Energy in
Transition
2021 Annual Report and
Audited Financial Statements
for Kistos NL2 B.V.
The Hague, 6 April 2022
Contents
03 Summary of Financial Results and Production
04 Report of the Board
05 Business Review
06 Financial Review
08 Governance and Risk Management
12 Audited Financial Statements With Notes
13 Profit and Loss Account
13 Balance Sheet
13 Statement of Comprehensive Income
14 Statement of Changes in Equity
14 Statement of Cash Flow
15 Notes to the Financial Statements
41 Other Information
42 Independent Auditor’s Report
€’000 2021 2020
(restated)
Gas production MM Nm
3
288 299
Gas production 000 MWh 3,460 3,592
Revenue €’000 116,731 33,268
Average realised gas price €/MWh 33.58 9.26
Unit opex
1
€/MWh
2
2.84 1.91
Adjusted EBITDA
2
€’000 104,310 23,178
Profit/(loss) for the year
3
€’000 34,359 3,113
Net cash from operations €’000 63,587 20,811
Capital expenditures (cash) €’000 (20,778) (764)
Total cash €’000 44,422 17,691
1. Calculated as production costs divided by production.
2. The Company uses certain measures of performance that are not specifically defined under IFRS or
other generally accepted accounting principles. The Company uses Adjusted EBITDA as a measure
to assess the performance of the Company. EBITDA is defined as profit/(loss) for the year before
additions/deductions of tax credit/(charge), net finance costs, depreciation and amortisation.
The adjusted EBITDA measure excludes the effects of significant items of income and expenditure
which may have an impact on the quality of earnings such as reversal of provisions and
impairments when the impairment is the result of an isolated non-recurring event.
3. The comparative information is restated; see also Note 2 f) of the Audited Financial statements
with notes.
Disclaimer
This document is the ESEF XBRL package of the Annual Report 2021 of Kistos NL2 B.V. and is not the official annual report, which includes the audited
financial statements, pursuant to article 361 of Book 2 of the Dutch Civil Code. This ESEF XBRL package has been prepared to meet the requirements
of the regulatory technical standards (RTS) on ESEF, mandatorily applicable to reports for financial years starting on or after 1 January 2021, but is
unaudited. The official annual report, including the audited financial statements and the auditor’s report thereto, was made publicly available pursuant
to section 5:25c of the Dutch Financial Supervision Act (“Wet op het Financieel Toezicht”), and was filed with Netherlands Authority for the Financial
Markets in PDF format (‘the PDF file’). The PDF file can be found via https://kistosplc.com/investors/financial-reports/. In case of any discrepancies
between the PDF file, the printed version or the ESEF XBRL package, the PDF file prevails. Note that the auditor’s opinion included in this ESEF XBRL
package only relates to the PDF file. No rights can be derived from using the ESEF XBRL package, including the unofficial copy of the auditor’s report.
Summary Report of the Board Audited Financial Statements Independent Auditor's ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 02
Highlights
Strategic & Operational Financial
Summary of Financial Results and Production
Drilling campaign
completed in
February 2022
Successful drilling campaign
commenced in July 2021 and safely
completed in February 2022:
Appraisal of the Orion oil field
tested 3,200 b/d. Development
studies are underway.
Appraisal of the Q11-B discovery
successfully flowed at a combined
rate of over 0.27MM Nm
3
per day
from the Bunter and Zechstein
reservoirs. Development studies are
underway but failed to encounter gas
in the primary Slochteren target.
Sidetrack of the A-04 well at
Q10-A increased production by
>0.8MM Nm
3
per day.
€150MM issued
of Nordic Bonds
Issued €150MM of Nordic Bonds
(€60MM of new bonds and €90MM of
refinancing) in conjunction with the
Tulip Oil acquisition.
350% up
EBITDA of €104.3MM in the 12 months
to 31 December 2021, up 350% versus
2020 due primarily to a 263% increase
inaverage gas prices from €9.26/MWh
to€33.58/MWh.
€25.7MM capital
expenditure
Capital expenditure (accruals basis) in
2021 was €25.7MM, 87% of which occurred
in the second half of the year when the
drilling campaign was underway.
€44.4MM cash balance
Cash balances on 31 December 2021
were €44.4MM (2020: €17.7MM).
The wind turbines on the renewably
powered Q10-A platform were
upgraded in 2021 to help minimise
CO
2
emissions.
1.31MM Nm
3
per day
Average gross production of 1.31MM Nm
3
per day (0.79MM Nm
3
per day net to Kistos
NL2) in the year to 31 December 2021
versus 1.37MM Nm
3
per day in 2020
(0.82MM Nm
3
per day net to Kistos NL2).
18.1 MMboe
Year-end 2P reserves of 18.1 MMboe,
calculated by reference to estimates
published in our 2021 CPR adjusted for
subsequent production.
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 03
Business Review
Company profile
Kistos NL2 B.V. (“Kistos NL2” or the
“Company”) is a 100%-owned subsidiary
of Kistos NL1 B.V. (“Kistos NL1”), which is
a 100%-owned subsidiary of Kistos plc.
The address of its registered office and
principal place of business is Alexanderstraat
18, 2514 JM Den Haag, The Netherlands.
Kistos plc acquired Kistos NL1 (formerly
Tulip Oil Netherlands B.V.) on 20 May 2021.
Together with Kistos NL2 (formerly Tulip Oil
Netherlands Offshore B.V.), it forms the Kistos
Group, hereinafter referred to as “the Group”.
The Company is wholly and directly controlled
by Kistos NL1 and by its ultimate parent
Kistos plc. The main focus of the Company is
upstream development and production with
a focus on the exploitation opportunities
in undiscovered and undeveloped offshore
oil and gas fields in The Netherlands. As
at 31 December 2021 Kistos NL2 holds the
exploration licences for Q8, Q10-B and Q11 and
holds the production licences for Q7 and Q10-A.
Together with Energie Beheer Netherlands
(“EBN”) as partner, Kistos NL2 acts as the
operator in the joint operation agreements of
the abovementioned offshore licences.
Overview
The Board hereby submits to the shareholders
the financial statements for the financial
year 2021, as prepared by management
and approved by the Board on 6 April2022.
BDO Audit & Assurance B.V. audited the
financial statements. Its report can be
found on page43. The Board recommends
that shareholders, in accordance with the
Articles of Association, adopt these financial
statements and, as proposed by the Board,
transfer the profit for the 2021 financial year
of €34.4MM to retained earnings.
Business review
In the six months to the end of June 2021,
gross production from Q10-A averaged
1.43MM Nm
3
per day. However, two months
after the completion of the acquisition of
Kistos NL1 and Kistos NL2 by Kistos plc,
Kistos NL2 announced the commencement
of a six-month drilling campaign, which
resulted in Q10-A exiting the year with output
significantly higher at 1.8MM Nm
3
per day.
In addition, an appraisal of the Orion oil
discovery tested at a rate of 3,200 b/d. The
Q11-B appraisal targeted three reservoirs:
Slochteren, Bunter and Zechstein. Slochteren
target was completed prior to year end and
was water bearing. Bunter and Zechstein
formations flowed gas. The well has now
been suspended pending further development
studies.
As detailed in the independent Competent
Persons Report (CPR) published in
conjunction with the transaction related to
the acquisition of Kistos NL1 and Kistos NL2,
the 2P reserves associated with the acquired
assets were 20.0 MMboe as of 31 December
2020. After taking account of production
from Q10-A during the course of last year, this
figure was 18.1 MMboe on 31 December 2021.
This figure has the potential to increase as we
progress to Final Investment Decision (FID)
with the Orion and Q11-B projects, enabling
the conversion of 2C resources to 2P reserves.
Crucially, Kistos achieved this increase in
reserves and production while abiding
by its founding principle of being part of
the energy transition. Natural gas will be
critical to Europe’s transition to a low carbon
economy, which is demonstrated by the
European Commission’s decision to categorise
investments in natural gas production
as “transitional economic activities”. Our
Q10-A platform has an extremely low carbon
footprint thanks to the integration of things
such as wind turbines and solar panels into its
design. We will take a similar approach to any
future development projects.
Central to our operations is our health, safety
and environmental (HSE) performance. We are
pleased to report that we did not suffer any
Lost Time Injuries in 2021 despite undertaking
more than five months of drilling and testing
operations. Neither did we suffer any disruption
to our operations from COVID-19 thanks to the
rigorous procedures we have in place to combat
and, if necessary, contain the virus. Meanwhile,
the wind turbines, which were upgraded in 2021,
and the solar panels on the Q10-A platform
continue to minimise our CO
2
emissions.
Financial position
Reported EBITDA for 2021 was €104.3MM. This
was weighted towards the second half of the
year, when gas prices were significantly higher.
Hence, we ended the year with cash balances
of €44.4MM, which was achieved after capital
expenditure outflow of €20.8MM. With high gas
prices carrying over into 2022 and production
from the Q10-A gas field significantly higher
than when Kistos plc acquired the Company,
the current year has started strongly.
Outlook
We expect to drive further operational
progress across our portfolio in 2022.
Currently, our plans to construct a new gas
export pipeline from Q10-A to IJmuiden are
on hold while we review alternatives that
have been proposed by other stakeholders,
thus ensuring that we pursue the option that
adds most value for shareholders. Similarly,
with the help of Rockflow Resources, our
technical team in The Netherlands is taking
a meticulous approach to the Concept Assess
and Concept Select phases of the Q-10 Orion
oil field development project.
Our thanks and appreciation to all our
staff, contractors and partners for their
contributions and cooperation during an
exciting and successful 2021.
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 05
Production and revenue
Actual production on a working interest basis
totalled 288MM Nm
3
(5.3 kboe/d) in 2021.
The Company’s average realised gas price
during the year was €33.58/MWh and total
revenue from gas sales was €116.2MM.
Costs
Production costs for the year were €9.8MM or
€2.84 per MWh (2020: €6.8MM or €1.91 per
MWh). As Q10-A did not require compression
or annual structural surveys in the very early
stages of its life, its underlying operating costs
in 2020 were materially lower than in 2021.
During 2021, pre-FID development expenses
of €4.5MM on potential alternative evacuation
routes for the Q10-A platform have been
incurred. As FID was not taken on the project
these costs have been expensed in the profit
and loss account. Further studies are being
undertaken into 2022 with other partners.
Adjusted EBITDA
€MM 31 December 2021 31 December 2020
Adjusted EBITDA 104,310 23,178
Depreciation and
amortisation (14,165) (13,999)
Impairment (8,354) -
Pre-FID expenses (4,535) -
Operating profit 77,256 9,179
31 December 2021 31 December 2020
(restated)
Production MM Nm
3
288 299
Production ‘000 MWh 3,460 3,592
Revenue
1
€’000 116,731 33,268
Unit Opex
2
€/MWh 2.84 1.91
Adjusted EBITDA
3
€’000 104,310 23,178
Profit before tax
4
€’000 67,861 2,659
Net cash from operations €’000 63,587 20,811
Average realised gas price
1
€/MWh 33.58 9.26
Total cash €’000 44,422 17,691
Note: The financial results are prepared in accordance with IFRS, unless otherwise noted below:
1. Includes the impact of effective realised gains on the cashflow hedge
2. Non-IFRS measures. Refer to the alternative performance measures definition within the glossary to the half-year financial report
3. Adjusted EBITDA is calculated on a business performance basis. Refer to the alternative performance measures definition within the
glossary to the Annual Report
4. The comparative information is restated; see also Note 2 f) of the Audited Financial statements with notes
Audited results for the year ended 31 December 2021
Financial Review
Figures in brackets apply to the corresponding period in the previous year (2020).
The Company reported adjusted EBITDA of
€104.3MM for the year 2021. The impairment
of €8.4MM relates to partial abandonment
of the Q10-A04 well (€6.9MM) and the
restimulation of the Q10-A06 well (€1.4MM).
Capital expenditure
Consistent with our growth plans and to
ensure we maximise the value of our asset
portfolio, capital expenditure in 2021 was
€25.7MM. The bulk of this – €25.4MM –
related to our drilling campaign, while
expenditure on an alternative export route
was expensed given the project is pre-FID.
Given we are now investigating possible
alternatives to a new pipeline to IJmuiden,
capital expenditure in 2022 will not ramp
upas much as originally expected.
Profit/loss before tax
Operating profit for 2021 amounted to
€77.3MM compared to €9.2MM in the prior
year. Profit before tax of €67.9MM was
after interest charges of €9.4MM relating
to the €150MM of Nordic Bonds issued by
Kistos NL2 including a loss on redemption
of €0.8MM relating to an €87MM Nordic
Bondrefinancing.
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 06
Financial position
€’000 31 December 2021 31 December 2020
Cash and cash equivalents at beginning 17,691 6.071
Net cash generated from operating activities 63,587 20,811
Net cash used in investing activities (20,778) (764)
Net cash used in financing activities (16,078) (8,427)
Net increase/(decrease) in cash and cash equivalents 26,731 11,620
Cash and cash equivalents at end 44,422 17,691
During the first half of 2021, Kistos hedged
100,000 MWh per month at a price of
€25/MWh for the nine-month period from July
2021 to March 2022. Based on the prevailing
gas price of €64.85/MWh, this resulted in the
creation of a €5.9MM hedge reserve at year end.
Research and development
The Company does not conduct material
research and development.
Information supply and
computerisation
The Company’s IT applications and systems
are centralised in a single location in The
Netherlands. The main servers are located
in The Netherlands with back-up servers in
the Cloud on European servers. The majority
of the systems are running on standard
desktop applications with some specialised
software applications being used for
subsurface modelling. A limited number of
data exchanges/interfaces exist between the
systems and applications.
Going concern
With steady gas production in 2022, cash
flow from operations will be sufficient to
meet ongoing liabilities and also support
further development and appraisal activities.
Production has been stable as we have
entered 2022 and with lower forecast
capital expenditure and improvements in
the COVID-19 pandemic we envisage less
disruptions to our operations.
Management statement
The financial statements give a true and fair
view of the assets and liabilities, the financial
position and profit or loss. The management
report provides a true and fair view of the
significant risks and uncertainties to which
the Company is exposed.
Financial Review
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 07
Governance and Risk Management
A culture of ethical
behaviour aligned to our
business integrity values
and a robust management
system with short lines of
command are central to
how we run the business.
Through clear corporate
governance policies,
supported by robust risk,
assurance and performance
management processes, we
manage the opportunities
and risks in our operations
and respond to the concerns
of our shareholders
andstakeholders.
Board and Committees
Matters related to Kistos NL2 are covered by
the Kistos plc Board (hereinafter referred as
“Board”), which addresses all matters related
to the Group. The long-term success of the
Company is the collective responsibility of
the Kistos plc Board and the directors of
Kistos NL2. The Board adopts an equal
opportunities commitment.
The Directors of Kistos
NL2 are:
Ruud Schrama, Chief Financial Officer &
Executive Director – resigned 20 May 2021;
Andrew Austin, Director – appointed
20May 2021; and
Bart de Sonnaville, Director – appointed
20May 2021.
The role of the Board
The Board is accountable to shareholders
for the creation and delivery of strong,
sustainable financial performance and
long-term value. It meets these aims through
setting the Group’s strategy and ensuring
that the necessary resources are available
to achieve the agreed strategic goals. The
Board also sets the Company’s key policies
and reviews management and financial
performance. The Board operates within a
framework of controls. Clear procedures, lines
of responsibility and delegated authorities
allow risk to be assessed and managed
effectively. These are underpinned by the
Board’s work to set the Group’s core values
and standards of business conduct and
ensure that these, together with the Group’s
obligations to its stakeholders, are widely
understood across all its activities.
Board meetings and visits
The Board deals with its core activities in
monthly planned meetings throughout
the year. Matters which require decisions
outside the scheduled meetings are dealt
with through additional dedicated meetings
and conference calls as required. Meetings
are taking place physically, or virtually in
observance of COVID-19 restrictions.
Audit Committee meetings
An Audit Committee has been established at
the Kistos plc level to oversee the financial
reporting and controls of the Group. This Audit
Committee and its members also act as the
Audit Committee of Kistos NL2. The Kistos
plc Audit Committee oversees the financial
reporting process in order to ensure that the
information provided to the shareholders is
fair, balanced and understandable and allows
accurate assessment of the Company’s position,
performance and systems of internal control.
The Kistos plc Audit Committee meets at
least twice a year to oversee the half-year
and year-end financial reporting of the
Company. Meetings outside of this are
organised as required.
The Kistos plc and Kistos NL2 Audit
Committee members are:
Julie Barlow, Chair – appointed 8 December
2021; and
Alan Booth – appointed 8 December 2021.
Internal controls
The Directors acknowledge their responsibility
for the Company’s systems of internal control,
which are designed to safeguard the assets
of the Company and to ensure the reliability
of financial information for both internal use
and external publication.
Overall control is ensured by a regular
reporting process covering technical progress
of projects and production operations,
environmental, social and governance (ESG)
matters and the state of the Company’s
financial affairs. The Board has put in place
procedures for identifying, evaluating
and managing principal risks that face
the Company. Principal risks are regularly
reported to and reviewed by the Board. The
Company recognises that any system of
internal control can provide only reasonable,
and not absolute, assurance that material
financial irregularities will be detected or
that the risk of failure to achieve business
objectives is eliminated. However, the Board’s
objective is to ensure that the Company
has appropriate systems in place for the
identification and management of risks.
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 08
Governance and Risk Management
Business integrity policy
The Company operates under a Business
Integrity framework that applies to all staff
and employees. The framework has been
communicated to all staff and employees
and is reinforced regularly. Each quarter the
Group obtains confirmation of compliance
with key aspects of this policy for all
companies in the Group.
The framework encompasses the following
elements:
1. Comply with Relevant Legislation and will
not pay or knowingly cause to be paid
any bribes or facilitation payments, and
will report to the Chief Financial Officer
any request from any person for a bribe or
facilitation payment;
2. Comply with the occupational health,
safety, and environmental (HSE) laws,
rules, and regulations of the relevant
territory in which the Group is operating
or, in the absence of such laws, rules, and
regulations, adhere to local standards
or industry standards of good oilfield
practice in relation to any assets operated
by the Group;
3. Report any HSE incidents to the Group
Line Management, which will seek to
investigate and rectify as quickly and
effectively as practically possible;
4. Comply with the Manual of Authorities
and where in doubt check with the
FinanceDirector;
5. Comply with the EU Anti-Trust Regulations
and not make any agreements with
competitors regarding prices, dividing
markets or specific customers;
6. Avoid conflicts of interest or report them if
they have the potential to occur;
7. Ensure that records are kept accurately and
retained in accordance with the Group’s
IT/data management policy;
8. Follow the procedures on gifts and
entertainment, and ensure all necessary
approvals are obtained;
9. Not use Company's resources, time or
name in political activities or to make any
political contributions;
10. Behave in a manner that does not damage
the reputation of the Company and to
refrain from any form of discrimination
or harassment; and
11. Report any breach or suspected breach
of this Policy as soon as practicable
to a member of the Company’s line
management.
Health, safety and
environment
The Group has a policy to conduct operations
in a manner that protects the health, safety and
well-being of its staff, employees, contractors
and the public. Significant efforts are
undertaken to avoid impact to the environment
and integrity of assets and damage.
The HSE Policy of the Group reflects the
integrated way our staff work with contractors
and service providers. All personnel working
directly or indirectly for the Group must
manage HSE in line with the policy. The Group
is committed to:
Pursue the goal of no harm to people,
assets or the environment;
Promote sustainability related to the
avoidance of the unnecessary depletion of
natural resources and to use material and
energy efficiently;
Respect our neighbours and to not have a
negative social impact on the societies in
which we operate; and
Support and promote a culture in the Group
in which we all share thiscommitment.
Risks and risk management
Effective management of risk forms an integral
part of how the Company operates as a business
and is embedded in day-to-day operations.
Responsibility for identifying potential
strategic, operational, reporting and
compliance risks, and for implementing
fit-for-purpose responses, lies primarily with
executive management. Company-wide
risk management priorities are defined by
management and endorsed by the Board, who
bear ultimate responsibility for managing
the main risks faced by the Company and for
reviewing the adequacy of the Company’s
internal control system.
Management is inherently risk averse and
has put in place processes, procedures and
controls for monitoring its risks and taking
relevant actions to manage the risks going
forward. The principal risks of Kistos plc,
which also applies to Kistos NL2, are set out
on the next page.
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 09
Risk Management
Understanding the risks associated with our operations.
Exposure to political risk
This can include changes in Government policy towards gas companies. These political
risks can result in challenges related to permitting applications for development,
appraisal and exploratory drilling in Kistos’ blocks, which can ultimately impact the
Group’s ability to deliver its strategy.
Peter Mann
CEO
Directly and through NOGEPA and other industry associations, the Group
engages with governments and other appropriate organisations to ensure the
Group is kept abreast of expected potential changes and takes an active role in
making appropriaterepresentations.
Growth strategy
Growth strategy fails to meet shareholder expectations.
Andrew Austin
Executive Chairman
Identify and evaluate a broad range of acquisition opportunities while ensuring
that all organic growth opportunities are properly assessed and, where
appropriate, pursued.
Provide clear, transparent and consistent communication to all stakeholders.
Ensure delivery against plan. Regular meetings with shareholders and
potentialshareholders.
Climate change
Changes in laws, regulations, policies, obligations and social attitudes relating to the
transition to a lower carbon economy could lead to higher costs, or reduced demand
and prices for gas, impacting the profitability of the Group.
Peter Mann
CEO
The Group works closely with regulators to ensure that all required planning
consents and permits for operations are in place and maintains continual dialogue
with all stakeholders to understand emerging requirements. The Board actively
reviews the Group’s strategy towards energy transition with a focus on gas to
ensure it remains relevant and will provide long-term returns to shareholders.
Cyber security
Exposure to a serious cyber-attack which could affect the operation of the unmanned
Q10-A platform, confidentiality of data and availability of critical business information.
Richard Slape
CEO
The Group outsources its provision of IT equipment and help desk services to
third parties. Various network management systems are used to protect the
Group’s IT environment.
Planning, environmental, regulatory, licensing
and other permitting risks
Planning, environmental, licensing and other permitting risks associated in particular
with operations, drilling and construction.
Peter Mann
CEO
The Group manages such risks in the context of upcoming developments through
engagements with stakeholders. Where necessary alternative options are also
considered to allow for risk mitigation. External consultants with experience in
managing these developments are employed to help complement the existing
team skills. Potential development routes on existing production and new
development opportunities are reviewed to maximise shareholder returns.
Gas production
Gas is not produced in the anticipated quantities from any or all of the Group’s
assets, unplanned shutdowns on third-party evacuation routes or that gas cannot be
deliveredeconomically.
Peter Mann
CEO
The Group reviews production performance from each of its wells to enable it to
predict well performance and plan well intervention activities as needed.
To the extent possible discussions are held with third parties to manage
shutdowns both planned and unplanned.
Risk
Executive
Ownership – plc
Mitigation Change
StrategicOperational
Direction of change
Increase in risk
No change
Decrease in risk
Governance and Risk Management
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 10
Project delivery on time and on cost
Risk of delays in project delivery and higher costs being incurred.
Peter Mann
CEO
Each project has a clear project delivery framework with a responsible project
lead. Delivery against the project objectives, timeline and cost are regularly
monitored. Risks being faced are discussed and where appropriate risk
mitigation steps implemented.
Loss of key staff
Loss of key staff.
Peter Mann
CEO
The Board seeks to cultivate a safe, respectful working environment where
people can thrive. Management has undertaken a benchmarking exercise on
salaries to ensure that acquired staff are retained through a strong remuneration
culture. Management also intends to introduce a long-term incentive plan
scheme linked to performance and to aid retention of key staff.
Pandemic
Exposure to a global pandemic, such as COVID-19, that leads to reduction in staff
availability, disruption to the Group’s operations and delays to the supply chain.
Peter Mann
CEO
The Board has business continuity plans to manage any disruption to operations.
The Group adopts flexible work patterns based on the latest guidance available,
including where necessary working from home. Strict COVID-19 testing
procedures have also been adopted on the drilling rig and Q10-A platform.
Gas price risk
Exposure to market price risk through variations in the gas price.
Richard Slape
CFO
The positive volatility in the gas price during 2021 has helped underlying revenues.
However, the Group has a policy of hedging its cash flows where needed.
Post-acquisition and to ensure the underlying capital expenditure programme
could be financed the Group undertook a partial hedge of 100,000 MWh of
production in the nine months up to 31 March 2022.
The Board continuously reviews the gas markets to determine whether future
hedges are required.
Liquidity risk
Exposure, through its operations and developments, to its liquidity risk.
Richard Slape
CFO
Management regularly reviews the Group’s cash forecasts and its covenants to
ensure an adequate headroom of cash availability.
Decommissioning costs and timing
The estimated future costs and timing of decommissioning is a significant estimate;
any adverse movement in price, operational issues and changes in reserves and resource
estimates could have a significant impact on the cost and timing of decommissioning.
Richard Slape
CFO
The Group mitigates this risk through in-house decommissioning
experience, coupled with a continued focus on delivering asset value to defer
abandonmentliabilities.
OperationalFinancial
Risk
Executive
Ownership – plc
Mitigation Change
Governance and Risk Management
Direction of change
Increase in risk
No change
Decrease in risk
The Hague, 6 April 2022
Andrew Austin
Director
Bart de Sonnaville
Director
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 11
Profit and Loss Account and Balance Sheet
Profit and loss account for the year ended 31 December 2021
€’000 Note Year ended
31 December 2021
Year ended
31 December 2020
(restated)
Revenue 3 116,731 33,268
Exploration expenses (297) (169)
Production costs 4 (9,814) (6,852)
Development expenses 5 (4,535) -
Depreciation and amortisation 12 (14,165) (13,999)
Impairments 12 (8,354) -
Other operating expenses 6 (2,310) (3,069)
Total operating expenses (39,475) (24,089)
Operating profit 77,256 9,179
Interest income 8 3,452 3
Interest expenses 8 (10,337) (5,544)
Finance income and expenses 8 (2,510) (979)
Net finance costs (9,395) (6,520)
Profit before taxes 67,861 2,659
Tax (charge)/credit 9 (33,502) 454
Profit for the year attributable to owners of the Company 34,359 3,113
Statement of comprehensive income for the year ended 31 December 2021
€’000 Year ended
31 December 2021
Year ended
31 December 2020
(restated)
Profit for the year attributable to owners of the Company 34,359 3,113
Items that may be reclassified to profit or loss
Costs of cash flow hedge deferred and recognised in OCI 17 (38,624) -
Cash flow hedge – reclassified to profit or loss 17 26,843 -
Tax impact on hedge reserve in OCI 17 5,891 -
Total comprehensive income for the year 28,469 3,113
The notes on pages 15 to 40 are an integral part of these financial statements.
Balance sheet as at 31 December 2021
€’000 Note 31 December 2021 31 December 2020
(restated)
31 December 2019
(restated)
Non-current assets
Exploration and evaluation assets 12 17,443 1,950 1,490
Property, plant and equipment 12 89,250 101,607 131,956
Deferred tax assets 9 13,496 25,725 22,907
Loan receivables 10,24 60,000 - -
180,189 129,282 156,353
Current assets
Inventories 902 1,373 365
Unbilled receivables 24 40,299 6,245 8,092
Other receivables 13 11,711 1,847 1,042
Cash and cash equivalents 14 44,422 17,691 6,071
97,334 27,156 15,570
TOTAL ASSETS 277,523 156,438 171,923
Equity
Share capital 15 - - -
Share premium 16 20,517 20,517 20,517
Hedge reserve 17 (5,890) - -
Retained earnings 48,665 14,306 11,193
Total equity 63,292 34,823 31,710
Non-current liabilities
Abandonment provision 19 15,904 13,214 31,457
Bond payable 20 145,074 85,428 84,566
Interest-bearing loans from affiliates 23 1,804 3,700 4,200
Other non-current liabilities 31 89 121
162,813 102,431 120,344
Current liabilities
Trade payables and accrued expenses 21 22,130 7,773 9,792
Liabilities against affiliates – tax settlement 14,980 - -
Other liabilities 22 14,308 11,411 10,077
51,418 19,184 19,869
Total liabilities 214,231 121,615 140,213
TOTAL EQUITY AND LIABILITIES 277,523 156,438 171,923
The notes on pages 15 to 40 are an integral part of these financial statements and were
approved by the directors on 6 April 2022.
Andrew Austin Bart de Sonnaville
Director Director
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 13
Statement of changes in equity for the year ended 31 December 2021
€’000 Share
capital
(Note 15)
Share
premium
(Note 16)
Retained
earnings
Hedge
reserve
(Note 17)
Total
equity
Equity as of 31.12.2019
as previously reported - 20,517 13,443 - 33,960
Prior year adjustment (see note 2f) - - (2,250) - (2,250)
Restated equity as of 31.12.2019 - 20,517 11,193 - 31,710
Profit/(loss) for the year - - 3,113 - 3,113
Restated equity as of 31.12.2020 - 20,517 14,306 - 34,823
Profit/(loss) for the year - - 34,359 - 34,359
Movement in the year - - - (5,890) (5,890)
Equity as of 31.12.2021 - 20,517 48,665 (5,890) 63,292
The notes on pages 15 to 40 are an integral part of these financial statements.
Statement of cash flow for the year ended 31 December 2021
€’000 Note Year ended
31 December 2021
Year ended
31 December 2020
(restated)
Cash flow from operating activities
Profit/(loss) for the year 34,359 3,113
Tax charge/(credit) 9 33,502 (454)
Net finance costs 8 9,395 6,520
Depreciation and amortisation 12 14,165 13,999
Impairment losses 12 8,354 -
Other - (1)
Taxes paid (1,158) (2,847)
(Increase)/decrease in trade and other receivables (38,234) 1,526
Increase/(decrease) in trade, other payables and provisions 2,733 (37)
(Increase)/decrease in inventories 471 (1,008)
Net cash flow from operating activities 63,587 20,811
Cash flow from investment activities
Payments to acquire tangible fixed assets 28 (20,778) (764)
Net cash flow from investment activities (20,778) (764)
Cash flow from financing activities
Repayment of loan to parent Company 23, 29 (1,896) (500)
Repayment of long-term payables (98) (31)
Interest paid (11,201) (7,524)
Intercompany interest paid (215) (328)
Other finance charges 8 (108) (44)
Bond refinancing 20 3,000 -
Bond issue costs 20 (2,933) -
Bond redemption costs (2,627) -
Proceeds from bond issue 20 60,000 -
Loan to Kistos plc 10 (60,000) -
Net cash flow from financing activities (16,078) (8,427)
Increase/(decrease) in cash and cash equivalents 26,731 11,620
Cash and cash equivalents at 1 January 17,691 6,071
Cash and cash equivalents at 31 December 14 44,422 17,691
The notes on pages 15 to 40 are an integral part of these financial statements.
Statement of Changes in Equity and Cash Flow
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 14
Note 1: Accounting policies
a) General information
Kistos NL2 B.V. (the Company) is a private limited liability Company incorporated in The
Netherlands. The address of its registered office and principal place of business is Alexanderstraat
18, 2514 JM Den Haag, The Netherlands. The Company was founded in May 2015 and is registered
in the Trade Register at the Chamber of Commerce under number 63654954. On 20 May 2021
Kistos NL1 B.V. (formerly Tulip Oil Netherlands B.V.) was acquired by Kistos plc. Kistos NL2
(formerly Tulip Oil Netherlands Offshore B.V.) is a wholly owned subsidiary of Kistos NL1 B.V.
The main focus of the Company is the upstream development and production company with
a focus on the exploitation opportunities in undiscovered and undeveloped offshore oil and
gas fields in The Netherlands. Kistos NL2 holds the exploration licences for Q8, Q10-B and Q11
and holds the production licences for Q7 and Q10-A. Together with Energie Beheer Netherlands
(“EBN”) as partner, Kistos NL2 acts as the operator in the joint operation agreements of the
abovementioned offshore licences.
Financial reporting period
These financial statements cover the year 2021, which ended at the balance sheet date of
31 December 2021.
b) Going concern
The financial statements of the Company have been prepared on the basis of the going concern
assumption. See also note 2d for further elaboration on the presumption of going concern.
Note 2: Basis of preparation
a) Statement of compliance
These financial statements have been prepared in accordance with International Financial
Reporting Standards as adopted by the European Union (EU-IFRS) and with Section 2:362(9) of
The Netherlands Civil Code.
Changes to significant accounting policies are set out in note 2e.
The Company’s financial statements were authorised for issue by the Board on 6 April 2022.
Notes to the Financial Statements
b) Basis of measurement
The financial statements have been prepared on the historical cost basis except for the following
items, which are measured on an alternative basis on each reporting date:
derivative financial instruments are measured at fair value (see note 24); and
non-derivative financial instruments are measured at fair value through profit and loss
account (FVTPL) (see note 24).
c) Functional and presentation currency
These financial statements are presented in euro, which is the Company’s functional currency.
All amounts have been rounded to the nearest €1 thousand, unless otherwise stated.
d) Use of judgements and estimates
In preparing these financial statements, management has made judgements and estimates that
affect the application of the Company’s accounting policies and the reported amounts of assets,
liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates
are recognised prospectively.
Judgements
The significant judgements made in applying the accounting policies to the Company’s financial
statements are set out below.
Abandonment provisions
The abandonment provisions for Kistos NL2 assume that the pipelines between Q10-A and
P15D can remain in place and do not need to be removed. This is based on recent updates in
legislative changes.
Assumptions and estimation uncertainties
Information about assumptions and estimation uncertainties at 31 December 2021 that have
a significant risk of resulting in a material adjustment to the carrying amounts of assets and
liabilities in the next financial year are included below.
Carrying value of property, plant and equipment (note 12):
Management performs impairment reviews on the Company’s property, plant and equipment
assets at least annually with reference to indicators in IAS 36 Impairment of Assets. Where
indicators are present and an impairment test is required, the calculation of the recoverable
amount requires estimation of future cash flows within complex impairment models.
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 15
Key assumptions and estimates in the impairment models relate to: commodity prices and
the long-term corporate economic assumptions thereafter, operating expenses, capital
expenditures, pre-tax discount rates that are adjusted to reflect risks specific to individual
assets, commercial resources and the related cost profiles.
Impairment tests are carried out on the following basis:
– By comparing the sum of any amounts carried in the books as compared to the
recoverableamounts;
– The recoverable amount is the higher of an asset’s fair value less costs to sell and its value in
use. The Company generally assesses the value in use using the estimated future cash flows
which are discounted to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the asset or CGU; and
– Where there has been a charge for impairment in an earlier period that charge will be reversed
in a later period where there has been a change in circumstances to the extent that the
recoverable amount is higher than the net book value at the time. In reversing impairment
losses, the carrying amount of the asset will be increased to the lower of its original carrying
value and the carrying value that would have been determined (net of depletion) had no
impairment loss been recognised in prior periods.
– Commercial reserve (oil and gas) estimates used in the calculation of depreciation and
impairment of property, plant and equipment (note 12):
P1 proven and P2 probable reserves are estimates of the amount of oil and gas that can be
economically extracted from the Company’s oil and gas assets. The Company estimates its
resources using standard recognised evaluation techniques. The estimate is reviewed at least
annually by management and is reviewed as required by independent consultants.
P1 proven and P2 probable reserves are determined using estimates of oil and gas in place,
recovery factors and future commodity prices, these having an impact on the total amount of
recoverable reserves. Depreciation is calculated using the net book value of the asset multiplied
by the ratio of production divided by 2P reserves remaining.
Abandonment provision (note 19):
Decommissioning costs are uncertain and cost estimates can vary in response to many factors,
including changes to the relevant legal requirements, the emergence of new technology or
experience at other assets. The expected timing, work scope, amount of expenditure and risk
weighting may also change. Therefore, significant estimates and assumptions are made in
determining the provision for decommissioning.
The estimated decommissioning costs are reviewed annually by an internal expert and the
results of this review are then assessed alongside estimates from operators. Provision for
environmental clean-up and remediation costs is based on current legal and contractual
requirements, technology and price levels.
Current tax charge and deferred tax assets (note 9):
Deferred tax assets are recognised only to the extent it is considered probable that those assets
will be recoverable. This involves an assessment of when those assets are likely to reverse, and
a judgement as to whether or not there will be sufficient taxable profits available to offset the
assets when they do reverse. This requires assumptions regarding future profitability and is
therefore inherently uncertain. To the extent assumptions regarding future profitability change,
there can be an increase or decrease in the amounts recognised in respect of deferred tax assets
as well as in the amounts recognised in income in the period in which the change occurs.
Current tax is calculated based on the best available information. Changes between the tax
charge included in the financial statements and the subsequent tax filings are recognised
prospectively as a prior year tax charge.
Measurement of fair values (note 24):
A number of the Company’s accounting policies and disclosures require the measurement of fair
values, for both financial and non-financial assets and liabilities. When measuring the fair value
of an asset or a liability, the Company uses observable market data as far as possible. Fair values
are categorised into different levels in a fair value hierarchy based on the inputs used in the
valuation techniques as follows.
– Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
– Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or
liability, either directly (ie as prices) or indirectly (ie derived from prices).
– Level 3: inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
If the inputs used to measure the fair value of an asset or a liability fall into different levels
of the fair value hierarchy, then the fair value measurement is categorised in its entirety in
the same level of the fair value hierarchy as the lowest level input that is significant to the
entiremeasurement.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 16
Presumption of going concern:
The Company closely monitors and manages its liquidity risk. Cash forecasts are regularly
produced and sensitivities run for different scenarios including, but not limited to, changes
in commodity prices and different production rates from the Company’s producing assets. In
the currently low commodity price environment, the Company has taken appropriate action
to reduce its cost base and increase liquidity. The Company’s forecasts show that it will be
able to operate within its current debt facilities and have sufficient financial headroom for the
12months from the date of approval of the 2021 Annual Report and Accounts.
Operational restrictions placed on Kistos NL2 and its supply chain because of the spread
of COVID-19 has not led to any significant shutdowns and/or delays in obtaining critical
equipment for capital projects. To date, the Company has not experienced any material adverse
impact on its operations because of COVID-19. The precautionary and contingency measures
that have been put in place both in the office and at the drilling rig have worked well.
e) Changes in accounting policies
The Company has initially adopted Interest Rate Benchmark Reform – Phase 2 (Amendments to
IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) from 1 January 2021.
The Company applied the Phase 2 amendments retrospectively. In accordance with the
exceptions permitted in the Phase 2 amendments, the Company has elected not to restate
comparatives for the prior periods to reflect the application of these amendments. Since
the Company had no transactions for which the benchmark rate had been replaced with an
alternative benchmark rate as at 31 December 2020, there is no impact on opening equity
balances as a result of retrospective application.
Specific policies applicable from 1 January 2021 for interest rate benchmark reform
The Phase 2 amendments provide practical relief from certain requirements in IFRS Standards.
These reliefs relate to modifications of financial instruments and lease contracts or hedging
relationships triggered by a replacement of a benchmark interest rate in a contract with a new
alternative benchmark rate.
If the basis for determining the contractual cash flows of a financial asset or financial liability
measured at amortised cost changed as a result of interest rate benchmark reform, then the
Company updated the effective interest rate of the financial asset or financial liability to reflect
the change that is required by the reform. A change in the basis for determining the contractual
cash flows is required by interest rate benchmark reform if the following conditions are met:
the change is necessary as a direct consequence of the reform; and
the new basis for determining the contractual cash flows is economically equivalent to the
previous basis – ie the basis immediately before the change.
When changes were made to a financial asset or financial liability in addition to changes to the
basis for determining the contractual cash flows required by interest rate benchmark reform,
the Company first updated the effective interest rate of the financial asset or financial liability to
reflect the change that is required by interest rate benchmark reform. After that, the Company
applied the policies on accounting for modifications to the additional changes.
The amendments also provide an exception to use a revised discount rate that reflects the
change in interest rate when remeasuring a lease liability because of a lease modification that is
required by interest rate benchmark reform.
Finally, the Phase 2 amendments provide a series of temporary exceptions from certain hedge
accounting requirements when a change required by interest rate benchmark reform occurs to a
hedged item and/or hedging instrument that permits the hedging relationship to be continued
without interruption. The Company applied the following reliefs as and when uncertainty arising
from interest rate benchmark reform was no longer present with respect to the timing and amount
of the interest rate benchmark-based cash flows of the hedged item or hedging instrument:
the Company amended the designation of a hedging relationship to reflect changes that
were required by the reform without discontinuing the hedging relationship; and
when a hedged item in a cash flow hedge was amended to reflect the changes that were
required by the reform, the amount accumulated in the cash flow hedge reserve was deemed
to be based on the alternative benchmark rate on which the hedged future cash flows
aredetermined.
The details of the accounting policies are disclosed in note 31r. See also note 22 for related
disclosures about risks, financial assets and hedge accounting.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 17
f) Prior year restatements
In the 2020 financial statements an additional consideration of €6.4MM was recorded for the
intercompany Q10-A licence transfer between Kistos NL1 and Kistos NL2 originally effected
in 2015. This transaction was accounted for within property, plant and equipment and
intercompany payables in 2020 as the triggering event for fair value accounting was before
2020, this resulted in a restatement of depreciation of property, plant and equipment.
Kistos NL2 has adopted an accounting policy to capitalise interest over its drilling programme. In
2018, when work commenced on the construction of the Q10-A programme and execution of its
drilling programme, Kistos NL2 used a methodology to stop capitalising interest on completion
of the drilling programme. In 2021, this methodology has been restated to recognise that some
assets have commenced production in 2019 and hence capitalisation of interest should cease.
This has resulted in a movement of capitalised interest from property, plant and equipment to
the profit and loss account.
The total impact of the restatements in 2019 is €2,250 thousand on retained earnings. This
restatement comprises of €868 thousand related to the Q10-A transfer and €1,382 thousand
related to capitalised interest. An additional reclassification from intangibles assets to tangible
fixed assets has been processed which relates to the acquisition costs of the Q7 and Q10 asset
that have been transferred from asset under construction into production. This reclassification
has no impact on any of the profit and loss accounts or retained earnings. The following tables
summarise the impacts of the restatements on Kistos NL2’s financial statements.
Profit and loss account
For the year ended 31 December 2020
€’000
Impact of restatement
As previously
reported
Adjustments As restated
Depreciation and amortisation (14,076) 77 (13,999)
Interest expenses (1,636) (3,537) (5,173)
Interest on loans from affiliates (316) (11) (327)
Tax (charge)/credit (965) 1,419 454
Statement of financial position
31 December 2020
€’000
Impact of restatement
As previously
reported
Adjustments As restated
Intangible fixed assets 1,585 (1,585) -
Property, plant and equipment 109,086 (5,529) 103,557
Deferred tax assets 22,913 2,812 25,725
Retained earnings 18,608 (4,302) 14,306
31 December 2019
€’000
Impact of restatement
As previously
reported
Adjustments As restated
Intangible fixed assets 1,658 (1,658) -
Property, plant and equipment 129,004 4,442 133,446
Deferred tax assets 21,515 1,392 22,907
Retained earnings 13,443 (2,250) 11,193
Liabilities against affiliates (included under Other liabilities) 376 6,426 6,802
g) Statement of cash flows
The statement of cash flows is prepared in accordance with indirect method and constitutes an
explanation of the change in net cash, defined as cash and cash equivalents. In the statement
of cash flows, a differentiation is made between cash flows from operating, investing and
financing activities.
Cash flows in currencies other than the euro, are translated at the exchange rates, prevailing at
the date of the transaction. The Company uses periodically fixed average exchange rates that
effectively approximate the exchange rates on transaction dates.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 18
Note 3: Revenue
Revenue is measured based on the consideration specified in a contract with a customer. The
Company recognises revenue at a point in time when it transfers control over the oil or gas sold
to a customer.
€’000 Year ended
31 December 2021
Year ended
31 December 2020
Recognised income liquids 559 -
Recognised income gas 116,172 33,268
Total petroleum revenues 116,731 33,268
Analysis of produced volumes (thousand barrels of oil equivalent)
Liquids 13 21
Gas 1,929 2,003
Total produced volumes 1,942 2,024
Gas (MM Nm
3
) 288 299
Gas (’000 MWh) 3,460 3,592
Note 4: Production costs
Production costs include the costs related to:
the export of the gas produced from the Q10-A platform to a third-party platform, P15-D
including treatment tariff, compression tariff and fixed fees;
well maintenance expenditures;
GTS capacity fees; and
structural and facility-related surveys.
Note 5: Development expenses
These are mainly pre final investment decision expenses incurred on front end engineering and
design related to potential alternative commercial evacuation routes.
Note 6: Other operating expenses
€’000 Year ended
31 December 2021
Year ended
31 December 2020
Salaries and contractors 1,497 (211)
Travel and travel-related costs 46 38
IT and communication 135 66
Professional services 756 241
Cost recharges 1,928 2,647
Other (including recovery of cost and capitalisation of costs) (2,052) 288
Total other operating expenses 2,310 3,069
The audit fee and other non-audit related fees have been disclosed in the financial statements of
the parent company (Kistos NL1).
Salaries and contractors’ expenses in 2020 include the reversal of a bonus previously payable to
a former director.
Other includes joint operator recovery which is some €465 thousand higher in 2021 as a result
of higher expenditures. In addition, 2021 includes the capitalisations of €830 thousand of costs
related to the drilling programme executed in 2020. Other includes joint operator recovery,
capitalisations of costs related to the residual 2019 drilling programme and a one-off cost
redistribution charge amounting to €1,341 thousand.
Note 7: Employee benefit expenses
€’000 Year ended
31 December 2021
Year ended
31 December 2020
Wages and salaries 850 -
Social security costs 59 -
Total employee benefit expenses 909 -
Following acquisition of Kistos NL1 and Kistos NL2 from Tulip Oil Holding B.V., the employees
in Tulip Oil Holding B.V. have been transferred to Kistos NL2 during the year. At the end of 2021
there were 12 employees of the Company, all of them working in The Netherlands (2020: Nil).
There are two directors in Kistos NL2. Costs related to these directors are either recharged from
Kistos plc or via a contractual service invoice. The total amount charged for the provided services
amounts to €210 thousand (2020: Nil).
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 19
During the 2021 financial year, the average number of staff employed by the Company,
converted into full-time equivalents, amounted to 5.6 people (2020: Nil). This staffing level
(average number of staff) can be divided into the following staff categories:
€’000 Year ended
31 December 2021
Year ended
31 December 2020
Technical 3 -
Support 3 -
Total staff 6 -
During the year, the Company also retained several key contractors for delivering the objectives
of the Company. As of 1 January 2022, these individuals have had their contract converted to a
full-time employment contract.
Note 8: Net finance costs
€’000 Year ended
31 December 2021
Year ended
31 December 2020
(restated)
Interest income - (3)
Interest income from loan from ultimate parent (3,452) -
Total financial income (3,452) (3)
Other interest expenses 108 44
Interest expenses 10,035 5,173
Interest on loans from affiliates 194 327
Total interest expenses 10,337 5,544
Unwinding of bond discount 135 348
Accretion expenses 70 117
Amortised bond costs 899 514
Hedge ineffectiveness (see note 24) 625 -
Loss on bond redemption (see note 20) 781 -
Total other financial expenses 2,510 979
Net finance costs 9,395 6,520
During 2021 an amount of €2.1MM (2020: €4.8MM) of interest expenses have been capitalised
under property, plant and equipment. The Company has ceased capitalising interest from
October 2021.
Note 9: Tax (charge)/credit
€’000 Year ended
31 December 2021
Year ended
31 December 2020
(restated)
Current tax expense
Current year (15,382) (2,364)
Deferred tax expense
Origination and reversal of temporary differences (18,120) 2,818
Tax (charge)/credit (33,502) 454
The income tax credit for the year can be reconciled to the accounting profit as follows:
€’000 Year ended
31 December 2021
Year ended
31 December 2020
(restated)
Profit/(loss) before taxes 67,861 3,113
Income tax (expense)/benefit calculated at 50% (2020: 50%) (33,931) (1,557)
Expense uplift for SPS 1,192 1,194
Marginal field incentive (investment allowance) 1,728 993
Other movements (277) 461
Prior year tax compensation paid within fiscal union - (637)
Changes in prior year tax estimates (2,214) -
Tax (charge)/credit (33,502) 454
Effective tax rate 49.4% 14.6%
€’000
Temporary differences
Tax losses Provisions Other Total
At 31 December 2019 –
as previously stated 21,710 14,041 (14,236) 21,515
Prior year adjustment - - 1,392 1,392
Restated at 31 December 2019 21,710 14,041 (12,844) 22,907
Profit and loss account (390) (10,326) 13,534 2,818
Restated at 31 December 2020 21,320 3,715 690 25,725
Deferred tax on hedge reserve in OCI
(see note 17) - - 5,891 5,891
Profit and loss account (14,305) 453 (4,268) (18,120)
At 31 December 2021 7,015 4,168 2,313 13,496
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 20
Tax losses constitute unutilised State Profit Share (SPS) losses. Provisions relate to temporary
differences on abandonment provisions and other relates to temporary differences on property,
plant and equipment, abandonment fixed assets and other provisions/liabilities. SPS losses can
be carried forward indefinitely and are expected to be recovered in the coming year given the
production levels and high gas prices in 2022.
During 2020, a framework for fiscal union compensation was established covering 2019 and
future years. This results in intercompany settlements of tax charges/(credits) where an offset
against other available losses/(profits) within the fiscal union is possible. Kistos NL1 formed
a fiscal unity with its subsidiary Kistos NL2 as of 1 April 2021. The fiscal unity with Tulip Oil
Holding B.V. ended on 31 March 2021.
Note 10: Loan receivable
€’000 31 December 2021 31 December 2020
Loan receivable from parent 60,000 -
Terms and repayment schedule
31 December 2021 31 December 2020
€’000 Currency Nominal
interest rate
Year of
maturity
Face value Carrying
amount
Face value Carrying
amount
Unsecured term loan EUR 9.15% 2026 60,000 60,000 - -
The intercompany facility agreement has an ultimate repayment term equal to that of the
€60MM bond but Kistos plc also has the ability to make early repayments as it wishes.
Note 11: Joint arrangements
Kistos NL2 has the following interest in joint arrangements that classifies as a jointoperation:
Joint arrangement Licence
owner
License
type
Partner Status Year ended
31 December
2021
Year ended
31 December
2020
Q07 (offshore block) Kistos NL2 Production EBN Operated 60% 60%
Q08 (offshore block) Kistos NL2 Exploration EBN Operated 60% 60%
Q10-A (offshore block) Kistos NL2 Production EBN Operated 60% 60%
Q10-B (offshore block) Kistos NL2 Exploration EBN Operated 60% 60%
Q11 (offshore block) Kistos NL2 Exploration EBN Operated 60% 60%
Note 12: Property, plant and equipment
€’000 Exploration and
evaluation assets
(restated)
Assets under
construction
(restated)
Production
facilities
including wells
(restated)
Other
(restated)
Total
(restated)
Acquisition cost 31.12.2019* 1,490 23,563 130,312 129 155,494
Additions 460 1,668 335 3 2,466
Other - (1,650) (16,706) - (18,356)
Reclassification - (8,458) 8,458 - -
Acquisition cost 31.12.2020 1,950 15,123 122,399 132 139,604
Accumulated depreciation and
impairments 31.12.2019* - (5,859) (16,181) (8) (22,048)
Depreciation - - (13,955) (44) (13,999)
Impairment - - - - -
Accumulated depreciation and
impairments 31.12.2020 - (5,859) (30,136) (52) (36,047)
Book value 31.12.2020 1,950 9,264 92,263 80 103,557
Acquisition cost 31.12.2020 1,950 15,123 122,399 132 139,604
Additions 15,493 9,550 346 266 25,655
Other - - - - -
Reclassification - (18,814) 18,814 - -
Acquisition cost 31.12.2021 17,443 5,859 141,559 398 165,259
Accumulated depreciation and
impairments 31.12.2020 - (5,859) (30,136) (52) (36,047)
Depreciation - - (14,027) (138) (14,165)
Impairment - - (8,354) - (8,354)
Accumulated depreciation and
impairments 31.12.2021 - (5,859) (52,517) (190) (58,566)
Book value 31.12.2021 17,443 - 89,042 208 106,693
* Opening costs, depreciation and book value includes the reclassification of an intangible asset of €1.8MM, €145 thousand and
€1.65MM respectively, from intangible assets to tangible fixed assets.
The reclassification in 2021 and 2020 relates to the movement of assets to production
facilities including wells following the start of production. Other in the prior year arises from
a re-assessment of the provision required to decommission the existing facilities, pipeline
and wells that are in the field, which consequentially results in a change in the capitalised
costofabandonment.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 21
Assets under construction
Assets under construction relate to wells drilled but not yet producing.
Impairment
Impairment tests of individual cash-generating units are performed when impairment triggers
are identified. Impairments identified are:
Following the unsuccessful restimulation of well Q10-A06 the amount spent has been
impaired (€1.43MM); and
The abandonment of the A04 drilling path (before drilling the side track) has resulted in an
impairment of the costs originally capitalised of €6.92MM.
Note 13: Other receivables
€’000 31 December 2021 31 December 2020
Joint operator receivable 3,894 610
Other receivables 1,555 544
Receivables from affiliates 3,935 484
Prepayments 91 172
VAT receivable 2,236 37
Total other receivables 11,711 1,847
Information about the company’s exposure to credit risks, and impairment losses for other
short-term receivables is included in Note 24 Financial instruments.
Note 14: Cash and cash equivalents
Cash and cash equivalents consist of bank accounts and restricted cash balances. The restricted
funds at the end of 2021 relate to a bank guarantee for the office lease in The Hague. The 2020
restricted funds relate to bond interest payments on the €87MM bond up to 25 January 2021
held in a separate designated account.
€’000 31 December 2021 31 December 2020
Bank accounts 44,400 15,761
Restricted funds 22 1,930
Cash and cash equivalents 44,422 17,691
Note 15: Share capital
€’000 31 December 2021 31 December 2020
Share capital - -
The issued and authorised share capital of Kistos NL2 consists of 1 share with a par value of €1.
Kistos NL1 is the single shareholder of the Company.
The Company’s policy is to manage a strong capital base so as to manage investor, creditor and
market confidence and to sustain growth of the business. Management monitors its return on
capital. There are currently no covenants related to the equity of the Company.
Note 16: Share premium
€’000 31 December 2021 31 December 2020
Share premium 20,517 20,517
Note 17: Hedge reserve
€’000 31 December 2021 31 December 2020
Balance at the beginning of the year - -
Cost of hedging deferred and recognised in OCI (11,781) -
Deferred tax on hedge reserve in OCI 5,891
Total hedge reserve (5,890) -
The hedging reserve represents the change in value of the hedged items (production)
discounted cash flows at the forward gas prices curve between inception date and year end
and fixed hedged instrument (100,000 MWh of production) discounted cash flow. Amounts
that are effective and realized have been taken into the profit and loss account within gas sales
(revenue). The hedge ineffectiveness has been recorded in other financial expenses (see note 8).
The hedge ineffectiveness has arisen from a greater level of production downtime than initially
forecast during a month resulting in a lower level of production compared to the fixed hedge
instrument. The hedge reserve has been taxed at an effective rate of 50%.
Kistos NL2 held the following cash flow hedge at the balance sheet date:
Volume (MWh) Price Period of hedge
Cash flow hedge 300,000 €25 MWh Jan–Mar 22
The hedge is equally distributed over each month at 100,000 MWh.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 22
Note 18: Proposed appropriation of result
The Company proposes to transfer the profit for the year of €34.4MM to retained earnings in
accordance with Article 4.1 of Articles of Association. This article states that the profits are at the
disposal of the shareholders.
Note 19: Abandonment provision
€’000 31 December 2021 31 December 2020
Provisions as of beginning of the period 13,214 31,457
Accretion expense 65 113
Addition 3,363 -
Utilisation (736) -
Change in estimates and incurred liabilities (2) (18,356)
Total abandonment provision at year end 15,904 13,214
Break down of the abandonment provision to short-term and long-term liabilities
Short-term - -
Long-term 15,904 13,214
Total abandonment provision 15,904 13,214
Abandonment provisions are determined using an inflation rate of 1.0% (2020: 1.0%) and
a discount rate of 0.5% (2020: 0.5%) in line with publicly available economic forecasts. The
addition in 2021 relates to the abandonment provision for Q11-B and Q10-A04-S1. Utilisation
relates to the partial abandonment of the A04 drilling path. A 0.25% increase in the discount
rate results in a €0.4MM decrease in the abandonment provision.
The changes in estimates and incurred liabilities during the first half of 2020 relate to an update
of the cost estimates to abandon the Q10-A platform, pipeline and wells and an update of the
inflation rate assumption. Following clarifications of the proposed legislative changes regarding
abandonment requirements, the cost to abandon is now estimated based on cleaning and
leaving the pipeline between Q10-A and P15 in place.
Note 20: Bond payable
€’000 Bond €90MM Bond €60MM Bond costs Total
Book value at 31.12.2019 86,014 - (1,448) 84,566
Amortisation of bond costs - - 514 514
Unwinding of bond discount 348 - - 348
Book value at 31.12.2020 86,362 - (934) 85,428
Proceeds from borrowings 3,000 60,000 - 63,000
Transaction cost modification - - (2,933) (2,933)
Amortisation of bond costs - - 899 899
Unwinding of bond discount 135 - - 135
Unwinding effective interest rate
(“EIR”) impact €87MM bond 502 - - 502
Unwinding EIR impact €90MM bond 391 - - 391
EIR impact non substantial modification (2,348) - - (2,348)
Book value at 31.12.2021 88,042 60,000 (2,968) 145,074
During 2021, Kistos NL2 refinanced an existing €87MM bond with a new €90MM bond, which is
denominated in euro and runs from May 2021 to November 2024. Interest is paid on a half yearly
basis. The bond modification calculation indicates that the modification is not substantial and
hence the difference between the carrying value of the liability before the modification and the
present value of the cash flows after the modification has been recognised as a loss in the profit
and loss account (€0.8MM) under finance costs (see note 8). This loss arises from payments made
on redeeming the bond loan of €2.6MM, loss on release of the remaining discount carried on
the bond prior to redemption (€0.5MM) offset by non-cash movements related to the effective
interest rate (€2.3MM).
An additional €60MM bond that runs from May 2021 to May 2026, denominated in euro with an
interest rate of 9.15% per annum, was also issued in relation to the acquisition of Kistos NL2 and
Kistos NL1 by Kistos plc. The principal falls due on May 2026 and interest is paid on a half yearly
basis. Kistos NL1 and Kistos plc are Guarantors. Each guarantor irrevocably, unconditionally,
jointly and severally:
guarantees to the Bond Trustee the punctual performance by Kistos NL2 of all obligations
related to the Bonds;
agrees to make payment to the Bond Trustee on request in the event of non-payment by
Kistos NL2, together with any default interest; and
indemnifies the Bond Trustee against any cost, loss or liability incurred in respect of the
obligations of Kistos NL2.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 23
Kistos NL2 has issued a security in favour of the Bond Trustee over its assets for both the 2024
Bond and the 2026 Bond, including a pledge over all intercompany receivables between Kistos
NL2 and Kistos NL1 and Kistos plc. In addition, a Netherlands Pledge has been provided to the
Bond Trustee covering all receivables of Kistos NL2 and Kistos plc.
The €87MM bond was originally issued at a 98% par value. The 2% discount on the bond resulted
in an unwinding of the bond discount to reach the par value at maturity date. Interest on this
bond was paid quarterly and funded in advance in a restricted bank account.
Terms and repayment schedule
31 December 2021 31 December 2020
€’000 Currency Nominal
interest
rate
Year of
maturity
Face value Carrying
amount
Face value Carrying
amount
Secured bond EUR 8.75% 2024 90,000 88,042 87,000 86,362
Secured bond EUR 9.15% 2026 60,000 60,000 - -
Total interest-bearing liabilities 150,000 148,042 87,000 86,362
Financial covenants
€90MM bond
Issuer (Kistos NL2) Requirement Effective date
Minimum liquidity 10,000,000 At all times
Maximum leverage ratio 2.50 From and including 1 January 2022
€60MM bond
Minimum liquidity 10,000,000 At all times
Maximum leverage ratio 2.50 From and including 1 January 2022
No covenants currently apply to the bond except for the minimum liquidity for Kistos NL2.
During 2021, Kistos NL2 complied with the minimum liquidity covenant.
Note 21: Trade payables and accrued expenses
€’000 31 December 2021 31 December 2020
Trade payables 8,646 1,203
Other accrued expenses 13,484 6,570
Total trade payables and accrued expenses 22,130 7,773
Trade payables are unsecured and generally paid within 30 days. Accrued expenses are also
unsecured and represents estimates of expenses incurred but where no invoice has yet been
received. The carrying value of trade payables and other accrued expenses are considered to be
fair value given their short term nature.
Note 22: Other liabilities
€’000 31 December 2021 31 December 2020
Liabilities against affiliates 506 8,264
Bond interest payable 1,854 1,356
Hedge liability 11,781 -
Wage tax payable 76 -
Contingent consideration - 1,791
Right of use liability 91 -
Total other liabilities 14,308 11,411
Q10 contingent consideration
The contingent liability to pay PA Resources (a subsidiary of Petrogas E&P LLC) has been settled
in 2021.
Interest payable
The interest over the bond is payable per half year. The balance of €1.8MM presented as part of
the other current liabilities relates to the interest over the bond payable as at year-end.
Hedge liability
The hedge liability of €11,781 thousand (2020: Nil) represents the potential fair value liability in
respect of the cash flow hedge for the remaining period of the contract. The fair value has been
calculated with reference to the difference between the discounted values of the remaining gas
hedge and hedging instrument at the gas forward curves discounted.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 24
Note 23: Interest-bearing loans from affiliates
€’000 31 December 2021 31 December 2020
Balance at the beginning of the year 3,700 4,200
Repayments during the year (1,896) (500)
Balance at the end of the year 1,804 3,700
The current loan with Kistos NL1 is unsecured, bears an interest rate of 8.4% per annum and is
repayable by 1 January 2025.
Note 24: Financial instruments
Financial risk management objectives
The Company is exposed to a variety of risks including commodity price risk, interest rate risk,
credit risk, foreign currency risk and liquidity risk. The use of derivative financial instruments
(derivatives) is governed by the Group’s policies approved by the Kistos Board. Compliance
with policies and exposure limits are monitored and reviewed internally on a regular basis.
The Company does not enter into or trade financial instruments, including derivatives, for
speculative purposes.
Fair values of financial assets and liabilities
The Company considers the carrying value of all its financial assets and liabilities to be
materially the same as their fair value. The following table shows the carrying amounts and fair
values of financial assets and financial liabilities, including their levels in the fair value hierarchy.
It does not include fair value information for financial assets and financial liabilities not
measured at fair value if the carrying amount is a reasonable approximation of fair value:
€’000 Financial assets at
amortised cost
Other financial
liabilities
Fair value
hierarchy
Financial liabilities
Bond payable - 145,074 Level 3
Hedge liability - 11,781 Level 3
Total financial liabilities - 156,855
The Company has no material financial assets that are past due. No financial assets are impaired
at the balance sheet date.
Risk management framework
The directors of Kistos NL2 have overall responsibility for the establishment and oversight of the
Company’s risk management framework. The Kistos Board is responsible for developing and
monitoring the Company’s risk management policies.
The Company’s risk management policies are established to identify and analyse the risks
faced by the Company, to set appropriate risk limits and controls but also to monitor risks and
adherence to limits. Risk management policies and systems are reviewed when needed to reflect
changes in market conditions and the Company’s activities.
The Company aims to develop a disciplined and constructive control environment in which all
employees understand their roles and obligations.
The Kistos Audit Committee oversees how management monitors compliance with the
Company’s risk management policies, procedures and reviews the adequacy of the risk
management framework in relation to the risks faced by the Company.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 25
Commodity price (market) risk
Market risk is the risk that changes in market prices eg foreign exchange rates, interest rates and
equity prices will affect the Company’s profit and loss account. The objective of material risk
management is to manage and control market risk exposures within acceptable parameters,
while optimising return.
During 2021 or 2020, the Company has not used derivatives to mitigate the commodity price
risk associated with its underlying oil and gas revenues. Where such transactions are carried out,
they are done based on the Company’s guidelines.
Cash flow hedge
During the first half of 2021, Kistos NL2 hedged its monthly production (hedged item) at an
amount of 100,000 MWh per month at a price of €25/MWh (hedged instrument) for the nine-
month period from July 2021 to March 2022. Kistos NL2 engaged in this cash flow hedge to
cover the potential volatility of the gas price and the impact that this may have on its capital
expenditure programme. For one month during 2021 the hedge proved to be ineffective due to a
production shortfall greater than estimated at inception of the contract and as a result a hedge
ineffectiveness of €625 thousand has been recorded under other finance costs (see note 8).
Cash flow and interest rate risk
The Company’s principal exposure to interest costs relates to the bond issues and the €60MM
intragroup loan from Kistos NL1. The €90MM bond carries a fixed interest rate of 8.75%. The
€60MM bond carries a fixed interest rate of 9.15%. No interest rate hedging has been taken out
by the Company as management believes the effects of an adverse change in the interest rates to
be low. The intragroup loan carries a fixed interest rate of 8.4% until its expiry on 1 January 2025.
The Company’s financial assets and liabilities, excluding trade and other receivables and trade
and other payables, at 31 December 2021 and 2020 were all denominated in euro. No other
currencies of cash or debt are held.
The following table demonstrates the sensitivity of the Company’s bond loan of €90MM to
reasonably possible movements in interest rates:
Effect on finance costs Effect on equity
€’000 Market movement Year ended
31 December 2021
Year ended
31 December 2020
31 December 2021 31 December 2020
Interest rate +10 basis points (90) (87) (45) (73)
Interest rate -10 basis points 90 87 45 73
No sensitivity has been included on the €60MM loan as the arrangements put in place are
back-to-back and Kistos plc has no current intention of repaying the loan.
Cash flow risk is the risk that the Company will encounter difficulty in meeting the obligations
associated with its financial liabilities that are settled by delivering cash or another financial
asset. The Company’s approach to managing cash flow is to currently utilise the funds residing
as cash balances and the cash generated from operations.
Expected credit loss assessment
The Company has a credit policy that governs the management of credit risk, including the
establishment of counterparty credit limits and specific transaction approvals. The primary
credit exposures for the Company are its receivables generated by the marketing of gas and
condensate and amounts due from joint JV operators. These exposures are managed at the
Group level. The Company’s oil and gas sales are predominantly made to international oil
market participants including the oil majors, trading houses and refineries. Joint JV operators
are predominantly international major oil and gas market participants. Material counterparty
evaluations are conducted utilising international credit rating agency and financial assessments.
Where considered appropriate, security in the form of trade finance instruments from financial
institutions with appropriate credit ratings, such as letters of credit, guarantees and credit
insurance, are obtained to mitigate the risks.
Cash and cash equivalents
The Company held cash and cash equivalents of €44.4MM at 31 December 2021 (2020:€17.7MM).
The cash and cash equivalents are held with bank and financial institution counterparties that are
rated at least A-.
Impairment on cash and cash equivalents has been measured on a 12-month expected loss
basis and reflects the short maturities of the exposures. The Company considers that its cash
and cash equivalents have low credit risk based on external credit ratings of the counterparties.
The Company uses a similar approach for assessment of expected credit losses (ECLs) for cash
and cash equivalents to those used for debt securities.
The Company has not recognised an allowance for credit losses over cash and cash equivalents
in 2021 or 2020.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 26
Foreign currency risk
The Company conducts and manages its business predominately in euros, the operating
currency of the industry in which it operates. From time to time the Company undertakes
certain transactions denominated in other currencies. There were no foreign currency financial
derivatives in place at 31 December 2021 (2020: €nil).
As at 31 December 2021, there were no material monetary assets or liabilities of the Company
that were not denominated in the functional currency of the respective subsidiaries.
The Company does not see material movements arising from the principal foreign currency
fluctuations in British pound sterling (GBP), United States dollar (USD) and Norwegian krone
(NOK).
Liquidity risk
The Company manages its liquidity risk using both short- and long-term cash flow projections,
supplemented by debt financing plans and active portfolio management. Ultimate responsibility
for liquidity risk management rests with the Kistos Board, which has established an appropriate
liquidity risk management framework covering the Company’s short-, medium- and long-term
funding and liquidity management requirements.
Cash forecasts are regularly produced and sensitivities run for different scenarios including, but
not limited to, changes in commodity prices, different production rates from the Company’s
producing assets and delays to development projects. In addition to the Company’s operating
cash flows, portfolio management opportunities are reviewed to potentially enhance the
financial capability and flexibility of the Company.
The Company’s forecast, taking into account the risks described above, show that the Company
will be able to operate within its current debt facilities and have sufficient financial headroom
for the 12 months from the date of approval for the 2021 Annual Report and Accounts.
The following table details the Company’s remaining contractual maturity for its non-derivative
financial liabilities with agreed repayment periods. The tables have been drawn up based on the
undiscounted cash flows of financial liabilities based on the earliest date on which the Company
can be required to pay.
€’000 Weighted
average effective
interest rate (%)
1–3
months
3 months
to 1 year
1–5 years 5 years Total
31 December 2021
Bond €90MM 8.75 - - 88,042 - 88,042
Bond €60MM 9.15 - - 60,000 - 60,000
Other non-current liabilities - - - 31 - 31
Liabilities against affiliates –
taxsettlement - - 14,980 - - 14,980
Interest-bearing loans from affiliates 8.40 - - 1,804 - 1,804
Other liabilities - 582 1,854 91 - 2,527
Trade payables - 8,646 - - - 8,646
Total 9,228 16,834 149,968 - 176,030
31 December 2020
Bond €87MM 8.50 - - 86,362 - 86,362
Other non-current liabilities - - - 89 - 89
Other liabilities - 9,620 1,791 - - 11,411
Interest-bearing loans from affiliates 8.40 - - 3,700 - 3,700
Trade payables - 1,203 - - - 1,203
Total 10,823 1,791 90,151 - 102,765
Note 25: Related-party transactions
As described in note 1, Kistos NL1 (former Tulip Oil Netherlands B.V.) was acquired by Kistos plc
on 20 May 2021. As of this date Kistos NL2 (former Tulip Oil Netherlands Offshore B.V.) together
with Kistos NL1 and Kistos plc form the Kistos Group.
Details of the transactions between the Company and other related parties are disclosed below.
Intra group financing
Kistos NL2 has entered into a loan agreement with Kistos NL1 to finance the purchase of the
licence interest in Q7 and Q10-A and for the funding of the further exploration of these licences
until the company will generate its own cash flows. The loan is unsecured and bears an interest
rate of 8.4% per annum (see note 23).
An additional €60MM bond, with a coupon of 9.15% and a maturity date of May 2026, was
issued in conjunction with the acquisition of Kistos NL2 by Kistos plc. Kistos NL2 is the issuer of
the bond and the bond of €60MM has been subsequently loaned to Kistos plc (see note 10).
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 27
Intra group tax fiscal union compensation
During 2020, a new framework for fiscal union compensation was established covering 2019
and future years. This results in an intercompany settlement of tax charges/(credits) where
an offset against other available losses/(profits) within the fiscal union is possible. Kistos NL1
formed a fiscal unity with its subsidiary Kistos NL2 as of 1 April 2021. The fiscal unity with Tulip
Oil Holding B.V. ended on 31 March 2021.
Compensation of key management and key management personnel
The Directors of Kistos NL2 and management personnel are the only key management
members as defined by IAS 24 – Related Party Disclosures. This function is provided by certain
management companies and their personnel to Kistos plc as well as by personnel employed by
Kistos plc from which recharges to the Company are conducted.
The Company is wholly and directly controlled by Kistos NL1 and by its ultimate parent Kistos plc.
Transactions with other related parties are set out below:
€’000 Transaction type Year ended
31 December 2021
Year ended
31 December 2020
Cost recharges Other related parties - (2,990)
Kistos NL1 B.V. Interest payable (197) (316)
Kistos NL1 B.V. Services received - (1,341)
Kistos NL1 B.V. Services provided 89 -
Kistos NL1 B.V. Tax compensation 1,500 (2,364)
Kistos NL1 B.V. Tax liability (14,980) -
Kistos plc Interest receivable 3,452 -
Kistos plc Tax liability (851) -
Kistos plc Services received (780) -
Kistos plc Services provided 81 -
Outstanding balances receivable (payable) at end of year: Transaction type Year ended
31 December 2021
Year ended
31 December 2020
Tulip Oil Holding B.V. Services provided - (475)
Rhein Petroleum Services provided - (22)
Kistos NL1 B.V. Services provided 11 -
Kistos NL1 B.V. Services received - (7,767)
Kistos NL1 B.V. Tax compensation 390 484
Kistos NL1 B.V. Tax liability (14,980) -
Kistos NL1 B.V. Intercompany loan (1,803) (3,700)
Kistos plc Interest receivable 3,452 -
Kistos plc Services provided 81 -
Kistos plc Services received (780) -
Kistos plc Loan receivables 60,000 -
All outstanding balances with these related parties are priced on an arm’s length basis and are
to be settled in cash. No expense has been recognised in the current year or prior year for bad
and doubtful debts in respect of amounts owed by related parties.
Note 26: Leases
Leases as lessee
In 2020, the Company leased a warehouse until Q1 2022 and office facilities until the end of
2022 under operating leases, with an option to renew the lease after that date.
The Company also leases IT equipment with contract terms of one to three years. These leases
are short-term and/or leases of low-value items. The Company has elected not to recognise
right-of-use assets and lease liabilities for these leases.
Information about leases for which the Company is a lessee is presented below.
Right-of-use assets
Right-of-use assets related to leased properties that do not meet the definition of investment
property are presented as property, plant and equipment.
(€’000) Office facilities
2021
Office facilities
2020
Balance at 1 January 39 77
Depreciation charge for the year (102) (40)
Additions to right-of-use assets 154 2
Balance at 31 December 91 39
Amounts recognised in profit or loss
Leases under IFRS 16 (€’000) Year ended
31 December 2021
Year ended
31 December 2020
Interest on lease liabilities 4 5
Expenses related to short-term leases - -
Expenses related to leases of low-value assets, excluding short-term leases of low-
value assets 3 -
Amounts recognised in statement of cash flows
Leases under IFRS 16 (€’000) Year ended
31 December 2021
Year ended
31 December 2020
Total cash outflow for leases 98 47
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 28
Extension options
The warehouse and office facilities include the option for an extension of two one-year periods
exercisable by the Company up to one month before the end of the non-cancellable contract
period. Where practicable, the Company seeks to include extension options in new leases to
provide operational flexibility. The extension options held are exercisable only by the Company
and not by the lessors. The Company assesses at lease commencement date whether it is
reasonably certain to exercise the extension options. The Company reassesses whether it is
reasonably certain to exercise the options if there is a significant event or significant changes in
circumstances within its control.
The Company has estimated that the potential future lease payments, should it exercise the full
extension option, would result in an increase in lease liability of €0.05MM (2020: €0.04MM).
The future minimum lease payments under non-cancellable leases payable as at 31 December
are shown in the table below:
(€’000) IFRS 16
31 December 2021
IFRS 16
31 December 2020
Operating lease commitments
Due within one year 95 44
Two to five years - -
Due after five years - -
Total operating lease commitments 95 44
Note 27: Contingencies and commitments
As of 1 April 2021, Kistos NL1 and Kistos NL2 are part of a fiscal unity for corporate income tax
purposes where each entity is individually liable for the tax payments. Kistos NL1 is the head of the
fiscal unity. The fiscal unity with Tulip Oil Holding ended on 31 March 2021.
At 31 December 2021, the drilling programme has not been completed. The outstanding
commitment at year end related to the drilling rig and associated services amounts to €1.4MM
(2020: €nil).
Note 28: Reconciliation of investing cash flows
€’000 Note Year ended
31 December 2021
Year ended
31 December 2020
(restated)
Additions and other movements to fixed assets 12 (25,656) 15,890
Non-cash abandonment (other movements)/additions 19 3,361 (18,356)
Movement in accruals and trade payables 1,517 1,702
Investing cash flow (20,778) (764)
Note 29: Reconciliation of financing cash flows
€’000 Share
premium
Bond
€90MM
Bond
€60MM
Amortised
bond costs
Interest-
bearing
loans from
affiliates
Other
non-
current
liabilities
Other
liabilities
At 31.12.2019 20,517 86,014 - (1,448) 4,200 121 1,899
Financing cash flows - - - - (500) (31) -
Non-cash movements - 348 - 514 - (1) (108)
At 31.12.2020 20,517 86,362 - (934) 3,700 89 1,791
Financing cash flows - 3,000 60,000 (2,933) (1,896) (98) -
Non-cash movements - (1,320) - 899 - 131 10,066
At 31.12.2021 20,517 88,042 60,000 (2,968) 1,804 122 11,857
Cash outflow related to the bond redemption costs amounts to €2,627 thousand.
Note 30: Subsequent events
The Q11-B drilling campaign was completed post year end with the rig being safely moved
away from Q10-A in February 2022. The Q11B drilling was targeting three main reservoirs –
Slochteren, Bunter and Zechstein. Prior to the end of the year Slochteren was determined to
be water bearing. After the year end hydrocarbons have been discovered in both the Bunter
and the Zechstein resulting in the well being suspended pending further development studies.
Initial economic analysis indicates that the book value at 31 December 2021 of Q11-B can be
recovered through a development.
The developments in the Ukraine have no impact on the customer or supplier base for Kistos
NL2. The increase in the gas price has a positive impact on the revenue of the Company in 2022.
In March 2022, Kistos NL2 used some of the surplus cash on its balance sheet to purchase
€27.7MM of the €90MM bonds.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 29
Note 31: Significant accounting policies
The Company has consistently applied the following accounting policies to all periods presented
in these financial statements, except if mentioned otherwise (also see note 2).
Certain comparative amounts in the statement of profit or loss and other comprehensive income
have been restated, reclassified or re-presented.
Set out below is an index of the significant accounting policies, the details of which are available
on the pages that follow.
A Foreign currencies 30
B Revenue 30
C Operating profit 30
D Joint operations 30
E Finance income and finance costs 31
F Taxation 31
G Leases 32
H Inventory 32
I Intangible assets and goodwill 33
J Exploration, evaluation and production assets 33
K Commercial reserves 33
L Depreciation based on depletion 33–34
M Provisions 34
N Property, plant and equipment 34
O Employee benefits 34–35
P Cash and cash equivalents 35
Q Effective interest method 35
R Bond modification 35
S Financial instruments 35–38
T Impairment 38–39
U Fair value 39
V Standards issued that are not effective 40
W Operating segments 40
a) Foreign currencies
The euro is the functional and presentation currency of the Company. Transactions in foreign
currencies are translated to the respective functional currencies of the Company entities at
exchange rates on the dates of the transactions. Income and expense items are translated at the
average exchange rates for the period.
Monetary assets and liabilities denominated in foreign currencies are translated into the
functional currency at the exchange rate on the reporting date. Non-monetary assets and
liabilities that are measured at fair value in a foreign currency are translated into the functional
currency at the exchange rate when the fair value was determined. Non-monetary items that are
measured based on historical cost in a foreign currency are translated at the exchange rate at
the date of the transaction. Foreign currency differences are generally recognised in profit or loss
and presented within other operating expenses or finance costs.
b) Revenue
Sales revenue represents the sales value, net of VAT, of the Company’s share of gas sales in the
year. Revenue is recognised at a point in time when goods are delivered and title haspassed.
Interest income is accrued on a time basis, by reference to the principal outstanding and at the
effective interest rate applicable, which is the rate that exactly discounts estimated future cash
receipts through the expected life of the financial asset to that asset’s net carrying amount.
c) Operating profit
Operating profit is the result generated from the continuing principal revenue producing
activities of the Company as well as other income and expenses related to operating activities.
Operating profit excludes net finance costs, share of profit of equity accounted investees and
income taxes.
d) Joint operations
The Company is engaged in oil and gas exploration, development and production through
unincorporated joint arrangements; these are classified as joint operations in accordance with
IFRS 11. The Company accounts for its share of the assets, liabilities, revenue and expenses of
these joint operations. In addition, where Kistos acts as Operator to the joint operation, the gross
liabilities and receivables (including amounts due to or from non-operating partners) of the
joint operation are included in the Company’s balance sheet.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 30
e) Finance income and finance costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying
assets, which are assets that necessarily take a substantial period of time to get ready for their
intended use or sale, are added to the cost of those assets, until such time as the assets are
substantially ready for their intended use or sale.
Finance costs of debt are allocated to periods over the term of the related debt at a constant rate
on the carrying amount. Arrangement fees and issue costs are deducted from the debt proceeds
on initial recognition of the liability and are amortised and charged to the income statement as
finance costs over the term of the debt.
Interest income or expense is recognised using the effective interest method. Dividend
income is recognised in profit or loss on the date that the Company’s right to receive payment
isestablished.
f) Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax. For
purposes of corporate income tax, Kistos NL1 formed a fiscal unity with its subsidiary Kistos
NL2 as of 1 April 2021. The companies are separately liable for tax and therefore account for
their tax charge/credit on a standalone basis after taking into account the effects of horizontal
compensation within the fiscal union which is applicable from 1 April 2021. The fiscal unity with
Tulip Oil Holding B.V. ended on 31 March 2021.
Current and deferred tax are provided at amounts expected to be paid using the tax rates and
laws that have been enacted or substantively enacted by the balance sheet date.
Interest and penalties related to income taxes, including uncertain tax treatments, are
accounted for under IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
Current tax
Current tax comprises the expected tax payable or receivable on the taxable income or loss
for the year and any adjustment to tax payable or receivable in respect of previous years. The
amount of current tax payable or receivable is the best estimate of the tax amount expected to
be paid or received that reflects uncertainty related to income taxes, if any. It is measured using
tax rates enacted or substantively enacted at the reporting date. Current tax also includes any
tax arising from dividends.
Current tax assets and liabilities are offset only if certain criteria are met.
Deferred tax
Deferred tax is recognised in respect of temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for taxation
purposes. Deferred tax is not recognised for:
Temporary differences on the initial recognition of assets or liabilities in a transaction that is
not a business combination and that affects neither accounting nor taxable profit or loss;
Temporary differences related to investments in subsidiaries, associates and joint
arrangements to the extent that the Company is able to control the timing of the reversal
of the temporary differences and it is probable that they will not reverse in the foreseeable
future; and
Taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible
temporary differences to the extent that is probable that future taxable profits will be available
against which they can be used. Future taxable profits are determined based on the reversal
of relevant taxable temporary differences. If the amount of taxable temporary differences
is insufficient to recognise a deferred tax asset in full, then future taxable profits, adjusted
for reversals of existing temporary differences, are considered, based on business plans for
individual subsidiaries in the Company. Deferred tax assets are reviewed at each reporting date
and are reduced to the extent that it is no longer probable that the related tax benefit will be
realised; such reductions are reversed when the probability of future taxable profits improves.
Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the
extent that it has become probable that future taxable profits will be available against which
they can be used.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences
when they reverse, using tax rates enacted or substantively enacted at the reporting date.
The measurement of deferred tax reflects the tax consequences that would follow from the
manner in which the Company expects, at the reporting date, to recover or settle the carrying
amount of its assets and liabilities.
Deferred tax assets and liabilities are offset only if certain criteria are met.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 31
g) Leases
At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A
contract is, or contains, a lease if the contract conveys the right to control the use of an identified
asset for a period of time in exchange for consideration.
(i) As a lessee
At commencement or on modification of a contract that contains a lease component, the
Company allocates the consideration in the contract to each lease component on the basis of its
relative stand-alone prices. However, for the leases of property the Company has elected not to
separate non-lease components and account for the lease and non-lease components as a single
lease component.
The Company recognises a right-of-use asset and a lease liability at the lease commencement
date. The right-of-use asset is initially measured at cost, which comprises the initial amount
of the lease liability adjusted for any lease payments made at or before the commencement
date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove
the underlying asset or to restore the underlying asset or the site on which it is located, less any
lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the
commencement date to the end of the lease term, unless the lease transfers ownership of the
underlying asset to the Company by the end of the lease term or the cost of the right-of-use
asset reflects that the Company will exercise a purchase option. In that case the right-of-use
asset will be depreciated over the useful life of the underlying asset, which is determined
on the same basis as those of property and equipment. In addition, the right-of-use asset is
periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of
the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not
paid at the commencement date, discounted using the interest rate implicit in the lease or, if
that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally,
the Company uses its incremental borrowing rate as the discount rate.
The Company determines its incremental borrowing rate by obtaining interest rates from
various external financing sources and makes certain adjustments to reflect the terms of the
lease and type of the asset leased.
Lease payments included in the measurement of the lease liability comprise the following:
fixed payments, including in-substance fixed payments;
variable lease payments that depend on an index or a rate, initially measured using the index
or rate as at the commencement date;
amounts expected to be payable under a residual value guarantee; and
the exercise price under a purchase option that the Company is reasonably certain to
exercise, lease payments in an optional renewal period if the Company is reasonably certain
to exercise an extension option, and penalties for early termination of a lease unless the
Company is reasonably certain not to terminate early.
The lease liability is measured at amortised cost using the effective interest method. It is
remeasured when there is a change in future lease payments arising from a change in an index
or rate, if there is a change in the Company’s estimate of the amount expected to be payable
under a residual value guarantee, if the Company changes its assessment of whether it will
exercise a purchase, extension or termination option or if there is a revised in-substance fixed
lease payment.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the
carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount
of the right-of-use asset has been reduced to zero.
The Company presents right-of-use assets that do not meet the definition of investment
property in ‘property, plant and equipment’ and lease liabilities in ‘loans and borrowings’ in the
statement of financial position.
Short-term leases and leases of low-value assets
The Company has elected not to recognise right-of-use assets and lease liabilities for leases of
low-value assets (less than €5 thousand) and short-term leases (period of less than one year),
including IT equipment. The Company recognises the lease payments associated with these
leases as an expense on a straight-line basis over the lease term.
h) Inventory
Inventories, other than oil products, are stated at the lower of cost and net realisable value.
Cost is determined by the first in first-out method and comprises direct purchase costs, costs of
production and transportation and manufacturing expenses. Net realisable value is determined
by reference to prices existing at the balance sheet date.
Oil product is stated at net realisable value and changes in net realisable value are recognised in
the income statement.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 32
i) Intangible assets and goodwill
Recognition and measurement
Goodwill
Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated
impairment losses.
Research and development
Expenditure on research activities is recognised in profit or loss as incurred.
Development expenditure is capitalised only if the expenditure can be measured reliably,
the product or process is technically and commercially feasible, future economic benefits are
probable and the Company intends to and has sufficient resources to complete development
and to use or sell the asset. Otherwise, it is recognised in profit or loss as incurred. Subsequent to
initial recognition, development expenditure is measured at cost less accumulated amortisation
and any accumulated impairment losses.
Other intangible assets
Other intangible assets, including customer relationships, patents and trademarks, that are
acquired by the Company and have finite useful lives are measured at cost less accumulated
amortisation and accumulated impairment losses.
Amortisation is recognised on a straight-line basis over their estimated useful lives. The
estimated useful life and amortisation method are reviewed at the end of each reporting
period, with the effect of any changes in estimate being accounted for on a prospective basis.
Intangible assets with indefinite useful lives that are acquired separately are carried at cost less
accumulated impairment losses.
Subsequent expenditure
Subsequent expenditure is capitalised only when it increases the future economic benefits
embodied in the specific asset to which it relates. All other expenditure, including expenditure
on internally generated goodwill and brands, is recognised in profit or loss as incurred.
The Company allocates goodwill to cash-generating units (CGUs) or groups of CGUs that
represent the assets acquired as part of the business combination. The fields (licences) within
the Company are considered CGUs for the purposes of impairment testing.
Goodwill is tested for impairment annually as at 31 December and when circumstances indicate
that the carrying value may be impaired.
Impairment is determined for goodwill by assessing the recoverable amount, using the ‘Value in
Use’ method, of each CGU (or group of CGUs) to which goodwill relates. When the recoverable
amount of the CGU is less than its carrying amount, an impairment loss is recognised.
Impairment losses relating to goodwill cannot be reversed in future periods.
j) Exploration, evaluation and production assets
The Company adopts the successful efforts method of accounting for exploration and evaluation
costs. Pre-licence costs are expensed in the period in which they are incurred. All licence
acquisition, exploration and evaluation costs and directly attributable administration costs
are initially capitalised by well, field or exploration area, as appropriate. Interest payable is
capitalised insofar as it relates to specific project financing.
These costs are written off as exploration costs in the income statement unless commercial
reserves have been established or the determination process has not been completed and there
are no indications of impairment.
All field development costs are capitalised as property, plant and equipment. Property, plant and
equipment related to production activities are depreciated in accordance with the Company’s
depreciation accounting policy.
Where the Company drills a side track from an original well, the costs of the original well are
estimated and written off, if the well path is not hydrocarbon producing.
k) Commercial reserves
P1 developed producing and P2 reserves are estimates of the amount of oil and gas that can
be economically extracted from the Company’s oil and gas assets. The Company estimates its
reserves using standard recognised evaluation techniques. The estimate is reviewed at least
annually by management and is reviewed as required by independent consultants.
l) Depreciation based on depletion
All expenditure carried within each field is depreciated from the commencement of production
on a unit of production basis, which is the ratio of oil and gas production in the period to the
estimated quantities of commercial reserves at the end of the period plus the production in
the period, generally on a field-by-field basis or by a Company of fields which are reliant on
common infrastructure. Costs used in the unit of production calculation comprise the net book
value of capitalised costs incurred to date. Changes in the estimates of commercial reserves are
dealt with prospectively.
Where there has been a change in economic conditions that indicates a possible impairment
in a discovery field, the recoverability of the net book value relating to that field is assessed
by comparison with the estimated discounted future cash flows based on management’s
expectations of future oil and gas prices and future costs.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 33
In order to discount the future cash flows the Company calculates CGU-specific discount rates.
The discount rates are based on an assessment of the Company’s post-tax Weighted Average
Cost of Capital (WACC). The post-tax WACC is subsequently grossed up to a pre-tax rate.
Where there is evidence of economic interdependency between fields, such as common
infrastructure, the fields are grouped as a single CGU for impairment purposes.
Where conditions giving rise to impairment subsequently reverse, the effect of the impairment
charge is also reversed as a credit to the income statement, net of any amortisation that would
have been charged since the impairment.
m) Provisions
Provisions are determined by discounting the expected future cash flows at a pre-tax rate that
reflects current market assessments of the time value of money and the risks specific to the
liability. The unwinding of the discount is recognised as finance cost.
Restructuring
A provision for restructuring is recognised when the Company has approved a detailed and
formal restructuring plan, and the restructuring either has commenced or has been announced
publicly. Future operating losses are not provided for.
Onerous contracts
A provision for onerous contracts is measured at the present value with the lower of the
expected cost in terminating the contract and the expected net cost of continuing with the
contract which is determined based on incremental costs necessary to fulfil the obligation under
the contract. Before a provision is established, the Company recognises any impairment loss on
the assets associated with that contract.
Abandonment provision
An abandonment provision for decommissioning is recognised in full when the related facilities
or wells are installed. A corresponding amount equivalent to the provision is also recognised
as part of the cost of the related property, plant and equipment. The amount recognised is the
estimated cost of abandonment, discounted to its net present value, and is reassessed each year
in accordance with local conditions and requirements.
Changes in the estimated timing of abandonment or abandonment cost estimates are dealt with
prospectively by recording an adjustment to the provision, and a corresponding adjustment to
property, plant and equipment. The unwinding of the discount on the abandonment provision is
included as a finance cost.
n) Property, plant and equipment
Recognition and measurement
Items of property, plant and equipment are measured at cost, which includes capitalised
borrowing costs less accumulated depreciation and any accumulated impairment losses. The
cost of certain items of property, plant and equipment at 1 January 2015, the Company’s date of
transition to EU-IFRS, was determined with reference to its fair value at that date.
If significant parts of an item of property, plant and equipment have different useful lives,
then they are accounted for as separable items (major components) of property, plant and
equipment.
Any gain or loss on disposal of an item of property, plant and equipment is recognised in the
profit and loss account.
Subsequent expenditure
Subsequent expenditure is capitalised only when it is probable that the future economic benefits
associated with the expenditure will flow to the Company.
Depreciation
Depreciation is calculated to write-off the cost of items of property, plant and equipment less
their estimated residual values using the aforementioned depreciation based on depletion
accounting policy for all assets related to oil and gas fields and straight-line method over the
estimated useful lives for all other property, plant and equipment. Depreciation is recognised in
the profit and loss account.
The estimated useful lives of property, plant and equipment depreciated using the straight-
line method is three to five years. Depreciation methods, useful lives and residual values are
reviewed at each reporting date and adjusted if appropriate.
o) Employee benefits
Short-term employee benefits
Short-term employee benefits are expensed as the related service is provided. A liability
is recognised for the amount expected to be paid if the Company has a present legal or
constructive obligation to pay this amount as a result of the past service provided by the
employee and the obligation can be estimated reliably.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 34
Pension plans
The Company does not have any pension plans. Some employees are paid a pension
contribution as part of their remuneration and are responsible for organising their
pensionspersonally.
Termination benefits
Termination benefits are expensed at the earlier of when the Company can no longer withdraw
the offer of those benefits and when the Company recognises costs for a restructuring. If benefits
are not expected to be settled wholly within 12 months at the end of the reporting period, then
they are discounted.
p) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank, demand deposits and other short-term highly
liquid investments that are readily convertible to a known amount of cash and are subject to an
insignificant risk of changes in value.
q) Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial asset
and of allocating interest income over the relevant period. The effective interest rate is the
rate that exactly discounts estimated future cash receipts (including all fees on points paid or
received that form an integral part of the effective interest rate, transaction costs and other
premiums or discounts) through the expected life of the financial asset, or, where appropriate, a
shorter period.
Income is recognised on an effective interest basis for debt instruments other than those
financial assets classified as at fair value though profit and loss (FVTPL).
r) Bond modification
When the Company exchanges with an existing lender one debt instrument into another one
with the substantially different terms, such exchange is accounted for as an extinguishment
of the original financial liability and the recognition of a new financial liability. Similarly, the
Company accounts for substantial modification of terms of an existing liability or part of it as an
extinguishment of the original financial liability and the recognition of a new liability.
The terms are substantially different if the discounted present value of the cash flows under
the new terms, including any transaction costs paid and discounted using the original
effective interest rate is at least 10 per cent different from the discounted present value of the
remaining cash flows of the original financial liability. If the modification is not substantial, the
difference between: (1) the carrying amount of the liability including transaction costs before
the modification; and (2) the present value of the cash flows after modification is recognised
through the profit and loss account as a modification gain or loss.
s) Financial Instruments
Recognition and initial measurement
Trade receivables, unbilled receivables and debt securities issued are initially recognised when
they are originated. All other financial assets and financial liabilities are initially recognised
when the Company becomes a party to the contractual provisions of the instrument.
A financial asset (unless it is a trade receivable without a significant financing component) or
financial liability is initially measured at fair value plus, for an item not at FVTPL, transaction
costs that are directly attributable to its acquisition or issue. A trade receivable without a
significant financing component is initially measured at the transaction price.
Classification and subsequent measurement
Financial assets
On initial recognition, a financial asset is classified as measured at: amortised cost; fair value
through other comprehensive income (FVOCI) – debt investment; FVOCI – equity investment;
orFVTPL.
Financial assets are not reclassified subsequent to their initial recognition unless the Company
changes its business model for managing financial assets, in which case all affected financial
assets are reclassified on the first day of the first reporting period following the change in the
business model.
A financial asset is measured at amortised cost if it meets both of the following conditions and
is not designated as at FVTPL:
it is held within a business model whose objective is to hold assets to collect contractual
cash flows; and
its contractual terms give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
A debt investment is measured at FVOCI if it meets both of the following conditions and is not
designated as at FVTPL:
it is held within a business model whose objective is achieved by both collecting contractual
cash flows and selling financial assets; and
its contractual terms give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 35
On initial recognition of an equity investment that is not held for trading, the Company may
irrevocably elect to present subsequent changes in the investment’s fair value in OCI. This
election is made on an investment-by-investment basis.
All financial assets not classified as measured at amortised cost or FVOCI as described above
are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the
Company may irrevocably designate a financial asset that otherwise meets the requirements
to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly
reduces an accounting mismatch that would otherwise arise.
Financial assets – Subsequent measurement and gains and losses:
Financial assets at FVTPL – These assets are subsequently measured at fair value. Net gains
and losses, including any interest or dividend income, are recognised in profit or loss.
Financial assets at amortised cost – These assets are subsequently measured at amortised
cost using the effective interest method. The amortised cost is reduced by impairment losses.
Interest income, foreign exchange gains and losses and impairment are recognised in profit
or loss. Any gain or loss on derecognition is recognised in profit or loss.
Debt investments at FVOCI – These assets are subsequently measured at fair value. Interest
income calculated using the effective interest method, foreign exchange gains and losses
and impairment are recognised in profit or loss. Other net gains and losses are recognised in
OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
Equity investments at FVOCI – These assets are subsequently measured at fair value.
Dividends are recognised as income in profit or loss unless the dividend clearly represents a
recovery in part of the cost to the investment. Other net gains and losses are recognised in
OCI and are never reclassified to profit or loss.
Financial liabilities – Classification, subsequent measurement and gains and losses
Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability
is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated
as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net
gains and losses, including any interest expense, are recognised in profit or loss. Other financial
liabilities are subsequently measured at amortised cost using the effective interest method.
Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any gain
or loss on derecognition is also recognised in profit or loss.
Derecognition
Financial assets
The Company derecognises a financial asset when:
the contractual rights to the cash flows from the financial asset expire; or
it transfers the rights to receive the contractual cash flows in a transaction in which either:
– substantially all of the risks and rewards of ownership of the financial asset are transferred;
or
– in which the Company neither transfers nor retains substantially all of the risks and rewards
of ownership and it does not retain control of the financial asset.
The Company enters into transactions whereby it transfers assets recognised in its statement
of financial position, but retains either all of substantially all of the risks and rewards of the
transferred assets. In these cases, the transferred assets are not derecognised.
Financial liabilities
The Company derecognises a financial liability when its contractual obligations are discharged
or cancelled or expired. The Company also derecognises a financial liability when its terms are
modified and the cash flows of the modified liability are substantially different, in which case a
new financial liability based on the modified terms is recognised at fair value.
On derecognition of a financial liability, the difference between the carrying amount
extinguished and the consideration paid (including any non-cash assets transferred or liabilities
assumed) is recognised in the profit and loss account.
Share capital – Ordinary shares
Incremental costs directly attributable to the issue of ordinary shares, net of any tax effects, are
recognised as a deduction from equity. Income tax relating to transaction costs of an equity
transaction is accounted for in accordance with IAS12.
Offsetting
Financial assets and financial liabilities are offset and the net amount presented in the
statement of financial position when, and only when, the Company currently has a legally
enforceable right to set off the amounts and it intends either to settle them on a net basis or to
realise the asset and settle the liability simultaneously.
Derivative financial instruments and hedge accounting
The Company holds derivative financial instruments to hedge cash flow risk exposures.
Embedded derivatives are separated from the host contract and accounted for separately if the
host contract is not a financial asset and certain criteria are met.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 36
Derivatives are initially measured at fair value. Subsequent to initial recognition, derivatives are
measured at fair value, and changes therein are generally recognised in profit or loss.
The Company designates certain derivatives as hedging instruments to hedge the variability
in cash flows associated with highly probable forecast transactions arising from changes in
commodity prices and certain derivatives and non-derivative financial liabilities as hedges of
foreign exchange risk on a net investment in a foreign operation.
At inception of designated hedging relationships, the Company documents the risk
management objective and strategy for undertaking the hedge. The Company also documents
the economic relationship between the hedged item and the hedging instrument, including
whether the changes in cash flows of the hedged item and hedging instrument are expected to
offset each other.
Derivative financial instruments and hedge accounting
The Company has adopted the Phase 2 amendments and retrospectively applied them from
1January 2021.
When the basis for determining the contractual cash flows of the hedged item or hedging
instrument changes as a result of Interbank Offered Rate (IBOR) reform and therefore there is no
longer uncertainty arising about the cash flows of the hedged item or the hedging instrument,
the Company amends the hedge documentation of that hedging relationship to reflect the
change(s) required by IBOR reform. For this purpose, the hedge designation is amended only to
make one or more of the following changes:
designating an alternative benchmark rate as the hedged risk;
updating the description of the hedged item, including the description of the designated
portion of the cash flows or fair value being hedged; or
updating the description of the hedging instrument.
The Company amends the description of the hedging instrument only if the following conditions
are met:
it makes a change required by IBOR reform by changing the basis for determining the
contractual cash flows of the hedging instrument or using another approach that is
economically equivalent to changing the basis for determining the contractual cash flows of
the original hedging instrument; and
the original hedging instrument is not derecognised.
The Company amends the formal hedge documentation by the end of the reporting period
during which a change required by IBOR reform is made to the hedged risk, hedged item
or hedging instrument. These amendments in the formal hedge documentation do not
constitute the discontinuation of the hedging relationship or the designation of a new hedging
relationship.
If changes are made in addition to those changes required by IBOR reform described above, then
the Company first considers whether those additional changes result in the discontinuation of
the hedge accounting relationship. If the additional changes do not result in the discontinuation
of the hedge accounting relationship, then the Company amends the formal hedge
documentation for changes required by IBOR reform as mentioned above.
When the interest rate benchmark on which the hedged future cash flows had been based is
changed as required by IBOR reform, for the purpose of determining whether the hedged future
cash flows are expected to occur, the Company deems that the hedging reserve recognised
in OCI for that hedging relationship is based on the alternative benchmark rate on which the
hedged future cash flows will be based.
Cash flow hedge
When a derivative is designated as a cash flow hedging instrument, the effective portion of
changes in the fair value of the derivative is recognised in OCI and accumulated in the hedging
reserve. The effective portion of changes in the fair value of the derivative that is recognised in
OCI is limited to the cumulative change in fair value of the hedged item, determined on a present
value basis, from inception of the hedge. Any ineffective portion of changes in the fair value of
the derivative is recognised immediately in profit or loss.
The Company designates only the change in fair value of the spot element of forward exchange
contracts as the hedging instrument in cash flow hedging relationships. The change in fair value
of the forward element of forward exchange contracts (forward points) is separately accounted
for as a cost of hedging and recognised in the hedging reserve within equity.
When the hedged forecast transaction subsequently results in the recognition of a non-financial
item such as inventory, the amount accumulated in the hedging reserve and the cost of hedging
reserve is included directly in the initial cost of the non-financial item when it is recognised.
For all other hedged forecast transactions, the amount accumulated in the hedging reserve and
the cost of hedging reserve is reclassified to profit or loss in the same period or periods during
which the hedged expected future cash flows affect profit or loss.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 37
If the hedge no longer meets the criteria for hedge accounting or the hedging instrument is
sold, expires, is terminated or is exercised, then hedge accounting is discontinued prospectively.
When hedge accounting for cash flow hedges is discontinued, the amount that has been
accumulated in the hedging reserve remains in equity until, for a hedge of a transaction
resulting in the recognition of a non-financial item, it is included in the non-financial item’s cost
on its initial recognition or, for other cash flow hedges, it is reclassified to profit or loss in the
same period or periods as the hedged expected future cash flows affect profit or loss.
If the hedged future cash flows are no longer expected to occur, then the amounts that have
been accumulated in the hedging reserve and the cost of hedging reserve are immediately
reclassified to profit or loss.
t) Impairment
Non-derivative financial assets
The Company recognises loss allowances for expected credit losses (‘ECLs’) on:
financial assets measured at amortised cost;
debt investments measured at FVOCI; and
contract assets.
The Company measures loss allowances at an amount equal to lifetime ECLs, except for the
following, which are measured at 12-month ECLs:
debt securities that are determined to have low credit risk at the reporting date; and
other debt securities and bank balances for which credit risk (ie the risk of default occurring
over the expected life of the financial instrument) has not increased significantly since initial
recognition.
Loss allowances for trade receivables and contract assets are always measured at an amount
equal to lifetime ECLs.
When determining whether the credit risk of a financial asset has increased significantly
since initial recognition and when estimating ECLs, the Company considers reasonable
and supportable information that is relevant and available without undue cost or effort.
This includes both quantitative and qualitative information and analysis, based on the
Company’s historical experience and informed credit assessment and including forward-
lookinginformation.
The Company assumes that the credit risk on a financial asset has increased significantly if it is
more than 30 days past due.
The Company considers a financial asset to be in default when:
The borrower is unlikely to pay its credit obligations to the Company in full, without recourse
by the Company to actions such as realising security (if any is held); or
The financial asset is more than 90 days past due.
The Company considers a debt security to have low credit risk when its credit risk rating is
equivalent to the globally understood definition of ‘investment grade’.
Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a
financial instrument.
12-month ECLs are the portion of ECLs that result from default events that are possible within
the 12 months after the reporting date (or a shorter period if the expected life of the instrument
is less than 12 months).
The maximum period considered when estimating ECLs is the maximum contractual period over
which the Company is exposed to credit risk.
Measurement of ECLs
ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the
present value of all cash shortfalls (ie the difference between the cash flows due to the entity in
accordance with the contract and the cash flows that the Company expects to receive).
ECLs are discounted at the effective interest rate of the financial asset.
Credit-impaired financial assets
At each reporting date, the Company assesses whether financial assets carried at amortised
cost and debt securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when
one or more events that have a detrimental impact on the estimated future cash flows of the
financial asset have occurred. Evidence that a financial asset is credit-impaired includes the
following observable data:
Significant financial difficulty of the borrower or issuer;
A breach of contract such as a default or being more than 90 days past due;
The restructuring of a loan or advance by the Company on terms that the Company would
not consider otherwise;
It is probable that the borrower will enter bankruptcy or other financial reorganisation; or
The disappearance of an active market for a security because of financial difficulties.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 38
Notes to the Financial Statements
Presentation of allowance for ECL in the statement of financial position
Loss allowances for financial assets measured at amortised cost are deducted from the gross
carrying amount of the assets.
For debt securities at FVOCI, the loss allowance is charged to profit or loss and is recognised
inOCI.
Write-off
The gross carrying amount of a financial asset is written off when the Company has no
reasonable expectations of recovering a financial asset in its entirety or a portion thereof. For
individual customers, the Company has a policy of writing off the gross carrying amount when
the financial asset is 180 days past due based on historical experience of recoveries of similar
assets. For corporate customers, the Company individually makes an assessment with respect
to the timing and amount of write-off based on whether there is a reasonable expectation of
recovery. The Company expects no significant recovery from the amount written off. However,
financial assets that are written off could still be subject to enforcement activities in order to
comply with the Company’s procedures for recovery of amounts due.
Non-financial assets
At each reporting date, the Company reviews the carrying amounts of its non-financial assets
(other than biological assets, investment property, inventories and deferred tax assets) to
determine whether there is any indication of impairment. If any such indication exists, then the
asset’s recoverable amount is estimated. Goodwill is tested annually for impairment.
For impairment testing, assets are grouped together into the smallest group of assets that
generates cash inflows from continuing use that are largely independent of the cash inflows
of other assets or CGUs. Goodwill arising from a business combination is allocated to CGUs or
groups of CGUs that are expected to benefit from the synergies of the combination.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less
costs to sell. Value in use is based on the estimated future cash flows, discounted to their present
value using a pre-tax discount rate that reflects current market assessments of the time value of
money and the risks specific to the asset or CGU.
An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its
recoverable amount.
Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying
amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the
other assets in the CGU on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. For other assets, an impairment
loss is reversed only to the extent that the asset’s carrying amount does not exceed the
carrying amount that would have been determined, net of depreciation or amortisation, if no
impairment loss had been recognised.
u) Fair value
‘Fair value’ is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date in the principal or, in
its absence, the most advantageous market to which the Company has access at that date. The
fair value of a liability reflects its non-performance risk.
A number of the Company’s accounting policies and disclosures require the measurement of fair
values, for both financial and non-financial assets and liabilities.
When one is available, the Company measures the fair value of an instrument using the quoted
price in an active market for that instrument. A market is regarded as active if transactions
for the asset or liability take place with sufficient frequency and volume to provide pricing
information on an ongoing basis.
If there is no quoted price in an active market, then the Company uses valuation techniques that
maximise the use of relevant observable inputs and minimise the use of unobservable inputs.
The chosen valuation technique incorporates all of the factors that market participants would
take into account in pricing a transaction.
If an asset or a liability measured at fair value has a bid price and an ask price, then the Company
measures assets and long positions at a bid price and liabilities and short positions at an
askprice.
The best evidence of the fair value of a financial instrument on initial recognition is normally
the transaction price – ie the fair value of the consideration given or received. If the Company
determines that the fair value on initial recognition differs from the transaction price and the
fair value is evidenced neither by a quoted price in an active market for an identical asset or
liability nor based on a valuation technique for which any unobservable inputs are judged to be
insignificant in relation to the measurement, then the financial instrument is initially measured
at fair value, adjusted to defer the difference between the fair value on initial recognition and the
transaction price. Subsequently, that difference is recognised in profit or loss on an appropriate
basis over the life of the instrument but no later than when the valuation is wholly supported by
observable market data or the transaction is closed out.
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 39
v) Standards issued that are not effective
A number of new standards are effective for annual periods beginning after 1 January 2021
and earlier application is permitted; however, the Company has not early adopted the new or
amended standards in preparing these financial statements.
A. Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments
to IAS 12).
The amendments narrow the scope of the initial recognition exemption to exclude
transactions that give rise to equal and offsetting temporary differences – eg leases and
decommissioning liabilities. The amendments apply for annual reporting periods beginning
on or after 1 January 2023. For leases and decommissioning liabilities, the associated
deferred tax asset and liabilities will need to be recognised from the beginning of the earliest
comparative period presented, with any cumulative effect recognised as an adjustment to
retained earnings or other components of equity at that date. For all other transactions,
the amendments apply to transactions that occur after the beginning of the earliest period
presented.
The Company accounts for deferred tax on leases and decommissioning liabilities applying
the ‘integrally linked’ approach, resulting in a similar outcome to the amendments, except
that the deferred tax impacts are presented net in the statement of financial position. Under
the amendments, the Company will recognise a separate deferred tax asset and a deferred tax
liability. There will be no impact of this amendment on the disclosure of deferred tax assets
and liabilities as a right of offset exists.
B. Onerous contracts – Cost of Fulfilling a Contract (Amendments to IAS 37)
The amendments specify which costs an entity includes in determining the cost of fulfilling a
contract for the purpose of assessing whether the contract is onerous. The amendments apply
for annual reporting periods beginning on or after 1 January 2022 to contracts existing at the
date when the amendments are first applied. At the date of initial application, the cumulative
effect of applying the amendments is recognised as an opening balance adjustment to
retained earnings or other components of equity, as appropriate. The comparatives are not
restated. At 31 December 2021 the Company did not have any onerous contracts.
C. Other standards
The following new and amended standards are not expected to have a significant impact on
the Company’s financial statements:
COVID-19-Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16);
Annual improvements to IFRS Standards 2018-2020;
Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16);
Reference to Conceptual Framework (Amendments to IFRS 3);
Classification of Liabilities as Current or Non-current (Amendments to IAS 1);
IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance Contracts;
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2);
and
Definition of Accounting Estimates (Amendments to IAS 8).
w) Operating segments
As the Company currently has only one revenue stream it does not recognise any separate
reportable segments.
The Hague, 6 April 2022
Andrew Austin Bart de Sonnaville
Director Director
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 40
Other Information
Provisions in the Articles of Association governing the
appropriation of profit
Under article 4.1 of the Company’s Articles of Association, the profit is at the disposal of the
General Meeting, which can allocate said profit either wholly or partly to the formation of, or
addition to, one or more general or special reserve funds.
Independent auditor’s report
The independent auditor’s report with respect to these financial statements is set out on the
next pages.
Glossary
Adjusted EBITDA The Board uses Adjusted EBITDA as a measure to assess the
performance of the Company. This measure excludes the effects of
significant items of income and expenditure which may have an
impact on the quality of earnings such as reversal of provisions and
impairments when the impairment is the result of an isolated non-
recurring event.
Affiliates Kistos plc and/or Kistos NL1 B.V.
Average realised
oil/gas price
Calculated as revenue divided by sales production for the period. Sales
production for the period may be different from production for the
period.
Boe Barrels of oil equivalent.
Boepd Barrels of oil equivalent produced per day.
Company Kistos NL2 B.V.
FVOCI Fair value through other comprehensive income
FVTPL Fair value through the profit and loss account
P15 Third-party platform (operated by TAQA) where produced gas is
exported to for processing and transportation to shore.
Parent company Kistos NL1 B.V.
Q07, Q08, Q10-A,
Q10-B, Q11
Offshore licences held and operated by Kistos NL2 B.V.
Ultimate parent
company
Kistos plc
ROU Right of use.
Unit opex Calculated as production costs divided by production.
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 41
A. Report on the audit of the financial statements 2021
included in the annual report
Our opinion
We have audited the financial statements 2021 of Kistos NL2 B.V. (‘the Company’) based in
The Hague.
We have audited Our opinion
The financial statements comprise:
1. the statement of financial position as at
31 December 2021;
2. the following statements for 2021: the income
statement, the statements of comprehensive
income, changes in equity and cash flows; and
3. the notes comprising a summary of the
significant accounting policies and other
explanatory information.
In our opinion, the accompanying
financial statements give a true and fair
view of the financial position of Kistos
NL2 B.V. as at 31 December 2021 and of
its result and its cash flows for 2021 in
accordance with International Financial
Reporting Standards as adopted by the
European Union (EU-IFRS) and with Part 9
of Book 2 of the Dutch Civil Code.
Basis for our opinion
We conducted our audit in accordance with Dutch law, including the Dutch Standards
on Auditing. Our responsibilities under those standards are further described in the ‘Our
responsibilities for the audit of the financial statements’ section of our report.
We are independent of Kistos NL2 B.V. in accordance with the Wet toezicht
accountantsorganisaties (Wta, Audit firms supervision act), the Verordening inzake de
onafhankelijkheid van accountants bij assurance-opdrachten (ViO, Code of Ethics for
Professional Accountants, a regulation with respect to independence) and other relevant
independence regulations in the Netherlands. Furthermore we have complied with the
Verordening gedrags- en beroepsregels accountants (VGBA, Dutch Code of Ethics).
We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Independent Auditor’s Report
to the shareholders of Kistos NL2 B.V.
B. Information in support of our opinion
We designed our audit procedures in the context of our audit of the financial statements as
a whole and in forming our opinion thereon. The following information in support of our
opinion was addressed in this context, and we do not provide a separate opinion or conclusion
on these matters.
Materiality
Based on our professional judgement we determined the materiality for the financial statements
as a whole at € 2.1 million, reflecting 1% of total assets excluding the € 60M ultimate parent
loan receivable. Total assets reflects the capital expenditure in production and exploration
activities as well as working capital. These elements, together with non-financial information
such as reserves in licensed areas, constitutes the basis for future production and cashflows as
well as the in-house investing capacity for new campaigns. As such we consider this the most
appropriate materiality benchmark reflecting the value of the Company and less impacted
by market volatility effects. We have also taken into account misstatements and/or possible
misstatements that in our opinion are material for the users of the financial statements for
qualitative reasons.
We agreed with management that misstatements in excess of € 0.1 million, which are identified
during the audit, would be reported to them, as well as smaller misstatements that in our view
must be reported on qualitative grounds.
Audit approach going concern
As explained in the section ‘Going concern’ in notes 1b and 2d of the financial statements,
management has carried out a going concern assessment and identified no going concern risks.
Our procedures to evaluate the going concern assessment of management includes:
We agreed the opening cash position used in the cash flow forecast to the audited position
at 31 December 2021;
We performed an accuracy check on the mechanics of the cash flow forecast model prepared
by management;
We assessed managements’ financial forecasts prepared for a period of at least 12 months
from the date of these financial statements. This included consideration of the reasonableness
of key underlying assumptions by reference to current and future expected operating and
capital expenditure, including any effects of uncertainties of the COVID-19 pandemic;
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 43
We corroborated management’s assessment of future committed and non-committed
expenditure on the exploration assets and the acquisition and considered whether it is
reasonable that the Company has control over the timing and occurrence of these cash flows
over the going concern period; and
We evaluated the adequacy of disclosures made in the financial statements in respect of
going concern.
These audit procedures did not lead to any material findings regarding the going concern
assumption of the Company.
Audit approach fraud risks
We identified and assessed the risks of material misstatements of the financial statements
due to fraud. During our audit we obtained an understanding of the entity and its environment
and the components of the system of internal control, including the risk assessment process
and management’s process for responding to the risks of fraud and monitoring the system
of internal control and how Kistos plc’s audit committee exercises oversight, as well as the
outcome thereof. We note that management has not formalised its fraud risk assessment and
fraud response plan.
We evaluated the design and relevant aspects of the system of internal control and in particular
the fraud risk assessment, as well as among others the code of conduct, whistle blower
procedures and incident registration. Where considered appropriate, we tested the operating
effectiveness of internal controls designed to mitigate fraud risks.
As part of our process of identifying fraud risks, we evaluated fraud risk factors with respect to
financial reporting fraud, misappropriation of assets and bribery and corruption. We evaluated
whether these factors indicate that a risk of material misstatement due to fraud is present.
We identified the following key fraud risks:
Management has the ability to manipulate accounting records and override controls that
otherwise appear to be operating effectively. Whilst, based on our inquiries and audit work
performed throughout the engagement, we have not encountered any specific examples of
management override and management have not communicated any instance of fraud to us,
the risk is present in all companies.
A risk of unauthorized payments as a consequence of not fully comprehensive internal
control measures.
As part of the audit response we performed the following specific procedures:
Holding discussions with management and the Kistos plc audit committee to consider any
known or suspected instances of fraud;
Inspecting minutes of management meetings and those charged with governance;
Evaluating the design and the implementation and, where considered appropriate, testing
the operating effectiveness of internal controls that mitigate fraud risks;
Testing the appropriateness of journal entries made throughout the period which met
specific risk-based criteria;
Assessing the judgments made by management when making key accounting estimates
and judgments, and challenging management on the appropriateness of these judgments,
specifically around key audit matters as discussed below;
Performing a detailed review of the Company’s period-end adjusting entries, and
investigating any that appear unusual with regards to nature or amount to corroborative
evidence;
Performing detailed testing on account balances which were considered to be at a greater
risk of susceptibility to fraud or management bias; remaining alert for indications of
fraud throughout our other audit procedures and evaluated whether identified findings or
misstatements were indicative of fraud;
Performing analyses on outgoing payments based on pre-defined risk-based criteria; and
Performing detailed testing on a sample of outgoing payments to corroborative evidence.
We incorporated elements of unpredictability in our audit and applied professional scepticism in
conducting our audit procedures. We also considered the outcome of our other audit procedures
and evaluated whether any findings were indicative of fraud or non-compliance. This did not
lead to indications for fraud potentially resulting in material misstatements. With regard to the
risk of unauthorized payments, no fraudulent payments were identified.
Our key audit matters
Key audit matters are those matters that, in our professional judgement, were of most
significance in our audit of the financial statements. We have communicated the key audit
matters to management and Kistos plc Audit Committee. The key audit matters are not a
comprehensive reflection of all matters discussed.
These matters were addressed in the context of our audit of the financial statements as a whole
and in forming our opinion thereon; accordingly, the observations provided in the successive
descriptions below are not intended to provide and should not be read as a separate opinion on
these matters.
We decided not to include the prior-year adjustments as a key audit matter in the below table,
as these were sufficiently elaborated and disclosed in note 2f of the financial statements.
Independent Auditor’s Report to the shareholders of Kistos NL2 B.V.
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 44
Depletion of producing assets – note 2 and note 12 Our audit approach
Depletion of production assets is based on the unit of production
accounting method and therefore calculated as actual production
versus remaining reserves. The remaining reserves involves complex
measurement methods and subjective outcomes. We therefore
identified the accuracy of the depletion calculation and valuation of
the remaining reserves as a key audit matter.
We considered a fully substantive audit approach to be most appropriate in this key audit matter. We performed
a recalculation of the depletion of producing assets based on the relevant inputs, agreeing those to supporting
documentation. As part of this recalculation we also performed integrity checks on management’s depletion model.
We reconciled the reserve estimates to the Competent Person’s Report of Sproule and assessed the basis for any revisions
by management to such reserves and resources impacting the model.
We also assessed the Competent Person’s independence and competence.
We assessed the Company’s depreciation policy and useful life assessment; comparing inputs to the Competent Person’s
Report, license registers and production data.
Key observations
As per the Company’s accounting policy, depletion is calculated against developed proven and probable reserves.
We obtained a supplemental sensitivity analysis of the Competent Person’s Report excluding the future development
expenditure and undeveloped reserves related to the IJmuiden export route. We consider management’s assessment
regarding depletion of producing assets to be reasonable at 31 December 2021.
Independent Auditor’s Report to the shareholders of Kistos NL2 B.V.
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 45
Decomissioning (abandonment) provision estimate – note 2
and note 19
Our audit approach
The company is subject to decommissioning (abandonment)
obligations regarding production and exploration assets. Specific
laws and regulations exist entailing technical requirements of
decommissioning. The magnitude of the decommissioning
expenditure is inherently subjective, mainly driven by cost estimates,
which are dependent on the methods and techniques envisioned to
apply at decommissioning date. Considering these aspects and the
increased level of professional judgment, we identified the valuation
and completeness of the decommissioning (abandonment) provision
as a key audit matter.
For this key audit matter we decided to apply a fully substantive audit approach. We reviewed the Company’s permits and
licenses and considered the completeness of provisions based on the abandonment retirement obligations existing under
the terms of such licenses and permits and associated enacted legislation and oil and gas sector practice in Netherlands
(amongst others the Dutch Mining Act or “Mijnbouwwet” including relevant amendments and decrees, NOGEPA Standard
45 on wells decommissioning, EBN & NOGEPA’s Masterplan and Nexstep initiative as well as industry practices).
We inquired with management and specific employees involved in the drilling and operation of the rigs to assess whether
decommissioning schedules ensure legislative compliance.
We verified the inflation rates to market data and discount rates to applicable bond rates to corroborate the inputs used by
Management for calculation of decommissioning costs.
As part of our procedures, we engaged an auditors’ expert to retrospectively review and assess Management’s calculation
of decommissioning costs.
We assessed the independence and competence of the auditors’ expert, and challenged the assumptions used in their
report to ensure the outcomes were appropriate and tailored to Kistos. We did so by attending meetings with the auditors’
expert and the internal project and drilling teams, reviewing any reporting deliverables and following up on any exceptions
noted within the report received, noting no additional reportable matters.
We reviewed all minutes of management meetings and correspondence with regulatory authorities to identify any specific
environmental incidents, claims or contingencies.
We reviewed and challenged management on the disclosures in the notes and significant accounting policies regarding the
estimates and judgments made to determine the value of the asset retirement obligation.
Key observations
The abandonment expenditure estimate assumes cleaning and leaving pipelines in situ in accordance with Article 45 of the
Dutch Mining Act and Articles 103 and 106 of the Dutch Mining Decree.
Based on the procedures performed, we found the judgments made by Management to be reasonable with regard to the
valuation and completeness of the decommissioning provision.
Independent Auditor’s Report to the shareholders of Kistos NL2 B.V.
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 46
Application of Dutch Oil & Gas taxation legislation – note 2
and note 9
Our audit approach
Income tax calculations are inherently complex for upstream oil
and gas companies. Due to the interaction of laws and regulations
between ‘corporate income tax’ and sector specific ‘state profit
share tax’, as governed in the Dutch Mining Act (‘Mijnbouwwet)’.
The correct tax computations consequently requires extensive and
specialised knowledge. For this reason the mathematical accuracy
of tax calculations and the valuation of deferred tax assets was
considered to be a key audit matter.
We evaluated the design and implementation of the internal controls in relation to this key audit matter and considered
a fully substantive audit approach to be most appropriate. We included a BDO tax expert in our team (with significant
experience of North Sea Oil & Gas clients) to review tax calculations and computations, and ensure that the underlying
application of the Dutch Mining Act is appropriate. The audit team agreed relevant items to tax computations and verified
that calculations are in line with IAS 12;
We obtained confirmations from management and the Company’s tax adviser regarding the completeness of disclosed
tax matters.
We reviewed available tax authority audit reports.
We reviewed the disclosures and accounting policies regarding taxation in the financial statements, to ensure these are in
line with the applicable accounting standards.
Key observations
The tax calculation and the valuation of deferred tax assets applied by Management is deemed reasonable in the context
of the Dutch taxation legislation. The related disclosure in the financial statements is considered adequate.
Accounting for cashflow hedging contract – note 17 Our audit approach
In order to ensure cashflows during the drilling campaign Kistos
entered into an over-the-counter commodity forward contract,
hedging monthly gas sales over a nine month period as from July
2021. This hedge was designated as an accounting cashflow hedge
at inception. We consider hedging a relatively complex accounting
treatment outside the normal course of business of Kistos involving
material fair value changes. The correct accounting treatment and
valuation is considered a key audit matter.
Due to the nature of this financial statement caption, we considered a fully substantive audit approach to be most
appropriate. We corroborated that the appropriate hedging elections and supporting documentation thereof are
maintained by the entity.
We reviewed the underlying agreement to ensure that the accounting treatment adopted reflects the nature and terms of
the contract.
We assessed management’s valuation of derivatives and agreed inputs into the calculation to quoted market prices.
We reviewed the disclosures around the cashflow hedging contract to ensure these were appropriately reflected in the
financial statements and in line with the applicable accounting standards.
Key observations
The cashflow hedge is deemed effective, except for an -at inception unforeseen- interruption due to production shortage
as a consequence of timing of the ongoing drilling campaign. We consider the fair value of the hedge liability (unrealised
loss), which is mainly driven by the remaining forward transactions and the Dutch Title Transfer Facility (‘TTF’) futures as at
31 December 2021, to be reasonable.
Independent Auditor’s Report to the shareholders of Kistos NL2 B.V.
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 47
C. Report on other information included in the annual report
In addition to the financial statements and our auditor’s report thereon, the annual report
contains other information that consists of:
summary of financial results and production
report of the board;
other information as required by Part 9 of Book 2 of the Dutch Civil Code;
Based on the following procedures performed, we conclude that the other information:
is consistent with the financial statements and does not contain material misstatements;
contains the information as required by Part 9 of Book 2 of the Dutch Civil Code.
We have read the other information. Based on our knowledge and understanding obtained
through our audit of the financial statements or otherwise, we have considered whether the
other information contains material misstatements.
By performing these procedures, we comply with the requirements of Part 9 of Book 2 of
the Dutch Civil Code and the Dutch Standard 720. The scope of the procedures performed is
substantially less than the scope of those performed in our audit of the financial statements.
Management is responsible for the preparation of the other information, including the
management report in accordance with Part 9 of Book 2 of the Dutch Civil Code and other
information as required by Part 9 of Book 2 of the Dutch Civil Code.
D. Report on other legal and regulatory requirements
Engagement
We were engaged by the shareholder as auditor of Kistos NL2 B.V., as of the audit for financial
year 2021.
E. Description of responsibilities regarding the financial
statements
Responsibilities of management for the financial statements
Management is responsible for the preparation and fair presentation of the financial statements
in accordance with EU-IFRS and Part 9 of Book 2 of the Dutch Civil Code. Furthermore,
management is responsible for such internal control as management determines is necessary
to enable the preparation of the financial statements that are free from material misstatement,
whether due to fraud or error.
As part of the preparation of the financial statements, management is responsible for assessing
the company’s ability to continue as a going concern. Based on the financial reporting
frameworks mentioned, management should prepare the financial statements using the going
concern basis of accounting, unless management either intends to liquidate the company or to
cease operations, or has no realistic alternative but to do so.
Management should disclose events and circumstances that may cast significant doubt on the
company’s ability to continue as a going concern in the financial statements.
The Kistos plc audit committee is responsible for overseeing the company’s financial
reporting process.
Our responsibilities for the audit of the financial statements
Our objective is to plan and perform the audit engagement in a manner that allows us to obtain
sufficient and appropriate audit evidence for our opinion.
Our audit has been performed with a high, but not absolute, level of assurance, which means
we may not detect all material errors and fraud during our audit.
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. The materiality affects the nature, timing and
extent of our audit procedures and the evaluation of the effect of identified misstatements on
our opinion.
Independent Auditor’s Report to the shareholders of Kistos NL2 B.V.
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 48
We have exercised professional judgement and have maintained professional skepticism
throughout the audit, in accordance with Dutch Standards on Auditing, ethical requirements
and independence requirements. Our audit included among others:
identifying and assessing the risks of material misstatement of the financial statements,
whether due to fraud or error, designing and performing audit procedures responsive to
those risks, and obtaining audit evidence that is sufficient and appropriate to provide a basis
for our opinion. The risk of not detecting a material misstatement resulting from fraud is
higher than for one resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control;
obtaining an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity’s internal control;
evaluating the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by management;
concluding on the appropriateness of management’s use of the going concern basis of
accounting, and based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on the entity’s ability
to continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of our auditor’s report. However, future
events or conditions may cause a company to cease to continue as a going concern;
evaluating the overall presentation, structure and content of the financial statements,
including the disclosures; and
evaluating whether the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
We communicate with the Kistos plc audit committee regarding, among other matters, the
planned scope and timing of the audit and significant audit findings, including any significant
findings in internal control that we identify during our audit.
We provide the Kistos plc audit committee with a statement that we have complied with
relevant ethical requirements regarding independence, and to communicate with them all
relationships and other matters that may reasonably be thought to bear on our independence,
and where applicable, related safeguards.
From the matters communicated with the Kistos plc audit committee, we determine the
key audit matters: those matters that were of most significance in the audit of the financial
statements. We describe these matters in our auditor’s report unless law or regulation precludes
public disclosure about the matter or when, in extremely rare circumstances, not communicating
the matter is in the public interest.
Rotterdam, 6 April 2022
For and on behalf of BDO Audit & Assurance B.V.,
w.s. drs. A. Thomson RA
Independent Auditor’s Report to the shareholders of Kistos NL2 B.V.
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2021 Annual Report and Audited Financial Statements 49
Kistos NL2 B.V.
18 Alexanderstraat
2514JM
The Hague