconciliation
Long-term borrowings − − 1,100.5 1,094.0 1,055.9
Current portion of long-term borrowings 1,289.6 1,186.3 35.6 35.6 31.6
Less:
Cash and cash equivalents 165.2 78.6 93.9 121.8 127.0
Net debt 1,124.4 1,107.7 1,042.2 1,007.8 960.5
Net cash flows from operating activities 117.4 82.7 196.8 214.0 181.5
Net cash used in investing activities (19.8) (40.1) (121.0) (172.0) (192.4)
Net cash (used in)/from financing activities (10.9) (58.4) (103.7) (47.0) 34.6
EBITDA margin
4
57.6% 45.7% 61.9% 59.3% 57.1%
Share price at end of period (US$) 0.07 0.10 0.22 1.03 4.41
Shares outstanding (‘000s) 188,183 188,183 188,183 188,183 188,183
Options outstanding ('000s) 3,432 3,432 3,432 3,432 3,333
* Certain amounts shown here do not correspond to the 2020 report and reflect adjustments made. For more details, please see Note 3 to the consolidated financial
statements.
1. Depreciation as it applies to operating assets only.
2. Purchase of derivative financial instruments represents the cash paid under the hedging contract which in accordance with IAS7 Statement of Cash Flows is included
within operating cash flows. While this item is not required to be presented in the Consolidated Income Statement, we have included this in our definition of EBIT and
EBITDA in order to better align these non-GAAP measures with our operating cash flows.
3. Due to materiality the change in stock was introduced in the opex reconciliation from 2019, and comparatives have been adjusted accordingly for consistency purposes.
4. EBIDTA margin is calculated as EBITDA divided by total revenue.
Strategic report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 77
Financial review continued
Alternative performance measures
In the discussion of the Group’s reported operating results, alternative performance measures (APMs) are presented to provide readers
with additional financial information that is regularly reviewed by management to assess the financial performance or financial health of
the Group or is useful to investors and stakeholders to assess the Group’s performance and position. However, this additional information
presented is not uniformly defined by all companies including those in the Group’s industry. Accordingly, it may not be comparable with
similarly titled measures and disclosures by other companies. Certain information presented is derived from amounts calculated in
accordance with IFRS but is not itself an expressly permitted IFRS measure. Such measures should not be viewed in isolation or as an
alternative to the equivalent IFRS measure.
EBITDA
EBITDA is defined as the results of operating activities before depreciation and amortisation, share-based compensation, fair value gains
and losses on derivative instruments, foreign exchange losses, finance costs, finance income, non-core income or expenses and taxes,
and includes any cash proceeds received or paid out from hedging activity. This metric is relevant as it allows management to assess the
operating performance of the Group in absence of exceptional and non-cash items.
Operating costs
Operating costs are the cost of sales less depreciation and change in stock. This metric is relevant as it allows management to see the cost
base of the Company on a cash basis.
Arfan Khan
Chief Executive Officer
4 May 2022
78 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Introduction to corporate governance
Executive Chairman’s overview
During 2021, the board
andmanagement primarily
focused on the safety of
ourstaff and contractors,
restructuring the balance
sheet to provide future
financial stability, seeking
third party volumes for our
world class gas-processing
infrastructure and continuing
operations in a cost-
effective manner to improve
liquidity and efficiently
manage reservoir decline.
Dear shareholder,
Much of our effort and attention during
2021 was focused on stabilising the
financial position of the Group in order
to secure its future, whilst ensuring that
operations continued such that our
employees and contractors remained safe.
Our principal objectives for 2021 were to
successfully restructure our 2022 and 2025
bonds so that the Group has the security
and balance sheet strength to move
forward. To that end, on 23 December 2021
we announced the signing of a lockup
agreement with our bondholders that
outlined the main terms of the restructuring.
This was later voted in favour by 99.99% of
voting shareholders on 29 April 2022 at a
General Meeting. In addition, we continued
to engage with various stakeholders
to secure third-party agreements for
additional volumes for our gas treatment
facilities.
Alongside our principal objectives,
our other key priority tasks were to:
• Maintain financial discipline to minimise
costs and improve liquidity. This was
achieved.
• Reduce the impact of our operations on
the environment. This was achieved.
• Continue studies to identify viable
technologies to mitigate sub-surface risk.
This was achieved.
• Stay alert to the threat of COVID-19 such
that our employees remain protected and
our operations continue uninterrupted.
This was achieved.
• Our 2021 workover and intervention
programme delivered mixed results but
nevertheless remains a cost-effective
means of mitigating the impacts of
natural reservoir decline.
Board changes
As I reported last year, on 26 January 2021
Arfan Khan joined the Group as Chief
Executive Officer and member of the
Company’s board of Directors.
Also, as I reported last year, effective
31 March 2020 Tom Richardson resigned
as a Director of the Company and was
succeeded as Chief Financial Officer by
Martin Cocker on an interim basis until a
new permanent Chief Financial Officer
(Non-Director) was recruited. Martin had
served on the board as an independent
Non-Executive Director since 16 November
2017.
A formal board evaluation was completed
in 2021 during which the board structure,
membership and skill set were reviewed.
Remuneration policy
A resolution was put to shareholders
at the 2021 Annual General Meeting
relating to the Directors’ annual report on
remuneration for 2021. In accordance with
the UK Companies Act 2006, this resolution
was subject to an advisory vote, which
was passed. At the 2021 Annual General
Meeting a resolution was also passed to
allow the payment to the Company’s Chief
Executive Officer, Arfan Khan, of an annual
bonus of up to a maximum of 240% of base
compensation, which permission expires
on the date of the 2022 Annual General
Meeting.
At the 2022 Annual General Meeting, the
Directors’ annual report on remuneration
for 2021 will be put to shareholders for
approval by way of an advisory vote. In
accordance with the Companies Act 2006,
a resolution to approve changes to the
Remuneration Policy will also be submitted
to shareholders for a binding vote at
the 2022 Annual General Meeting.
The only changes that are proposed to
the Remuneration Policy are to allow the
payment to the Company’s Chief Executive
Officer, Arfan Khan, of an annual bonus
of up to a maximum of 240% of base
compensation.
For further information, please see
the letter from the Chairman of the
Remuneration Committee on
pages 103 – 104.
Atul Gupta
Executive Chairman
4 May 2022
Corporate governance
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 79
Introduction to corporate governance continued
Compliance with the Code
The UK Corporate Governance Code
issued by the Financial Reporting
Council in July 2018 (the “Code”)
sets out the governance principles
and provisions that applied to the
Company during 2021. A copy of
the Code is available from the
Financial Reporting Council’s website
at www.frc.org.uk. The aim of the
corporate governance report is to
demonstrate how the principles of
the Code have been considered
and applied by the Company.
The UK Financial Reporting Council
promotes high-quality corporate
governance and reporting through
the Code with which all companies
with a premium listing on the London
Stock Exchange are required to
either comply in full, or explain why,
and towhat extent, they do not
comply. This statement should
be read in conjunction with the
Corporate Governance section
of this report asa whole. The
following headings correspond
to the headings in theCode.
Section 1: Board leadership and
company purpose
A successful company is led by an effective
and entrepreneurial Board, whose role is to
promote the long-term sustainable success
of the company, generating value for
shareholders and contributing to wider
society. See pages 82 – 83.
The Board should establish the company’s
purpose, values and strategy, and satisfy
itself that these and its culture are aligned.
All directors must act with integrity, lead by
example and promote the desired culture.
See pages 40 – 42.
The Board should ensure that the necessary
resources are in place for the company
to meet its objectives and measure
performance against them. The Board
should also establish a framework of
prudent and effective controls, which
enable risk to be assessed and managed.
See page 60.
In order for the company to meet its
responsibilities to shareholders and
stakeholders, the Board should ensure
effective engagement with, and encourage
participation from, these parties. See pages
32 – 33 and 90 – 91.
The Board should ensure that workforce
policies and practices are consistent with
the company’s values and support its
long-term sustainable success. The
workforce should be able to raise any
matters of concern. See pages 40 – 42.
Section 2: Division of responsibilities
The chair leads the Board and is
responsible for its overall effectiveness in
directing the company. He or she should
demonstrate objective judgement
throughout their tenure and promote
a culture of openness and debate. In
addition, the chair facilitates constructive
Board relations and the effective contribution
of all non-executive directors, and ensures
that directors receive accurate, timely and
clear information. See page 86.
The Board should include an appropriate
combination of executive and non-
executive (and, in particular, independent
non-executive) directors, such that no one
individual or small group of individuals
dominates the Board’s decision-making.
There should be a clear division of
responsibilities between the leadership of
the Board and the executive leadership of
the company’s business. See pages 86 – 87.
Non-executive directors should have
sufficient time to meet their Board
responsibilities. They should provide
constructive challenge, strategic guidance,
offer specialist advice and hold
management to account. See page 86.
The Board, supported by the company
secretary, should ensure that it has the
policies, processes, information, time and
resources it needs in order to function
effectively and efficiently. See pages
87 – 89.
Section 3: Composition, succession
and evaluation
Appointments to the Board should be
subject to a formal, rigorous and
transparent procedure, and an effective
succession plan should be maintained for
Board and senior management. Both
appointments and succession plans should
be based on merit and objective criteria
and, within this context, should promote
diversity of gender, social and ethnic
backgrounds, cognitive and personal
strengths. See pages 87 and 89.
The Board and its committees should have
a combination of skills, experience and
knowledge. Consideration should be given
to the length of service of the Board as a
whole and membership regularly
refreshed. See page 89 and committee
reports.
Annual evaluation of the Board should
consider its composition, diversity and how
effectively members work together to
achieve objectives. Individual evaluation
should demonstrate whether each director
continues to contribute effectively.
See page 90.
Section 4: Audit, risk and internal
control
The Board should establish formal and
transparent policies and procedures
to ensure the independence and
effectiveness of internal and external audit
functions and satisfy itself on the integrity
of financial and narrative statements.
See pages 92 – 98.
The Board should present a fair, balanced
and understandable assessment of the
company’s position and prospects.
See pages 67 and 125.
The Board should establish procedures to
manage risk, oversee the internal control
framework, and determine the nature and
extent of the principal risks the company is
willing to take in order to achieve its
long-term objectives. See page 60.
Section 5: Remuneration
Remuneration policies and practices
should be designed to support strategy
and promote long-term sustainable
success. Executive remuneration should be
aligned to company purpose and values,
and be clearly linked to the successful
delivery of the company’s long-term
strategy. See pages 103 – 112.
A formal and transparent procedure
for developing policy on executive
remuneration and determining director
and senior management remuneration
should be established. No director should
be involved in deciding their own
remuneration outcome. See pages
113 – 116.
Directors should exercise independent
judgement and discretion when authorising
remuneration outcomes, taking account of
company and individual performance, and
wider circumstances. See pages 103 – 112.
Executive Chairman’s overview continued
80 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Statement of compliance
Nostrum fully complied throughout 2021
with the provisions of the 2018 version of
the UK Corporate Governance Code
except in the following respects:
Provision 9
Contrary to Provision 9, which states that
the roles of chair and chief executive should
not be exercised by the same individual,
due to a new Chief Executive Officer not
having been identified by the time of the
planned resignation of Ms Van Hecke on
31 August 2020, the responsibilities of the
Chief Executive Officer were discharged
by Mr Gupta from 1 September 2020
until the appointment of Mr Khan on
26 January 2021.
Provision 10
Mr Cocker joined the Board of the
Company on 16 November 2017, serving
as an independent Non-Executive Director.
Following the departure of Mr Richardson
as Chief Financial Officer in March 2020,
Mr Cocker was asked by the Board to
assume the executive responsibilities of the
Chief Financial Officer on an interim basis.
Mr Cocker agreed to do so and from 31
March 2020 to 30 August 2021 he was not
considered an independent Non-Executive
Director by the Board.
Following the completion of his duties as
interim Chief Financial Officer, the Board
considered whether it was appropriate that
Mr Cocker resume his previous role as an
independent Non-Executive Director.
In that regard the Board took into
account Provision 10 of the Code and the
circumstances listed therein that are likely
to impair, or could appear to impair an
independent Non-Executive Director’s
independence. It further took note of the
requirement in Provision 10 that where any
such circumstances apply and the Board
nonetheless considers the Non-Executive
Director to be independent, a clear
explanation should be provided.
The Board recognised that while Mr Cocker
previously served as an independent
Non-Executive Director of the Company
for more than two years, for a period
of 17 months he assumed executive
responsibilities and was remunerated for
this, and that the following circumstances
listed in Provision 10 of the Code did apply
during this interim period:
• Is or has been an employee of the
company or group within the last five
years; and
• Has received or receives additional
remuneration from the company apart
from a director’s fee, participates
in the company’s share option or a
performance-related pay scheme, or is
amember of the company’s pension
scheme.
However, as Mr Cocker only assumed
executive responsibilities at the request of
the Board for a short interim period, the
Board did not believe these circumstances
would be or were likely to impair his ability
to act independently as foreseen in
Provision 10 of the Code.
The Board considered that Mr Cocker had
demonstrated throughout the period
during which he acted as an independent
Non-Executive Director of the Company
that he acted independently in his role as
a Director. The Board was of the view that
following the end of his interim role
Mr Cocker remains fully capable of
scrutinising and holding to account the
performance of management and
individual executive directors against
agreed performance objectives as
foreseen in Provision 13 of the Code.
In that regard the Board also took note of
Provision 75 of the Guidance on Board
Effectiveness (the Guidance) which
supplements the Code and contains
suggestions of good practice to support
directors and their advisers in applying
the Code, which provides:
“It is important that non-executive directors
do not operate exclusively within the
confines of the boardroom, but have a
good understanding of the business and its
relationships with significant stakeholders.
Accordingly, it is advisable for them to take
opportunities to meet shareholders, key
customers and members of the workforce
from all levels of the organisation.”
The Board believes that given his deep
knowledge of the Company and its
business and stakeholders gained as a
result of his interim role, Mr Cocker can
make unique contributions to the Board
as contemplated by the Guidance.
Accordingly, the Board considers
Mr Cocker to be independent and
redesignated him as an independent
Non-Executive Director of the Company
on 30 August 2021.
Provision 11
Following the appointment of Ms Van
Hecke as Chief Executive Officer on 16
December 2019 and until the redesignation
of Mr Cocker as an independent director on
30 August 2021, at least half of the board,
excluding the Chair, were no longer
considered to be independent. Given
recent changes in various Directors’
roles, the Company’s engagement with
its bondholders and the ongoing
uncertainties caused by the COVID-19
pandemic, the Board has not yet
commenced a search for additional
independent Non-Executive Directors to
join the Board but this subject is being kept
under review.
Provision 36
The Company’s LTIP has a total holding and
vesting period of no more than three years
and therefore does not comply with the
requirements of Code Provision 36, which
requires share awards to be released for
sale on a phased basis and be subject to
a total vesting and holding period of five
years or more. As explained in the press
release released by the Company on
28 August 2019, a copy of which has also
been published on the Public Register
maintained by the Investment Association,
the Board and the Remuneration
Committee believe that the current
provisions of the LTIP relating to the
performance period and vesting period are
appropriate and aligned with the interests
of shareholders, so that modifying such
provisions of the LTIP at this time would not
be the right course of action. The full text of
the announcement is available to read on
the Company’s website.
Corporate governance
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 81
Board of Directors
Atul Gupta
Executive Chairman
Interim Chief Executive Officer
1 September 2020 to 25 January 2021
Date of birth: 15 December 1959
Nationality: British
Date of appointment: 19 May 2014
Other current appointments: None
Skills and experience:
• Chief Executive Officer (2006-2008) and
Chief Operating Officer (1999-2006) of
Burren Energy.
• 40 years’ broad experience in
international upstream oil and gas
businesses: Charterhouse Petroleum,
Petrofina, Monument and Burren Energy.
• Graduate in Chemical Engineering
(Cambridge University) and Masters in
Petroleum Engineering (Heriot-Watt
University, Edinburgh).
Kaat Van Hecke
Independent Non-Executive Director
Date of birth: 7 December 1971
Nationality: Belgian
Date of appointment: 31 December 2016
Other current appointments:
• Glover Gas & Power B.V. – Independent
Non-Executive Director.
• Axxela Limited – Independent Non-
Executive Director.
• Axxela Funding 1 Plc – Independent
Non-Executive Director.
• Trinity Exploration & Production PLC
– Independent Non-Executive Director
1
.
Skills and experience:
• 2013-2016 served as Managing Director
and Senior Vice President of the Austrian
Upstream business at Österreichische
Mineralölverwaltung (OMV).
• 2010-2013 served as E&P Group Head of
Business Support at OMV.
• 2002-2010 held various positions with
Shell in Russia, Nigeria and The
Netherlands.
• 1995-2001 held various positions with
ExxonMobil in Belgium and The
Netherlands.
• Obtained a Master of Science degree in
Chemical Engineering from the University
of Ghent, Belgium.
• Also holds a Masters in General
Management from the Vlerick
Management School, Belgium.
Arfan Khan
Chief Executive Officer
from 26 January 2021
Date of birth: 22 April 1959
Nationality: American
Date of appointment: 26 January 2021
Other current appointments: None
Skills and experience:
• From January 2020 until joining the
Company, President of Stratum Energy
Group (Romania).
• From April 2014 to December 2019, COO
of Amni International Petroleum (Nigeria).
• From April 2012 to March 2014,
Petroleum Engineering Director at
Maersk Oil (Angola).
• From August 2002 to March 2012, Chief
Production Engineer at Shell (Nigeria &
Kazakhstan).
• Pre-2002: 12 years with ExxonMobil
Gulf-of-Mexico Reservoir
Development (US).
• Member of the Society of Petroleum
Engineers.
• Holds a Bachelor of Science degree from
Texas A&M University and an MBA from
Tulane University.
Board of Directors
A N
RH
Board committees
A
Audit Committee
N
Nomination and Governance
Committee
H
Health, Safety, Environment and
Communities Committee
R
Remuneration Committee
Chairman/Chairwoman
1. Effective 22 February 2022
82 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Sir Christopher Codrington, Bt.
Independent Non-Executive Director
Date of birth: 20 February 1960
Nationality: British
Date of appointment: 19 May 2014
Other current appointments:
• Navarino Services Limited – Director.
• Capital Marketing Investments Ltd –
Director.
• Codco Limited.
• Network Point Management (Witney)
Limited .
Skills and experience:
• More than 30 years’ executive board and
senior management experience in the oil
and gas sector, and the hospitality and
other industries.
• Spent eight years living in Houston, Texas,
developing prospects in various oil and
gas fields for COG, Inc., Texas General
Resources, Inc., TexBrit Corporation, Inc.
and Whitehall Energy Limited.
• Royal Agricultural University – DipAFM.
Martin Cocker
Interim Chief Financial Officer 31 March 2020
to 30 August 2021
Redesignated as an Independent
Non-Executive Director on 30 August 2021
Date of birth: 19 September 1959
Nationality: British
Date of appointment: 16 November 2017
Other current appointments:
• Etalon Group PLC – Non-Executive
Director
1
.
• Tinkoff Credit Systems Group Holdings–
Non-Executive Director
2
.
• Headhunter Group PLC – Non-Executive
Director
3
.
• JEC Property Management Limited –
Director.
Skills and experience:
• Chartered accountant with over 30 years’
business experience.
• Held several line management, project
leader, CEO-and CFO-level positions and
has also been independent Non-
Executive Director and Chairman of the
Audit Committee at Etalon Group PLC,
Headhunter Group PLC and TCS Group
Holdings PLC.
• Previously held senior positions with
Deloitte & Touche, KPMG, Ernst & Young
and Amerada Hess.
• Obtained a BSc joint honours degree in
Mathematics and Economics from the
University of Keele.
• Member of the Institute of Chartered
Accountants of England and Wales.
A N
HA N RR
Directors resigned in 2021:
Simon Byrne,
Non-Executive Director
Resigned effective 4 January 2021
Board committees
A
Audit Committee
N
Nomination and Governance
Committee
H
Health, Safety, Environment
andCommunities Committee
R
Remuneration Committee
Chairman/Chairwoman
1. Resigned on 4 March 2022
2. Resigned on 11 March 2022
3. Resigned on 5 March 2022
Corporate governance
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 83
Senior management team
Senior management team
Shane Drader
Chief Financial Officer
from 30 August 2021
Date of birth:
5November 1969
Nationality: Canadian
Skills and experience:
• Appointed as Chief
Financial Officer of
the Group effective
30 August 2021.
• Chartered accountant
with over 25 years of
experience in business
and professional services.
• Most recently served as
Managing Director, Head
of IPO Office at JSC NC
“KazMunayGas”. Mr
Drader was also a
member of the
management board at
KazMunaiGas Exploration
and Production JSC
where he also had the
roles of Managing
Director, Financial
Controller and Acting
Chief Financial Officer.
• Holds a Bachelor of
Commerce degree from
the University of Calgary.
• Member in good
standing with the
Chartered Professional
Accountants of Alberta,
Canada.
Robert Tinkhof
Chief Operating Officer
Date of birth: 8 April
1962
Nationality: Dutch
Skills and experience:
• Appointed as Chief
Operating Officer of the
Group on 12 February
2019.
• 35 years of experience in
the oil and gas industry,
mainly Royal Dutch Shell
with assignments in the
Netherlands, UK, Syria,
Iran, Egypt, Dubai, Iraq
and Russia.
• Before taking the position
as Chief Operating
Officer, held several
senior management
positions since 2000 as
General Manager Wells
in Shell and Managing
Director at the Scientific
Research Institute of KMG
for Production and
Technology in
Kazakhstan.
Thomas Hartnett
Chief Legal Officer &
Company Secretary and
Acting Head of Human
Resources
Date of birth: 4 July
1964
Nationality: US/Belgian
Skills and experience:
• Appointed as General
Counsel of the Nostrum
Group on 5 September
2008, as Company
Secretary of Nostrum Oil
& Gas PLC on 3 October
2013 and as Acting Head
of Human Resources on
13 January 2020.
• More than 30 years of
post-qualification
experience, including
16years with the law firm
White & Case LLP, where
he was a Partner and
specialised in cross-
border corporate and
M&A transactions based
in the firm’s New York,
Istanbul, London, Brussels
and Bangkok offices.
• Served as Senior
Corporate Counsel in the
EMEA headquarters of
Intercontinental Hotels
Group from 1996-1998.
• Holds a Bachelor of Arts
degree in Comparative
and Developmental
Politics from the
Universityof Pennsylvania
and a Juris Doctor degree
from New York University
School of Law.
• Member of the New York
Bar and the Association of
International Energy
Negotiators.
Arkadi Epifanov
1
Chief Commercial
Officer
Date of birth:
27October 1957
Nationality: Russian
Skills and experience:
• Appointed as Chief
Commercial Officer on
13January 2017.
• 2009-2017 held position
as marketing consultant
for Zhaikmunai LLP.
• Over 20 years’ experience
in senior management
and directorial positions
in Nafta, Transoil, Lukoil,
Litasco and Baltic Oil
Terminal.
• Has worked in the oil
sector across diverse
regions including Finland,
Belgium, Romania, Russia,
Switzerland, The
Netherlands and the UK.
• Holds qualifications in
Economics from Leipziger
University.
Arfan Khan
Chief Executive Officer
from 26 January 2021
Martin Cocker
Interim Chief Financial
Officer until 30 August
2021
See biographies
ofArfanKhan and
MartinCocker on
pages82 and 83
1. Mr Epifanov was succeeded
by Abi Zivs on 4 February
2022.
84 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Zhomart Darkeyev
General Director of
Zhaikmunai LLP
Date of birth: 1 January
1966
Nationality: Kazakh
Skills and experience:
• Appointed as General
Director of Zhaikmunai
LLP on 14 November
2016.
• At Zhaikmunai LLP, Mr
Darkeyev has also held
the positions of
Administrative Director,
Assistant General
Director, Chief
Administrative Manager,
Engineer Manager and
Deputy General Manager.
• Before Zhaikmunai LLP,
Mr Darkeyev worked for
Derkl Oil & Gas drilling as
assistant driller and for
Kazakhgas State Holding
Company as a leading
reservoir engineer.
• Graduate of Furmanov
Secondary School with
further education
completed at the
Ivano-Frankivsk Institute
of Oil & Gas with a
specialisation in drilling
of oil and gas wells.
Gulnara Shadeyeva
Head of HR in the RoK
Date of birth: 28 March
1972
Nationality: Kazakh
Skills and experience:
• Appointed as Head of HR
of Zhaikmunai LLP in
October 2013.
• 22 years of experience in
the oil and gas industry in
several senior positions in
Human Resources in
KIOS, Baker Hughes
Services Inc., AMEC,
Exterran, Bolashak-
Atyrau.
• Holds Bachelor’s
degrees in Automatics
Engineering from the
Gubkin Russian State
University of Oil & Gas
(Moscow), in Accounting
from the West Kazakhstan
State University and
Master’s degrees in
Human Resources
Management from the
RANEPA (Moscow) and
in International Human
Resource Management
from Kingston University
in the UK.
Daulet Tulegenov
Group head of QHSE
Date of birth:
29January 1980
Nationality: Kazakh
Skills and experience:
• Appointed as Group
head of QHSE in October
2018.
• 2017-2018 HSE
Transformation team
leader at KazMunaiGas
JSC.
• 2010-2016 HSE manager
at Lukoil.
• 2009-2010 Senior HSE
expert at KazMunaiTeniz
JSC.
• 2006-2009 Senior HSE
specialist at LUKOIL.
• 2003-2006 Safety
specialist at
Tengizchevroil.
• Over 19 years’ experience
in E&P oil and gas assets
(onshore and offshore).
• Took part in major
international projects at
Chevron, Shell, Lukoil,
Tengizchevroil and CNPC
companies in Kazakhstan.
• Graduate of the Tyumen
State Oil & Gas University,
Russian Federation.
Melody Pinet
Head of HR outside
theRoK
Date of birth:
17February 1988
Nationality: Belgian
Skills and experience:
• Appointed as Nostrum’s
Head of HR outside the
RoK in May 2018.
• 2016-2018 HR Manager
atBee Engineering in
Belgium.
• 2015-2016 HR consultant
at Tempo-Team’ Randstad
company in Belgium.
• 2013-2014 Fieldworker at
Terres Rouges in Senegal.
• Holds two Bachelor’s
degrees from the
Université catholique de
Louvain (one in Political
Science and Government
and one in Psychology).
• Holds Master’s degree
from the Université
catholique de Louvain
inInternational relations
and the management
ofdiplomatic conflicts.
Corporate governance
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 85
Governance framework
Our governance framework
Finance
Responsible for supporting the Group and the Board in matters relating
to: (i) corporate finance (ii) investor relations (iii) economic analysis
(iv)public relations (v) external communications (vi) accounting and
reporting (vii) tax (viii) budgeting and control (ix) insurance (x)treasury
and cash management (xi) liaison with internal audit (xii) risk management
(xiii)ICT (xiv)company administration (accounting and tax matters) and
(xv) capital markets analysis.
Operations
Responsible for supporting the Group and the Board in matters relating
to: (i) production engineering and reservoir management (ii) drilling and
workover management production (iii) production (iv) engineering and
construction field operations (v) relations with governmental authorities
(vi) procurement (vii) security and (viii) administration.
Head: Shane Drader
Head: Robert Tinkhof
Legal
Responsible for supporting the
Group and the Board in matters
relating to: (i) all legal matters (ii)
compliance (iii) corporate
governance (iv) company
administration (legal and
governance matters).
Sales and marketing
Responsible for supporting the
Group and the Board in matters
relating to: (i) sales of oil and gas
products (ii) marketing and
(iii) logistics and transportation.
QHSE
Responsible for supporting the
Group and the Board in matters
relating to: (i) product quality
(ii) personnel and community
health and safety and
(iii) environmental protection.
Human resources
Responsible for supporting the
Group and the Board in matters
relating to: (i) personnel and
workforce matters generally
(ii) training and (iii) remuneration.
Head: Thomas Hartnett Head: Arkadi Epifanov Head: Daulet Tulegenov Acting Head: Thomas Hartnett
Audit Committee
Responsible for oversight
of the Group’s financial
reporting processes.
Scrutinises the work
of the external auditor
and regularly reviews
the risk management
framework and the work
of internal audit.
Nomination and
Governance Committee
Reviews the structure,
size and composition
of the Board and its
committees and makes
recommendations to the
Board accordingly, and
leads the process for new
Board appointments.
Remuneration Committee
Reviews and recommends
to the Board the executive
Remuneration Policy and
determines the
remuneration packages
of the Directors.
Health, Safety,
Environment and
Communities Committee
Assists the Board to fulfil
its responsibilities in
relation to health, safety,
environment and
communities matters
arising from the activities
of the Group, and in
overseeing and providing
stewardship of relevant
material Health, Safety,
Environment and
Communities Committee
matters for the Company.
Company Secretary
Responsible for advising
the Board, through the
Chairman, on all governance
matters and for ensuring
that Board procedures are
complied with and there is
a good flow of information
between the Board and
its committees. The
appointment of the
Company Secretary is a
matter reserved to the
Board as a whole.
Chairman:
Sir Christopher
Codrington, Bt.
See page 92 for
Committee Report.
Chairman:
Sir Christopher
Codrington, Bt.
See page 99 for
Committee Report.
Chairwoman:
Kaat van Hecke
See page 103 for
Committee Report.
Chairwoman:
Kaat van Hecke
See page 101 for
Committee Report.
Company Secretary:
Thomas Hartnett
The Board
The Board is chaired by Atul Gupta and normally meets a minimum of four times a year. In 2021, due to the financial situation of the Group, the Board
met 13 times. The Board is collectively responsible to stakeholders for the long-term success of the Group. This is achieved by reviewing trading
performance, budgets and funding, setting and monitoring the Group’s strategic objectives, reviewing acquisition opportunities and engaging
with stakeholders. The Board is supported by a number of committees whose terms of reference (TORs) are available on our website.
Chairman
Responsible for leadership of
the Board and for ensuring its
effectiveness in all aspects of
its role.
Chief Executive Officer
Responsible for the successful
planning and execution of the
objectives and strategies agreed
by the Board.
Non-Executive Directors
Responsible for bringing an
external perspective, sound
judgement and objectivity to the
Board’s decision-making. Scrutinise
management performance and
constructively challenge strategy.
Senior Independent Director
Provides a sounding board for
the Chairman and a trusted
intermediary for the other
Directors.
Senior Management Team
The Senior Management Team supports the Chief Executive Officer in making important decisions regarding the overall management of the Group
in respect of all Group matters that are not reserved for the Board and in ensuring that operational activities and performance are aligned with the
overarching strategy of the Group. Each member of the team reports directly to the Chief Executive Officer, who then directly reports to the Board.
The functional responsibilities of the senior management team members in their respective areas include but are not limited to implementing Chief
Executive Officer and Board decisions, allocating resources, managing risk, maximising efficiencies, guiding and developing employees, reviewing
performance and supporting cross-functional integration.
86 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Board policies and governance
arrangements
Nostrum recognises the important role that
good corporate governance plays in the
success of the Company. As a result, the
Board promotes high standards of
corporate governance as a key component
of its activities. Clearly defined roles
and responsibilities, non-executive
independence, boardroom and workplace
diversity, an open and transparent culture
and the work of our committees in
implementing the Company’s values and
policies throughout the Group are all
vital ingredients to get this right for our
stakeholders.
In order to ensure that it is involved in
making important decisions for the
Group and to ensure a clear division of
responsibilities between the Board and
executive management, the Board has
identified certain “reserved matters” that
are subject to its approval. Other matters,
responsibilities and authorities have been
delegated to its committees and the
senior management team, as set out in the
governance framework on page 86. The
schedule of matters reserved for the Board
is reviewed annually and is available on
our website.
Division of responsibilities
On 27 November 2018, the Board resolved
to expand the role of the Company’s
Chairman, Atul Gupta, to give him certain
executive responsibilities, in particular
in relation to business development,
strategic initiatives and investor relations.
Notwithstanding this, in accordance with
the Code, and with the exception of the
period noted on page 81, the roles of
Chairman and Chief Executive remain
separate, with each having distinct and
clearly defined responsibilities, as
summarised in the Board structure
diagram. Mr Gupta’s role as Executive
Chairman is to guide, advise, counsel
and assist the Chief Executive Officer in
overseeing the Company’s implementation
of its strategy. The Chief Executive remains
responsible for line management of his
direct reports and implementation of the
Company’s strategy.
The Chairman’s overarching role in leading
an effective Board is supported by the
Senior Independent Director, while the
Chief Executive Officer’s strategic
capabilities are strengthened by the
Senior management team.
Independence
Robust oversight is crucial for strong
corporate governance and the Board is
committed to securing this through an
appropriate balance of independent
Non-Executive Directors.
At the date of this Annual Report, the Board
considers all of its Non-Executive Directors
to be independent within the meaning of
this term as defined in the Code.
Related Party Transactions
In December 2021 the Company became
aware that the employment of Serge Lens
(the spouse of Company director Kaat Van
Hecke) from December 2019 through
August 2020 as an Adviser to the CEO
was a potential or actual related party
transaction giving rise to various regulatory
obligations for the Company. The Company
believes that the employment of Mr Lens
and the remuneration paid to him was in
the best interests of the Group and was fair
and reasonable as far as the shareholders
of the Company are concerned. However,
the Company did not obtain the guidance
of a sponsor at the time of Mr Lens’
employment as to the application of the
Listing Rules, Disclosure Requirements and
Transparency Rules to a transaction that is
or might be a related party transaction as
required by Listing Rule 8.2.3R. At the time
the Company’s directors and officers
believed that Mr Lens’ employment was
in the ordinary course of business and
therefore not a related party transaction for
purposes of the Listing Rules because his
remuneration was similar to that paid by the
Group and other companies in the industry
to senior employees with similar experience
and expertise, and that entry into such
service agreements was not unusual for the
Group. Nevertheless, upon review the
Company has concluded that its failure to
obtain the guidance of a sponsor regarding
this matter constituted non-compliance
with its obligations under Listing Rule
8.2.3R.
Total remuneration (including salary, bonus
and other payments) paid by the Group to
Mr Lens amounted to EUR 423,031 and
would, if deemed a transaction not in the
ordinary course, constitute a smaller related
party transaction under Listing Rule 11.1.10.
In addition, during the period in which
Thomas Richardson served as CFO of
the Company and as a director (from
September 2016 through March 2020) the
Company employed his spouse Kirsten
Hamilton-Smith as Head of Investor
Relations (Mrs Hamilton-Smith was
employed by the Company in 2012, a point
at which she was not a related party or an
associate of a related party). The Company
also believes that Mrs Hamilton-Smith’s
employment and the remuneration paid
to her was in the best interests of the
Group, was fair and reasonable as far
as the shareholders of the Company are
concerned and did not involve any unusual
practice or extraordinary benefits for her.
Total remuneration (including salary
and bonus) paid by the Company to
Mrs Hamilton-Smith on occasion exceeded
0.25% of the market capitalisation of
the Company and would, if deemed a
transaction not in the ordinary course,
constitute a smaller related party
transaction under Listing Rule 11.1.10.
The employment of both Mr Lens and Mrs
Hamilton-Smith also constituted related
party transactions for the purposes of
International Accounting Standards (IAS 24)
such that specific disclosure of their
employment and remuneration should
have been included in the Company’s
annual reports. Further, the Company
should have included details of their
remuneration in the disclosure regarding
their spouse’s remuneration in the
Directors’ Remuneration Reports in its
Annual Accounts as required by Section
420(1) of the Companies Act 2006.
Corporate governance
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 87
Governance framework continued
Notwithstanding that the Company’s failure
to comply with its regulatory obligations
as noted above was an unintentional
oversight, the Nominations & Governance
Committee of the Board determined that it
was necessary to improve the robustness of
the Company’s procedures to prevent any
such non-compliance in future. At the
committee’s request the Company carried
out a review of these and other potential
related party transactions, including
examination of internal correspondence
relating to these matters and of historic
payroll and other payments to check for any
potential related party transactions and
reported to the Board thereon. As a result
of such review the Company has taken the
following actions:
I. information regarding these past
related party transactions has been
included in this Annual Report and
detail of the amounts paid to Mr Lens
and Mrs Hamilton-Smith in 2020 has
been included in the notes to the
Group’s Annual Accounts;
II. more formality is now required around
all decisions of the Nominations &
Governance Committee, Remuneration
Committee and the Board and
consideration of any potential related
party transaction is now regularly
scheduled at the time of Board and
committee meetings;
III. the Group’s Related Party Transactions
Policy has been modified to further
clarify the Company’s obligation to (a)
obtain the guidance of a sponsor in
accordance with Listing Rule 8.2.3R
prior to proposing any transaction that
is or may be a related party transaction
for purposes of the Listing Rules, and
(b) meet its disclosure and other
obligations in relation related party
transactions for purposes of the Listing
Rules, Disclosure Requirements and
Transparency Rules (including as
regards IAS 24);
IV. such Policy has been re-distributed to
the Group’s directors and officers and
other management personnel; and
V. all Group directors and senior
managers have been given additional
training regarding the Company’s
obligations under the Listing Rules,
Disclosure Requirements and
Transparency Rules.
Equality and diversity
The Board has due regard for the
importance of, and benefits from, diversity
in its membership, including gender
diversity, and strives to maintain an
appropriate balance on the Board. The
Board is composed of individuals with
diverse sectoral experience, ages,
geographic and ethnic origin, and gender.
The Company has 20% female
representation on its Board. The
Nomination and Governance Committee
remains satisfied that the Board has the
right mix of skills and experience to operate
effectively. However, the skills and
experience mix will be revisited following
the successful restructuring of the Existing
Notes. The Nomination and Governance
Committee remains committed to
monitoring diversity closely as part of
future succession planning.
In November 2017, the Board approved its
Equality and Diversity Policy, to which the
Company continued to adhere throughout
2021.
In accordance with the policy, the Group is
committed to eliminating discrimination
and encouraging equality and diversity in
all of our business activities, including the
provision of employment. The policy
applies to all who work for the Group,
including Directors, together with the
managerial, supervisory and administrative
bodies of all entities within the Group. The
policy also applies equally to the treatment
of our supply chain, applicants and visitors
by our staff and the treatment of our staff
by these third parties. The objective of the
policy is to promote equality of opportunity
and to ensure that no individual suffers
unlawful discrimination, directly or
indirectly, on the grounds of race, colour,
ethnicity, religion, sex, gender identity or
expression, gender reassignment, national
origin, age, marital status, disability or
sexual orientation.
The Group aims to ensure the objective of
the policy is met by:
• Ensuring all recruitment advertising and
publicity aims to encourage applications
from any individual who has appropriate
qualifications and/or experience;
• Not offering discriminatory conditions of
employment;
• Ensuring all promotions are made strictly
on the basis of the ability to do the job
and no such decision is made on a
discriminatory basis;
• Considering requests for part-time work
or job-sharing opportunities wherever
appropriate and practicable, and aiming
to ensure that part-time employees
receive fair treatment;
• Ensuring that the demands of religion
(e.g. prayer time and religious holidays),
culture (e.g. traditional dress) and special
dietary needs are accommodated where
possible; and
• Taking reasonable steps to assist
employees with domestic responsibilities
(e.g. young children and dependent
elderly relatives).
The following are the steps that have been
taken in 2021 to implement this policy:
• Despite the challenging trading
environment and a significant reduction
in recruitment activities, where
recruitment has been required we have
continued to focus on attracting more
female candidates across all levels
throughout the Group. We are assessing
our performance in attracting female
employees at junior management levels
in Kazakhstan and reviewing our current
training, retention and promotion
schemes to encourage the promotion of
more women into senior management
positions.
• Our human resources team reported
regularly to the Health, Safety,
Environment and Communities
Committee on diversity. In conjunction
with the Health, Safety, Environment and
Communities Committee, a gender
diversity action plan has been established
which aims to further increase the
percentage of female employees at the
Senior Management ad at the
department head level within the Group.
• An analysis of any gender pay gap issues
is being conducted.
• We continue to look into cross-Company
mentor schemes to achieve our goals in
this area.
Our governance framework continued
88 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Conflicts of interest
A Director has a duty to avoid a situation in
which they have, or may have, a direct or
indirect interest that conflicts or may
conflict with the interests of the Company.
Formal procedures are in place to ensure
that the Board’s powers of authorisation of
conflicts or potential conflicts of interest of
Directors are operated effectively. The
Board is satisfied that during 2021 these
procedures were enforced and adhered to
appropriately.
Appointment and tenure
All Executive Directors have service
agreements with the Company with the
exception that Martin Cocker was engaged
as interim Chief Financial Officer through a
consultancy agreement that expired on
30 August 2021. All Non-Executive
Directors have letters of appointment with
the Company. For all Executive Directors
engaged through service agreements,
there is no term limit on their services, as
the Company proposes all Executive
Directors for annual re-election at each
subsequent Annual General Meeting of
the Company.
Each Non-Executive Director appointment
is for an initial term of three years, subject
to being re-elected at each subsequent
Annual General Meeting.
Bribery, corruption and
whistleblowing
Bribery and corruption are significant risks
in the oil and gas industry and, as such, the
Company operates a Group-wide Anti-
Corruption and Bribery Policy, which
applies to all Group employees and
contractor staff. The policy requires: annual
bribery and corruption risk assessments;
risk-based due diligence on all parties with
whom the Company does business;
appropriate anti-bribery and corruption
clauses in contracts; and the training of
personnel in anti-bribery and corruption
measures. In addition, the Company’s Code
of Conduct requires that employees or
others working on behalf of the Company
do not engage in bribery or corruption in
any form. Corruption-related risks are
evaluated on a Group-wide basis (not in
respect of divisions). No confirmed
corruption cases were identified in 2021.
No employees were trained on anti-
corruption policies in 2021.
The Company has also adopted a
Whistleblowing Policy that takes account of
the Whistleblowing Arrangements Code of
Practice issued by the British Standards
Institute and Public Concern at Work.
Further information can be found on
page 42.
One whistleblowing activity was reported
in 2021 and is under investigation as at the
date of this report.
Both policies were reviewed by the Audit
Committee in 2021 and no updates
recommended to the Board.
Anti-facilitation of tax evasion
Further to the new rules under the Criminal
Finances Act 2017 (CFA) in the UK, in 2018
the Board approved a new Anti-Facilitation
of Tax Evasion Policy applicable to the
Group and its associated persons. In
connection with the preparation of this
policy, the Company commissioned an
independent bespoke risk assessment and
incorporated findings from the assessment
into the policy.
Corporate governance
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 89
Board activities and achievements
Board activities and achievements during 2021
During the financial year, the Board held 8 meetings. The Board and Committee agendas were shaped to ensure that discussion was
focused on the Group’s key strategies and monitoring activities, as well as reviews of significant issues arising during the year. The Group’s
ongoing financial and strategic performance is reviewed at every meeting, and the Chief Executive Officer and the Chief Financial Officer
comment on production, share price performance, the market and shareholder feedback.
The table below gives the highlights of how the Board and its committees spent their time during the 2021 financial year but should not
be regarded as an exhaustive list. More information regarding the Group’s strategic objectives and focus during the year can be found in
the Strategic Report on pages 2 – 78 and the more detailed activities of each Board committee are located in their relevant report.
Strategy and
business focus
• Engaged with the advisers to an informal ad-hoc noteholder group to negotiate a restructuring of the
Group’s bonds.
• Discussions around the strategic options available to the Group to monetise the infrastructure through processing
third-party volumes and acquisition of nearby, stranded assets such as Stepnoy Leopard.
• Approved a targeted well workover and intervention programme.
Risk
• Review of all interim financial results announcements and the 2020 Annual Report and Accounts.
• Consideration of the Group’s going concern assessment, viability statement and risk appetite for the coming year.
• Review of all insurance contracts across the Group to assess risk exposure.
• Reviewed the Group’s liquidity forecast at each board meeting.
Governance
• Approved the appointment of Arfan Khan as Chief Executive Officer and Shane Drader as Chief Financial Officer.
• Considered the salaries of Mr Khan and Mr Drader at the time of their appointments.
• Received reports from Board committees.
• Consideration of the UK Corporate Governance Code and other regulatory requirements for the Annual Report.
• Review of the Notice of AGM and matters proposed for shareholder approval.
• Reviewed and approved (where required) any updates to key Group policies.
• Consideration of Director conflicts of interest.
People and
culture
• Monitored the preventative measures being taken to protect employees and contractors from COVID-19.
Board evaluation
Much of the Board’s effort and attention in
2021 has been focused on stabilising the
financial position of the Group and looking
to secure its future, whilst at the same
time ensuring that our employees and
contractors remained safe. Given the
financial position of the Group, the decision
was taken not to recruit new members
to the Board until such time that the
restructuring was substantially complete.
A formal Board evaluation took place
in 2021.
Director induction and training
Each individual joining the Board receives
a full, formal induction package with
materials on the Group’s business and
operational, financial and legal matters.
They also meet with members of the Board
in order to obtain a good understanding of
the challenges and opportunities faced by
the Group. The Directors are given the
opportunity to discuss their training and
professional development needs at every
quarterly Board meeting and on an
ad-hoc basis as required, and to make
recommendations to the Chairman
regarding topics on which they would like
to receive training. In addition to training
organised by the Company, the Directors
regularly attend training events organised
by third parties and the Company actively
encourages Directors to attend such
events.
Board activities and achievements
90 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Attendance at meetings of the Board and its Committees in 2021
The following table illustrates the attendance of Directors at Board and committee meetings (as relevant) throughout the year.
Board Audit Committee
Remuneration
Committee
Nomination and
Governance
Committee
Health, Safety,
Environment and
Communities
Committee
A B A B A B A B A B
EXECUTIVE DIRECTORS
Atul Gupta
1, 2
8 8 − − − − − − − −
Arfan Khan – from 26.01.2021
3
7 7 − − − − − − 5 5
Martin Cocker – up to 30.08.2021
4
5 5 5 5 − − − − 3 3
NON-EXECUTIVE DIRECTORS
Kaat Van Hecke
5
8 8 7 7 3 3 1 1 5 5
Martin Cocker – from 30.08.2021
6
3 3 2 2 2 2 1 1 2 2
Sir Christopher Codrington Bt.
7
8 8 7 7 3 3 1 1 − −
Simon Byrne
8
(alternate Pankaj Jain) 0 0 − − − − − − − −
Stephen Whyte – Board observer 8 8 6 3 0 0 0 0 5 2
A = Total number of meetings the Director was eligible to attend.
B = Total number of meetings the Director did attend.
1. Mr Gupta is the Executive Chairman of the Board of Directors.
2. Mr Gupta assumed the responsibilities of the CEO from 1 September 2020 until 26 January 2021.
3. Mr Khan was appointed on 26 January 2021.
4. Mr Cocker attended meetings of the Audit Committee and the Health, Safety, Environment and Communities Committee before 30 August 2021 in his capacity as
interim Chief Financial Officer but was not a member of the respective committees.
5. Ms Van Hecke is Chairwoman of the Health, Safety, Environment and Communities Committee and Chairwoman of the Remuneration Committee.
6. Mr Cocker was appointed as a member of the Audit Committee, the Nomination and Governance Committee, the Remuneration Committee and the Health, Safety,
Environment and Communities Committee on 30 August 2021.
7. Sir Christopher Codrington Bt is the Chairman of the Nomination and Governance Committee as well as the Chairman of the Audit Committee.
8. Mr Byrne resigned from his position as a Non-Executive Director effective 4 January 2021. The appointment of Mr Jain also ceased effective 4 January 2021.
Corporate governance
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 91
Dear shareholder,
As with 2020, the year just passed has been
one of uncertainty for the Group. The
recovery in oil prices following the slump in
early 2020 together with a continued cost
management focus helped the Group to
move into a cash generative position for
much of the year. However, the absence of
a formal lock up agreement to facilitate
restructuring of the Existing Notes meant
that the continued future operation of the
Group was not certain throughout 2021.
One of the consequences of this is that the
Committee has been required to consider
very carefully the use of the going concern
basis for the preparation of year-end and
unaudited 2021 quarterly Group financial
statements. After careful consideration at
each quarter-end and at the year end, the
Committee concluded that the going
concern basis was the appropriate basis of
preparation. This position was supported
by the Company’s advisers.
We were also pleased that the FRC agreed
to our request to allow Ernst & Young LLP
to assist us on the restructuring after we
had determined that in doing so their
independence as external auditor of
our financial statements would not be
compromised.
The continued impact of COVID-19 on
travel and work practices across the globe
has meant that our internal audit processes
have continued to be significantly disrupted
in 2020. The additional mitigation control
processes, introduced in 2020, continued
to operate throughout 2021 and so the
Committee believes that these measures,
together with the continued simplification
of our activities, means that the risk of
any significant control failure has been
mitigated.
The Committee met seven times in the year.
In those Committee meetings, in addition
to being very mindful as to whether the
Company and Group remained a going
concern, we have also:
• Reviewed the risks facing the Group
and how those risks are managed;
• Continued to monitor the progress at the
Chinarevskoye field and evaluate financial
models based on the current production
profile to ensure that there are no further
negative impacts on the carrying value
of our oil and gas assets;
• Ensured that there was adequate and
accurate disclosure in the quarterly
financial statements and the Annual
Report on the progress of the
restructuring discussions.
• Reviewed areas where critical
judgements and estimates have been
applied by management, and which
are described in more detail in the
report below to ensure they were
appropriate and that complete disclosure
had been made.
As an oil and gas producer, we take our
responsibilities to limit climate change very
seriously. Our actions to mitigate the
impact that our operations have on
the environment considered in the
Sustainability review section on pages
34 – 50 and the relevant issues are also
summarised in the report of the Health,
Safety, Environment and Communities
Committee on pages 101 – 102.
COVID-19 remains of key concern to the
Board and was considered at each Board
meeting throughout 2021 and is described
in the Viability Statement on pages 67 – 69.
The Board considers that Brexit has had,
and is likely to continue to have, little or no
impact on the Company’s and Group’s
operations since (1) our UK operation is
insignificant compared to the total
operations of the Group and (2) it has
little or no direct interface with Europe.
Since the end of the reporting period,
the Committee and the Board have also
considered the possible impact on the
Group of US, UK, EU and other sanctions
on Russian infrastructure, state and other
businesses, banks and individuals following
the recent Russia-Ukraine conflict. At the
date of this report, whilst current sanctions
may disrupt transactions with certain
customers and suppliers, any impact on
the Group has been minimal as the current
sales routes for the Group remained
unaffected. We will continue to evaluate the
potential effects and mitigating actions,
such as identification of alternative sales
routes, as the conflict and corresponding
international reactions to it evolve.
Our cohort of non-executive directors
remains small and so when Martin Cocker
relinquished his role as the interim Chief
Financial Officer on August 30, 2021, I was
pleased to welcome him back onto the
Audit Committee. Whilst I recognise that
optically this might look to be a strange
move, I believe that Martin has the
experience to act independently in thought
and action and so his wealth of knowledge
and insight into the day-to-day operations
of the Company and Group will serve the
Committee well.
In closing, I would like to thank all my
fellow Committee members for their
contribution to the effective discharge
of the Committee’s duties throughout
the year.
Sir Christopher Codrington, Bt.
Chairman, Audit Committee
Independent Non-Executive Director
4 May 2022
Letter from the Chairman
Audit Committee report
92 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
All members of the Audit Committee
during the year were considered to be
independent Non-Executive Directors.
More information is provided on page 87.
The qualifications presented in the
biographies of the members of the
Committee on pages 82 – 83, and their
respective contributions to the activities
of the Committee, demonstrated that the
Committee has the necessary levels of
competence in oil & gas upstream and
downstream operations and in accounting
and auditing, as well as recent and relevant
financial experience.
Meetings
The Committee meets normally a few
days in advance of each board meeting.
The Interim Chief Financial Officer from
1January to August 30, 2021 and then the
Chief Financial Officer from 30 August
2021, the Chief Legal Officer, the Company
Secretary are invited to all meetings with
the external auditor being invited when
appropriate. The Committee held seven
meetings during 2021 and the attendance
of each Committee member at meetings
of the Committee is shown on page 91.
Matters highlighted by the
Financial Reporting Council (FRC)
In its report of October 2021, the FRC
highlighted a number of key matters
that it believes are relevant to the
2021/22 financial reporting season.
Those matters include:
• Disclosures around the judgemental
areas when applying new accounting
standards, particularly IFRS 15 ‘Revenue
from Contracts with Customers’ and IFRS
16 ‘Leases’. The Group is not impacted by
IFRS 15 and has limited leased assets.
However, the Committee considered
the disclosures around IFRS 16 and
concluded that all current disclosures
in respect of IFRS 15 and IFRS 16 were
appropriate;
• Reporting in respect of the impact of
COVID-19, particularly in respect of going
concern and liquidity. This is addressed in
the Viability Statement on pages 67 – 69.
The Committee has scrutinised the
Viability Statement to ensure that readers
are readily able to assess how COVID-19
has, and is likely to, impact the Group;
• The provision of full information about
the future impact of climate change on
the business, particularly in the areas of
impairment review, asset lives and
carrying values, decommissioning and
restoration provisions and segmental
reporting. In this regard, the Committee
studied closely the impairment analysis,
challenging assumptions on future
pricing and costs;
• The correct classification of items within
the cash flow statements, especially novel
or unusual cashflow items. In this respect,
the Committee has placed increased
focus on any non-standard items within
the cashflow statement, particularly those
items associated with the forbearance
agreements signed during the year and
the costs associated with negotiating the
lock-up agreement;
The Committee also paid attention to:
• The Viability and Going Concern
statements, with particular focus on
ensuring that the specific material
uncertainties around the continued
viability of the Group were clearly and
fully explained and the key assumptions
upon which the board concluded that
the Group was a going concern were
identified.
• Clear description of the Company’s
policies, any due diligence processes
implemented in pursuance of those
policies and their outcomes in respect of
environmental, social, anti-corruption and
anti-bribery matters, employees and
respect for human rights are all either
covered by this statement or covered in
other parts of the strategic report.
• Ensuring there was a clear distinction
between critical judgements and
estimates used in preparing the accounts
and that appropriate disclosures were
made to provide an understanding of
their sensitivity to changing assumptions;
and
• Reviewing the definitions, explanations,
reconciliations, prominence and
consistency of alternative performance
measurements such as EBITDA, for their
compliance with ESMA’s Guidelines.
Role and responsibilities
ofthe Audit Committee
Throughout the year, the Committee has
remained committed to its primary role
of assisting the Board in achieving the
Group’s strategic objectives whilst
protecting stakeholder interests.
The key areas of responsibility of the
Committee during 2021 were as follows:
• Review the Group’s annual audited and
interim unaudited consolidated financial
statements;
• Review the formal announcement of the
financial results, investor presentations
and any other related announcements;
• Review the effectiveness of any
investigations or internal audits
performed;
• Monitor compliance with applicable
regulatory and legal requirements and
the Group’s Code of Conduct;
• Monitor and review the effectiveness
of the Group’s internal audit function;
• Maintain the relationship with the
Company’s external auditor and
oversee its appointment, remuneration
and terms of engagement whilst
continually assessing its independence
and objectivity; and
• Review audit findings and assess the
standard and effectiveness of the
external audit.
More detail on these key areas can be
found in the Committee’s terms of
reference, which are available on the
Group’s website at www.nog.co.uk.
Membership
Sir Christopher
Codrington, Bt.
Member since 19 May
2014; Chairman from
8May 2017 to 3 June
2019 and then from
1April 2020.
Martin Cocker Member from
16November 2017
to8October 2020;
Chairman from 4 June
2019 to 1 April 2020;
Member from
30 August 2021.
Kaat Van
Hecke
Member from 8 May
2017 to 27 January 2020
and then from
8October 2020.
Corporate governance
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 93
Self-assessment
A formal review of the Committee’s
performance and effectiveness was made
in 2021.
Activities during the year
In accordance with its responsibilities
outlined above, the Committee’s activities
fall into the following four main areas, each
of which is explained in more detail in the
following sections 1 to 4:
1. Financial reporting
2. Risk management and internal controls
3. Compliance with laws and regulations
4. External audit
1. Financial reporting
The key areas of the Committee’s activities
related to financial reporting can be
summarised as follows:
• Review of and discussions on the
quarterly unaudited and annual
audited financial statements and
recommendation to the Board for
approval;
• Review of and discussions on the matters
of liquidity and going concern analysis, as
well as impairment considerations;
• Review of periodic press releases and
results presentations prior to their
publication;
• Review of annual budgets and periodic
forecasts;
• Review of monthly management updates
covering key issues, including financial
and operational performance and the
status of key initiatives; and
• Discussion of various ad-hoc matters
related to financial accounting and
reporting.
The review by the Committee of the
quarterly results and half-yearly financial
statements was done with an emphasis on
ensuring the following:
• Critical judgements and estimates
applied by management (described in
more detail below) were appropriate and
complete disclosure had been made;
• The accounting policies adopted were
consistent with those used in prior
periods and remained appropriate;
• Full disclosures were made for
compliance with financial reporting
standards and relevant corporate
governance requirements, in particular
those relating to the ongoing discussions
with the AHG;
• Assessing whether the Annual Report,
taken as a whole, is fair, balanced and
understandable, and provides the
information necessary for the
shareholders to assess the Group’s
performance, business model and
strategy; and
• Discussing any significant matters with
management and the external auditor
and providing feedback to management
on ways to improve the effectiveness and
clarity of the Group’s corporate reporting.
The Committee reviewed this Annual
Report with the same emphasis as noted
above together with the specific areas
noted by the FRC and outlined earlier in
this report.
Significant judgements, estimates and
assumptions
Significant judgements, estimates and
assumptions applied by management when
preparing the financial statements are
closely related to the principal risks and
uncertainties faced by the Group, which
aresubject to constant monitoring by the
Board and the Committee.
The main judgement facing the Company
and Group during 2021 has been its
continued viability as a going concern.
Throughout the year, the Group has been
in discussion, through its advisers, with the
AHG concerning the restructuring of the
Existing Notes. Whilst conclusion of those
discussions has taken some time, the
Committee remained confident that the
few matters that were causing delay were
very likely to be resolved successfully.
This proved to be the case when on
23 December 2021 the Company
announced that a Lock-Up agreement
had been signed with a significant majority
of its noteholders. Furthermore, our
shareholders voted in favour of the
restructuring terms at a General Meeting
on 29 April 2022. Despite the important
agreement having been reached with the
bondholders and shareholders, the actual
restructuring has still to be completed and
so there remains uncertainty.
Therefore, throughout 2021, the
Committee has continued to challenge
management’s assessment that the
Company and Group remain a going
concern. In forming its conclusions, the
Committee has taken note of the following:
• The Group has taken, and continues to
take, prudent mitigating actions that can
be executed in the necessary timeframe
and which will protect liquidity. Our
cashflow in 2021 has been positive
and the Group continues to challenge
expenditures to identify reductions
in operating costs and general and
administration costs that can be
implemented without having an impact
on forecast production in the going
concern period of assessment;
• Oil prices have recovered from the lows
of early 2020, although the formula for
deriving the prices received for the
Group’s dry gas production means that
there is a significant lag between any
improvement in the prices for dry gas and
oil products on world markets and the
price for dry gas received by the Group;
• Counsel provided by the Company’s
legal and financial advisers on the
likelihood that the Existing Notes will
be successfully restructured;
• Management’s analysis of the Group’s
cash flows for the next 12 months.
The base-case scenario of the going
concern model used conservative price
assumptions for crude oil, LPG, dry gas
and stabilised condensate at which the
Group was cash-positive during 2021;
and
• Management’s monitoring on an
ongoing basis of its liquidity position,
key financial ratios, sensitivity tests of its
liquidity position for changes in crude oil
price, production volumes and timing of
completion of various ongoing projects.
After careful consideration, the Committee
is satisfied that the Group has sufficient
resources to continue in operation for the
going concern period to 30 June 2023,
being a period of not less than 12 months
from the date of this report. For these
reasons, the Committee agrees with
management that the going concern basis
in preparing the financial statements is
appropriate.
Audit Committee report continued
94 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
The other significant judgements, estimates and assumptions applied by management when preparing the financial statements, and the
Committee’s responses, are noted in the following table:
Significant judgements Significant estimates Significant assumptions
Impact on financial statement
accounts
COVID-19
COVID-19 continues to impact
theworld’s economy and there is
significant uncertainty in relation to
the extent and period over which
these developments will continue,
especially the new variants of the
disease that are being identified.
The direct impact of the virus on
theGroup’s activities has not been
significant but its indirect impact
through reduced demand, and
hence depressed prices, for oil, oil
products and dry gas continues to
affect the Group. Continued future
disruption to the world’s economy
could have a significant impact on
the Group’s financial position, future
cash flows and results of operations.
Estimations of the future prices for
oil, oil products and dry gas as well
as continued production from the
Chinarevskoye field impact the
calculation of future cash flows.
Inturn, these impact the assessment
of the continued viability of the
Company and Group as well as
the level of impairment provision
to be made.
Assumptions used in estimating
recoverable amounts included
futurecommodity prices, oil and gas
reserves, future production profiles,
operating expenses and capital
expenditure estimates, fiscal
regimes, and discount rates.
Contingency plans have been put in
place both to protect the workforce
and ensure that there are sufficient
personnel to continue operations.
Todate there has been no material
impact on the Group’s operations or
liquidity as a result of COVID-19.
Changes in the significant estimates
and key assumptions may affect the
ability of the Group to continue
as a going concern, or the level
of impairment required against
the CGU.
Committee actions
The Committee constantly
monitored, through regular
interaction with management, the
impact of the COVID-19 pandemic
on the operations of the Group.
As part of the regular Board
meetings, the Committee reviewed
the monthly liquidity position
prepared by management and
agreed the estimations of product
prices, costs and production
profiles were appropriate.
As part of the regular Board
meetings, members of the
Committee considered and
challenged the assumption that
COVID-19 was not affecting
production or operations.
In addition, the Group uses a
conservative forward price deck for
its budget and liquidity models (i.e.
for 2022 the budget price for Brent
being used is $65 USD/barrel).
The Committee considered the
impact of COVID-19 on the financial
statements at the same time as it
scrutinised the application of
the going concern basis for the
preparation of the quarterly,
half -yearly and annual financial
statements.
NON-CURRENT ASSETS’ CARRYING VALUES
For impairment analysis,
management used judgement and
determined a single cash-
generating unit (CGU) within the
Group’s non-current assets, which
includes all assets related to
Chinarevskoye, and exploration
fields and gas treatment facilities.
Estimations of the recoverable
amount of the CGU were prepared
by management based on the
discounted cash flow model using
significant assumptions as well as
considering the value of the
enterprise.
Assumptions used in estimating
recoverable amounts included future
commodity prices, oil and gas
reserves, future production profiles,
operating expenses and capital
expenditure estimates, fiscal
regimes, and discount rates.
Enterprise valuation considered the
market value of the Group’s bonds
and the Company’s shares together
with the restructuring proposals
under discussion.
Changes in the key assumptions
and market valuations may
significantly affect the estimation of
the recoverable amount of
non-current assets, and
consequently may result in
impairment of non-current
assets in the future periods.
Committee actions
The Committee concurred
withmanagement’s position
indetermining a single CGU for
themajority of the Group’s
non-current assets.
The Committee reviewed the
detailed reports on impairment
testing prepared by management.
The Committee agreed with
management’s approach in using a
combination of a discounted cash
flow model and enterprise value to
determine the range of the
impairment required.
Areas of focus were the assumed
product prices, discount rates,
production profiles and associated
sales volumes, and forecast capital
and operating expenditures,
particularly in light of continued
depressed product prices and
related volatility risk.
The Committee also gave special
consideration to the sensitivity
analysis in relation to the
assumptions used. The Committee
also scrutinised the disclosure of the
impairment charge in the accounts
and this report.
OIL AND GAS RESERVES
Management applied significant
judgement when selecting the
volume of future production used in
the unit-of-production method of
depletion of assets based on the oil
and gas reserves.
Management uses internal
estimates to perform an annual
assessment of the oil and gas
reserves. The reserves estimates are
made in accordance with the
methodology of the Society of
Petroleum Engineers (SPE) and were
audited by Ryder Scott.
While making such estimates,
management uses various
assumptions related to future
commodity prices, capital and
operating expenditures necessary
for the development of a field,
geological and technical
assumptions, future production
volumes, drilling programme, etc.
Changes in the key assumptions
may significantly affect the
estimation of oil and gas reserves,
and consequently result in
substantial changes in depletion
expense and carrying value of
working oil and gas properties
in future periods.
Committee actions
The Committee concurred with
thecontinued application of the
unit-of-production method of
assetsdepletion, as this method
reflects the expected pattern of
consumption of future economic
benefits by the Group.
The Committee gained comfort on
the outcomes of the oil and gas
reserves’ estimations based on its
review of the key assumptions
together with the confirmation by
Ryder Scott following their audit
of the reserves.
Considering the most recent
available information, the Committee
reviewed various key assumptions
used by management in estimating
the oil and gas reserves and was
satisfied with the reasonableness
of such assumptions.
The estimated reserves are a central
element in the calculation of
depreciation, depletion and
impairment.
Corporate governance
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 95
Significant judgements Significant estimates Significant assumptions
Impact on financial statement
accounts
TAXATION
The uncertainties associated with
Kazakhstan’s tax system means that
the ultimate amount of taxes,
penalties and interest, if any, is
subject to significant judgement.
The Group is subject to routine tax
audits and also a process whereby
tax computations are discussed and
agreed with the tax authorities.
Whilst the ultimate outcome of such
tax audits and discussions cannot
be determined with certainty,
management estimates the level
of liabilities required for taxes for
which it is considered probably
will be payable.
Assumptions used in estimating the
amount of taxation that is payable
are based on professional advice
and consideration of the nature of
current discussions with the tax
authority.
Because of the uncertainties
associated with Kazakhstan’s tax
systems, the ultimate amount of
taxes, penalties and interest, if any,
may be in excess of the amount
expensed to date and accrued
at 31 December 2021.
Committee actions
The Committee discussed with
management any uncertainties
surrounding the Group’s tax
position.
The Committee reviews the detail of
any significant matter under
discussion with the tax authorities
and considers the likelihood of
taxes being payable.
Committee reviewed the findings of
a third party tax review conducted
by a member of the Big 4
conducted in 2021 for consistency
with Management’s views on
potential tax exposures and
provisioning positions.
Areas of focus were the nature of
current discussions with the tax
authorities, the outcomes of
previous similar discussions and the
views of taxation specialists.
The Committee also gave special
consideration to the disclosure of
any significant uncertainty in the
estimation of the tax due.
Other significant judgements and estimates
The decommissioning of oil and gas assets
at the end of their economic lives, the
provisioning for contingent and other
liabilities, current and deferred income tax,
and fair value of financial instruments are
all areas that require management to use
judgement and estimates. The Committee
examined each of these issues and sought
clarifications, as and when necessary,
including discussions with the Company’s
auditor.
Significant matters communicated
bytheexternal auditor
In addition to the significant judgements,
estimates and assumptions identified
above, the external auditor also highlighted
revenue risk, where there is always an
assumed risk of fraud through management
override of controls. The Committee
believes that the Group’s policies and
internal controls sufficiently minimise the
risks related to management’s ability to
manipulate accounting records or to
misappropriate assets.
2. Risk management and internalcontrols
The Committee continuously monitored the Group’s risk management systems, further
information on which can be found in the Risk Management section on pages 60 – 66.
In accordance with requirements of the 2018 Code relating to the viability statement,
the Committee reviewed the impact and sensitivity analysis of such risks on the Group’s
long-term viability. The principal areas of risk management assessed by the Committee
are described in the table below.
Key areas of the Committee’s focus in relation to principal risks
Liquidity and
financial reporting
Throughout the year, and as explained in more detail elsewhere
in this report, the Committee has been focused on reviews of the
ongoing viability of the Group and the application of the going
concern principle to the financial statements.
Oil and gas
production rates
Oil and gas production volumes, being one of the strategic
indicators of the Group’s performance, are subject to risks and
uncertainties of a geological and technological nature. The
Committee members have been constantly monitoring forecast
production rates against actual rates. Any material variances were
discussed, and explanations sought during Committee meetings,
Board meetings or dedicated presentations given by management.
Health, safety and
environment
As part of the monthly management reports, the Committee
reviewed the Group’s activities to ensure an appropriate level of
protection for health, safety and the environment. This area will
be within the scope of responsibilities of the Health, Safety,
Environment and Communities Committee of the Board.
Cyber security
The Committee continued to review the Company and Group’s
exposure to cyber-attack and discussed with management any
actions directed at addressing those exposures.
Financial reporting
The Committee seeks to ensure the accurate maintenance of
accounting records and related transactions. Considering the
volatility of oil prices and the uncertainty over the Group’s
continued viability as a going concern, the Committee focused
on the review of going concern, the viability statement and
impairment.
Audit Committee report continued
96 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Internal control system
The Group’s internal control system is
aimed at mitigating risks and improving
efficiency. These include:
• Segregation of authorities and duties at
various levels;
• Policies and procedures covering
Directors’ remuneration, compliance,
accounting and reporting and health,
safety and environment as described in
the relevant sections of the Annual
Report;
• Training and internal communications;
and
• Continuous monitoring by senior
management and the Board of short-
term, medium-term and long-term
planning and decision-making processes.
In the Committee’s view, the Group
maintained robust and defensible systems
of risk management and internal control
with the exception of the non-compliance
disclosed on page 60, and the Committee
made recommendations to senior
management on further improvements
as and when considered necessary.
Details of the procedures related to
compliance control are set out below
(including compliance liaison equivalent to
a hotline). No instructions for any conflict of
interest settlement or compliance control
forms were in use in 2021. No sanctions or
disciplinary actions were applied in respect
of internal control in 2021.
Internal audit
The primary role of the internal audit
function is to assist the Board and senior
management to protect the assets,
reputation and sustainability of the
organisation. This is achieved through:
• Building strong and effective risk
awareness within the Group;
• Continuously improving risk
management and control processes so
that they operate effectively and
efficiently, and reflect leading practice;
and
• Sharing best practice regarding risk
management and assurance across the
Group.
The Group does not have a dedicated
internal audit function. Instead, the Group
outsources the work to specialists in
relevant areas on a case-by-case basis.
However, the travel and other restrictions
imposed at various times throughout 2021
in response to COVID-19 mean that the
Group has not performed any internal audit
reviews for the second consecutive year.
To mitigate the exposure caused, the
Group continued to operate the Contracts
Board comprising the Chief Executive
Officer, the Chief Financial Officer and
the Chief Operating Officer.
The Contracts Board meets weekly and its
purpose is to review and approve all
expenditure commitments in excess of
$10,000.
Also, in the Committee’s view, the Group
has sufficient internal processes providing
assurance to the management, Audit
Committee and the Board about the
effectiveness of systems of internal control
and risk management: for instance monthly
reports to the Board on operations,
liquidity and legal issues and assurance
provided by QHSE and security personnel.
3. Compliance with laws and
regulations
The Chief Legal Officer and Company
Secretary attends the Committee’s
meetings, which allows the Committee
to raise any concerns related to legal,
compliance or whistleblowing matters and
the status of any ongoing litigation.
UK Corporate Governance Code
The Committee was in compliance with
the Code throughout 2021.
Whistleblowing arrangements
Nostrum has a Group Whistleblowing
Policy and, to ensure that all Group
employees have access to someone
who can provide them with support and
guidance, the Group has two compliance
liaison officers: one English, Kazakh and
Russian-speaking officer based in Uralsk
and another Dutch- and English-speaking
officer based in Brussels. The Audit
Committee maintained close contact with
the compliance liaison officers. One
whistleblowing activity was reported in
2021 and was satisfactorily resolved.
4. External audit
Appointment of external auditor
Since 2007, Ernst & Young LLP (Kazakhstan)
has been the auditor of the predecessor
Group of companies. On the recommendation
of the Committee and subsequent approval
by the Company’s shareholders, Ernst &
Young LLP (UK) was first appointed as
auditor of the Group on 19 May 2014.
The Committee carried out a tender for
the external audit arrangements in 2015 to
ensure that the Group was receiving the
highest possible quality of audit services
commensurate with the best available
price. Based on the results of the tender, it
was concluded that it would be in the best
interests of the stakeholders to continue
engaging Ernst & Young LLP (UK) as the
Group’s external auditor.
Following a recommendation to that effect
from the Board, the shareholders approved
the reappointment of Ernst & Young LLP
(UK) at the Annual General Meeting held on
9 June 2020. Mr William Binns succeeded
Mr Richard Addison as lead audit
engagement partner in 2019.
The Company plans to retender the audit in
Q2 2022.
Compliance with other legal requirements
There were no material fines or other
sanctions against the Group in 2021.
There was no antitrust litigation against
the Group in 2021. See the discussion on
pages 87 – 88 regarding non-compliance
with certain obligations in connection
with actual or potential related party
transactions.
Product liability
There were no cases relating to product
liability in 2021.
2021 audit
During Q4 2021, the Audit Committee
reviewed and discussed the detailed audit
plan prepared by Ernst & Young LLP (UK)
which identified the audit scope and its
assessment of significant risks. The key
risks monitored by the Committee
corresponded with those identified and
assessed by management and the external
auditor. All members of the Committee
supported the application of professional
scepticism by the Group’s external auditor.
During 2021, the members of the
Committee held private meetings with the
external auditor, which provided a mutual
opportunity for open dialogue and
feedback without management being
present. Topics covered at such meetings
included the status of the Group’s bond
restructuring exercise and the audit fees.
The Committee reviewed the auditor’s
annual report for 2021, giving consideration
to the audit procedures and findings in the
areas of significant judgements and
estimates. The Committee also reviewed
the letter of management representations
in respect of the annual audit, which were
subsequently signed by management.
Corporate governance
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 97
The Committee will evaluate the
effectiveness of the external audit process
for the year ended 31 December 2021, by
completing a questionnaire which will
address areas such as processes, audit
team, audit scope, communications,
technical expertise, audit governance and
independence and audit fees. Based on
such evaluation, the Committee concluded
that the performance of the external
auditor remains at an appropriately
high level.
Non-audit services
The main principle of the Group’s policy on
the provision of non-audit services by the
external auditor is that non-audit services
may only be provided by the external
auditor where the external auditor
maintains the necessary degree of
independence and objectivity, and that
standard supplier selection procedures
are carried out.
Committee pre-approval is required before
the external auditor is engaged to provide
any permitted non-audit services (as
defined in the policy) in addition to any
other approvals required by the Board
and management pursuant to powers
delegated by the Board or Nostrum’s
internal approvals policies.
The Committee monitors the external
auditor to ensure that it does not provide
non-audit services that are prohibited by
the FRC and limits such services to due
diligence services and other assurance
services. The revised policy is available on
the Group’s website at www.nog.co.uk and
will be reviewed and amended as and
when required.
Audit fees for 2021 totalled US$1,248,000
(2020: US$1,076,000).
In 2021, EY were appointed to act as the
reporting accountant in connection with
the required issuance of a Class 1 Circular
in accordance with Listing Rule 9.5.12R in
relation to the Company’s proposed
reconstruction and refinancing and
subsequent required issuance of a
Prospectus for the proposed listing and
admission of new ordinary shares of the
Company (the ‘Transactions’).
However, the proposed fees for the work
would exceed the 70% non-audit services
fee cap in FY 2021 by £188,000. In addition,
the total expected fees subject to the
non-audit service cap was estimated to
represent approximately 110% of the
average audit fees for the three preceding
years (2018 to 2020).
The Committee considered whether the
appointment of EY as reporting accountants
would impair their independence as
auditor. In making its judgement, the
Committee considered that:
i. The reporting accountants work is a
permissible non-audit service under the
FRC’s 2019 Revised Ethical Standard
included within paragraph 5.39;
ii. At the time of the appointment in
May 2021, the work was expected to
commence in early June 2021, with
the planned issuance of the Circular
by 30 June 2021 and subsequent
Prospectus by 30 September 2021.
Therefore, the majority of the work
was expected to be performed by
EY in 2021 only;
iii. The total non-audit fees for the
reporting accountants would exceed
the 70% cap. However, the Company
did not expect to undertake further
similar transactions in the near future
because, if successful, the refinancing
process will deal with the expected
refinancing needs;
iv. Completion of the refinancing was
proposed to run to an extremely tight
schedule and so the timetable for
completion of the Transactions was a
critical factor. EY already had significant
knowledge and understanding to carry
out the required work obtained from
the audit of the financial statements. In
addition, restrictions on travel and site
visits as a result of COVID-19 made it
extremely difficult, if not impossible, for
another firm to visit the main locations
in the UK and Kazakhstan. Therefore,
the Committee considered that another
firm would not have time to obtain
the required knowledge and
understanding of the Group in the
short timeframe available. The
Committee also considered that for this
reasoning, splitting the work between
EY and other firms was not practical;
v. EY had confirmed to the Committee
that whilst the Audit Partner would be
involved in the work because their
understanding of the Company was
relevant to the subject matter, the
working capital exercise would be
carried out by a separate transaction
team, a separate Partner and separate
quality control Partner. EY also
confirmed that the Audit Partner
would not be evaluated on permitted
non-audit services provided to
Company will be no self-interest threat
for (as per paragraph 4.36 of the Ethical
Standard). There is also limited
self-interest threat as the level of fees
is not material to the firm or the office.
After careful consideration, the Committee
unanimously concluded that appointment
of EY as reporting accountants did not
impair their independence as auditors.
The Committee noted that EY would need
to seek an exemption from the Financial
Reporting Council for the breach of the
70% fee cap in respect of the financial year
ended 31 December 2021. That application
was made on May 26, 2021 and the FRC
granted the exemption on May 27, 2021.
There were no audit-related assurance
services provided in 2020.
A detailed breakdown of audit and
non-audit fees for 2021 can be found in
Note 30 to the consolidated financial
statements of the Group on page 161.
By operating in accordance with the above
policy and other practices established
within the Group, the Committee was
satisfied that adequate safeguards were
inplace to ensure the objectivity and
independence of the external auditor.
Sir Christopher Codrington, Bt.
Chairman, Audit Committee
Independent Non-Executive Director
4 May 2022
Audit Committee report continued
98 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Nomination and Governance Committee report
Dear shareholder,
2021 has been a challenging year for all and
this is much the same for the Nomination
and Governance Committee.
Whilst Arfan Khan the newly-appointed
CEO successfully relocated to Kazakhstan
amidst the challenges of the COVID-19
pandemic, the Committee then considered
the succession and replacement for the
interim Chief Financial Officer Martin
Cocker, whose service contract was
extended through to end-August 2021. The
Committee recommended to the Board an
initiative to carry out a new search for a
permanent Chief Financial Officer position
with the assistance of Cripps Sears, which
has no other connection with the Company.
After a successful search was completed,
Shane Drader joined the Group and was
appointed as Chief Financial Officer during
the third quarter of 2021. Shane was
welcomed to the Company and has
also relocated to Uralsk.
Mr Cocker stepped down from his interim
Chief Financial Officer position and the
Committee worked with the Board, the
Company’s advisers and the advisers to an
ad hoc group of holders of the Group’s
notes to reconstitute the Board.
The above consulted parties
recommended to the Board that Mr Cocker
resume his prior role as an independent
non-executive director and as a member of
the Audit, Nomination & Governance and
Remuneration Committees of the Board.
The Board is now comprised of five
members: Atul Gupta (Chairman), Kaat Van
Hecke, Martin Cocker, Arfan Khan and
myself. Accordingly, the commitments that
are being asked of each director continue
to be significant, especially bearing in mind
the restructuring exercise in which the
Group is currently engaged. However, after
seeking and obtaining guidance from the
Company’s advisers and engaging in
dialogue with both the Board and the
advisers to the Company’s various
stakeholders, the Committee concluded
that it would not be appropriate to recruit
an additional non-executive director onto
the Board at this time of significant
uncertainty and transition prior to
completion of the proposed restructuring.
Additionally, the Board completed its
self-evaluation in 2021 and the results of
this process will be taken into consideration
by the Board as the Company seeks to
implement the proposed restructuring
announced in December 2021 and as
clarity emerges on the governance
structure and arrangements proposed
to take effect post-restructuring. In
connection with such implementation
the Committee will once again consider
the structure, size and composition of
the Board for the future management
of the Company and make appropriate
recommendations to the Board.
In the meantime, the Committee and the
Board are satisfied that there are sufficient
resources, experience and knowledge
on the Board to work with the full
commitments and demands placed on it
whilst the Company is in the restructuring
process.
Related party transactions
In December 2021 the Company became
aware that through an unintentional
oversight it had in two instances in the past
failed to identify the employment of the
spouses of directors by Group companies
as potential related party transactions
requiring consultation with a sponsor and
public disclosure under the Company’s
own related party transactions policy
and the UK Listing Rules, Disclosure
Requirements and Transparency Rules.
Whilst the Committee and the Board
believe that such employment was proper
and in the Company’s best interest in both
cases, I apologise on behalf of the
Company for the Company’s failure in these
two instances to meet its regulatory
obligations in relation to these actual or
potential related party transactions. The
Company considers compliance with its
regulatory obligations to be a matter of the
highest importance and has conducted an
internal review of this matter, in consultation
with a sponsor and its auditors and legal
counsel, and has approved and taken
various remedial actions and initiated
additional training and revision and
distribution of the Company’s policies and
procedures around potential related party
transactions in order to ensure that they are
robust, known to all relevant personnel and
consistently implemented.
More information regarding this matter
can be found on pages 87 – 88.
The Committee will closely monitor the
Company’s consideration of possible
related party transactions to ensure that
going forward the Company fully complies
with its regulatory obligations and internal
policies and procedures in this area.
Letter from the Chairman
Corporate governance
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 99
Nomination and Governance Committee report continued
Committee meetings
The Nomination and Governance
Committee met formally once during 2021.
A number of other matters that might
otherwise have been discussed by the
Committee were discussed directly by the
full Board. The attendance of each
Committee member at Committee
meetings held during 2021 is shown on
page 91. As a separate agenda item, the
Committee reports to the Board at each
monthly Board meeting on any activities of
the Committee since the last Board
meeting.
Only members of the Committee have the
right to attend Committee meetings.
However, other individuals may be invited
to attend all or part of any meeting, as and
when appropriate.
Diversity
More information on the Group’s actions
and policies in relation to diversity and
inclusion can be found on pages 40 – 42.
All Directors will stand for re-election at the
2022 Annual General Meeting with the full
support of the Board.
Sir Christopher Codrington, Bt.
Chairman, Nomination and Governance
Committee
4 May 2022
Key responsibilities of the
Nomination and Governance
Committee
The key responsibilities of the Committee
are to:
• Lead the process for Board
appointments and make
recommendations to the Board
regarding candidates for appointment
or reappointment as Directors;
• Monitor and make recommendations to
the Board on Board governance and
corporate governance issues, to enable
the Board to operate effectively and
efficiently;
• Regularly review the structure, size and
composition (including skills,
knowledge and experience) of the
Board;
• Keep under review the leadership
needs of the Company, both executive
and non-executive, with a view to
ensuring the continued ability of the
Company to compete effectively in the
marketplace; and
• Review annually the time required from
Non-Executive Directors.
Membership
Sir Christopher
Codrington, Bt.
Chairman
Kaat Van
Hecke
Martin Cocker
The Chairman does not have any other
significant commitments to report.
100 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Health, Safety, Environment and Communities Committee report
Dear shareholder,
I am pleased to present my third report
as Сhairwoman of the Health, Safety,
Environment and Communities Committee.
During 2021, the Committee continued
its journey on the five HSEC pillars we
established in 2019 and which define our
approach to sustainable operations within
the Company. The pillars are: HSE
leadership; rigorous incident investigation;
process safety/ asset integrity; contractor
HSE management and commitment
to reduce GHG emissions. Notable
achievements in 2021 are described below.
As for the prior year, COVID-19 continued
to be a key focus for the HSEC Committee
and the Group at large during 2021. In
accordance with our own COVID measures
as well as implementing all Kazakhstan
guidelines we implemented stringent
precautionary measures to ensure the
safety of our employees and contractors
and the wider community. I am happy to
report that the vaccination of our staff
started in April 2021 and reached above
78% of employees fully vaccinated by the
end of 2021, which is considerably higher
than the RoK fully vaccinated rate as of the
same date of approximately 43%. The
number of positive cases within our
employee base was low and appropriate
isolation and distancing measures were
undertaken which avoided mass contagion
in the year. We are very grateful that all
affected staff recovered and were able
to return to work.
COVID did not have a material effect on our
operations in 2021, with no production
losses arising that can be attributed to the
pandemic or our actions in managing our
response to it.
In terms of diversity, at 31 December
2021 the Group reported 23% female
representation across all levels of our active
work population, which is at the same level
of 23% reported at the end of 2020. Our
result is comparable to our industry peers’
diversity statistics, but low in comparison
to other industry sectors. This is because
despite having fair recruitment policies in
place, more job applicants are male due to
the nature of the Group’s activities and with
the majority of the positions requiring
physical presence in a remote field camp
on a rotational basis. I was pleased to note
that a number of women were promoted to
senior positions during the year and we
will continue to implement incentives
to encourage female applicants and
promotions, such as flexi-working
arrangements, childcare provisions
and identification of “high-potential”
employees. Also, to increase awareness of
the inclusive measures that can be taken in
favour of greater diversity, specific training
for management in this area is expected to
be provided in 2022. In 2021, two women
joined the Senior management team as
opposed to 2020 year end when no
females were in the Senior management
team. We are targeting to further increase
female representation at the Senior
management and at the department head
level. Further information on the Group’s
approach to diversity is set out on page
40 – 42.
The Committee met five times during 2021.
The attendance of each Committee
member at Committee meetings held
during 2021 is shown on page 91. Only
members of the Committee have the right
to attend Committee meetings. However,
the Group Head of QHSE, Chief Operating
Officer, Chief HR Officer, Chief Legal
Officer and Chief Financial Officer all have
standing invitations to all meetings of the
Committee and are tasked with reporting
to the Committee on key areas linked to the
work of the Committee that fall within their
responsibilities.
The meetings of the Committee were
supplemented by bi-monthly internal QHSE
meetings in 2021 with attendance of the
CEO, the QHSE group, the Chief Operating
Officer and the Head of Field Operations.
This enabled the safety messages to be
brought down into the field directly from
the Chief Executive Officer and Chief
Operating Officer, which further underlined
their importance to our employees and
contractors.
I reported to the Board, as a separate
agenda item, on the activities of the QHSE
group and the Committee at each Board
meeting.
The Committee reviews its terms of
reference annually, which can be viewed
on our website.
Kaat Van Hecke
Chairwoman, Health, Safety, Environment
and Communities Committee
4 May 2022
Letter from the Chairwoman
Corporate governance
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 101
Health, Safety, Environment and Communities Committee report continued
Committee activities during
theyear
Notable achievements in 2021 in relation to
our pillars were:
• We had two LTIs in 2021 and the LTIR was
0.81 in 2021 (per million man-hours,
compared to an LTIR of 0.84 in 2020).
Proactive reporting of all hazardous
situations continues to be encouraged,
with the TRIR at 2.4 in 2021 (compared to
a TRIR of 3.8 in 2020). For all incidents the
Company follows its updated incident
investigation procedure based on the
“five whys” methodology and applies the
SMART principles for the actions
proposed.
• In line with expectations and for the third
consecutive year the Company and its
contractors had zero fatalities across its
operations.
• A target of 600 submitted Hazard
Observation Cards was set again for
2021, now with the focus on a larger
population of employees as well as on
contractors submitting the cards. I am
delighted to report that 1,278 cards were
submitted in 2021, of which over 40% by
contractor staff and more than 35% of our
employees submitted cards. A target of
more than 1,000 of Hazard Observation
Cards has been agreed for 2022 with a
focus on an even larger population of
employees and as well as on contractors
submitting the cards.
• Environment and climate change
remained a focus. The Group again
made its annual CDP climate change
submission in August 2021 according to
the stated deadlines and was graded “C”.
An ambitious KPI target of “B” has been
set for 2022. In addition, the Group also
submitted the CDP water security
module for the first time in 2021. In line
with the UK Companies Act 2006
(Strategic Report and Directors’ Reports)
Regulations 2013, the Company reports
on its greenhouse gas emissions and
this information can be found on
pages 45 – 50.
• We continued with our contractor HSE
management implementation. We
conducted four external contractor HSE
management system audits and two
internal management system audits in
2021 to ensure proactive approach in
identifying areas for improvement and
demonstrating our ongoing commitment
to improved contractor management. In
2021, we implemented – in a structured
way – bi-annual HSE performance
meetings with six of our key contractors,
during which Nostrum senior operation
representatives discuss with senior
contractor staff any HSE related findings.
Review audits and bi-annual HSE
performance meetings with our key
contractors will continue to be conducted
in 2022.
• The Committee continued to emphasise
that process safety must not be confused
with industrial safety. A total of 13 safety
declarations were developed and
registered with the Process Safety
Authority Industrial Development and
Process Safety Committee in Nur-Sultan.
In 2021, significant effort was made to
inspect all vessels in line with the agreed
vessel inspection program. During the
extended plant shutdown, all vessels that
required internal inspection by RoK law
were inspected, some for the first time.
While no major issues were found,
lessons have been learned to ensure
continued preventive maintenance
measures for all process safety critical
equipment. The exhaust chimney of the
Sulphur Recovery Unit was found to have
a crack and was duly repaired. Finally, a
special monitoring program, using drone
technology, has been developed.
Key responsibilities of the
Health, Safety, Environment
and Communities Committee
The key responsibilities of the
Committeeare:
• Paying attention to health, safety,
environment, climate change and
diversity issues;
• Working with the Group’s operational
teams on site to compile and evaluate
the relevant information for the
Company to self-report environmental
data using the CDP submission process;
• Assessing the requirements for TCFD
disclosures and ensuring our
preparedness to meet these; and
• Working with the Audit Committee and
Board to include climate change in the
principal risks faced by the Group and
to endeavour to quantify climate change
related risks
Membership
Kaat Van
Hecke
Committee Chairwoman
Martin Cocker
Atul Gupta
1
Arfan Khan
1. Atul Gupta was a member of the Health,
Safety, Environment and Communities
Committee for the period 1 September
2020 to 25 January 2021 during which he
was the Interim Chief Executive Officer.
102 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Remuneration Committee report
Dear shareholder,
I am pleased to introduce the Directors’
Remuneration Report, which has been
approved by both the Remuneration
Committee and the Board for the year
ended 31 December 2021.
Remuneration Policy
The aim of our Remuneration Policy,
amongst other things, is to align the
remuneration of executives and senior
management with the interests of the
Company’s shareholders and to ensure that
rewards are justified by performance. As
reported previously, a significant number of
shareholders expressed concerns at the
AGM in 2019 regarding our Remuneration
Policy, in particular around the Company’s
long-term incentive plan (LTIP) and the
potential use of “Golden Hellos” in
connection with the recruitment of
new Directors.
Following consultation with shareholders in
2019 and after careful consideration, the
Board and the Remuneration Committee
concluded that modifying the provisions
of the LTIP would not be the right course
of action at that time. Therefore, our
Remuneration Policy has remained
unchanged throughout 2019, 2020
and 2021.
Only two Directors were participants in the
LTIP. They were the former Chief Executive
Officer, Kai-Uwe Kessel, who left the Group
on 16 December 2019 and Tom Richardson,
the former Chief Financial Officer who
resigned on 31 March 2020 and was
replaced on the same date by Martin
Cocker, who until that time was serving
on the Board as an independent
Non-Executive Director.
The Group was pleased to announce
the appointment of Arfan Khan as Chief
Executive Officer on 26 January 2021. Mr
Khan assumed the role of chief executive of
the Group from Executive Chairman Atul
Gupta, who had performed such duties on
an interim basis. Mr Gupta reverted to his
previous role as Executive Chairman. Mr
Khan also joined the Board at the same time.
The Group was also pleased to announce
the appointment of Shane Drader as Chief
Financial Officer on 30 August 2021. On the
same date, Martin Cocker, who had been
acting as interim Chief Financial Officer,
stepped down from that role and resumed
his role on the Board as an independent
non-executive director.
None of the Executive Directors on seat
in 2021, being Mr Gupta, Mr Khan and
Mr Cocker, were participants in the LTIP or
received any signing bonuses or similar
financial inducements or “Golden Hellos”
to take on executive roles. Accordingly,
those elements of the Remuneration Policy
that gave rise to concerns expressed by
certain shareholders previously have not
been invoked by the Company in any way
in 2021.
As noted elsewhere in this Annual Report,
in accordance with the Companies
Act 2006 a resolution to approve the
Remuneration Policy will be submitted to
shareholders for a binding vote at the 2022
Annual General Meeting.
Remuneration for 2021
The 2021 Directors’ Remuneration Report
will also be subject to an advisory vote at
our 2022 Annual General Meeting.
Further details of Executive Director
performance against the 2021 KPIs can be
found on pages 107 – 108. In setting these
targets, the Committee focused on areas
critical for the Company, which were:
• Minimising annual decline of average
sales volumes;
• Reducing operational and G&A
cash costs;
• Pursuing strategic objectives to monetise
the spare capacity within our world-class
processing facilities;
• Ensuring all of our operations are carried
out as safely as possible; and
• Actively managing our greenhouse gas
emissions.
Our strategic targets all remain
commercially sensitive and, therefore, have
not been disclosed.
Mr Khan is the only person who served as
an Executive Director during 2021 who has
been assessed for a bonus against
achievement of these KPIs. The assessment
was prepared by the Remuneration
Committee as a recommendation to the
Board, and was considered and agreed by
the Board (other than Mr Khan himself) on
31 March 2022. It was determined that
30.3% of the KPIs had been achieved over
the year 2021.
Few production and cost KPIs were
satisfied (5% out of a possible 30%), the
ESG KPIs had been partly met (8% out of a
possible 10%) and tangible progress had
been made on the strategic objectives
(17.3% out of a possible 200%). Accordingly,
the Committee recommended and the
Board approved a bonus of 30.3% for the
Chief Executive Officer for 2021.
Annual statement
from the Chairwoman
Corporate governance
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 103
Remuneration Committee report continued
The 2022 key performance indicators for
the CEO and senior managers were initially
proposed by the CEO and then developed
in consultation with the Remuneration
Committee and were agreed by the Board
in December 2021. Such KPIs are set out on
page 112. Senior management, including
the Chief Executive Officer, are assessed
for bonuses based on these KPIs. Certain
KPIs relating to strategic objectives have
been carried forward from 2021 but are still
considered to be commercially sensitive
and so have not been disclosed. It is our
intention to publish these, together with
the bonus outcome, as required in the first
Directors’ Remuneration Report following
their achievement.
The Committee also exercised its discretion
in deciding not to make any awards under
the LTIP in 2021 to any LTIP participants.
As regarding the Group’s personnel as a
whole, the collective agreement with
employees of the Company’s subsidiary
Zhaikmunai LLP working in the Republic of
Kazakhastan provides for annual indexation
of salaries and effective 1 April 2021
a 7.5% pay increase was granted to such
employees who are paid in Kazakh Tenge
to cover the increase in the cost of living
there during 2020. Effective on 1 January
2022 an additional increase of 8.4% was
granted to cover the increase in the cost
of living there during 2021.
However, executive Directors and other
members of senior management did not
receive any salary increases in 2021.
Fees payable to the independent non-
executive Directors in 2021 remained at the
level of $120,000 per annum, introduced
from the date of entry by the Company
into the Forbearance Agreement on
23 October 2020.
The Committee notes that it has come to its
attention that as a result of an unintentional
oversight total remuneration figures
reported by the Company for two directors
in the Directors’ Remuneration Report for
certain past years, including 2020, did
not include remuneration paid to their
associated persons who were also
employed by Group companies. Such
figures for 2020 have been corrected in
the comparative tables found in the
remuneration report for 2021.
More information regarding this matter
can be found on pages 87 – 88.
UK Corporate Governance Code
The Company complied with the provisions
of the Code relating to remuneration
throughout 2021. Further information on
compliance with the Code can be found
on page 80.
The Committee has addressed the factors
in Provision 40 of the Code as to clarity,
simplicity, risk and predictability by refining
the CEO’s KPIs applying in 2022 relative
to those which applied in 2021 to (a)
reduce ambiguity; (b) increase the level of
granularity; and (c) agree them with relevant
stakeholders (such as the bondholders) in
good time.
Compliance statement
This report has been prepared in
accordance with the UK’s regulations on
remuneration reporting. The Companies
Act 2006 requires the Company’s auditor to
report to shareholders on certain parts of
the Directors’ Remuneration Report and to
state whether, in the auditor’s opinion,
those parts of the report have been
properly prepared in accordance with the
above regulations. This Annual Statement
and the Policy Report are not subject to
audit. The sections of the Directors’
Remuneration Report that are subject to
audit are indicated accordingly.
On behalf of the Committee, I would like to
thank shareholders for their continuing
support.
Kaat Van Hecke
Chairwoman, Remuneration Committee
4 May 2022
104 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
2021 annual report on remuneration
2021 annual report
onremuneration
Remuneration Committee
The remuneration of the Chairman, the
Chief Executive, the Chief Financial Officer,
the Company Secretary and all other senior
members of executive management is
determined by the Committee under
delegated powers from the Board and in
accordance with the Committee’s terms of
reference. The Chairman and the executive
members of the Board determine the
remuneration of all Non-Executive
Directors, including members of the
Committees.
In accordance with the terms of reference,
members of the Committee shall be
appointed by the Board on the
recommendation of the Nomination and
Governance Committee in consultation
with the Chair of the Committee. The
Committee must always include at least
three independent Non-Executive
Directors who comprise a majority
of the Committee.
During 2021, the Committee was
comprised solely of independent
Non-Executive Directors.
The primary responsibilities of the
Committee are set out in its terms of
reference which are reviewed and updated
annually, and which are available to
download from the Company’s website.
Alternatively, copies can be obtained on
request from the Company Secretary.
When making recommendations to the
Board regarding Executive Directors’
remuneration the Committee is able to
consider corporate performance on
environmental, social and governance
issues and ensures that any incentive
structures do not raise any environmental,
social or governance risks by inadvertently
motivating irresponsible behaviour.
The Committee held three meetings
in 2021 and the attendance of each
committee member at such meetings
is shown on page 91.
The principal agenda items at the formal
meetings were as follows:
Meeting Agenda item
April 2021 • Extension of interim Chief
Financial Officer’s service
agreement.
• Employee bonuses in respect
of 2020.
• Indexation of salaries for Kazakh
personnel.
November
2021
• Discussion of 2021 and 2022 KPIs.
December
2021
• Further discussion of 2022 KPIs as
recommendation to the Board.
The Chief Executive Officer attended the
meetings in November and December
2021. No other Directors participated in
meetings of the Committee during 2021.
During the year, the Committee received
advice internally from Arfan Khan (from
26 January 2021), Atul Gupta (from
1 January 2021 to 25 January 2021 during
his appointment as interim Chief Executive
Officer), Martin Cocker (from 1 January
2021 to 30 August 2021 during his
appointment as interim Chief Financial
Officer), Shane Drader (from 30 August
2021) and Thomas Hartnett (Company
Secretary).
Mr Gupta and Mr Khan were consulted on
the remuneration of the other Executive
Directors and senior members of executive
management and on matters relating to
the performance of the Company. The
Company Secretary was consulted on
regulatory requirements.
None of the Executive Directors nor the
Company Secretary participated in
decisions on his own remuneration.
Members of the Group’s human resources
team may attend relevant portions of
Committee meetings to ensure appropriate
input on matters related to the remuneration
of senior members of the executive
management team below Board level.
Key responsibilities of the
Remuneration Committee
In summary, the Committee’s key
responsibilities include:
• Making recommendations to the Board
on the Company’s overall framework for
remuneration and its cost and, in
consultation with the Executive
Chairman and Chief Executive Officer,
determining the remuneration
packages of each of the Executive
Directors;
• Reviewing the scale and structure of
Executive Directors’ remuneration and
the terms of their service or
employment contracts, including
share-based schemes, other employee
incentive schemes adopted by the
Company from time to time and
pension contributions;
• Demonstrating to the shareholders of
the Company that the remuneration of
the executive directors of the Company
and other senior members of executive
management of the Company and its
subsidiaries is set by a committee of the
Board whose members have no
personal interest in the outcomes of the
decisions of the committee and who will
have due regard to the interests of the
shareholders; and
• Ensuring payments made on
termination comply with the relevant
provisions of the Company’s
Remuneration Policy.
Membership
Name
Membership
start date
Membership
end date
Sir Christopher
Codrington, Bt.
19 May
2014
Kaat Van Hecke
(Chairwoman
from 8 October
2020)
31
December
2016
8 October
2020
27 January
2020
Martin Cocker 27 January
2020
30 August
2021
8 October
2020
Their biographies are given on pages
82 – 83. The Company Secretary acts
as secretary to the Committee.
Corporate governance
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 105
2021 annual report on remuneration continued
Voting on remuneration matters
The resolution put to shareholders at the 2021 Annual General Meeting relating to Directors’ remuneration was a resolution to approve
the Directors’ annual report on remuneration and, in accordance with the Act, the resolution was subject to an advisory vote. The votes
received are set out in the table below.
Resolution Votes FOR % of votes cast
Votes
AGAINST % of votes cast
Votes
WITHHELD
Approval of Directors’ annual report on remuneration 105,579,672 99.80% 214,349 0.2% 997,735
At the 2022 Annual General Meeting, the Directors’ remuneration report will be put to shareholders for approval by way of an advisory
vote. In accordance with the Companies Act 2006, a resolution to approve changes to the Remuneration Policy will be submitted to
shareholders for a binding vote at the 2022 Annual General Meeting.
Single total figure of remuneration for Executive Directors
The table below shows the single total figure of remuneration for the year ended 31 December 2021 for each Executive Director that
served as an Executive Director at any time during the year. The information contained in the table is as prescribed by the Large and
Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 and contains a single total figure of
remuneration for each Executive Director.
The Executive Directors are remunerated in either EUR, GBP, US$ or KZT and, to avoid any anomalies in the figures reported owing to
fluctuations in the EUR/US$, GBP/US$ and KZT/US$ exchange rate, the Company has decided not to convert amounts paid to Executive
Directors into US$, the Group’s functional currency, but instead to report all figures in relation to Executive Director remuneration in EUR
throughout this report.
Director
1,2
Amounts in EUR Period
Salary and
fees
Taxable
benefit
Annual
bonus
3
Phantom
Share
Option
Plan LTIP
4
Pension
5
Total
(audited)
Total fixed
remuneration
Total variable
remuneration
Atul Gupta
(Executive Chairman) 2021 431,031 3,542 − − − 3,221 437,794 437,794 −
2020 453,383 462 − − − 12,927 466,771 466,771 −
Arfan Khan
(Chief Executive Officer) 2021 532,809 38,555 161,257 33,836 766,458 605,200 161,257
2020 − − − − − − − − −
Kaat Van Hecke
(Chief Executive Officer)
6
2021 − − − − − − − − −
2020
restated
7
948,998 11,481 140,850 − − 21,532 1,122,861 982,011 140,850
Martin Cocker
(Chief Financial Officer)
8
2021 375,604 − − − − − 375,604 375,604 −
2020 374,471 − − – − − 374,471 374,471 −
Tom Richardson
(Chief Financial Officer)
9
2021 − − − − − − − − −
2020
restated
10
378,047 3,121 − − − 4,233 385,402 385,402 −
1. Mr Khan and Ms Van Hecke (from December 2019 to August 2020 when she was in role as Chief Executive Officer) received part of their remuneration under a
contract for services as a director and part under separate service agreements for their role as a Group executive. Mr Cocker (from March 2020 to August 2021
when he was in role as Chief Financial Officer) and Mr Gupta (from November 2018 when he was appointed as Executive Chairman) receive their remuneration
under Group executive service contracts. Prior to November 2018, Mr Gupta was not an Executive Director. For clarity, this table presents their total remuneration
from the Group whether received under a contract for services as a Director or a Group executive services contract.
2. Mr Gupta is remunerated in US$, Mr Cocker was remunerated in GBP, Mr Khan is remunerated in GBP and KZT and Ms van Hecke was remunerated in EUR and KZT.
For the purposes of this table, the following exchange rates have been used:
2021: GBP: EUR 1.159; EUR:US$ 1.188; EUR:KZT 505
2020: GBP: EUR 1.129; EUR:US$ 1.131; EUR:KZT 431
3. Ms Van Hecke received a bonus in 2020 for her contribution to the operating, commercial, strategic and environmental objectives of the Group in 2020. None
of the bonus awarded to Ms Van Hecke was in relation to the appreciation or depreciation of the Company’s share price. Mr Khan received a bonus for his
contribution to the operating, commercial, strategic and environmental objectives of the Group in 2021. None of the bonus awarded to Mr Khan was in relation
to the appreciation or depreciation of the Company’s share price. No other Executive Directors received bonuses in respect of 2019, 2020 or 2021.
4. Awards made under the LTIP in 2017 have vested but no awards have been exercised by the Executive Directors in respect of such awards. No awards made under
the LTIP in 2018 are capable of vesting as the performance conditions were not met in 2018. No awards were made under the LTIP in 2019, 2020 or 2021.
5. The Company did not operate a pension scheme for Executive Directors in 2020 or 2021 but may make a pension contribution or a payment in lieu of pension
contributions to Executive Directors under their employment contracts as executives of the Group as opposed to under their service agreements as Directors of
the Company. The total amount paid to Executive Directors in 2021 in lieu of pension contributions was 37,057 EUR (2020: EUR 38,692). Executive Directors are not
entitled to any additional benefit if they retire early.
6. Ms Van Hecke was Chief Executive Officer from 16 December 2019 to 31 August 2020.
7. The amount published in 2021 in respect of payments to Ms Van Hecke in 2020 has been corrected to include the amount of EUR 423,031 paid to her spouse in
2020. For the purpose of this table all the amounts paid to Ms Van Hecke’s spouse were included in the Salary and fees, Total (audited) and Total fixed remuneration
columns. Please see pages 87 – 88 for more information on this related party transaction.
8. Mr Cocker was paid as Chief Financial Officer for the period 31 March 2020 to 29 August 2021.
9. Mr Richardson resigned as Chief Financial Officer and as a Director of the Company on 31 March 2020. The payment to Mr Richardson in 2020 includes GBP 37,500
in salary and fees and GBP 1,875 in pension being one month’s pay in lieu of notice.
10. The amount published in 2021 in respect of payments to Mr Richardson in 2020 has been corrected to include the amount of EUR 165,867 paid to his spouse in
2020. For the purpose of this table all the amounts paid to Mr Richardson’s spouse were included in the Salary and fees, Total (audited) and Total fixed
remuneration columns. Please see pages 87 – 88 for more information on this related party transaction.
106 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Single total figure of remuneration for Non-Executive Directors
The table below shows the single total figure of remuneration for each of the Non-Executive Directors. Non-Executive Directors are
remunerated in US dollars.
Director
1,2
Amounts in US$ Period Fees Total (audited)
Sir Christopher Codrington, Bt.
3
2021 120,000 120,000
2020 94,098 94,098
Kaat Van Hecke
3, 6
2021 120,000 120,000
2020 29,968 29,968
Martin Cocker
7
2021 40,000 40,000
2020 27,50 0 27,500
Simon Byrne
8
2021 − −
2020 25,000 25,000
Michael Calvey
8
2021 − −
2020 25,000 25,000
Mark Martin
5
2021 − −
2020 51,023 51,023
1. Between 1 January and 31 March 2020, Non-Executive Directors were paid a fee of $100,000 per annum. Additional amounts were awarded for being Chair of one
of the Board’s committees and also for being the Senior Independent Non-Executive Director.
2. From 1 April to 22 October 2020, the independent Non-Executive Directors were paid a fee of $50,000 per annum with no additional amounts payable for being
Chair of any of the Board’s committees nor the Senior Independent Non-Executive Director.
3. From 22 October 2020, Sir Christopher Codrington and Kaat van Hecke were paid fees of $120,000 per annum. No additional amounts were payable for being
Chair of any of the Board’s committees nor the Senior Independent Non-Executive Director.
4. Sir Christopher Codrington received an additional fee for being the Chairman of the Nomination and Governance Committee and for being the Non-Executive
Director responsible for workforce engagement. Sir Christopher also received an additional fee for being Chairman of the Audit Committee until 4 June 2019.
5. Mr Martin received an additional fee for being Senior Independent Non-Executive Director and the Chairman of the Remuneration Committee.
6. Ms Van Hecke became Chief Executive Officer on 16 December 2019 and her salary increased to EUR 480,000 to reflect her additional responsibilities. Amounts
paid to Ms Van Hecke from 1 January 2020 to 31 August 2020 for her role as Chief Executive officer are reported in the table on page 106. Ms Van Hecke resigned as
Chief Executive Officer on 31 August 2020 and was redesignated as an independent Non-Executive Director effective 10 September 2020.
7. Mr Cocker stepped down as Chairman of the Audit Committee on 1 April 2020 following his appointment as Interim Chief Financial Officer on 31 March 2020.
His salary was increased to GBP 450,000 from 1 April 2020 to reflect his additional responsibilities. Amounts paid to Mr Cocker from 1 April 2020 to 29 August 2021
are reported in the table on page 106. Mr Cocker resigned as Chief Financial Officer on 30 August 2021 and was redesignated as an independent Non-Executive
Director on 30 August 2021.
8. Michael Calvey and Simon Byrne waived all of their fees from 1 April 2020 until their resignation from the Board effective 4 September 2020 and effective 4 January
2021, respectively.
Notes on the single total figure of remuneration table
Base salaries
Executive Directors’ salaries were considered by the Committee at the time of appointment to post in 2020 and 2021.
When reviewing salaries, the Committee considered the provisions of the Remuneration Policy and the situation of the Company.
Annual bonus
In 2021, Mr Khan was the only Executive Director eligible for a bonus.
In accordance with the shareholder approval given at the Company’s 2021 AGM for the purposes of section 226B(1)(b) of the Companies
Act 2006, the maximum annual bonus opportunity for Mr Khan in respect of 2021 was 240% of base compensation and is assessed
against financial and operational objectives.
All bonuses are discretionary and can be reduced from the maximum annual bonus opportunity level for reasons such as poor
performance by the employee or due to disappointing financial performance of the Group as a whole.
The key performance indicators for annual cash bonuses for the Chief Executive Officer were as follows:
2021 bonus performance measures Weight %
Operational and financial 30%
Achieve annual average sales from 16,000 boepd (0%) to 20,000 boepd (100%), excluding inventory movement.
(Sliding scale.) 15%
Reduce the total of opex and G&A from US$43.4m (0%) to US$34.7m (100%). Accruals basis. (Sliding scale.) 10%
Reduce Chinarevskoye capex, excluding well workover costs, from US$7.9m (0%) to US$6.4m (100%).
Excludes new projects. Applies to agreed workscope.
Reduce well workover/well intervention costs for programme approved as at 31 December 2020 from US$7.3m (0%) to
US$5.8m (100%). (Sliding scale.) 5%
Corporate governance
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 107
2021 annual report on remuneration continued
2021 bonus performance measures Weight %
Strategic objectives 200%
Complete the restructuring of the Company’s capital structure, including receipt of all required governmental approvals 20%
A commercially sensitive strategic target, therefore not disclosed 120%
A commercially sensitive strategic target, therefore not disclosed 45%
A commercially sensitive strategic target, therefore not disclosed 10%
A commercially sensitive strategic target, therefore not disclosed 5%
Environmental, social and governance 10%
Reduce GHG emissions to below 200,000 tonnes CO
2
equivalent and implement GHG action plan. 5%
Assessment by the Health, Safety, Environment and Communities Committee of achievement of the HSE Plan for 2021
(provided that there have been no fatalities). 5%
Total 240%
These bonus performance measures apply
to the Chief Executive Officer only. Currently,
no other director is eligible for any bonus
payment relating to 2021 performance
based on these performance measures.
The Committee considered the performance
of the Chief Executive Officer in the period
26 January to 31 December 2021.
Production and cost KPIs were partly
satisfied (5% out of a possible 30%), the
ESG KPIs had been partly met (8% out of
apossible 10%) and tangible progress had
been made on the strategic objectives
(17.3% out of a possible 200%). Accordingly,
the Committee recommended and the
Board approved a bonus of 30.3% on
31 March 2022 for the Chief Executive
Officer for 2021 (EUR 161,257). The
maximum bonus that could have been
awarded was 240% of base remuneration.
The Company does not provide for any
clawback provisions regarding annual
bonuses, as annual bonuses are awarded
on a lump sum basis based on past
performance and payable in the following
year, and so the rationale behind a clawback
mechanism is less relevant. Thisalso applies
to LTIP awards for which performance
conditions have been satisfied.
Long-term incentive awards
In 2017, the Company implemented its new
performance-based long-term incentive
plan (LTIP) and granted additional awards
on 28 November 2018.
The LTIP awards granted are based on
performance over one calendar year,
which is followed by an additional two-year
holding period such that no awards may
vest before the third anniversary of the
date of grant.
The Committee decided not to make
anyawards in 2021, and so there is no
information to be provided in relation
toperformance conditions for the
reporting year.
Pension entitlements
The Company did not operate a pension
scheme for Executive Directors in 2021
butmay make a contribution to a private
pension fund or a payment in lieu of
pension contributions to Executive
Directors, under their employment
contracts as executives of the Group
asopposed to under their service
agreements as Directors of the Company.
Payments to past Directors
No payments were made to past directors
of the Company during the year ended
31December 2021.
Payments for loss of office
No payments were made to Directors in
2021 for loss of office.
Non-executive Director fees
No changes were made to Non-Executive
Director fees in 2021, which were kept at
$10,000 per month.
Directors’ shareholdings
The beneficial interests of the Directors in
the share capital of the Company as at
31December 2021 were as follows:
Director
Total
(audited)
Atul Gupta 178,357
Arfan Khan −
Sir Christopher Codrington, Bt. 3,312
Kaat Van Hecke −
Martin Cocker −
The Company has not been notified of any
change in Directors’ shareholdings since
the year end.
Please refer to the text in the Remuneration
Policy table on page 115 in relation to
shareholding guidelines applicable to
Directors.
No shares have been granted to Directors
so there was no requirement on any
Director to hold them in accordance with
the guidelines. With the exception of
MrGupta, none of the Executive Directors
held shares in 2021 as encouraged by the
guidelines.
Phantom share option plan
The Company operates one non-
performance-related phantom share option
plan (the Plan). The Executive Directors
eligible to participate in the Plan were
Kai-Uwe Kessel and Tom Richardson. Each
held options over Ordinary Shares of the
Company, generally vesting over a five-year
period, exercisable at either US$4.00 or
US$10.00 per Ordinary Share and expiring
10 years from the date of grant, pursuant to
the Plan.
Mr Kessel left the Company by mutual
consent on 16 December 2019 and, in
accordance with the terms of the Plan,
alloutstanding options lapsed as at the
same date.
Mr Richardson resigned as Chief Financial
Officer and as a Director of the Company
on 31 March 2020 and, in accordance with
the terms of the Plan, all outstanding
options lapsed on 30 March 2021.
No awards were made under the Plan in
2021 (2020: nil). It is intended that once the
Group has re-established financial stability
through restructuring its long-term debt
then a new long-term incentive plan will be
introduced which will replace the Plan
going forward. Therefore, it is not currently
envisaged to make any further awards
under the Plan.
The Plan rules do not contain any malus or
clawback mechanisms. However, should
further awards be considered under the
Plan, then management will require any
recommendations by the Company to the
option trustee of an option award to be
made subject to an express right for the
Company to suspend further vesting and to
claw back unvested options previously
awarded where there have been
exceptional circumstances of misstatement
or misconduct, misbehaviour, significant risk
failures or material downturns in the Group’s
financial performance prior to vesting.
108 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Long-term incentive plan
On 24 August 2017, the Board approved the making of certain initial grants under the Company’s new long-term incentive plan (LTIP).
Awards under the LTIP were made in 2017 and 2018 but no further awards were made in 2019, 2020 or 2021.
In accordance with the LTIP rules, all outstanding options that had been issued to two Executive Directors, Mr Kessel and Mr Richardson,
who had left the Company on 16 December 2019 and 31 March 2020, respectively, lapsed as of 16 December 2019 and 30 March 2021,
respectively.
All Non-Executive Directors who had been granted awards under the LTIP (including the Chairman) have formally renounced such awards
and the Company has amended the terms of its LTIP to make Non-Executive Directors ineligible to participate in the LTIP.
Remuneration statistics and comparisons
The following performance graph shows the growth in value of a notional £100 invested in the Company since the premium listing of the
Company compared with the growth in the FTSE 350 Oil & Gas Index over the same period. The Committee selected the FTSE 350 Oil &
Gas Index as the most appropriate comparator as it feels that it is a broad-based index which includes many of the Company’s
competitors.
TOTAL SHARE RETURN
0
20
40
60
80
100
120
Nostrum O&G (dividends received) Nostrum O&G (dividends re-invested) FTSE 350 Oil & Gas
Jan 21
Feb 21
Mar 21
Apr 21
May 21
Jun 21
Jul 21
Nov 21
Dec 21
Aug 21
Sep 21
Oct 21
Jan 20
Feb 20
Mar 20
Apr 20
May 20
Jun 20
Jul 20
Nov 20
Dec 20
Aug 20
Sep 20
Oct 20
History of Chief Executive Officer remuneration
The total remuneration figures compared with a respective maximum opportunity for the Chief Executive Officer during each of the last
five financial years are shown in the table below. Kai-Uwe Kessel was in the position for the period 1 January 2015 to 16 December 2019,
Kaat Van Hecke was the Chief Executive Officer from 16 December 2019 to 31 August 2020 and Atul Gupta from 1 September to
25January 2021.
The total Chief Executive Officer remuneration figure for 2020 therefore includes all amounts paid to Kaat van Hecke for the period
1January 2020 to 31 August 2020 and Atul Gupta for the period 1 September 2020 to 31 December 2020 for Chief Executive Officer
services provided to the Group. Mr Gupta remained as Executive Chairman throughout the period 1 September 2020 to 25 January 2021.
Therefore, the amount attributed to his role as Chief Executive Officer is the incremental value in his remuneration only, which was the
pension contribution.
Please refer to the single total figure of remuneration table on page 106 for more information.
Corporate governance
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 109
2021 annual report on remuneration continued
Year
Total CEO
remuneration
(EUR)
Annual bonus
as % of
maximum
opportunity
2012 792,812 100.00%
2013 889,217 100.00%
2014 2,050,323¹ 100.00%
2015 971,224 80.00%²
2016 915,900 75.00%
2017 888,451 31.25%
2018 617,765 0.00%
2019
3
1,401,813 0.00%
2020
4
1,135,788 60.33%
2021 797,416 12.61%
1. Total CEO remuneration for 2014 includes remuneration from the exercise of share options.
2. These figures include a bonus amount of EUR 236,262 paid in 2015 in respect of 2014 performance. No bonuses were paid for 2015 performance.
3. The amounts published in 2021 in respect of payments to Ms Van Hecke in 2019 have been corrected to include the amount of EUR 32,006 paid to her spouse in 2019.
4. The amounts published in 2021 in respect of payments to Ms Van Hecke in 2020 have been corrected to include the amount of EUR 423,031 paid to her spouse in 2020.
Annual percentage change in Director and average employee remuneration
The table below shows the percentage changes in the salary, benefits and annual bonus of the Directors compared to the percentage
increases of the workforce as a whole for each financial year beginning on or after 1 June 2019.
Executive Directors (EUR) Salaries
Taxable
benefits Annual Bonus
Executive Chairman
1
2021 431,031 3,542 −
2020 453,383 462 −
% change (4.9)% 666.7% −
Chief Executive Officer
2,3
2021 561,049 38,864 161,257
2020 973,443 11,481 116,405
% change 42.4% 238.5% 38.5%
Chief Financial Officer
4
2021 375,604 − −
2020 752,519 3,121 −
% change (50.1)% (100.0)% 0.0%
1. Mr Gupta is remunerated in US$. He did not receive any increase in salary during 2021 in respect of his role as Executive Chairman and so any movement against
2020 is a result of changes in exchange rate.
2. Ms Van Hecke was Chief Executive Officer from 16 December 2019 to 31 August 2020. Mr Gupta discharged the role of Chief Executive Officer from 1 September
2020 to 25January 2021 but received no increment in salary, benefits or annual bonus as a result of assuming this role as well as that of Executive Chairman.
Therefore, the figures for the remuneration of the Chief Executive Officer in 2019, 2020 and 2021 reflect only the amounts paid to Ms Van Hecke (and her spouse)
and Mr Khan.
3. The amounts published in 2021 in respect of payments to Ms Van Hecke in 2020 have been corrected to include amounts paid to her spouse in 2020.
4. The amounts published in 2021 in respect of payments to Mr Richardson in 2020 have been corrected to include amounts paid to his spouse in 2020. The amounts
for 2021 only include Chief Financial Officer’s compensation up until 30 August 2021, at which time the position was removed as an Executive Director.
110 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Non-Executive Directors (US$) Salaries Benefits Annual Bonus
Sir Christopher Codrington Bt
2021 120,000 − −
2020 94,098 − −
% change 27.5% 0.0% 0.0%
Kaat Van Hecke
2021 120,000
2020 29,968 − −
% change 300.4% 0.0% 0.0%
Mark Martin
2021 − − −
2020 51,023 − −
% change (100.0)% 0.0% 0.0%
Martin Cocker
2021 40,000 − −
2020 27,50 0 − −
% change 45.5% 0.0% 0.0%
Michael Calvey
2021 − − −
2020 25,000 − −
% change (100.0)% 0.0% 0.0%
Simon Byrne
2021 − − −
2020 25,000 − −
% change (100.0)% 0.0% 0.0%
Employees of the Group on an FTE basis
% change (8.0)% (5.3)% 6.6%
Relative importance of spend on pay
The table below shows the Group’s actual spend on pay (for all employees) relative to dividends.
Key expenditure areas
In thousands of US$ 2021 2020 % change
Remuneration paid to all employees
1
22,242 22,693 (2)%
Dividends to shareholders (total) 0 0 0%
Dividends 0 0 0%
Share buy-back 0 0 0%
1. Total remuneration reflects overall payroll and related taxes. Refer to the consolidated financial statements for further information.
For further information on dividends and expenditure on remuneration for all employees, please see the notes to the consolidated
financial statements.
Service contracts
Details of the Executive Directors’ service agreements’ and the Non-Executive Directors’ letters of appointment can be found in
theCompany’s Remuneration Policy on pages 117 and 118 respectively of this Annual Report. All Directors are subject to annual
reappointment and accordingly all executive and Non-Executive Directors will stand for election or re-election (as appropriate) at
theAnnual General Meeting.
Statement of 2021 Remuneration Policy implementation
The Company’s Remuneration Policy was put to a shareholder vote at the 2019 Annual General Meeting and was approved by 74.65%
ofshareholders.
In accordance with the Companies Act 2006, a resolution to approve changes to the Remuneration Policy will be submitted to
shareholders for a binding vote at the 2022 Annual General Meeting.
Salaries and bonuses of the Executive Directors are reviewed and determined annually to ensure they remain appropriate. The Company’s
bonus year runs from 1 January to 31 December each year, with bonus amounts being determined between December and March and
becoming payable between April and August of each year.
Corporate governance
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 111
2021 annual report on remuneration continued
Remuneration in respect of 2021 will be consistent with the current policy described on pages 113 – 119 subject to the payment to the
Company’s Chief Executive Officer, Arfan Khan, of an annual bonus of up to a maximum of 240% of base compensation in accordance
with the shareholder approval given at the Company’s 2021 AGM for the purposes of section 226B(1)(b) of the Companies Act 2006.
Remuneration in respect of 2022 will be consistent with the new policy described on pages 113 – 119 if that new policy is approved by
shareholders at the 2022 Annual General Meeting.
Salaries and service fees
The Group appointed a new Chief Executive Officer on 26 January 2021. As part of that process, the level of remuneration to be paid was
agreed by the Committee and approved by the Board.
Annual bonus
The Executive Director annual bonus opportunity in respect of 2021 was up to 40% of base compensation in accordance with the current
policy, subject to the payment to the Company’s Chief Executive Officer, Arfan Khan, of an annual bonus of up to a maximum of 240% of
base compensation in accordance with the shareholder approval given at the Company’s 2021 AGM for the purposes of section 226B(1)
(b) of the Companies Act 2006. Annual performance will be assessed against a performance scorecard of which a portion is based on
operational and financial measures, a portion on strategic objectives and a portion on HSE, social and governance objectives.
The Committee has compiled a list of suitable key performance indicators against which the performance of the Executive Directors
will be measured at the end of 2022 to determine the annual bonus amounts payable to Executive Directors in 2023. Details of any
non-commercially sensitive KPIs are set out below. 2022 performance will be measured against these key performance indicators and the
Committee will consider such performance together with the Company’s financial position, in deciding whether and at what level to award.
2022 bonus performance measures Weight
Production and Costs 40%
Achieve annual No-Further-Activity PDP volume available for sales from 12 100 boepd (0%) to 12 700 boepd (100 %).
Slidingscale. 15%
Deliver 6 well WOWI campaign within USD 5.8 mln budget and with an annual cumulative production volume in 2022
ranging from 192 kboe (0%) to 396 kboe (100%). Sliding scale. 10%
Reduce Opex and G&A from USD 45.5 mln (0%) to USD 41.76 mln (100%). Accruals basis. Sliding scale. 10%
Deliver gaslift expansion project by Oct 2022, within USD 8 mln budget and run compressor stable
(onemonthuninterrupted).
If project delivery is one week faster and in budget (100%); if on target and in budget (75%) ;
if 2 months delay and above budget (0%). 5%
Strategic Objectives 50%
A commercially sensitive strategic target, therefore not disclosed. 40%
A commercially sensitive strategic target, therefore not disclosed. 5%
Improvement of Refinitiv ESG assessment score to 55/100 by December 31, 2022. Sliding scale. 5%
HSE 10%
Achievement of the approved 2022 HSE Plan (provided that there have been no fatalities).
KPIs:
• Reduce GHG emissions with 5% of 2021 actual CO
2
equivalent level
• Safety KPIs: LTI < 1.0; RTI < 0.8; TRIF < 2.0; Number of HSE stop cards > 1000;
>60% participation of ZKM employees in HSE stop cards 10%
100%
These bonus performance measures apply to the Chief Executive Officer and if the future remuneration policy on pages 113 – 119 of this
report is approved at the 2022 AGM, the percentage result (from the above table out of 100%) will be applied to his maximum
opportunity of 240%. Currently, no other director is eligible for any bonus payment relating to 2022 performance based on these
performance measures.
Phantom share option plan
The Committee does not envisage the award of any additional phantom share options to Executive Directors in 2022.
Long-term incentive plan
As noted, the Committee expects that the Company’s long-term incentive plan will be revised following the successful restructuring of the
Group’s debt. Therefore, the Committee does not envisage any awards under the Company’s existing long-term incentive plan in 2022.
Therefore, no performance conditions have been set for 2022.
Non-Executive Directors
As noted, Non-Executive Director fees were last reviewed in October 2020. The next review of Non-Executive Director fees will be
conducted following the successful restructuring of the Group’s debt.
112 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Future RemunerationPolicy
This part of the Directors’ remuneration
report sets out the Remuneration Policy for
the Company and has been prepared in
accordance with the Companies Act 2006,
the Large and Medium-sized Companies
and Groups (Accounts and Reports)
(Amendment) Regulations 2013, the UK
Corporate Governance Code and the
Listing Rules of the UK Listing Authority.
The Company’s current remuneration
policy was approved by shareholders at the
Company’s 2019 AGM and is now due for
renewal. We will be asking our shareholders
to approve a new policy at our 2022 AGM.
The proposed new policy in full is as
detailed below. The only changes to the
existing policy are to envisage the payment
to the Company’s Chief Executive Officer,
Arfan Khan, of an annual bonus of up to a
maximum of 240% of base compensation.
Given that the new policy is being
requested for approval only in order to
comply with the three-year deadline in
section 439A of the Companies Act 2006,
no further disclosures will be made as
regards the decision-making process for its
determination, review and implementation
and measures to avoid or manage conflicts
of interest and, where applicable, the role
of the remuneration committee or other
committees concerned.
Policy coverage
This Policy applies to all payments to
Directors of the Company from the date
ofthe Company’s 2022 AGM and until the
approval of a revised Remuneration Policy.
Policy objectives
This policy is designed to:
• Provide that the Company may not make
any LTIP awards to its Non-Executive
Directors or Chairman;
• Provide a structure and level of pay that
attracts and retains high-calibre directors
capable of delivering the Company’s
strategic objectives;
• Provide clear and transparent
performance incentives in a manner
thatis consistent with best practice and
aligned with the interests of the
Company’s shareholders;
• Align the remuneration of executives
withthe interests of the Company’s
shareholders, and ensure that rewards
are justified by performance;
• Ensure that the pay of the Executive
Directors takes into account: (i) pay and
conditions throughout the Company;
and(ii) corporate governance best
practice, including health and safety,
environmental, social and governance
risks;
• Allow for future bonuses to be paid in
whole or part in deferred shares; and
• Allow for pension contributions to
Executive Directors for their services
under service contracts up to a 10%
maximum opportunity, or higher if
required by applicable law.
Peer group
For the purposes of benchmarking
appropriate compensation, the Committee
currently regards the following companies
as the most relevant peer group for
Nostrum:
• FTSE 350 companies of a similar size to
Nostrum;
• Oil and gas E&P companies globally
which compete for scarce skills within the
industry; and
• Companies operating predominantly in
the FSU which compete for expatriate
and local staff.
Risk management
The Committee will review incentive
arrangements regularly to ensure that they
comply with the Group’s risk management
systems, and that controls are operating
effectively. The Committee also ensures
that inappropriate operational or financial
risk-taking is neither encouraged nor
rewarded through the Company’s
remuneration policies. Instead, a sensible
balance will be struck between fixed and
variable pay, short- and long-term
incentives and cash and equity.
The Committee has access to the Audit
Committee and senior executive
management as and when required to
discuss any matters of risk assessment.
Nostrum operates in an industry that is
inherently subject to operational risks.
Particular emphasis is therefore placed
on ensuring that health and safety best
practice is reinforced by this Policy. The
Committee consults regularly to ensure
that this is the case.
Ongoing review of Policy
The Committee will periodically review
whether this Policy is operating
appropriately. Any actions arising from this
review will be assigned to an appropriate
person with a deadline to report back to
the Committee. The level and structure
ofthe compensation system will also be
reviewed annually by the Committee.
Corporate governance
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 113
2021 annual report on remuneration continued
Remuneration Policy table
The table on the following pages sets out the key components of the reward package for Executive Directors.
Executive Directors’ Remuneration Policy table
Element of pay
Purpose and link
to strategy Maximum opportunity Operation Performance criteria
BASE PAY To provide
market-
competitive base
salaries.
There is no prescribed
maximum annual
increase. The Committee
takes into account
remuneration levels at
peer group companies
together with the
performance of the
Company and each
individual’s personal
contribution.
Base salary is reviewed annually and fixed for 12
months.
None
BENEFITS To reflect market
practice and
provided in line
with peer
companies.
The aggregate value of
such benefits should not
constitute a significant
proportion of any
employee’s
compensation.
Benefits include:
• Medical insurance;
• Life insurance;
• Permanent health insurance (long-term disability
or income protection insurance); and
• A Company car may be provided for the Chief
Executive Officer.
• The Company may make payments to Directors
in lieu of benefits and may also make separate
benefit arrangements for Executive Directors in
connection with their service as Executives of
Group.
None
ANNUAL BONUS Executive
Directors may be
eligible for an
annual bonus in
cash and/or
deferred shares
for good
performance (as
determined at
the Board’s
discretion).
Maximum opportunity of
240% of base
compensation for the
Chief Executive Officer,
Arfan Khan. In all other
cases, maximum
opportunity of 40% of
base salary.
The annual bonus is determined by reference to
performance in the prior calendar year.
Annual bonuses are generally paid sometime
between April and August of each year.
Malus and clawback provisions apply to the award
of annual bonuses such that Executive Directors
may be liable to repay some or all of their annual
bonus if there is a material misstatement of results,
or error in calculation of any KPI, or serious
misconduct. The discovery period is one year
commencing on the date on which the bonus is
determined.
Key performance indicators against
which the performance of the
Executive Directors will be
measured in the following year are
determined at the end of each year
and all non-commercially-sensitive
key performance indicators are
disclosed in the Directors’
Remuneration Report. Any
commercially sensitive
performance measures will be
disclosed retrospectively following
completion of the relevant financial
year.
Performance against key
performance indicators for the
previous year is also disclosed in
the Directors’ Remuneration
Report to show how the Board has
determined Executive Director
performance against the relevant
key performance indicators for that
year, and consequently the levels
of annual bonus payable to the
Executive Directors.
114 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Element of pay
Purpose and link
to strategy Maximum opportunity Operation Performance criteria
NOSTRUM OIL &
GAS PLC 2017
LONG-TERM
INCENTIVE PLAN
(LTIP)
To incentivise
Executive
Directors and
employees over
a longer
timeframe, and
to increase their
interest in the
Company’s
long-term
business goals
and performance
through share
ownership.
To help retain
executives and
other key
employees, and
align their
interests with
shareholders
through building
a shareholding in
the Company
200% of base salary in
any financial year.
Awards of nominal-cost options are made at the
sole discretion of the Committee.
It was anticipated that awards would be granted
annually in the period 2017 to 2019 subject to
annual performance conditions. Generally, awards
have a one-year performance period attached to
them and will not vest for an additional two years
following the date on which the Committee
determines whether or not a performance
condition has been wholly or partly satisfied, such
that no award may vest before the third anniversary
of the date of grant.
The Committee has the discretion to decide, on or
before the grant of an award, that a participant shall
be entitled to receive dividend equivalents arising
over the period between the grant date and the
vesting date, with such amounts being payable in
cash or shares in respect of shares which vest.
Malus and clawback provisions apply to the LTIP
such that participants are liable to repay/forfeit
some or all of their shares if there is a material
misstatement of results, or error in calculation, or if
there is serious misconduct. The discovery period
is three years commencing on the date on which
the award vests, which can be extended by the
Committee for an additional two years if an event
occurs which the Committee determines could
result in the operation of recovery or withholding
provisions.
Performance measures are
generally measured over one year
though the Committee has the
discretion to apply a longer
performance period to awards.
The Committee has the discretion
to set any performance condition
attaching to awards granted under
th e LTI P.
Vesting of awards would ordinarily
be based:
• In part on average accrued sales
volumes measured in barrels of
oil equivalent per day; and
• In part on reserves measurement
on the basis of 2P barrels
PHANTOM
SHARE OPTION
PLAN (THE PLAN)
The Board places
great importance
on minimising
dilution of
existing
shareholders’
equity. Share
awards will
therefore only be
made to senior
management
who are able to
make a material
contribution to
shareholder
value that
substantially
exceeds the
value of any
share awards
made.
The Plan has
effectively been
replaced by the
LTIP and no
awards were
made under the
Plan in 2019.
Share awards will only be
made on the basis of
achieving concrete
long-term objectives
defined in advance by the
Committee. Share awards
will vest over several
years.
In accordance with the
Plan rules, the total
number of shares that
may be granted pursuant
to the Plan is five million.
Intertrust Employee Benefit Trustee Limited
administers the Plan and is responsible for granting
rights under the Plan.
Each right entitles holders to receive, on exercise,
acash amount equal to the excess of the market
value on the exercise date of the Ordinary Shares
ofthe Company to which it relates over a base
value set at the date of grant.
All Executive Directors of the Company are eligible
to participate in the Plan at the discretion of the
Board.
Awards vest on the basis described in the notes
onthe following page.
Long-term objectives are to be reviewed at every
Committee meeting to ensure that they are
appropriate, relevant and rigorous.
Share awards made in future may be reduced at
any time prior to vesting, at the discretion of the
Committee, following events such as (but not
restricted to) a material misstatement of results,
failure of risk management, breach of health and
safety regulations or serious reputational damage
to the Company.
None
PENSIONS To remain
competitive in
the marketplace
and provide
income in
retirement.
10% or, if higher, any
minimum pension
contribution which may
be required under
applicable law.
There are ordinarily no pension contributions
orprovisions for Directors, although there may
bepension arrangements made for Executive
Directors in connection with their service as
executives of Group companies.
None
SHAREHOLDING
GUIDELINE
Aligns interests
of executive
directors with
those of
shareholders.
Executive Directors are
encouraged to maintain a
holding in the Company
to align their interests
with shareholders.
If the Company grants shares to Directors outside
the LTIP by way of bonus or otherwise, they will be
required to hold 50% of such shares for a
three-year period.
The Committee monitors the holdings of all
Directors.
None
Corporate governance
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 115
2021 annual report on remuneration continued
Element of pay
Purpose and link
to strategy Maximum opportunity Operation Performance criteria
FEES FOR
NON-EXECUTIVE
DIRECTORS AND
CHAIRMAN
Attract and
retain high-
performing
individuals.
No prescribed maximum
annual increase in fees.
Any fee increases are usually considered at the end
of each year and the Board and, where applicable,
the Committee considers pay data at comparable
companies of a similar scale.
The Senior Independent Non-Executive Director
and the Chairmen of the Committees receive
additional fees.
No eligibility for participation in bonuses but
limited benefits may be delivered (e.g. provision
ofiPad and travel-related expenses).
Non-Executive Directors and the Chairman are
noteligible to participate in the LTIP.
None
Phantom share option plan
The Company operates the Plan in
accordance with the Plan rules, the Listing
Rules, the Disclosure and Transparency rules
and other applicable rules. In order to retain
talent, options are generally granted in
tranches exercisable at the following times:
• As to 20% of the Ordinary Shares in
respect of which an option is granted,
from the first anniversary of the date of
grant;
• As to a further 20% of the Ordinary
Shares in respect of which an option is
granted, from the second anniversary of
the date of grant;
• As to a further 20% of the Ordinary
Shares in respect of which an option is
granted, from the third anniversary of the
date of grant;
• As to a further 20% of the Ordinary
Shares in respect of which an option is
granted, from the fourth anniversary of
the date of grant; and
• As to the remaining 20% of the Ordinary
Shares in respect of which an option is
granted, from the fifth anniversary of the
date of grant.
The Board retains discretion over a number
of areas relating to the operation and
administration of the Plan, which include,
but are not limited to: (i) who participates;
(ii) the timing of the grant of an award; and
(iii) the size of the award.
Treatment of existing
arrangements
For the avoidance of doubt, authority is
given to the Company to honour any
commitments entered into with current or
former Directors notwithstanding the
approval of the Policy. This will last until the
existing incentives vest (or lapse) or the
benefits of any contractual arrangements
no longer apply.
Remuneration scenarios for Executive Directors
The bar charts below provide estimates of the potential remuneration of the executive
directors for 2022. Three scenarios are presented for each executive director which are
based on the following assumptions:
The “minimum” columns are intended to show the fixed level of remuneration to which
executive directors are entitled in 2022 irrespective of performance levels, namely base
salary, benefits using the details set out in the single-figure table provided on page 106
(which includes any payments made in lieu of benefits made under the executive directors
employment contracts for their roles as executives of the Group and not under their
service contracts as executive directors) and any payments made in lieu of the provision of
a pension scheme (which are paid under the executive directors employment contracts for
their roles as executives of the Group and not under their service contracts as executive
directors). No bonus payments are assumed for minimum performance.
The “on target” scenario seeks to illustrate the remuneration the executive directors would
receive if performance was in line with expectation.
The “maximum” columns illustrate total remuneration levels in circumstances where the
variable elements pay out in full, namely an annual bonus payment of 240% for Arfan Khan,
the Company’s Chief Executive Officer.
No Executive Director participated in the LTIP and the Board will not award any shares
under the Phantom Share Scheme for 2022.
ATUL GUPTA – EXECUTIVE CHAIRMAN (AMOUNTS IN EUR THOUSAND)
Minimum
On target
Maximum
Fixed salary
100%
100%
100%
438
438
438
Bonus
ARFAN KHAN – CHIEF EXECUTIVE OFFICER (AMOUNTS IN EUR THOUSAND)
Minimum
On target
Maximum
Fixed salary
100%
62%
31%
620
1,000
1,991
Bonus
38%
69%
116 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Recruitment
The Committee expects any new Executive
Directors to be engaged on terms that
are consistent with this Policy, but the
Committee acknowledges that it cannot
always predict the circumstances under
which any new Executive Director may be
recruited and so, accordingly, in each case,
the Committee will consider:
• The objective of attracting, motivating
and retaining the highest calibre
directors in a manner that is consistent
with best practice and aligned with the
interests of the Company’s shareholders;
• Salary, benefits, annual bonus and
long-term incentives will be determined
within the framework of the Remuneration
Policy table on pages 113 – 115;
• Where an individual would be forfeiting
valuable remuneration in order to join the
Company, the need to retain flexibility
should be considered in order for the
Committee to be able to set base salaries
at a level necessary to facilitate the hiring
of the highest calibre candidates, including
awards or payments to compensate for
remuneration arrangements forfeited
on leaving a previous employer. The
Committee would require reasonable
evidence of the nature and value of any
forfeited compensation and would,
to the extent practicable, ensure any
compensation awarded was no more
valuable than the forfeited award;
• Judgement will be exercised to determine
the appropriate measure of compensation
for any forfeited award by taking account
of relevant factors such as the value of any
lost award, performance conditions and
the time over which they would have
vested or been paid;
• Where an existing employee of the
Company is promoted to the Board, the
Company will honour any commitment to
remuneration made in respect of a prior
role, including any outstanding awards
of options under the Plan;
• The need, in order to recruit the best
candidates, for the Company to offer
sign-on remuneration, the necessity
and level of which will depend on
circumstances; and
• Where an individual is relocating in order
to take up a role, the Company may
provide certain one-off benefits including,
but not limited to, reasonable relocation
expenses, accommodation, housing
allowance and assistance with visa
applications.
In making any decisions on remuneration
for new joiners, the Committee will
endeavour to balance the expectations
of shareholders with current market and
corporate governance best practice and
the requirements of any new joiner, and
would strive to pay no more than is
necessary to attract the right talent to
the role.
Service agreements
Summary details of each Director’s service agreement are as follows:
Director’s service agreement date
As most
recently
amended
(GBP)
Atul Gupta Dated 28 November 2018
326,678.77
Arfan Khan 26 January 2021 450,000
Martin Cocker Originally dated 27 April 2020 and amended on 19 September 2020 and 29 April 2021, expired
30 August 2021
450,000
1. Mr Gupta’s remuneration is denominated in US$. The remuneration of Mr Khan and Mr Cocker is denominated in GBP.
2021: GBP/USD: 1,378.
2. Annual salary and fees represents the total salaryand fees (excluding benefits/pension, anddiscretionary remuneration) from the Group forboth the Director’s
executive and director service roles.
The appointment of each of the Executive Directors continues until the Company’s Annual General Meeting and their ongoing
appointment is subject to being re-elected as a director at each subsequent Annual General Meeting. Each Executive Director may be
required to resign at any time in accordance with the Company’s Articles or for any regulatory reason such as the revocation of any
approvals required from the Financial Conduct Authority (FCA). The Company may lawfully terminate the Executive Directors’
employment in the following ways:
• At any time upon 12 months’ written notice (Mr Gupta), 6 months’ written notice (Mr Khan) or one month’s written notice (Mr Cocker); and
• Without notice in circumstances where the Company is entitled to terminate for cause.
The lawful termination mechanisms described above are without prejudice to the employer’s ability in appropriate circumstances to
terminate in breach of the notice period referred to above, and thereby to be liable for damages to the Executive Director.
The Executive Directors are not permitted to take up any office or employment with, or have any direct or indirect interest in, any firm or
company which is in direct or indirect competition with the Company or any other member of the Group, or any company in which any
member of the Group has an interest, without the consent of the Board.
In addition, the Chief Executive Officer is subject to non-solicitation covenants in relation to Group companies for 12 months from the
date of termination of his service contract.
Copies of the Executive Directors’ service agreements and the Non-Executive Directors’ letters of appointment are available for
inspection at the Company’s registered office during normal business hours and at the Annual General Meeting.
Corporate governance
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 117
2021 annual report on remuneration continued
Payments for departing Executive Directors
Provision Policy
Notice period and
compensation for loss of
office in service contracts
12 months’ notice from the Company to Mr Gupta, 6 months’ notice from the Company to Mr Khan; one
month’s notice from the Company to Mr Cocker.
Base salary is paid in line with the notice period. Notice period payments will either be made as normal (if
the Executive Director continues to work during the notice period or is on gardening leave) or they will be
made as monthly payments in lieu of notice (subject to mitigation if alternative employment is found).
Treatment of annual
bonus on termination
No entitlement.
Treatment of unvested
share option awards
under the Plan
An Executive Director’s awards will generally lapse to the extent they have not vested on the date of
voluntary cessation of employment and any portion that remains outstanding but unexercised after 12
months following such cessation will lapse. Mr Gupta, Mr Khan and Mr Cocker did not participate in the Plan.
Treatment of unvested
awards under the LTIP
For a Director considered to be a “good leaver” before the original vesting date (including leaving the
Company on retirement, redundancy, ill health, as a result of death in service or in other circumstances
determined by the Committee), outstanding awards will be pro-rated for time and vest subject to
performance on the original vesting date. For a director who is considered a “good leaver” after the original
vesting date, any awards will remain exercisable for a period of 12 months commencing on the date of
cessation. For a Director whose employment is terminated for any other reason, the award will lapse in full.
Mr Gupta, Mr Khan and Mr Cocker did not participate in the LTIP.
In particular circumstances, an arrangement may be agreed to facilitate the exit of a particular individual. Any such arrangement would be
made bearing in mind the desire to minimise costs for the Group and only in circumstances where it is considered in the best interests of
shareholders.
Change of control
In accordance with the LTIP rules and the terms of the awards granted in 2017 and 2018 under the LTIP, if there is a sale of all or
substantially all of the Company or the Company’s business in circumstances where such sale has been approved by a majority of
shareholders and is at a price of $10 per share or more, then all awards granted will vest in full regardless of the achievement or otherwise
of applicable performance conditions on the date of such event if they have not already vested, and all awards will remain exercisable for
one month from such date. To the extent that any option is not exercised in such period, it shall lapse at the end of that period.
Non-Executive Directors
The Chairman and Executive Directors set the remuneration package for Non-Executive Directors in line with the Non-Executive
Directors’ Remuneration Policy table and subject to the Company’s Articles of Association (the Articles).
Non-Executive Director appointment letters
The following table provides details of Non-Executive Director appointment letters:
Name Position
Date of letter of
appointment Expiry of current term
Sir Christopher Codrington, Bt. Independent Non-Executive Director 19 May 2020 19 May 2023
Kaat Van Hecke Independent Non-Executive Director 2 September 2020 2 September 2023
Martin Cocker Independent Non-Executive Director 30 August 2021 30 August 2024
The Company intends to comply with Provision 18 of the UK Corporate Governance Code and accordingly all Directors will stand for
re-election by shareholders at future Annual General Meetings until the Board determines otherwise.
Each appointment is for an initial term of three years, subject to being re-elected at each Annual General Meeting, save that a Non-
Executive Director or the Company may terminate the appointment at any time upon one month’s written notice, or that a Non-Executive
Director may be required to resign at any time in accordance with the Articles of the Company, the UK Corporate Governance Code or for
any regulatory reason such as the revocation of approvals required from the FCA.
Each of the Non-Executive Directors is entitled to an annual fee paid quarterly and to reimbursement of reasonable expenses. There is no
entitlement for Non-Executive Directors to participate in the Plan or the LTIP.
The Non-Executive Directors are not permitted to take up any office or employment with, or have any direct or indirect interest in, any firm
or company that is in direct or indirect competition with the Company without the consent of the Board. Upon termination of the
appointment and where such termination is for any reason other than due to the Non-Executive Director’s gross misconduct, material
breach of the terms of the appointment, act of fraud or dishonesty or wilful neglect of the Non-Executive Director’s duties, the Non-
Executive Director will be paid a pro-rated amount of their fees in respect of the period between the beginning of the quarter in which
termination took place and the termination date. Otherwise, none of the Non-Executive Directors are entitled to any damages for loss of
office and no fee shall be payable in respect of any unexpired portion of the term of the appointment.
118 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Statement of consideration of employment conditions elsewhere in the Company
We have not consulted with employees on the executive Remuneration Policy. However, when determining the Policy for Executive
Directors we have been mindful of the pay and employment conditions of employees across the Group as a whole.
Statement of consideration of shareholder views
Senior executive management of the Company regularly meet with shareholders and solicit their views on the Company’s policies in
relation to Director and Executive remuneration, and take such views into account when formulating remuneration policies and
remuneration levels in specific cases.
Approval of the Directors’ remuneration report
The Directors’ remuneration report was approved by the Board on 4 May 2022.
On behalf of the Board
Arfan Khan
Chief Executive Officer
4 May 2022
Corporate governance
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 119
The Directors submit their report and the
consolidated audited financial statements
of the Group and the audited parent
financial statements of the Company
for the year ended 31 December 2021.
This report has been prepared in
accordance with the Large and Medium-
sized Companies and Groups (Accounts
and Reports) Regulations 2008.
The following are incorporated by reference
and shall be deemed to form part of this
Directors’ Report:
• The Strategic Report on pages 2 – 78;
• The Board and Governance report (which
includes the Board, the Corporate
Governance Report and the Directors’
Remuneration Report) on pages 79 – 91
and 103 – 119 respectively; and
• The energy and global greenhouse gas
emissions disclosure on pages 49 – 50.
In addition, the following information is also
incorporated into this Directors’ Report by
reference:
Subject matter Page
Likely future developments
within the Group 67
Related party transactions 87
Going concern statement 142
Financial position and
performance of the Group 70 – 78
Greenhouse gas emissions 49 – 50
Directors’ share interests 108
Corporate governance
statement 80 – 81
Diversity 40 – 42
Directors
Full biographical details of all current
Directors of the Company (all of whom held
office at some point during the reported
year) and the Board Committees of which
they are members are set out on pages
82 and 83 of this Annual Report.
Dividends
No dividends were paid during the year
ended 31 December 2021.
No dividend is proposed to be paid in 2022
in respect of the year ended 31 December
2021.
Auditor
In accordance with section 418(2) of the
Companies Act 2006, each Director in
office at the date of this Directors’ Report
confirms that (a) so far as the Director is
aware, there is no relevant audit information
of which the Company’s auditor is unaware
and (b) the Director has taken all the steps
that he/she ought to have taken as a
Director to make him/herself aware of any
relevant audit information and to establish
that the Company’s auditor is aware of that
information.
The Company plans to retender the audit
inQ2 2022.
Directors’ liabilities and
indemnities
The Company maintains liability insurance
for its Directors. All Directors are also
in receipt of an indemnity from the
Company under the Company’s Articles of
Association (the Articles) in respect of (a)
liability incurred by any Director due to
negligence, default, breach of duty or
breach of trust in relation to the affairs
of the Company, or any subsidiary
undertaking or (b) any liability incurred
by any Director in connection with the
activities of the Company, or any subsidiary
undertaking, in its capacity as a trustee of
an occupational pension scheme; in both
instances to the extent permitted under
the Companies Act 2006. Copies of the
Company’s Articles are available on the
Company’s website or at the Company’s
registered office during normal business
hours and will be available for inspection
at the Annual General Meeting.
In May 2015, the Board approved a policy
for the indemnification of Directors, officers
and other designated beneficiaries and the
entry by the Company into an
accompanying deed of indemnity.
The policy clarifies that the Company will
seek to provide the maximum
indemnification and protection to Group
Directors and officers permissible under
applicable law, except in cases of fraud or
wilful default, including but not limited to:
(i)providing compensation for losses
suffered in the course of acting as a
Director or officer in the interests of the
Group, (ii)providing Directors and officers
with quality external legal representation
and external professional advisers,
(iii)assisting Directors or officers with
repatriation following a third-party claim,
(iv) continuing to make payment of a
Director’s or officer’s remuneration and
benefits while such Director or officer
is under suspension, investigation or
detention by order of a third party,
(v)taking reasonable steps to place any
such Director or officer in a similar position
working in another location or elsewhere
in the Group which would allow his/her
employment to continue and to compensate
for any adverse financial consequences
they incur as a result of their loss of office,
or (vi) maintaining customary Directors’
and officers’ liability insurance policies.
The deed of indemnity is intended to cover
any insufficiency in the protection granted
to Directors and officers under the Articles
which could expose such persons to
substantial liability to third parties,
including governmental authorities, in
particular in jurisdictions where significant
uncertainty exists in relation to the
interpretation and application of the law.
The deed of indemnity allows Directors,
officers and other designated beneficiaries
to enforce the protection provided for
under the Articles without any further
action by the Company being required.
Political donations
The Group made no political donations
during the year 2021.
Contributions to non-UK
political parties
No contributions to non-UK political parties
were made during the year 2021.
Directors’ report
Directors’ report
120 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Research and development
The Group is not involved in any activities in
the field of research and development.
Branches
The Company is registered in England and
Wales and during 2018 moved its place of
effective management and tax residence
from the Netherlands to the United
Kingdom. As the Group is a global
business, our interests and activities are
held or operated through subsidiaries and
branches and subject to the laws and
regulations of many different jurisdictions.
Share capital
As of 31 December 2021, the Company’s
issued share capital was £1,881,829.58
divided into 188,182,958 Ordinary Shares
each having a nominal value of £0.01, all
of which are in free circulation. All of the
Company’s issued Ordinary Shares are fully
paid up and rank equally in all respects.
The rights attached to them, in addition
to those conferred on their holders by
law, are set out in the Articles.
Subject to applicable law and the
Company’s Articles the Directors may
exercise all powers of the Company,
including the power to authorise the issue
and/or market purchase of the Company’s
shares, subject to an appropriate authority
being given to Directors by shareholders in
a General Meeting and any conditions
attaching to such authority.
The current authority, approved at the 2021
Annual General Meeting, for the allotment
of relevant securities is for a nominal
amount of up to: (i) £1,240,000 less the
nominal amount of any securities allotted
under part (ii) of the authority and (ii) equity
securities up to a nominal amount of
£620,000 less the nominal amount of any
securities allotted under part (i) of the
authority in excess of £620,000. However,
there was a significant minority vote
(37.34%) against approval of this authority.
No shares were allotted during the year.
In addition, in response to feedback
received from shareholders and
shareholder advisory bodies prior to the
2021 AGM, the Company withdrew before
the 2021 AGM, the previously proposed
resolutions that authorised the Company to:
• dis-apply statutory pre-emption rights
pursuant to Section 570 of the
Companies Act 2006,
• make market purchases of its own
ordinary shares pursuant to section 693(4)
of the Companies Act 2006, and
• make off-market purchases of its own
ordinary shares pursuant to Section
693(2) of the Companies Act 2006.
The Board has consulted with shareholders
and has discussed the views of
shareholders in relation to these matters.
The main themes expressed by some
shareholders and shareholder advisers
during the engagement process in relation
to these matters were that in their view it
was inappropriate for the Company to
request such authorisations at that time,
given that the Company was seeking to
agree upon the terms of a restructuring of
its debt at the same time and various
actions for which authorisation was being
sought could affect such a restructuring.
Notwithstanding that it is market practice
for listed companies to request such
authorisations from their shareholders at
the AGM and that the Company has done
so in the past, the Board accepts that such
authorisations were not strictly necessary
at the time of the AGM for the Company
to conduct its business and pursue
its strategy.
After discussing the points mentioned
above the Board concluded that going
forward (and in particular prior to the
completion of any restructuring of the
Company’s debt), the Board does not
intend to seek such authorisations from
its shareholders unless the same may
be necessary or desirable to meet an
identified current or prospective business
need of the Company or to pursue its
strategy, and where the Company believes
based on its ongoing dialogue with its
shareholders that such proposals have a
good prospect of being supported by
the requisite majority of shareholders.
The Board is committed to continuing
its engagement and dialogue with the
Company’s shareholders and their advisory
bodies on these and other matters and
welcomes their feedback.
Intertrust Employee Benefit Trustee Limited
(the Trust) holds shares in the Company in
trust for the purposes of the Company’s
phantom share option plan, and the rights
attaching to these shares are exercised by
independent trustees. As at 31 December
2021, the Trust held 2,948,879 Ordinary
Shares in the Company.
Share rights
Without prejudice to any rights attached
to any existing shares, the Company may
issue shares with rights or restrictions as
determined by either the shareholders by
ordinary resolution or, if the Company
passes a resolution, the Directors.
Voting rights
There are no restrictions on voting rights or
transfers of shares in the Articles and at a
general meeting every shareholder present
in person or by proxy has one vote for every
share held by him or her. No shareholder
shall be entitled to vote either personally or
by proxy or to exercise any other right in
relation to general meetings if any sum due
from him or her to the Company in respect
of that share remains unpaid.
Transfer of shares
The Articles provide that transfers of
certificated shares must be effected in
writing duly signed by or on behalf of the
transferor and, except in the case of fully
paid shares, by or on behalf of the
transferee. The transferor shall remain the
holder of the shares concerned until the
name of the transferee is entered on the
Register of Members in respect of those
shares. Transfers of uncertificated shares
may be effected by means of the relevant
electronic system unless the Uncertificated
Securities Regulations 2001 provide
otherwise.
The Directors may refuse to register a
transfer of shares in favour of more than
four persons jointly.
Corporate governance
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 121
Directors’ report continued
Directors, Articles and purchase
ofshares
The Articles were adopted on 19 May 2014
and may only be amended by special
resolution at a general meeting of the
shareholders.
The Directors’ powers are conferred on
them by UK legislation and by the Articles.
In accordance with the Articles, the Board
has the power at any time to elect any
person to be a Director. Any person so
appointed by the Directors will retire at
the next Annual General Meeting in
accordance with the UK Corporate
Governance Code; retiring Directors may
be eligible for annual re-election.
The Company did not acquire any of
itsown shares during 2021 either itself
orthrough a person acting in his own
namebut on the Company’s behalf.
Noneof thecircumstances referred to
inparagraphs8 and 9 of Schedule 7 of
theLarge and Medium-sized Companies
and Groups (Accounts and Reports)
Regulations 2008 applies.
Paragraph 10 Schedule 7 of the
Large and Medium-sized
Companies and Groups (Accounts
and Reports) Regulations 2008
The Company’s policy is to:
• Give full and fair consideration to
applications for employment made by
disabled persons.
• Continue the employment of, and
arrange training for, employees who have
become disabled when they were
employed by the Company.
• Eliminate bias in relation to the training,
career development and promotion of
disabled persons employed by the
Company.
Paragraph 11 Schedule 7 of the
Large and Medium-sized
Companies and Groups (Accounts
and Reports) Regulations 2008
Action taken to introduce, maintain or
develop arrangements aimed at the
following is described on page 41:
• Providing employees with information on
matters of concern to them as employees.
• Consulting employees or their
representatives on a regular basis so that
the employees’ views can be taken into
account in making decisions which are
likely to affect their interests.
• Encouraging employee involvement in
the Company’s performance by an
employees’ share scheme or other means.
• Achieving common employee awareness
of the financial and economic factors
affecting the Company’s performance.
Shareholders holding 3% or more of the Company’s issued share capital
As of 31 December 2021, the following significant shareholdings of voting rights in the share capital of the Company had been disclosed
to the Company under Disclosure Guidance and Transparency Rule (DTR) 5 or otherwise.
Name
Number of
Ordinary
Shares
% of issued
Ordinary
Shares
Nature of
Holding
ICU Holdings Limited 44.837.071 23.83 Direct
Dehus Dolmen Nominees Limited* 30,588,054 16.25 Direct
AT Investments Limited 22 162 116 11.78 Direct
FRASELI Investments S.à r.l. 16 111 100 8.56 Direct
STEPPE RESOURCES INVESTMENTS FZE 16 111 100 8.56 Direct
Trafigura Ventures V B.V. 8,352,557 4.44 Direct
FPP Asset Management 6,438,421 3.38 Direct
Veles Capital 6,335,163 3.38 Direct
1. Dehus Dolmen Nominees Limited holds on trust for entities with which Baring Vostok Investments PCC Limited (which holds 3,119,990 shares being 1.66%) is affiliated.
Details of all information provided to the Company pursuant to Financial Conduct Authority’s (FCA) DTRs is publicly available to view via
the regulatory information service on the Company’s website. No such disclosures have been made to the Company under DTRs or
otherwise since 31 December 2021.
This publicly available information also covers the requirements of the Kazakh Stock Exchange to provide information about all major
transactions (including those with the listed company’s shares in the reporting period and any changes in the structure of shareholders
holding five and more per cent of the outstanding shares) over the reporting period.
Directors’ report continued
122 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Financial risk management
The Company’s financial risk management
objectives and policies, including its use
of financial instruments, can be found in
Note 32 page 161 to the financial statements.
Significant contractual
arrangements
On 19 May 2014, the Company entered into a
relationship agreement with KazStroyService
Global B.V. (KSS Global) (the Relationship
Agreement) to regulate, in part, the degree
of influence that KSS Global and its affiliates
may exercise over the management of the
Company. The principal purpose of the
Relationship Agreement was to ensure that
the Company is capable at all times of
carrying on its business independently of KSS
Global and its affiliates and that all of the
Company’s transactions and relationships
with KSS Global and its affiliates are at arm’s
length and on normal commercial terms.
Under the Relationship Agreement,
KSS Global agreed that it will:
• procure its affiliates will, allow the
Company and its affiliates at all times
to carry on its business independently
of KSS Global and its affiliates;
• Not, and will procure its affiliates will not,
act in any way which shall prejudice the
ability of the Company and its affiliates
• to carry on its business independently
• of KSS Global or its affiliates;
• Comply with, and will procure its affiliates
comply with, the Disclosure and
Transparency Rules in respect of its
interests in the Ordinary Shares;
• Not, and will procure its affiliates will not,
take any action (or omit to take any action)
that will prejudice the Company’s status
as a listed company or its suitability for
listing under the Listing Rules after
Admission has occurred or the Company’s
ongoing compliance with the Listing
Rules and the Disclosure and Transparency
Rules, or have the effect of preventing
the Company from complying with its
obligations under the Listing Rules,
provided that this shall not prevent KSS
Global (or any other person) from:
(i) Accepting a Takeover Offer for
theCompany in relation to their
respective interests in the Company
or, where such Takeover Offer is made
by way of a CA2006 Scheme, voting in
favour of such CA2006 Scheme at the
court and related shareholder
meetings or otherwise agreeing
to sell their Ordinary Shares in
connection with a Takeover Offer; or
(ii) Making a Takeover Offer by way of a
general offer for all the outstanding
Ordinary Shares or by way of a
CA2006 Scheme and de-listing the
Company after such Takeover Offer
has become wholly unconditional or,
in the case of a CA2006 Scheme,
after it has become effective;
• Not, and will procure that its affiliates will
not, influence the day-to-day running of
the Company at an operational level or
hold or acquire a material shareholding
in one or more significant subsidiaries of
the Company; and
• Exercise its voting rights in such a manner
as to procure (to the extent possible) that:
(i) At least half of the Board comprises
independent Directors (excluding
the Chairman of the Board);
(ii) The Audit Committee shall comprise
entirely independent Directors and
the Remuneration Committee
shall comprise not less than three
independent Directors; and
(iii) The Nomination and Governance
Committee and any other committee
of the Board to which significant
powers, authorities or discretions are
delegated shall at all times consist of
a majority of independent Directors.
Deed of adherence with Mayfair
Investments B.V.
On 30 January 2015, KSS Global transferred
its holding of 50 million Ordinary Shares in
the company as follows: (a) 48,333,300
shares to Mayfair Investments B.V. (Mayfair),
a company indirectly owned by KSS
Global’s three principal shareholders on
the date of the transfer, and (b) 1,666,700
shares to KSS Global’s other shareholder
on such date.
In connection with such transfer, Mayfair
entered into a Deed of Adherence with
Nostrum pursuant to which Mayfair has
undertaken to Nostrum to be bound by the
Relationship Agreement in all respects and
to observe and perform all of the provisions
and obligations of such Relationship
Agreement previously applicable to or
binding on KSS Global in so far as they fall
to be observed or performed on or after
the date of the transfer.
Termination
Effective 4 January 2021, Mayfair’s
nominated Board member resigned as a
Non-Executive Director of the Company
and confirmed on behalf of Mayfair that
Mayfair did not wish to nominate a
replacement director and requested that
the Relationship Agreement be terminated.
At the Board meeting of 21 January 2021,
the Board approved that the Company
enter into a Deed of Termination of the
Relationship Agreement with Mayfair.
The Deed of Termination became effective
on 4February 2021.
Change of control
The following are significant agreements
the Company has entered into which would
be affected on a change of control of the
Company following a takeover:
• In the event of a takeover of the
Company, all options under the
Company’s phantom share option plan
shall be deemed to have vested and the
Board shall direct Intertrust Employee
Benefit Trustee Limited to allow each
option-holder to exercise his or her
options at any time from the date of
the change of control up to the 10th
anniversary of the date of grant (the
Period). Any options that have not been
exercised will lapse at the end of the
Period; and
• In the event of a takeover of the Company,
all options under the Company’s employee
long-term incentive plan shall be deemed
to have vested and the Board shall direct
Intertrust Employee Benefit Trustee
Limited to allow each option-holder to
exercise his or her options during the
one-month period following the change
of control event. Any options that have
not been exercised will lapse at the end
of this period.
The 2012 Bonds, 2014 Bonds, 2017 Bonds
and 2018 Bonds contain change of control
provisions. If a change of control occurs,
the Company will be required to offer to
repurchase the 2012 Bonds, 2014 Bonds,
2017 Bonds and 2018 Bonds at 101% of
their principal amount, plus accrued and
unpaid interest to the date of the purchase.
There are no agreements between the
Company and its Directors or employees
providing for compensation for loss of
office or employment or otherwise that
occurs specifically because of a takeover.
Corporate governance
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 123
Directors’ report continued
Corporate governance statement
Pursuant to Disclosure Guidance and Transparency Rule 7, certain parts of the Corporate Governance statement are required to be
outlined in the Directors’ Report. This information is laid out in the corporate governance section of this Annual Report. Information
regarding the main features of the Company’s internal control and risk management arrangements in relation to the financial reporting
process can be found in the Strategic Report and the report of the Audit Committee.
Requirements of the Listing Rules
The following table provides references to where the information required by Listing Rule 9.8.4R is disclosed.
Information required
Sub-section of Listing
Rule 9.8.4R Reference
Capitalised interest (1)
Please refer to Notes 4 and 5 to the financial statements
Publication of unaudited financial information (2) Not applicable
Details of any long-term incentive schemes
established to specifically recruit or retain a director
(4) Not applicable
Waiver of emoluments by a director (5) (6) Please refer to the report of the Chairwoman of the
Remuneration Committee
Allotment of equity securities for cash (7) (8) No such share allotments
Participation in a placing of equity securities (9) Not applicable
Contracts of significance (10) Please refer to the Directors’ Report
Contracts for the provisions of services by
acontrolling shareholder
(11) Not applicable
Dividend waiver (12) (13) Under the trust deed relating to the phantom share
option plan and the LTIP, the trustee has agreed to
waive any dividends on shares held under both plans
Agreements with controlling shareholder
From 1 April 2020 until his resignation effective
4January 2021, one Non-Executive Director waived
his fees. See page 107.
(14) Not applicable as the Company does not have a
“controlling shareholder” within the definition under
Listing Rule 6.1.2A R; however, please see the Directors’
Report for details of Relationship Agreements the
Company has entered into with certain shareholders
Important events since the end of the financial year
Major events after 31 December 2021 are disclosed in Note 33 to the consolidated audited financial statements.
This report was approved by the Board on 4 May 2022.
On behalf of the Board
Arfan Khan
Chief Executive Officer
4 May 2022
Nostrum Oil & Gas PLC,
registered number 8717287
Directors’ report continued
124 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Responsibility statement
The Directors are responsible for preparing
the Annual Report and the financial
statements in accordance with applicable
law and regulations.
The Directors are required by the
Companies Act 2006 to prepare accounts
for each financial year and, with regard
to Group accounts, in accordance with
UK Adopted International Accounting
Standards. The Directors have prepared
individual accounts in accordance with
UK Adopted International Accounting
Standards. The accounts are required by
law and IFRS to present fairly the financial
position of the Company and the Group
and the performance for that period. The
Directors must not approve such accounts
unless they are satisfied that they give a
true and fair view of the state of affairs of
the Company and the consolidated Group.
In preparing these financial statements,
the Directors are required to:
• Select suitable accounting policies in
accordance with IAS 8 Accounting
Policies, Changes and Accounting
Estimates and Errors and then apply
them consistently;
• Make judgements and accounting
estimates that are reasonable
and prudent;
• Present information, including accounting
policies, in a manner that provides
relevant, reliable, comparable and
understandable information;
• State that the Group and the Company
have complied with IFRS as adopted by
the EU, subject to any material departures
disclosed and explained in the financial
statements;
• Provide additional disclosures when
compliance with specific requirements of
IFRS is insufficient to enable users to
understand the impact of particular
transactions, other events and conditions
on the Group’s and Company’s financial
position and performance; and
• Prepare the Group’s and Company’s
financial statements on a going concern
basis, unless it is inappropriate to do so.
Having taken all the matters considered by
the Board and brought to the attention of
the Board during the year into account, and
having reviewed the Annual Report
(including the Strategic Report), the
Directors consider the Annual Report and
Accounts, taken as a whole, to be fair,
balanced and understandable, providing
the information necessary for shareholders
to assess the Company’s position and
performance, business model and strategy.
The Directors have responsibility for:
• Ensuring that the Company and the
Group keep accounting records which
disclose with reasonable accuracy the
financial position of the Company and the
Group and which enable them to ensure
that the accounts comply with the
Companies Act 2006;
• Taking such steps as are reasonably open
to them to safeguard the assets of the
Group and to prevent and detect fraud
and other irregularities; and
• The maintenance and integrity of the
corporate and financial information on
the Company’s website.
Each of the Directors whose names and
functions are listed on pages 82 – 83
confirms, that to the best of their
knowledge:
• The Company and Group financial
statements, which have been prepared in
accordance with IFRS as adopted by the
EU, give a true and fair view of the assets,
liabilities, financial position and profit
or loss of the Company and the
undertakings included in the
consolidation taken as a whole;
• The Strategic Report contained in the
Annual Report includes a fair review of
the development and performance of
the business and the position of the
Company and the undertakings included
in the consolidation taken as a whole,
together with a description of the
principal risks and uncertainties that
they face; and
• The Annual Report and financial
statements, taken as a whole, are fair,
balanced and understandable and
provide the information necessary for
shareholders to assess the Company’s
position and performance, business
model and strategy.
By order of the Board
Arfan Khan
Chief Executive Officer
4 May 2022
Corporate governance
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 125
Independent auditors report
Opinion
In our opinion:
• Nostrum Oil & Gas PLC’s group financial statements and Parent Company financial statements (the “financial statements”) give a true
and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2021 and of the Group’s loss for the year
then ended;
• the group financial statements have been properly prepared in accordance with UK adopted international accounting standards;
• the Parent Company financial statements have been properly prepared in accordance with UK adopted international accounting
standards as applied in accordance with section 408 of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements of Nostrum Oil & Gas PLC (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year
ended 31 December 2021 which comprise:
Group Parent Company
Consolidated statement of financial position Parent Company statement of financial position
Consolidated statement of comprehensive income
Consolidated statement of cash flows Parent Company statement of cash flows
Consolidated statement of changes in equity Parent Company statement of changes in equity
Related notes 1 to 33 to the financial statements, including
a summary of significant accounting policies
Related notes 1 to 15 to the Parent Company financial statements
including a summary of significant accounting policies
The financial reporting framework that has been applied in their preparation is applicable law and UK adopted international accounting
standards and as regards to the Parent Company financial statements, as applied in accordance with section 408 of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with
International Standards on Auditing (UK)
(ISAs (UK)) and applicable law. Our
responsibilities under those standards
are further described in the Auditor’s
responsibilities for the audit of the financial
statements section of our report. We
believe that the audit evidence we have
obtained is sufficient and appropriate to
provide a basis for our opinion.
Independence
We are independent of the group and
Parent Company in accordance with the
ethical requirements that are relevant to our
audit of the financial statements in the UK,
including the FRC’s Ethical Standard as
applied to listed public interest entities,
and we have fulfilled our other ethical
responsibilities in accordance with these
requirements.
The non-audit services prohibited by the
FRC’s Ethical Standard were not provided
to the Group or the Parent Company and
we remain independent of the Group and
the Parent Company in conducting
the audit.
We believe that the audit evidence we have
obtained is sufficient and appropriate to
provide a basis for our opinion.
Material uncertainty related to
going concern
We draw attention to note 2 in the financial
statements, which highlights that the
following milestones, that are largely
outside of the Group’s control, need to be
achieved for the Group to successfully
complete the restructuring of the Group’s
Existing Notes:
• The Company receiving all authorisations
including securing a waiver from the
Government of the Republic of
Kazakhstan for the right to pre-empt
newly issued shares in the Company
on closing of the restructuring.
• The UK Court sanctioning the UK scheme
of arrangement.
As stated in note 2, these events or
conditions, along with the other matters as
set forth in note 2, indicate that a material
uncertainty exists that may cast significant
doubt on the Group and Parent Company’s
ability to continue as a going concern.
Our opinion is not modified in respect
of this matter.
We draw attention to the viability statement
in the Annual Report on page 67, which
indicates that an assumption to the statement
of viability is that the Group’s Notes are
successfully restructured on the terms
consistent with the Lock-up Agreement.
The directors consider that the material
uncertainty referred to in respect of going
concern may cast significant doubt over the
future viability of the Group and Parent
Company should these events not complete.
Our opinion is not modified in respect of
this matter.
In auditing the financial statements, we have
concluded that the directors’ use of the
going concern basis of accounting in the
preparation of the financial statements is
appropriate. Our evaluation of the directors’
assessment of the Group and Parent
Company’s ability to continue to adopt the
going concern basis of accounting included:
• Determining if the directors’ process was
sufficiently rigorous to make the going
concern assessment;
• Obtaining the directors’ going concern
assessment, including the cash flow
forecast for the going concern period
to 30 June 2023. The directors have
modelled a number of adverse scenarios
in order to incorporate unexpected
changes to the forecast liquidity of the
Group. We evaluated the sufficiency of
the sensitivities performed, in particular
whether the adverse scenarios met the
severe but plausible test;
Independent auditor’s report to the
members of Nostrum Oil and Gas PLC
126 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
• Auditing the key factors and assumptions
adopted in the assessment of going
concern and the cash flow model,
including considering whether
management had exercised any bias
in selecting their assumptions, by
comparing against past performance
and available market data;
• Assessing the appropriateness of the
method used to calculate the cash flow
forecast. We tested the methodology
and calculations;
• Checking the consistency of the factors
and assumptions adopted in the going
concern assessment with other areas of
our audit, including the oil and gas asset
impairment test;
• Assessing the directors’ ability to
restructure the Group’s Notes. We
engaged our Restructuring Specialists
to support us in this evaluation.
We:
• Understood the status and expected
outcome of the directors’ efforts to
restructure the Group’s Notes and
critically examined the implication on
the Group’s ability to continue as a
going concern;
• Performed direct inquiries of the
Group’s financial and legal advisor to
corroborate management’s assertions
around the restructuring plan; to
understand the approvals that will
be required; and to understand the
key risks to the execution of the
restructuring. We challenged the
likelihood that a restructuring could be
achieved;
• Following the Company’s General
Meeting on 29 April 2022, where
shareholders voted in favour of the
Restructuring Resolutions, we obtained
evidence of the outcome of the General
Meeting. We also performed further
inquiries of the Group’s financial and
legal advisors, and those charged with
governance, to verify that no further
execution risks had arisen;
• Reviewed the Forbearance Agreement
to understand the terms under which
the Noteholders agreed to forbear
certain rights and remedies under the
bond indentures and verified that the
Group were in compliance with these
conditions;
• Reviewed the Lock-up Agreement to
understand the restructuring terms
agreed with Noteholders. Through
inquiries of the Group’s financial and
legal advisors, and consultation with
our Restructuring Specialists, we
considered the sustainability of
these terms and the likelihood that a
restructuring would be executed in
this form and approved by the relevant
stakeholders; and
• Understood the proposed corporate
governance arrangements and
cashflow management mechanism that
will be implemented after executing the
restructuring. Through reviewing the
terms of the Lock-up Agreement and
inquiries of the Group’s legal advisors
we assessed the Group’s ability to
access cash in the Blocked Account.
• Considering the results of the reverse
stress test in order to identify what factors
would lead to the Group utilising all
liquidity during the going concern
period. We assessed the likelihood of
these factors in the context of the outlook
for commodity prices and against historic
market lows as well as our own industry
experience;
• Challenging the impact of the Russia/
Ukraine war on the going concern
conclusion, including whether this
threatened the Group’s ability to achieve
forecast production and cash flows,
whether there had been a loss of
suppliers or customers, or whether
sanctions inhibited the Group’s ability
to execute the restructuring; and;
• Considering whether management’s
disclosures in the Annual Report and
Accounts were appropriate, including
those in relation to the material
uncertainty in respect of the going
concern conclusion, through
consideration of the relevant disclosure
standards and our understanding of
the bond restructuring process.
Going concern has also been determined
to be a key audit matter.
Based on the procedures performed, we
observed that the directors’ going concern
assessment, including the cash flow
forecast, assumes a successful restructuring
of the Group’s Notes reflecting the terms of
the Lock-up Agreement. We also observed
that the cash flow forecast reflects the cash
flow management mechanism required by
the terms of the Lock-up Agreement, and,
particularly relevant to the going concern
assessment, assumes the Group have the
ability to access cash in the Blocked
Account should this be required to fund
operations. This assumption has been
made on the basis that cash from the
Blocked Account can be readily released
with approval from the majority of
independent non-executive directors.
In relation to the Group and Parent
Company’s reporting on how they have
applied the UK Corporate Governance
Code, we have nothing material to add or
draw attention to in respect of the directors’
identification in the financial statements of
any material uncertainties to the Group and
Parent Company’s ability to continue as a
going concern for the period to 30 June
2023.
Our responsibilities and the responsibilities
of the directors with respect to going
concern are described in the relevant
sections of this report. However, because
not all future events or conditions can be
predicted, this statement is not a guarantee
as to the Group and Parent Company’s
ability to continue as a going concern.
Financial report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 127
Independent auditors report continued
Overview of our audit approach
Audit
scope
We performed an audit of the complete financial information of three components in the United Kingdom and Kazakhstan
and audit procedures on specific balances for a further two components in Belgium and the Netherlands.
The components where we performed full or specific audit procedures accounted for 100% of Adjusted EBITDA, 100% of
Revenue and 99% of Total assets.
Key audit
matters
We identified the following key audit matters that, in our professional judgement, had the greatest effect on our overall
audit strategy, the allocation of resources in the audit and in directing the audit team’s efforts:
• Estimation of oil and gas reserves and its impact on impairment testing, depreciation, depletion and amortisation (DD&A)
and the decommissioning provision;
• Risk of impairment or impairment reversal; and
• Revenue recognition.
Although going concern was considered to represent a key audit matter, detail on our audit procedures and key
observations are summarised in the ‘Material uncertainty related to going concern’ section of our report as opposed to the
key audit matters table below.
Materiality
Overall Group materiality of $2.1 million which represents 2% of the Group’s adjusted earnings before interest, tax,
depreciation and amortisation, excluding non-recurring items (‘Adjusted EBITDA’).
An overview of the scope of
our audit
Tailoring the scope
Our assessment of audit risk, our evaluation
of materiality and our allocation of
performance materiality determine our
audit scope for each company within the
Group. Taken together, this enables us to
form an opinion on the consolidated
financial statements. We take into account
size, risk profile, the organisation of the
Group and effectiveness of Group wide
controls and changes in the business
environment when assessing the level of
work to be performed at each component.
In assessing the risk of material misstatement
to the Group financial statements, and to
ensure we had adequate quantitative
coverage of significant accounts in the
financial statements, of the nine reporting
components of the Group, we selected five
components covering entities within the
United Kingdom, Kazakhstan, Belgium and
the Netherlands, which represent the
principal business units within the Group.
Of the five components selected (2020:
five), we performed an audit of the
complete financial information of three
components (“full scope components”)
which were selected based on their size or
risk characteristics. For the remaining two
(2019: two) components (“specific scope
components”), we performed audit
procedures on specific accounts within
that component that we considered had
the potential for the greatest impact on
the significant accounts in the financial
statements either because of the size of
these accounts or their risk profile. The
audit scope of these specific scope
components may not have included testing
of all significant accounts of the component
but will have contributed to the coverage of
significant accounts tested for the Group.
We also instructed the United Kingdom,
Kazakhstan, and Netherlands locations to
perform specified procedures on the
existence and valuation of cash balances
and the completeness of payables. The
audit scope for specified procedures are
those where we perform procedures that
address only specific account assertions
rather than the account balance as a whole.
Of the remaining four (2020: five)
components that together represent 0%
of the Group’s Adjusted EBITDA, we
performed other procedures, including
analytical review, inquiries and testing of
consolidation journals and intercompany
eliminations to respond to any potential
risks of material misstatement to the Group
financial statements.
128 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
The charts below illustrate the coverage obtained from the work performed by our audit teams.
100% Full scope components
100
%
0% Specific scope components
0% Other procedures
REVENUE
102% Full scope components
102
%
-2
%
-2% Specific scope components
0% Other procedures
ADJUSTED EBITDA
92% Full scope components
92
%
7
%
1
%
7% Specific scope components
1% Other procedures
TOTAL ASSETS
Involvement with
component teams
In establishing our overall approach to the
Group audit, we determined the type of
work that needed to be undertaken at each
of the components by us, as the primary
audit engagement team, or by component
auditors from other EY global network firms
operating under our instruction. Of the
three full scope components, audit
procedures were performed on two of
these directly by the primary audit team
and one by the component audit team. For
one of the specific scope components and
one full scope component, where the work
was performed by component auditors,
we determined the appropriate level of
involvement to enable us to determine
that sufficient audit evidence had been
obtained as a basis for our opinion on the
Group as a whole. The remainder of the
components were audited directly by the
primary audit team.
Due to the on-going COVID-19 travel
restrictions, consistent with the 2020 audit
cycle, it was not possible to complete
an in-person visit to the Kazakhstan full
scope component. In lieu of a site visit,
the primary team designed alternative
procedures in our audit strategy to provide
sufficient oversight and involvement with
the work of the component teams to fulfil its
responsibilities under auditing standards to
evaluate, review and oversee the work of
component teams on a remote basis.
Our remote oversight procedures included:
• An increased frequency of dialogue with
our local EY component teams. This
included additional meetings with our
component teams and local management
via video conference;
• Performing remote reviews of the key
workpapers associated with the
component team’s audit procedures,
focusing on, but not limited to, areas of
significant risk, being oil and gas reserves
estimates, impairment and revenue
recognition, through the interactive
capability of EY Canvas, our global
audit workflow tool; and
• Attending the closing meeting between
our full scope local EY component
team and local management by
videoconference, to ensure that we
were fully aware of the audit status and
results of their audit procedures.
These procedures, together with the
additional procedures performed at a
Group level, gave us appropriate evidence
for our opinion on the Group financial
statements.
Climate change
There has been increasing interest from
stakeholders as to how climate change will
impact the Group. The Group has
determined that the most significant future
impacts from climate change on its
operations will be from potential falls
in demand and hydrocarbon prices,
disruption in field production and sales
to final off-taker customers, investments
required to reduce emissions and higher
compliance cost arising from regulatory
and statutory reporting obligations. These
are explained on pages 51 to 59 in the
required Task Force for Climate related
Financial Disclosures and on pages 62 to 66
in the principal risks and uncertainties,
which form part of the “Other information,”
rather than the audited financial
statements. Our procedures on these
disclosures therefore consisted solely of
considering whether they are materially
inconsistent with the financial statements or
our knowledge obtained in the course of
the audit or otherwise appear to be
materially misstated.
As explained in note 2 and 32 to the
Consolidated Financial Statements,
governmental and societal responses to
climate change risks are still developing,
and are interdependent upon each other,
and consequently financial statements
cannot capture all possible future
outcomes as these are not yet known.
The degree of certainty of these changes
may also mean that they cannot be taken
into account when determining asset and
liability valuations and the timing of future
cash flows under the requirements of
UK adopted international accounting
standards. In note 2 and 32 to the
Consolidated Financial Statements narrative
disclosure has been provided highlighting
the areas of the financial statements that
may be impacted from changes in
legislation and regulation implemented
to address climate change risks.
Our audit effort in considering climate
change was focused on ensuring that the
effects of material climate risks disclosed
on pages 54 and 55 have been
appropriately reflected in asset values,
estimating the recoverable value of
non-current assets and associated
disclosures where values are determined
through modelling future cash flows.
Details of our procedures and findings
in respect of the risk of impairment or
impairment reversal of oil & gas assets are
included in our key audit matters below.
We also challenged the Directors’
considerations of climate change in their
assessment of going concern and viability
and associated disclosures.
Financial report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 129
Independent auditors report continued
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of
the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we
identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial
statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.
In addition to the matters described in the ‘Material uncertainty related to going concern’ section of our report, we identified the
following key audit matters:
Risk Our response to the risk
Key observations communicated
to the Audit Committee
Estimation of oil and gas reserves and its impact
on impairment testing, depreciation, depletion
and amortisation (DD&A) and the
decommissioning provision
Refer to the Audit Committee Report on page 95;
the estimates, assumptions and judgements on
page 146; and the disclosures in note 5 of the
Consolidated Financial Statements (page 153).
As at 31 December 2021, Nostrum reported 34
million barrels of oil equivalent (mmboe) of proved
and probable (2P) reserves (2020: 39 mmboe) and
28 mmboe of contingent (2C) resources (2020:146
mmboe).
This was a significant risk due to the subjective
nature of reserves estimates and the pervasive
impact on the financial statements through
impairment testing, DD&A calculations and the
decommissioning provision estimate. Reserves are
also considered a fundamental indicator of the
future potential of the Group’s performance
and its long-term viability.
The estimation of oil and gas reserves is a
significant area of estimation due to the technical
uncertainty in assessing reserves quantities.
The estimation is potentially susceptible to
management bias, including by recording revisions
to estimates in the incorrect period. Management’s
reserves and resource estimates are prepared by
internal specialists and are audited by Ryder Scott,
an independent reserves consultant.
Reserve estimation includes those contingent
resources that impact the financial statements,
primarily being those included in management’s
oil and gas asset impairment test.
There is also a risk that management may influence
the significant judgements and estimates in
respect of commercial assumptions in order
to portray favourable reserves disclosure to
the market.
The risk has remained consistent with the
prior year.
Our audit procedures have focused on management’s estimation
process, including whether bias exists in the determination of
reserves. We assessed management’s assumptions, including
commercial assumptions, to ensure that they are based on
supportable evidence. We have:
• carried out procedures to walkthrough and understand the
Group’s internal process and key controls associated with oil
and gas reserves estimation;
• assessed the competence of internal management’s specialists,
to satisfy ourselves that they are appropriately qualified to carry
out the volumes estimation;
• met with management’s external specialist during the planning
and execution of the audit and assessed their competence
and objectivity by enquiry of their qualifications, practical
experience and independence. We checked the completeness
and accuracy of the data transferred to the external specialist
for audit;
• reviewed the oil and gas reserves audit report prepared by
management’s external specialist to understand the conclusion
of their audit and verify that management’s estimates were
within their audit tolerance. We performed direct inquiries
of Ryder Scott;
• corroborated management’s commercial assumptions by
checking that they lie within an acceptable range compared to
publicly available benchmarks where available. We compared
management’s internal assumptions to the latest plans and
budgets for consistency. We also challenged management’s
capabilities to execute on such plans by comparison to prior
performance;
• validated that the updated reserves estimates were
appropriately included in the Group’s consideration of oil and
gas asset impairment testing, in accounting for DD&A and the
determination of decommissioning dates; and
• reviewed the accuracy of the reserves and resource estimates
disclosure in the Annual Report.
Based on the audit procedures
performed we concluded that the
reserves and resource estimations
are reasonable for use in
impairment testing, management’s
going concern assessment, the
calculation of DD&A and the
determination of decommissioning
dates.
We also concluded that reserves
and resource estimates are
appropriately disclosed in the
Annual Report.
We did not identify any indication
of management bias in the
estimation process
In addressing this risk, audit procedures were performed by the component team in Kazakhstan and the Group engagement team.
130 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Risk Our response to the risk
Key observations communicated
to the Audit Committee
The risk of impairment or impairment reversal of
oil & gas assets
Refer to the Audit Committee Report on page 95;
the estimates, assumptions and judgements on
page 147 and the disclosures in note 5 of the
Consolidated Financial Statements (page 153).
An impairment reversal in 2021 of $74 million was
recorded.
Following the identification of an error during 2021,
the previously reported impairment charge in 2020
of $245 million was restated to $287 million.
At 31 December 2021, the carrying value of oil &
gas assets was $320 million (2020: $298 million,
as restated).
Owing to the improved commodity prices
environment relative to 2020, there was a
significant risk of the previously recorded
impairments of oil & gas assets reversing.
We focused on this area due to the significance of
the carrying value of the Cash Generating Unit
(‘CGU’), the current economic environment and the
judgements involved in the key assumptions of the
future prices of oil, natural gas and related
products, the discount rate applied to future cash
flow forecasts and the assumptions relevant to
production volumes. The recoverable amount of
the CGU is sensitive to changes in key inputs and
assumptions. As a result of the impairments
recorded in previous years, there is no headroom
in the carrying value of the CGU compared to its
recoverable amount.
There is also a risk that management may influence
the significant judgements and estimates in
respect of its key assumptions in order to
understate the impairment charge to achieve
a targeted result.
The risk has remained consistent with the
prior year.
In addressing the risk of impairment of oil & gas assets we utilised
our valuation specialists and evaluated management’s impairment
assessment by testing the key assumptions.
We have:
• evaluated management’s assessment of indicators of
impairment or impairment reversal;
• walked through the controls designed by the Group relating to
the assessment of the recoverable amount of oil & gas assets for
impairment;
• assessed whether the value in use (VIU) or the fair value less
costs of disposal (FVLCD) represents the higher recoverable
amount;
• tested the integrity of the discounted cash flow model with the
assistance of our own specialists. Following the identification of
the prior period error, we enhanced the testing performed on
the integrity of the model, involving our specialists, with a
particular focus on the valuation of contingent resources;
• evaluated the oil & gas prices and discount rate assumptions
by comparing forecast price assumptions to the latest market
evidence available, including forward curves, brokers’ estimates
and other long-term price forecasts; and benchmarking the
discount rate to the risks faced by the Group;
• considered the existence of any contradictory evidence to
challenge the recoverable amount determined on the basis
of the discounted cash flow model, including the Group’s
enterprise value;
• assessed the appropriateness of the oil and gas reserves and
resources estimates, as described in the key audit matter above
in this report, and evaluated the risking factors applied in
estimating the value associated with the contingent resources;
• challenged the valuation methodology for estimating the
recoverable amount; specifically the value attributed to the
contingent resources and the opportunity for utilising the spare
GTU processing capacity, including the related judgements
around risking;
• tested forecast cash flows by comparing the assumptions
used within the impairment models to the approved budgets,
business plans and other evidence of future intentions;
• assessed the historical accuracy of management’s budgets
and forecasts by comparing them to actual performance;
• compared the exchange rate assumptions to external
market data;
• evaluated management’s sensitivity analysis in order to assess
the potential impact of a range of reasonably possible
outcomes. These sensitivities included adjustments to the
discount rate, oil & gas prices, future production volumes,
opex and capex assumptions;
• challenged the assessment of whether climate change risks
impact the modelled recoverable amount of the Group’s CGU
and the appropriateness of climate-related costs incorporated
in the impairment model. This was performed with reference to
the Group’s assessment of the risks of climate change and
Kazakhstan’s current climate-related policies;
• where the financial impacts of climate related risks are either
yet to be determined and/or not reflected in management’s
estimates of recoverable value we challenged what sensitivities
may be appropriate in the financial statements to demonstrate
the reasonably possible impact of these;
• audited the corrections made to the 2020 impairment
assessment and resulting restatement of the previously
reported impairment charge; and
• evaluated the appropriateness of the financial statement
disclosures, including those in respect of the prior period
restatement.
Based on the results of the audit
procedures performed, we
concluded that the impairment
reversal recorded in the current
year was reasonable.
In our view the Group’s reserves
and resource estimates, forecast
costs, discount rate and oil and
gas price assumptions are
reasonable or within reasonable
ranges and there is no evidence of
management bias in the
determination of significant
judgements and estimates.
We concluded that the estimated
recoverable amount of the CGU
fell within the range of acceptable
valuations, including implied
valuations based on the market
value of the Group’s equity
and debt.
We concluded that it was
appropriate to correct the error
identified in respect of the
2020 impairment assessment
retrospectively, in accordance
with IAS 8: Accounting Policies,
Changes in Accounting Estimates
and Errors, by restating the prior
period comparatives.
The related disclosures provided
in the Group’s financial statements
are appropriate, including those in
respect of the prior period
restatement.
In addressing this risk, audit procedures were performed by the component team in Kazakhstan and the Group engagement team.
By performing these procedures, we obtained full coverage of the related balances.
Financial report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 131
Independent auditors report continued
Risk Our response to the risk
Key observations communicated
to the Audit Committee
Revenue recognition
Refer to the Audit Committee Report on page 96;
the Summary of significant accounting policies on
page 152 and the disclosures in note 20 of the
Consolidated Financial Statements (page 158)
Revenue for the year ended 31 December 2021
amounts to $195 million (2020: $176 million).
Revenue includes sales of crude oil, gas
condensate, dry gas and liquefied petroleum
gas (‘LPG’).
There is the risk of management manipulation to
overstate revenue. This could be achieved by
potentially recording sales in an incorrect period.
The risk has remained consistent with the
prior year.
Our component team in Kazakhstan performed procedures to
walkthrough and understand the process and key controls
associated with the revenue recognition and accounts
receivable process.
We performed enquiries of management and analysed contracts
to evaluate whether revenue was recognised in accordance with
the contractual terms. We also performed procedures that are
designed to address the risk of manipulation of accounting
records and the ability of management to override controls.
We have:
• tested a sample of third-party evidence to verify revenue
transactions are recorded appropriately, this included
inspection of sales contracts with customers and delivery
documents. We performed substantive audit procedures on
cash accounts to verify cash collection from customers;
• analysed the entire population of revenue journals and
identified revenue journals for which the corresponding entry
was not posted against trade receivables and where trade
receivables were not cleared through cash journals. We
assessed the appropriateness of these journals. Of the
outstanding trade receivables due at the year-end, we
confirmed the material balances with the relevant
counterparties as well as tested that trade receivables were
collected subsequent to year-end for counterparties where
confirmations were not obtained;
• performed cut-off procedures at the period-end date to
determine that transactions are recorded in the appropriate
period;
• tested the appropriateness of manual journal entries impacting
revenue, using data extracted from the accounting system,
as well as other adjustments made in the preparation of the
financial statements;
• carried out analytical review procedures on each revenue
stream using disaggregated data, by volume, by product, by
customer and by month to assess the respective products’
underlying performance and corroborate the appropriateness
of the timing of revenue recognition; and
• evaluated the appropriateness of the financial statement
disclosures.
We concluded that revenue is
recognised consistently with the
terms of sales agreements. We
also concluded that the financial
statements disclosures with
respect to revenue fulfilled the
requirements of the accounting
standards.
The component team performed full scope audit procedures over this risk area in one location (Kazakhstan).
By performing these procedures, we obtained full coverage of the risk amount.
Our application of materiality
We apply the concept of materiality in
planning and performing the audit, in
evaluating the effect of identified
misstatements on the audit and in
forming our audit opinion.
Materiality
The magnitude of an omission or
misstatement that, individually or in the
aggregate, could reasonably be expected
to influence the economic decisions of the
users of the financial statements. Materiality
provides a basis for determining the nature
and extent of our audit procedures.
We determined materiality for the Group
to be $2.1 million, which is 2% of Adjusted
EBITDA. Adjusted EBITDA is a key
performance indicator for the Group and
is also a key metric used by the Group in
the assessment of the performance of
management. We also noted that
market and analyst commentary on the
performance of the Group uses EBITDA
as a key metric. We, therefore, considered
EBITDA to be the most appropriate
performance metric on which to base our
materiality calculation as we considered
that to be the most relevant performance
measure to the stakeholders of the Group.
In adjusting EBITDA we have excluded
non-recurring items, which in 2021 related
to the impairment reversal of $74 million.
We determined materiality for the Parent
Company to be $7.9 million, which is based
on 1% of the Parent Company’s Equity.
Performance materiality
The application of materiality at the
individual account or balance level. It is set
at an amount to reduce to an appropriately
low level the probability that the aggregate
of uncorrected and undetected
misstatements exceeds materiality.
On the basis of our risk assessments,
together with our assessment of the
Group’s overall control environment,
our judgement was that performance
materiality was 50% of our planning
materiality, namely $1.1 million.
We have set performance materiality at this
percentage due to our past experience of
the audit that indicates a higher risk of
misstatements.
Audit work at component locations for the
purpose of obtaining audit coverage over
significant financial statement accounts is
undertaken based on a percentage of total
performance materiality. The performance
materiality set for each component is
based on the relative scale and risk of the
component to the Group as a whole and
our assessment of the risk of misstatement
at that component. In the current year, the
range of performance materiality allocated
to components was $0.4 million to
$1.1 million.
132 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Reporting threshold
An amount below which identified
misstatements are considered as being
clearly trivial.
We agreed with the Audit Committee that
we would report to them all uncorrected
audit differences in excess of $106
thousand, which is set at 5% of planning
materiality, as well as differences below
that threshold that, in our view, warranted
reporting on qualitative grounds.
We evaluate any uncorrected misstatements
against both the quantitative measures of
materiality discussed above and in light of
other relevant qualitative considerations in
forming our opinion.
Other information
The other information comprises the
information included in the annual report,
including the Strategic Report (set out on
pages 1 – 78), Corporate Governance
(set out on pages 79 – 125), Regulatory
Information and Additional Disclosures
sections (set out on pages 179 – 188),
other than the financial statements and
our auditor’s report thereon. The directors
are responsible for the other information
contained within the annual report.
Our opinion on the financial statements
does not cover the other information and,
except to the extent otherwise explicitly
stated in this report, we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial
statements, our responsibility is to read the
other information and, in doing so, consider
whether the other information is materially
inconsistent with the financial statements or
our knowledge obtained in the course of
the audit or otherwise appears to be
materially misstated. If we identify such
material inconsistencies or apparent
material misstatements, we are required
to determine whether this gives rise to a
material misstatement in the financial
statements or a material misstatement of
the other information. If, based on the work
we have performed, we conclude that there
is a material misstatement of the other
information, we are required to report
that fact.
We have nothing to report in this regard.
Opinions on other matters
prescribed by the Companies
Act 2006
In our opinion, the part of the directors’
remuneration report to be audited has
been properly prepared in accordance
with the Companies Act 2006.
In our opinion, based on the work
undertaken in the course of the audit:
• the information given in the strategic
report and the directors’ report for the
financial year for which the financial
statements are prepared is consistent
with the financial statements; and
• the strategic report and the directors’
report have been prepared in accordance
with applicable legal requirements.
Matters on which we are required
to report by exception
In the light of the knowledge and
understanding of the group and the Parent
Company and its environment obtained
in the course of the audit, we have not
identified material misstatements in the
strategic report or the directors’ report.
We have nothing to report in respect of the
following matters in relation to which the
Companies Act 2006 requires us to report
to you if, in our opinion:
• adequate accounting records have not
been kept by the Parent Company, or
returns adequate for our audit have not
been received from branches not visited
by us; or
• the Parent Company financial statements
and the part of the Directors’ Remuneration
Report to be audited are not in agreement
with the accounting records and returns;
or
• certain disclosures of directors’
remuneration specified by law are not
made; or
• we have not received all the information
and explanations we require for our audit
Corporate Governance Statement
The Listing Rules require us to review the
directors’ statement in relation to going
concern, longer-term viability and that part
of the Corporate Governance Statement
relating to the Group and Parent
Company’s compliance with the provisions
of the UK Corporate Governance Code
specified for our review by the Listing Rules.
Aside from the impact of the matters
disclosed in the ‘Material uncertainty
related to going concern section’ of our
report, based on the work undertaken as
part of our audit, we have concluded that
each of the following elements of the
Corporate Governance Statement is
materially consistent with the financial
statements or our knowledge obtained
during the audit:
• Directors’ statement with regards to the
appropriateness of adopting the going
concern basis of accounting and any
material uncertainties identified set
out on page 142 and 143;
• Directors’ explanation as to its
assessment of the Company’s prospects,
the period this assessment covers and
why the period is appropriate set out
on page 67;
• Directors’ statement on whether it has a
reasonable expectation that the group
will be able to continue in operation and
meets its liabilities set out on page 69;
• Directors’ statement on fair, balanced and
understandable set out on page 125;
• Board’s confirmation that it has carried
out a robust assessment of the emerging
and principal risks set out on page 68;
• The section of the annual report that
describes the review of effectiveness of
risk management and internal control
systems set out on page 60; and;
• The section describing the work of the
audit committee set out on page 92.
Responsibilities of directors
As explained more fully in the directors’
responsibilities statement set out on page
125, the directors are responsible for the
preparation of the financial statements and
for being satisfied that they give a true and
fair view, and for such internal control as the
directors determine is necessary to enable
the preparation of financial statements that
are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the
directors are responsible for assessing the
group and Parent Company’s ability to
continue as a going concern, disclosing,
as applicable, matters related to going
concern and using the going concern basis
of accounting unless the directors either
intend to liquidate the group or the Parent
Company or to cease operations, or have
no realistic alternative but to do so.
Financial report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 133
Independent auditors report continued
Auditor’s responsibilities for the
audit of the financial statements
Our objectives are to obtain reasonable
assurance about whether the financial
statements as a whole are free from
material misstatement, whether due to
fraud or error, and to issue an auditor’s
report that includes our opinion.
Reasonable assurance is a high level of
assurance, but is not a guarantee that an
audit conducted in accordance with
ISAs (UK) will always detect a material
misstatement when it exists. Misstatements
can arise from fraud or error and are
considered material if, individually or in
the aggregate, they could reasonably
be expected to influence the economic
decisions of users taken on the basis
of these financial statements.
Explanation as to what extent
the audit was considered capable
of detecting irregularities,
including fraud
Irregularities, including fraud, are instances
of non-compliance with laws and
regulations. We design procedures in line
with our responsibilities, outlined above,
to detect irregularities, including fraud.
The risk of not detecting a material
misstatement due to fraud is higher than
the risk of not detecting one resulting from
error, as fraud may involve deliberate
concealment by, for example, forgery
or intentional misrepresentations, or
through collusion. The extent to which
our procedures are capable of detecting
irregularities, including fraud is detailed
below and in the key audit matters section
above, where those risk areas are
susceptible to management bias.
However, the primary responsibility for the
prevention and detection of fraud rests
with both those charged with governance
of the Company and management.
Our approach was as follows:
• We obtained an understanding of the
legal and regulatory frameworks that are
applicable to the Group and determined
that the most significant frameworks
which are directly relevant to specific
assertions in the financial statements
are those that relate to the reporting
framework (IFRS, the Companies Act
2006 and UK Corporate Governance
Code) and the relevant tax compliance
regulations in the jurisdictions in which
the Group operates. In addition, we
concluded that there are certain
significant laws and regulations which
may have an effect on the determination
of the amounts and disclosures in the
financial statements being the Listing
Rules of the UK Listing Authority, and
those laws and regulations relating to
health and safety, employee matters,
data protection, environmental and
anti-bribery and corruption practices;
• We understood how the Group is
complying with those frameworks by
making inquiries of management, those
charged with governance and those
responsible for legal and compliance
procedures. We corroborated our
inquiries through our review of Board
minutes, papers provided to the Audit
Committee and correspondence
received from regulatory bodies and
noted that there was no contradictory
evidence;
• We assessed the susceptibility of the
Group’s financial statements to material
misstatement, including how fraud might
occur, by meeting with management
to understand where it considered
there was susceptibility to fraud. We
considered performance targets and
their propensity to influence efforts made
by management to manage earnings. We
considered the programs and controls
that the Group has established to address
risks identified, or that otherwise prevent,
deter and detect fraud, and how senior
management monitors those programs
and controls. Where the risk was
considered to be higher, we performed
audit procedures to address each
identified fraud risk. These procedures
included testing manual journals and
were designed to provide reasonable
assurance that the financial statements
were free from fraud or error;
• Based on this understanding we
designed our audit procedures to identify
non-compliance with such laws and
regulations identified above. Our
procedures involved: journal entry
testing, with a focus on manual
consolidation journals and journals
indicating large or unusual transactions
based on our understanding of the
business, inquiries of those charged with
governance, inquiries of both Group and
local management, and focused testing,
as referred to in the key audit matters
section above; and
• Where possible instances of non-
compliance with laws and regulations
were identified we assessed and
challenged management’s response.
We involved internal forensic specialists
to develop responsive audit procedures,
to consider the appropriateness of
management’s response and the
conclusions reached.
A further description of our
responsibilities for the audit of the financial
statements is located on the Financial
Reporting Council’s website at
https://www.frc.org.uk/auditorsresponsibilities
This description forms part of our
auditor’s report.
Other matters we are required
to address
Following the recommendation from the
Audit Committee, we were re-appointed
by the Group on 9 June 2021 to audit the
financial statements for the year ending
31 December 2021 and subsequent
financial periods. The period of total
uninterrupted engagement including
previous renewals and reappointments is
eight years, covering the period from our
initial appointment through to the year
31 December 2021.
The non-audit services prohibited by the
FRC’s Ethical Standard were not provided
to the Group or the Parent Company and
we remain independent of the Group
and the Parent Company in conducting
the audit.
The audit opinion is consistent with the
additional report to the audit committee.
Use of our report
This report is made solely to the Company’s
members, as a body, in accordance with
Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken
so that we might state to the Company’s
members those matters we are required to
state to them in an auditor’s report and for
no other purpose. To the fullest extent
permitted by law, we do not accept or
assume responsibility to anyone other than
the Company and the Company’s members
as a body, for our audit work, for this report,
or for the opinions we have formed.
William Binns (Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP,
Statutory Auditor
London
4 May 2022
134 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Consolidated financial statements
Contents
136 Consolidated statement of financial position
137 Consolidated statement of comprehensive income
138 Consolidated statement of cash flows
139 Consolidated statement of changes in equity
140 Notes to the consolidated financial statements
140 1. General
142 2. Basis of preparation and consolidation
143 3. Changes in accounting policies and disclosures
146 4. Summary of significant accounting policies
153 5. Property, plant and equipment
154 6. Right-of-use assets
154 7. Advances for non-current assets
154 8. Inventories
154 9. Prepayments and other current assets
154 10. Trade receivables
154 11. Cash and cash equivalents
155 12. Share capital and reserves
155 13. Earnings per share
155 14. Borrowings
157 15. Lease liabilities
157 16. Abandonment and site restoration provision
157 17. Due to Government of Kazakhstan
157 18. Trade payables
157 19. Other current liabilities
158 20. Revenue
158 21. Cost of sales
158 22. General and administrative expenses
158 23. Selling and transportation expenses
158 24. Taxes other than income tax
158 25. Finance costs
159 26. Employees’ remuneration
159 27. Other income and expenses
160 28. Income tax
160 29. Related party transactions
161 30. Audit and non-audit fees
161 31. Contingent liabilities and commitments
161 32. Financial risk management objectives and policies
163 33. Events after the reporting period
Financial report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 135
Consolidated financial statements continued
Consolidated statement of financial position
Consolidated financial statements
The accounting policies and explanatory notes on pages 140 through 163 are an integral part of these consolidated financial statements
113366
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
Consolidated statement of financial position
In thousands of US Dollars
Notes
31 December
2021
31 December
2020 (restated*)
Assets
Non-current assets
Property, plant and equipment
5
Right-of-use assets
6
Advances for non-current assets
7
Restricted cash
11
Current assets
Inventories
8
Prepayments and other current assets
9
Income tax prepayment
Trade receivables
10
Cash and cash equivalents
11
TOTAL ASSETS
Equity and liabilities
Share capital and reserves
12
Share capital
Treasury capital
(1,660 )
(1,660 )
Retained deficit and reserves
(824,796 )
(798,228 )
(823,253 )
(796,685 )
Non-current liabilities
Long-term lease liabilities
15
Abandonment and site restoration provision
16
Due to Government of Kazakhstan
17
Deferred tax liability
28
Current liabilities
Current portion of long-term borrowings
14
Current portion of lease liabilities
15
Employee share option plan liability
Trade payables
18
Advances received
Current portion of due to Government of Kazakhstan
Other current liabilities
19
TOTAL EQUITY AND LIABILITIES
* Certain amounts shown here do not correspond to the 2020 financial statements and reflect adjustments made, please refer to Note 3 for more details.
The consolidated financial statements of Nostrum Oil & Gas PLC, registered number 8717287, were approved by the Board of Directors.
Signed on behalf of the Board:
Arfan Khan
Chief Executive Officer
4 May 2022
The accounting policies and explanatory notes on pages 140 through 163 are an integral part of these consolidated financial statements
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
113377
Consolidated statement of comprehensive income
For the year ended 31 December
In thousands of US Dollars
Notes
2021
2020
(restated*)
Revenue
Revenue from export sales
169,825
140,843
Revenue from domestic sales
25,460
35,096
20
195,285
175,939
Cost of sales
21
(87,849)
(125,392)
Gross profit
107,436
50,547
General and administrative expenses
22
(12,124)
(14,671)
Selling and transportation expenses
23
(23,066)
(31,037)
Taxes other than income tax
24
(17,083)
(14,113)
Finance costs
25
(116,696)
(102,067)
Employee share option expense reversals
247
496
Impairment reversal / (charge)
4
74,186
(286,569)
Foreign exchange loss, net
(285)
(1,827)
Interest income
319
253
Other income
27
5,886
4,757
Other expenses
27
(13,218)
(7,606)
Profit / (loss) before income tax
5,602
(401,837)
Current income tax expense
(1,441)
(1,516)
Deferred income tax (expense) / benefit
(30,279)
38,994
Income tax (expense) / benefit
28
(31,720)
37,478
Loss for the year
(26,118)
(364,359)
Other comprehensive (loss) / income that could be reclassified to the income statement in
subsequent periods
Currency translation difference
(203)
253
Other comprehensive (loss) / income
(203)
253
Total comprehensive loss for the year
(26,321)
(364,106)
Loss for the period attributable to the shareholders (in thousands of US dollars)
(26,118)
(364,359)
Weighted average number of shares
185,234,079
185,234,079
Basic and diluted earnings per share (in US dollars)
13
(0.14)
(1.97)
* Certain amounts shown here do not correspond to the 2020 financial statements and reflect adjustments made, please refer to Note 3 for more details.
All items in the above statement are derived from continuing operations.
136 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Consolidated statement of comprehensive income
The accounting policies and explanatory notes on pages 140 through 163 are an integral part of these consolidated financial statements
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
113377
Consolidated statement of comprehensive income
For the year ended 31 December
In thousands of US Dollars
Notes
2021
2020
(restated*)
Revenue
Revenue from export sales
Revenue from domestic sales
20
Cost of sales
21
(87,849 )
(125,392 )
Gross profit
General and administrative expenses
22
(12,124 )
(14,671 )
Selling and transportation expenses
23
(23,066 )
(31,037 )
Taxes other than income tax
24
(17,083 )
(14,113 )
Finance costs 25
(116,696 )
(102,067 )
Employee share option expense reversals
Impairment reversal / (charge)
4
(286,569 )
Foreign exchange loss, net
(285 )
(1,827 )
Interest income
Other income
27
Other expenses
27
(13,218 )
(7,606 )
Profit / (loss) before income tax
(401,837 )
Current income tax expense
(1,441 )
(1,516 )
Deferred income tax (expense) / benefit
(30,279 )
Income tax (expense) / benefit
28
(31,720 )
Loss for the year
(26,118 )
(364,359 )
Other comprehensive (loss) / income that could be reclassified to the income statement in
subsequent periods
Currency translation difference
(203 )
Other comprehensive (loss) / income
(203 )
Total comprehensive loss for the year
(26,321 )
(364,106 )
Loss for the period attributable to the shareholders (in thousands of US dollars)
(26,118 )
(364,359 )
Weighted average number of shares
Basic and diluted earnings per share (in US dollars)
13
(0.14 )
(1.97 )
* Certain amounts shown here do not correspond to the 2020 financial statements and reflect adjustments made, please refer to Note 3 for more details.
All items in the above statement are derived from continuing operations.
Financial report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 137
Consolidated financial statements continued
Consolidated statement of cash flows
Consolidated financial statements
The accounting policies and explanatory notes on pages 140 through 163 are an integral part of these consolidated financial statements
113388
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
Consolidated statement of cash flows
For the year ended 31 December
In thousands of US Dollars
Notes
2021
2020
(restated*)
Cash flow from operating activities:
Profit / (loss) before income tax
(401,837 )
Adjustments for:
Depreciation, depletion and amortisation
21,22,23
Impairment (reversal) / charge
4
(74,186 )
Finance costs
25
Employee share options expense reversals
(247 )
(496 )
Interest income
(319 )
(253 )
Foreign exchange loss on investing and financing activities
(94 )
(129 )
Loss on disposal of property, plant and equipment
Gain on disposal of exploration and evaluation assets
(749 )
Write-off and impairment of new development costs
7
Operating profit before working capital changes
Changes in working capital:
Change in inventories
Change in trade receivables
Change in prepayments and other current assets
(132 )
Change in trade payables
(1,686 )
(9,171 )
Change in advances received
(177 )
(150 )
Change in due to Government of Kazakhstan
(1,031 )
(1,031 )
Change in other current liabilities
(147 )
(5,951 )
Cash generated from operations
Income tax paid
(2,671 )
(1,996 )
Net cash flows from operating activities
Cash flow from investing activities:
Interest received
Purchase of property, plant and equipment
(8,611 )
(25,797 )
Exploration and evaluation works
(226 )
(483 )
Advances for non-current assets
(1,440 )
(622 )
Transfer to restricted cash
(9,820 )
(13,452 )
Net cash used in investing activities
(19,778 )
(40,101 )
Cash flow from financing activities:
Finance costs paid
(43,000 )
Other finance costs
(9,130 )
(10,013 )
Payment of principal portion of lease liabilities
(1,575 )
(5,064 )
Finance charges on lease liabilities
(157 )
(354 )
Net cash used in financing activities
(10,862 )
(58,431 )
Effects of exchange rate changes on cash and cash equivalents
(112 )
Net increase / (decrease) in cash and cash equivalents
(15,357 )
Cash and cash equivalents at the beginning of the year
11
Cash and cash equivalents at the end of the year
11
* Certain amounts shown here do not correspond to the 2020 financial statements and reflect adjustments made, please refer to Note 3 for more details.
“Other finance costs” primarily represent bondholder consent fees in the amount of US$1,117 thousand (2020: US$5,585 thousand) and advisor fees of
US$8,013 thousand (2020: US$4,428 thousand) paid by the Group in relation to the forbearance agreements, lock-up agreement and ongoing discussions with
the bondholders regarding the restructuring of the Group’s outstanding bonds. For more details see Note 1.
138 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Consolidated statement of changes in equity
Consolidated financial statements
The accounting policies and explanatory notes on pages 140 through 163 are an integral part of these consolidated financial statements
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
113399
Consolidated statement of changes in equity
In thousands of US Dollars
Notes
Share
capital
Treasury
capital
Other
reserves
Retained
deficit
Total
As at 1 January 2020
(1,660 )
(696,704 )
(432,084 )
Loss for the year
(364,359 )
(364,359 )
Other comprehensive income
Total comprehensive loss for the year
(364,359 )
(364,106 )
Share based payments under LTIP*
(495 )
(495 )
As at 31 December 2020 (restated**)
(1,660 )
(1,061,063 )
(796,685 )
Loss for the year
(26,118 )
(26,118 )
Other comprehensive loss
(203 )
(203 )
Total comprehensive loss for the year
(203 )
(26,118 )
(26,321 )
Share based payments under LTIP*
(247 )
(247 )
As at 31 December 2021
(1,660 )
(1,087,181 )
(823,253 )
* Long-Term Incentive Plan (“LTIP”)
** Certain amounts shown here do not correspond to the 2020 financial statements and reflect adjustments made, please refer to Note 3 for more details.
Financial report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 139
Consolidated financial statements continued
Notes to the consolidated financial statements
114400
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
Notes to the consolidated financial statements
1. General
O
O
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“the Parent”) is a public limited company
incorporated on 3 October 2013 under the
Companies Act 2006 and registered in
England and
Wales
with registered number 8717287. The
registered address of Nostrum Oil & Gas PLC is:
20 Eastbourne Terrace, London, W2 6LG, UK.
These consolidated financial statements include
the financial position and the results of the
operations of Nostrum Oil & Gas PLC and its
following wholly owned subsidiaries:
Company
Registered office
Form of
capital
Owner-
ship, %
Nostrum
Associated
Investments
LLP
43B Karev street,
090000 Uralsk,
Republic of
Kazakhstan
Participat
ory
interests
100
Nostrum Oil
& Gas
Coöperatief
U.A.
Bloemendaalseweg
139, 2061 CH
Bloemendaal,
The Netherlands
Members'
interests
100
Nostrum Oil
& Gas B.V.
Bloemendaalseweg
139, 2061 CH
Bloemendaal,
The Netherlands
Ordinary
shares
100
Nostrum Oil
& Gas
Finance B.V.
Bloemendaalseweg
139, 2061 CH
Bloemendaal,
The Netherlands
Ordinary
shares
100
Nostrum Oil
& Gas UK
Ltd.
20 Eastbourne
Terrace, London,
W2 6LA,
United Kingdom
Ordinary
shares
100
Nostrum
Services
Central Asia
LLP
Aksai 3a, 75/38,
050031 Almaty,
Republic of
Kazakhstan
Participat
ory
interests
100
Nostrum
Services N.V.
Chaussee de Wavre
20, 1360 Perwez,
Belgium
Ordinary
shares
100
Zhaikmunai
LLP
43/1 Karev street,
090000 Uralsk,
Republic of
Kazakhstan
Participat
ory
interests
100
Nostrum Oil & Gas PLC and its wholly owned
subsidiaries are hereinafter referred to as “the
Group”. The Group’s operations comprise of a
single operating segment including all Group’s
assets related to its Chinarevskoye field as well as
surface facilities, and are primarily conducted
through its oil and gas producing entity
Zhaikmunai LLP located in Kazakhstan .
On 30 April 2021, the Group disposed of its entire
holding in the equity of Nostrum E&P Services LLP.
As at 31 December 2021 the Group employed 559
employees (2020: 564).
S
S
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b
b
s
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Zhaikmunai LLP carries out its activities in
accordance with the Contract for Additional
Exploration, Production and Production-Sharing of
Crude Hydrocarbons in the Chinarevskoye oil and
gas condensate field (the “Contract”) dated
31 October 1997 between the State Committee of
Investments of the Republic of Kazakhstan and
Zhaikmunai LLP in accordance with the license MG
No. 253D for the exploration and production of
hydrocarbons in Chinarevskoye oil and gas
condensate field.
The term of the Chinarevskoye subsoil use rights
originally included a 5-year exploration period and
a 25-year production period. On 28 December
2016 the thirteenth supplementary agreement to
the Contract was signed extending the exploration
period for the Bobrikovskiy reservoir to 26 May
2018, which was subsequently extended to 26
August 2018, and then followed by the production
period.
On 17 August 2012 Zhaikmunai LLP signed Asset
Purchase Agreements to acquire 100% of the
subsoil use rights related to three oil and gas fields
– Rostoshinskoye, Darjinskoye and Yuzhno-
Gremyachinskoye – all located in the Western
Kazakhstan region. On 1 March 2013
Zhaikmunai LLP has acquired the subsoil use rights
related to these three oil and gas fields in
Kazakhstan following the signing of the respective
supplementary agreements related thereto by the
authority now known as the Ministry of Energy
(the “MOE”) of the Republic of Kazakhstan.
The rights and obligations related to the
Darjinskoye and the Yuzhno-Gremyachinskoye
fields were disposed to a third party in October
2020. The rights and obligations related to the
Rostoshinskoye field were disposed in September
2021.
R
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a
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l
l
t
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p
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m
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s
s
Zhaikmunai LLP is required to make monthly
royalty payments throughout the entire
production period, at the rates specified in the
Contract.
Royalty rates depend on hydrocarbons recovery
levels and the phase of production and can vary
from 3% to 7% of produced crude oil and from 4%
to 9% of produced natural gas. Royalty is
accounted on a gross basis.
G
G
o
o
v
v
e
e
r
r
n
n
m
m
e
e
n
n
t
t
“
“
p
p
r
r
o
o
f
f
i
i
t
t
s
s
h
h
a
a
r
r
e
e
”
”
Zhaikmunai LLP makes payments to the
Government of its “profit share” as determined in
the Contract. The “profit share” depends on
hydrocarbon production levels and varies from
10% to 40% of production after deducting royalties
and reimbursable expenditures. Reimbursable
expenditures include operating expenses, costs of
additional exploration and development costs.
Government “profit share” is expensed as incurred
and paid in cash. Government profit share is
accounted on a gross basis.
F
F
o
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r
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a
a
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r
a
a
n
n
c
c
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e
a
a
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n
d
d
L
L
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k
k
-
-
u
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p
p
a
a
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s
On 31 March 2020, following the collapse in the
Global oil price, the Group announced that it
would seek to engage with its bondholders
regarding a possible restructuring of the Group’s
US$725 million 8.0% Senior Notes due July 2022
(“2022 Notes”) and/or its US$400 million 7.0%
Senior Notes due February 2025 (“2025 Notes”)
(together, the Notes).
In May 2020, the Group engaged Rothschild & Cie
(“Rothschild”) as financial advisers and White &
Case LLP (“White & Case”) as legal advisers to
assist in the restructuring of the Existing Notes.
Since then, the Company has been in restructuring
discussions with an informal ad hoc group of
noteholders (the “Ad Hoc Group” or “AHG”), who
are advised by PJT Partners (“PJT”) (financial) and
Akin Gump LLP (legal). The Company has also been
in discussions with its largest shareholder ICU, also
a holder of the Existing Notes, and their legal
advisors Dechert LLP from 2021.
The Group has not made coupon payments due
under the Existing Notes since July 2020, which
was an event of default under the terms of the
indentures governing 2022 Notes and 2025 Notes
resulting. However, the Company continued active
discussions with the financial and legal advisers to
the AHG and signed its First Forbearance
Agreement (“First FBA”) with the AHG on
23 October 2020 and a new Forbearance
Agreement (“Second FBA”) on 19 May 2021. The
First and Second FBA were on substantially the
same terms and prohibited the AHG from
exercising certain rights and remedies under the
Existing Note indentures. The FBAs were intended
to provide the Group with a short-term solution to
its liquidity issues and a platform to engage in
discussions with the noteholders in relation to a
potential restructuring.
140 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Consolidated financial statements
Notes to the consolidated financial statements (continued)
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
114411
The Forbearance Agreement was subject to certain
conditions, including:
• The opening of a secured account into which a
portion of the missed interest payments was
paid. A total of US$22,658,980 has been
deposited into the secured account under the
terms of the FBAs, with the Group having access
to the funds under certain circumstances (i.e.
liquidity falling below an agreed threshold).
• The appointment by the AHG of an observer
who shall be entitled to attend and speak, but
not vote, at any meetings of the Board or
Committees of the Group where certain defined
matters are to be discussed;
• The engagement of certain professional and
technical advisors on behalf of the AHG;
• The observance by the Parent and its
subsidiaries of certain operating and other
restrictions and limitations; and
• The provision of certain financial and operating
information to the advisors of the AHG.
The Group agreed to pay, or procure payment of,
certain consent fees in cash ("Consent Fee") to
each forbearing holder. The first Consent Fee for
the first 90 days of 29.7866 basis points, totalling
US$3,350,992, was paid on 19 November 2020.
The second consent fee of 19.8577 bps, totalling
US$2,233,991, was paid on 22 December 2020.
The final consent fee of 9.9288 bps, equating to
US$1,116,990, was paid on 20 February 2021. The
consent fees were recorded in the income
statement (for more details please see Note 25).
On 23 December 2021 the Group entered into a
lock-up agreement (the "Lock-up Agreement") and
agreed terms of a restructuring with holders of in
excess of 54% of the aggregate principal amount of
the 2022 Notes and 55% of the aggregate principal
amount of the 2025 Notes in each case issued by
Nostrum Oil & Gas Finance B.V. In addition,
subsidiaries of ICU Holdings Limited ("ICU"), the
Parent's largest shareholder, has entered into the
Lock-up Agreement in its capacity as a shareholder
and holder of the Notes.
Upon signing of the Lock-up Agreement, the
Second FBA was extended in parallel. The terms
and conditions continue to remain in effect during
the restructuring until the earlier of the successful
closing of the restructuring and the longstop date
(23 August 2022).
Under the terms of the Lock-up Agreement, the
Group, the AHG and ICU have agreed to
implement a transaction which restructures the
Notes (the "Restructuring"). The key features of
the proposed Restructuring are as follows:
1. Partial reinstatement of the Notes in the form of
new: (a) senior secured notes in a principal
amount of US$250,000,000 ("SSNs") with cash
coupon of 5.00% per annum; and (b) senior
unsecured notes in a principal amount of
US$300,000,000 ("SUNs") with cash coupon of
1.00% per annum and payment-in-kind interest
of 13.00% per annum. The SSNs and SUNs will
mature on 30 June 2026;
2. Conversion of the remainder of the Notes into
equity through:
• Preferred restructuring route: Holders of the
Existing Notes will own 88.89% of the share
capital of the Company and warrants to
subscribe for an additional 1.11% of the share
capital of the Company upon exercise of all of
the warrants. The existing shareholders will
hold 11.11% upon closing of the restructuring
and will be diluted to 10.00% if the warrants
are exercised. Executing the preferred
restructuring route will require the approval
by shareholders at a general meeting (“GM”);
or
• Alternative restructuring route: If the required
approvals are not received from shareholders
at the GM, the holders of the Existing Notes
will own 98.89% of the share capital of the
Company and warrants to subscribe for an
additional 0.11% of the share capital of the
Company upon exercise of all of the warrants.
The existing shareholders will hold 1.11%
upon closing of the restructuring and will be
diluted to 1.00% if the warrants are exercised;
and
3. New corporate governance arrangements in
respect of the Group and certain arrangements
regarding future utilization of the Group's
cashflows, including the proposal to transfer the
Parent's listing to the Standard Listing segment
of the London Stock Exchange.
A fee of 50 bps (the "Lock-up Fee") will be payable
to each Participating Noteholder who was
originally party to the Lock-up Agreement or
acceded to the Lock-up Agreement within 22 days
of its execution (i.e. by 14 January 2022).
Noteholders will not be eligible for the Lock-up Fee
if they accede to the Lock-up Agreement after
14 January 2022 (save with respect to any Notes
acquired by them which were already eligible to
receive a Lock-up Fee).
Holders of over 77% of the total aggregate
principal amount of the Notes have signed or
acceded to the Lock-up Agreement
including a majority of holders of aggregate
principal amount of both Senior Notes and
an affiliate of ICU.
Following execution of the Lock-up Agreement, the
Company has commenced implementation of the
Restructuring, which is expected to become
effective in 2022. It is currently expected that
implementation will be effected through a process
under Part 26 or Part 26A of the Companies Act
2006. Parallel processes in other jurisdictions
relevant to the Group and/or the Notes may also
be involved.
Consent solicitation for Existing Notes:
On 4 February, the Company received the required
consents from noteholders after a solicitation
process to approve the amendments to the
Existing Notes indentures. The approved
amendments (i) change the governing law and
jurisdiction of both Existing Notes indentures from
the State of New York to the laws of England and
Wales; (ii) make Nostrum Oil & Gas plc a co-issuer
of the Existing Notes and (iii) other smaller
amendments to facilitate the implementation of
the preferred restructuring route or alternative
restructuring route. Holders of 87.081% in
aggregate principal amount of the 2022 Notes and
Holders of 91.222% in aggregate principal amount
of the 2025 Notes have provided consents. No
consent solicitation payments were made to vote
in favour.
On 13 April, the Financial Conduct Authority
(“FCA”) approved the Company’s shareholder
circular in relation to the proposed restructuring as
outlined above. The Circular is published on the
Company’s website and has been made available
to shareholders for their consideration. Also notice
has been provided convening a General Meeting of
our shareholders on 29 April 2022 to consider and
approve the resolutions in respect of the
Restructuring. The Circular and General Meeting
also includes a resolution to vote in favour of the
Related Party Transactions with ICU in respect of
new ordinary shares being issued to ICU pursuant
to the restructuring – only independent
shareholders (excluding ICU) are required to vote
on this specific resolution.
At the General Meeting, 99.99% voted for the
implementation of the restructuring which means
the restructuring will proceed under a UK scheme
of arrangement under Part 26 of the Companies
Act 2006. Further, 99.89% voted in favour of the
RPT Resolution, allowing ICU as a related party to
receive the issuance of new securities under the
scheme.
Financial report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 141
Consolidated financial statements continued
Notes to the consolidated financial statements continued
Consolidated financial statements
Notes to the consolidated financial statements (continued)
114422
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
2. Basis of preparation and consolidation
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These consolidated financial statements for the
year ended 31 December 2021 have been
prepared in accordance with the UK adopted
International Accounting Standards.
The consolidated financial statements have been
prepared based on a historical cost basis (Note 4).
The consolidated financial statements are
presented in US dollars and all values are rounded
to the nearest thousand, except when otherwise
indicated.
The preparation of consolidated financial
statements in conformity with IFRS requires the
use of certain critical accounting estimates. It also
requires from 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 4.
The Group recognises that there may be potential
financial implications in the future from changes in
legislation and regulation implemented to address
climate change risk. Over time these changes may
have an impact across a number of areas of
accounting including asset impairment, increased
costs, provisions, onerous contracts and
contingent liabilities. However, as at the reporting
sheet date, the Group believes there is no material
impact on the balance sheet carrying values of
assets or liabilities. This is not considered a
significant estimate.
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The consolidated financial statements comprise
the financial statements of the Parent and its
subsidiaries as at 31 December 2021. 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. Specifically,
the Group controls an investee if, and only if, the
Group has:
• power over the investee (i.e., existing rights that
give it the current ability to direct the relevant
activities of the investee);
• exposure, or rights, to variable returns from its
involvement with the investee;
• the ability to use its power over the investee to
affect its returns.
Generally, there is a presumption that a majority of
voting rights results in control. 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 an investee, including:
• the contractual arrangement with the other
vote holders of the investee;
• rights arising from other contractual
arrangements;
• the Group’s voting rights and potential voting
rights.
The Group re-assesses whether or not it controls
an investee if facts and circumstances indicate that
there are changes to one or more of the three
elements of control. Consolidation of a subsidiary
begins when the Group obtains control over the
subsidiary and ceases when the Group loses
control of the subsidiary. Assets, liabilities, income
and expenses of a subsidiary acquired or disposed
of during the year are included in the consolidated
financial statements from the date the Group gains
control until the date the Group ceases to control
the subsidiary.
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Nostrum Oil & Gas UK Ltd. registered and
incorporated in the United Kingdom under
Companies Number 08071559 is exempt from the
requirements of the UK Companies Act 2006
relating to the audit of the individual accounts by
virtue of the section 479A of the Act.
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The Group monitors on an ongoing basis its
liquidity position, near-term forecasts, and key
financial ratios to ensure that sufficient funds are
available to meet its commitments as they arise
and liabilities as they fall due. The Group
reforecasts its rolling 24-month cashflows on a
monthly basis and stress tests its future liquidity
position for changes in product prices, production
volumes, costs and other significant events. Whilst
looking for new opportunities to fill the spare
capacity of the Group’s infrastructure, the
Directors are also focused on a range of actions
aimed at improving the liquidity outlook in the
near-term. These include the ongoing efforts to
restructure the Existing Notes, as well as further
cost optimization to reduce capital expenditures,
operating costs and general and administration
cost.
The Directors’ going concern assessment is
supported by future cash flow forecasts for the
going concern period to 30 June 2023. The base
case going concern assessment reflects production
forecasts consistent with the Board approved
plans and published guidance and assumes a Brent
oil price of $72/bbl for 2022 and $68/bbl for 2023.
The favourable hydrocarbon pricing in 2021 and
forbearance of making interest payments under
the terms of the Forbearance Agreement with
noteholders (refer to “Update on Bond
Restructuring” section for further details) meant
that the Group was able to grow its unrestricted
cash reserves by over US$86 million. As a result,
the Group had unrestricted cash balances of
US$165.2 million as at 31 December 2021, with a
further $22.7 million in a restricted bank account
with limited access as per the terms of the
Forbearance Agreement. Under the base case
going concern assessment to the period to 30 June
2023, the Group is forecast to have total cash
reserves of over U$$200 million, inclusive of cash
swept into the restricted account, as explained
below.
In 2020, the Group began formal proceedings for
the restructuring of its Existing Notes, the largest of
which would become due and repayable in July
2022. A Forbearance Agreement was entered into
with an informal ad hoc committee of noteholders
(the “AHG”) in the same year which, amongst
other things, forbears the AHG from accelerating
the Existing Notes’ obligations as a result of missed
interest payments. During this period of
forbearance the Company and the AHG
endeavoured to agree on the terms of a
consensual restructuring of the Existing Notes. On
13 April 2022, the Group issued a Circular and
serviced notice convening a General Meeting of its
shareholders to vote on the restructuring terms
(“Restructuring Resolution”). On 29 April 2022,
99.99% of voting shareholders voted in favour of
the Restructuring Resolutions at the General
Meeting; allowing the Group to proceed with the
restructuring via a UK scheme of arrangement
under Part 26 of the Companies Act 2006 (refer to
“Update on Bond Restructuring” section and Note
1 to the consolidated financial statements for the
latest on the Bond Restructuring process).
The below outlines the key terms of the
restructuring as agreed between the Group,
acceded noteholders and ICU in the LUA and also
voted in favour of by Nostrum shareholders:
• Partial reinstatement of debt in the form of
US$250 million Senior Secured Notes (SSNs)
bearing interest at a rate of 5.00% per year
payable in cash and maturing on 30 June 2026.
The SSNs are not convertible;
• Partial reinstatement of debt in the form of
US$300 million Senior Unsecured Notes (SUNs)
bearing interest at a rate of 1.00% per year
payable in cash and 13.00% per year payable in
kind and maturing on 30 June 2026. The SUNs
are repayable in specie through the issuance of
equity in the Company on maturity;
• The exchange of the remainder of the Group’s
existing debt along with accrued but unpaid
interest for equity in the Company, thereby
significantly diluting the interests of the current
equity holders;
• New corporate governance arrangements in
respect of the Group and certain arrangements
regarding future utilization of the Group's
cashflows. This includes a cash sweep
mechanism into which cash above US$30
million is swept into a debt service retention
account (to fund the next two cash interest
payments due) and a restricted cash account
which the Company can access with approval of
the majority of Independent Non-Executive
Directors of the Company; and
• Transfer the Company's listing to the Standard
Listing segment of the London Stock Exchange.
The forecast financing cashflows assume that the
Existing Notes are restructured per the agreed
terms as set out in the Lock-up Agreement and
outlined above. Therefore, in forming an
assessment on the Group’s ability to continue as a
going concern, the Board has made a significant
assumption about the Group being able to close
142 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Consolidated financial statements
Notes to the consolidated financial statements (continued)
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
114433
out the successful restructuring of the Existing
Notes.
Whilst the signing of the LUA and shareholders
voting in favour of the Restructuring Resolutions
marked key milestones in the Company’s
restructuring journey and paves an agreed go
forward strategy to restructure the Existing Notes,
the Company notes there remain several other
milestones to achieve prior to successful
completion. These include:
• The Company receiving all authorisations
including securing a waiver from the
Government of the Republic of Kazakhstan for
the right to pre-empt newly issued shares in the
Company on closing of the restructuring.
• The UK Courts sanctioning the final
restructuring route (UK Scheme of Arrangement
or Restructuring Plan).
As at the date of publication of these consolidated
financial statements, the above milestones have
not concluded, with the outcomes uncertain and
largely outside of the Group’s control. If one or all
of the milestones above are not achieved, the
restructuring may not proceed on the agreed set
of terms. Therefore, the assumption that the
Group can successfully complete the restructuring
by satisfying the above milestones represents a
material uncertainty that the Existing Notes will
not be restructured. This may cast a significant
doubt on the Group’s and Company’s ability to
continue as a going concern for the going concern
period to 30 June 2023.
The Directors have also considered any additional
risks to liquidity posed by the ongoing Russia-
Ukraine conflict, which has led to widespread
sanctions being imposed on various Russian
institutions and individuals. Bodies and nations
imposing sanctions include the US, UK and EU and
these sanctions have been sequentially expanding.
Given the geographical position of the Group’s
operations, it is very close to the evolving situation
in Ukraine. Whilst Kazakhstan is not directly
involved in the ongoing conflict, nor have any
Western sanctions been levelled at it, the country
is connected to Russia through infrastructure,
banking, and other business links. Nostrum
currently sends approximately 40% of its products
by volume produced via Russian transport
infrastructure and ports and the Group also
contracts with a limited number of Russian service
companies. The Directors are cognisant of the
current and evolving sanctions list to ensure the
Group is conducting business in compliance with
these sanctions. In its going concern assessment,
the Group sensitised its base case by adjusting for
zero oil and condensate sales through Russian
infrastructure; noting that even with zero sales for
these products, there is forecast to be cash
reserves in excess of US$100 million at the end of
the going concern period to 30 June 2023, inclusive
of cash swept into the restricted account. There is
currently no material impact on the Group’s
operations and liquidity at the time of publication
of these consolidated financial statements as a
result of the ongoing Russia-Ukraine conflict and
resultant Russian sanctions. The Directors have
concluded that even under this severe scenario
modelled, the Group would have sufficient
liquidity over the going concern review period.
Additionally, the Directors remain vigilant on risks
to liquidity posed by any resurgence in COVID-19.
Contingency plans have been put in place both to
protect the workforce and ensure that there are
sufficient personnel to continue operations. There
was no loss of production as a result of COVID-19
in 2020 and 2021. Therefore, the Directors have
concluded that there is currently no material
impact on the Group’s operations and liquidity, nor
do the Directors foresee a material impact in the
going concern period, however, it is recognized
that there is uncertainty around the future
developments of COVID-19.
After careful consideration of the material
uncertainty in connection with the restructuring of
the Existing Notes, and on the basis of the
successful execution of the LUA, advice from our
financial and legal advisors, and our assessment of
the likelihood that the remaining milestones can
be achieved, the Directors have a reasonable
expectation that the Group and Company has
sufficient resources to continue in operation for
the going concern period to 30 June 2023. For
these reasons, they continue to adopt the going
concern basis in preparing the consolidated
financial statements. Accordingly, these
consolidated financial statements do not include
any adjustments to the carrying amount or
classification of assets and liabilities that would
result if the Group were unable to continue as a
going concern.
Notwithstanding that the going concern period has
been defined as the period to 30 June 2023, the
Directors have considered events and conditions
beyond the period of assessment which may cast
doubt on the Group’s ability to continue as a going
concern. The Directors draw attention to the
Viability Statement on pages 67-69 which
highlights that the material uncertainty referred to
in respect of the going concern assessment will
inevitably cast significant doubt over the future
viability of the Group.
3. Changes in accounting policies and disclosures
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The amendments provide temporary reliefs which
address the financial reporting effects when an
interbank offered rate (IBOR) is replaced with an
alternative nearly risk-free interest rate (RFR).
The amendments include the following practical
expedients:
• A practical expedient to require contractual
changes, or changes to cash flows that are
directly required by the reform, to be treated as
changes to a floating interest rate, equivalent to
a movement in a market rate of interest
• Permit changes required by IBOR reform to be
made to hedge designations and hedge
documentation without the hedging
relationship being discontinued
• Provide temporary relief to entities from having
to meet the separately identifiable requirement
when an RFR instrument is designated as a
hedge of a risk component
These amendments had no impact on the
consolidated financial statements of the Group.
The Group intends to use the practical expedients
in future periods if they become applicable.
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On 28 May 2020, the IASB issued Covid-19-Related
Rent Concessions - amendment to IFRS 16 Leases.
The amendments provide relief to lessees from
applying IFRS 16 guidance on lease modification
accounting for rent concessions arising as a direct
consequence of the Covid-19 pandemic. As a
practical expedient, a lessee may elect not to
assess whether a Covid-19 related rent concession
from a lessor is a lease modification. A lessee that
makes this election accounts for any change in
lease payments resulting from the Covid-19 related
rent concession the same way it would account for
the change under IFRS 16, if the change were not a
lease modification.
The amendment was intended to apply until 30
June 2021, but as the impact of the Covid-19
pandemic is continuing, on 31 March 2021, the
IASB extended the period of application of the
practical expedient to 30 June 2022. The
amendment applies to annual reporting periods
beginning on or after 1 April 2021. However, the
Group has not received Covid-19-related rent
concessions.
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Amendments to IAS 12
On May 7, 2021, the IASB published "Deferred Tax
related to Assets and Liabilities arising from a
Single Transaction " that clarify how companies
account for deferred tax on transactions such as
leases and decommissioning obligations.
The main change in Deferred Tax related to Assets
and Liabilities arising from a Single Transaction
(Amendments to IAS 12) is an exemption from
the initial recognition exemption provided in IAS
12.15(b) and IAS 12.24. Accordingly, the initial
recognition exemption does not apply to
transactions in which both deductible and taxable
temporary differences arise on initial recognition
Financial report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 143
Consolidated financial statements continued
Notes to the consolidated financial statements continued
Consolidated financial statements
Notes to the consolidated financial statements (continued)
114444
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
that result in the recognition of equal deferred tax
assets and liabilities.
The entity applies the amendments to transactions
that occur on or after the beginning of the earliest
comparative period presented.
The amendments are effective for annual
reporting periods beginning on or after January 1,
2023. Early adoption is permitted.
The Group is currently assessing the impact the
amendments will have on current practice and
whether the amendments will have impact on the
consolidated financial statements.
Amendments to IAS 1: Classification of Liabilities
as Current or Non-current
In January 2020, the IASB issued amendments to
paragraphs 69 to 76 of IAS 1 to specify the
requirements for classifying liabilities as current or
non-current. The amendments clarify:
• What is meant by a right to defer settlement
• That a right to defer must exist at the end of the
reporting period
• That classification is unaffected by the likelihood
that an entity will exercise its deferral right
• That only if an embedded derivative in a
convertible liability is itself an equity instrument
would the terms of a liability not impact its
classification
The amendments are effective for annual
reporting periods beginning on or after 1 January
2023 and must be applied retrospectively. The
Group is currently assessing the impact the
amendments will have on current practice.
Reference to the Conceptual Framework –
Amendments to IFRS 3
In May 2020, the IASB issued Amendments to IFRS
3 Business Combinations - Reference to the
Conceptual Framework. The amendments are
intended to replace a reference to the Framework
for the Preparation and Presentation of Financial
Statements, issued in 1989, with a reference to the
Conceptual Framework for Financial Reporting
issued in March 2018 without significantly
changing its requirements.
The Board also added an exception to the
recognition principle of IFRS 3 to avoid the issue of
potential ‘day 2’ gains or losses arising for liabilities
and contingent liabilities that would be within the
scope of IAS 37 or IFRIC 21 Levies, if incurred
separately. At the same time, the Board decided to
clarify existing guidance in IFRS 3 for contingent
assets that would not be affected by replacing the
reference to the Framework for the Preparation
and Presentation of Financial Statements. The
amendments are effective for annual reporting
periods beginning on or after 1 January 2022 and
apply prospectively. It is not expected that the
amendments will have an impact on the
consolidated financial statements of the Group.
Property, Plant and Equipment: Proceeds before
Intended Use – Amendments to IAS 16
In May 2020, the IASB issued Property, Plant and
Equipment — Proceeds before Intended Use,
which prohibits entities deducting from the cost of
an item of property, plant and equipment, any
proceeds from selling items produced while
bringing that asset to the location and condition
necessary for it to be capable of operating in the
manner intended by management. Instead, an
entity recognises the proceeds from selling such
items, and the costs of producing those items, in
profit or loss. The amendment is effective for
annual reporting periods beginning on or after 1
January 2022 and must be applied retrospectively
to items of property, plant and equipment made
available for use on or after the beginning of the
earliest period presented when the entity first
applies the amendment. The amendments are not
expected to have a material impact on the Group.
Onerous Contracts – Costs of Fulfilling a Contract
– Amendments to IAS 37
In May 2020, the IASB issued amendments to IAS
37 to specify which costs an entity needs to include
when assessing whether a contract is onerous or
loss-making.
The amendments apply a “directly related cost
approach”. The costs that relate directly to a
contract to provide goods or services include both
incremental costs and an allocation of costs
directly related to contract activities. General and
administrative costs do not relate directly to a
contract and are excluded unless they are explicitly
chargeable to the counterparty under the contract.
The amendments are effective for annual
reporting periods beginning on or after 1 January
2022. The Group will apply these amendments to
contracts for which it has not yet fulfilled all its
obligations at the beginning of the annual
reporting period in which it first applies the
amendments.
Amendments to IAS 1 Presentation of Financial
Statements and IFRS Practice Statement 2
Making Materiality Judgements
In February 2021 the IASB issued amendments to
IAS 1 Presentation of Financial Statements and
IFRS Practice Statement 2 Making Materiality
Judgements. The amendments to IAS 1 require
companies to disclose their material accounting
policy information rather than their significant
accounting policies. The amendments to IFRS
Practice Statement 2 provide guidance on how to
apply the concept of materiality to accounting
policy disclosures. The amendments will be
effective for annual reporting periods beginning on
or after 1 January 2023, with early application
permitted. The Group does not expect early
application of these amendments.
Amendments to IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors
In February 2021 the IASB issued amendments to
IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors. The amendments clarify how
companies should distinguish changes in
accounting policies from changes in accounting
estimates. That distinction is important because
changes in accounting estimates are applied
prospectively only to future transactions and other
future events, but changes in accounting policies
are generally also applied retrospectively to past
transactions and other past events. The
amendments will be effective for annual reporting
periods beginning on or after 1 January 2023, with
early application permitted. The Group does not
expect early application of these amendments.
IFRS 9 Financial Instruments – Fees in the ’10 per
cent’ test for derecognition of financial liabilities
As part of its 2018-2020 annual improvements to
IFRS standards process the IASB issued
amendment to IFRS 9. The amendment clarifies
the fees that an entity includes when assessing
whether the terms of a new or modified financial
liability are substantially different from the terms
of the original financial liability. These fees include
only those paid or received between the borrower
and the lender, including fees paid or received by
either the borrower or lender on the other’s
behalf. An entity applies the amendment to
financial liabilities that are modified or exchanged
on or after the beginning of the annual reporting
period in which the entity first applies the
amendment.
The amendment is effective for annual reporting
periods beginning on or after 1 January 2022 with
earlier adoption permitted. The Group will apply
the amendments to financial liabilities that are
modified or exchanged on or after the beginning of
the annual reporting period in which the entity first
applies the amendment. The amendments are not
expected to have a material impact on the Group.
144 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Consolidated financial statements
Notes to the consolidated financial statements (continued)
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
114455
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Impairment of property, plant and equipment
When preparing the consolidated financial statements for the year ended
31 December 2020, the Group estimated through its FVLCD discounted cash
flow model that the recoverable amount of its property, plant and equipment
represented by single CGU was US$339,406 thousand, and, accordingly,
recognised an impairment charge of US$244,744 thousand (excluding $179
thousand related to exploration and evaluation assets). During the preparation
of the financial statements for the year ended 31 December 2021, the Group
noted an error in the calculation for determining the 2020 impairment charge.
The error results in a lower recoverable amount of US$297,760 thousand for
the property plant and equipment as at 31 December 2020, and so a
corresponding additional impairment charge of US$41,646 thousand for the
year then ended and derecognition of deferred tax liability of US$4,712
thousand.
The Group does not present the statement of financial position as at the
beginning of the previous annual period (“opening balance sheet”), since the
correction of an error has no effect on the opening balance sheet or the
periods preceding the previous annual period.
The abovementioned error has been corrected by restating each of the
affected financial statement line items for the prior period, as follows:
In thousands of US Dollars
Reported
Impairment
correction
As adjusted
Consolidated statement of financial position
Property, plant and equipment
339,406
(41,646)
297,760
Non-current assets
371,808
(41,646)
330,162
TOTAL ASSETS 505,418 (41,646) 463,772
Retained deficit and reserves
(761,294)
(36,934)
(798,228)
Share capital and reserves (759,751) (36,934) (796,685)
Deferred tax liability 8,505 (4,712) 3,793
Non-current liabilities
42,308
(4,712)
37,596
TOTAL EQUITY AND LIABILITIES
505,418
(41,646)
463,772
Consolidated statement of comprehensive income
Impairment reversal / (charge)
(244,923)
(41,646)
(286,569)
Loss before income tax
(360,191)
(41,646)
(401,837)
Deferred income tax benefit 34,282 4,712 38,994
Loss for the year
(327,425)
(36,934)
(364,359)
Consolidated statement of cash flows
Loss before income tax
(360,191)
(41,646)
(401,837)
Impairment charge
244,923
41,646
286,569
Net cash flows from operating
activities
82,746 – 82,746
Reclassifications and comparative figures
Certain reclassifications have been made to the previous year’s disclosure of
cost of sales to enhance comparability with the current year’s presentation
following management's periodic assessment of the improvement of the
information presentation. As a result, the comparative amounts for the year
ended 31 December 2020 in the certain line items within cost of sales
disclosure in Note 21 have been amended to conform to the current year’s
presentation as follows:
In thousands of US dollars
As previously
reported
Reclassifi-
cation
As adjusted
Depreciation, depletion and
amortisation
86,296
–
86,296
Payroll and related taxes
14,083
–
14,083
Repair, maintenance and other
services
10,769
(3,052)
7,717
Materials and supplies
3,970
249
4,219
Transportation services
1,907
1
1,908
Well repair and maintenance costs
–
3,360
3,360
Well workover costs 505 (505) –
Environmental levies 114 – 114
Change in stock 7,279 – 7,279
Other
469
(53)
416
125,392
–
125,392
Previous period related party disclosures
The Group has policies and procedures in place for the identification of
potential related party transactions which are designed to ensure that all
required approvals are obtained and all legal obligations are met in relation to
any related party transaction. Also, the Group has internal procedures on
identification of related party transactions and balances which are designed to
ensure that all required disclosures are made in the financial statements. As
part of these procedures the Group prepares lists of companies and individuals
related to directors and key management personnel.
During 2021 the Group became aware that it had failed to identify the past
employment of two persons, each of whom was the spouse of a director of the
Company, as potential related party transactions and did not comply with its
disclosure obligations in relation thereto. Total remuneration paid to such
employees during 2020 amounted to US$666 thousand, and such employment
and remuneration should have been disclosed as required under IAS 24
Related parties. Those amounts have been appropriately accounted for and so
there is no requirement to make an adjustment of any balances as of
31 December 2020 and any costs for the year then ended.
As a result of the above, management have restated the comparative amounts
for remuneration of key management personnel for 2020 within the related
party note in the current year. Refer to Note 29. Further disclosure regarding
this matter is also set out in the Company’s Annual Report for 2021 on pages
87-88. In addition, management has carried out a comprehensive search for
any other undisclosed related party transactions and balances and made
adjustments to its internal controls to ensure completeness of the relevant
disclosures going forward.
Financial report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 145
Consolidated financial statements continued
Notes to the consolidated financial statements continued
Consolidated financial statements
Notes to the consolidated financial statements (continued)
114466
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
4. Summary of significant accounting policies
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Oil and gas properties
Expenditure on the construction, installation or
completion of infrastructure facilities such as
treatment facilities, pipelines and the drilling of
development wells, is capitalised within property,
plant and equipment as oil and gas properties. The
initial cost of an asset comprises of its purchase
price or construction cost, any costs directly
attributable to bringing the asset into operation
and the initial estimate of decommissioning
obligations, if any.
The purchase price or construction cost is the
aggregate amount paid and the fair value of any
other consideration given to acquire the asset.
When a development project moves into the
production stage, the capitalisation of certain
construction/development costs ceases, and costs
are either regarded as part of the cost of inventory
or expensed, except for costs which qualify for
capitalisation relating to oil and gas property asset
additions, improvements or new developments.
All capitalised costs of oil and gas properties are
depleted using the unit-of-production method
based on estimated proved developed reserves of
the field, except the Group depreciates its oil
pipeline and oil loading terminal on a straight-line
basis over the life of the relevant subsoil use rights.
In the case of assets that have a useful life shorter
than the lifetime of the field the straight-line
method is applied.
Other properties
All other property, plant and equipment are stated
at historical cost less accumulated depreciation
and impairment. Historical cost includes
expenditures that are directly attributable to the
acquisition of the items. Subsequent costs are
included in the asset's carrying amount or
recognised as a separate asset, as appropriate,
only when it is probable that future economic
benefits associated with the item will flow to the
Group and the cost of the item can be measured
reliably. All other repairs and maintenance are
charged to the profit or loss during the year in
which they are incurred.
Depreciation is calculated on a straight-line basis
over the estimated useful lives of the assets as
follows:
Years
Buildings and constructions
7-15
Vehicles
8
Machinery and equipment
3-13
Other
3-10
For more detailed information in relation to
property plant and equipment, please refer to
Note 5.
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Oil and gas reserves are a material factor in the
Group’s computation of depreciation, depletion
and amortisation (the “DD&A”). Management
used significant accounting judgement in selecting
proved developed hydrocarbon reserves for
calculating the unit-of-production depletion rate,
as it reflects the expected pattern of consumption
of future economic benefits by the Group.
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The Group uses internal estimates to assess the oil
and gas reserves of its fields. The reserves
estimates are made in accordance with the
methodology of the Society of Petroleum
Engineers (the “SPE”) and are confirmed or
audited by independent reserve engineers. All
reserve estimates involve some degree of
uncertainty, which depends mainly on the amount
of reliable geological and engineering data
available at the time of the estimate and the
interpretation of this data, as well as long-term
hydrocarbon pricing, which may affect
classification of reserves.
The relative degree of uncertainty can be
conveyed by placing reserves into one of two
principal classifications, either proved or unproved.
Proved reserves are more certain to be recovered
than unproved reserves and may be further sub
classified as developed and undeveloped to
denote progressively increasing uncertainty in their
recoverability.
Reserves estimates are reviewed and revised
annually. Revisions occur due to the evaluation or
re-evaluation of already available geological,
reservoir or production data; availability of new
data; or changes to underlying price assumptions.
Reserve estimates may also be revised due to
improved recovery projects, changes in production
capacity or changes in development strategy.
Management’s estimates of the Chinarevskoye 2P
(Proved plus Probable) volume as at 31 December
2021 was 34.3 mmboe requiring 12 capital
interventions (2020: 39.0 mmboe requiring 16
interventions). The reduction was primarily due to
2021 production of 6.3 mmboe, which was offset
by 1.6 mmboe increase due to better than
forecasted performance of certain wells.
The field development plan assumed in the
estimations did not take into account any
restructuring or repayment of the Company’s 2022
and 2025 bonds and the ability to maintain
sufficient liquidity to fund such a plan. There is no
guarantee that the Group will be able to achieve
this, which can have a material impact on the
Group’s ability to develop the remaining proven
and probable reserves at Chinarevskoye. Please
refer to Note 1 for further information on the Bond
restructuring.
Downward revision of the proved developed
reserves estimates by 5% would lead to additional
DD&A expense of $596 thousand in Q4 2021.
Estimates of economically recoverable oil and gas
reserves and related future net cash flows also
impact the impairment assessment of the Group
(see Impairment related significant judgements,
estimates and assumptions for further details).
Details on carrying values of oil and gas properties
and related depreciation, depletion and
amortization are shown in Note 5.
In addition, provisions for decommissioning may
require revision — where changes to reserves
estimates affect expectations about when such
activities will occur and the associated cost of
these activities (see Decommissioning related
significant judgements, estimates and assumptions
for further details).
146 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Consolidated financial statements
Notes to the consolidated financial statements (continued)
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
114477
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The Group assesses assets or groups of assets,
called cash-generating units (CGUs), for
impairment whenever events or changes in
circumstances indicate that the carrying amount of
an asset or CGU may not be recoverable; for
example, changes in the Group’s business plans,
significant decreases in the market commodity
prices, low plant utilisation, evidence of physical
damage or, for oil and gas assets, significant
downward revisions of estimated reserves or
increases in estimated future development
expenditure or decommissioning costs. If any such
indication of impairment exists, the Group makes
an estimate of the asset’s recoverable amount.
Individual assets are grouped into CGU for
impairment assessment purposes at the lowest
level at which there are identifiable cash flows that
are largely independent of the cash flows of other
groups of assets. A CGU’s recoverable amount is
the higher of its fair value less costs of disposal and
its value in use. Where the carrying amount of a
CGU exceeds its recoverable amount, the CGU is
considered impaired, and an impairment loss is
recognised for the excess of carrying amount over
recoverable amount.
The business cash flow internal model, which is
approved on an annual basis by senior
management, is the primary source of information
for the determination of the recoverable amount.
It contains forecasts for oil and gas production,
sales volumes for various types of products,
revenues, costs and capital expenditure. As an
initial step in the preparation of this model, various
assumptions are set by senior management. These
assumptions take account of commodity prices,
global supply-demand equilibrium for oil and
natural gas, other macroeconomic factors and
historical trends and variability. In assessing the
recoverable amount, the estimated future cash
flows are adjusted for the risks specific to the asset
group and are discounted to their present value
using a discount rate.
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Judgement is required to identify cash-generating units for the purpose of
testing the assets for impairment. Management has determined a single cash-
generating unit within the Group’s non-current assets consisting of all Group’s
assets related to its Chinarevskoye field and facilities. This is mainly based on
the fact that hydrocarbons extracted from the Chinarevskoye field are
processed and passed through a combination of various facilities.
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Determination as to whether, and by how much, the CGU is impaired involves
management’s best estimates on highly uncertain matters such as future
commodity prices, operating expenses and capital expenditures estimates,
discount rate, fiscal regimes, proved and probable reserves, contingent
resources and respective future production profiles.
Based on the management assessment the recoverable amount was
determined by the fair value less costs of disposal (FVLCD) of the CGU, which
was higher than its value-in-use. FVLCD was based on the discounted cash flow
model as no recent third-party transactions existed on which a reliable market-
based fair value could be established.
The discounted cash flow model takes into consideration cash flows, which are
expected to arise until 2032, i.e. during the licence term of the Chinarevskoye
field, and is considered a level 3 valuation under the fair value hierarchy. The
period exceeding five years is believed to be appropriate based on the proved
and probable reserves audited by independent engineers. The model also takes
into account risked-value cash flows from contingent resources on the basis a
market participant would place value on these resources.
The key assumptions used in the Group’s discounted cash flow model reflecting
past experience and taking into account external factors are subject to periodic
review. These assumptions are:
• Oil prices (in real terms): US$72.3/bbl for 2022, US$67.6/bbl for 2023,
US$67.3/bbl for 2024, US$67.2/bbl for 2025, and US$65/bbl throughout
2026-2032 (2020: US$50/bbl for 2021 and US$55/bbl for 2022-2032);
• Proved and probable hydrocarbon reserves confirmed by independent
reserve engineers;
• Contingent resources as confirmed by independent reserve engineers split
into risk categories for valuation purposes;
• Production profiles based on Group’s internal estimates confirmed by
independent reserve engineers;
• All cash flows are projected on the basis of stable prices, i.e. inflation/growth
rates are ignored;
• Cost profiles for the development of the fields and subsequent operating
costs consistent with reserves estimates and production profiles; and
• GTU spare capacity utilization – risk-weighted option value from processing
under Ural OG contract;
• Post-tax discount rate of 8.5% (2020: 8.0%).
The impairment testing carried out by the Group has resulted in the recoverable
amount exceeding the carrying amount of the Group’s property, plant and
equipment. This has primarily resulted from the upward revision of the product
price assumptions, as described above. Hence, as of 31 December 2021 the
Group recognised a reversal of the previously recognised impairment in the
amount of US$74,186 thousand.
As at 31 December 2020 the Group recorded an impairment charge on oil and
gas assets in the amount of US$286,569 thousand (restated), in addition to the
US$1,301,640 thousand and US$150,000 thousand impairment charge
recognized in 2019 and 2018, respectively.
The impairment reversal as at 31 December 2021 and charge as at
31 December 2020 has been allocated as follows:
In thousands of US Dollars
31 December
2021
31 December
2020
(restated*)
Working oil and gas assets
63,118
(248,563)
Construction in progress
9,420
(31,425)
Other property, plant and equipment
1,648
(6,402)
74,186
(286,390)
Exploration and evaluation assets
–
(179)
Total impairment reversal / (charge)
74,186
(286,569)
As at 31 December 2021 the recoverable amount of property, plant and
equipment was US$ 320,125 thousand (31 December 2020: US$297,760
thousand).
More detailed information on carrying values of oil and gas properties and
related depreciation, depletion, amortisation and impairment are shown in
Note 5.
The following table summarizes sensitivity of the recoverable amount and
respective additional impairment charges that would result from changes in the
key assumptions:
Key assumption
Change
Impairment
sensitivity
Oil price assumption
$10/bbl
52,595
Reserves downgrade by
10.0%
79,821
Contingent resources downgrade by
10.0%
1,995
Post-tax discount rate increase by
4.0%
48,568
Operating costs increase by
10.0%
37,072
On the other hand, certain positive development like successful mitigation of
reservoir risks in the future and respective changes in the drilling plans and
results, with the relevant increase in 2P reserves, or increase in utilisation of the
Group’s processing facilities, could have the effect of reversing the impairment.
Any reversal would be limited so that the carrying amount of the CGU does not
exceed the lower of its recoverable amount, or the carrying amount that would
have been determined, net of depreciation, had no impairment charge been
recognised for the CGU in prior years.
Financial report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 147
Consolidated financial statements continued
Notes to the consolidated financial statements continued
Consolidated financial statements
Notes to the consolidated financial statements (continued)
114488
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
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The Group applies a single recognition and
measurement approach for all leases, except for
short-term leases and leases of low-value assets.
The Group recognises lease liabilities to make lease
payments and right-of-use assets representing the
right to use the underlying assets.
Right-of-use assets
The Group recognises right-of-use assets at the
commencement date of the lease (i.e., the date the
underlying asset is available for use). Right-of-use
assets are measured at cost, less any accumulated
depreciation and impairment losses, and adjusted
for any remeasurement of lease liabilities. The cost
of right-of-use assets includes the amount of lease
liabilities recognised, initial direct costs incurred,
and lease payments made at or before the
commencement date less any lease incentives
received. Unless the Group is reasonably certain to
obtain ownership of the leased asset at the end of
the lease term, the recognised right-of-use assets
are depreciated on a straight-line basis over the
shorter of its estimated useful life and the lease
term. Right-of-use assets are subject to impairment.
Lease liabilities
At the commencement date of the lease, the Group
recognises lease liabilities measured at the present
value of lease payments to be made over the lease
term. The lease payments include fixed payments
(including in substance fixed payments) less any
lease incentives receivable, variable lease payments
that depend on an index or a rate, and amounts
expected to be paid under residual value
guarantees. The lease payments also include the
exercise price of a purchase option reasonably
certain to be exercised by the Group and payments
of penalties for terminating a lease, if the lease term
reflects the Group exercising the option to
terminate.
Variable lease payments that do not depend on an
index or a rate are recognised as expense in the
period on which the event or condition that triggers
the payment occurs.
In calculating the present value of lease payments,
the Group uses the incremental borrowing rate at
the lease commencement date if the interest rate
implicit in the lease is not readily determinable.
After the commencement date, the amount of lease
liabilities is increased to reflect the accretion of
interest and reduced for the lease payments made.
In addition, the carrying amount of lease liabilities is
remeasured if there is a modification, a change in
the lease term, a change in the in-substance fixed
lease payments or a change in the assessment to
purchase the underlying asset.
Separation of lease and non-lease
components
When contracts for a lease (such as like lease of
drilling rigs and rail-tank cars) include various
additional services like personnel cost,
maintenance, drilling related activities, and other
items, the Group splits such non-lease components
and recognises them separately. Where the
additional services are not separately priced, the
consideration paid is allocated based on the relative
stand-alone prices of the lease and non-lease
components.
Distinguishing fixed and variable lease
payment elements
Certain lease contracts include fixed rates for when
the asset is in operation, and various alternative
rates (like “cold-stack rates” for leases of drilling
rigs) for periods where the asset is engaged in
specified activities or idle, but still under contract. In
general, variability in lease payments under these
contracts has its basis in different use and activity
levels, and the variable elements have been
determined to relate to non-lease components only.
Consequently, the lease components of these
contractual payments are considered fixed for the
purposes of IFRS 16.
Short-term leases and leases of low-value
assets
The Group applies the short-term lease recognition
exemption to its short-term leases of machinery and
equipment (i.e., those leases that have a lease term
of 12 months or less from the commencement date
and do not contain a purchase option). It also
applies the lease of low-value assets recognition
exemption to leases of office equipment that are
considered of low value (i.e., below US$ 5,000).
Lease payments on short-term leases and leases of
low-value assets are recognised as expense on a
straight-line basis over the lease term.
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Business combinations are accounted for using the
acquisition method. The cost of an acquisition is
measured as the aggregate of the consideration
transferred, measured at acquisition date fair value
and the amount of any non-controlling interest
(“NCI”) in the acquiree. For each business
combination, the Group elects whether to measure
NCI in the acquiree at fair value or at the
proportionate share of the acquiree’s identifiable
net assets. Acquisition related costs are expensed as
incurred and included in administrative expenses.
When the Group acquires a business, it assesses the
assets and liabilities assumed for appropriate
classification and designation in accordance with the
contractual terms, economic circumstances and
pertinent conditions as at the acquisition date. This
includes the separation of embedded derivatives in
host contracts by the acquiree. Those acquired
petroleum reserves and resources that can be
reliably measured are recognised separately in the
assessment of fair values on acquisition. Other
potential reserves, resources and rights, for which
fair values cannot be reliably measured, are not
recognised separately, but instead are included in
goodwill.
Goodwill is initially measured at cost, being the
excess of the aggregate of the consideration
transferred and the amount recognised for NCI over
the fair value of the identifiable net assets acquired
and liabilities assumed. If the fair value of the
identifiable net assets acquired is in excess of the
aggregate consideration transferred (bargain
purchase), before recognising a gain, the Group
reassesses whether it has correctly identified all of
the assets acquired and all of the liabilities assumed
and reviews the procedures used to measure the
amounts to be recognised at the acquisition date. If
the reassessment still results in an excess of the fair
value of net assets acquired over the aggregate
consideration transferred, then the gain is
recognised in the statement of profit or loss and
other comprehensive income.
After initial recognition, goodwill is measured at cost
less any accumulated impairment losses. For the
purpose of impairment testing, goodwill acquired in
a business combination is, from the acquisition date,
allocated to each of the Group’s CGUs that are
expected to benefit from the combination,
irrespective of whether other assets or liabilities of
the acquiree are assigned to those units.
Where goodwill forms part of a Cash Generating
Unit (“CGU”) and part of the operation in that unit is
disposed of, the goodwill associated with the
disposed operation is included in the carrying
amount of the operation when determining the gain
or loss on disposal. Goodwill disposed of in these
circumstances is measured based on the relative
values of the disposed operation and the portion of
the CGU retained.
148 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Consolidated financial statements
Notes to the consolidated financial statements (continued)
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
114499
T
T
a
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Uncertainties exist with respect to the
interpretation of complex tax regulations, changes
in tax laws, and the amount and timing of future
taxable income. Given the wide range of
international business relationships and the long-
term nature and complexity of existing contractual
agreements, differences arising between the actual
results and the assumptions made, or future
changes to such assumptions, could necessitate
future adjustments to tax bases of income and
expense already recorded. The Group establishes
provisions, based on reasonable estimates, for
possible consequences of audits by the tax
authorities of the respective counties in which it
operates. The amount of such provisions is based on
various factors, such as experience of previous tax
audits and differing interpretations of tax
regulations by the Group and the responsible tax
authority. Such differences in interpretation may
arise for a wide variety of issues depending on the
conditions prevailing in the respective domicile of
the Group companies.
Current income tax
Current income tax assets and liabilities 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 apply to the relevant taxable income.
Current income tax relating to items recognised
directly in equity is recognised in equity and not in
the statement of profit or loss. Management
periodically evaluates positions taken in the tax
returns with respect to situations in which
applicable tax regulations are subject to
interpretation and establishes provisions where
appropriate.
Deferred income tax
Deferred tax assets and liabilities are calculated in
respect of temporary differences using the liability
method. Deferred income taxes are provided for all
temporary differences arising between the tax
bases of assets and liabilities and their carrying
values for financial reporting purposes, except
where the deferred income tax arises from the
initial recognition of goodwill or of an asset or
liability in a transaction that is not a business
combination and, at the time of the transaction,
affects neither the accounting profit nor taxable
profit or loss.
A deferred tax asset is recorded only to the extent
that it is probable that taxable profit will be
available against which the deductible temporary
differences can be utilised. Deferred tax assets and
liabilities are measured at tax rates that are
expected to apply to the period when the asset is
realised or the liability is settled, based on tax rates
that have been enacted or substantively enacted at
the reporting date.
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 can be
controlled and it is probable that the temporary
difference will not reverse in the foreseeable future.
Deferred tax assets and deferred tax liabilities are
offset if a legally enforceable right exists to set off
current tax assets against current tax liabilities and
the deferred taxes relate to the same taxable entity
and the same taxation authority.
For more detailed information in current and
deferred income tax disclosure as at 31 December
2021 and 2020, please see Note 28.
Significant accounting judgment: taxation
Kazakhstan’s tax legislation and regulations are
subject to ongoing changes and varying
interpretations. Instances of inconsistent opinions
between local, regional and national tax authorities
are not unusual. Because of the uncertainties
associated with Kazakhstan’s tax system, the
ultimate amount of taxes, penalties and interest, if
any, may be in excess of the amount expensed to
date and accrued at 31 December 2021.
The Group is subject to routine tax audits and also a
process whereby tax computations are discussed
and agreed with the tax authorities. Whilst the
ultimate outcome of such tax audits and discussions
cannot be determined with certainty, management
estimates the level of provisions required for taxes
for which it is considered probable will be payable,
based on professional advice and consideration of
the nature of current discussions with the tax
authority.
As at 31 December 2021 management believes that
its interpretation of the relevant legislation is
appropriate and that it is probable that the Group’s
tax position will be sustained. To the extent that
actual outcomes differ from management’s
estimates, income tax charges or credits, and
changes in current and deferred tax assets or
liabilities, may arise in future periods. For more
information, see Note 28.
F
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The functional currency is the currency of the
primary economic environment in which an entity
operates and is normally the currency in which the
entity primarily generates and expends cash.
The functional currency of the Company is the
United States dollar (the “US dollar” or “US$”). The
functional currencies of the Group’s subsidiaries are
as follows:
Company
Functional
currency
Nostrum Associated Investments LLP
Tenge
Nostrum Oil & Gas Coöperatief U.A.
US dollar
Nostrum Oil & Gas BV
US dollar
Nostrum Oil & Gas Finance BV
US dollar
Nostrum Oil & Gas UK Ltd.
British Pound
Nostrum Services Central Asia LLP
Tenge
Nostrum Services N.V.
Euro
Zhaikmunai LLP
US dollar
Transactions in foreign currencies are initially
recorded by the Group’s subsidiaries at their
respective functional currency spot rates at the date
the transaction first qualifies for recognition.
Monetary assets and liabilities denominated in
foreign currencies are translated at the functional
currency spot rates of exchange at the reporting
date. All differences are taken to the profit or loss.
Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated
using the exchange rates as at the dates of the initial
transactions. Non-monetary items measured at fair
value in a foreign currency are translated using the
exchange rates at the date when the fair value is
determined.
In the consolidated financial statements, the assets
and liabilities of non-US dollar functional currency
subsidiaries are translated into US dollars at the spot
exchange rate on the balance sheet date. The
results and cash flows of non-US dollar functional
currency subsidiaries are translated into US dollars
using average rates of exchange. In the consolidated
financial statements, exchange adjustments arising
when the opening net assets and the profits for the
year retained by non-US dollar functional currency
subsidiaries are translated into US dollars are
reported in the statement of comprehensive
income.
Financial report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 149
Consolidated financial statements continued
Notes to the consolidated financial statements continued
Consolidated financial statements
Notes to the consolidated financial statements (continued)
115500
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
B
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The Group capitalises borrowing costs on qualifying
assets. Assets qualifying for borrowing costs
capitalisation include all assets under construction
that are not being depreciated, depleted, or
amortised, provided that work is in progress at that
time. Qualifying assets mostly include wells and
other operations field infrastructure under
construction. Capitalised borrowing costs are
calculated by applying the capitalisation rate to the
expenditures on qualifying assets. The capitalisation
rate is the weighted average of the borrowing costs
applicable to the Group’s borrowings that are
outstanding during the period. All other borrowing
costs are recognised in the consolidated statement
of comprehensive income in the period in which
they are incurred.
For more detailed information in relation to
capitalisation of borrowing costs, please refer to
Note 5.
A
A
d
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Advances paid for capital investments/acquisition of
non-current assets are qualified as advances for
non-current assets regardless of the period of
supplies of relevant assets or the supply of work or
services to close advances. Advances paid for the
purchase of non-current assets are recognised by
the Group as non-current assets and are not
discounted.
For more detailed information in relation to
advances for non-current assets, please refer to
Note 7.
I
I
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Inventories are stated at the lower of cost or net
realisable value (“NRV”). Cost of oil, gas condensate
and liquefied petroleum gas (“LPG”) is determined
on the weighted-average method based on the
production cost including the relevant expenses on
depreciation, depletion and impairment and
overhead costs based on production volume. Net
realisable value is the estimated selling price in the
ordinary course of business, less selling expenses.
For more information in relation to the breakdown
of inventories as at 31 December 2021 and 2020,
please see Note 8.
O
O
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s
The Group makes accruals for liabilities related to
the underperformance and/or adjustments of work
programs under subsoil use agreements (SUA) on a
regular basis. When evaluating the adequacy of an
accrual, management bases its estimates on the
latest work program included in the SUA, and
relevant signed supplements and potential future
changes in payment terms (including the currency in
which these liabilities are to be settled).
Future changes in the work programs may require
adjustments to the accrual recorded in the
consolidated financial statements.
P
P
r
r
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s
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s
s
a
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s
Provisions are recognised when the Group has a
present obligation (legal or constructive) as a result
of a past event, it is probable that an outflow of
resources embodying economic benefits will be
required to settle the obligation and a reliable
estimate of the amount of the obligation can be
made. Provisions are reviewed by the Group at each
balance sheet date and adjusted to reflect the
current best estimate. If it is no longer probable that
an outflow of resources embodying economic
benefits will be required to settle the obligation, the
provision is reversed.
The Group classifies as contingent liabilities those
possible obligations that arise from past events and
whose existence will be confirmed only by the
occurrence or non-occurrence of one or more
uncertain future events not wholly within the
control of the enterprise and the present obligations
that arise from past events but are not recognised
because it is not probable that an outflow of
resources embodying economic benefits will be
required to settle the obligation or the amount of
the obligation cannot be measured with sufficient
reliability.
The Group does not recognise contingent liabilities
but discloses contingent liabilities in Note 31, unless
the possibility of an outflow of resources embodying
economic benefits is remote.
Significant accounting judgment: provisions and
contingencies
Provisions and liabilities are recognized in the period
when it becomes probable that there will be a
future outflow of funds resulting from past
operations or events and the amount of cash
outflow can be reliably estimated. The timing of
recognition and quantification of the liability require
the application of judgment to existing facts and
circumstances, which can be subject to change. The
carrying amounts of provisions and liabilities are
reviewed regularly and adjusted to take account of
changing facts and circumstances.
Significant management judgment is required to
evaluate any claims and actions to determine
whether a provision relating to a specific litigation
should be recognized or revised, or a contingent
liability is required to be disclosed, since the
outcome of litigation is difficult to predict.
For more detail on provisions and contingencies,
please refer to Note 31.
D
D
e
e
c
c
o
o
m
m
m
m
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s
s
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s
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g
g
Provision for decommissioning is recognised in full,
when the Group has an obligation to dismantle and
remove a facility or an item of plant and to restore
the site on which it is located, and when a
reasonable estimate of that provision can be made.
The Group estimates future dismantlement and site
restoration costs for oil and gas properties with
reference to the estimates provided from either
internal or external engineers after taking into
consideration the anticipated method of
dismantlement and the extent of site restoration
required in accordance with current legislation and
industry practice. The amount of the provision is the
present value of the estimated expenditures
expected to be required to settle the obligation at
current year prices discounted at pre-tax rate that
reflects current market assessment of the time
value of money and the risks specific to liability.
The unwinding of the discount related to the
obligation is recorded in finance costs. A
corresponding amount equivalent to the provision is
also recognised as part of the cost of the related oil
and gas properties. This asset is subsequently
depreciated as part of the capital costs of the oil and
gas properties on a unit-of-production basis.
The Group reviews site restoration provisions at
each financial reporting date and adjusts them to
reflect current best estimates in accordance with
IFRIC 1 Changes in Existing Decommissioning,
Restoration and Similar Liabilities.
Changes in the measurement of an existing
decommissioning liability that result from changes
in the estimated timing or amount of the outflow of
resources embodying economic benefits required to
settle the obligation, or changes to the discount
rate:
• are added to, or deducted from, the cost of the
related asset in the current period. If deducted
from the cost of the asset the amount deducted
shall not exceed its carrying amount. If a
decrease in the provision exceeds the carrying
amount of the asset, the excess is recognised
immediately in the profit or loss; and
• if the adjustment results in an addition to the
cost of an asset, the Group considers whether
this is an indication that the new carrying amount
of the asset may not be fully recoverable. If it is
such an indication, the Group tests the asset for
impairment by estimating its recoverable
amount, and accounts for any impairment loss in
accordance with IAS 36.
Movements in the abandonment and site
restoration provision are disclosed in Note 16.
150 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Consolidated financial statements
Notes to the consolidated financial statements (continued)
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
115511
Significant estimates and assumptions: provisions
and contingencies
The Group holds provision for the future
decommissioning of oil and gas properties and site
restoration. The estimation of the future
dismantlement and site restoration costs involves
use of significant estimates and assumptions by
management, specifically for determining the timing
of the future cash outflows and discount rate.
Management made its estimates based on the
assumption that cash flow will take place at the
expected end of the subsoil use rights. Therefore,
most decommissioning events are many years in the
future and the precise date of wells abandonment
and site restoration may change with the relative
impact on the cash outflows.
Management of the Group believes that the long-
term US Treasury real yield curve rates adjusted for
country risk premium of Kazakhstan provides the
best estimates of applicable real discount rate.
Any changes in the expected future costs are
reflected in both the provision and the asset.
Moreover, actual decommissioning costs can differ
from estimates because of constantly changing
decommissioning technologies as well as changes in
environmental laws and regulations and public
expectations.
As a result, there could be significant adjustments to
the provisions established which would affect future
financial results. For more details on abandonment
and site restoration provision please refer to
Note 16.
F
F
i
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s
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t
s
s
Initial recognition and measurement
Financial assets are classified, at initial recognition,
as subsequently measured at amortised cost, fair
value through other comprehensive income (OCI),
and fair value through profit or loss. The Group
determines the classification of its financial assets at
initial recognition.
The classification of financial assets at initial
recognition depends on the financial asset’s
contractual cash flow characteristics and the
Group’s business model for managing them. With
the exception of trade receivables that do not
contain a significant financing component or for
which the Group has applied the practical
expedient, the Group initially measures a financial
asset at its fair value plus, in the case of a financial
asset not at fair value through profit or loss,
transaction costs. Trade receivables that do not
contain a significant financing component or for
which the Group has applied the practical expedient
are measured at the transaction price determined
under IFRS 15.
In order for a financial asset to be classified and
measured at amortised cost or fair value through
OCI, it needs to give rise to cash flows that are
‘solely payments of principal and interest (SPPI)’ on
the principal amount outstanding. This assessment
is referred to as the SPPI test and is performed at an
instrument level.
The Group’s business model for managing financial
assets refers to how it manages its financial assets in
order to generate cash flows. The business model
determines whether cash flows will result from
collecting contractual cash flows, selling the financial
assets, or both.
Purchases or sales of financial assets that require
delivery of assets within a time frame established by
regulation or convention in the market place
(regular way trades) are recognised on the trade
date, i.e., the date that the Group commits to
purchase or sell the asset.
Subsequent measurement
For purposes of subsequent measurement, financial
assets are classified in four categories:
• Financial assets at amortised cost (debt
instruments);
• Financial assets at fair value through OCI with
recycling of cumulative gains and losses (debt
instruments);
• Financial assets designated at fair value through
OCI with no recycling of cumulative gains and
losses upon derecognition (equity instruments);
• Financial assets at fair value through profit or
loss.
Financial assets at amortised cost (debt
instruments)
This category is the most relevant to the Group. The
Group measures financial assets at amortised cost if
both of the following conditions are met:
• The financial asset is held within a business
model with the objective to hold financial assets
in order to collect contractual cash flows, and
• The contractual terms of the financial asset give
rise on specified dates to cash flows that are
solely payments of principal and interest on the
principal amount outstanding.
Financial assets at amortised cost are subsequently
measured using the effective interest (EIR) method
and are subject to impairment. Gains and losses are
recognised in profit or loss when the asset is
derecognised, modified or impaired.
The Group’s financial assets at amortised cost
include cash, long-term and short-term deposits,
trade and other receivables.
Derecognition
A financial asset (or, where applicable, a part of a
financial asset or part of a group of similar financial
assets) is primarily derecognised (i.e., removed from
the Group’s consolidated statement of financial
position) when:
• The rights to receive cash flows from the asset
have expired; or
• The Group has transferred its rights to receive
cash flows from the asset or has assumed an
obligation to pay the received cash flows in full
without material delay to a third party under a
‘pass-through’ arrangement; and either (a) the
Group has transferred substantially all the risks
and rewards of the asset, or (b) the Group has
neither transferred nor retained substantially all
the risks and rewards of the asset, but has
transferred control of the asset.
When the Group has transferred its rights to receive
cash flows from an asset or has entered into a pass-
through arrangement, it evaluates if, and to what
extent, it has retained the risks and rewards of
ownership. When it has neither transferred nor
retained substantially all of the risks and rewards of
the asset, nor transferred control of the asset, the
Group continues to recognise the transferred asset
to the extent of its continuing involvement. In that
case, the Group also recognises an associated
liability. The transferred asset and the associated
liability are measured on a basis that reflects the
rights and obligations that the Group has retained.
Impairment of financial assets
The Group recognises an allowance for expected
credit losses (ECLs) for all debt instruments not held
at fair value through profit or loss. ECLs are based on
the difference between the contractual cash flows
due in accordance with the contract and all the cash
flows that the Group expects to receive, discounted
at an approximation of the original effective interest
rate. The expected cash flows will include cash flows
from the sale of collateral held or other credit
enhancements that are integral to the contractual
terms.
ECLs are recognised in two stages. For credit
exposures for which there has not been a significant
increase in credit risk since initial recognition, ECLs
are provided for credit losses that result from
default events that are possible within the next 12-
months (a 12-month ECL). For those credit
exposures for which there has been a significant
increase in credit risk since initial recognition, a loss
allowance is required for credit losses expected over
the remaining life of the exposure, irrespective of
the timing of the default (a lifetime ECL).
For trade receivables and contract assets, the Group
applies a simplified approach in calculating ECLs.
Therefore, the Group does not track changes in
credit risk, but instead recognises a loss allowance
based on lifetime ECLs at each reporting date.
Financial report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 151
Consolidated financial statements continued
Notes to the consolidated financial statements continued
Consolidated financial statements
Notes to the consolidated financial statements (continued)
115522
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
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s
Initial recognition, measurement and
derecognition
Financial liabilities are classified, at initial
recognition, as financial liabilities at fair value
through profit or loss, long-term borrowings,
payables, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair
value and, in the case of long-term borrowings and
payables, net of directly attributable transaction
costs.
The Group’s financial liabilities include trade and
other payables, long-term borrowings, and
derivative financial instruments.
Subsequent measurement
For purposes of subsequent measurement, financial
liabilities are classified in two categories:
• Financial liabilities at fair value through profit or
loss
• Financial liabilities at amortised cost (loans and
borrowings)
F
F
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t
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s
s
a
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f
f
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g
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p
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r
l
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Financial liabilities at fair value through profit or loss
include financial liabilities held for trading and
financial liabilities designated upon initial
recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if
they are incurred for the purpose of repurchasing in
the near term. This category also includes derivative
financial instruments entered into by the Group that
are not designated as hedging instruments in hedge
relationships as defined by IFRS 9. Separated
embedded derivatives are also classified as held for
trading unless they are designated as effective
hedging instruments.
Gains or losses on liabilities held for trading are
recognised in the statement of profit or loss.
Financial liabilities designated upon initial
recognition at fair value through profit or loss are
designated at the initial date of recognition, and
only if the criteria in IFRS 9 are satisfied. The Group
has not designated any financial liability as at fair
value through profit or loss.
F
F
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s
s
a
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m
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e
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d
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(
(
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s
)
)
This is the category most relevant to the Group.
After initial recognition, interest-bearing borrowings
are subsequently measured at amortised cost using
the EIR method. Gains and losses are recognised in
profit or loss when the liabilities are derecognised as
well as through the EIR amortisation process.
Amortised cost is calculated by taking into account
any discount or premium on acquisition and fees or
costs that are an integral part of the EIR. The EIR
amortisation is included as finance costs in the
statement of profit or loss.
This category generally applies to interest-bearing
borrowings. For more information, refer to Note 14.
Derecognition
A financial liability is derecognised when the
obligation under the liability is discharged or
cancelled or expires. When an existing financial
liability is replaced by another from the same lender
on substantially different terms, or the terms of an
existing liability are substantially modified, such an
exchange or modification is treated as the
derecognition of the original liability and the
recognition of a new liability. The difference in the
respective carrying amounts is recognised in the
statement of profit or loss.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and
the net amount reported in the statement of
financial position if, and only if, there is a currently
enforceable legal right to offset the recognised
amounts and there is an intention to settle on a net
basis, or to realise the assets and settle the liabilities
simultaneously.
Derivative financial instruments and hedging
The Group from time to time uses hedging contracts
for oil export sales to cover part of its risks
associated with oil price fluctuations. Such
derivative financial instruments are initially
recognised at fair value on the date on which a
derivative contract is entered into and are
subsequently remeasured at fair value.
Derivatives are carried as assets when the fair value
is positive and as liabilities when the fair value is
negative.
Any gains or losses arising from changes in fair value
of derivatives during the year that do not qualify for
hedge accounting are taken directly to profit or loss.
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Cash and cash equivalents in the statement of
financial position comprise cash at banks and at
hand and short-term deposits with an original
maturity of three months or less.
Restricted cash and cash equivalent balances are
those which meet the definition of cash and cash
equivalents but are not available for use by the
Group and therefore is not considered highly liquid
– for example, cash set aside to cover
decommissioning obligations or as required by the
forbearance agreement.
For the purpose of the consolidated statement of
cash flows, cash and cash equivalents consist of cash
and cash equivalents, as defined above, net of
outstanding bank overdrafts.
For more detailed information in relation to cash
and cash equivalents as at 31 December 2021 and
2020, please see Note 11.
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The Group sells crude oil, gas condensate and LPG
under agreements priced by reference to Platt’s
and/or Argus’ index quotations and adjusted for
freight, insurance and quality differentials where
applicable. The Group sells gas under agreements at
fixed prices.
Revenue from contracts with customers is
recognised when control of the goods is transferred
to the customer. For sales of crude oil, gas
condensate and LPG, this generally occurs when the
product is physically transferred into a vessel, pipe,
railcar, trucks or other delivery mechanism; for sales
of gas, it is when the product is physically
transferred into a pipe.
The Group has generally concluded that it is the
principal in its revenue arrangements, because it
typically controls the goods before transferring
them to the customer.
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Own equity instruments that are reacquired
(treasury shares) are recognised at cost and
deducted from equity. No gain or loss is recognised
in profit or loss on the purchase, sale, issue or
cancellation of the Group’s own equity instruments.
Any difference between the carrying amount and
the consideration, if reissued, is recognised in other
reserves. Voting rights related to treasury shares are
nullified for the Group and no distributions are
accepted in relation to them. Share options
exercised during the reporting period can be
satisfied with treasury shares.
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The cost of cash-settled equity-based employee
compensation is measured initially at fair value at
the grant date. This fair value is expensed over the
period until vesting with the recognition of a
corresponding liability. The liability is remeasured at
each reporting date up to and including the
settlement date with changes in fair value
recognised in the statement of comprehensive
income.
The cost of equity-settled transactions is measured
at fair value at the grant date. This fair value is
expensed over the period until vesting with the
recognition of a corresponding equity element,
which is not remeasured subsequently until the
settlement date.
Estimating fair value for share-based payment
transactions requires determination of the most
appropriate valuation model, which is dependent
on the terms and conditions of the grant. This
estimate also requires determination of the most
appropriate inputs to the valuation model including
the expected life of the share option, volatility and
distribution yield and making assumptions about
them.
152 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Consolidated financial statements
Notes to the consolidated financial statements (continued)
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
115533
5. Property, plant and equipment
As at 31 December 2021 and 31 December 2020 property, plant and
equipment comprised the following:
In thousands of US Dollars
31 December
2021
31 December
2020
(restated*)
Oil and gas properties
313,009
291,389
Other property, plant and equipment
7,116
6,371
320,125
297,760
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The category “Oil and gas properties” represents mainly wells, oil and gas
treatment facilities, oil transportation and other related assets. The
movement of oil and gas properties for the years ended 31 December 2021
and 2020 was as follows:
In thousands of US Dollars
Working
assets
Construction
in progress
Total
Balance at 1 January 2020, net
*
594,052
42,996
637,048
Additions
1,822
16,285
18,107
Transfers
57,479
(57,479)
–
Disposals
(144)
–
(144)
Disposals depreciation
127
–
127
Depreciation and depletion charge
(83,761)
–
(83,761)
Accumulated impairment transfers
(61,038)
61,038
–
Impairment charge
(248,563)
(31,425)
(279,988)
Balance at 31 December 2020, net
*
(restated)
259,974
31,415
291,389
Additions
992
7,840
8,832
Transfers
7,664
(6,882)
782
Disposals
(556)
(5,049)
(5,605)
Disposals depreciation
526
–
526
Depreciation and depletion charge
(55,453)
–
(55,453)
Accumulated impairment transfers
(4,221)
4,221
–
Impairment reversal
63,118
9,420
72,538
Balance at 31 December 2021, net
*
272,044
40,965
313,009
As at 1 January 2020
Cost
2,884,519
158,018
3,042,537
Accumulated depreciation
**
(2,290,467)
(115,022)
(2,405,489)
Balance
*
594,052
42,996
637,048
As at 31 December 2020
Cost
2,943,678
116,823
3,060,501
Accumulated depreciation
**
(restated)
(2,683,704)
(85,408)
(2,769,112)
Balance
*
(restated)
259,974
31,415
291,389
As at 31 December 2021
Cost
2,951,778
112,732
3,064,510
Accumulated depreciation
**
(2,679,734)
(71,767)
(2,751,501)
Balance
*
272,044
40,965
313,009
*
Balances, net of accumulated depreciation, depletion and impairment
** Accumulated depreciation, depletion and impairment
The category “Construction in progress” is represented by employee
remuneration, materials and fuel used, rig costs, payments made to
contractors, and asset retirement obligation fees directly associated with
development of wells until the drilling of the well is complete and results have
been evaluated.
The depletion rate for oil and gas working assets was 24.7% and 15.39% in
2021 and 2020, respectively. The Group engaged independent petroleum
engineers to perform a reserves audit as at 31 December 2021. Depletion has
been calculated using the unit of production method based on these reserves
estimates.
The change in the discount rate used to determine the abandonment and site
restoration provision (Note 16) in the year ended 31 December 2021 resulted
in the increase of the oil and gas properties by US$ 112 thousand
(31 December 2020: an increase of US$1,537 thousand).
The Group incurred borrowing costs including amortisation of arrangement
fees. Capitalisation rate and capitalised borrowing costs were as follows as at
31 December 2021 and 31 December 2020:
In thousands of US Dollars
31 December
2021
31 December
2020
Borrowing costs including amortisation of
arrangement fee
103,334
93,182
Capitalisation rate
8.44%
8.44%
Capitalised borrowing costs
219
388
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In thousands of US Dollars
Buildings
Machi-
nery &
equip-
ment
Vehicles
Others
Total
Balance at 1 January 2020*
8,088
1,036
182
3,875
13,181
Additions
8
1,035
–
438
1,481
Transfers
28
(47)
(9)
28
–
Disposals
(270)
(90)
–
(1,470)
(1,830)
Disposals depreciation
374
242
–
746
1,362
Depreciation
(781)
(188)
(24)
(302)
(1,295)
Impairment charge
(3,954)
(851)
(68)
(1,529)
(6,402)
Impairment transfers
–
–
–
(117)
(117)
Impairment reallocation
(2,436)
751
(41)
1,726
–
Translation difference
–
–
–
(9)
(9)
Balance at 31 December 2020*
1,057
1,888
40
3,386
6,371
Additions
–
–
–
457
457
Transfers
21
297
–
(1,100)
(782)
Disposals
(10)
(211)
–
(495)
(716)
Disposals depreciation
8
166
–
208
382
Depreciation
(66)
(49)
(3)
(126)
(244)
Impairment reversal
1,648
–
–
–
1,648
Balance at 31 December 2021*
2,658
2,091
37
2,330
7,116
As at 1 January 2020
Cost
50,589
20,804
1,660
20,297
93,350
Accumulated depreciation**
(42,501)
(19,768)
(1,478)
(16,422)
(80,169)
Balance
8,088
1,036
182
3,875
13,181
As at 31 December 2020
Cost
49,247
21,670
1,591
18,930
91,438
Accumulated depreciation**
(48,190)
(19,782)
(1,551)
(15,544)
(85,067)
Balance
1,057
1,888
40
3,386
6,371
As at 31 December 2021
Cost
49,258
21,756
1,591
17,792
90,397
Accumulated depreciation**
(46,763)
(19,611)
(1,544)
(15,363)
(83,281)
Balance
2,495
2,145
47
2,429
7,116
* Balances, net of accumulated depreciation, amortisation and impairment
** Accumulated depreciation, amortisation and impairment
Financial report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 153
Consolidated financial statements continued
Notes to the consolidated financial statements continued
Consolidated financial statements
Notes to the consolidated financial statements (continued)
115544
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
6. Right-of-use assets
The movement of right-of-use assets for the years ended 31 December
2021 and 2020 was as follows:
In thousands of US Dollars
Machinery &
equipment
Vehicles
Total
Balance at 1 January 2020, net* 3,183 3,692 6,875
Modification of lease agreements
2,371
(1,858)
513
Depreciation
(2,884)
(1,749)
(4,633)
Balance at 31 December 2020, net* 2,670 85 2,755
Modification of lease agreements
(924)
–
(924)
Termination of lease agreements
(256)
–
(256)
Depreciation (1,490) (85) (1,575)
Balance at 31 December 2021, net*
–
–
–
As at 31 December 2020
Cost 2,670 698 3,368
Accumulated depreciation – (613) (613)
Balance*
2,670
85
2,755
As at 31 December 2021
Cost – – –
Accumulated depreciation
–
–
–
Balance*
–
–
–
* Balances, net of accumulated depreciation, depletion and impairment
7. Advances for non-current assets
As at 31 December 2021 and 31 December 2020 advances for non-current
assets comprised the following:
In thousands of US Dollars
31 December
2021
31 December
2020
Advances for other non-current assets
–
8,444
Advances for construction services
1,059
369
Advances for construction materials
359
221
1,418
9,034
The advances for other non-current assets mainly comprised prepayments
made to suppliers of services as part of the development of new
opportunities. Such costs included technical, legal, advisory and other
professional fees and were capitalized in the course of potential acquisition of
assets. During the year ended 31 December 2021 additional expenses in the
amount of US$611 thousand were incurred on such activities. Although the
Group continues to actively pursue these new opportunities, based on the
management assessment it was concluded that it is less than probable that
the Group would recover these costs in the future, hence as of 31 December
2021 the total amount of US$8,605 thousand was written off to profit and
loss in the reporting period, and advances in the amount of US$450 thousand
were impaired.
8. Inventories
As at 31 December 2021 and 31 December 2020 inventories comprised the
following:
In thousands of US Dollars
31 December
2021
31 December
2020
Spare parts and other inventories
26,720
23,735
Gas condensate
4,265
2,907
Crude oil
306
2,018
LPG
57
69
Dry Gas
32
63
Sulphur
7
13
31,387
28,805
As at 31 December 2021 and 31 December 2020 inventories are carried at
cost.
9. Prepayments and other current assets
As at 31 December 2021 and 31 December 2020 prepayments and other
current assets comprised the following:
In thousands of US Dollars
31 December
2021
31 December
2020
VAT receivable
4,882
4,741
Advances paid
2,370
5,269
Other taxes receivable
1,668
1,502
Other
815
791
9,735
12,303
Advances paid consist primarily of prepayments made to service providers. As
at 31 December 2021 the impaired advances paid amounted to US$41
thousand (31 December 2020: nil). In 2020 the advances paid in amount of
US$1,751 thousand were fully written off against the impairment provision
made in 2018.
There were no other movements in the provision for impairment of advances
paid during the years ended 31 December 2021 and 2020.
10. Trade receivables
As at 31 December 2021 and 31 December 2020 trade receivables were not
interest-bearing and were mainly denominated in US dollars and Tenge. Their
average collection period is not more than 120 days.
As at 31 December 2021 and 31 December 2020 there were neither past due
nor impaired trade receivables. Based on the assessments made, the Group
concluded that no provision for expected credit losses should be recognized
as at 31 December 2021 and 31 December 2020.
11. Cash and cash equivalents
In thousands of US Dollars
31 December
2021
31 December
2020
Current accounts in US Dollars
157,981
73,412
Current accounts in Tenge
5,736
2,791
Current accounts in Euro
1,020
1,862
Current accounts in other currencies
500
514
Petty cash
9
4
165,246
78,583
In addition to the cash and cash equivalents in the table above, as at
31 December 2021 the Group had restricted cash accounts as a liquidation
fund deposit of US$47 thousand with Sberbank in Kazakhstan and US$7,719
thousand with Halyk bank (31 December 2020: US$446 thousand and
US$7,267 thousand, respectively), which are kept as required by the subsoil
use rights for abandonment and site restoration liabilities of the Partnership.
During the years ended 31 December 2020 and 2021, the Group transferred
funds to a secured cash account opened for the benefit of the holders of the
Group’s Notes under the terms of the FBAs (Note 1). As at 31 December 2021
the balance of the secured cash account was US$22,672 thousand
(31 December 2020: US$12,900 thousand). The Company has the ability to
make certain withdrawals from the account if its liquidity falls below an
agreed level.
154 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Consolidated financial statements
Notes to the consolidated financial statements (continued)
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
115555
12. Share capital and reserves
As at 31 December 2021 the ownership interests in the Parent consists of
188,182,958 issued and fully paid ordinary shares, which are listed on the
London Stock Exchange. The ordinary shares have a nominal value of GB£
0.01. There were no movements in the number of shares during the years
ended 31 December 2020 and 2021 and comprised of the following:
Number of shares
In circulation
185,234,079
Treasury capital
2,948,879
188,182,958
Treasury shares were issued to support the Group’s obligations to employees
under the Employee Share Option Plan (“ESOP”) and the Long-Term Incentive
Plan (“LTIP”) and are held by Intertrust Employee Benefit Trustee Limited as
trustee for the Nostrum Oil & Gas Benefit Trust. In the case of the ESOP, upon
request from employees to exercise options, the trustee would sell shares on
the market and settle respective obligations under the ESOP. In the case of
share-settled LTIP awards, the trustee would transfer shares to the relevant
LTIP award holder (although no LTIP awards are currently exercisable). The
Nostrum Oil & Gas Benefit Trust constitutes a special purpose entity under
IFRS and therefore, the shares held in the trust are recorded as treasury
capital of the Company.
The movements in the Group’s other reserves is presented as follows:
In thousands of US Dollars
Group
reorgani-
sation
reserve
Foreign
currency
translation
reserves
Share-
option
reserves
Total
As at 1 January 2020
255,459
3,052
4,566
263,077
Currency translation difference
–
253
–
253
Share based payments under LTIP
–
–
(495)
(495)
As at 31 December 2020
255,459
3,305
4,071
262,835
Currency translation difference
–
(203)
–
(203)
Share based payments under LTIP
–
–
(247)
(247)
As at 31 December 2021
255,459
3,102
3,824
262,385
Group reorganisation reserve in the amount of US$255,459 thousand
represents the difference between the partnership capital, treasury capital
and additional paid-in capital of Nostrum Oil & Gas LP and the share capital of
Nostrum Oil & Gas PLC, that arose during the reorganisation of the Group in
2014. Share-option reserves include amounts related to sale of treasury
shares under ESOP as well as share-based payments under LTIP.
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There were no distributions made during the years ended 31 December 2021
and 2020.
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The Kazakhstan Stock Exchange enacted on 11 October 2010 (as amended on
18 April 2014) a requirement for disclosure of “the book value per share”
(total assets less intangible assets, total liabilities and preferred stock divided
by the number of outstanding shares as at the reporting date). As at
31 December 2021 the book value per share amounted to US$4.44 negative
(31 December 2020: US$4.30 negative).
13. Earnings per share
As at 31 December 2021 the ownership interests in the Parent consists of
188,182,958 issued and fully paid ordinary shares, which are listed on the
London Stock Exchange. The ordinary shares have a nominal value of
GB£0.01.
For the year ended 31 December
2021
2020
(restated*)
Loss for the period attributable to the
shareholders (in thousands of US dollars)
(26,118)
(364,359)
Weighted average number of shares
185,234,079
185,234,079
Basic and diluted earnings per share (in US
dollars)
(0.14)
(1.97)
14. Borrowings
Borrowings are comprised of the following as at 31 December 2021 and
31 December 2020
:
:
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31 December
2021
31 December
2020
(restated)
Notes issued in 2017 and maturing in 2022
720,655
713,823
Notes issued in 2018 and maturing in 2025
395,022
393,813
Accrued interest
173,926
78,633
1,289,603
1,186,269
Less amounts due within 12 months
(1,289,603)
(1,186,269)
–
–
2
2
0
0
2
2
2
2
N
N
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On 25 July 2017, a newly incorporated entity, Nostrum Oil & Gas Finance B.V.
(the "2022 Issuer") issued US$725,000 thousand notes (the "2022 Notes").
The 2022 Notes bear interest at a rate of 8.00% per year, payable on
25 January and 25 July of each year.
On and after 25 July 2019, the 2022 Issuer shall be entitled at its option to
redeem all or a portion of the 2022 Notes upon not less than 30 nor more
than 60 days’ notice, at the redemption prices (expressed in percentages of
principal amount of the 2022 Note), plus accrued and unpaid interest on the
2022 Notes, if any, to the applicable redemption date (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date), if redeemed during the twelve-month
period commencing on 25 July of the years set forth below:
Period Red
emption Price
2020
104.0%
2021 and thereafter
100.0%
The 2022 Notes are jointly and severally guaranteed (the "2022 Guarantees")
on a senior basis by Nostrum Oil & Gas PLC, Nostrum Oil & Gas Coöperatief
U.A., Zhaikmunai LLP and Nostrum Oil & Gas B.V. (the "2022 Guarantors").
The 2022 Notes are the 2022 Issuer's and the 2022 Guarantors’ senior
obligations and rank equally with all of the 2022 Issuer's and the 2022
Guarantors’ other senior indebtedness.
The issue of the 2022 Notes was used primarily to fund the refinancing of part
of the Group’s Notes issued in 2012 and 2014.
Financial report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 155
Consolidated financial statements continued
Notes to the consolidated financial statements continued
Consolidated financial statements
Notes to the consolidated financial statements (continued)
115566
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
2
2
0
0
2
2
5
5
N
N
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On 16 February 2018, Nostrum Oil & Gas Finance B.V. (the "2025 Issuer")
issued US$400,000 thousand notes (the "2025 Notes"). The 2025 Notes bear
interest at a rate of 7.00% per year, payable on 16 August and 16 February of
each year.
On and after 16 February 2021, the 2025 Issuer shall be entitled at its option
to redeem all or a portion of the 2025 Notes upon not less than 10 nor more
than 60 days’ notice, at the redemption prices (expressed in percentages of
principal amount of the 2025 Notes), plus accrued and unpaid interest on the
2025 Notes, if any, to the applicable redemption date (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date), if redeemed during the twelve-month
period commencing on 16 February of the years set forth below:
Period
Redemption Price
2021
105.25%
2022
103.50%
2023
101.75%
2024 and thereafter
100.00%
The 2025 Notes are jointly and severally guaranteed (the "2025 Guarantees")
on a senior basis by Nostrum Oil & Gas PLC, Nostrum Oil & Gas Coöperatief
U.A., Zhaikmunai LLP and Nostrum Oil & Gas B.V. (the "2025 Guarantors").
The 2025 Notes are the 2025 Issuer's and the 2025 Guarantors’ senior
obligations and rank equally with all of the 2025 Issuer's and the 2025
Guarantors’ other senior indebtedness.
The issue of the 2025 Notes was used primarily to fund the refinancing of the
remaining Group’s Notes issued in 2012 and 2014.
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On 26 August 2020 the Group announced that an event of default had
occurred under the terms of the indenture governing 2022 Notes resulting
from the Issuer's non-payment of interest due and payable on 25 July 2020 to
the holders of the 2022 Notes and the expiration of the 30-day grace period
which commenced on the same date. Following this, the Issuer also did not
pay interest on 2025 Notes when due and upon the expiration of the 30-day
grace period in respect of such payment. On 23 December 2021, the Group
announced the execution of a lock-up agreement (the "Lock-up Agreement")
and terms of a restructuring agreed with bondholders. More detailed
information related to the forbearance agreement and the lock-up
agreement is disclosed in the Note 1.
Considering these facts and circumstances, as at 31 December 2021 and 2020
the Group classifies the carrying amounts of the 2022 Notes and 2025 Notes
into current liabilities and presents them as the current portion of long-term
borrowings.
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The 2022 and the 2025 Notes contain consistent covenants that, among
other things, restrict, subject to certain exceptions and qualifications, the
ability of the 2022 Issuer, the 2025 Issuer, the 2022 Guarantors, the 2025
Guarantors and certain other members of the Group to:
• incur or guarantee additional indebtedness and issue certain preferred
stock;
• create or incur certain liens;
• make certain payments, including dividends or other distributions;
• prepay or redeem subordinated debt or equity;
• make certain investments;
• create encumbrances or restrictions on the payment of dividends or other
distributions, loans or advances to and on the transfer of assets to the
Parent or any of its restricted subsidiaries;
• sell, lease or transfer certain assets including shares of restricted
subsidiaries;
• engage in certain transactions with affiliates;
• enter into unrelated businesses; and
• consolidate or merge with other entities.
In addition, the indentures impose certain requirements as to future
subsidiary guarantors, and certain customary information covenants and
events of default.
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s
s
In thousands of US Dollars
1 January
Cash
outflows
Borrowing
costs including
amortisation
of
arrangement
fees
Finance
charges
under leases
Modification
and
termination
of leases
Reclassificatio
n from non-
current to
current
Other
31 December
2021
Current portion of long-term borrowings
1,186,269
–
103,334
–
–
–
–
1,289,603
Long-term lease liabilities
35
–
–
–
–
(35)
–
–
Current portion of lease liability
2,790
(1,732)
–
157
(1,250)
35
–
–
2020
Long-term borrowings
1,100,453
–
–
–
–
(1,100,453)
–
–
Current portion of long-term borrowings
35,633
(43,000)
93,183
–
–
1,100,453
–
1,186,269
Long-term lease liabilities
641
–
–
–
–
(606)
–
35
Current portion of lease liability
6,735
(5,418)
–
354
513
606
–
2,790
156 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Consolidated financial statements
Notes to the consolidated financial statements (continued)
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
115577
15. Lease liabilities
In thousands of US Dollars
2021
2020
Lease liability as at 1 January
2,825
7,376
Modification of lease agreements
(955)
513
Termination of lease agreements
(295)
–
Finance charges
157
354
Paid during the period
(1,732)
(5,418)
Lease liability as at 31 December
–
2,825
Less amounts due within 12 months
–
(2,790)
–
35
The lease liabilities are recognised for leases of vehicles, drilling rigs, and railway
cars. The lease was recognised based on the future rentals as determined under
IFRS 16. See Note 6 for right-of-use-assets. Short-term lease expenses are
disclosed in the Note 22.
As of 31 December 2021, there are no lease liabilities to be recognised under
IFRS 16. In 2020, extension of the lease of railway cars has been recognised as
additional right-of-use assets in the amount of US$2,371 thousand and
respective lease liabilities, which was offset by derecognition of right-of-use
assets in the amount of US$1,858 thousand (Note 6) and respective lease
liabilities relating to reduction in the scope of vehicles leases during 2020.
The total cash outflows in respect of the Group’s lease arrangements was
US$1,732 thousand for the year ended 31 December 2021 (2020: US$5,418
thousand).
16. Abandonment and site restoration provision
The summary of changes in abandonment and site restoration provision during
years ended 31 December 2021 and 2020 is as follows:
In thousands of US Dollars
2021 2020
Provision as at 1 January
28,936
27,502
Unwinding of discount
276
158
Additional provision
85
115
Provision disposed
(401)
(376)
Change in estimates
112
1,537
Provision as at 31 December
29,008
28,936
Management made its estimate based on the assumption that cash flow will
take place at the expected end of the subsoil use rights in 2032. There are
uncertainties in estimation of future costs as Kazakh laws and regulations
concerning site restoration evolve.
The real discount rate used to determine the abandonment and site restoration
provision at 31 December 2021 was 0.92% (31 December 2020: 0.98%).
The change in the discount rate during the year ended 31 December 2021
resulted in the increase of the abandonment and site restoration provision by
US$112 thousand (31 December 2020: US$1,537 thousand).
17. Due to Government of Kazakhstan
The amount due to Government of the Republic of Kazakhstan has been
recorded to reflect the present value of a liability in relation to the expenditures
made by the Government in the time period prior to signing the Contract that
were related to exploration of the Contract territory and the construction of
surface facilities in fields discovered therein and that are reimbursable by the
Group to the Government during the production period. The total amount of
liability due to Government as stipulated by the Contract is US$ 25,000
thousand.
Repayment of this liability commenced in 2008 with the first payment of
US$1,030 thousand in March 2008 and with further payments by equal
quarterly instalments of US$258 thousand until 26 May 2031. The liability was
discounted at 13%.
The summary of the changes in the amounts due to Government of Kazakhstan
during the years ended 31 December 2021 and 31 December 2020 is as follows:
In thousands of US Dollars
2021
2020
Balance as at 1 January
5,863
6,101
Unwinding of discount
762
793
Paid during the year
(1,031)
(1,031)
Balance as at 31 December
5,594
5,863
Less: current portion
(1,031)
(1,031)
Non-current portion
4,563
4,832
18. Trade payables
Trade payables comprise the following as at 31 December 2021 and
31 December 2020:
In thousands of US Dollars
31 December
2021
31 December
2020
Tenge denominated trade payables
5,433
4,028
US Dollar denominated trade payables
1,397
2,114
Euro denominated trade payables
464
2,101
Russian Rouble denominated trade payables
122
7
Trade payables denominated in other currencies
983
252
8,399
8,502
19. Other current liabilities
Other current liabilities comprise the following as at 31 December 2021 and
31 December 2020:
In thousands of US Dollars
31 December
2021
31 December
2020
Training obligations accrual
8,684
10,088
Taxes payable, including corporate income tax
6,709
7,397
Other accruals
3,318
3,223
Due to employees
2,479
1,852
Accruals under the subsoil use agreements
–
993
Other current liabilities
686
527
21,876
24,080
Accruals under subsoil use agreements were derecognised upon disposal of the
the Rostoshinskoye field in September 2020 (Note 1).
Financial report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 157
Consolidated financial statements continued
Notes to the consolidated financial statements continued
Consolidated financial statements
Notes to the consolidated financial statements (continued)
115588
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
20. Revenue
For the year ended 31 December
In thousands of US Dollars
2021
2020
Revenue from oil and gas condensate sales
150,290
123,861
Revenue from gas and LPG sales
44,978
52,078
Revenue from sulphur sales
17
–
195,285
175,939
The pricing for all of the Group’s crude oil, condensate and LPG is, directly or
indirectly, related to the price of Brent crude oil. The average Brent crude oil
price the year ended 31 December 2021 was US$71.0/bbl (2020: US$43.2/bbl).
The operations of the Group are located in only one geographic location,
Kazakhstan.
During the year ended 31 December 2021 the revenue from sales to three
major customers amounted to US$143,054 thousand, US$18,207 thousand and
US$8,704 thousand respectively (2020: US$118,861 thousand, US$29,748
thousand and US$7,386 thousand respectively). The Group’s exports are mainly
represented by deliveries to Belarus and the Baltic ports of Russia.
21. Cost of sales
For the year ended 31 December
In thousands of US Dollars
2021
2020
Depreciation, depletion and amortisation
55,569
86,296
Payroll and related taxes
14,603
14,083
Repair, maintenance and other services
6,610
7,717
Materials and supplies
4,561
4,219
Well repair and maintenance costs
2,726
3,360
Transportation services
2,559
1,908
Environmental levies
201
114
Change in stock
403
7,279
Other
617
416
87,849
125,392
Certain reclassifications have been made to the prior year’s disclosure of the
cost of sales to enhance comparability with the current year’s financial
statements, please refer to Note 3 for more detail.
22. General and administrative expenses
For the year ended 31 December
In thousands of US Dollars
2021
2020
Payroll and related taxes
6,123
7,102
Professional services
4,113
4,655
Insurance fees
601 633
Short-term leases
290
567
Business travel
204
128
Communication
182
183
Depreciation and amortisation
170
600
Materials and supplies
144
139
Bank charges
71
95
Other
226
569
12,124
14,671
23. Selling and transportation expenses
For the year ended 31 December
In thousands of US Dollars
2021
2020
Transportation costs
9,545
12,760
Loading and storage costs
6,869
8,813
Marketing services
2,167
3,724
Depreciation of right-of-use assets
1,556
2,881
Payroll and related taxes
1,520
1,501
Other
1,409
1,358
23,066
31,037
24. Taxes other than income tax
For the year ended 31 December
In thousands of US Dollars
2021
2020
Royalties
7,786
7,016
Export customs duty
7,655
5,017
Government profit share
1,628
2,044
Other taxes
14
36
17,083
14,113
Export customs duty is comprised of customs duties for export of crude oil and
customs fees for services such as processing of declarations and temporary
warehousing.
25. Finance costs
For the year ended 31 December
In thousands of US Dollars
2021
2020
Interest expense on borrowings
103,115
92,794
Other finance costs
12,386
7,968
Unwinding of discount on amounts due to
Government of Kazakhstan
762
793
Unwinding of discount on lease liability
157
354
Unwinding of discount on abandonment and site
restoration provision
276
158
116,696
102,067
Other finance costs primarily represent bondholder consent fees in the amount
of US$2,941 thousands and advisor fees of US$9,324 thousand (2020: US$3,761
thousands and US$4,088 thousand, respectively) incurred by the Group in
relation to the forbearance agreements, lock-up agreement and
discussions with its bondholders regarding the restructuring of the
Group’s outstanding bonds. For more details on forbearance agreements,
lock-up agreement and the consent fees see Note 1.
Interest expense on borrowings for the year ended 31 December 2021 includes
interest on defaulted interest related to prior period in the amount of US$1,373
thousand accrued in accordance with the indentures governing 2022 Notes and
2025 Notes.
Consolidated financial statements
Notes to the consolidated financial statements (continued)
115588
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
20. Revenue
For the year ended 31 December
In thousands of US Dollars
2021
2020
Revenue from oil and gas condensate sales
150,290
123,861
Revenue from gas and LPG sales
44,978
52,078
Revenue from sulphur sales
17
–
195,285
175,939
The pricing for all of the Group’s crude oil, condensate and LPG is, directly or
indirectly, related to the price of Brent crude oil. The average Brent crude oil
price the year ended 31 December 2021 was US$71.0/bbl (2020: US$43.2/bbl).
The operations of the Group are located in only one geographic location,
Kazakhstan.
During the year ended 31 December 2021 the revenue from sales to three
major customers amounted to US$143,054 thousand, US$18,207 thousand and
US$8,704 thousand respectively (2020: US$118,861 thousand, US$29,748
thousand and US$7,386 thousand respectively). The Group’s exports are mainly
represented by deliveries to Belarus and the Baltic ports of Russia.
21. Cost of sales
For the year ended 31 December
In thousands of US Dollars
2021
2020
Depreciation, depletion and amortisation
55,569
86,296
Payroll and related taxes
14,603
14,083
Repair, maintenance and other services
6,610
7,717
Materials and supplies
4,561
4,219
Well repair and maintenance costs
2,726
3,360
Transportation services
2,559
1,908
Environmental levies
201
114
Change in stock
403
7,279
Other
617
416
87,849
125,392
Certain reclassifications have been made to the prior year’s disclosure of the
cost of sales to enhance comparability with the current year’s financial
statements, please refer to Note 3 for more detail.
22. General and administrative expenses
For the year ended 31 December
In thousands of US Dollars
2021
2020
Payroll and related taxes
6,123
7,102
Professional services
4,113
4,655
Insurance fees
601
633
Short-term leases
290
567
Business travel
204
128
Communication
182
183
Depreciation and amortisation
170
600
Materials and supplies
144
139
Bank charges
71
95
Other
226
569
12,124
14,671
23. Selling and transportation expenses
For the year ended 31 December
In thousands of US Dollars
2021
2020
Transportation costs
9,545
12,760
Loading and storage costs
6,869
8,813
Marketing services
2,167
3,724
Depreciation of right-of-use assets
1,556
2,881
Payroll and related taxes
1,520
1,501
Other
1,409
1,358
23,066
31,037
24. Taxes other than income tax
For the year ended 31 December
In thousands of US Dollars
2021
2020
Royalties
7,786
7,016
Export customs duty
7,655
5,017
Government profit share
1,628
2,044
Other taxes
14
36
17,083
14,113
Export customs duty is comprised of customs duties for export of crude oil and
customs fees for services such as processing of declarations and temporary
warehousing.
25. Finance costs
For the year ended 31 December
In thousands of US Dollars
2021
2020
Interest expense on borrowings
103,115
92,794
Other finance costs
12,386
7,968
Unwinding of discount on amounts due to
Government of Kazakhstan
762
793
Unwinding of discount on lease liability
157
354
Unwinding of discount on abandonment and site
restoration provision
276
158
116,696
102,067
Other finance costs primarily represent bondholder consent fees in the amount
of US$2,941 thousands and advisor fees of US$9,324 thousand (2020: US$3,761
thousands and US$4,088 thousand, respectively) incurred by the Group in
relation to the forbearance agreements, lock-up agreement and
discussions with its bondholders regarding the restructuring of the
Group’s outstanding bonds. For more details on forbearance agreements,
lock-up agreement and the consent fees see Note 1.
Interest expense on borrowings for the year ended 31 December 2021 includes
interest on defaulted interest related to prior period in the amount of US$1,373
thousand accrued in accordance with the indentures governing 2022 Notes and
2025 Notes.
Consolidated financial statements
Notes to the consolidated financial statements (continued)
115588
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
20. Revenue
For the year ended 31 December
In thousands of US Dollars
2021
2020
Revenue from oil and gas condensate sales
150,290
123,861
Revenue from gas and LPG sales
44,978
52,078
Revenue from sulphur sales
17
–
195,285
175,939
The pricing for all of the Group’s crude oil, condensate and LPG is, directly or
indirectly, related to the price of Brent crude oil. The average Brent crude oil
price the year ended 31 December 2021 was US$71.0/bbl (2020: US$43.2/bbl).
The operations of the Group are located in only one geographic location,
Kazakhstan.
During the year ended 31 December 2021 the revenue from sales to three
major customers amounted to US$143,054 thousand, US$18,207 thousand and
US$8,704 thousand respectively (2020: US$118,861 thousand, US$29,748
thousand and US$7,386 thousand respectively). The Group’s exports are mainly
represented by deliveries to Belarus and the Baltic ports of Russia.
21. Cost of sales
For the year ended 31 December
In thousands of US Dollars
2021
2020
Depreciation, depletion and amortisation
55,569
86,296
Payroll and related taxes
14,603
14,083
Repair, maintenance and other services
6,610
7,717
Materials and supplies
4,561
4,219
Well repair and maintenance costs
2,726
3,360
Transportation services
2,559
1,908
Environmental levies
201
114
Change in stock
403
7,279
Other
617
416
87,849
125,392
Certain reclassifications have been made to the prior year’s disclosure of the
cost of sales to enhance comparability with the current year’s financial
statements, please refer to Note 3 for more detail.
22. General and administrative expenses
For the year ended 31 December
In thousands of US Dollars
2021
2020
Payroll and related taxes
6,123
7,102
Professional services
4,113
4,655
Insurance fees
601
633
Short-term leases
290
567
Business travel
204
128
Communication
182
183
Depreciation and amortisation
170
600
Materials and supplies
144
139
Bank charges
71
95
Other
226
569
12,124
14,671
23. Selling and transportation expenses
For the year ended 31 December
In thousands of US Dollars
2021
2020
Transportation costs
9,545
12,760
Loading and storage costs
6,869
8,813
Marketing services
2,167
3,724
Depreciation of right-of-use assets
1,556
2,881
Payroll and related taxes
1,520
1,501
Other
1,409
1,358
23,066
31,037
24. Taxes other than income tax
For the year ended 31 December
In thousands of US Dollars
2021
2020
Royalties
7,786
7,016
Export customs duty
7,655
5,017
Government profit share
1,628
2,044
Other taxes
14
36
17,083
14,113
Export customs duty is comprised of customs duties for export of crude oil and
customs fees for services such as processing of declarations and temporary
warehousing.
25. Finance costs
For the year ended 31 December
In thousands of US Dollars
2021
2020
Interest expense on borrowings
103,115
92,794
Other finance costs
12,386
7,968
Unwinding of discount on amounts due to
Government of Kazakhstan
762
793
Unwinding of discount on lease liability
157
354
Unwinding of discount on abandonment and site
restoration provision
276
158
116,696
102,067
Other finance costs primarily represent bondholder consent fees in the amount
of US$2,941 thousands and advisor fees of US$9,324 thousand (2020: US$3,761
thousands and US$4,088 thousand, respectively) incurred by the Group in
relation to the forbearance agreements, lock-up agreement and
discussions with its bondholders regarding the restructuring of the
Group’s outstanding bonds. For more details on forbearance agreements,
lock-up agreement and the consent fees see Note 1.
Interest expense on borrowings for the year ended 31 December 2021 includes
interest on defaulted interest related to prior period in the amount of US$1,373
thousand accrued in accordance with the indentures governing 2022 Notes and
2025 Notes.
158 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Consolidated financial statements
Notes to the consolidated financial statements (continued)
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
115599
26. Employees’ remuneration
The average monthly number of employees (including Executive Directors)
employed was as follows:
For the year ended 31 December
2021
2020
Management and administrative
136
162
Technical and operational
405
439
541
601
Their aggregate remuneration comprised:
For the year ended 31 December
In thousands of US Dollars
2021
2020
Wages and salaries
18,740
19,398
Social security costs
3,749
3,791
Share-based payments
(247)
(496)
22,242
22,693
Part of the Group’s staff costs shown above is capitalised into the cost of
intangible and tangible oil and gas assets under the Group’s accounting policy
for exploration, evaluation and oil and gas assets.
The amount ultimately remaining in the income statement was US$22,185
thousand (2020: US$22,106 thousand).
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m
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a
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u
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a
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t
i
i
o
o
n
n
For the year ended 31 December
In thousands of US Dollars
2021
2020
Short-term employee benefits
4,042
4,314
Share-based payments
–
(131)
4,042
4,183
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a
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t
i
i
o
o
n
n
For the year ended 31 December
In thousands of US Dollars
2021
2020
Short-term employees benefits
1,877
2,657
Share-based payments
–
(228)
1,877
2,429
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S
O
O
P
P
)
)
The Group’s Phantom Option Plan was adopted by the board of directors of the
Company on 20 June 2014 to allow for the continuation of the option plan
previously maintained by Nostrum Oil & Gas LP. The rights and obligations in
relation to this option plan were transferred to Nostrum Oil & Gas PLC from
Nostrum Oil & Gas LP following the reorganisation.
Employees (including senior executives and executive directors) of members of
the Group or their associates received remuneration in the form of equity-
based payment transactions, whereby employees render services as
consideration for share appreciation rights, which can only be settled in cash
(“cash-settled transactions”).
2
2
0
0
1
1
7
7
L
L
o
o
n
n
g
g
-
-
t
t
e
e
r
r
m
m
i
i
n
n
c
c
e
e
n
n
t
t
i
i
v
v
e
e
p
p
l
l
a
a
n
n
In 2017 the Group started operating a Long-term incentive plan (“the LTIP”),
that was approved by the shareholders of the Company on 26 June 2017 and
adopted by the board of directors of the Company on 24 August 2017. The LTIP
is a discretionary benefit offered by the Company for the benefit of selected
employees. Its main purpose is to increase the interest of the employees in the
Company's long-term business goals and performance through share
ownership. The LTIP is an incentive for the employees' future performance and
commitment to the goals of the Company. The remuneration committee of the
board of the Company has the right to decide, in its sole discretion, whether or
not further awards will be granted in the future and to which employees those
awards will be granted.
Employees (including senior executives and executive directors) of members of
the Group or their associates may receive an award, which is a "nominal cost
option" over a specified number of ordinary shares in the capital of the
Company. The option has an exercise price of 1p per share (but the Company
has the discretion to waive this prior to exercise). In addition, under the Rules of
the LTIP the Company has discretion to settle awards other than by transfer of
shares such as by way of cash settlement. Generally, the awards are classified as
equity-settled transactions. The share options are treated as equity-settled
since there are no legal limitations expected on issue of shares for these upon
vesting, the Group has a choice of settlement and the intention is to settle them
in equity. However, in certain jurisdictions due to regulatory requirements the
Company may not be able to settle the awards other than by transfer of cash, in
which case the awards are classified as cash-settled transactions, and accounted
for similar to SARs.For more details please see Note 27 to the Groups’
consolidated financial statements for the year ended 31 December 2020.
27. Other income and expenses
For the years ended 31 December 2021 and 2020 other income comprised the
following:
For the year ended 31 December
In thousands of US Dollars
2021
2020
Compensation for damages
1,549
12
Reversals of training accruals
1,490
950
Reversals of other accruals
1,244
1,473
Disposal of exploration assets
749
784
Insurance compensation
162
116
Currency conversion
78
169
Refunds of taxes paid in previous periods
–
433
Goods received free of charge
–
426
Other
614
394
5,886 4,757
Other expenses comprised the following:
For the year ended 31 December
In thousands of US Dollars
2021
2020
Write-off of new development costs (Note 7)
9,055
–
Other taxes and penalties
2,613
3,820
Training
505
890
Social program
312
337
Currency conversion
135
223
Loss on disposal of property, plant and equipment
58
812
Loss on disposal of inventories
–
392
Compensation
–
140
Accruals under subsoil use agreements
–
114
Business development
–
70
Sponsorship
26
–
Other
514
808
13,218 7,606
Other taxes and penalties mainly include additional taxes and penalties
assessed in relation to prior periods considering new information, which was
not available at the time of preparation of respective financial information, and
relevant interpretations by the management.
Financial report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 159
Consolidated financial statements continued
Notes to the consolidated financial statements continued
Consolidated financial statements
Notes to the consolidated financial statements (continued)
116600
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
28. Income tax
The income tax expense comprised the following:
For the year ended 31 December
In thousands of US Dollars
2021
2020
Deferred income tax expense
30,279
(67,423)
Adjustment in respect of the deferred income tax
for the prior periods
–
28,429
Corporate income tax expense
751
755
Withholding tax
58
1,146
Adjustment in respect of the current income tax
for the prior periods
632
(385)
31,720
(37,478)
The Group’s profits are assessed for income taxes mainly in the Republic of
Kazakhstan. A reconciliation between tax expense and the product of
accounting profit multiplied by the Kazakhstani tax rate applicable to the
Chinarevskoye subsoil use rights is as follows:
For the year ended 31 December
In thousands of US Dollars
2021
2020
Profit/ (loss) before income tax
5,602
(401,837)
Tax rate applicable to the subsoil use rights
30%
30%
Expected tax provision
1,681
(120,551)
Effect of exchange rate on the tax base
2,630
15,653
Adjustments in respect of current income tax of previous
years
632
(384)
Effect of loss / (income) taxed at different rate¹
1,529
(128)
Non-deductible interest expense on borrowings
24,782
27,798
Recognition of previously unrecognised deferred tax
(1,312)
–
Deferred tax asset not recognised
–
9,339
Non-deductible taxes and penalties
784
932
Adjustments to tax base balances brought forward
–
28,429
Net foreign exchange gain
95
491
Reversal of training provisions
(296)
–
Non-deductible cost of technological loss
–
133
Non-deductible loss on disposal of PPE
(225)
167
Non-deductible marketing expenses
651
–
Non-deductible unwinding of discount
311
–
Other non-deductible expenses
458
643
Income tax benefit reported in the
consolidated financial statements
31,720 (37,478)
1
Jurisdictions which contribute significantly to this item are Republic of Kazakhstan with an applicable
statutory tax rate of 20% (for activities not related to the Contract), and the Netherlands with an applicable
statutory tax rate of 25%.
Certain revisions to previous period tax assessments were made considering
new information, which was not available at the time of preparation of
respective financial information, and relevant interpretations by the
management. While there were not adjustments to income taxes of previous
periods resulting from such revisions, the tax base of property, plant and
equipment has been adjusted to reflect the changes, which are reflected above
as adjustments to tax base balances brought forward.
The Group’s effective tax rate for the year ended 31 December 2021 is 566.2%
(2020: 9.3%). The Group’s effective tax rate, excluding effect of movements in
exchange rates and non-deductible interest expense on borrowings, for the
year ended 31 December 2021 is 76.9% (2020: 20.1%).
As at 31 December 2021 the Group has tax losses of US$113,371 thousand
(2020: US$105,432 thousand) that are available to offset against future taxable
profits in the companies in which the losses arose within 9 years after
generation and will expire in the period 2023-2029. On 21 May 2021, a Royal
Decree was issued in the Netherlands, which dictates that the tax losses can
now be carried forward indefinitely from 1 January 2022, subject to annual limit
on carry back loss utilization. Deferred tax assets have not been recognised in
respect of these losses as they may not be used to offset taxable profits
elsewhere in the Group.
Deferred tax liability is calculated by applying the Kazakhstani statutory tax rate
applicable to the Chinarevskoye subsoil use rights to the temporary differences
between the tax amounts and the amounts reported in the consolidated
financial statements and are comprised of the following:
In thousands of US Dollars
31 December
2021
31 December
2020
Deferred tax asset
Accounts payable and provisions
4,189
3,011
Deferred tax liability
Property, plant and equipment
(33,630)
–
Inventories
(3,183)
(3,011)
Long-term borrowings
(1,448)
(3,793)
Net deferred tax liability
(34,072)
(3,793)
The movements in the deferred tax liability were as follows:
In thousands of US Dollars
2021
2020
Balance as at 1 January
3,793
42,787
Current period charge to statement of
comprehensive income
30,279 (38,994)
Balance as at 31 December
34,072
3,793
29. Related party transactions
For the purpose of these consolidated financial statements transactions with
related parties mainly comprise transactions between subsidiaries of the
Company and the shareholders and/or their subsidiaries or associated
companies.
Accounts payable to related parties represented by entities controlled by
shareholders with significant influence over the Group as at 31 December 2021
and 31 December 2020 consisted of the following:
In thousands of US Dollars
31 December
2021
31 December
2020
Trade payables
JSC OGCC KazStroyService
227
230
On 28 July 2014 the Group entered into a contract with JSC “OGCC
KazStroyService” (the “Contractor”) for the construction of the third unit of the
Group’s gas treatment facility (as amended by fourteen supplemental
agreements since 28 July 2014). The Contractor is an affiliate of Mayfair
Investments B.V., which as at 31 December 2021 owned approximately 8.56%
of the ordinary shares of Nostrum Oil & Gas PLC.
Remuneration (represented by short-term employee benefits) of key
management personnel amounted to US$4,042 thousand for the year ended
31 December 2021 (2020 (restated – refer Note 3): US$4,314 thousand,
including US$666 thousand paid to the spouse of the executive directors). There
was no compensation to close members of the families of the key management
personnel for the year ended 31 December 2021.
160 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Consolidated financial statements
Notes to the consolidated financial statements (continued)
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
116611
30. Audit and non-audit fees
During the years ended 31 December 2021 and 2020 audit and non-audit fees
comprise the following:
For the year ended 31 December
In thousands of US Dollars
2021
2020
Audit of the financial statements
1,009
1,076
Total audit services
1,009
1,076
Audit-related assurance services
–
–
Services relating to corporate finance
transactions
239
–
Other non-audit services
–
–
Total non-audit services
239
–
1,248
1,076
The audit fees for the year ended 31 December 2021 in the table above include
the audit fees of US$10 thousand in relation to the Parent (2020: US$10
thousand).
The audit fees for the year ended 31 December 2021 include fees related to the
audit of the 2020 financial statements in the amount of US$92 thousand
(2020: US$221 thousand related to audit of 2019 financial statements).
31. Contingent liabilities and commitments
T
T
a
a
x
x
a
a
t
t
i
i
o
o
n
n
Kazakhstan’s tax legislation and regulations are subject to ongoing changes and
varying interpretations. Instances of inconsistent opinions between local,
regional and national tax authorities are not unusual. The current regime of
penalties and interest related to reported and discovered violations of
Kazakhstan’s tax laws are severe and where the tax authorities disagree with
the positions taken by the Group the financial outcomes could be material.
Administrative fines are generally 80% of the taxes additionally assessed and
interest penalty is assessed at the refinancing rate established by the National
Bank of Kazakhstan multiplied by 1.25. As a result, penalties and interest can
amount to multiples of any assessed taxes. Fiscal periods remain open to review
by tax authorities for five calendar years preceding the year of review. Under
certain circumstances reviews may cover longer periods. Because of the
uncertainties associated with Kazakhstan’s tax system, the ultimate amount of
taxes, penalties and interest, if any, may be in excess of the amount expensed
to date and accrued at 31 December 2021. As at 31 December 2021
management believes that its interpretation of the relevant legislation is
appropriate and that it is probable that the Group’s tax position will be
sustained.
A
A
b
b
a
a
n
n
d
d
o
o
n
n
m
m
e
e
n
n
t
t
a
a
n
n
d
d
s
s
i
i
t
t
e
e
r
r
e
e
s
s
t
t
o
o
r
r
a
a
t
t
i
i
o
o
n
n
(
(
d
d
e
e
c
c
o
o
m
m
m
m
i
i
s
s
s
s
i
i
o
o
n
n
i
i
n
n
g
g
)
)
As Kazakh laws and regulations concerning site restoration and clean-up evolve,
the Group may incur future costs, the amount of which is currently
indeterminable. Such costs, when known, will be provided for as new
information, legislation and estimates evolve.
E
E
n
n
v
v
i
i
r
r
o
o
n
n
m
m
e
e
n
n
t
t
a
a
l
l
o
o
b
b
l
l
i
i
g
g
a
a
t
t
i
i
o
o
n
n
s
s
The Group may also be subject to loss contingencies relating to regional
environmental claims that may arise from the past operations of the related
fields in which it operates. Kazakhstan’s environmental legislation and
regulations are subject to ongoing changes and varying interpretations. As
Kazakh laws and regulations evolve concerning environmental assessments and
site restoration, the Group may incur future costs, the amount of which is
currently indeterminable due to such factors as the ultimate determination of
responsible parties associated with these costs and the Government’s
assessment of respective parties’ ability to pay for the costs related to
environmental reclamation.
However, depending on any unfavourable court decisions with respect to any
claims or penalties assessed by the Kazakh regulatory agencies, it is possible
that the Group’s future results of operations or cash flow could be materially
affected in a particular period.
C
C
a
a
p
p
i
i
t
t
a
a
l
l
c
c
o
o
m
m
m
m
i
i
t
t
m
m
e
e
n
n
t
t
s
s
As at 31 December 2021, the Group had contractual capital commitments in the
amount of 10,029 thousand (31 December 2020: US$6,167 thousand), mainly in
respect to the Group’s oil field development activities.
S
S
o
o
c
c
i
i
a
a
l
l
a
a
n
n
d
d
e
e
d
d
u
u
c
c
a
a
t
t
i
i
o
o
n
n
c
c
o
o
m
m
m
m
i
i
t
t
m
m
e
e
n
n
t
t
s
s
As required by the Contract (after its amendment on 2 September 2019), the
Group is obliged to:
• spend US$ 300 thousand per annum to finance social infrastructure;
• make an accrual of one percent per annum of the actual investments for the
Chinarevskoye field for the purposes of educating Kazakh citizens; and
• adhere to a spending schedule on education which lasts until (and including)
2020.
The Darjinskoye and Yuzhno-Gremyachinskoye fields were disposed in October
2020 and the Rostoshinskoye field was disposed in September 2021 (see Note
1). All outstanding obligations under these licences were transferred to the
purchaser.
D
D
o
o
m
m
e
e
s
s
t
t
i
i
c
c
o
o
i
i
l
l
s
s
a
a
l
l
e
e
s
s
In accordance with Supplement # 7 to the Contract, Zhaikmunai LLP is required
to deliver at least 15% of produced oil to the domestic market on a monthly
basis for which prices are materially lower than export prices.
32. Financial risk management objectives and policies
The Group’s principal financial liabilities comprise borrowings, payables to the
Government of Kazakhstan, trade payables and other current liabilities. The
main purpose of these financial liabilities is to finance the Group’s operations.
The Group's financial assets consist of trade and other receivables and cash and
cash equivalents that derive directly from its operations.
The Group is exposed to commodity price risk, foreign currency risk, liquidity
risk and credit risk. The Group’s senior management oversees the management
of these risks. The Group’s senior management ensures that the Group’s
financial risk activities are governed by appropriate policies and procedures and
that financial risks are identified, measured and managed in accordance with
the Group’s policies and risk objectives. The Board of Directors reviews and
agrees policies for managing each of these risks, which are summarised below.
C
C
l
l
i
i
m
m
a
a
t
t
e
e
c
c
h
h
a
a
n
n
g
g
e
e
Management has considered how the Group’s identified climate risks and
climate related goals (as discussed in Climate Change and GHG Emissions in the
Group’s 2021 Annual Report) may impact the estimation of the recoverable
value of cash-generating unit tested for impairment. The anticipated extent and
nature of the future impact of climate on the Group’s operations and future
investment depends on the development of new technologies and production
processes employed and the level of emissions, energy efficiency and use of
renewable energy. The sensitivity of the Group’s impairment assessment to
these factors is also impacted by the extent that estimated recoverable value
exceeds the carrying value of an individual cash-generating unit – where this is
lower there is an increased risk of a future impact. The Group is in the process
of identifying a range of actions and initiatives to progress towards the Group’s
goals, including reduction of greenhouse gas emissions, wastewater discharges
and increase of waste utilisation. In certain cases, the costs of such actions have
been quantified and are included in the Group’s forecasts which are used to
estimate recoverable value for the Group’s cash-generating unit. Other actions
and initiatives continue to be explored by the Group but are not sufficiently
certain to be reflected in the Group’s forecasts of estimated recoverable value.
Financial report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 161
Consolidated financial statements continued
Notes to the consolidated financial statements continued
Consolidated financial statements
Notes to the consolidated financial statements (continued)
116622
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
C
C
o
o
m
m
m
m
o
o
d
d
i
i
t
t
y
y
p
p
r
r
i
i
c
c
e
e
r
r
i
i
s
s
k
k
The Group is exposed to the effect of fluctuations in price of crude oil, which is
quoted in US dollar on the international markets. The Group prepares annual
budgets and periodic forecasts including sensitivity analyses in respect of
various levels of crude oil prices in the future.
I
I
n
n
t
t
e
e
r
r
e
e
s
s
t
t
r
r
a
a
t
t
e
e
r
r
i
i
s
s
k
k
The Group is not exposed to interest rate risk in 2021 and 2020 as the Group
had no financial instruments with floating rates as at years ended 31 December
2021 and 2020.
F
F
o
o
r
r
e
e
i
i
g
g
n
n
c
c
u
u
r
r
r
r
e
e
n
n
c
c
y
y
r
r
i
i
s
s
k
k
As a significant portion of the Group’s operation is Tenge denominated, the
Group’s statement of financial position can be affected by movements in the
US dollar / Tenge exchange rates. The Group mitigates the effect of its structural
currency exposure by borrowing in US dollars and denominating sales in
US dollars.
The following table demonstrates the sensitivity to a reasonably possible
change in the US dollar exchange rate, with all other variables held constant. A
devaluation of Tenge against US dollar by 13% would lead to decrease in the net
Tenge liability position by US$1,085 thousand as of 31 December 2021 and
respective reduction of the loss before income tax for the year ended
31 December 2021. The impact on equity is the same as the impact on profit
before tax.
Change in Tenge to US
dollar exchange rate
Effect on profit before tax (In
thousands of US Dollars)
2021
13%
1,085
-10%
(1,048)
2020
14%
1,633
-11%
(1,644)
The Group’s foreign currency denominated monetary assets and liabilities were
as follows:
In thousands of US Dollars
Tenge
Russian
Roubles
Euro
Other
Total
As at 31 December 2021
Cash and cash equivalents
5,745
–
1,020
500
7,265
Trade receivables
1,531
–
–
–
1,531
Trade payables
(5,433)
(122)
(464)
(983)
(7,002)
Other current liabilities
(11,273)
–
(299)
(105)
(11,677)
(9,430)
(122)
257
(588)
(9,883)
As at 31 December 2020
Cash and cash equivalents
2,791
95
1,862
423
5,171
Trade receivables
877
–
–
–
877
Trade payables
(4,028)
(7)
(2,101)
(207)
(6,343)
Other current liabilities
(12,940)
–
(299)
(105)
(13,344)
(13,300)
88
(538)
111
(13,639)
L
L
i
i
q
q
u
u
i
i
d
d
i
i
t
t
y
y
r
r
i
i
s
s
k
k
Liquidity risk is the risk that the Group will encounter difficulty in raising funds to
meet commitments associated with its financial liabilities. The Group monitors
its risk to a shortage of funds using a liquidity planning tool. The tool allows
selecting severe stress test scenarios. To ensure an adequate level of liquidity a
minimum cash balance has been defined as a cushion of liquid assets. The
Group’s objective is to maintain a balance between continuity of funding and
flexibility through the use of notes, export financing and leases.
The Group’s total outstanding debt consists of two notes: US$725 million issued
in 2017 and maturing in 2022 and US$400 million issued in 2018 and maturing
in 2025. Based on the assessments and other matters considered by the Board
during the year, on the assumption that the Notes are successfully restructured,
the Directors confirm that they have a reasonable expectation that the Group
will continue in operation and meet its restructured liabilities as they fall due
through the three-year viability assessment period ending 31 December 2024.
Nevertheless, as highlighted in the Viability assessment, the material
uncertainties referred to in respect of the Going Concern assessment may cast
significant doubt over the future viability of the Group. For more information on
analysis of the Group’s ability to meet its liabilities on repayment of the Notes
please see “Viability statement” section on the Annual report on pages 67-69.
The table below summarizes the maturity profile of the Group's financial
liabilities at 31 December 2021 and 31 December 2020 based on contractual
undiscounted payments:
In thousands of US
Dollars
On
demand
Less
than 3
months
3-12
months
1-5
years
More
than 5
years
Total
As at 31 December 2021
Borrowings
1,298,926
43,000
43,000
–
–
1,384,926
Trade payables
7,853
–
546
–
–
8,399
Other current liabilities
14,636
–
–
–
–
14,636
Due to Government of
Kazakhstan
–
258
773
4,124
4,381
9,536
1,321,415
43,258
44,319
4,124
4,381
1,417,497
As at 31 December 2020
Borrowings
1,203,633
43,000
43,000
–
–
1,289,633
Lease liabilities
–
760
2,279
40
–
3,079
Trade payables
7,774
–
728
–
–
8,502
Other current liabilities
16,491
–
–
–
–
16,491
Due to Government of
Kazakhstan
–
258
773
4,124
5,412
10,567
1,227,898
44,018
46,780
4,164
5,412
1,328,272
C
C
r
r
e
e
d
d
i
i
t
t
r
r
i
i
s
s
k
k
Credit risk is the risk that a counterparty will not meet its obligations under a
financial instrument or customer contract, leading to a financial loss. The Group
is exposed to credit risk from its operating activities (primarily trade receivables)
and from its financing activities, including deposits with banks and financial
institutions and foreign exchange transactions.
The Group places its cash and deposits primarily with Citibank, N.A., ING Bank
N.V. and Halyk bank JSC with most recent credit ratings from Moody's rating
agency of Aa3 (Stable), Aa3 (Stable), and Ba1 (Stable), respectively.
The Group sells its products and makes advance payments only to recognised,
creditworthy third parties. In addition, receivable balances are monitored on an
ongoing basis with the result that the Group’s exposure to bad debts and
recoverability of prepayments made is not significant and thus risk of credit
default is low. Also, the Group’s policy is to mitigate the payment risk on its off-
takers by requiring all purchases to be prepaid or secured by a letter of credit
from an international bank.
An impairment analysis is performed at each reporting date on an individual
basis for major clients. The maximum exposure to credit risk at the reporting
date is the carrying value of each class of financial assets. The Group does not
hold collateral as security. The Group evaluates the concentration of risk with
respect to trade receivables as low, as its customers are located in several
jurisdictions and industries and operate in largely independent markets.
162 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Consolidated financial statements
Notes to the consolidated financial statements (continued)
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
116633
F
F
a
a
i
i
r
r
v
v
a
a
l
l
u
u
e
e
s
s
o
o
f
f
f
f
i
i
n
n
a
a
n
n
c
c
i
i
a
a
l
l
i
i
n
n
s
s
t
t
r
r
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u
m
m
e
e
n
n
t
t
s
s
Set out below, is a comparison by class of the carrying amounts and fair value of
the Group’s financial instruments, other than those with carrying amounts
reasonably approximating their fair values:
Management assessed that cash and cash equivalents, trade receivables, trade
payables and other current liabilities approximate their carrying amounts largely
due to the short-term maturities of these instruments.
The table below presents carrying amounts and fair values of financial liabilities
measured at amortised cost:
Carrying amount
Fair value
In thousands of US
Dollars
31 December
2021
31 December
2020
31 December
2021
31 December
2020
Interest bearing
borrowings
1,289,603
1,186,269
303,375
270,000
Total
1,289,603
1,186,269
303,375
270,000
The fair value of the financial assets and liabilities represents the amount at
which the instruments could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale. Fair value of the quoted
notes is based on price quotations at the reporting date and respectively
categorised as Level 1 within the fair value hierarchy.
During the years ended 31 December 2021 and 2020 there were no transfers
between the levels of fair value hierarchy of the Group’s financial instruments.
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For the purpose of the Group’s capital management, capital includes issued
capital, additional paid-in capital and all other equity reserves attributable to
the equity holders of the parent. The primary objective of the Group’s capital
management is to maximise the shareholder value.
Since the engagement with the AHG in discussions on potential restructuring of
the Notes and signing of the FBAs in 2020 (see Note 1), the Group’s focus was
on maintaining short-term liquidity and preserving cash. Successful cost
optimisation programme, favourable hydrocarbon pricing and forbearance of
making interest payments during 2020 and 2021 enabled the Group to grow its
unrestricted cash balances to the level of US$165,246 thousand as at
31 December 2021. After successful implementation of the restructuring, the
Group intends to revise and evolve its capital management policy in line with
new requirements and shareholder expectations.
33. Events after the reporting period
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On 18 January 2022, the Group announced that following the original accession
period, holders of approximately 76.29% of the 2022 Notes and 80.35% of the
2025 Notes had signed or acceded to the Lock-up Agreement, which comprises
approximately 77.73% of the total aggregate principal amount of both series of
Notes.
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As part of the restructuring implementation plan, on 7 February 2022, the
Group announced receipt of required consents in respect of solicitation and
provided an update on Lock-Up Agreement Accessions relating to the 2022
Notes and 2025 Notes.
The Group solicited consents to the Proposed Amendments in order to facilitate
the implementation of a scheme of arrangement or a restructuring plan by
helping to establish a sufficient connection with England, such that the High
Court of England and Wales will accept jurisdiction with respect to the scheme
of arrangement or the restructuring plan. Holders were not offered a consent
payment to vote in favour of the Proposed Amendments. Holders of 87.081% in
aggregate principal amount of the 2022 Notes and Holders of 91.222% in
aggregate principal amount of the 2025 Notes have provided consents. Holders
can no longer revoke their consents.
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On 13 April 2022, the Company issued a Circular and gave notice convening a
General Meeting of its shareholders on 29 April 2022, at which shareholders
voted on the terms of the restructuring (the “Restructuring Resolution”). The
Circular and General Meeting also included a resolution to vote in favour of the
Related Party Transactions with ICU in respect of new ordinary shares being
issued to ICU pursuant to the restructuring – only independent shareholders
(excluding ICU) are required to vote on this specific resolution (the “RPT
Resolution”).
At the General Meeting, 99.99% voted for the implementation of the
restructuring which means the restructuring will proceed under a UK scheme of
arrangement under Part 26 of the Companies Act 2006. Further, 99.89% voted
in favour of the RPT Resolution, allowing ICU as a related party to receive the
issuance of new securities under the scheme.
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The recent Russia-Ukraine conflict has led to widespread sanctions being
imposed on various Russian institutions and individuals. Bodies and nations
imposing sanctions today include the US, UK and EU and these sanctions have
been sequentially expanding. Given the geographical position of the Group’s
main operating company, it is very close to the evolving situation in Ukraine.
Whilst Kazakhstan is not directly involved in the ongoing conflict, nor have any
Western sanctions impacted upon on it, the country is connected to Russia
through infrastructure, banking, and other business links. Nostrum currently
sends approximately 40% of its products through Russia via Russian transport
infrastructure and ports. Furthermore, the Group contracts with a limited
number of Russian service companies. The Group will need to be cognisant of
the current and evolving sanctions list to ensure it is conducting business in
compliance with these sanctions and, if it is foreseen that it will not be, the
necessary alternatives will need to be set up to be compliant whilst continuing
to conduct ordinary course of business.
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In January 2022, following a rise in fuel prices, certain mass demonstrations and
gatherings occurred in various cities across Kazakhstan that culminated in
significant loss of life, arrests and property damage and resulted in a state of
emergency being declared and military units from surrounding former CIS
countries being called in to assist the local security forces. During this period no
Group employees were harmed, and the Group experienced no disruptions to
its operations in the field or at the head office.
End of Document
Financial report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 163
Parent company financial statements
Contents
165 Parent company statement of financial position
166 Parent company statement of cash flows
167 Parent company statement of changes in equity
168 Notes to the parent company financial statements
168 1. General
169 2. Basis of preparation
170 3. Changes in accounting policies and disclosures
172 4. Summary of significant accounting policies
174 5. Investments in subsidiaries
174 6. Receivables from related parties
175 7. Cash and Cash Equivalents
175 8. Shareholders’ equity
175 9. Financial guarantees
175 10. Payables to related parties
176 11. Auditors’ remuneration
176 12. Employee’s remuneration
176 13. Related party transactions
177 14. Financial risk management objectives and policies
178 15. Events after the reporting period
164 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Parent company statement of financial position
Parent company financial statements
The accounting policies and explanatory notes on pages 168 through 178 are an integral part of these financial statements
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
116655
Parent company statement of financial position
In thousands of US Dollars
Notes
31 December
2021
31 December
2020
(restated*)
Assets
Non-current assets
Property, plant and equipment
2
20
2
20
Current assets
Prepayments and other current assets
489
287
Receivables from related parties
6
1,000
1,109
Cash and cash equivalents
7
549
615
2,038
2,011
TOTAL ASSETS
2,040
2,031
Equity and liabilities
Share capital and reserves
Share capital
8
3,203
3,203
Retained deficit and reserves
(812,101)
(834,199)
(808,898)
(830,996)
Current liabilities
Current portion of financial guarantees
9
809,812
831,767
Employee share option plan liability
–
3
Payables to related parties
10
476
568
Trade payables
480
444
Income tax payable
61
135
Other current liabilities
109
110
810,938
833,027
TOTAL EQUITY AND LIABILITIES
2,040
2,031
* Certain amounts shown here do not correspond to the 2020 financial statements and reflect adjustments made, please refer to Note 3 for more details.
As permitted by section 408(3) of the Companies Act 2006, the profit and loss account of the Company is not presented in the Company’s financial statements.
The Company reported a profit of US$22,342 thousand for the financial year ended 31 December 2021, which includes current income tax expense of
US$64 thousand (2020: a loss of US$396,744 thousand including current income tax expense of US$201 thousand). During the reporting periods there were no
transactions impacting the statement of other comprehensive income.
The financial statements of Nostrum Oil & Gas PLC, registered number 8717287, were approved by the Board of Directors. Signed on behalf of the Board:
Signed on behalf of the Board:
Arfan Khan
Chief Executive Officer
4 May 2022
Financial report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 165
Parent company financial statements continued
Parent company statement of cash flows
Parent company financial statements
The accounting policies and explanatory notes on pages 168 through 178 are an integral part of these financial statements
116666
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
Parent company statement of cash flows
For the year ended 31 December
In thousands of US Dollars Notes
2021
2020
(restated*)
Cash flow from operating activities:
Profit / (loss) before income tax
22,406
(396,543)
Adjustments for:
Depreciation
19
28
Employee share option plan fair value adjustment
(14)
(27)
Financial guarantee (gain) / loss
9
(21,957)
397,650
Impairment reversal
(232)
(469)
Operating profit before working capital changes
222
639
Changes in working capital:
Change in other current assets
(202)
(2)
Change in receivables from related parties
109
(444)
Change in trade payables
36
286
Change in payables to related parties
(92)
(595)
Change in other current liabilities
(1)
(719)
Cash generated from operations
72
(835)
Income tax paid
(138)
(66)
Net cash flows from operating activities
(66)
(901)
Cash flow from investing activities:
Purchase of property, plant and equipment
(1)
(7)
Net cash used in investing activities
(1)
(7)
Cash flow from financing activities:
Net cash from financing activities
–
–
Effects of exchange rate changes on cash and cash equivalents
1
1
Net decrease in cash and cash equivalents
(66)
(907)
Cash and cash equivalents at the beginning of the year
7
615
1,522
Cash and cash equivalents at the end of the year
7
549
615
* Certain amounts shown here do not correspond to the 2020 financial statements and reflect adjustments made, please refer to Note 3 for more details.
As at 31 December 2021 the Company recognised bad debt allowance in the amount of US$93 thousand (2020: US$291 thousand) against the loan receivable
from Nostrum employee benefit trust and a similar but opposite amount against its loan payable to its subsidiary Nostrum Oil & Gas Coöperatief U.A. (Notes 6
and 10). These transactions had impact on “change in receivables from related parties” and “change in payables to related parties” above.
166 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Parent company statement of changes in equity
Parent company financial statements
The accounting policies and explanatory notes on pages 168 through 178 are an integral part of these financial statements
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
116677
Parent company statement of changes in equity
In thousands of US Dollars
Notes
Share
capital
Other
reserves
Retained
deficit
Total
As at 1 January 2020
3,203
1,344
(438,304)
(433,757)
Loss for the year
–
–
(396,744)
(396,744)
Total comprehensive loss for the year
–
–
(396,744)
(396,744)
Share based payments under LTIP
13
– (495) – (495)
As at 31 December 2020 (restated*)
3,203
849
(835,048)
(830,996)
Profit for the year
–
–
22,342
22,342
Total comprehensive income for the year
–
–
22,342
22,342
Share based payments under LTIP
13
–
(244)
–
(244)
As at 31 December 2021
3,203
605
(812,706)
(808,898)
* Certain amounts shown here do not correspond to the 2020 financial statements and reflect adjustments made, please refer to Note 3 for more details.
Financial report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 167
Parent company financial statements continued
Notes to the parent company financial statements
Parent company financial statements
116688
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
Notes to the parent company financial statements
1. General
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Nostrum Oil & Gas PLC (“the Company”) is a public
limited company incorporated on 3 October 2013
under the Companies Act 2006 and registered in
England and Wales with registered number
8717287. The registered address of Nostrum Oil &
Gas PLC is: 20 Eastbourne Terrace, London
W2 6LA, United Kingdom.
The subsidiary undertakings of the Company as at
31 December 2021 and the percentage holding of
their capital are set out below:
Company
Registered office
Form of
capital
Owner-
ship, %
Direct subsidiary undertakings:
Nostrum Oil &
Gas
Coöperatief
U.A.
Bloemendaalseweg
139, 2061 CH
Bloemendaal, The
Netherlands
Members'
interests
100
Nostrum Oil &
Gas B.V.
Bloemendaalseweg
139, 2061 CH
Bloemendaal, The
Netherlands
Ordinary
shares
100
Indirect subsidiary undertakings:
Nostrum
Associated
Investments
LLP
43B Karev street,
090000 Uralsk,
Republic of
Kazakhstan
Participa-
tory
interests
100
Nostrum Oil &
Gas Finance
B.V.
Bloemendaalseweg
139, 2061 CH
Bloemendaal, The
Netherlands
Ordinary
shares
100
Nostrum Oil &
Gas UK Ltd.
20 Eastbourne
Terrace, London W2
6LA, United
Kingdom
Ordinary
shares
100
Nostrum
Services
Central Asia
LLP
Aksai 3a, 75/38,
050031 Almaty,
Republic of
Kazakhstan
Participa-
tory
interests
100
Nostrum
Services N.V.
Chaussee de Wavre
20, 1360 Perwez,
Belgium
Ordinary
shares
100
Zhaikmunai
LLP
43/1 Karev street,
090000 Uralsk,
Republic of
Kazakhstan
Participa-
tory
interests
100
The entire holding in the equity of Nostrum E&P
Services LLP of the subsidiary was disposed on
30 April 2021.
The Company and its wholly-owned subsidiaries
are hereinafter referred to as “the Group”.
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On 31 March 2020, following the collapse in the oil
price, the Group announced that it would seek to
engage with its bondholders regarding a possible
restructuring of the Group’s US$725 million 8.0%
Senior Notes due July 2022 (“2022 Notes”) and/or
its US$400 million 7.0% Senior Notes due February
2025 (“2025 Notes”) (together, the Notes).
In May 2020, the Group engaged Rothschild & Cie
(“Rothschild”) as financial advisers and White &
Case LLP (“White & Case”) as legal advisers to
assist in the restructuring of the Existing Notes.
Since then, the Company has been in restructuring
discussions with an informal ad hoc group of
noteholders (the “Ad Hoc Group” or “AHG”), who
are advised by PJT Partners (“PJT”) (financial) and
Akin Gump LLP (legal). The Company has also been
in discussions with its largest shareholder ICU, also
a holder of the Existing Notes, and their legal
advisors Dechert LLP from 2021.
The Group has not made coupon payments due
under the Existing Notes since July 2020, which
was an event of default under the terms of the
indentures governing 2022 Notes and 2025 Notes.
However, the Company continued active
discussions with the financial and legal advisers to
the AHG and signed its First Forbearance
Agreement (“First FBA”) with the AHG on
23 October 2020 and a new Forbearance
Agreement (“Second FBA”) on 19 May 2021. The
First and Second FBA were on substantially the
same terms and prohibited the AHG from
exercising certain rights and remedies under the
Existing Note indentures. The FBAs were intended
to provide the Group with a short-term solution to
its liquidity issues and a platform to engage in
discussions with the noteholders in relation to a
potential restructuring.
The Forbearance Agreement was subject to certain
conditions, including:
• The opening of a secured account into which a
portion of the missed interest payments was
paid. A total of US$22,658,980 has been
deposited into the secured account under the
terms of the FBAs, with the Group having access
to the funds under certain circumstances (i.e.
liquidity falling below an agreed threshold).
• The appointment by the AHG of an observer
who shall be entitled to attend and speak, but
not vote, at any meetings of the Board or
Committees of the Group where certain defined
matters are to be discussed;
• The engagement of certain professional and
technical advisors on behalf of the AHG;
• The observance by the Parent and its
subsidiaries of certain operating and other
restrictions and limitations; and
• The provision of certain financial and operating
information to the advisors of the AHG.
The Group agreed to pay, or procure payment of,
certain consent fees in cash ("Consent Fee") to
each forbearing holder. The first Consent Fee for
the first 90 days of 29.7866 basis points, totalling
US$3,350,992, was paid on 19 November 2020.
The second consent fee of 19.8577 bps, totalling
US$2,233,991, was paid on 22 December 2020.
The final consent fee of 9.9288 bps, equating to
US$1,116,990, was paid on 20 February 2021. The
consent fees were recorded in the income
statement.
On 23 December 2021 the Group entered into a
lock-up agreement (the "Lock-up Agreement") and
agreed terms of a restructuring with holders of in
excess of 54% of the aggregate principal amount of
the 2022 Notes and 55% of the aggregate principal
amount of the 2025 Notes in each case issued by
Nostrum Oil & Gas Finance B.V. In addition,
subsidiaries of ICU Holdings Limited ("ICU"), the
Parent's largest shareholder, has entered into the
Lock-up Agreement in its capacity as a shareholder
and holder of the Notes.
Upon signing of the Lock-up Agreement, the
Second FBA was extended in parallel. The terms
and conditions continue to remain in effect during
the restructuring until the earlier of the successful
closing of the restructuring and the longstop date
23 August 2022.
Under the terms of the Lock-up Agreement, the
Group, the AHG and ICU have agreed to
implement a transaction which restructures the
Notes (the "Restructuring"). The key features of
the proposed Restructuring are as follows:
1. Partial reinstatement of the Notes in the form of
new: (a) senior secured notes in a principal
amount of US$250,000,000 ("SSNs") with cash
coupon of 5.00% per annum; and (b) senior
unsecured notes in a principal amount of
US$300,000,000 ("SUNs") with cash coupon of
1.00% per annum and payment-in-kind interest
of 13.00% per annum. The SSNs and SUNs will
mature on 30 June 2026;
2. Conversion of the remainder of the Notes into
equity through:
• Preferred restructuring route: Holders of the
Existing Notes will own 88.89% of the share
capital of the Company and warrants to
subscribe for an additional 1.11% of the share
capital of the Company upon exercise of all of
the warrants. The existing shareholders will
hold 11.11% upon closing of the restructuring
and will be diluted to 10.00% if the warrants
are exercised. Executing the preferred
restructuring route will require the approval
by shareholders at a general meeting (“GM”);
or
168 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Parent company financial statements
Notes to the parent company financial statements (continued)
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
116699
• Alternative restructuring route: If the required
approvals are not received from shareholders
at the GM, the holders of the Existing Notes
will own 98.89% of the share capital of the
Company and warrants to subscribe for an
additional 0.11% of the share capital of the
Company upon exercise of all of the warrants.
The existing shareholders will hold 1.11%
upon closing of the restructuring and will be
diluted to 1.00% if the warrants are exercised;
and
3. New corporate governance arrangements in
respect of the Group and certain arrangements
regarding future utilization of the Group's
cashflows, including the proposal to transfer the
Parent's listing to the Standard Listing segment
of the London Stock Exchange.
A fee of 50 bps (the "Lock-up Fee") will be payable
to each Participating Noteholder who was
originally party to the Lock-up Agreement or
acceded to the Lock-up Agreement within 22 days
of its execution (i.e. by 14 January 2022).
Noteholders will not be eligible for the Lock-up Fee
if they accede to the Lock-up Agreement after
14 January 2022 (save with respect to any Notes
acquired by them which were already eligible to
receive a Lock-up Fee).
Holders of over 77% of the total aggregate
principal amount of the Notes have signed or
acceded to the Lock-up Agreement
including a majority of holders of aggregate
principal amount of both Senior Notes and
an affiliate of ICU.
Following execution of the Lock-up Agreement, the
Company has commenced implementation of the
Restructuring, which is expected to become
effective in 2022.
Consent solicitation for Existing Notes:
On 4 February 2022, the Company received the
required consents from noteholders after a
solicitation process to approve the amendments to
the Existing Notes indentures. The approved
amendments (i) change the governing law and
jurisdiction of both Existing Notes indentures from
the State of New York to the laws of England and
Wales; (ii) make Nostrum Oil & Gas plc a co-issuer
of the Existing Notes and (iii) other smaller
amendments to facilitate the implementation of
the preferred restructuring route or alternative
restructuring route. Holders of 87.081% in
aggregate principal amount of the 2022 Notes and
Holders of 91.222% in aggregate principal amount
of the 2025 Notes have provided consents. No
consent solicitation payments were made to vote
in favour.
On 13 April 2022, the Financial Conduct Authority
(“FCA”) approved the Company’s shareholder
circular in relation to the proposed restructuring as
outlined above. The Circular is published on the
Company’s website and has been made available
to shareholders for their consideration. Also notice
has been provided convening a General Meeting of
our shareholders on 29 April 2022 to consider and
approve the resolutions in respect of the
Restructuring. The Circular and General Meeting
also includes a resolution to vote in favour of the
Related Party Transactions with ICU in respect of
new ordinary shares being issued to ICU pursuant
to the restructuring – only independent
shareholders (excluding ICU) are required to vote
on this specific resolution.
At the General Meeting, 99.99% voted for the
implementation of the restructuring which means
the restructuring will proceed under a UK scheme
of arrangement under Part 26 of the Companies
Act 2006. Further, 99.89% voted in favour of the
RPT Resolution, allowing ICU as a related party to
receive the issuance of new securities under the
scheme.
2. Basis of preparation
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The Company financial statements for the year
ended 31 December 2021 have been prepared on
a going concern basis and in accordance with UK
Adopted International Accounting Standards.
The Company financial statements have been
prepared based on a historical cost basis. The
Company financial statements are presented in
US dollars and all values are rounded to the
nearest thousands, except when otherwise
indicated.
The Company recognises that there may be
potential financial implications in the future from
changes in legislation and regulation implemented
to address climate change risk. Over time these
changes may have an impact across a number of
areas of accounting including asset impairment,
increased costs, provisions, onerous contracts and
contingent liabilities. However, as at the reporting
sheet date, the Company believes there is no
material impact on the balance sheet carrying
values of assets or liabilities. This is not considered
a significant estimate.
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These Company financial statements have been
prepared on a going concern basis.
The Company is dependent on liquidity generated
by its subsidiaries to continue in operation and its
ability to meet its liabilities as they become due for
the foreseeable future, a period of not less than
12 months from the date of these financial
statements. Respectively, the following Group-
level going concern matters and analysis are
considered directly relevant for the Company.
The Group monitors on an ongoing basis its
liquidity position, near-term forecasts, and key
financial ratios to ensure that sufficient funds are
available to meet its commitments as they arise
and liabilities as they fall due. The Group
reforecasts its rolling 24-month cashflows on a
monthly basis and stress tests its future liquidity
position for changes in product prices, production
volumes, costs and other significant events. Whilst
looking for new opportunities to fill the spare
capacity of the Group’s infrastructure, the
Directors are also focused on a range of actions
aimed at improving the liquidity outlook in the
near-term. These include the ongoing efforts to
restructure the Existing Notes, as well as further
cost optimization to reduce capital expenditures,
operating costs and general and administration
cost.
The Directors’ going concern assessment is
supported by future cash flow forecasts for the
going concern period to 30 June 2023. The base
case going concern assessment reflects production
forecasts consistent with the Board approved
plans and published guidance and assumes a Brent
oil price of $72/bbl for 2022 and $68/bbl for 2023.
The favourable hydrocarbon pricing in 2021 and
forbearance of making interest payments under
the terms of the Forbearance Agreement with
noteholders (refer to “Update on Bond
Restructuring” section for further details) meant
that the Group was able to grow its unrestricted
cash reserves by over US$86 million. As a result,
the Group had unrestricted cash balances of
US$165.2 million as at 31 December 2021, with a
further $22.7 million in a restricted bank account
with limited access as per the terms of the
Forbearance Agreement. Under the base case
going concern assessment to the period to 30 June
2023, the Group is forecast to have total cash
reserves of over U$$200 million, inclusive of cash
swept into the restricted account, as explained
below.
In 2020, the Group began formal proceedings for
the restructuring of its Existing Notes, the largest of
which would become due and repayable in July
2022. A Forbearance Agreement was entered into
with an informal ad hoc committee of noteholders
(the “AHG”) in the same year which, amongst
other things, forbears the AHG from accelerating
the Existing Notes’ obligations as a result of missed
interest payments. During this period of
forbearance the Company and the AHG
endeavoured to agree on the terms of a
consensual restructuring of the Existing Notes. On
13 April 2022, the Group issued a Circular and
serviced notice convening a General Meeting of its
shareholders to vote on the restructuring terms
(“Restructuring Resolution”). On 29 April 2022,
99.99% of voting shareholders voted in favour of
the Restructuring Resolutions at the General
Meeting; allowing the Group to proceed with the
restructuring via a UK scheme of arrangement
under Part 26 of the Companies Act 2006 (refer to
“Update on Bond Restructuring” section and Note
1 to the financial statements for the latest on the
Bond Restructuring process).
The below outlines the key terms of the
restructuring as agreed between the Group,
acceded noteholders and ICU in the LUA and also
voted in favour of by Nostrum shareholders:
• Partial reinstatement of debt in the form of
US$250 million Senior Secured Notes (SSNs)
bearing interest at a rate of 5.00% per year
payable in cash and maturing on 30 June 2026.
The SSNs are not convertible;
• Partial reinstatement of debt in the form of
US$300 million Senior Unsecured Notes (SUNs)
bearing interest at a rate of 1.00% per year
payable in cash and 13.00% per year payable in
Financial report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 169
Parent company financial statements continued
Notes to the parent company financial statements continued
Parent company financial statements
Notes to the parent company financial statements (continued)
117700
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
kind and maturing on 30 June 2026. The SUNs
are repayable in specie through the issuance of
equity in the Company on maturity;
• The exchange of the remainder of the Group’s
existing debt along with accrued but unpaid
interest for equity in the Company, thereby
significantly diluting the interests of the current
equity holders;
• New corporate governance arrangements in
respect of the Group and certain arrangements
regarding future utilization of the Group's
cashflows. This includes a cash sweep
mechanism into which cash above US$30
million is swept into a debt service retention
account (to fund the next two cash interest
payments due) and a restricted cash account
which the Company can access with approval of
the majority of Independent Non-Executive
Directors of the Company; and
• Transfer the Company's listing to the Standard
Listing segment of the London Stock Exchange.
The forecast financing cashflows assume that the
Existing Notes are restructured per the agreed
terms as set out in the Lock-up Agreement and
outlined above. Therefore, in forming an
assessment on the Group’s ability to continue as a
going concern, the Board has made a significant
assumption about the Group being able to close
out the successful restructuring of the Existing
Notes.
Whilst the signing of the LUA and shareholders
voting in favour of the Restructuring Resolutions
marked key milestones in the Company’s
restructuring journey and paves an agreed go
forward strategy to restructure the Existing Notes,
the Company notes there remain several other
milestones to achieve prior to successful
completion. These include:
• The Company receiving all authorisations
including securing a waiver from the
Government of the Republic of Kazakhstan for
the right to pre-empt newly issued shares in the
Company on closing of the restructuring.
• The UK Courts sanctioning the final
restructuring route (UK Scheme of Arrangement
or Restructuring Plan).
As at the date of publication of these financial
statements, the above milestones have not
concluded, with the outcomes uncertain and
largely outside of the Group’s control. If one or all
of the milestones above are not achieved, the
restructuring may not proceed on the agreed set
of terms. Therefore, the assumption that the
Group can successfully complete the restructuring
by satisfying the above milestones represents a
material uncertainty that the Existing Notes will
not be restructured. This may cast a significant
doubt on the Group’s and Company’s ability to
continue as a going concern for the going concern
period to 30 June 2023.
The Directors have also considered any additional
risks to liquidity posed by the ongoing Russia-
Ukraine conflict, which has led to widespread
sanctions being imposed on various Russian
institutions and individuals. Bodies and nations
imposing sanctions include the US, UK and EU and
these sanctions have been sequentially expanding.
Given the geographical position of the Group’s
operations, it is very close to the evolving situation
in Ukraine. Whilst Kazakhstan is not directly
involved in the ongoing conflict, nor have any
Western sanctions been levelled at it, the country
is connected to Russia through infrastructure,
banking, and other business links. Nostrum
currently sends approximately 40% of its products
by volume produced via Russian transport
infrastructure and ports and the Group also
contracts with a limited number of Russian service
companies. The Directors are cognisant of the
current and evolving sanctions list to ensure the
Group is conducting business in compliance with
these sanctions. In its going concern assessment,
the Group sensitised its base case by adjusting for
zero oil and condensate sales through Russian
infrastructure; noting that even with zero sales for
these products, there is forecast to be cash
reserves in excess of US$100 million at the end of
the going concern period to 30 June 2023, inclusive
of cash swept into the restricted account. There is
currently no material impact on the Group’s
operations and liquidity at the time of publication
of these financial statements as a result of the
ongoing Russia-Ukraine conflict and resultant
Russian sanctions. The Directors have concluded
that even under this severe scenario modelled, the
Group would have sufficient liquidity over the
going concern review period.
Additionally, the Directors remain vigilant on risks
to liquidity posed by any resurgence in COVID-19.
Contingency plans have been put in place both to
protect the workforce and ensure that there are
sufficient personnel to continue operations. There
was no loss of production as a result of COVID-19
in 2020 and 2021. Therefore, the Directors have
concluded that there is currently no material
impact on the Group’s operations and liquidity, nor
do the Directors foresee a material impact in the
going concern period, however, it is recognized
that there is uncertainty around the future
developments of COVID-19.
After careful consideration of the material
uncertainty in connection with the restructuring of
the Existing Notes, and on the basis of the
successful execution of the LUA, advice from our
financial and legal advisors, and our assessment of
the likelihood that the remaining milestones can
be achieved, the Directors have a reasonable
expectation that the Group and Company has
sufficient resources to continue in operation for
the going concern period to 30 June 2023. For
these reasons, they continue to adopt the going
concern basis in preparing the financial
statements. Accordingly, these financial
statements do not include any adjustments to the
carrying amount or classification of assets and
liabilities that would result if the Group were
unable to continue as a going concern.
Notwithstanding that the going concern period has
been defined as the period to 30 June 2023, the
Directors have considered events and conditions
beyond the period of assessment which may cast
doubt on the Group’s ability to continue as a going
concern. The Directors draw attention to the
Viability Statement on pages 67-69 which
highlights that the material uncertainty referred to
in respect of the going concern assessment will
inevitably cast significant doubt over the future
viability of the Group.
3. Changes in accounting policies and disclosures
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other standard, interpretation or amendment that
has been issued but is not yet effective.
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The amendments provide temporary reliefs which
address the financial reporting effects when an
interbank offered rate (IBOR) is replaced with an
alternative nearly risk-free interest rate (RFR).
The amendments include the following practical
expedients:
• A practical expedient to require contractual
changes, or changes to cash flows that are
directly required by the reform, to be treated as
changes to a floating interest rate, equivalent to
a movement in a market rate of interest
• Permit changes required by IBOR reform to be
made to hedge designations and hedge
documentation without the hedging
relationship being discontinued
• Provide temporary relief to entities from having
to meet the separately identifiable requirement
when an RFR instrument is designated as a
hedge of a risk component
These amendments had no impact on the financial
statements of the Company. The Company intends
to use the practical expedients in future periods if
they become applicable.
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On 28 May 2020, the IASB issued Covid-19-Related
Rent Concessions - amendment to IFRS 16 Leases.
The amendments provide relief to lessees from
applying IFRS 16 guidance on lease modification
accounting for rent concessions arising as a direct
consequence of the Covid-19 pandemic. As a
practical expedient, a lessee may elect not to
assess whether a Covid-19 related rent concession
from a lessor is a lease modification. A lessee that
makes this election accounts for any change in
lease payments resulting from the Covid-19 related
rent concession the same way it would account for
the change under IFRS 16, if the change were not a
lease modification.
The amendment was intended to apply until 30
June 2021, but as the impact of the Covid-19
170 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Parent company financial statements
Notes to the parent company financial statements (continued)
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
117711
pandemic is continuing, on 31 March 2021, the
IASB extended the period of application of the
practical expedient to 30 June 2022. The
amendment applies to annual reporting periods
beginning on or after 1 April 2021. However, the
Group has not received Covid-19-related rent
concessions, but plans to apply the practical
expedient if it becomes applicable within allowed
period of application.
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Amendments to IAS 12
On May 7, 2021, the IASB published "Deferred Tax
related to Assets and Liabilities arising from a
Single Transaction " that clarify how companies
account for deferred tax on transactions such as
leases and decommissioning obligations.
The main change in Deferred Tax related to Assets
and Liabilities arising from a Single Transaction
(Amendments to IAS 12) is an exemption from
the initial recognition exemption provided in IAS
12.15(b) and IAS 12.24. Accordingly, the initial
recognition exemption does not apply to
transactions in which both deductible and taxable
temporary differences arise on initial recognition
that result in the recognition of equal deferred tax
assets and liabilities.
The entity applies the amendments to transactions
that occur on or after the beginning of the earliest
comparative period presented.
The amendments are effective for annual
reporting periods beginning on or after January 1,
2023. Early adoption is permitted.
The Company is currently assessing the impact the
amendments will have on current practice and
whether the amendments will have impact on the
financial statements.
Amendments to IAS 1: Classification of Liabilities
as Current or Non-current
In January 2020, the IASB issued amendments to
paragraphs 69 to 76 of IAS 1 to specify the
requirements for classifying liabilities as current or
non-current. The amendments clarify:
• What is meant by a right to defer settlement
• That a right to defer must exist at the end of the
reporting period
• That classification is unaffected by the likelihood
that an entity will exercise its deferral right
• That only if an embedded derivative in a
convertible liability is itself an equity instrument
would the terms of a liability not impact its
classification
The amendments are effective for annual
reporting periods beginning on or after 1 January
2023 and must be applied retrospectively. The
Company is currently assessing the impact the
amendments will have on current practice.
Reference to the Conceptual Framework –
Amendments to IFRS 3
In May 2020, the IASB issued Amendments to IFRS
3 Business Combinations - Reference to the
Conceptual Framework. The amendments are
intended to replace a reference to the Framework
for the Preparation and Presentation of Financial
Statements, issued in 1989, with a reference to the
Conceptual Framework for Financial Reporting
issued in March 2018 without significantly
changing its requirements.
The Board also added an exception to the
recognition principle of IFRS 3 to avoid the issue of
potential ‘day 2’ gains or losses arising for liabilities
and contingent liabilities that would be within the
scope of IAS 37 or IFRIC 21 Levies, if incurred
separately. At the same time, the Board decided to
clarify existing guidance in IFRS 3 for contingent
assets that would not be affected by replacing the
reference to the Framework for the Preparation
and Presentation of Financial Statements. The
amendments are effective for annual reporting
periods beginning on or after 1 January 2022 and
apply prospectively. It is not expected that the
amendments will have any impact on the financial
statements of the Company.
Property, Plant and Equipment: Proceeds before
Intended Use – Amendments to IAS 16
In May 2020, the IASB issued Property, Plant and
Equipment — Proceeds before Intended Use,
which prohibits entities deducting from the cost of
an item of property, plant and equipment, any
proceeds from selling items produced while
bringing that asset to the location and condition
necessary for it to be capable of operating in the
manner intended by management. Instead, an
entity recognises the proceeds from selling such
items, and the costs of producing those items, in
profit or loss. The amendment is effective for
annual reporting periods beginning on or after 1
January 2022 and must be applied retrospectively
to items of property, plant and equipment made
available for use on or after the beginning of the
earliest period presented when the entity first
applies the amendment. The amendments are not
expected to have a material impact on the
Company.
Onerous Contracts – Costs of Fulfilling a Contract
– Amendments to IAS 37
In May 2020, the IASB issued amendments to IAS
37 to specify which costs an entity needs to include
when assessing whether a contract is onerous or
loss-making.
The amendments apply a “directly related cost
approach”. The costs that relate directly to a
contract to provide goods or services include both
incremental costs and an allocation of costs
directly related to contract activities. General and
administrative costs do not relate directly to a
contract and are excluded unless they are explicitly
chargeable to the counterparty under the contract.
The amendments are effective for annual
reporting periods beginning on or after 1 January
2022. The Company will apply these amendments
to contracts for which it has not yet fulfilled all its
obligations at the beginning of the annual
reporting period in which it first applies the
amendments.
Amendments to IAS 1 Presentation of Financial
Statements and IFRS Practice Statement 2
Making Materiality Judgements
In February 2021 the IASB issued amendments to
IAS 1 Presentation of Financial Statements and
IFRS Practice Statement 2 Making Materiality
Judgements. The amendments to IAS 1 require
companies to disclose their material accounting
policy information rather than their significant
accounting policies. The amendments to IFRS
Practice Statement 2 provide guidance on how to
apply the concept of materiality to accounting
policy disclosures. The amendments will be
effective for annual reporting periods beginning on
or after 1 January 2023, with early application
permitted. The Company does not expect early
application of these amendments.
Amendments to IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors
In February 2021 the IASB issued amendments to
IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors. The amendments clarify how
companies should distinguish changes in
accounting policies from changes in accounting
estimates. That distinction is important because
changes in accounting estimates are applied
prospectively only to future transactions and other
future events, but changes in accounting policies
are generally also applied retrospectively to past
transactions and other past events. The
amendments will be effective for annual reporting
periods beginning on or after 1 January 2023, with
early application permitted. The Company does
not expect early application of these amendments.
IFRS 9 Financial Instruments – Fees in the ’10 per
cent’ test for derecognition of financial liabilities
As part of its 2018-2020 annual improvements to
IFRS standards process the IASB issued
amendment to IFRS 9. The amendment clarifies
the fees that an entity includes when assessing
whether the terms of a new or modified financial
liability are substantially different from the terms
of the original financial liability. These fees include
only those paid or received between the borrower
and the lender, including fees paid or received by
either the borrower or lender on the other’s
behalf. An entity applies the amendment to
financial liabilities that are modified or exchanged
on or after the beginning of the annual reporting
period in which the entity first applies the
amendment.
The amendment is effective for annual reporting
periods beginning on or after 1 January 2022 with
earlier adoption permitted. The Company will
apply the amendments to financial liabilities that
are modified or exchanged on or after the
beginning of the annual reporting period in which
the entity first applies the amendment. The
amendments are not expected to have a material
impact on the Company.
CCoorrrreeccttiioonn ooff eerrrroorrss
Financial report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 171
Parent company financial statements continued
Notes to the parent company financial statements continued
Parent company financial statements
Notes to the parent company financial statements (continued)
117722
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
Financial guarantee
When preparing the consolidated financial statements for the year ended
31 December 2020, the Group estimated through its FVLCD discounted cash
flow model that the recoverable amount of its property, plant and equipment
was US$339,406 thousand, and recognised an impairment charge of
US$244,744 thousand. During the preparation of the consolidated financial
statements for the year ended 31 December 2021, the Group noted an error in
the calculation for determining the 2020 impairment charge. The error results
in a lower recoverable amount of US$297,760 thousand for the property plant
and equipment as at 31 December 2020, and so a corresponding additional
impairment charge of US$41,648 thousand for the year then ended and
derecognition of deferred tax liability of US$4,712 thousand.
This had an impact on the Company’s assessment of the fair value of the
guarantees issued under the 2022 and 2025 Notes, which is based on the
Group’s financial position as at 31 December 2020. As a consequence, the
balance of the financial guarantee liability as at 31 December 2020 was
understated.
The Company does not present the statement of financial position as at the
beginning of the previous annual period (“opening balance sheet”), as the
correction of an error has no effect on the opening balance sheet or the
periods preceding the previous annual period. This error has been corrected by
restating each of the affected financial statement line items for the prior
period, as follows:
Reported
Financial
guarantee
correction
As
adjusted
Statement of financial position
Retained deficit and reserves
(792,553)
(41,646)
(834,219)
Share capital and reserves
(789,350)
(41,646)
(830,996)
Current portion of financial guarantees
790,121
41,646
831,767
Current liabilities
791,381
41,646
833,027
TOTAL EQUITY AND LIABILITIES
2,031
–
2,031
Statement of cash flows
Loss before income tax
(354,897)
(41,646)
(396,543)
Financial guarantee loss
356,004
41,646
397,650
Net cash flows from operating activities
(901)
–
(901)
Previous period related party disclosures
The Company has policies and procedures in place for the identification of
potential related party transactions which are designed to ensure that all
required approvals are obtained and all legal obligations are met in relation to
any related party transaction. Also, the Company has internal procedures on
identification of related party transactions and balances which are designed to
ensure that all required disclosures are made in the financial statements. As
part of these procedures the Company prepares lists of companies and
individuals related to directors and key management personnel.
During 2021 the Company became aware that it had failed to identify the past
employment of two persons, each of whom was the spouse of a director of the
Group, as potential related party transactions and did not comply with its
disclosure obligations in relation thereto. Total remuneration paid to such
employees during 2020 amounted to US$666 thousand, and such employment
and remuneration should have been disclosed as required under IAS 24
Related parties. Those amounts have been appropriately accounted for and so
there is no requirement to make an adjustment of any balances as of
31 December 2020 and any costs for the year then ended.
As a result of the above, management have restated the comparative amounts
for remuneration of key management personnel for 2020 within the employee
remuneration note in the current year. Refer to Note 12. Further disclosure
regarding this matter is also set out in the Company’s Annual Report for 2021
on pages 87-88. In addition, management has carried out a comprehensive
search for any other undisclosed related party transactions and balances and
made adjustments to its internal controls to ensure completeness of the
relevant disclosures going forward.
4. Summary of significant accounting policies
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The functional currency is the currency of the
primary economic environment in which an entity
operates and is normally the currency in which the
entity primarily generates and expends cash.
The functional currency of the Company is the
United States dollar (the “US dollar” or “US$”).
Transactions in foreign currencies are initially
recorded at their respective functional currency
spot rates at the date the transaction first qualifies
for recognition.
Monetary assets and liabilities denominated in
foreign currencies are translated at the functional
currency spot rates of exchange at the reporting
date. All differences are taken to the profit or loss.
Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated
using the exchange rates as at the dates of the initial
transactions. Non-monetary items measured at fair
value in a foreign currency are translated using the
exchange rates at the date when the fair value is
determined.
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Investments in subsidiaries are recorded at cost.
Subsequently, the Company determines whether it
is necessary to recognise an impairment loss on its
investment in a subsidiary. At each reporting date,
the Company determines whether there is objective
evidence that the investment in the subsidiary is
impaired. If there is such evidence, the Company
calculates the amount of impairment as the
difference between the recoverable amount of the
subsidiary and its carrying value, and then
recognises the impairment loss in the statement of
profit or loss.
Significant estimates and assumptions: impairment
of investments in subsidiaries
Determination as to whether, and by how much,
the investment in a subsidiary is impaired involves
management’s best estimates on highly uncertain
matters such as future revenues of the subsidiary,
operating expenses, discount rate, as well as fiscal
regimes.
As at 31 December 2019, the Company had
recorded impairment for the full amount of the
investments in Nostrum Oil & Gas Coöperatief U.A.
and Nostrum Oil & Gas B.V. in the amount of
US$116,437 thousand and US$222 thousand,
respectively. Such impairment has been recognised
in view of the decrease in the net assets of these
subsidiaries, and the reduction of the 2P reserves
expected to be recovered from the main operating
subsidiary of the Company over the period of 2020-
2032, with the relevant decrease in the expected
future net cash proceeds of Nostrum Oil & Gas
Coöperatief U.A.
A reversal of impairment in the amount of US$232
thousand (Note 5) was recognised as at
31 December 2021 (31 December 2020: US$469
thousand) corresponding to the decrease in the
amount of investment in Nostrum Oil & Gas
Coöperatief U.A. resulting from the adjustment
under the Long-term Incentive Plan 2017.
As at 31 December 2021, impairment for the full
amount of investments in Nostrum Oil & Gas
Coöperatief U.A. and Nostrum Oil & Gas B.V.
remained appropriate considering further significant
reduction in the 2P reserves to be recovered from
the main operating subsidiary of the Company.
FFiinnaanncciiaall aasssseettss
Parent company financial statements
Notes to the parent company financial statements (continued)
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
117711
pandemic is continuing, on 31 March 2021, the
IASB extended the period of application of the
practical expedient to 30 June 2022. The
amendment applies to annual reporting periods
beginning on or after 1 April 2021. However, the
Group has not received Covid-19-related rent
concessions, but plans to apply the practical
expedient if it becomes applicable within allowed
period of application.
SSttaannddaarrddss iissssuueedd bbuutt nnoott yyeett eeffffeeccttiivvee
Amendments to IAS 12
On May 7, 2021, the IASB published "Deferred Tax
related to Assets and Liabilities arising from a
Single Transaction " that clarify how companies
account for deferred tax on transactions such as
leases and decommissioning obligations.
The main change in Deferred Tax related to Assets
and Liabilities arising from a Single Transaction
(Amendments to IAS 12) is an exemption from
the initial recognition exemption provided in IAS
12.15(b) and IAS 12.24. Accordingly, the initial
recognition exemption does not apply to
transactions in which both deductible and taxable
temporary differences arise on initial recognition
that result in the recognition of equal deferred tax
assets and liabilities.
The entity applies the amendments to transactions
that occur on or after the beginning of the earliest
comparative period presented.
The amendments are effective for annual
reporting periods beginning on or after January 1,
2023. Early adoption is permitted.
The Company is currently assessing the impact the
amendments will have on current practice and
whether the amendments will have impact on the
financial statements.
Amendments to IAS 1: Classification of Liabilities
as Current or Non-current
In January 2020, the IASB issued amendments to
paragraphs 69 to 76 of IAS 1 to specify the
requirements for classifying liabilities as current or
non-current. The amendments clarify:
• What is meant by a right to defer settlement
• That a right to defer must exist at the end of the
reporting period
• That classification is unaffected by the likelihood
that an entity will exercise its deferral right
• That only if an embedded derivative in a
convertible liability is itself an equity instrument
would the terms of a liability not impact its
classification
The amendments are effective for annual
reporting periods beginning on or after 1 January
2023 and must be applied retrospectively. The
Company is currently assessing the impact the
amendments will have on current practice.
Reference to the Conceptual Framework –
Amendments to IFRS 3
In May 2020, the IASB issued Amendments to IFRS
3 Business Combinations - Reference to the
Conceptual Framework. The amendments are
intended to replace a reference to the Framework
for the Preparation and Presentation of Financial
Statements, issued in 1989, with a reference to the
Conceptual Framework for Financial Reporting
issued in March 2018 without significantly
changing its requirements.
The Board also added an exception to the
recognition principle of IFRS 3 to avoid the issue of
potential ‘day 2’ gains or losses arising for liabilities
and contingent liabilities that would be within the
scope of IAS 37 or IFRIC 21 Levies, if incurred
separately. At the same time, the Board decided to
clarify existing guidance in IFRS 3 for contingent
assets that would not be affected by replacing the
reference to the Framework for the Preparation
and Presentation of Financial Statements. The
amendments are effective for annual reporting
periods beginning on or after 1 January 2022 and
apply prospectively. It is not expected that the
amendments will have any impact on the financial
statements of the Company.
Property, Plant and Equipment: Proceeds before
Intended Use – Amendments to IAS 16
In May 2020, the IASB issued Property, Plant and
Equipment — Proceeds before Intended Use,
which prohibits entities deducting from the cost of
an item of property, plant and equipment, any
proceeds from selling items produced while
bringing that asset to the location and condition
necessary for it to be capable of operating in the
manner intended by management. Instead, an
entity recognises the proceeds from selling such
items, and the costs of producing those items, in
profit or loss. The amendment is effective for
annual reporting periods beginning on or after 1
January 2022 and must be applied retrospectively
to items of property, plant and equipment made
available for use on or after the beginning of the
earliest period presented when the entity first
applies the amendment. The amendments are not
expected to have a material impact on the
Company.
Onerous Contracts – Costs of Fulfilling a Contract
– Amendments to IAS 37
In May 2020, the IASB issued amendments to IAS
37 to specify which costs an entity needs to include
when assessing whether a contract is onerous or
loss-making.
The amendments apply a “directly related cost
approach”. The costs that relate directly to a
contract to provide goods or services include both
incremental costs and an allocation of costs
directly related to contract activities. General and
administrative costs do not relate directly to a
contract and are excluded unless they are explicitly
chargeable to the counterparty under the contract.
The amendments are effective for annual
reporting periods beginning on or after 1 January
2022. The Company will apply these amendments
to contracts for which it has not yet fulfilled all its
obligations at the beginning of the annual
reporting period in which it first applies the
amendments.
Amendments to IAS 1 Presentation of Financial
Statements and IFRS Practice Statement 2
Making Materiality Judgements
In February 2021 the IASB issued amendments to
IAS 1 Presentation of Financial Statements and
IFRS Practice Statement 2 Making Materiality
Judgements. The amendments to IAS 1 require
companies to disclose their material accounting
policy information rather than their significant
accounting policies. The amendments to IFRS
Practice Statement 2 provide guidance on how to
apply the concept of materiality to accounting
policy disclosures. The amendments will be
effective for annual reporting periods beginning on
or after 1 January 2023, with early application
permitted. The Company does not expect early
application of these amendments.
Amendments to IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors
In February 2021 the IASB issued amendments to
IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors. The amendments clarify how
companies should distinguish changes in
accounting policies from changes in accounting
estimates. That distinction is important because
changes in accounting estimates are applied
prospectively only to future transactions and other
future events, but changes in accounting policies
are generally also applied retrospectively to past
transactions and other past events. The
amendments will be effective for annual reporting
periods beginning on or after 1 January 2023, with
early application permitted. The Company does
not expect early application of these amendments.
IFRS 9 Financial Instruments – Fees in the ’10 per
cent’ test for derecognition of financial liabilities
As part of its 2018-2020 annual improvements to
IFRS standards process the IASB issued
amendment to IFRS 9. The amendment clarifies
the fees that an entity includes when assessing
whether the terms of a new or modified financial
liability are substantially different from the terms
of the original financial liability. These fees include
only those paid or received between the borrower
and the lender, including fees paid or received by
either the borrower or lender on the other’s
behalf. An entity applies the amendment to
financial liabilities that are modified or exchanged
on or after the beginning of the annual reporting
period in which the entity first applies the
amendment.
The amendment is effective for annual reporting
periods beginning on or after 1 January 2022 with
earlier adoption permitted. The Company will
apply the amendments to financial liabilities that
are modified or exchanged on or after the
beginning of the annual reporting period in which
the entity first applies the amendment. The
amendments are not expected to have a material
impact on the Co
mpany.
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172 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Parent company financial statements
Notes to the parent company financial statements (continued)
117722
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
Financial guarantee
When preparing the consolidated financial statements for the year ended
31 December 2020, the Group estimated through its FVLCD discounted cash
flow model that the recoverable amount of its property, plant and equipment
was US$339,406 thousand, and recognised an impairment charge of
US$244,744 thousand. During the preparation of the consolidated financial
statements for the year ended 31 December 2021, the Group noted an error in
the calculation for determining the 2020 impairment charge. The error results
in a lower recoverable amount of US$297,760 thousand for the property plant
and equipment as at 31 December 2020, and so a corresponding additional
impairment charge of US$41,648 thousand for the year then ended and
derecognition of deferred tax liability of US$4,712 thousand.
This had an impact on the Company’s assessment of the fair value of the
guarantees issued under the 2022 and 2025 Notes, which is based on the
Group’s financial position as at 31 December 2020. As a consequence, the
balance of the financial guarantee liability as at 31 December 2020 was
understated.
The Company does not present the statement of financial position as at the
beginning of the previous annual period (“opening balance sheet”), as the
correction of an error has no effect on the opening balance sheet or the
periods preceding the previous annual period. This error has been corrected by
restating each of the affected financial statement line items for the prior
period, as follows:
Reported
Financial
guarantee
correction
As
adjusted
Statement of financial position
Retained deficit and reserves
(792,553)
(41,646)
(834,219)
Share capital and reserves
(789,350)
(41,646)
(830,996)
Current portion of financial guarantees
790,121
41,646
831,767
Current liabilities
791,381
41,646
833,027
TOTAL EQUITY AND LIABILITIES
2,031
–
2,031
Statement of cash flows
Loss before income tax
(354,897)
(41,646)
(396,543)
Financial guarantee loss
356,004
41,646
397,650
Net cash flows from operating activities
(901)
–
(901)
Previous period related party disclosures
The Company has policies and procedures in place for the identification of
potential related party transactions which are designed to ensure that all
required approvals are obtained and all legal obligations are met in relation to
any related party transaction. Also, the Company has internal procedures on
identification of related party transactions and balances which are designed to
ensure that all required disclosures are made in the financial statements. As
part of these procedures the Company prepares lists of companies and
individuals related to directors and key management personnel.
During 2021 the Company became aware that it had failed to identify the past
employment of two persons, each of whom was the spouse of a director of the
Group, as potential related party transactions and did not comply with its
disclosure obligations in relation thereto. Total remuneration paid to such
employees during 2020 amounted to US$666 thousand, and such employment
and remuneration should have been disclosed as required under IAS 24
Related parties. Those amounts have been appropriately accounted for and so
there is no requirement to make an adjustment of any balances as of
31 December 2020 and any costs for the year then ended.
As a result of the above, management have restated the comparative amounts
for remuneration of key management personnel for 2020 within the employee
remuneration note in the current year. Refer to Note 12. Further disclosure
regarding this matter is also set out in the Company’s Annual Report for 2021
on pages 87-88. In addition, management has carried out a comprehensive
search for any other undisclosed related party transactions and balances and
made adjustments to its internal controls to ensure completeness of the
relevant disclosures going forward.
4. Summary of significant accounting policies
FFoorreeiiggnn ccuurrrreennccyy ttrraannssllaattiioonn
The functional currency is the currency of the
primary economic environment in which an entity
operates and is normally the currency in which the
entity primarily generates and expends cash.
The functional currency of the Company is the
United States dollar (the “US dollar” or “US$”).
Transactions in foreign currencies are initially
recorded at their respective functional currency
spot rates at the date the transaction first qualifies
for recognition.
Monetary assets and liabilities denominated in
foreign currencies are translated at the functional
currency spot rates of exchange at the reporting
date. All differences are taken to the profit or loss.
Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated
using the exchange rates as at the dates of the initial
transactions. Non-monetary items measured at fair
value in a foreign currency are translated using the
exchange rates at the date when the fair value is
determined.
IInnvveessttmmeennttss
Investments in subsidiaries are recorded at cost.
Subsequently, the Company determines whether it
is necessary to recognise an impairment loss on its
investment in a subsidiary. At each reporting date,
the Company determines whether there is objective
evidence that the investment in the subsidiary is
impaired. If there is such evidence, the Company
calculates the amount of impairment as the
difference between the recoverable amount of the
subsidiary and its carrying value, and then
recognises the impairment loss in the statement of
profit or loss.
Significant estimates and assumptions: impairment
of investments in subsidiaries
Determination as to whether, and by how much,
the investment in a subsidiary is impaired involves
management’s best estimates on highly uncertain
matters such as future revenues of the subsidiary,
operating expenses, discount rate, as well as fiscal
regimes.
As at 31 December 2019, the Company had
recorded impairment for the full amount of the
investments in Nostrum Oil & Gas Coöperatief U.A.
and Nostrum Oil & Gas B.V. in the amount of
US$116,437 thousand and US$222 thousand,
respectively. Such impairment has been recognised
in view of the decrease in the net assets of these
subsidiaries, and the reduction of the 2P reserves
expected to be recovered from the main operating
subsidiary of the Company over the period of 2020-
2032, with the relevant decrease in the expected
future net cash proceeds of Nostrum Oil & Gas
Coöperatief U.A.
A reversal of impairment in the amount of US$232
thousand (Note 5) was recognised as at
31 December 2021 (31 December 2020: US$469
thousand) corresponding to the decrease in the
amount of investment in Nostrum Oil & Gas
Coöperatief U.A. resulting from the adjustment
under the Long-term Incentive Plan 2017.
As at 31 December 2021, impairment for the full
amount of investments in Nostrum Oil & Gas
Coöperatief U.A. and Nostrum Oil & Gas B.V.
remained appropriate considering further significant
reduction in the 2P reserves to be recovered from
the main operating subsidiary of the Company.
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Parent company financial statements
Notes to the parent company financial statements (continued)
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
117733
Initial recognition and measurement
Financial assets are classified, at initial recognition,
as subsequently measured at amortised cost, fair
value through other comprehensive income (OCI),
and fair value through profit or loss. The Company
determines the classification of its financial assets at
initial recognition.
The classification of financial assets at initial
recognition depends on the financial asset’s
contractual cash flow characteristics and the
Company’s business model for managing them.
With the exception of trade receivables that do not
contain a significant financing component or for
which the Company has applied the practical
expedient, the Company initially measures a
financial asset at its fair value plus, in the case of a
financial asset not at fair value through profit or loss,
transaction costs.
In order for a financial asset to be classified and
measured at amortised cost or fair value through
OCI, it needs to give rise to cash flows that are
‘solely payments of principal and interest (SPPI)’ on
the principal amount outstanding. This assessment
is referred to as the SPPI test and is performed at an
instrument level.
The Company’s business model for managing
financial assets refers to how it manages its financial
assets in order to generate cash flows. The business
model determines whether cash flows will result
from collecting contractual cash flows, selling the
financial assets, or both.
Purchases or sales of financial assets that require
delivery of assets within a time frame established by
regulation or convention in the market place
(regular way trades) are recognised on the trade
date, i.e., the date that the Company commits to
purchase or sell the asset.
Subsequent measurement
For purposes of subsequent measurement, financial
assets are classified in four categories:
• Financial assets at amortised cost (debt
instruments);
• Financial assets at fair value through OCI with
recycling of cumulative gains and losses (debt
instruments);
• Financial assets designated at fair value through
OCI with no recycling of cumulative gains and
losses upon derecognition (equity instruments);
• Financial assets at fair value through profit or loss
Financial assets at amortised cost (debt
instruments)
This category is the most relevant to the Company.
The Company measures financial assets at
amortised cost if both of the following conditions
are met:
• The financial asset is held within a business
model with the objective to hold financial assets
in order to collect contractual cash flows, and
• The contractual terms of the financial asset give
rise on specified dates to cash flows that are
solely payments of principal and interest on the
principal amount outstanding.
Financial assets at amortised cost are subsequently
measured using the effective interest (EIR) method
and are subject to impairment. Gains and losses are
recognised in profit or loss when the asset is
derecognised, modified or impaired.
The Company’s financial assets at amortised cost
include cash and receivables from related parties.
Derecognition
A financial asset (or, where applicable, a part of a
financial asset or part of a group of similar financial
assets) is primarily derecognised (i.e., removed from
the Company’s statement of financial position)
when:
• The rights to receive cash flows from the asset
have expired; or
• The Company has transferred its rights to receive
cash flows from the asset or has assumed an
obligation to pay the received cash flows in full
without material delay to a third party under a
‘pass-through’ arrangement; and either (a) the
Company has transferred substantially all the
risks and rewards of the asset, or (b) the
Company has neither transferred nor retained
substantially all the risks and rewards of the
asset, but has transferred control of the asset.
When the Company has transferred its rights to
receive cash flows from an asset or has entered into
a pass-through arrangement, it evaluates if, and to
what extent, it has retained the risks and rewards of
ownership. When it has neither transferred nor
retained substantially all of the risks and rewards of
the asset, nor transferred control of the asset, the
Company continues to recognise the transferred
asset to the extent of its continuing involvement. In
that case, the Company also recognises an
associated liability. The transferred asset and the
associated liability are measured on a basis that
reflects the rights and obligations that the Company
has retained.
Impairment of financial assets
The Company recognises an allowance for expected
credit losses (ECLs) for all debt instruments not held
at fair value through profit or loss. ECLs are based on
the difference between the contractual cash flows
due in accordance with the contract and all the cash
flows that the Company expects to receive,
discounted at an approximation of the original
effective interest rate. The expected cash flows will
include cash flows from the sale of collateral held or
other credit enhancements that are integral to the
contractual terms.
ECLs are recognised in two stages. For credit
exposures for which there has not been a significant
increase in credit risk since initial recognition, ECLs
are provided for credit losses that result from
default events that are possible within the next 12-
months (a 12-month ECL). For those credit
exposures for which there has been a significant
increase in credit risk since initial recognition, a loss
allowance is required for credit losses expected over
the remaining life of the exposure, irrespective of
the timing of the default (a lifetime ECL).
For trade receivables and contract assets, the
Company applies a simplified approach in
calculating ECLs. Therefore, the Company does not
track changes in credit risk, but instead recognises a
loss allowance based on lifetime ECLs at each
reporting date.
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Initial recognition, measurement and
derecognition
Financial liabilities are classified, at initial
recognition, as financial liabilities at fair value
through profit or loss, long-term borrowings,
payables, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair
value and, in the case of long-term borrowings and
payables, net of directly attributable transaction
costs.
The Company’s financial liabilities include trade
payables, payables related parties and financial
guarantee liabilities.
Subsequent measurement
For purposes of subsequent measurement, financial
liabilities are classified in two categories:
• Financial liabilities at fair value through profit or
loss
• Financial liabilities at amortised cost (loans and
borrowings)
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Financial liabilities at fair value through profit or loss
include financial liabilities held for trading and
financial liabilities designated upon initial
recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if
they are incurred for the purpose of repurchasing in
the near term. This category also includes derivative
financial instruments entered into by the Company
that are not designated as hedging instruments in
hedge relationships as defined by IFRS 9. Separated
embedded derivatives are also classified as held for
trading unless they are designated as effective
hedging instruments.
Gains or losses on liabilities held for trading are
recognised in the statement of profit or loss.
Financial liabilities designated upon initial
recognition at fair value through profit or loss are
designated at the initial date of recognition, and
only if the criteria in IFRS 9 are satisfied. The
Company has not designated any financial liability as
at fair value through profit or loss.
Financial report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 173
Parent company financial statements continued
Notes to the parent company financial statements continued
Parent company financial statements
Notes to the parent company financial statements (continued)
117744
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
Derecognition
A financial liability is derecognised when the
obligation under the liability is discharged or
cancelled or expires. When an existing financial
liability is replaced by another from the same lender
on substantially different terms, or the terms of an
existing liability are substantially modified, such an
exchange or modification is treated as the
derecognition of the original liability and the
recognition of a new liability. The difference in the
respective carrying amounts is recognised in the
statement of profit or loss.
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Financial guarantee is initially recognised in the
financial statements at fair value at the time the
guarantee is issued. The Company estimates the fair
value of the financial guarantee contract as the
difference between the net present value of the
contractual cashflows required under a debt
instrument, and the net present value of the net
contractual cashflows that would have been
required without the guarantee. The present value
is calculated using a risk-free interest rate.
Subsequent to initial recognition, the Company’s
liability under each guarantee is measured at the
higher of the amount initially recognised less
cumulative amortisation recognised in profit and
loss, and the amount of expected credit losses (ECL).
Financial guarantee ECL reflect the cash shortfalls
adjusted by the risks that are specific to the
cashflows. If the ECL exceeds the initially recognised
guarantee amount less cumulative amortisation the
difference is taken to profit and loss.
A financial guarantee liability is derecognised when
the liability underlying the guarantee is discharged
or cancelled or expires, or if the guarantee is
withdrawn or cancelled. The carrying amount of the
financial guarantee is taken to the statement of
profit or loss.
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The cost of cash-settled equity-based employee
compensation is measured initially at fair value at
the grant date. This fair value is expensed over the
period until vesting with the recognition of a
corresponding liability. The liability is remeasured at
each reporting date up to and including the
settlement date with changes in fair value
recognised in the statement of comprehensive
income.
The cost of equity-settled transactions is measured
at fair value at the grant date. This fair value is
expensed over the period until vesting with the
recognition of a corresponding equity element,
which is not remeasured subsequently until the
settlement date.
Estimating fair value for share-based payment
transactions requires determination of the most
appropriate valuation model, which is dependent
on the terms and conditions of the grant. This
estimate also requires determination of the most
appropriate inputs to the valuation model including
the expected life of the share option, volatility and
distribution yield and making assumptions about
them. The assumptions and models used for
estimating fair value for share-based payment
transactions are disclosed in Note 13.
5. Investments in subsidiaries
As at 31 December 2021 and 31 December 2020 Investments of the Company
comprised the following:
In thousands of US Dollars
31 December
2021
31 December
2020
Nostrum Oil & Gas Coöperatief U.A.
116,437,306
116,669,665
Nostrum Oil & Gas BV
222,271
222,271
Impairment of investments
(116,659,577)
(116,891,936)
–
–
The investments in Nostrum & Gas Cooperatief U.A. include the guarantees
initial cost in the amount of US$9,881 thousand as described in the Note 9
(2020: US$9,881 thousand) as well as US$789 thousand capitalized costs under
the “Long-term Incentive Plan 2017” (2020: US$789 thousand).
As a result of the impairment testing performed at 31 December 2019 the
Company recognised an impairment charge of US$117,361 thousand for the full
amount of its investments in subsidiaries. For more details, please refer to
Note 4. As at 31 December 2021 and 31 December 2021 the Company has
partially reversed previously recognised impairment of investments in
subsidiaries in the amount of US$232 thousand and US$469 thousand,
relatively, corresponding to the adjustment under the “Long-term Incentive
Plan 2017”.
6. Receivables from related parties
Receivables from related parties are comprised of the following as at
31 December 2021 and 31 December 2020:
In thousands of US Dollars
31 December
2021
31 December
2020
Receivables from Nostrum Oil & Gas Benefit Trust
23,812
23,812
Receivables from Nostrum Oil & Gas Coöperatief U.A.
729
745
24,541
24,557
Less: bad debt allowance
(23,541)
(23,448)
1,000
1,109
Receivables from the Nostrum Oil & Gas Benefit Trust (“the Trust”) represent
the loan provided to support the Company’s obligations to employees under
the Employee Share Option Plan (“ESOP”) and the Long-Term Incentive Plan
2017 (“LTIP”) (Note 13). The loan is interest free and unsecured. The loan is
repayable in the case of an advance used to acquire securities to satisfy the
exercise of options granted pursuant to the rules of ESOP, and unless otherwise
agreed in writing between the parties, the earlier of 1) ten years from the Date
of Grant, or 2) 30 days after the exercise date, and in all other cases any other
date agreed in writing between the parties.
Considering the fact that the loan is repayable to the extent of the assets of the
Trust, which are reflected in treasury shares held by the Trust, the Company has
recognised a bad debt allowance as at 31 December 2021 in the amount of
US$23,541 thousand (2020: US$23,448 thousand), representing the difference
between the book value of the loan and the recoverable value of the treasury
shares as of 31 December 2021.
174 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Parent company financial statements
Notes to the parent company financial statements (continued)
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
117755
7. Cash and Cash Equivalents
As at 31 December 2021 and 31 December 2020 cash and cash equivalents
comprised the following:
In thousands of US Dollars
31 December
2021
31 December
2020
Current accounts in Pounds Sterling
319
340
Current accounts in US Dollars
230
207
Current accounts in Euro
–
68
549
615
8. Shareholders’ equity
As at 31 December 2021 the ownership interests in Nostrum Oil & Gas PLC
consists of 188,182,958 issued and fully paid ordinary shares, which are listed
on the London Stock Exchange. The ordinary shares have a nominal value of
GB£ 0.01. There were no movements in the number of shares during the years
ended 31 December 2020 and 2021 and comprised of the following:
Number of shares
In circulation
185,234,079
Treasury capital
2,948,879
188,182,958
Treasury shares were issued to support the Group’s obligations to employees
under the Employee Share Option Plan (“ESOP”) and the Long-Term Incentive
Plan (“LTIP”) and are held by Intertrust Employee Benefit Trustee Limited as
trustee for the Nostrum Oil & Gas Benefit Trust. In the case of the ESOP, upon
request from employees to exercise options, the trustee would sell shares on
the market and settle respective obligations under the ESOP. In the case of
share-settled LTIP awards, the trustee would transfer shares to the relevant LTIP
award holder (although no LTIP awards are currently exercisable). The Nostrum
Oil & Gas Benefit Trust constitutes a special purpose entity under IFRS and
therefore, the shares held in the trust are recorded as treasury capital of the
Company.
Group reorganisation reserve in the amount of US$255,459 thousand
represents the difference between the partnership capital, treasury capital and
additional paid-in capital of Nostrum Oil & Gas LP and the share capital of
Nostrum Oil & Gas PLC, that arose during the reorganisation of the Group in
2014. Share-option reserves include amounts related to sale of treasury shares
under ESOP as well as share-based payments under LTIP.
Nostrum Oil & Gas PLC became the new holding company for the business of
Nostrum Oil & Gas LP based on the resolution passed by its limited partners on
17 June 2014 followed by the Company reorganisation referred to in that
resolution.
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As at 31 December 2021 the ownership interests in the Company consist of
ordinary shares, which are listed on the London Stock Exchange, these shares
have been issued and fully paid. As at 1 January 2014 the Company had
subscriber shares and redeemable preference shares, all of which were
cancelled on 7 August 2014.
The subscriber and redeemable preference shares had a nominal value of GBP 1
and the ordinary shares have a nominal value of GBP 0.01.
9. Financial guarantees
Financial guarantees are comprised of the following as at 31 December 2021
and 31 December 2020:
In thousands of US Dollars
2021
2020
Financial guarantee as at 1 January
831,767
434,117
Charge for expected credit losses
(21,955)
397,650
Financial guarantee as at 31 December
809,812
831,767
The Company acts as a guarantor under the Group’s US$725 million 8.0% Senior
Notes due July 2022 and/or its US$400 million 7.0% Senior Notes due February
2025 (the ‘Notes’). Since the guarantees are issued in favour of the Company’s
indirect subsidiaries, related costs at initial recognition are capitalized into the
investments in subsidiaries (Note 5).
In 2021 and 2020, the Company performed an assessment of the value of the
guarantees issued under the 2022 and 2025 Notes, taking into account the
Group’s financial position as at 31 December in both years and the fact that the
Company is the parent entity in the Group and so would ultimately assume the
guarantee obligations of its subsidiaries in the event of their inability to meet
such obligations. As a result, the Company has recognised the guarantee
liabilities for the total amount of US$ 809,812 thousand as at 31 December
2021 (2020 restated: US$831,767 thousand), representing the amount of
expected credit losses as of the reporting date. Further details on the Notes are
provided below.
During 2020 the Company engaged with its bondholders regarding a possible
restructuring of the Group’s Notes. On 23 October 2020 the Company
announced that, together with certain of its subsidiaries (the “Note Parties”), it
had entered into a forbearance agreement with members of the AHG. On
23 December 2021, the Company announced the execution of a lock-up
agreement. Under the terms of the Lock-up Agreement, the Group, ICU and the
AHG have agreed to implement a transaction which restructures the Notes.
More detailed information related to forbearance agreement and discussions
with bondholders is disclosed in the Note 1.
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On 25 July 2017, a newly incorporated entity, Nostrum Oil & Gas Finance B.V.
(the “2022 Issuer”) issued US$ 725,000 thousand notes (the “2022 Notes”). The
2022 Notes bear interest at a rate of 8.00% per year, payable on 25 January and
25 July of each year, maturing in 2022.
The 2022 Notes are jointly and severally guaranteed (the “2022 Guarantees”)
on a senior basis by Nostrum Oil & Gas PLC, Nostrum Oil & Gas Coöperatief
U.A., Zhaikmunai LLP and Nostrum Oil & Gas B.V. (the “2022 Guarantors”). The
2022 Notes are the 2022 Issuer’s and the 2022 Guarantors’ senior obligations
and rank equally with all of the 2022 Issuer’s and the 2022 Guarantors’ other
senior indebtedness.
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On 16 February 2018, Nostrum Oil & Gas Finance B.V. (the “2025 Issuer”) issued
US$ 400,000 thousand notes (the “2025 Notes”). The 2025 Notes bear interest
at a rate of 7.00% per year, payable on 16 February and 16 August of each year,
maturing in 2025.
The 2025 Notes are jointly and severally guaranteed (the “2025 Guarantees”)
on a senior basis by Nostrum Oil & Gas PLC, Nostrum Oil & Gas Coöperatief
U.A., Zhaikmunai LLP and Nostrum Oil & Gas B.V. (the “2025 Guarantors”). The
2025 Notes are the 2025 Issuer’s and the 2025 Guarantors’ senior obligations
and rank equally with all of the 2025 Issuer’s and the 2025 Guarantors’ other
senior indebtedness.
Financial report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 175
Parent company financial statements continued
Notes to the parent company financial statements continued
Parent company financial statements
Notes to the parent company financial statements (continued)
117766
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
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On 26 August 2020 the Company announced that an event of default has
occurred under the terms of the indenture governing 2022 Notes resulting from
the Issuer's non-payment of interest due and payable on 25 July 2020 to the
holders of the 2022 Notes and the expiration of the 30-day grace period which
commenced on the same date. Following this, the Issuer also did not pay
interest on 2025 Notes when due and upon the expiration of the 30-day grace
period in respect of such payment. As mentioned above, the Company
engaged with its bondholders regarding a possible restructuring of the Group’s
Notes and entered into Forbearance Agreement. More detailed information
related to forbearance agreement and discussions with bondholders is
disclosed in the Note 1.
Considering these facts and circumstances, from 2020 the Company has
reclassified the balance of the financial guarantees into current liabilities and
presented them as the current portion of financial guarantees.
10. Payables to related parties
Payables to related parties are comprised of the following as at 31 December
2021 and 31 December 2020:
In thousands of US Dollars
31 December
2021
31 December
2020
Payables to Nostrum Oil & Gas Coöperatief U.A.
272
364
Interest payable Nostrum Oil & Gas Finance B.V.
204
204
476
568
As at 31 December 2021 amounts payable to Nostrum Oil & Gas Coöperatief
U.A. represent the arrangements in respect of the Nostrum employee benefit
trust. For more details, please refer to Note 6. Based on the service agreement,
the amounts payable to Nostrum Oil & Gas Coöperatief U.A. in respect to the
employee benefit trust, are only repayable to the extent of amounts received
(or recovered) from the Trust. Considering the fact that the loan is repayable to
the extent of the assets of the Trust, which are reflected in treasury shares held
by the Trust, the Company has remeasured and reduced the loan payable as at
31 December 2021 by US$23,541 thousand (2020: US$23,448 thousand),
representing the difference between the book value of the loan and the
recoverable value of the treasury shares as of 31 December 2021.
As at 31 December 2021 and 2020 amounts payable to Nostrum Oil & Gas
Finance B.V. represent interest accrued in the amount US$204 thousand on the
loan from Nostrum Oil & Gas Finance B.V. The loan on which the above interest
amounts were calculated was settled against the receivables due from Nostrum
Oil & Gas Coöperatief U.A. in the amount of $3,000 thousand in 2019.
11. Auditors’ remuneration
For the year ended 31 December 2021 the fees for the audit of the Company
amount to US$10 thousand (2020: US$10 thousand).
12. Employee’s remuneration
The average monthly number of employees employed was as follows:
For the year ended 31 December
In thousands of US Dollars 2021 2020
Executive Directors
1
1
Administrative personnel
4
7
5
8
Their aggregate remuneration comprised:
For the year ended 31
December
In thousands of US Dollars
2021
2020
Wages and salaries
960
1,490
Social security costs
148
204
Share-based payments
–
(28)
Pension contributions
23
46
Other benefits
17
30
1,148
1,742
The directors of the Company are also directors of the Group. The aggregate
amount of remuneration paid to or receivable by executive directors in respect
of qualifying services for the financial year ended 31 December 2021 was
US$1,877 thousand (2020 restated: US$2,429 thousand) and also includes
remuneration paid by other companies of the Group. In addition, US$280
thousand (2020: US$260 thousand) was paid by the Company to the non-
executive directors. The directors do not believe that it is practicable to
apportion these amounts between their services as directors of the Company
and their services as directors of the Group.
For the year ended 31 December 2021 the Company employed an average of
2 non-executive directors (2020: 2 non-executive directors).
Full details of individual directors’ remuneration are given in the directors’
remuneration report on pages 105-119 of the annual report.
13. Long-term incentive plan
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In 2017 the Company started operating a Long-term incentive plan (“the LTIP”),
that was approved by the shareholders of the Company on 26 June 2017 and
adopted by the board of directors of the Company on 24 August 2017. The LTIP
is a discretionary benefit offered by the Company for the benefit of selected
employees. Its main purpose is to increase the interest of the employees in the
Company's long-term business goals and performance through share
ownership. The LTIP is an incentive for the employees' future performance and
commitment to the goals of the Company. The remuneration committee of the
board of the Company has the right to decide, in its sole discretion, whether or
not further awards will be granted in the future and to which employees those
awards will be granted.
Employees (including senior executives and executive directors) of members of
the Group or their associates may receive an award, which is a "nominal cost
option" over a specified number of ordinary shares in the capital of the
Company. The option has an exercise price of 1p per share (but the Company
has the discretion to waive this prior to exercise). In addition, under the Rules of
the LTIP the Company has discretion to settle awards other than by transfer of
shares such as by way of cash settlement. Generally, the awards are classified as
equity-settled transactions. The share options are treated as equity-settled
since there are no legal limitations expected on issue of shares for these upon
vesting, the Company has a choice of settlement and the intention is to settle
them in equity. However, in certain jurisdictions due to regulatory requirements
the Company may not be able to settle the awards other than by transfer of
cash, in which case the awards are classified as cash-settled transactions, and
accounted for similar to SARs.
The award ordinarily vests and becomes exercisable as from later of the third
anniversary of grant or two years after the date on which the Company
determines whether the performance condition has been satisfied, subject to
employee’s continued service and to the extent to which the performance
condition is satisfied, until the end of the contractual life. The contractual life of
the share options is ten years.
The cost of cash-settled equity-based employee compensation is measured
initially at fair value at the grant date using a trinomial lattice valuation model.
This fair value is expensed over the period until vesting with the recognition of a
corresponding liability. The liability is remeasured at each reporting date up to
and including the settlement date with changes in fair value recognised in the
statement of comprehensive income.
The cost of equity-settled transactions is measured at fair value at the grant
date using a trinomial lattice valuation model. This fair value is expensed over
the period until vesting with the recognition of a corresponding equity element
of “shares to be issued under LTIP”, which is not remeasured subsequently until
the settlement date.
176 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Parent company financial statements
Notes to the parent company financial statements (continued)
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
117777
The following table summarizes the movement in the number of outstanding
share options capable of vesting during the years ended 31 December 2021 and
31 December 2020:
Equity-settled
awards
Cash-settled
awards
TOTAL awards
As at 31 December 2019
467,110
31,557
498,667
Share options forfeited
(248,217)
(4,938)
(253,155)
As at 31 December 2020
218,893
26,619
245,512
Share options forfeited
(62,854)
(26,619)
(89,473)
As at 31 December 2021
156,039
–
156,039
In 2017 the Company granted 1,208,843 share options, of which 344,631 share
options remained outstanding as at 31 December 2021 (2020: 542,243 share
options). On 23 March 2018 the remuneration committee of the board of the
Company determined the level of performance conditions that were met for
the performance conditions set upon issue of the share options granted in
2017. After adjusting for the nonachievement of performance conditions,
156,039 share options are capable of vesting as of 31 December 2021 (2020:
245,512 share options) and all of these share options were vested as of
31 December 2021, in accordance with the management’s best estimate.
On 28 November 2018 the Company granted a further 1,163,040 share options,
however due to the performance conditions not being met none of these share
options are capable of vesting.
There were no cash-settled share-options at 31 December 2021 (2020: 26,619
share options with carrying value of US$3 thousand). Based on the estimations
of the carrying value of the liability, during the year ended 31 December 2021
the Company recognised a gain of US$3 thousand from employee share options
fair value adjustment (2020: loss of US$1 thousand).
The fair value of the equity-settled share options at the valuation dates of
28 November 2018 and 23 March 2018 amounted to US$1.25 and US$2.76 per
share option, respectively. Based on these estimations, during the year ended
31 December 2021 the Company recognised income from reversal of employee
share option expense in the amount of US$11 thousand (2020: US$27
thousand) and a reduction in the investments in subsidiaries in the amounts of
US$244 thousand (2020: US$469 thousand).
The Hull-White trinomial lattice valuation model was used to value the share
options. The following table lists the inputs to the model used for valuation of
the share options at the grant date:
10 October 2017
11 December 2017
Price at the reporting date (US$)
1.25
2.76
Distribution yield (%)
0%
0%
Expected volatility (%)
43.4%
40.4%
Risk-free interest rate (%)
1.38%
1.45%
Expected life (years)
10
10
Option turnover (%)
10%
10%
Price trigger
2.0
2.0
The expected life of the options is based on historical data and is not necessarily
indicative of exercise patterns that may occur. The expected volatility reflects
the assumption that the historical volatility is indicative of future trends, which
may also not necessarily be the actual outcome. Option turnover rate
represents the rate of employees expected to leave the Company during the
vesting period, which is based on historical data and may not necessarily be the
actual outcome. The model considers that when share price reaches the level of
exercise price multiplied by the price trigger the employees are expected to
exercise their options.
14. Related party transactions
Related parties of the Company include its direct and indirect subsidiaries, key
management personnel and other entities that are under the control or
significant influence of the key management personnel.
Accounts receivable from related parties represented by Company’s
subsidiaries as at 31 December 2021 and 31 December 2020 consisted of the
following:
In thousands of US Dollars
31 December
2021
31 December
2020
Receivables from Nostrum Oil & Gas Benefit Trust
23,812
23,812
Receivables from Nostrum Oil & Gas Coöperatief U.A.
729
745
24,541
24,557
Less: bad debt allowance
(23,541)
(23,448)
1,000
1,109
Accounts payable to related parties represented by Company’s subsidiaries as
at 31 December 2021 and 31 December 2020 consisted of the following:
In thousands of US Dollars
31 December
2021
31 December
2020
Payables to Nostrum Oil & Gas Coöperatief U.A.
272
364
Interest payable Nostrum Oil & Gas Finance B.V.
204
204
476
568
Financial guarantees are comprised of the following as at 31 December 2021
and 31 December 2020:
In thousands of US Dollars
2021
2020
Financial guarantee as at 1 January
831,767
434,117
Charge for expected credit losses
(21,955)
397,650
Financial guarantee as at 31 December
809,812
831,767
During the years ended 31 December 2021 and 2020 the Company had the
following transactions with related parties represented by Company’s
subsidiaries:
For the year ended 31
December
In thousands of US Dollars
2021
2020
(restated*)
Income from provision of services
Nostrum Oil & Gas Coöperatief U.A.
5,831
6,956
Loss from financial guarantee
Nostrum Oil & Gas Finance B.V. (Note 9)
21,955
(397,650)
Financial report
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 177
Parent company financial statements continued
Notes to the parent company financial statements continued
Parent company financial statements
Notes to the parent company financial statements (continued)
117788
NNoossttrruumm OOiill && GGaass PPLLCC
Annual Report & Accounts 2021
15. Financial risk management objectives and policies
The Company’s financial assets consist of receivables from shareholders and
cash and cash equivalents. The Company’s financial liabilities consist of payables
to related parties, trade and other payables and accrued liabilities.
The main risks arising from the Company’s financial instruments are foreign
exchange risk and credit risk. The Company’s management reviews and agrees
policies for managing each of these risks, which are summarized below.
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Management has considered how the Company’s identified climate risks and
climate related goals (as discussed in Climate Change and GHG Emissions in the
Group’s 2021 Annual Report) may impact the estimation of the recoverable
value of cash-generating unit tested for impairment and therefore of the
finance guarantee provision. The anticipated extent and nature of the future
impact of climate on the Group’s operations and future investment depends on
the development of new technologies and production processes employed and
the level of emissions, energy efficiency and use of renewable energy. The
sensitivity of the Group’s impairment assessment to these factors is also
impacted by the extent that estimated recoverable value exceeds the carrying
value of an individual cash-generating unit – where this is lower there is an
increased risk of a future impact. The Group is in the process of identifying a
range of actions and initiatives to progress towards the Group’s goals, including
reduction of greenhouse gas emissions, wastewater discharges and increase of
waste utilisation. In certain cases, the costs of such actions have been quantified
and are included in the Group’s forecasts which are used to estimate
recoverable value for the Group’s cash-generating unit. Other actions and
initiatives continue to be explored by the Group but are not sufficiently certain
to be reflected in the Group’s forecasts of estimated recoverable value.
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Most of the Company’s operation is denominated in USD, therefore the
Company’s statement of financial position is not significantly affected by
exchange rate movements.
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Financial instruments, which potentially subject the Company to credit risk,
consist primarily of receivables and cash in banks. The maximum exposure to
credit risk is represented by the carrying amount of each financial asset. The
Company considers that its maximum exposure is reflected by the amount of
receivables from shareholders and cash and cash equivalents.
The Company places its US Dollar, British Pound and Euro denominated cash
with ING which has a credit rating of P-1 (upper medium grade) from Moody’s
rating agency at 31 December 2021.
Receivables are amounts receivable from Group companies, thus risk of credit
default is low, except for the loan receivable from the Trust for which loss
allowance has been recognised.
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The fair value of the financial assets represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale.
The management assessed that its assets and liabilities approximate their
carrying amounts largely due to their nature or the short-term maturities of
these instruments.
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For the purpose of the Company’s capital management, capital includes issued
capital and all other equity reserves attributable to the equity holders of the
Company. The primary objective of the Company’s capital management is to
maximise the shareholder value.
16. Events after the reporting period
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On 18 January 2022, the Group announced that following the original accession
period, holders of approximately 76.29% of the 2022 Notes and 80.35% of the
2025 Notes had signed or acceded to the Lock-up Agreement, which comprises
approximately 77.73% of the total aggregate principal amount of both series of
Notes.
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As part of the restructuring implementation plan, on 7 February 2022, the
Group announced receipt of required consents in respect of solicitation and
provided update on Lock-Up Agreement Accessions relating to the 2022 Notes
and 2025 Notes.
The Group solicited consents to the Proposed Amendments in order to facilitate
the implementation of a scheme of arrangement or a restructuring plan by
helping to establish a sufficient connection with England, such that the High
Court of England and Wales will accept jurisdiction with respect to the scheme
of arrangement or the restructuring plan. Holders were not offered a consent
payment to vote in favour of the Proposed Amendments. Holders of 87.081% in
aggregate principal amount of the 2022 Notes and Holders of 91.222% in
aggregate principal amount of the 2025 Notes have provided consents. Holders
can no longer revoke their consents.
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l
l
a
a
r
r
a
a
n
n
d
d
G
G
e
e
n
n
e
e
r
r
a
a
l
l
M
M
e
e
e
e
t
t
i
i
n
n
g
g
V
V
o
o
t
t
e
e
On 13 April 2022, the Company issued a Circular and gave notice convening a
General Meeting of its shareholders on 29 April 2022, at which shareholders
voted on the terms of the restructuring (the “Restructuring Resolution”). The
Circular and General Meeting also included a resolution to vote in favour of the
Related Party Transactions with ICU in respect of new ordinary shares being
issued to ICU pursuant to the restructuring – only independent shareholders
(excluding ICU) are required to vote on this specific resolution (the “RPT
Resolution”).
At the General Meeting, 99.99% voted for the implementation of the
restructuring which means the restructuring will proceed under a UK scheme of
arrangement under Part 26 of the Companies Act 2006. Further, 99.89% voted
in favour of the RPT Resolution, allowing ICU as a related party to receive the
issuance of new securities under the scheme.
I
I
m
m
p
p
a
a
c
c
t
t
o
o
f
f
s
s
a
a
n
n
c
c
t
t
i
i
o
o
n
n
s
s
o
o
n
n
R
R
u
u
s
s
s
s
i
i
a
a
The recent Russia-Ukraine conflict has led to widespread sanctions being
imposed on various Russian institutions and individuals. Bodies and nations
imposing sanctions today include the US, UK and EU and these sanctions have
been sequentially expanding. The given geographical position of the Group’s
main operating company, it is very close to the evolving situation in Ukraine.
Whilst Kazakhstan is not directly involved in the ongoing conflict, nor have any
Western sanctions impacted upon on it, the country is connected to Russia
through infrastructure, banking, and other business links. Nostrum currently
sends approximately 40% of its products through Russia via Russian transport
infrastructure and ports. Furthermore, the Group contracts with a limited
number of Russian service companies. The Group will need to be cognisant of
the current and evolving sanctions list to ensure it is conducting business in
compliance with these sanctions and, if it foresees that it will not be, the
necessary alternatives will need to be set up to be compliant whilst continuing
to conduct business as normal.
P
P
o
o
l
l
i
i
t
t
i
i
c
c
a
a
l
l
a
a
n
n
d
d
c
c
i
i
v
v
i
i
l
l
u
u
n
n
r
r
e
e
s
s
t
t
i
i
n
n
t
t
h
h
e
e
R
R
e
e
p
p
u
u
b
b
l
l
i
i
c
c
o
o
f
f
K
K
a
a
z
z
a
a
k
k
h
h
s
s
t
t
a
a
n
n
In January 2022, following a rise in fuel prices, certain mass demonstrations and
gatherings occurred in various cities across Kazakhstan that culminated in
significant loss of life, arrests and property damage and resulted in a state of
emergency being declared and military units from surrounding former CIS
countries being called in to assist the local security forces. During this period no
Group employees were harmed, and the Group experienced no disruptions to
its operations in the field or at the head office.
End of Document
178 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Investor information
Contact information
Investor contacts
Investor Relations
ir@nog.co.uk
Tel: +44 20 3740 7430
Registered office
Nostrum Oil & Gas PLC
20 Eastbourne Terrace
London W2 6LG
United Kingdom
Tel: +44 20 3740 7430
Registered number: 8717287
Place of registration: England and Wales
VAT GB302 9250 35
Zhaikmunai LLP registered office
Zhaikmunai LLP
43/1 Alexander Karev street
Uralsk, 090000
Republic of Kazakhstan
Tel: +7 7112 933900
Fax: +7 7112 933901
Auditor
Ernst & Young LLP
1 More London Place
London SE1 2AF
United Kingdom
Registrar
Link Group
10th Floor, Central Square,
29 Wellington Street
Leeds LS1 4DL
United Kingdom
Tel: +44 371 664 0391
Nostrum Oil & Gas BV
Activity: Holding Company
Registered office and
principalplaceofbusiness:
Bloemendaalseweg 139
Hofstede Sparrenheuvel
2061 CH
Bloemendaal
The Netherlands
Directors:
Thomas Hartnett
Ulugbek Makhmadiyarov
Nostrum Oil & Gas Coöperatief UA
Activity: Holding Company
Registered office and
principalplaceofbusiness:
Bloemendaalseweg 139
Hofstede Sparrenheuvel
2061 CH
Bloemendaal
The Netherlands
Directors:
Ulugbek Makhmadiyarov
Thomas Hartnett
Nostrum Oil & Gas Finance BV
Activity: Finance Company
Registered office and
principalplaceofbusiness:
Bloemendaalseweg 139
Hofstede Sparrenheuvel
2061 CH
Bloemendaal
The Netherlands
Directors:
Ulugbek Makhmadiyarov
Thomas Hartnett
Nostrum Services NV
Activity: Holding Company
Registered office and
principalplaceofbusiness:
Chaussée de Wavre 20
1360 Perwez
Belgium
Directors:
Thomas Hartnett BVBA
Ulugbek Makhmadiyarov
Nostrum Associated
InvestmentsLLP
Activity: Dormant
Registered office and
principalplaceofbusiness:
43B Karev Street
090000 Uralsk
Republic of Kazakhstan
General Director:
Malika Saudasheva
Nostrum Oil & Gas UK Limited
Activity: Dormant
Registered office and
principalplaceofbusiness:
20 Eastbourne Terrace
London W2 6LG
United Kingdom
Directors:
Martin Cocker
Thomas Hartnett
Nostrum Services Central Asia LLP
Activity: Dormant
Registered office and
principalplaceofbusiness:
Building 75/38
Microrayon Aksay 3a
050031 Almaty
Republic of Kazakhstan
General Director:
Kalamkas Shakenova
Regulatory information
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 179
Website and electronic communications details
Nostrum’s website provides information on the activities of the Company, both regulatory and other, as well as the opportunity to sign up
to our mailing list to ensure stakeholders are kept up to date with the most recent information. Please see www.nog.co.uk for more
information.
In addition, to reduce our impact on the environment, we encourage all shareholders to opt for electronic shareholder communications,
including annual reports and notices of meetings.
Share price information
Exchange London Stock Exchange
Ticker NOG.LN
Reuters code NOGN.L
ISIN code GB00BGP6Q951
Capitalisation-weighted index of FTSE 350 E&P.
Earnings per share (as at 31 December 2021): US$(0.14)/share.
Book value per share (as at 31 December 2021): US$(4.44)/share.
Financial calendar 2022
Q1 2022 Operational update 6 May 2022
Q1 2022 Financial results 24 May 2022
H1 2022 Operational update 29 July 2022
H1 2022 Financial results 16 August 2022
Q3 2022 Operational update 28 October 2022
Q3 2022 Financial results 15 November 2022
Share price performance
Equity financing
Equity raising Timing Amount Lead manager
IPO March 2008 US$100m ING Bank NB
Secondary equity issue September 2009 US$300m ING Bank NV
Mirabaud Securities
Renaissance Securities
Investor information continued
0
0.04
0.08
0.12
0.16
Price (GBP)
Jan 21
Feb 21
Mar 21
Apr 21
May 21
Jun 21
Jul 21
Nov 21
Dec 21
Aug 21
Sep 21
Oct 21
NOSTRUM OIL & GAS PLC
180 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
Debt financing
Current outstanding bond issues for Nostrum Oil & Gas PLC are detailed in the following table:
Settlement Maturity Currency Amount (m) Coupon Listing RegS Rule 144A
Jul 2017 Jul 2022 US$ 725 8.000% Dublin CUSIP
ISIN
Common Code
N64884AB0
USN64884AB02
16453439
66978CAB8
US66978CAB81
164534073
Feb 2018 Feb 2025 US$ 400 7.000% Dublin CUSIP
ISIN
Common Code
N64884AD6
USN64884AD67
176959886
66978CAC6
US66978CAC64
176959878
For a summary of certain covenants relating to the 2017 and 2018 Notes, please see the consolidated financial statements.
Internally held bond financing of the Nostrum Group
Bond issues wholly owned by Nostrum Oil & Gas Finance BV are provided in the following table:
Settlement Maturity Currency Amount (m) Coupon Listing RegS Rule 144A
Feb 2014 Jan 2033 US$ 400 9.5% Dublin/
Almaty
CUSIP
ISIN
Common Code
N64884AA2
USN64884AA29
103302323
66978CAA0
US66978CAA09
103302307
Nov 2012 Jun 2033 US$ 560 9.5% Dublin/
Almaty
CUSIP
ISIN
Common Code
N97716AA7
USN97716AA72
085313177
98953VAA0
US98953VAA08
085259776
Credit ratings
Nostrum Oil & Gas PLC is currently
beingrated by two credit rating agencies:
Standard and Poor’s and Moody’s
InvestorServices:
Agency Rating Outlook
Standard
and Poor’s SD NM
Moody’s Ca Negative
Zhaikmunai LLP is a wholly-owned indirect
subsidiary of Nostrum and its equity is not
listed, while Nostrum’s equity is listed on
the premium segment of the London Stock
Exchange and on the Kazakhstan Stock
Exchange.
The Group’s investor relations programme
aims to develop open and transparent
communication between the Group
(including Zhaikmunai LLP) and its
shareholders, providing information about
the financial and operational performance
of the Company. The Investor Relations
department of the Group seeks to ensure
all questions received from any of the
Group’s stakeholders are dealt with in a
timely manner based on the underlying
principle that the Group is approachable
and responsive to any potential queries.
0
10
20
30
40
50
Price
Jan 21
Feb 21
Mar 21
Apr 21
May 21
Jun 21
Jul 21
Aug 21
Sep 21
Oct 21
Nov 21
Dec 21
NOSTRUM OIL & GAS FINANCE BV 8.0% 25 JULY 2022
NOSTRUM OIL & GAS FINANCE BV 7.0% 16 FEBRUARY 2025
0
10
20
30
40
50
Price
Jan 21
Feb 21
Mar 21
Apr 21
May 21
Jun 21
Jul 21
Aug 21
Sep 21
Oct 21
Nov 21
Dec 21
1. Yield to worst was not calculated following
the default in payment of interest.
Regulatory information
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 181
Additional information to comply with KASE listing requirements
There are no KPIs related to corporate governance. There are no environmental KPIs other than the ESG KPIs listed on page 25.
In addition to the information provided in the ‘Sustainability review’ section of this report on pages 34 – 50, the Company reports that:
• There were no fires in 2021. The Company complies with all relevant fire safety regulations, including as to the number and type of fire
extinguishers. There are no formal agreements with trade unions involving health and safety issues. It was not possible to record
workplace health and safety issues in addition to those mentioned in this report.
• The average number of training hours per employee by gender and category was not recorded.
• There was no advanced training in 2021 in addition to that required under the PSA. There was no assistance in 2021 for employees who
stopped working as a result of retirement or termination of employment. There were no official performance assessments during 2021.
• Age related data and location of new employees hired were not recorded.
• Age group, category and workplace data for gender pay discrepancies were not recorded.
• There was no training on the Company’s Human Rights Policy in 2021 (2020: none).
Investor information continued
182 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
2010 Notes 10.500% notes issued in 2010.
2012 Notes 7.125% notes issued in 2012.
2014 Notes 6.375% notes issued in 2014.
2017 Notes 8.000% notes issued in 2017.
2018 Notes 7.000% notes issued in 2018.
A
API American Petroleum Institute.
API gravity The industry standard method of expressing specific density of crude oil or other liquid hydrocarbons
as recommended by the American Petroleum Institute. Higher API gravities mean lower specific
gravity and lighter oils. When the API gravity is greater than 10, the product is lighter and floats on
water; when it is less than 10, it is heavier than water and sinks. Generally speaking, oil with an API
gravity between 40 and 45 commands the highest prices.
appraisal well A well or wells drilled to follow up a discovery and evaluate its commercial potential.
associated gas Gas which occurs in crude oil reservoirs in a gaseous state.
B
barrel/bbl The standard unit of volume: 1 barrel = 159 litres or 42 US gallons.
basin A large area holding a thick accumulation of sedimentary rock.
bcm Billion cubic metres.
Boe Barrels of (crude) oil equivalent, i.e. the factor used by Nostrum to convert volumes of different
hydrocarbon production to barrels of oil equivalent.
Boepd Barrels of (crude) oil equivalent per day.
Bopd Barrels of crude oil per day.
C
C1 Methane.
C2 Ethane.
C3 Propane.
C4 Butane.
C5 Pentane.
C6 Hexane.
C7 Heptane.
CAC A pipeline with two branches originating in Turkmenistan and meeting in Kazakhstan before crossing
into Russia and connecting to the Russian pipeline system, with an annual throughput capacity of
60.2 billion cubic metres.
Cash Cash and cash equivalents, including current and non-current investments.
Casing Relatively thin-walled, large diameter steel rods that are screwed together to form a casing string,
which is run into a core hole or well and cemented in place.
Caspian region Parts of countries adjacent to the Caspian Sea.
CDP CDP is an organisation based in the United Kingdom which supports companies in disclosing their
environmental impact (formerly known as the Carbon Disclosure Project).
Chinarevskoye field The Chinarevskoye oil and gas condensate field.
CO
2
Carbon dioxide.
commissioning Process to assure a facility or plant, such as Nostrum’s GTU 3, is tested to verify it functions according
to technical objectives and specifications before use.
Competent Authority The State’s central executive agency, designated by the Government to act on behalf of the State to
exercise rights relating to the execution and performance of subsoil use contracts, except for contracts
for exploration and production of commonly occurring minerals. This is the Ministry of Energy of the
Republic of Kazakhstan (“MOE”) with respect to the oil and gas industry.
condensate Hydrocarbons which are gaseous in a reservoir, but which condense to form a liquid as they rise to the
surface where the pressure is much less.
contingent resources Deposits that are estimated, on a given date, to be potentially recoverable from known accumulations
but that are not currently considered commercially recoverable.
cost oil Cost oil denotes an amount of crude oil produced in respect of which the market value is equal to
Nostrum’s monthly expenses that may be deducted pursuant to the PSA (q.v.) (including all operating
costs, exploration costs and development costs up to an annual maximum of 90% of the annual gross
realised value of hydrocarbon production).
crude oil A mixture of liquid hydrocarbons of different molecular weights.
Glossary
Glossary
Regulatory information
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 183
D
development During development, engineering teams design the most efficient development options to build wells
and associated infrastructure to produce hydrocarbons from a gas field within a proven productive
reservoir (as defined by exploration and appraisal activities). The three phases of development are
exploration and appraisal, development and production.
downstream Downstream refers to all petroleum operations occurring after delivery of crude oil or gas to a refinery
or fractionation plant.
Development Plans The development plans approved by the SCFD in March 2009.
Directors or Board The Directors of the Company.
dry gas Dry gas is natural gas (methane and ethane) with no significant content of heavier hydrocarbons. It is
gaseous at both sub-surface and surface conditions.
E
E&P Exploration and production.
EBITDA Profit before tax non-recurring expenses + finance costs + foreign exchange loss/(gain) + ESOP +
depreciation – interest income + other expenses/(income).
Environmental Code The Kazakhstan Environment Code (No. 212, dated 9 January 2007, as amended).
Exploration Permit The geological allotment (Annex to the Licence) issued by the Competent Authority to Zhaikmunai
LLP.
exploration phase The phase of operations which covers the search for oil or gas by carrying out detailed geological and
geophysical surveys, followed up where appropriate by exploratory drilling.
exploration well Well drilled purely for exploratory (information-gathering) purposes in a particular area.
F
farm-in Transfer of a percentage of an oil or gas permit held by the farmor in return for (partial or complete)
delivery of the work programme by the farmee(s). Note that this work would normally have had to have
been delivered and paid for by the farmor.
farm-out A contractual agreement with the holder of an oil and gas permit to assign all (or a percentage of) that
interest to another party in exchange for delivering the work programme required by the permit, or
fulfilling other contractually specified conditions.
FCA Financial Conduct Authority of the United Kingdom.
FCA Uralsk Sales made under free carrier terms according to which Nostrum delivers to the terminal in Uralsk and
transportation risk and risk of loss are transferred to the buyer after delivery to the carrier.
field An area consisting of a single reservoir or multiple reservoirs all grouped in or related to the same
individual geological structure feature and/or stratigraphic condition.
FOB Sales made under “free on board” terms.
FSU Former Soviet Union.
G
G&A General and administrative expenses.
gas Petroleum that consists principally of light hydrocarbons. It can be divided into lean gas, primarily
methane, but often containing some ethane and smaller quantities of heavier hydrocarbons (also
called sales gas), and wet gas, primarily ethane, propane and butane, as well as smaller amounts of
heavier hydrocarbons; partially liquid under atmospheric pressure.
gas condensate The mixture of liquid hydrocarbons that results from condensation of petroleum hydrocarbons
existing initially in a gaseous phase in an underground reservoir.
Gas Treatment Facility (GTF) Facility for the treatment of associated gas and gas condensate resulting in different products
(stabilised condensate, LPG and dry gas) for commercial sales.
GTU 1 means the first unit of Nostrum’s Gas Treatment Facility.
GTU 2 means the second unit of Nostrum’s Gas Treatment Facility.
GTU 3 means the third unit of Nostrum’s Gas Treatment Facility.
GDRs The global depository receipts of Nostrum Oil & Gas LP.
greenhouse gas A gas that contributes to the greenhouse effect by absorbing infrared radiation, e.g. carbon dioxide.
Group Nostrum Oil & Gas PLC and, as the context requires, its direct and indirect consolidated subsidiaries.
H
HSE Health, safety and environment.
hydrocarbons Compounds formed from the elements hydrogen (H) and carbon (C), which may be in solid, liquid or
gaseous form.
hydrocarbon reserves Hydrocarbon reserves that have been proved, and are referred to as 3P, 2P and 1P depending on the
likelihood of commercial production from a given field.
Glossary continued
184 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
I
IAS International Accounting Standards.
IFRS International Financial Reporting Standards.
INED Independent Non-Executive Director.
J
joint venture A joint venture is a set of trading entities who have agreed to act in concert to share the cost and
rewards of exploring for and producing oil or gas from a permit.
joule Unit of energy used for measuring gas volumes.
megajoules = 106
gigajoules = 109
terrajoules = 1012
petajoules = 1015
K
KASE Kazakhstan Stock Exchange.
Kazakhstan The Republic of Kazakhstan.
KazMunaiGas State-owned oil and gas company of Kazakhstan.
KazMunaiGas Exploration
Production (“KMG EP”)
Onshore oil and gas exploration production subsidiary of KazMunaiGas.
KazTransOil (KTO) pipeline A tie-in to the KTO pipeline enables crude oil export sales via the Atyrau-Samara international export
pipeline.
L
Licence Licence series MG No. 253-D (Oil) issued to Zhaikmunai LLP by the Government on 26 May 1997,
including amendments.
Licensing Law The Kazakhstan Law “On Licensing” (No. 214, dated 11 January 2007, as amended, which came into
effect on 9 August 2007).
liquids A sales product in liquid form produced as a result of further processing by the onshore plant; for
example, condensate and LPG.
LNG Liquefied natural gas. Comprises mainly methane.
Listing Rules The listing rules made by the Financial Services Authority (FSA) under section 73A of the FSMA.
LSE London Stock Exchange.
LPG Liquefied petroleum gas, the name given to the mix of propane and butane in its liquid state.
LTIP Long-term incentive plan.
M
m Metre(s).
m
3
Cubic metres.
m
3
/d Cubic metres per day.
Man–hour An hour regarded in terms of the amount of work that can be done by one person within this period.
Mboe Thousands of barrels of oil equivalent.
Mechanical completion Final construction or installation phase, after which a facility can undergo commissioning activities.
Mmbbls Millions of barrels of oil.
Mmboe Millions of barrels of oil equivalent.
N
NBK National Bank of Kazakhstan.
NED Non-Executive Director.
Nostrum Nostrum Oil & Gas PLC, the listed company of the Group.
Nostrum Oil & Gas PLC Registered Office:
9th Floor
20 Eastbourne Terrace
London
W2 6LG
United Kingdom
O
OPEC The Organisation of the Petroleum Exporting Countries.
operator The individual or company responsible for conducting oil and gas exploration, development and
production activities on an oil and gas lease or concession on its own behalf and/or if applicable,
for other working interest owners, generally pursuant to the terms of a joint operating agreement
or comparable agreement.
Regulatory information
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 185
P
Partnership Nostrum Oil & Gas LP, which was the holding company of the Group before the reorganisation.
PCR testing Polymerase chain reaction testing, a test for COVID-19.
petroleum Hydrocarbons, whether solid, liquid or gaseous. The proportion of different compounds in a petroleum
find varies from discovery to discovery. If a reservoir primarily contains light hydrocarbons, it is
described as a gas field. If heavier hydrocarbons predominate, it is called an oil field. An oil field may
feature free gas above the oil and contain a quantity of light hydrocarbons, also called associated gas.
Possible Reserves (3P) Possible Reserves are those reserves that, to a low degree of certainty (10% confidence), are
recoverable. There is relatively high risk associated with these reserves. Proven, Probable and Possible
Reserves are referred to as 3P.
Probable Reserves (2P) Probable Reserves are those reserves that analysis of geological and engineering data suggests are
more likely than not to be recoverable. There is at least a 50% probability that reserves recovered will
exceed Probable Reserves. Proven plus Probable Reserves are referred to as 2P.
processing Processing of saleable product from hydrocarbons sourced from oil wells and gas wells.
Production Permit The mining allotment (Annex to the Licence), issued by the Competent Authority to Zhaikmunai LLP.
production well A well that has been drilled for producing oil or gas, or one that is capable of production once the
producing structure and characteristics are determined.
Profit oil Profit oil is the difference between cost oil and the total amount of crude oil produced each month,
which is shared between the State and Zhaikmunai LLP.
Prospective resources Quantities of petroleum which are estimated, on a given date, to be potentially recoverable from
undiscovered accumulations.
Proven Reserves (1P) Proven or Proved Reserves (1P) are those reserves that, to a high degree of certainty (90% confidence),
are recoverable. There is relatively little risk associated with these reserves. Proven Developed
Reserves are reserves that can be recovered from existing wells with existing infrastructure and
operating methods. Proven Undeveloped Reserves require development.
PRMS 2007 Petroleum Resources Management System, which is a set of definitions and guidelines designed
to provide a common reference for the international petroleum industry, sponsored by the Society for
Petroleum Engineers, the American Association of Petroleum Geologists, the World Petroleum
Council and the Society for Petroleum Evaluation Engineers.
Production Sharing
Agreement (PSA)
The contract for additional exploration, production and production sharing of crude oil hydrocarbons
in the Chinarevskoye oil and gas condensate field in the West-Kazakhstan oblast No. 81, dated
October 31 1997, as amended, between Zhaikmunai LLP and the Competent Authority (currently
MOE), representing the State.
PSA Law Kazakhstan Law No. 68-III “On Production Sharing Agreements for Constructing Offshore Petroleum
Operations”, dated 8 July 2005.
Q
QHSE Quality, Health, Safety and the Environment.
R
recovery The second stage of hydrocarbon production during which an external fluid such as water or gas is
injected into the reservoir to maintain reservoir pressure and displace hydrocarbons towards the
wellbore.
Reservoir A porous and permeable underground formation containing a natural accumulation of producible oil
and/or gas that is confined by impermeable rock or water barriers, and is individual and separate from
other reservoirs.
RoK Republic of Kazakhstan.
Royalty An interest in an oil and gas property entitling the owner to a share of oil or gas production free of
costs of production.
Ryder Scott Independent petroleum consultants Ryder Scott Company LP, headquartered at 621 Seventeenth
Street, Suite 1550, Denver, Colorado, 80293, USA.
Glossary continued
186 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
S
sales gas Natural gas that has been processed by gas plant facilities and meets the required specifications
under gas sales agreements.
seismic The use of shock waves generated by controlled explosions of dynamite or other means to ascertain
the nature and contours of underground geological structures.
shut in Cease production from a well.
side-track well A well or borehole that runs partly to one side of the original line of drilling.
social infrastructure Assets that accommodate social services, e.g. hospitals, schools, community housing etc.
spud The commencement of drilling operations.
stakeholder A person or entity who may affect, be affected by or perceive themselves to be affected by an entity’s
decisions or activities.
State Republic of Kazakhstan.
State share The share of hydrocarbon production due (in cash or kind) to the Republic of Kazakhstan under the
PSA (q.v.).
Suspended well A suspended well is not currently used for assessment or production and has been shut in. It will either
be returned to assessment or production, or will be plugged and abandoned.
T
TCFD Task Force on Climate-related Financial Disclosures.
tenge or KZT The lawful currency of the Republic of Kazakhstan.
tonne Metric tonne.
trillion 10 to the power of 12.
U
UNGG Refers to the Uralsk Oil and Gas Explorations Expedition. The Government of the Kazakh Soviet
Socialist Republic decided in March 1960 to create a consortium “Uralskneftegazrazvedka” for
conducting oil and gas exploration in the Uralsk region. In the 1960s, the consortium was involved in
more than 59 exploration projects. In 1970, the consortium was renamed “Uralsk Enlarged Oil-Gas
Exploration Expedition”.
UK Corporate Governance Code Set of principles of good corporate governance for listed companies promulgated by the UK Financial
Reporting Council.
Ural OG Ural Oil&Gas LLP
W
well A hole drilled to test an unknown reservoir or to produce from a known reservoir.
wellhead The wellhead includes the forged or cast steel fitting on top of a well (welded or bolted to the top of
the surface casing), as well as casingheads, tubingheads, Christmas tree, stuffing box and pressure
gauges.
work programme A schedule of works agreed between parties (permit holders, farmees and government) contracted to
be delivered in a defined timeframe.
workover Routine maintenance or remedial operations on a producing well in order to maintain, restore or
increase production.
WUP or Water Use Permit The permit granted by the relevant government authority with respect to water use pursuant to the
Water Code.
Z
Zhaikmunai LLP Principal operating entity of the Group
Corporate office:
43/1 Karev str.
Uralsk, 090000
Republic of Kazakhstan
Regulatory information
Nostrum Oil & Gas PLC Annual Report & Accounts 2021 187
Investor information
Apart from the external debt held by Nostrum Oil & Gas Finance B.V, the contribution and results of Nostrum Oil & Gas PLC and all of its subsidiaries (other than
Zhaikmunai LLP) to the KPIs and results of the Group were insignificant. Except as stated above, there are no minority shareholdings.
Zhaikmunai LLP
Incorporated and
principal place of
business in Kazakhstan
Nostrum Services
N.V.
Incorporated and
principal place of
business in Belgium
Nostrum Oil & Gas
Finance B.V.
Incorporated and
principal place of
business in the
Netherlands
Nostrum Associated
Investments LLP
Incorporated and
principal place of
business in Kazakhstan
Nostrum Services
Central Asia LLP
Incorporated and
principal place of
business in Kazakhstan
Nostrum Oil & Gas BV
Incorporated and principal place of
business in the Netherlands
Nostrum Oil & Gas Coöperatief UA
Incorporated and principal place of
business in the Netherlands
Nostrum Oil & Gas PLC
Incorporated in the UK
Principal place of business in the UK
Nostrum Oil & Gas UK Limited
Incorporated and principal place of
business in the UK
100%
>99.9%
100%
<0.1%
100%100%100%
100%
100%
(save for one share
held by Nostrum
Oil & Gas BV)
Nostrum Group structure chart
as at 31 December 2021
Structure chart
188 Nostrum Oil & Gas PLC Annual Report & Accounts 2021
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