Investing
in Energy
Security
2022 Annual Report and
Audited Financial Statements
for Kistos NL2 B.V.
The Hague, 30 May 2023
Contents
03 Summary of Financial Results and Production
04 Report of the Board
05 Business Review
07 Financial Review
10 Governance and Risk Management
17 Audited Financial Statements With Notes
18 Profit and Loss Account
18 Balance Sheet
18 Statement of Comprehensive Income
19 Statement of Changes in Equity
19 Statement of Cash Flow
20 Notes to the Financial Statements
46 Other Information
47 Independent Auditor’s Report
2022 2021
Gas production
1
MM Nm
3
254 268
Gas production
1
‘000 MWh 2,895 3,278
Revenue €’000 285,604 116,731
Average realised gas price
1
€/MWh 105.27 39.76
Unit opex
2
€/MWh 3.42 3.18
Adjusted EBITDA
3
€’000 273,038 104,310
Profit for the year €’000 69,563 34,359
Net cash flow from operations €’000 211,750 63,587
Cash capital expenditure €’000 17,183 20,778
Total cash €’000 153,615 44,422
1. Comparative Information has been restated to align with current year allocation methodology.
2. Calculated as production costs divided by production.
3. Non-IFRS measure. Adjusted EBITDA is defined on page 46.
Summary Report of the Board Audited Financial Statements Independent Auditor's ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 02
Strategic and Operational Highlights
Summary of Financial Results and Production
Netherlands
drilling campaigns
2021 drilling campaign
successfully completed in
February 2022, increasing
production from Q10-A and
appraising the Orion oil field
and the Q11-B gas discovery.
Subsequent drilling campaign
finished in Q1 2023, designed
to mitigate natural production
decline from Q10-A, accelerate
recovery from certain reservoirs
and improve the stability of
other producing wells.
Debt management
Retired 46% of our
outstanding debt by
repurchasing €68.4 million
of Nordic Bonds, leaving
€81.6 million outstanding.
€17 million
capital expenditure
Capital expenditure in 2022
was €17.2 million on a cash
basis versus €20.8 million a
year earlier.
€153.6 million
closing cash
Cash balances on 31 December
2022 were €153.6 million
(31 December 2021:
€44.2 million) and net cash
(defined as cash less face value
of bond debt outstanding) was
€72.0 million (31 December 2021:
net debt of €105.6 million).
7.4 MMboe
Year-end 2P reserves of
7.4 million barrels of oil
equivalent (boe), after
production of 1.7 MMboe
and, after evaluating various
rerouting options, reflecting
the Company’s decision to
continue to export gas from
Q10-A via the P15-D platform.
0.70 million Nm
3
per day
Production net to Kistos
averaged 0.70 million Nm
3
per day in 2022, a decrease
of 5% year-on-year.
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 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. Together with Kistos NL1 (formerly
Tulip Oil Netherlands 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
Holdings plc. The main focus of the Company
is upstream development and production
with a focus on exploitation opportunities
in undiscovered and undeveloped offshore
oil and gas fields in the Netherlands. As at
31 December 2022, 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
Nederland (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 2022, as prepared by management and
approved by the Board on 30 May 2023. BDO
Audit & Assurance B.V. audited the financial
statements. Its report can be found on page
47. 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 2022 financial year of €69.6 million to
retained earnings.
Business review
In the 12 months to the end of December 2022,
net production from Q10-A gas field offshore
the Netherlands (Kistos 60% and operator)
averaged 4.7 kboe per day (2021: 5.0 kboe per
day). The drilling programme we commenced
in July 2021 – shortly after taking control of the
asset which was completed in February 2022
– achieved its aim of minimising the natural
decline in production.
A further drilling campaign at Q10-A was
initiated in November 2022 and departed in
March 2023 having safely completed its work
programme. The Kistos technical team, with the
assistance of external consultants, is undertaking
a detailed evaluation of the campaign results
and future production enhancement options,
and we are evaluating the potential for further
drilling campaigns in the future. This is being
done with a view to accelerating production
and maximising recovery from Q10-A,
especially now we have decided to continue
utilising the P15-D platform for export.
This decision was announced alongside our
interim results in September 2022. As we
stated then, it substantially reduces future
capital expenditure and eliminates the risk of
production interruptions resulting from the
work to install a new export route. In addition,
changes to the tax environment have made
investment less attractive. For those reasons,
it was the right decision economically.
However, because Q10-A will remain reliant
on the availability of older infrastructure that
we don’t control, cessation of production is
likely to occur in the 2030s rather than the
2040s. This was a major contributor to the
reduction in 2P reserves in 2022.
In July 2022, Kistos NL2 B.V. (‘Buyer’) and
Kistos Energy Limited (‘Seller’, a related
party to Kistos NL2 as both entities share
the same ultimate parent company, Kistos
Holdings plc) entered into a gas sales
agreement. Under this agreement the Seller
was committed to exclusively sell and deliver
gas from its interest in the Greater Laggan
Area (located offshore in the UK) to the Buyer
against a contract price, calculated as the
relevant UK gas index price minus a handling
and marketing fee. The contract price is
considered to be in line with the ‘arm’s
length’ principles. The gas sales agreement
ended on 1 January 2023.
Central to our operations is our health, safety
and environmental (HSE) performance. While
our overall performance was positive, we did
suffer one Lost Time Incident in early 2022 on
the Borr drilling rig. However, we did not suffer
any medical treatment cases and there was
no increase in first aid cases. This was despite
having drilling rigs on location for more than
six months of the year.
Financial position
Adjusted EBITDA for 2022 was €273.0 million
(2021: €104.3 million) Hence, we ended
the year with net cash (defined as cash
less face value of bond debt outstanding)
of €72.0 million (2021: net debt of
€105.6 million), which was achieved after
capital expenditure of €17.2 million and
repurchase of bond debt of €68.4 million.
Outlook
During 2022, the Orion oil field development
project completed the Concept Assess phase
and moved into the Concept Select phase
and we expect to submit a Field Development
Plan (FDP) and permitting requests to the
authorities before the end of this year. In
addition, our experienced technical team
in the Netherlands continues to assess the
potential for the Q11-B gas discovery to be
developed. It is doing so despite the changes
to, and uncertainty surrounding, the tax
regimes in the Netherlands that have caused
us to fully impair the value of the assets until
such time as there is sufficient fiscal clarity or
incentives available to encourage investment
in energy security.
Given that the greenhouse gas emissions
associated with imported hydrocarbons are
typically much higher than those associated
with locally produced hydrocarbons, the
imposition of so-called windfall taxes on
Europe’s upstream oil and gas industry is
difficult to comprehend. This is all the more
so when the negative implications of these
measures for energy security of supply are also
considered. We have already seen companies
with international asset portfolios cancelling
North Sea projects and diverting capital
elsewhere and the instability of the fiscal
regime in which we operate has prompted us
to review our investment options.
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 05
We are particularly disappointed by the Dutch
authorities’ retrospective implementation of
the EU’s Solidarity Contribution Tax, which
imposes an additional 33% charge on so-
called ‘surplus profit’ made in 2022. Surplus
profit is defined as anything more than 120%
of a company’s average annual profit from
2018–2021 inclusive. Firstly, and by their
very nature, retrospective taxes go against
the long-standing consensus that one of the
key characteristics of a taxation system is
that it should have a principle of certainty.
Secondly, on a company level, the Solidarity
Contribution Tax unfairly impacts companies
such as Kistos, that had hedged some or all
of their 2022 gas sales below spot prices,
whereas the counterparties that enjoyed
profits on the other side of these hedges have
not been subjected to the tax. Finally, the
mechanism by which the tax is calculated,
by reference to so-called ‘baseline’ profits
for the years 2018 to 2021 inclusive, covers
some of the lowest commodity prices in the
last decade and, in the case of Kistos, years in
which we realised losses or minimal profits
due to it being in a pre-production phase.
The imposition of this regressive tax
means that the Company, and the other
energy industry participants in the EU, will
find it difficult to justify future material
investments and developments due to the
risk of confiscation of profits should oil or gas
prices rise again. As in the case of Kistos, this
has had an immediate effect on investment
being allocated to the Netherlands, such
as not proceeding with the reroute of
production from Q10-A, which in turn affects
our 2P reserve base. We understand the
Business Review
implementation of the Solidarity Contribution
Tax is subject to legal challenges by other
parties, and, separately, we believe we have
an argument that the Company is out of scope
of the charge. This is because the Board of
Directors is of the opinion that under DAS
270 of Dutch GAAP (the relevant accounting
standard), the revenue threshold for Kistos
NL2 to be liable for the Solidarity Contribution
Tax has not been met. However, as there is no
history or precedent for this tax being audited
or collected by the Dutch tax authorities,
the Directors, having taken all facts and
circumstances into account, applied IFRIC 23,
‘Uncertainty over Income Tax Treatments’ and
made a provision of €46.9 million relating
to the Solidarity Contribution Tax within the
current tax charge for the year.
Alongside several of our counterparties in
the sector, we are lobbying the UK and Dutch
Governments to address our concerns and
take action that will save jobs, reduce carbon
emissions, reduce the balance of payments
deficit and minimise dependence on energy
imports. We hope they will listen and act
accordingly, but we cannot be certain of that.
Our thanks and appreciation to all our
employees, contractors and partners for their
contributions and cooperation during 2022.
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 06
Production and revenue
Actual production on a working interest basis
totalled 0.70 million Nm
3
per day (4.7 kboe/d)
in 2022.
The Company’s average realised gas price
from the sale of Q10-A gas during the year
was €105.3/MWh and total revenue from
gas sales was €285.6 million. This includes
the impact of the hedging programme in the
Netherlands, which finished at the end of
March 2022 and whereby 100,000 MWh per
month was hedged at €25/MWh.
Costs
Production costs for the year were €10.0
million or €3.4 per MWh (2021: €9.8 million or
€3.2 per MWh).
During 2022, Kistos incurred pre-Final
Investment Decision (FID) development
expenses of €1.7 million (2021: €4.5 million)
on potential alternative evacuation routes
for the Q10-A platform and on progressing
the development of the Orion oil field. As FID
was not taken on the alternative evacuation
routes, and Orion is still subject to FID, these
costs have been expensed in the profit and
loss account. Following the decision to
continue exporting Q10-A gas via the P15-D
platform, no further expenditure on the
evaluation of alternative export routes is
anticipated in 2023.
31 December 2022 31 December 2021
Production MM Nm
3
254 268
Production ’000 MWh 2,895 3,278
Revenue
1
€’000 285,604 116,731
Unit opex
2
€/MWh 3.4 3.2
Adjusted EBITDA
3
€’000 273,038 104,310
Profit before tax €’000 205,946 67,861
Net cash from operations €’000 211,750 63,587
Average realised gas price
1
€/MWh 105.3 39.8
Closing cash €’000 153,615 44,422
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 measure. Unit opex is calculated as production costs divided by gas production.
3. Non-IFRS measure. Adjusted EBITDA is defined on page 46 and reconciled in the table on the right.
Audited results for the year ended 31 December 2022
Financial Review
Adjusted EBITDA
€'000 31 December 2022 31 December 2021
Adjusted EBITDA 273,038 104,310
Pre-FID expenses (1,676) (4,535)
Share-based
payment expense
(505) –
EBITDA 270,857 99,775
Depreciation and
amortisation
(32,155) (14,165)
Impairment (18,138) (8,354)
Operating profit 220,564 77,256
Adjusted EBITDA was €273.0 million or
€93.9 per MWh of gas produced in 2022.
Both figures were substantially ahead of
the comparable figures for the period to
31 December 2021 of €104.3 million and
€31.8 per MWh respectively.
The impairments primarily relate to the Q11-B
and Q10-B assets (€17.8 million), which
have been impacted by the additional taxes
introduced by the Dutch tax authorities during
2022. These have introduced uncertainty into
what was previously a stable and predictable
fiscal regime and do not adequately
compensate licence holders to invest further
by means of enhanced deductions for
investment capital expenditure. Pending
further clarity on these measures and whether
they are to be extended, there is currently no
substantive expenditure on these licences
budgeted or planned. As such, there is no
longer sufficient certainty over whether the
carrying value can be recovered from future
development and the amounts relating to
Q11-B and Q10-B have been fully impaired.
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 07
Capital expenditure
Consistent with our growth plans and to
ensure we maximise the value of our asset
portfolio, capital expenditure in 2022 on a
cash basis was €17.2 million. Expenditure
on an alternative export route was not
capitalised given the project is pre-FID. With
Orion still in the Concept Select phase, capital
expenditure in 2023 will not ramp up as much
as originally expected.
Profit/loss before tax
Operating profit for 2022 amounted to
€220.6 million compared to €77.3 million
in the prior year. Profit before tax of
€205.9 million was after interest charges of
€10.5 million relating to the €150 million
of Nordic Bonds. There was also a loss
on redemption of €6.4 million relating
to repurchases of €68.4 million of Nordic
Bondsduring the period.
Taxation
The effective tax rate in 2022 was 66.2%
(2021: 49.4%). The increase was driven
primarily by the imposition of the Solidarity
Contribution Tax in the Netherlands. The latter
is a one-off tax levied on so-called ‘surplus
profits’ generated in 2022. As a result of the
above, higher gas prices during the year and
adverse changes to the fiscal regime in the UK
and the Netherlands, our current tax liability
has increased from €15.0 million at the end
of 2021 to €47.1 million at the end of 2022.
This includes €46.9 million in respect of the
Solidarity Contribution Tax. The Company
understands that the introduction and
implementation of the Solidarity Contribution
Tax is subject to legal challenges by other
parties. Furthermore, due to differences
between DAS 270 of Dutch GAAP (the relevant
revenue recognition standard for determining
if the tax is due) and IFRS 15, the Company
believes it has arguments that it is out of
scope of this tax (see note 9 to the financial
statements). Therefore, it is not certain at
this stage if the Company will be required to
settle this tax liability, notwithstanding the
inclusion of the tax charge as a liability in
these financial statements.
Financial Review
Financial position
€’000 31 December 2022 31 December 2021
Cash and cash equivalents at beginning of year 44,422 17,691
Cash generated from operating activities 211,750 63,587
Cash used in investing activities (17,020) (20,778)
Cash used in financing activities (83,914) (16,078)
Net increase in cash and cash equivalents 110,816 26,731
Foreign exchange losses (1,623) –
Cash and cash equivalents at end of year 153,615 44,422
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
To assess the Company’s ability to continue
as a going concern, operational and financial
aspects of the business have been taken
into account. Projections made in adopting
the going concern basis take into account
the approved budget for 2023, forecasts
of commodity prices, production rates,
operating, and general and administrative
(G&A) expenditure, committed and
sanctioned capital expenditure (taking
into account longer-term plans beyond the
approved budget year), and the timing and
quantum of future tax payments.
The cash balance of the Company as at the
end of April 2023 (the latest practicable date
of preparing these financial statements)
was €178.4 million. At the same date, the
face value of bond debt outstanding was
€81.6 million, resulting in a net cash position
of €96.8 million. To assess the Company’s
ability to continue as a going concern, cash
flow forecasts were evaluated for the period
to December 2024 (the going concern period),
by preparing a base case forecast and various
downside sensitivities.
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 08
The base case going concern assessment
assumed the following:
Q10-A production in line with latest
internal forecasts, taking into account the
results of the well intervention campaign
that completed in March 2023;
Gas prices based on observable forward
curves prevailing at the latest practicable
date; and
Committed and contracted capital
expenditure only.
This base case forecast demonstrated that
the bond covenants (minimum liquidity
and leverage ratio) were complied with
and that the Company had sufficient cash to
meet its obligations throughout the going
concern period.
A reverse stress test was also performed, which
showed either a reduction in sales volume
or commodity prices by approximately 80%
(compared to the base case forecast) for the
remainder of the going concern period, with
all other factors held constant, would result in
the covenants being breached in Q2 2024. In
the opinion of management, the probability of
either of these scenarios occurring is remote.
Accordingly, the Directors have concluded
that these circumstances form a reasonable
expectation that the Group has adequate
resources to continue in operational existence
throughout the going concern period. For
these reasons, the Directors continue to adopt
the going concern basis in preparing these
financial statements.
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. 2022 Annual Report and Audited Financial Statements 09
Governance and Risk Management
The Board provides
leadership within a
framework of prudent
and effective controls.
The Board has established
the corporate governance
values of the Company and
has overall responsibility
for setting the Company’s
strategic aims, defining the
business plan and strategy,
and managing the financial
and operational resources
of the Company as well as
the review and approval
of the Company’s financial
statements.
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 and stakeholders.
Board and Committees
Matters related to Kistos NL2 are covered by
the Kistos Holdings plc Board (hereinafter
referred as ‘the Board’), which addresses all
matters related to the Group. The long-term
success of the Company is the collective
responsibility of the Kistos Holdings plc Board
and the Directors of Kistos NL2. The Board
adopts an equal opportunities commitment.
The Directors of Kistos
NL2 are:
Andrew Austin
Bart de Sonnaville
The role of the Board
The Board is accountable for good
governance and maintains control over
the Company. Kistos holds regular Board
meetings at which financial, operational
and other reports are considered and
voted on. The Board is responsible for
strategy, operational performance, financial
performance, approval of major capital
expenditure and internal controls.
The Company is committed to a corporate
culture that embraces equal opportunity,
diversity, social responsibility, safety
and a commitment to the environment.
The Directors seek to instil these values
throughout the Company. Kistos promotes
this commitment through statements on its
website, in its annual reports and through its
direct communications with employees and
other stakeholders.
Board meetings and visits
The Board deals with its core activities in
monthly planned meetings throughout the
year. Matters that require decisions outside
the scheduled meetings are dealt with
through additional dedicated meetings and
conference calls as required. Meetings take
place both physically and virtually.
Audit Committee meetings
An Audit Committee has been established at
the Kistos Holdings 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 Holdings plc Audit Committee oversees
the financial reporting process. The Audit
Committee reviews reports from management
and the Company’s auditors relating to the
Company’s Annual Report and Accounts and
the interim results announcements. It advises
the Board on whether the Annual Report and
interim announcement are fair, balanced, and
understandable, and provide the information
necessary for Kistos’ stakeholders to assess
performance against Kistos’ strategy. The
ultimate responsibility for reviewing and
approving the Annual Report and Accounts
remains with the Board of Directors. The
Committee is also responsible for making
recommendations to the Board of Directors
on the appointment of the external auditors
and remuneration.
The Kistos Holdings plc Audit Committee
meets at least twice a year to oversee the
half-year and year-end financial reporting of
the Company, and to receive updates from
the external auditors on financial reporting
matters and audit planning. Meetings are
aligned with the Kistos Holdings plc financial
reporting calendar and the Committee met
three times during the year ended 31 December
2022, and again in May 2023. Meetings outside
of this are organised as required.
The Kistos Holdings plc and Kistos NL2 Audit
Committee members are:
Julie Barlow, Chair
Alan Booth
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 10
Governance and Risk Management
Internal controls
The Company has an established Code
of Conduct and set of values that is
communicated and reiterated to all
employees. The Board acknowledges that it is
responsible for establishing and maintaining
the Company’s system of internal controls and
reviewing its effectiveness. The procedures
that include inter alia, health and safety,
financial, operational, compliance matters
and risk management are reviewed on an
ongoing basis.
The Company’s internal control procedures
include the following:
Board approval for all significant projects,
including corporate transactions and major
capital projects.
The Board receives and reviews regular
reports covering both the technical
progress of projects and the Company’s
financial affairs to facilitate its control.
There is a budgeting and planning system
for all items of expenditure with an annual
budget approved by the Board. Risk
assessment and evaluation is an integral
part of the annual planning cycle.
The Group has internal control and risk
management systems in place in relation
to the Company’s financial reporting
process and the Company’s process for
preparing financial statements. These
systems include policies and procedures to
ensure that adequate accounting records
are maintained, and transactions are
recorded accurately and fairly to permit
the preparation of financial statements in
accordance with International Financial
Reporting Standards (IFRS).
The internal control system can only provide
reasonable, and not absolute, assurance
against material misstatement, fraud or loss.
Fraud
All organisations face the risk of things going
wrong from time to time, or of unknowingly
harbouring illegal or unethical conduct. The
Company encourages a culture of openness
and accountability, which is essential to
prevent such situations occurring and to
address them when they do occur. The
Company’s Code of Conduct requires each
employee, Director and Officer to act with
integrity and observe the highest ethical
standards of business conduct in their
dealings with the Company’s customers,
suppliers, partners, service providers,
competitors, employees and anyone else with
whom they have contact while performing
their job. Furthermore, the Company has
in place a Whistleblowing Policy, which
aims to encourage staff to report suspected
wrongdoing (such as suspected or actual
fraud) as soon as possible, in the knowledge
that their concerns will be taken seriously and
investigated as appropriate, and that their
confidentiality will be respected. This policy
provides staff with guidance as to how to raise
these concerns and acts to reassure staff that
they can raise genuine concerns without fear of
reprisals, even if they turn out to be mistaken.
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.
Having incorporated third-party contractors
into our safely culture, our HSE performance
remains strong. In pursuit of our goal of zero
harm to people in our direct operations, we
had just one Lost Time Incident in 2022, as
well as one incident of non-compliance, one
near miss and one identified (non-reportable)
hazard during six months of drilling and
testing operations. The strict protocols and
rigorous testing procedures we have in place
to keep our employees and contractors safe
have also ensured that our operations and
offices have not been disrupted by COVID-19.
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 11
Governance and Risk Management
Diversity, equality and
inclusion
Diversity, equality and inclusion (DEI) is
important to us. We have a roughly 80:20
male/female split across our workforce of
18 employees at the end 2023, and we aim to
enhance our approach to equality and equity
across our business by developing a corporate
DEI strategy. In 2022, we reviewed our policies
to ensure equality and equity for all in our
direct operations.
The minimum qualifications for serving as a
member of the Board of Directors of Kistos
NL2 B.V. are that a person demonstrates, by
significant accomplishment in their field, an
ability to make a meaningful contribution
to the Board’s oversight of the business
and affairs of Kistos and that a person has
an impeccable record and a reputation for
honesty and ethical conduct in both their
professional and personal activities.
In addition, any nominees for an open position
shall be selected based on, among other
things, experience, knowledge, skills, expertise,
diversity, ability to make independent
analytical inquiries, understanding of Kistos’
business environment and willingness to
devote adequate time and effort to the
prescribed responsibilities.
Principal risks and risk
management
Overseeing these risks benefits the Group and
protects its business, people and reputation.
We use the risk management process to
provide reasonable assurance that the risks
we face are recognised and controlled. This
approach enables the organisation to achieve
its strategic objectives and create value.
Depending on the nature of the risk, we
may elect to accept the risk, manage it with
controls or other mitigating actions, transfer
the risk to others, or remove risk as much as
possible by ceasing those activities giving
rise to the risks. The Directors confirm they
have carried out a robust assessment of the
principal risks facing the Group, including
those that would significantly adversely
impact its strategy, business model, future
performance or liquidity.
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 Holdings
plc, where they apply 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. 2022 Annual Report and Audited Financial Statements 12
Governance and Risk Management
Political risk
There are risks that changes in national government policies towards oil and
gas-focused companies adversely impact the ability of the Company to deliver its
strategy. This could result in challenges, delays and refusals related to permitting
applications for development, appraisal and exploratory drilling in Kistos-owned
or targeted blocks.
Peter Mann
CEO
Directly and through Element NL and other industry associations, the Company engages
with the respective government departments and other appropriate organisations to
ensure the Company is kept abreast of expected potential changes and takes an active
role in making appropriate representations.
Growth of reserves base
The Company’s growth strategy is dependent on identifying new reserves and
resources through development and acquisition. Organic growth is focused on
developing existing resources into producible reserves.
As part of this growth strategy, there is a risk that the Company may fail to
identify attractive acquisition opportunities or select inappropriate exploration
work programmes.
The long-term commodity price forecast and other assumptions used when
assessing potential projects and investment opportunities can have a significant
influence on the forecast return on investment.
Inappropriately valued targets may result in overpaying for acquisitions, leading to
subsequent impairments of assets and goodwill and lead to adverse reputational
and share price impact. Similarly, an inability to convert existing resources to
reserves may give rise to impairments and reduce future forecast cash flows.
Andrew Austin
Executive
Chairman
Potential opportunities are evaluated internally and with support from subject matter
experts where appropriate. A rigorous assessment process evaluates and determines the
risks associated with all potential business acquisitions and strategic alliances, including
conducting stress-test scenarios for sensitivity analysis.
Exploration, appraisal and development cases are robustly assessed, and stress tested
against cost, price and taxation sensitivities.
Risk
Executive
ownership (at
ultimate parent
company level) Mitigation Change
Strategic
Direction of change
Increase in risk
No change in risk
Decrease in risk
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 13
Direction of change
Increase in risk
No change in risk
Decrease in risk
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 Company. Sources
of debt and equity finance may become more expensive or restricted as investors
diversify away from oil and gas-based investments.
Peter Mann
CEO
The Board actively reviews the Company’s strategy towards energy transition with an
aim to provide long-term returns, and regularly considers the impact of climate change
and potential changes to policy in its decision making. It continues to investigate and
implement actions on its existing assets that could reduce its environmental footprint,
and environmental considerations are a key factor in determining any potential
inorganic growth activity.
The value of projects is discounted in the future for later life production to take into
account possible reduced demand for hydrocarbons.
The Company stress tests its budgets and forecasts in respect to the cost of carbon
emission allowances.
Cyber security
Breaches in, or failures of, the Company’s information security management could
adversely impact its business activities. The Company’s information security
management model is designed with defensive structural controls to prevent and
mitigate the effects of computer risks. It employs a set of rules and procedures,
including a Disaster Recovery Plan, to restore critical IT functions.
Richard Slape
CFO
The Company outsources its provision of IT equipment and help-desk services to
third parties. Various network management systems are used to protect the Company’s
IT environment.
Risk Change
Strategic
Governance and Risk Management
Executive
ownership (at
ultimate parent
company level) Mitigation
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 14
Governance and Risk Management
HSE and compliance
The Company is exposed to various risks in relation to HSE, compliance, planning,
environmental, regulatory, licensing and other permitting rules associated
primarily with production operations, drilling and construction.
A loss of hydrocarbon containment, in addition to causing harm to the
environment, could result in reputational damage and incur financial penalties.
Peter Mann
CEO
The Company 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.
All activities are conducted in accordance with Board-approved policies, standards
and procedures. The Company requires adherence to its Code of Conduct and runs
compliance programmes to provide assurance on conformity with relevant legal and
ethical requirements.
The Company 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.
Hydrocarbon production and
operational performance
The Company’s production volumes (and therefore revenue) are dependent on the
operational performance of its producing assets. The Company’s producing assets
are subject to operational risks, including no critical spare equipment or plant
availability during the required plant maintenance or shutdowns; asset integrity
and health, safety, security and environment incidents; and low reserves recovery
from the field and exposure to natural hazards such as extreme weather events.
Peter Mann
CEO
The Company continuously 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.
Planned and unplanned downtime assumptions are built into the corporate budgeting
cycle and cash flow projections.
Project delivery
Risk of delays in project delivery and higher costs being incurred, especially under
the current high inflationary environment.
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. Project costs are
stress tested against cost increases with adequate contingency built in to estimates.
Retention of key personnel
The Company may not be able to retain key personnel, and there can be no
assurance that the Company will be able to continue to attract and retain all
personnel suitably qualified and competent necessary for the safe and efficient
operation and development of its business.
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 staff are retained through a strong remuneration culture. Workplace surveys are
undertaken to ascertain morale and employee concerns and allow management to swiftly
address any issues. A long-term share incentive plan is in place for key staff.
Risk
Operational
Change
Direction of change
Increase in risk
No change in risk
Decrease in risk
Governance and Risk Management
Executive
ownership (at
ultimate parent
company level) Mitigation
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 15
Governance and Risk ManagementGovernance and Risk Management
Executive
ownership (at
ultimate parent
company level) Mitigation
Commodity price risk
The Company’s cashflow and results are heavily dependent on natural gas and
other commodity prices, which are dependent on several factors including the
impact of climate change concerns, geopolitics (including events such as the
Russia-Ukraine conflict) and regulatory developments.
Richard Slape
CFO
The Board continuously reviews the oil and gas markets to determine whether future
hedges are needed and has the necessary contracts in place to undertake hedging
activities if required. Cash flow projections and liquidity analyses are regularly tested for
downside price scenarios.
Liquidity risk
Adverse changes to production, commodity prices, taxation and surety bond
requirements may put pressure on the Company’s available liquidity, constraining
its options to grow the business or, in the worst cases, cause it to breach its bond
covenants or become insolvent.
Richard Slape
CFO
Management regularly reviews the Company’s cash forecasts and its covenants to ensure
an adequate headroom of cash availability. The Company is in regular dialogue with
potential providers of finance and surety bond providers.
Decommissioning costs and timing
The 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. Where decommissioning costs are to be shared as part of a joint
venture, there is a risk of partners not fulfilling their commitments and leaving the
remaining partners exposed.
Richard Slape
CFO
The Company mitigates this risk through in-house decommissioning experience, coupled
with a continued focus on delivering asset value to defer abandonment liabilities.
Taxation
Longer-term additional and increased taxes imposed on oil and gas companies
by governments in reaction to so-called ‘windfall profits’ arising from short-term
movements in commodity prices have led to a higher tax burden. Uncertainty over
tax regimes may also hinder future investment decisions and reduce the returns
from, and profitability of, operations.
Should the Dutch tax office rule unfavourably against the Company with regards
to the Solidarity Contribution Tax, this would have a material impact on the
Company’s projected cash position.
Richard Slape
CFO
The Company engages with various industry bodies to raise concerns and suggest
alternative approaches to proposed taxation policies. Projects and liquidity projections
are modelled with various tax sensitivities in place.
The Company engages the support and advice of external experts and legal counsel on
taxation matters for areas where there exists significant uncertainty and judgement.
New risk
Risk Change
Direction of change
Increase in risk
No change in risk
Decrease in risk
Financial
Andrew Austin
Director
Bart de Sonnaville
Director
The Hague, 30 May 2023
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 16
Profit and Loss Account and Balance Sheet
Profit and loss account for the year ended 31 December 2022
€’000 Note Year ended
31 December 2022
Year ended
31 December 2021
Revenue 3 285,604 116,731
Other operating income 149 –
Exploration expenses (235) (297)
Production costs 4 (9,979) (9,814)
Development expenses 5 (1,676) (4,535)
Depreciation and amortisation 12 (32,155) (14,165)
Impairments 12 (18,138) (8,354)
General and administrative expenses 6 (3,006) (2,310)
Total operating expenses (65,189) (39,475)
Operating profit 220,564 77,256
Interest income 8 5,655 3,452
Interest expenses 8 (10,958) (10,337)
Finance income and expenses 8 (9,315) (2,510)
Net finance costs (14,618) (9,395)
Profit before taxes 205,946 67,861
Tax charge 9 (89,448) (33,502)
Solidarity Contribution Tax charge 9 (46,935) –
Total tax charge (136,383) (33,502)
Profit for the year attributable to owners of the Company 69,563 34,359
Statement of comprehensive income for the year ended 31 December 2022
€’000 Year ended
31 December 2022
Year ended
31 December 2021
Profit for the year attributable to owners of the Company 69,563 34,359
Items that may be reclassified to profit or loss:
Losses on cash flow hedges 15 (9,404) (38,624)
Hedging losses reclassified to profit or loss 15 21,185 26,843
Income tax on items of other comprehensive income 15 (5,891) 5,891
Total comprehensive income for the year 75,453 28,469
The notes on pages 20 to 45 are an integral part of these financial statements.
Balance sheet as at 31 December 2022
€’000 Note 31 December 2022 31 December 2021
Non-current assets
Exploration and evaluation assets 12 5,599 17,443
Property, plant and equipment 12 65,741 89,250
Deferred tax assets 9 566 13,496
Loan receivables 10 60,000 60,000
131,906 180,189
Current assets
Inventories 1,762 902
Accrued income 13 47,962 40,299
Other receivables 13 14,285 11,711
Cash and cash equivalents 14 153,615 44,422
217,624 97,334
TOTAL ASSETS 349,530 277,523
Equity
Share capital 15 – –
Share premium 15 20,517 20,517
Hedge reserve 15 – (5,890)
Capital contribution reserve 15 505 –
Retained earnings 118,228 48,665
Total equity 139,250 63,292
Non-current liabilities
Abandonment provision 17 16,413 15,904
Bond payable 18 80,800 145,074
Interest-bearing loans from affiliates 21 1,804 1,804
Other non-current liabilities – 31
99,017 162,813
Current liabilities
Trade payables and accrued expenses 19 36,043 22,130
Tax payable 47,083 14,980
Other liabilities 20 28,137 14,308
111,263 51,418
Total liabilities 210,280 214,231
TOTAL EQUITY AND LIABILITIES 349,530 277,523
The notes on pages 20 to 45 are an integral part of these financial statements and were
approved by the Directors on 30 May 2023.
Andrew Austin Bart de Sonnaville
Director Director
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 18
Statement of changes in equity for the year ended 31 December 2022
€’000 Share
capital
(Note 15)
Share
premium
(Note 15)
Retained
earnings
Hedge
reserve
(Note 15)
Capital
contribution
reserve
(Note 15)
Total
equity
Equity as at 31.12.2020 – 20,517 14,306 – – 34,823
Profit for the year – – 34,359 – – 34,359
Other comprehensive income – – – (5,890) – (5,890)
Equity as at 31.12.2021 – 20,517 48,665 (5,890) – 63,292
Profit for the year – – 69,563 – – 69,563
Other comprehensive income – – – 5,890 – 5,890
Equity-settled share-based
payments – – – – 505 505
Equity as at 31.12.2022 – 20,517 118,228 – 505 139,250
The notes on pages 20 to 45 are an integral part of these financial statements.
Statement of cash flow for the year ended 31 December 2022
€’000 Note Year ended
31 December 2022
Year ended
31 December 2021
Cash flow from operating activities
Profit for the year 69,563 34,359
Tax charge 9 136,383 33,502
Net finance costs 8 14,618 9,395
Depreciation and amortisation 8, 12 32,155 14,165
Impairment losses 12 18,138 8,354
Share-based payment expense 505 –
Payments on abandonment provision 17 (1,042) (736)
Taxes paid (39,908) (1,158)
Working capital changes:
Increase in trade and other receivables (3,766) (38,234)
(Decrease)/increase in trade, other payables and provisions (14,209) 3,469
(Increase)/decrease in inventories (860) 471
Increase in other non-current assets/liabilities 173 –
Net cash flow from operating activities 211,750 63,587
Cash flow from investment activities
Payments to acquire tangible fixed assets 26 (17,183) (20,778)
Interest received 8 163 –
Net cash flow from investment activities (17,020) (20,778)
Cash flow from financing activities
Repayment of loan to parent company 21, 27 – (1,896)
Repayment of long-term payables (160) (98)
Interest paid (11,566) (11,201)
Intercompany interest paid (152) (215)
Other finance charges 8 (263) (108)
Bond refinancing costs 18 – 3,000
Bond issue costs 18 – (2,933)
Bond redemption costs – (2,627)
Proceeds from new bond loan 18 – 60,000
Issue of loan to Kistos plc 10 – (60,000)
Repurchase of own bonds 18 (71,773) –
Net cash flow from financing activities (83,914) (16,078)
Increase in cash and cash equivalents 110,816 26,731
Cash and cash equivalents as at 1 January 44,422 17,691
Effects of foreign exchange rates (1,623) –
Cash and cash equivalents as at 31 December 14 153,615 44,422
The notes on pages 20 to 45 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. 2022 Annual Report and Audited Financial Statements 19
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 B.V.
(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 2022, which ended at the balance sheet date of
31December 2022.
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 2d.
The Company’s financial statements were authorised for issue by the Board on 30 May 2023.
b) Basis of measurement
The financial statements have been prepared on the historical cost basis except for certain
financial assets and liabilities (including derivative instruments) which are measured at fair
value (see note 22).
Notes to the Financial Statements
c) Functional and presentation currency
These financial statements are presented in Euros (EUR), which is the Company’s functional
currency. All amounts have been rounded to the nearest thousand EUR, unless otherwise stated.
d) Use of judgements and estimates
In the application of the Company’s accounting policies, the Directors are required to make
judgements, estimates and assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources. The estimates and associated assumptions
are based on historical experience and other factors that are considered to be relevant. Actual
results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the estimate is revised if the revision
affects only the period, or in the period of the revision and future periods if the revision affects
both current and future periods.
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 the most recent legislations.
Assumptions and estimation uncertainties
Information about assumptions and estimation uncertainties at 31 December 2022 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):
At each reporting date, management assesses whether there is any indication that the
Company’s property, plant and equipment assets may be impaired, with reference to the
indicators of impairment in IAS 36. Where indicators are present and an impairment test is
required, the calculation of the recoverable amount requires estimation of its value in use using
discounted cash flow models.
Abandonment provision (note 17):
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 20
Decommissioning costs are uncertain and cost estimates can vary in response to many factors,
including changes to the relevant legal requirements, the expected cessation of production date
of the related asset, the emergence of new technology or experience at other assets. Theexpected
timing, work scope, amount of expenditure and risk weighting may also change. Therefore,
significant estimates and assumptions are made in determining the provision fordecommissioning.
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 (note 9):
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 (including adjustments
made as a result of tax audits) are recognised prospectively as a prior year taxcharge.
The Company believes that there is an argument that it is out of scope of the Solidarity Contribution
Tax as, in its opinion, less than 75% of its turnover under Dutch GAAP (the relevant measure for
Dutch taxation purposes) was derived from the production of petroleum or natural gas, coal
mining, petroleum refining or coke oven products. Furthermore, the Company understands the
implementation of the tax, including its retrospective nature, is subject to legal challenges by other
parties. However, as there is no history or precedent for this tax being audited or collected by the
Dutch tax authorities, the Directors, having taken all facts and circumstances into account, applied
IFRIC 23, ‘Uncertainty over Income Tax Treatments’ and made a provision of €46.9 million relating
to the Solidarity Contribution Tax within the current tax charge for the year.
Presentation of revenue (note 3):
The Company has reported within revenue the net margin recognised from gas purchased from
Kistos Energy Limited, a related Group company, which was then back-to-back sold on to a
third party. The assessment of whether the Company in the arrangement is acting as principal or
agent (and thus recognises revenue from the arrangement on a gross or net basis) is a significant
judgement and has been based on the indicators in IFRS 15, an assessment of control, the terms
and conditions of the relevant contracts, and other indicators providing persuasive evidence.
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, tax rates, and different production scenarios from the Company’s producing
assets. In the currently high commodity price environment, the Company has taken appropriate
action to reduce its debt 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 at least the
12 months from the date of approval of the 2022 Annual Report and Accounts.
Kistos NL2 has not been adversely affected by the Russia-Ukraine war. Sanctions have been
imposed on, and by, Russia, which have led to a significant volatility in the gas prices. While
this has had a positive impact on the revenue of the Company, it has indirectly led to additional
taxes and royalties being imposed on current and future revenues and profits by the Dutch state,
with energy producers being seen to have enjoyed windfall profits.
e) Operating segments
The Company’s performance is evaluated by the Directors and management as a whole, as it
has one significant revenue stream, being the sale of natural gas, and therefore has only one
reportable operating segment.
f) 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.
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 in the following product lines and are all attributable to the Netherlands region.
During the reporting period, the Company generated a significant portion of its revenue from a
single customer. Revenue derived from this single customer accounted for all the Company’s total
revenue. The Company maintains a strong relationship with the customer, and management
actively monitors this relationship to mitigate any potential adverse impact on its financial
performance. The revenue includes the impact of the effective realised loss on the cashflow
hedge derivative (see note 22) which was paid to a different vendor than the single customer.
€’000 Year ended
31 December 2022
Year ended
31 December 2021
Liquids revenue – 559
Gas revenue 285,604 116,172
Total petroleum revenues 285,604 116,731
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 21
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, CO
2
emission costs and fixed fees;
Well maintenance expenditures;
GTS capacity fees; and
Structural and facility-related surveys.
Note 5: Development expenses
Development expenses include the costs related to pre-Final Investment Decision (pre-FID)
expenses incurred on front end engineering and design related to:
Potential alternative commercial evacuation routes.
Concept Assess and Concept Select phases of the Q10 Orion Oil field development project.
Note 6: General and administrative expenses
€’000 Year ended
31 December 2022
Year ended
31 December 2021
Salaries and contractors 3,687 1,497
Travel and travel-related costs 66 46
IT and communication 146 135
Professional services 317 756
Cost recharges from affiliated companies 716 1,928
Total general and administrative expenses (gross) 4,932 4,362
Other (including recovery of cost and capitalisation of costs) (1,926) (2,052)
Total general and administrative expenses 3,006 2,310
The audit fee and other non-audit related fees have been disclosed in the financial statements of
the immediate Parent company (Kistos NL1).
‘Other’ includes joint operator recovery which is some €300 thousand higher in 2022 as a
result of higher expenditures. In addition, 2022 includes the capitalisations of €557 thousand
(2021:€830 thousand) of costs related to the Q11-B drilling programme which was completed
early 2022 and the work-over programme commenced in Q4 2022.
Note 7: Employee benefit expenses
€’000 Year ended
31 December 2022
Year ended
31 December 2021
Wages and salaries 3,085 850
Social security costs 187 59
Equity-settled share-based payment expense 505 –
Total employee benefit expenses 3,777 909
At the end of 2022 there were 18 (2021: 12) employees of the Company, 16 of them working in
The Netherlands and 2 of the employees working in Germany. 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 €203 thousand
(2021: €210 thousand).
During 2022, the average number of staff employed by the Company, converted into full-time
equivalents, amounted to 18 (2021: 6) people. This staffing level (average number of staff) can
be divided into the following staff categories:
€’000 Year ended
31 December 2022
Year ended
31 December 2021
Technical 13 3
Support 5 3
Total staff 18 6
During 2021, the Company also retained several key contractors for delivering the objectives
of the Company. As at 1 January 2022, these individuals have had their contract converted to a
full-time employment contract.
Share based-payment arrangements
A. Description of share-based payment arrangements
At 31 December 2022, the Company has the following share-based payment arrangements.
Share option incentive awards (equity-settled)
On 1 February 2022, the Company established a share option programme that entitle all fulltime
employees in Kistos NL2 to purchase shares of Kistos Holdings plc (previously Kistos plc at the
date of grant). Under this programme, holders of vested options are entitled to purchase shares
at the market of the shares at grant date. All options are to be settled by delivery of shares.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 22
Share option matching awards (equity-settled)
On 1 February 2022, the Company offered all full time employees in Kistos NL2 to participate in
an employee share purchase plan. To participate in the plan, the employees are required to buy,
or already hold, shares of Kistos plc with own funds. Under this programme, holders of vested
options are entitled to purchase shares at the market of the shares at grant date. All options
are to be settled by delivery of shares. The key terms and conditions related to grants under this
programme are as follows;
Share-based payment
arrangement
Grant date Number of
shares
Vesting conditions Contractual life
of options
Share option incentive awards
(equity-settled)
14 February
2022
187,426 Employee remains in service during
the vesting period. Option vest
in equal instalments on the first,
second and third anniversary of
therewards.
10 years
Share option matching awards
(equity-settled)
25 April 2022 125,690 Same as above 10 years
B. Measurement of fair values
i. Share option incentive awards (equity-settled)
The fair value of the share option programme has been measured using the Black-Scholes
formula. Service and non-market performance conditions attached to the arrangements were
not taken into account in measuring fair value.
The inputs used in the measurements of the fair values at grant date of the equity-settled share-
based payment arrangements were as follows.
Share-based payment arrangements
Incentive awards
2022
Matching awards
2022
Fair value at grant date in € €2.71 €3.13
Fair value at grant date in £ £2.27 £2.64
Share price at grant date £3.57 £4.14
Exercise price £2.73 £3.43
Expected volatility 49.83% 50.49%
Periods to exercise 10 years 10 years
Expected dividends Not applicable Not applicable
Risk-free interest rate (based on government bonds) 0.44% 1.12%
Expected volatility has been based on an evaluation of the historical volatility of Kistos plc’s
share price, particularly over the historical period commensurate with the term between the
initial public offering of the Kistos plc’s shares and the grant date(s) of the share-based payment
programme(s). No expected dividends have been assumed as Kistos plc has no history of paying
dividends. Based on lack of historical data, it is expected that all employees remain in place
during the scheme and will have a maximum of 10 years to exercise the options. At 31 December
2022, no employees that participate in the share option programme(s) have left the Company.
Reconciliation of outstanding share options
As at 31 December 2022 the following share options are outstanding, as the date of the first
anniversary has not yet been reached, and none of these share options have been vested. Based
on the vesting conditions, requiring at least three years of service for the full share options
awards, the costs of share-based payments are front-loaded.
Incentive awards
2022
Matching awards
2022
Outstanding at 1 January 2022 – –
Share options first anniversary 57,272 38,405
Share options second anniversary 28,636 19,203
Share options third anniversary 19,091 12,802
Outstanding at 31 December 2022 104,999 70,410
Fair value per share € €2.71 €3.13
Fair value at grant date in £ £2.27 £2.64
Upon vesting of the share options and exercise by the employee, the obligation will be settled by
Kistos Holdings plc. The corresponding entry to the charge of share-based payment expense is
the capital contribution reserve within equity.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 23
Note 8: Net finance costs
€’000 Year ended
31 December 2022
Year ended
31 December 2021
Interest income on loan from Kistos plc (5,492) (3,452)
Other interest income (163) –
Total financial income (5,655) (3,452)
Other interest expenses 263 108
Interest expenses 10,543 10,035
Interest on loans from affiliates 152 194
Total interest expenses 10,958 10,337
Unwinding of bond discount – 135
Accretion expenses on abandonment provisions and leases 216 70
Amortisation of bond costs 1,062 899
Hedge ineffectiveness (note 22) – 625
Loss on bond redemption (note 18) 6,414 781
Foreign exchange losses 1,623 –
Total other financial expenses 9,315 2,510
Net finance costs 14,618 9,395
During 2021 an amount of €2.1 million of interest expenses have been capitalised under
property, plant and equipment. The Company ceased capitalising interest from October 2021.
Note 9: Tax charge
€’000 Year ended
31 December 2022
Year ended
31 December 2021
Current tax expense
Current year (129,344) (15,382)
Deferred tax expense
Origination and reversal of temporary differences (7,039) (18,120)
Total tax charge (136,383) (33,502)
The income tax credit for the year can be reconciled to the accounting profit as follows:
€’000 Year ended
31 December 2022
Year ended
31 December 2021
Profit before taxes 205,946 67,861
Income tax expense calculated at 50% (2021: 50%) (102,973) (33,931)
Expense uplift for SPS 5,214 1,192
Marginal field incentive (investment allowance) 1,546 1,728
Other movements (256) (277)
Utilisation of creditable amounts 7,021 –
Changes in prior year tax estimates – (2,214)
Solidarity Contribution Tax charge (46,935) –
Tax charge (136,383) (33,502)
Effective tax rate 66.2% 49.4%
In October 2022, the EU member states adopted Council Regulation (EU) 1854/2022, which
required EU member states to introduce a Solidarity Contribution Tax for companies active in the
oil, gas, coal and refinery sectors. The Dutch implementation of this solidarity contribution has
been legislated by a retrospective 33% tax on ‘surplus profits’ realised during 2022, defined as
taxable profit exceeding 120% of the average taxable profit of the four previous financial years.
Companies in scope are those realising at least 75% of their turnover through the production of
oil and natural gas, coal mining activities, refining of petroleum or coke oven products.
The Company believes that there is an argument that it is out of scope of the regulations
as, in its opinion, less than 75% of its turnover under Dutch GAAP (the relevant measure for
Dutch taxation purposes) was derived from the production of petroleum or natural gas, coal
mining, petroleum refining or coke oven products. Furthermore, the Company understands
the implementation of the tax, including its retrospective nature, is subject to legal challenges
by other parties. However, as there is no history or precedent for this tax being audited or
collected by the Dutch tax authorities, the Directors, having taken all facts and circumstances
into account, applied IFRIC 23, ‘Uncertainty over Income Tax Treatments’ and made a provision
of €46.9 million relating to the Solidarity Contribution Tax within the current tax charge for the
year. This is the single most likely amount of the charge if it becomes payable. The Company
expects to get further certainty around this tax position in 2024.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 24
€’000
Temporary differences
Tax losses Provisions Other Total
At 31 December 2020 21,320 3,715 690 25,725
Deferred tax on hedge reserve in OCI
(see note 15)
– – 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
Deferred tax on hedge reserve in OCI
(see note 15)
– – (5,891) (5,891)
Profit and loss account (7,015) (697) 673 (7,039)
At 31 December 2022 – 3,471 (2,905) 566
‘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.
During 2020, a framework for fiscal union compensation was established covering 2019 and
future years. This results in intercompany settlements of tax charges or credits where an offset
against other available losses or profits within the fiscal union is possible. Kistos NL1 formed
a fiscal unity with its subsidiary Kistos NL2 as at 1 April 2021. The fiscal unity with Tulip Oil
Holding B.V. ended on 31 March 2021.
Note 10: Loan receivable
€’000 31 December 2022 31 December 2021
Loan receivable from parent 60,000 60,000
Terms and repayment schedule
31 December 2022 31 December 2021
€’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 60,000 60,000
The intercompany facility agreement has an ultimate repayment term equal to that of the
€60 million 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 joint operation:
Joint arrangement Licence
owner
Licence
type
Partner Status Year ended
31 December
2022
Year ended
31 December
2021
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%
In January 2023, Kistos NL2 B.V. was awarded the P12b, Q13b and Q14 exploration licences
where it will act as operator with 60% interest.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 25
Note 12: Exploration and evaluation assets and property,
plant and equipment
€’000 Exploration and
evaluation assets
Assets under
construction
Production
facilities
including wells
Other Total
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
Acquisition cost 31.12.2021 17,443 5,859 141,559 398 165,259
Additions 5,763 7,401 280 179 13,623
Disposals – – – (48) (48)
Other 245 – 1,099 – 1,344
Acquisition cost 31.12.2022 23,451 13,260 142,938 529 180,178
Accumulated depreciation and
impairments 31.12.2021
– (5,859) (52,517) (190) (58,566)
Disposals – – – 21 21
Depreciation – – (32,006) (149) (32,155)
Impairment (17,852) – (286) – (18,138)
Accumulated depreciation and
impairments 31.12.2022
(17,852) (5,859) (84,809) (318) (108,838)
Book value 31.12.2022 5,599 7,401 58,129 211 71,340
Exploration and evaluation assets
The remaining exploration and evaluation assets is the Q10-A-Orion. At balance sheet date,
Kistos is in the select phase of the Q10 Orion oil field development project. The other exploration
and evaluation assets have been fully impaired. See also below under ‘Impairments’.
Assets under construction
Assets under construction relate to wells drilled but not yet producing. At balance sheet date the
capitalised costs under asset under construction consist of costs related to the wells A01 side-
track, A04 fracking, A05 and A06 installation of velocity strings which are a part of the work-
over programme to be finalised in Q1 2023. Reclassification in 2021 relates to the movement of
assets to production following the start of production.
Other
‘Other’ consists of other tangible fixed assets, mainly related to hardware equipment.
Under Other the right-of-use asset for the lease of the office in The Hague and two lease
cars are included.
Depreciation
In line with the Company’s accounting policy, the depletion rate for producing fields was revised
during the year following a reassessment of the commercial reserves base.
Impairment
In line with IFRS 6 and IAS 16, impairment tests at the individual asset level (where possible) and
cash-generating units are performed when impairment triggers are identified. Impairments for
specific assets identified and charged are:
The exploration and evaluation assets of Q11-B well (€16.8 million), Q10-B and Q10-G
(€1.1 million). Due to the ongoing uncertainty surrounding the tax legislation, management
is unable to make informed decisions regarding short-term investments for exploration
and evaluation assets. As at the balance sheet date, the development studies for the Q11-B
field are still ongoing and the outcome remains uncertain. In light of this uncertainty, the
exploration and evaluation assets Q11-B, Q10-B and Q10-G have been fully impaired as
the recoverability of its carrying values remain indeterminate, both in terms of amount
and timing; and
Following the drilling of the Q10-A-01 side-track, the Q10-A-01 well has been partially
impaired. Upon completion of the plug and abandonment of the inactive part of the
Q10-A-01 well, an impairment has been incurred on the corresponding costs capitalised.
Management has determined the impairment amount by assessing the net book value of the
part that has been plugged and abandoned. The amount of the costs capitalised related to
the part that is abandoned and has resulted in an impairment of €286 thousand.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 26
In prior year, the following impairments were identified:
Following the unsuccessful restimulation of well Q10-A06 the amount spent has been
impaired (€1.43 million); and
The abandonment of the A04 drilling path (before drilling the side track) has resulted in an
impairment of the costs originally capitalised of (2021: €6.92 million).
Note 13: Trade and other receivables and accrued income
€’000 31 December 2022 31 December 2021
Receivables due from joint operation partner 3,058 3,894
Other receivables 1,069 1,555
Receivables from affiliates 8,947 3,935
Prepayments 494 91
VAT receivable 717 2,236
Total other receivables 14,285 11,711
The accrued income balance of €48.0 million (2021: €40.3 million) represents amounts due to
the Company in respect of gas sales revenue which had not been invoiced at the balance sheet
date. All accrued income amounts had been invoiced and collected in full within one month of
the corresponding reporting date.
Information about the Company’s exposure to credit risks, and impairment losses for other
short-term receivables is included in note 22 below.
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 and 2022 relate to a bank guarantee for the office lease in The Hague.
€’000 31 December 2022 31 December 2021
Cash at bank 153,593 44,400
Restricted funds 22 22
Cash and cash equivalents 153,615 44,422
Note 15: Share capital
A. Share capital
€’000 31 December 2022 31 December 2021
Share capital – –
The issued and authorised share capital of Kistos NL2 consists of one share with a par value of
€1. Kistos NL1 is the single shareholder of the Company.
For the purpose of the Company’s capital management, capital includes issued capital and all
other equity reserves attributable to the equity holders of the parent. The primary objective of
the Company’s capital management is to ensure that it maintains a strong credit rating and
healthy capital ratios in order to support its business and maximise shareholder value. No
changes were made in the objectives, policies or processes during the years ended 31 December
2022 and 31 December 2021.
In order to achieve this overall objective, the Company’s capital management, amongst other
things, aims to ensure that it meets financial covenants attached to its bonds that form part
of its capital structure requirements. Breaches in the financial covenants would permit the
bondholders to immediately call the bonds. There have been no breaches in the financial
covenants of any bond in the current or prior period.
B. Share premium
€’000 31 December 2022 31 December 2021
Share premium 20,517 20,517
The share premium arose in 2017 and relates to the conversion of a loan from Kistos NL1 B.V.
into equity.
C. Hedge reserve
€’000 31 December 2022 31 December 2021
Balance at the beginning of the year (5,890) –
Cost of hedging deferred and recognised in OCI 11,781 (11,781)
Deferred tax on hedge reserve in OCI (5,891) 5,891
Total hedge reserve – (5,890)
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 27
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 realised have been taken into the profit and loss account within gas sales
(revenue). During 2022, no hedge ineffectiveness has arisen (2021: €0.6 million). The hedge
reserve has been taxed at an effective rate of 50%.
Kistos NL2 held the following cash flow hedge during 2022.
€’000 Volume (MWh) Price (MWh) Period of hedge
Cash flow hedge 300,000 €25 Jan–Mar 22
The hedge was equally distributed over each month at 100,000 MWh. Kistos NL2 held no cash
flow hedge at the balance sheet date.
D. Capital contribution reserve
€’000 31 December 2022 31 December 2021
Share premium 505 –
The capital contribution reserve relates to share-based payment programme(s) introduced
during 2022 to all full-time employees of Kistos NL2 B.V. The obligation will be settled by Kistos
Holdings plc upon exercise of the share options by the employees. The corresponding entry to
the capital contribution reserve is the charge of share-based payment expense (see note 7).
Note 16: Proposed appropriation of result
The Company proposes to transfer the profit for the year of €69.6 million (2021: €34.4 million)
toretained earnings in accordance with Article 4.1 of Articles of Association. This article
statesthat the profits are at the disposal of the shareholders.
Note 17: Abandonment provision
€’000 31 December 2022 31 December 2021
Provisions as at beginning of the period 15,904 13,214
Accretion expense 208 65
Utilisation (1,042) (736)
Additions and change in estimates and incurred liabilities 2,577 3,361
Effect of change to discount rate (1,234) –
Total abandonment provision at year end 16,413 15,904
Breakdown of the abandonment provision to short-term and long-term liabilities
Short-term – –
Long-term 16,413 15,904
Total abandonment provision 16,413 15,904
Abandonment provisions comprise the Company’s share of the estimated cost of abandoning
the producing Q10-A wells, decommissioning the associated infrastructure, and plugging and
abandoning the currently suspending Q11-B well.
Following the drilling of the A01 side-track, the utilisation in 2022 of €1.0 million relates to the
partial abandonment of the A01 well (2021: partial abandonment of the A04 drilling path).
The additions and changes in estimates and incurred liabilities during 2022 mainly relate to
an update of the inflation and discount rate assumption and the addition to the abandonment
following the work-over programme (drilling the side-track of well A01 and the installation of the
velocity strings in A05 and A06).
Abandonment provisions are determined using an inflation rate of 3.0% (2021: 1.0%) and a
discount rate of 2.5% (2021: 0.5%) based on management’s assessment of publicly available
economic forecasts. The abandonment is expected to take place between eight and nine years
from 31 December 2022 (for production facilities) and in 2025 for the Q11-B well (based on
the regulatory requirement to abandon the well by that time as, at the balance sheet date, no
extension of the licence or production consent had been concluded).
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 28
Note 18: Bond payable
€’000 Bond €90 million Bond €60 million Bond costs Total
Book value at 31.12.2021 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 €87 million bond
502 – – 502
Unwinding EIR impact €90 million
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
Amortisation of bond costs – – 1,062 1,062
Unwinding EIR impact €90 million
bond 23 – – 23
Derecognition on repurchase
€90 millionbond
(65,359) – – (65,359)
Book value at 31.12.2022 22,706 60,000 (1,906) 80,800
During 2021, Kistos NL2 refinanced an existing €87 million bond with a new €90 million bond,
which is denominated in euro and runs from May 2021 to November 2024. Interest is paid on a
semi-annual basis.
Following the acquisition of Kistos NL1 and Kistos NL2 by Kistos plc, Kistos NL2 has issued a
€60 million bond that runs from May 2021 to May 2026, denominated in euros with an interest
rate of 9.15% per annum. 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.
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.
Terms and repayment schedule
31 December 2022 31 December 2021
€’000 Currency Nominal
interest
rate
Year of
maturity
Face value Carrying
amount
Face value Carrying
amount
Secured bond EUR 8.75% 2024 21,572 22,706 90,000 88,042
Secured bond EUR 9.15% 2026 60,000 60,000 60,000 60,000
Total interest-bearing liabilities 81,572 82,706 150,000 148,042
The face value of the 8.75% 2024 bonds as at balance sheet date is presented net of
€21.6 million bonds repurchased (but not cancelled) held by Kistos NL2 – see below.
As at 31 December 2022, the Company's bond debt was listed on the Oslo Børs, and therefore
has observable market prices and is now classified as Level 1 in the fair value hierarchy.
Repurchase of bonds
During 2022, Kistos NL2 repurchased €68.4 million in nominal value of its €90 million bonds at
an average price of 104.888%. Although the bonds cannot be cancelled, under IFRS the liability
relating to the repurchased amount is treated as being extinguished, and a loss on repurchase
of€6.4 million has been recognised in the income statement (see note 8).
The net loss on repurchase of the bonds is reconciled as follows:
€000
Total cash consideration paid 73,942
Less: settlement of accrued interest (2,169)
Cash consideration paid for repurchase of bond principal 71,773
Carrying value of bond derecognised (65,359)
Loss on repurchase of bond (note 8) 6,414
Financial covenants
€90 million 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 tested
at 30 June and 31 December
€60 million bond
Minimum liquidity €10,000,000 At all times
Maximum leverage ratio 2.50
From and including 1 January 2022 tested
at 30 June and 31 December
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 29
During 2022 and 2021, Kistos NL2 complied with the minimum liquidity covenant at all times.
On 31 December 2022, Kistos NL2 had a leverage ratio of (0.25) calculated as follows:
Calculation of leverage ratio Kistos NL2 €000
Kistos NL2 EBITDA for the period 270,857
Debt at 31 December 2022 84,652
Cash and cash equivalents at 31 December 2022 (153,615)
Net debt / (cash) at 31 December 2022 (68,963)
Leverage ratio (net debt/(cash) to EBITDA) (0.25)
Note 19: Trade payables and accrued expenses
€’000 31 December 2022 31 December 2021
Trade payables 6,826 8,646
Other accrued expenses 29,217 13,484
Total trade payables and accrued expenses 36,043 22,130
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 20: Other liabilities
€’000 31 December 2022 31 December 2021
Liabilities against affiliates 27,065 506
Bond interest payable 831 1,854
Hedge liability – 11,781
Wage tax payable 98 76
Right of use liability 143 91
Total other liabilities 28,137 14,308
Interest payable
The interest over the bond is payable per half year. The balance of €0.8 million (2021:
€1.8 million) 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 represented the potential fair value liability in respect of the cash flow
hedge derivative for the remaining period of the contract. The fair value was calculated with
reference to the difference between the discounted values of the remaining gas hedge and the
forward gas curves at the balance sheet date. As at 31 December 2022, the hedge liability is nil
(2021: €11.8 million), no hedges are in place in respect of future production.
Note 21: Interest-bearing loans from affiliates
€’000 31 December 2022 31 December 2021
Balance at the beginning of the year 1,804 3,700
Repayments during the year – (1,896)
Balance at the end of the year 1,804 1,804
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 22: 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.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 30
Fair values of financial assets and liabilities carried at fair value
The following table shows the fair values of financial liabilities which are carried at fair
value, including their levels in the fair value hierarchy. The Company holds no financial assets
recognised and measured at fair value and no financial liabilities carried at fair value at balance
sheet date.
€’000 Level 1 Level 2 Level 3 Total
Financial liabilities
Hedge liability derivative – – 11,781 11,781
Total financial liabilities at
31December 2021 – – 11,781 11,781
The hedge liability derivative ended on 31 March 2022 (see note 20).
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 and procedures and reviews the adequacy of the risk
management framework in relation to the risks faced by the Company.
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 2022 and 2021, the Company has used derivatives (see under cash flow hedge) 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 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. During the remaining three months in 2022, the hedge proved to be effective
(2021:€0.6 million of hedge ineffectiveness, see note 8). As at balance sheet date the Company
doesnot hold any other cash flow hedges.
Cash flow and interest rate risk
The Company’s principal exposure to interest costs relates to the bond issues and the
€60 million intragroup loan from Kistos NL1. The €90 million bond (of which €68.4 million
has been repurchased) carries a fixed interest rate of 8.75%. The €60 million 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.
No sensitivity analysis has been undertaken by management on the abovementioned loans
in place, as these loans all carry a fixed interest rate and the reasonable possibility that these
interest rates are changing is deemed low.
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.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 31
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 partners in its joint operations. 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.
Partners in the Company’s joint operations 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. The
Company has no material financial assets that are past due. No financial assets are impaired at
the balance sheet date.
Cash and cash equivalents
The Company held cash and cash equivalents of €153.6 million at 31 December 2022 (2021:
€44.4 million). 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 2022 or 2021.
Foreign currency risk
The Company conducts and manages its business predominately in euros, the operating
currency of the industry in which it operates. The Company undertakes certain transactions
denominated in other currencies. The exposure to transactional foreign currency risk may lead
to a mismatch between the currencies in which sales, purchases, receivables and payables are
denominated and the respective functional currency of the Company. The functional currency
of the Company is the euro. The currencies in which these other transactions are primarily
denominated is the British pound sterling (GBP). There were no foreign currency financial
derivatives in place at 31 December 2022 (2021: €nil).
Exposure to currency risk
The following significant exchange rates have been applied:
Euro Average rate Year-end spot rate
2022 2021 2022 2021
GBP 1 1.173 N/A 1.129 N/A
A reasonably possible strengthening (weakening) of the euro or British pound sterling at
31December 2022 would have affected the measurement of financial instruments denominated
in a foreign currency and affected equity and profit or loss by the amounts shown below. This
analysis assumes that all other variables, in particular interest rates, remain constant and
ignores any impact of forecast sales and or expenses.
As at balance sheet date the Company held £47.4 million of cash and cash equivalents
denominated in GBP (2021: nil).
€’000 Profit or loss Equity, net of tax
31 December 2022 Strengthening Weakening Strengthening Weakening
GBP (10% movement) 5,349 (5,349) 1,807 (1,807)
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, shows 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 2022 Annual Report and Accounts.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 32
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 2022
Bond €90 million 8.75 – 1,889 24,594 – 26,483
Bond €60 million 9.15 – 5,490 73,725 – 79,215
Interest-bearing loans from affiliates 8.40 38 114 2,107 – 2,259
Other liabilities – 134 27,172 – – 27,306
Trade payables and accrued expenses – 36,043 – – – 36,043
Total 36,215 34,665 100,426 – 171,306
31 December 2021
Bond €90 million 8.75 – 7,875 103,792 – 111,667
Bond €60 million 9.15 – 5,490 79,215 – 84,705
Other non-current liabilities – – – 31 – 31
Liabilities against affiliates – tax
settlement
– – 14,980 – – 14,980
Interest-bearing loans from affiliates 8.40 38 113 2,259 – 2,410
Other liabilities – 582 – 91 – 673
Trade payables and accrued expenses – 22,130 – – – 22,130
Total 22,750 28,458 185,388 – 236,596
Note 23: Related-party transactions
Kistos NL1 B.V., located at Alexanderstraat 18, 2514 JM Den Haag, The Netherlands, is the parent
entity of Kistos NL2 B.V., and holds 100% of the equity shares in Kistos NL2 B.V. The ultimate
parent entity of Kistos NL2 B.V. is Kistos Holdings plc.
Details of the transactions between the Company and other related parties are disclosed below.
Terms and conditions of transactions with related parties
The sales to and purchases from related parties are made on terms equivalent to those that
prevail in arm’s length transactions. Outstanding balances at the year-end are unsecured and
interest-free and settlement occurs in cash and are presented as part of trade receivables and
trade payables as appropriate. There have been no guarantees provided or received for any
related party receivables or payables. An assessment of the expected credit losses relating
to related party receivables is undertaken upon initial recognition and each financial year by
examining the financial position of the related party and the market in which the related party
operates applying the general approach of the ECL impairment model of IFRS 9.
Intragroup 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.
The loan is unsecured and bears an interest rate of 8.4% per annum (see note 21).
An additional €60 million 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 €60 million has been subsequently loaned to Kistos plc (see note 10).
Intragroup gas sales and purchases
In July 2022, Kistos NL2 B.V. (‘Buyer’) and Kistos Energy Limited (‘Seller’ – a related party
to Kistos NL2 as both entities share the same ultimate parent company, Kistos Holdings
plc) entered into a gas sales agreement. Under this agreement the Seller was committed to
exclusively sell and deliver gas from its interest in the Greater Laggan Area (located offshore
in the UK) to the Buyer against a contract price, calculated as the relevant UK gas index price
minus a handling and marketing fee. The contract price is considered to be in line with the ‘arm’s
length’ principles. Under the same agreement, the Buyer paid a pre-payment amount of
£50 million (€58.2 million) to the Seller, to be settled against future gas deliveries. After the pre-
payment amount had been fully settled, all gas delivery payments, less handling and marketing
fee, received in excess of the pre-payment amount of £50 million is transferred directly to the
Seller. As at balance sheet date the prepayment was fully settled. The gas sales agreement ended
on 1January2023.
Intragroup 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 at 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.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 33
Transactions with other related parties are set out below:
€’000 Transaction type Year ended
31 December 2022
Year ended
31 December 2021
Kistos NL1 B.V. Interest payable (152) (197)
Kistos NL1 B.V. Services received (13) –
Kistos NL1 B.V. Services provided 684 89
Kistos NL1 B.V. Tax compensation – 1,500
Kistos NL1 B.V. Tax liability (42,354) (14,980)
Kistos plc Interest receivable 5,491 3,452
Kistos plc Tax liability – (851)
Kistos plc Services received (2,978) (780)
Kistos plc Services provided 119 81
Kistos Energy Limited Services provided 1,587 –
Kistos Energy Limited Handling and
marketing fee
144 –
Outstanding balances receivable (payable) at end of year: Transaction type Year ended
31 December 2022
Year ended
31 December 2021
Kistos NL1 B.V. Services provided 16 11
Kistos NL1 B.V. Tax compensation 390 390
Kistos NL1 B.V. Tax liability (27,432) (14,980)
Kistos NL1 B.V. Intercompany loan (1,804) (1,804)
Kistos plc Interest receivable 8,917 3,452
Kistos plc Services provided 14 81
Kistos plc Services received (609) (780)
Kistos plc Loan receivables 60,000 60,000
Kistos Energy Limited Services provided 273 –
Kistos Energy Limited Cost of gas sales (25,373) –
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 24: Leases
Leases as lessee
In 2022, the Company leased a warehouse until Q1 2023 and office facilities until the Q2 of 2023
under operating leases, with an option to renew the lease after that date. Right-of-use assets
related to leased properties that do meet the definition of investment property are presented
as property, plant and equipment. The right-of-use assets at balance sheet date amounts to
€143thousand (2021: €91 thousand). The total amount recognised in the profit and losses
related to leases amounts to €8 thousand (2021: €3 thousand). The total cash outflow for leases
in this period was €112 thousand (2021: €98 thousand).
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.
Note 25: Contingencies and commitments
As at 1 April 2021, Kistos NL1 and Kistos NL2 are part of a fiscal unity for corporate income tax
purposes. Kistos NL1 is the head of the fiscal unity and is responsible for making the tax payments
on behalf of both entities. Kistos NL2 is individually liable for its portion of the corporate tax and is
required to pay the corresponding amount to Kistos NL1.
At 31 December 2022, the well work-over programme had not been completed. The outstanding
commitment at year end related to the drilling rig and associated services amounts to €2.6 million
(2021: €1.4 million).
Note 26: Reconciliation of investing cash flows
€’000 Note Year ended
31 December 2022
Year ended
31 December 2021
Additions and other movements to fixed assets 12 (13,623) (25,656)
Non-cash abandonment (other movements)/additions 12, 17 (1,343) 3,361
Movement in capital accruals and trade payables (2,054) 1,517
Investing cash flow (17,020) (20,778)
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 34
Note 27: Reconciliation of financing cash flows
€’000 Bond €90
million
Bond €60
million
Bond
interest
payable
Amortised
bond costs
Interest-
bearing
loans
from
affiliates
Other
non-
current
liabilities
Lease
liabilities
At 31.12.2020 86,362 – 1,356 (934) 3,700 89 –
Financing cash flows 3,000 60,000 (11,201) (2,933) (1,896) (98) –
Interest expense on liability (1,320) – 11,699 – – – –
Amortisation of bond costs – – – 899 – – –
Other movements – – – – – 40 91
At 31.12.2021 88,042 60,000 1,854 (2,968) 1,804 31 91
Financing cash flows (71,773) – (11,566) – (152) (31) (129)
Loss on bond repurchase 6,414 – – – – – –
Interest expense on liability 23 – 10,543 – 152 – –
Amortisation of bond costs 1,062 – – –
Other movements – – – – – – 181
At 31.12.2022 22,706 60,000 831 (1,906) 1,804 – 143
Note 28: Subsequent events
Completion of Q10-A work programme
In March 2023, the Valaris 123 rig demobilised from the Q10-A field having undertaken a work
programme of sidetracks and well stimulations. The results of the campaign were mixed due to
mechanical issues arising from utilising the existing well stock rather than reservoir performance
issues. The results of this campaign are still being analysed by the Company and, once fully
evaluated, will inform the decision on the timing and nature of future capital expenditure on
thefield.
Note 29: 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).
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
b) Revenue
c) Operating profit
d) Joint operations
e) Finance income and finance costs
f) Taxation
g) Leases
h) Inventory
i) Intangible assets and goodwill
j) Exploration, evaluation and production assets
k) Commercial reserves
l) Depreciation based on depletion
m) Provisions
n) Property, plant and equipment
o) Employee benefits
p) Cash and cash equivalents
q) Effective interest method
r) Bond modification
s) Financial instruments
t) Impairment
u) Fair value
v) Standards issued that are not effective
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 35
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 and liquids
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 the Company 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.
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 is
established.
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.
Where the Company takes positions in tax returns in which the applicable tax regulation is
subject to interpretation, it considers whether it is probable that the relevant tax authority will
accept that uncertain tax treatment. The Company measures its tax liabilities based on either
the most likely amount (typically if the outcomes are binary) or the expected value (if there is a
range of possible values).
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.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 36
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 reportingdate.
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.
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.
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 standalone 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. 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
determinesits 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.
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.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 37
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 and drilling rigs. The Company recognises the lease payments associated
with these leases as an expense on a straight-line basis over the lease term, or, in the case of
short-term leases of drilling rigs, capitalises the costs into intangible exploration and evaluation
assets, or property plant and equipment, depending on the nature of the drilling activity.
h) Inventory
Inventories 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, the costs of production and
transportation and manufacturing expenses. Net realisable value is determined by reference to
prices existing at the balance sheet date.
i) Intangible assets and goodwill
Recognition and measurement
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, which 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.
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. Exploration and evaluation costs are
subsequently measured at cost less accumulated impairment. Evaluation and exploration assets
are tested for impairment in case the Company’s facts and circumstances under IFRS 6 indicate
that an impairment test is required. No amortisation is charged during the exploration and
evaluation phase.
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.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 38
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 group of fields that 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, applied from the point in time at which management confirm the
re-assessment of the appropriate reserves base.
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.
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 testing 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.
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. Where the related item of property, plant and equipment
has been fully impaired, the corresponding adjustment is recognised in profit and loss. 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
initial cost of an asset comprises its purchase price or construction cost, any costs directly
attributable (including time writing of employees) to bringing the asset into operation, the
initial estimate of the decommissioning obligation, and, for qualifying assets (where relevant),
borrowing costs. The purchase price or construction cost is the aggregate amount paid and the
fair value of any other consideration given to acquire the asset.
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.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 39
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.
Share-based payment arrangements
The grant-date fair value of equity-settled share-based payment arrangements granted to
employees is generally recognised as an expense, with a corresponding increase in equity, over
the vesting period of the awards. The amount recognised as an expense is adjusted to reflect
the number of awards for which the related service and non-market performance conditions
are expected to be met, such that the amount ultimately recognised is based on the number of
awards that meet the related service and non-market performance conditions at the vesting
date. For share-based payment awards with non-vesting conditions, the grant-date fair value
of the share-based payment is measured to reflect such conditions and there is no true-up for
differences between expected and actual outcomes.
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.
p) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank, demand deposits and other short-term highly
liquid investments with original maturities of three months or less 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% 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, accrued income 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; or FVTPL.
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).
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 40
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 at the
same level of the fair value hierarchy as the lowest level input that is significant to the entire
measurement.
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.
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.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 41
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, and if the
Company repurchases a debt instrument it previously issued.
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. If only part of a financial liability is derecognised, the
amount previous carrying amount of the financial liability is allocated between the part that
continues to be recognised and the part that is derecognised based on the relative fair values
of those parts on the date of the repurchase, with the difference between the carrying amount
allocated to the part derecognised and the consideration paid recognised within finance costs.
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
From time to time, 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.
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.
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.
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.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 42
t) Impairment
Non-derivative financial assets
The Company recognises loss allowances for expected credit losses (ECLs) on financial assets
measured at amortised cost.
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 (i.e. the risk of default
occurring over the expected life of the financial instrument) has not increased significantly
since initialrecognition.
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-looking
information.
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.
Twelve-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.
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.
Notes to the Financial Statements
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 43
Notes to the Financial Statements
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.
Forindividual 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.
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 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
Companymeasures assets and long positions at a bid price and liabilities and short positions
atan ask price.
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. 2022 Annual Report and Audited Financial Statements 44
v) Standards issued that are not effective
A number of new standards are effective for annual periods beginning after 1 January 2023
and earlier application is permitted; however, the Company has not early adopted the new or
amended standards in preparing these financial statements.
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.
Classification of Liabilities as Current or Non-Current (Amendments to IAS 1)
The amendments, as issued in 2020, aim to clarify the requirements on determining whether a
liability is current or non-current, and apply for annual reporting periods beginning on or after
1 January 2023. However, the IASB has subsequently proposed further amendments to IAS 1 and
the deferral of the effective date of the 2020 amendments to no earlier than 1 January 2024.
Due to these ongoing developments, the Company is unable to determine the impact of these
amendments on the financial statements in the period of initial application. The Company is
closely monitoring the developments.
Other standards
The following new and amended standards are not expected to have a significant impact on the
Company’s financial statements:
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).
The Hague, 30 May 2023
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. 2022 Annual Report and Audited Financial Statements 45
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
pages 47 to 54.
Glossary
2P Proved plus probable reserves
Adjusted EBITDA EBITDA, excluding the effects of significant one-off and/or non-cash
items of income and expenditure which may have, in the opinion of
management, an impact on the quality of earnings. Adjusted EBITDA
excludes development expenses, share-based payment expenses,
transaction costs and movements in contingent consideration payable.
Affiliates Kistos Holdings plc, Kistos plc, Kistos Energy Limited and/or Kistos NL1 B.V.
Average realised
gas price
Calculated as revenue from gas production divided by sales production
for the period. Units of gas sold in a period may be different to units of
gas produced in a period.
Boe Barrels of oil equivalent
Boepd Barrels of oil equivalent produced per day
Cijns A royalty tax levied on oil and gas sales in the Netherlands. Historically
set at 0% in respect of gas produced offshore; but for 2023 and 2024
temporarily increasing to a rate of 65% on turnover in excess of €0.5 per
cubic metre of gas sold.
Company Kistos NL2 B.V.
EBN Energie Beheer Nederland
EIR Effective interest rate
FID Final investment decision
FVOCI Fair value through other comprehensive income
FVTPL Fair value through the profit and loss account
MWh Megawatt hour
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.
ROU Right of use
Solidarity
Contribution Tax
A tax levied by the Dutch Government, following the adoption of
Council Regulation (EU) 1854/2022, which required EU member states
to introduce a ‘solidarity contribution’ for companies active in the
oil, gas, coal and refinery sectors. The Dutch implementation of this
solidarity contribution has been legislated by a retrospective 33% tax on
‘surplus profit’ realised during 2022, defined as taxable profit exceeding
120% of the average taxable profit of the four previous financial years.
Companies in scope are those realising at least 75% of their turnover
through the production of oil and natural gas, mining activities,
refining of petroleum or coke oven products.
SPS Dutch State Profit Share tax
Unit opex Calculated as production costs divided by gas production
Conversion factors
149.2 Nm
3
in 1 boe
1.7 MWh in 1 boe
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 46
A. Report on the audit of the financial statements 2022
included in the annual report
Our opinion
We have audited the financial statements 2022 of Kistos NL2 B.V. based in The Hague.
We have audited Our opinion
The financial statements comprise:
1. The balance sheet as at 31 December 2022;
2. The following statements for 2022: the
profit and loss account, the statement of
comprehensive income, the statement of
changes in equity and the statement of cash
flow; 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 2022 and of
its result and its cash flows for 2022 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
‘Ourresponsibilities for the audit of the financial statements’ section of our report.
We are independent of Kistos NL2 B.V. in accordance with the EU Regulation on specific
requirements regarding statutory audit of public-interest entities, 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
basisfor 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 awhole 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
conclusionon these matters.
Materiality
Based on our professional judgement we determined the materiality for the financial statements
as a whole at € 2.8 million, reflecting 1% of total assets excluding the € 60M 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 include:
We agreed the opening cash position used in the cash flow forecast to the audited position
at 31 December 2022 and at 1 May 2023;
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;
Summary Report of the Board Audited Financial Statements Independent Auditor’s ReportKistos NL2 B.V. 2022 Annual Report and Audited Financial Statements 48
We corroborated management’s assessment of future committed and non-committed
expenditure on the exploration assets 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 the 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. We evaluated the design and the implementation and,
where considered appropriate, 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 fraud risks and performed the following specific procedures:
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:
Held discussions with management and the 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. Our audit procedures
did not lead to indications or suspicions 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 the 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
onthese matters
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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.
Following the drilling campaign completed in FY22, management of Kistos NL2 B.V. evaluated the additional information
obtained and updated their reserves and resources estimate accordingly. Management involved a management expert for
peer review and -partially- peer assist purposes. BDO involved an auditor’s expert to challenge managements’ reserves
estimate used for the calculations of the depletion of producing assets. We also assessed the competence, capabilities and
objectivity of the used auditor’s expert.
We assessed the Company’s depreciation policy and useful life assessment; comparing inputs to the report of the auditor’s
expert, licence registers and production data.
Key observations
As per the Company’s accounting policy, depletion is calculated against developed proven and probable reserves, excluding
future development costs.
We considered management’s assessment regarding depletion of producing assets to be reasonable at 31 December 2022.
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Decommissioning (abandonment) provision estimate – note 2
and note 17
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 licences and considered the completeness of provisions based on the
abandonment retirement obligations existing under the terms of such licences 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 used the report of the engaged auditors’ expert in FY21 to review and assess management’s
calculation of decommissioning costs, considering the principally unchanged asset’s condition and legal requirements in FY22.
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.
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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’, the sector specific ‘state profit share
tax’, as governed in the Dutch Mining Act (‘Mijnbouwwet’) and the
solidarity tax as imposed by Dutch Government in 2022. The correct
tax computations consequently requires extensive and specialized
knowledge. For this reason the mathematical accuracy of tax
calculations 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 to review tax calculations and computations, and ensure that the underlying
application of the Dutch Mining Act and Solidarity Tax Act were 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 Company’s 2022 revenues in scope of the solidarity tax act exceeded the 75% threshold. The solidarity tax act
threshold is based on Dutch GAAP revenue accounting basis (Dutch Accounting Standard 270). The related disclosure in
the financial statements (note 9: Tax charge) reflects managements’ view on the applicability of the solidarity tax and
management’s application of IFRIC 23 ‘Uncertainty over Income Tax Treatments’ to the tax.
The tax calculation applied by Management is deemed reasonable in the context of the Dutch taxation legislation.
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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; and
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; and
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 and
European Single Electronic Format
Engagement
We were engaged by the shareholder as auditor of Kistos NL2 B.V., as of the audit for financial
year 2021 and have operated as statutory auditor ever since that financial year.
No prohibited non-audit services
We have not provided prohibited non-audit services as referred to in Article 5(1) of the EU
Regulation on specific requirements regarding statutory audit of public-interest entities.
European Single Electronic Format (ESEF)
Kistos NL2 B.V. has prepared its annual report in ESEF. The requirements for this are set out in
the Delegated Regulation (EU) 2019/815 with regard to regulatory technical standards on the
specification of a single electronic reporting format (hereinafter: the RTS on ESEF).
In our opinion, the annual report prepared in XHTML-format, including the financial statements
of Kistos NL2 B.V., has been prepared in all material respects with the RTS on ESEF.
Management is responsible for preparing the annual report including the financial statements,
in accordance with the RTS on ESEF.
Our responsibility is to obtain reasonable assurance for our opinion whether the annual report
complies with the RTS on ESEF.
We performed our examination in accordance with Dutch law, including Dutch Standard 3950N
‘Assurance-opdrachten inzake het voldoen aan de criteria voor het opstellen van een digitaal
verantwoordingsdocument’ (assurance engagements relating to compliance with criteria for
digital reporting).
Our examination included amongst others:
Obtaining an understanding of the entity's financial reporting process, including the
preparation of the annual financial report in XHTML-format; and
Identifying and assessing the risks that the annual report does not comply in all material
respects with the RTS on ESEF and designing and performing further assurance procedures
responsive to those risks to provide a basis for our opinion, including examining whether the
annual financial report in XHTML-format is in accordance with the RTS on ESEF.
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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 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.
We have exercised professional judgement and have maintained professional scepticism
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 communicated with the 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. In this respect we also submit an additional
report to the Audit Committee in accordance with Article 11 of the EU Regulation on specific
requirements regarding statutory audit of public-interest entities. The information included in
this additional report is consistent with our audit opinion in this auditor’s report.
We provide the 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 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, 30 May 2023
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. 2022 Annual Report and Audited Financial Statements 54
Kistos NL2 B.V.
18 Alexanderstraat
2514JM
The Hague