20-F 1 f20f2022_broogeenergyltd.htm ANNUAL REPORT

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 

FORM 20-F

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2022

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to __________

 

OR

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of event requiring this shell company report

 

Commission File Number: 001-39171

 

BROOGE ENERGY LIMITED
(Exact name of Registrant as specified in its charter)

 

Not applicable   Cayman Islands
(Translation of Registrant’s name into English)   (Jurisdiction of incorporation or organization)

 

c/o Brooge Petroleum and Gas Investment Company FZE
P.O. Box 50170
Fujairah, United Arab Emirates
+971 9 201 6666
(Address of Principal Executive Offices)

 

Lina Saheb
P.O. Box 50170
Fujairah, United Arab Emirates
+971 9 201 6666
linasaheb@bpgic.com
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Ordinary shares, $0.0001 par value per share   BROG   The Nasdaq Stock Market LLC
Warrants to purchase ordinary shares   BROGW   The Nasdaq Stock Market LLC

 

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

 

 

 

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 109,587,754 ordinary shares out of which 21,552,500 are held in Escrow

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “accelerated filer,” “large accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ☐ Accelerated filer  ☒ Non-accelerated filer  ☐
    Emerging growth company ☒

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP ☐   International Financial Reporting Standards as issued by the International Accounting Standards Board ☒   Other ☐

 

If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

 

 

 

 

 

BROOGE ENERGY LIMITED

 

TABLE OF CONTENTS

 

    Page
Introduction ii
Cautionary Note Regarding Forward-Looking Statements iii
Industry and Market Data iv
Implications of being an Emerging Growth Company v
Frequently Used Terms vi
   
PART I    
     
Item 1. Identity of Directors, Senior Management and Advisers 1
Item 2. Offer Statistics and Expected Timetable 1
Item 3. Key Information 1
Item 4. Information on the Company 26
Item 4A. Unresolved Staff Comments 50
Item 5. Operating and Financial Review and Prospects 50
Item 6. Directors, Senior Management and Employees 88
Item 7. Major Shareholders and Related Party Transactions 96
Item 8. Financial Information 101
Item 9. The Offer and Listing 102
Item 10. Additional Information 102
Item 11. Quantitative and Qualitative Disclosures About Market Risk 122
Item 12. Description of Securities Other than Equity Securities 123
     
PART II    
     
Item 13 Defaults, Dividend Arrearages and Delinquencies 124
Item 14 Material Modifications to the Rights of Security Holders and Use of Proceeds 124
Item 15 Controls and Procedures 124
Item 16 [RESERVED] 126
Item 16A Audit committee financial expert 126
Item 16B Code of Ethics 126
Item 16C Principal Accountant Fees and Services 126
Item 16D Exemptions from the Listing Standards for Audit Committees 127
Item 16E Purchases of Equity Securities by the Issuer and Affiliated Purchasers 127
Item 16F Change in Registrant’s Certifying Accountant 127
Item 16G Corporate Governance 127
Item 16H Mine Safety Disclosure 127
Item 16I Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 127
     
PART III    
     
Item 17. Financial Statements 128
Item 18. Financial Statements 128
Item 19. Exhibits 128

 

i

 

 

INTRODUCTION

 

Brooge Energy Limited (the “Company”) was incorporated under the laws of the Cayman Islands as an exempted company on April 12, 2019, under the name Brooge Holdings Limited. On April 7, 2020, the Company changed its name to Brooge Energy Limited. The Company was incorporated for the purpose of effectuating the Business Combination (as defined below) and to hold Brooge Petroleum and Gas Investment Company FZE, a company formed under the laws of the Fujairah Free Zone, United Arab Emirates (“BPGIC”). Prior to the Business Combination, the Company owned no material assets and did not operate any business.

 

On December 20, 2019, pursuant to a business combination agreement (the “Business Combination Agreement”) among the Company, Twelve Seas Investment Company (now known as BPGIC International), a Cayman Islands exempted company (“Twelve Seas”), Brooge Merger Sub Limited, the Company’s wholly-owned subsidiary (“Merger Sub”), BPGIC, BPGIC Holdings Limited, a Cayman Islands exempted company (“BPGIC Holdings”), among other things:

 

(i)Twelve Seas merged with and into Merger Sub, with Twelve Seas continuing as the surviving entity and a wholly-owned subsidiary of the Company (under the name BPGIC International (“BPGIC International”)), with the holders of Twelve Seas’ securities receiving substantially equivalent securities of the Company; and

 

(ii)the Company acquired all of the issued and outstanding ordinary shares of BPGIC from BPGIC Holdings in exchange for 98,718,035 Ordinary Shares of the Company and cash in the amount of $13,225,827.22, with BPGIC becoming a wholly-owned subsidiary of the Company.

 

The foregoing transaction is referred to in this Annual Report on Form 20-F (this “Report”) as the “Business Combination”.

 

Upon consummation of the Business Combination, the Company’s Ordinary Shares and warrants to purchase Ordinary Shares became listed on the Nasdaq Capital Market.

 

Unless otherwise indicated, the “Company,” the “Group,” “we,” “us,” “our,” and similar terminology refers to Brooge Energy Limited together with its subsidiaries subsequent to the Business Combination.

 

The Company previously filed an Annual Report on Form 20-F on April 5, 2021, as amended by Amendment No. 1 to the Annual Report on Form 20-F/A filed with the Securities and Exchange Commission on April 6, 2021, inclusive of any six month financial statements previously filed (collectively, the “Previous Form 20-F”).  As previously reported, as a result of an investigation by the Audit Committee of the Board of Directors, the Committee decided to withdraw reliance on such filings on August 17, 2022. Due to the on-going investigation by Securities and Exchange Commission previously disclosed, the Company was not able to file the required Annual Reports on Form 20-F for fiscal years ended December 31, 2021 and December 31, 2022, including any related six month financial statements that should have been filed. Accordingly, for the sake of convenience, the Company is filing this one Form 20-F which replaces and restates in full the Previous Form 20-F. This Form 20-F also covers the fiscal years ended December 31, 2021 and December 31, 2022, inclusive of any six month financial statements that should have been filed.

 

ii

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Report (including information incorporated by reference herein) contains forward-looking statements as defined in Section 27A of the Securities Act, and Section 21E of the Exchange Act that involve significant risks and uncertainties. All statements other than statements of historical facts are forward-looking statements. These forward-looking statements include information about our possible or assumed future results of operations or our performance. Words such as “expects,” “intends,” “plans,” “believes,” “anticipates,” “estimates,” and variations of such words and similar expressions are intended to identify some, but not all, the forward-looking statements. The risk factors and cautionary language referred to or incorporated by reference in this Report provide examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations described in or implied by our forward-looking statements, including among other things, the items identified in “Item 3.D Risk Factors”.

 

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. Although we believe that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. These statements involve known and unknown risks and are based upon a number of assumptions and estimates which are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed or implied by such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements contained in this Report, or the documents to which we refer readers in this Report, to reflect any change in our expectations with respect to such statements or any change in events, conditions or circumstances upon which any statement is based.

 

iii

 

 

INDUSTRY AND MARKET DATA

 

In this Report, the Company relies on and refers to industry data, information and statistics regarding the markets in which it competes from research as well as from publicly available information, industry and general publications and research and studies conducted by third parties. The Company has supplemented this information where necessary with its own internal estimates and information obtained from discussions with its customers, taking into account publicly available information about other industry participants and Company management’s best view as to information that is not publicly available. The Company has taken such care as it considers reasonable in the extraction and reproduction of information from such data from third-party sources.

 

Industry publications, research, studies and forecasts generally state that the information they contain has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements in this Report. These forecasts and forward-looking information are subject to uncertainty and risk due to a variety of factors, including those described under “Item 3.D Risk Factors”. These and other factors could cause results to differ materially from those expressed in the forecasts or estimates from independent third parties and us.

 

iv

 

 

IMPLICATIONS OF BEING AN EMERGING GROWTH COMPANY

 

We are an “emerging growth company” as defined in the JOBS Act. An “emerging growth company” may take advantage of reduced reporting requirements that are otherwise applicable to public companies. In particular, as an emerging growth company, we:

 

are not required to provide a detailed narrative disclosure discussing our compensation principles, objectives and elements and analyzing how those elements fit with our principles and objectives, which is commonly referred to as “compensation discussion and analysis”;

 

are not required to obtain an attestation and report from our auditors on our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”);

 

are not required to obtain a non-binding advisory vote from our shareholders on executive compensation or golden parachute arrangements (commonly referred to as the “say-on-pay,” “say-on frequency” and “say-on-golden-parachute” votes); and

 

are exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and chief executive officer pay ratio disclosure.

 

We have taken, and intend to continue to take, advantage of all of these reduced reporting requirements and exemptions. Accordingly, the information we provide to you may be different than you might get from other public companies in which you hold securities.

 

Under the JOBS Act, we may take advantage of the above-described reduced reporting requirements and other exemptions available to emerging growth companies until we no longer meet the definition of an emerging growth company. The JOBS Act provides that we would cease to be an “emerging growth company” at the end of the fiscal year in which the fifth anniversary of our initial sale of common equity pursuant to a registration statement declared effective under the Securities Act occurred, if we have more than $1.07 billion in annual revenue, have more than $700 million in market value of our Ordinary Shares held by non-affiliates, or issue more than $1 billion in principal amount of non-convertible debt over a three-year period.

 

v

 

 

FREQUENTLY USED TERMS

 

“$,” “USD,” “US$” and “US dollar” each refer to the United States dollar.

 

“A Three” means A Three Energy FZE

 

“Aachim” means Aachim Energy FZE

 

“Actirays” means Actirays Middle East Trading FZE

 

“A&T” means A&T Offshore FZC.

 

“AED,” refers to the Arab Emirate Dirham, the official currency of the United Arab Emirates.

 

“Ali Almutawa” means Ali Almutawa Petroleum and Petrochemical Trading LLC.

 

“Amended and Restated Memorandum and Articles of Association” means the amended and restated memorandum and articles of association of Brooge Energy Limited.

 

“ASMA Capital” means ASMA Capital Partners B.S.C.(c).

 

“Atlantis” means Atlantis Commodities Trading HK Limited

 

“Audex” means Audex Fujairah LL FZC.

 

“Basrah” means Basrah Energy FZC.

 

“b/d” means barrels per day.

 

“Bond Financing Facility” means five-year senior secured bonds issued by BPGIC pursuant to Bond Terms dated September 22, 2020 and amended October 23, 2020 and April 27, 2022 by and between BPGIC and the Bond Trustee, with maximum issue size of $250 million and initial issuance of $200 million.

 

“Bond Trustee” means Nordic Trustee AS, as bond trustee under the Bond Financing Facility.

 

“BPGIC” means Brooge Petroleum and Gas Investment Company FZE.

 

“BPGIC III” means Brooge Petroleum and Gas Investment Company Phase III FZE, a company formed under the laws of the Fujairah Free Zone, United Arab Emirates.

 

“BPGIC Management” means Brooge Petroleum and Gas Management Company Ltd.

 

“BPGIC PLC” means Brooge Petroleum and Gas Investment Company (BPGIC) PLC, a company formed under the laws of England and Wales.

 

“BPGIC Terminal” means the terminal that the Company is developing on two plots of land located in close proximity to the Port of Fujairah’s berth connection points.

 

“BRE” means Brooge Renewable Energy Limited.

 

“Business Combination” means the transactions whereby (a) Twelve Seas merged with and into Merger Sub, with Twelve Seas continuing as the surviving entity with the name BPGIC International, and as a wholly-owned subsidiary of the Company and with holders of the Twelve Seas’ securities receiving substantially equivalent securities of the Company, and (b) the Company acquired all of the issued and outstanding ordinary shares of BPGIC from BPGIC Holdings in exchange for Ordinary Shares of the Company, subject to the withholding of the escrow shares being deposited in the escrow account in accordance with the terms and conditions of the Business Combination Agreement and the escrow agreement, and with BPGIC becoming a wholly-owned subsidiary of the Company, and other transactions contemplated by the Business Combination Agreement.

 

vi

 

 

“Business Combination Agreement” means the Business Combination Agreement, dated as of April 15, 2019, as amended, by and among the Company, BPGIC, Twelve Seas, Merger Sub, and BPGIC Holdings pursuant to which the Business Combination was consummated.

 

“CenGeo” means CenGeo New Energy FZ-LLC

 

“Closing” means the closing of the Business Combination on December 20, 2019.

 

“Commercial Storage Agreements” means, collectively, the Napag Trading LTD Commercial Agreement dated May 02, 2019, the Totsa Storage Agreement dated April 22, 2020, the Synergy Commercial Storage Agreements dated November 11, 2020, December 13, 2020, April 22, 2021 and May 1, 2021, the Jaykay Commercial Storage Agreement dated November 10, 2020 and December 6, 2020, the A&T Commercial Storage Agreement dated, November 19, 2020, November 26, 2020, and March 4, 2021, the Nufuel Commercial Storage Agreement, dated January 13, 2021 and March 29, 2021, the SAA Commercial Storage Agreement, dated February 14, 2021, April 8, 2021, and June 02, 2021, the Valor Commercial Storage Agreements, dated March 30, 2021, April 13, 2021, April 13, 2021, April 20, 2021, April 22, 2021 and April 22, 2021, the Golden Bridge Commercial Storage Agreement dated April 27, 2021, the A Three Storage Agreement dated May 4, 2021,the Ali Almutawa Storage Agreement dated August 16, 2021, the Newton Storage Agreement, dated September 30, 2021 and March 16 2022, the Basrah Storage Agreements dated September 30, 2021, December 16, 2021 and January 17 2022 and April 11, 2022, the Lecotra Storage Agreement, dated December 15, 2021, the ENOC Storage Agreement dated January 21, 2022 and January 25, 2022, the Orit Storage Agreement dated March 3, 2022 and April 26, 2022, the South Kurdistan Storage Agreement dated March 10, 2022, the Nova Seas Storage Agreement dated March 18, 2022 and April 12, 2022, the Kurdos Storage Agreement dated May 09, 2022, the Avis Storage Agreements dated May 10 2022, the Euro American Storage Agreements dated May 19 2022, the Petraco Storage Agreement dated August 23, 2022, the Pacific Rim Storage Agreement dated 22 September 2022, the Sahra Storage Agreements dated May 25, 2022 and November 21 2022, the First Trust Storage Agreement dated June 06, 2022, the Cengeo Storage Agreements dated July 01, 2022, August 04, 2022, September 09, 2022 and December 13, 2022; the Aachim Storage Agreement dated July 15, 2022, the Actirays Storage Agreement dated August 19, 2022 and the Atlantis Storage Agreement dated February, 01 2023.

 

“Companies Law” means the Companies Law (2020 Revision) of the Cayman Islands.

 

“Construction Funding Account” means the account with Offshore Account Bank with $85 million on deposit from the Bond Financing Facility to be set aside for payment of Phase II construction, with $45 million to be paid at the time of disbursement and $5 million payable monthly for eight months.

 

“Continental” means Continental Stock Transfer & Trust Company.

 

“Debt Service Retention Account” means the account with Offshore Account Bank into which one-sixth of the amortization and interest payment payable on the next interest payment date of Bond Financing Facility shall be transferred monthly.

 

“Early Bird Capital” means EarlyBirdCapital, Inc.

 

“EIBOR” means the Emirates Interbank Offered Rate.

 

“ENOC” means ENOC Supply & Trading LLC.

 

“EPC” means engineering, procurement and construction.

 

“Euro American” means Euro American International Energy LLC.

 

vii

 

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“FAB” means First Abu Dhabi Bank PJSC.

 

“Financing Facilities” means, collectively, the Phase I Financing Facilities and the Phase II Financing Facility, and Commercial Bank of Dubai Financing Facility for office.

 

“First Trust” means First Trust Energy Petrochemicals Trading.

 

“FOIZ” means the Fujairah Oil Industry Zone.

 

“Fujairah Municipality” means the local government organization in Fujairah, UAE specializing in municipal urban and rural municipal affairs.

 

“Golden Bridge” means Golden Bridge Trading Refined Oil Products Abroad LLC.

 

Green Hydrogen and Green Ammonia Project – to be located in Abu Dhabi, this project is led by BRE and aims to produce renewable, carbon-free fuel using solar power.

 

“IFRS” refers to International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB).

  

“Jaykay” means Jaykay Trading Company FZE.

 

“JOBS Act” means the Jumpstart Our Business Startups Act of 2012.

 

“June 15 Phase I Construction Facilities Amendment” means the agreement entered into by BPGIC and FAB on June 15, 2020, to amend the Phase I Construction Facilities.

 

“Kurdos” means Kurdos DMCC

 

“Land Leases” means, collectively, the Phase I & II Land Lease and the Phase III Land Lease.

 

“Lecotra” means Lecotra DMCC.

 

“Liquidity Account” means the bank account established by BPGIC as part of Bond Financing Facility with the Offshore Account Bank to maintain $8,500,000, which amount is equal to the interest payment due on the first interest payment date.

 

“MENA” means Middle East and North Africa.

 

“Merger Sub” means Brooge Merger Sub Limited, a Cayman Islands exempted company.

 

“Modular Refinery” means a refinery with a capacity of 25,000 b/d to be installed at the BPGIC Terminal.

 

“MUC” means MUC Oil & Gas Engineering Consultancy, LLC.

 

“NASDAQ” means the NASDAQ Stock Market LLC.

 

“Newton” means Newton Petroleum Trading LLC.

 

viii

 

 

“Nova Seas” means Nova Seas Middle East DMCC.

 

“NuFuel” means NuFuel Trading FZE.

  

“Offshore Account Bank” means HSBC Bank Plc.

 

“Ordinary Resolution” means a resolution passed by the affirmative vote of a simple majority of the shareholders of the Company as, being entitled to do so, vote in person or, where proxies are allowed, by proxy at a meeting.

 

“Ordinary Shares” means the ordinary shares, par value $0.0001 per share, of Brooge Energy Limited, unless otherwise specified.

 

“Orit” means Orit Pte. Ltd.

 

“Pacific Rim” means Pacific Rim Energy Pte. Ltd.

 

“Petraco” means Petraco Oil Company SA.

 

“Phase I” means the first phase of the BPGIC Terminal consisting of 14 oil storage tanks with an aggregate geometric oil storage capacity of approximately 0.399 million m3 and related infrastructure located on the Phase I & II Land.

 

“Phase I & II Land” means the plot of land of approximately 153,917 m2 in the Port of Fujairah where BPGIC has located its Phase I facility and is locating its Phase II facility.

 

“Phase I & II Land Lease” means the land lease dated as of March 10, 2013, by and between Fujairah Municipality and BPGIC, as amended by the novation agreement, dated September 1, 2014, by and among Fujairah Municipality, BPGIC and FOIZ pursuant to which BPGIC leases the Phase I & II Land.

 

“Phase I Admin Building Facility” means the secured Shari’a compliant financing arrangement of $11.1 million entered into by BPGIC with FAB to fund a portion of the construction costs of Phase I.

 

“Phase I Construction Facilities” means, collectively, the Phase I Admin Building Facility and the Phase I Construction Facility.

 

“Phase I Construction Facility” means the secured Shari’a compliant financing arrangement of $84.6 million entered into by BPGIC with FAB to fund a portion of the construction costs of Phase I.

  

“Phase I Financing Facilities” means, collectively, the Phase I Admin Building Facility, the Phase I Construction Facility and the Phase I Short Term Financing Facility.

 

“Phase I Internal Manifold” means the internal manifold that connects the 14 oil storage tanks of Phase I.

 

“Phase I Short Term Financing Facility” means the Shari’a compliant financing arrangement of $3.5 million entered into by BPGIC with FAB to settle certain amounts due under the Phase I Construction Facilities.

 

“Phase II” means the second phase of the BPGIC Terminal which consists of eight oil storage tanks with an aggregate geometric oil storage capacity of approximately 0.601 million m3 and related infrastructure located on the Phase I & II Land. 

 

“Phase II Financing Facility” means the secured Shari’a compliant financing arrangement of $95.3 million entered into by BPGIC with FAB to fund a portion of the capital expenditures in respect of Phase II.

 

“Phase II Internal Manifold” means the internal manifold that will connect the eight oil storage tanks of Phase II.

 

“Phase III” means the third phase of the Company’s development in the Port of Fujairah to the located on the Phase III Land.

 

ix

 

 

“Phase III Land” means the plot of land of approximately 450,000 m2 in the Port of Fujairah near the Phase I & II Land where the Company expects to locate its Phase III facilities.

 

“Phase III Land Lease” means the land lease agreement, dated as of February 2, 2020, by and between BPGIC and FOIZ, which was novated by BPGIC to BPGIC III on October 1, 2020, whereby BPGIC III leases the Phase III Land.

 

“Port of Fujairah” or “Port” means the port of Fujairah.

 

“SAA” means S A A Trading Refined Oil Products Abroad.

 

“Sahra” means Sahra Oil FZE

 

“SEC” means the U.S. Securities and Exchange Commission.

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Senior Management” and “Senior Managers” refer to those persons named as officers in “Item 6.A Directors, Senior Management and Employees — Directors and Executive Officers”.

 

“South Kurdistan” means South Kurdistan Company General Trading LLC.

 

“Special Resolution” means a resolution passed by the affirmative vote of a majority of at least two-thirds of the shareholders of the Company as, being entitled to do so, vote in person or, where proxies are allowed, by proxy at a meeting, of which notice specifying the intention to propose the resolution as a “special resolution” has been duly given.

 

“Storage Customers” means, collectively, any customer who has executed a Commercial Storage Agreements with BPGC. Previous customers include ENOC Supply and Trading LLC, Napag Trading LTD, Beneathco, Totsa Total Oil Trading S.A., A&T Offshore FZC, Synergy Petroleum LLC, Jaykay Trading Company FZE, SAA Trading Refined Oil Products Abroad, NuFuel Trading FZE, Valor International FZC, A Three Energy FZE, Golden Bridge Trading Refined Oil Products, Ali Almutawa Petroleum & Petrochemical Trading LLC, Basrah Energy FZC, Newton Petroleum Trading LLC, Petraco Oil Company SA, Pacific Rim Energy Pte. Ltd., Orit Pte Ltd., Lecotra DMCC, South Kurdistan General Trading LLC, Nova Seas Middle East DMCC, Kurdos DMCC, Euro American International Energy LLC, First Trust Energy Petrochemicals Trading, Cengeo New Energy FZ-LLC, current customers include Avis Trading Crude Oil Abroad L.L.C, Sahra Oil FZE, Aachim Energy FZE, Actirays Middle East Trading FZE and Atlantis Commodities Trading HK Limited.

 

“Strait of Hormuz” means the strait of Hormuz. 

 

“Super Major” means Totsa Total Oil Trading SA.

 

 “Synergy” means Synergy Petrochem L.L.C.

 

“Twelve Seas” means Twelve Seas Investment Company (now known as BPGIC International), a Cayman Islands exempted company.

 

“Twelve Seas Sponsor” means Twelve Seas Sponsors I LLC, a Delaware limited liability company.

 

“US,” “U.S.” or “United States” means the United States of America.

 

“U.S. GAAP” means United States generally accepted accounting principles.

 

“UAE” means the United Arab Emirates.

 

“Valor” means Valor International FZC.

 

“VLCC” means very large crude carrier.

 

“Warrants” means the warrants to purchase one Ordinary Share of the Company at an exercise price of $11.50 per Ordinary Share.

 

“Warrant Agreement” means the agreement signed on June 19, 2018 and the amended agreement signed on December 20, 2019.

 

x

 

 

PART I

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

Not Applicable.

 

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not Applicable.

 

ITEM 3. KEY INFORMATION

 

A. [Reserved]

 

B. Capitalization and Indebtedness

 

Not applicable.

 

C. Reasons for the Offer and Use of Proceeds

 

Not applicable.

 

D. Risk Factors

 

An investment in our Company involves a high degree of risk. Before deciding whether to invest in our Company, you should consider carefully the risks described below, together with all of the other information set forth in this Report, including the information set forth under the heading “Item 5. Operating and Financial Review and Prospects,” and our consolidated financial statements and related notes. If any of these risks actually occurs, our business, financial condition, results of operations or cash flow could be materially and adversely affected, which could cause the trading price of our securities to decline, resulting in a loss of all or part of your investment. The risks described below and elsewhere in this Report are not the only ones that we face. Additional risks not presently known to us or that we currently deem immaterial may also affect our business. You should only consider investing in our Company if you can bear the risk of loss of your entire investment.

 

Summary of Risk Factors

 

The following is a summary of the principal risks that could adversely affect our business, financial condition, results of operations and cash flow.

 

Risks Related to BPGIC

 

We have a limited operating history.

 

BPGIC is currently reliant on the Company’s storage customers of Phase I and Phase II for the majority of its revenues.

 

The Phase I and Phase II users’ usage of our ancillary services has an impact on our profitability.

 

In the event that the Commercial Storage Agreements or the Phase I and Phase II Customer Agreements expire or otherwise terminate, we may have difficulty locating replacements due to competition.

 

The scarcity of available land in the Fujairah oil zone region could limit our ability to expand our facilities in Fujairah beyond Phase III.

 

Accidents involving the handling of oil products at the BPGIC Terminal could disrupt our business operations and/or subject us to environmental and other liabilities.

 

1

 

 

The Modular Refinery will face operating hazards, which could expose us to potentially significant liability costs.

 

When the Modular Refinery is completed, our financial results will be affected by volatile refining margins.

 

Our competitive position and prospects depend on the expertise and experience of our Senior Management.

 

The Green Hydrogen and Green Ammonia project may face operating hazards, which could expose us to potentially significant liability costs.

 

In connection with the preparation of our financial statements, two material weaknesses in our internal control over financial reporting were identified.

 

No adequate documentation is obtained regarding the other payable under liabilities on the balance sheet.

 

We are subject to a wide variety of regulations.

 

Any material reduction in the quality or availability of the Port of Fujairah’s facilities could have a material adverse effect on us.

 

BPGIC is subject to restrictive covenants in the Bond Financing Facility.

 

The fixed cost nature of our operations could result in lower profit margins if certain costs were to increase and we are unable to offset such costs.

 

We are dependent on our IT and operational systems, which may fail or be subject to disruption.

 

Beyond Phase II, expansion of our business may require substantial capital investment.

 

Risks Related to the Company’s Structure and Capitalization

 

We may not pay cash dividends in the foreseeable future.

 

The escrow release provisions of the Escrow Agreement may affect management decisions and incentives.

 

We may issue additional Ordinary Shares or other equity securities without your approval, which would dilute your ownership interests and may depress the market price of our Ordinary Shares.

 

Fluctuation of the exercise price of our Warrants could result in material dilution of our then existing shareholders.

 

Because we are a Cayman Islands exempted company, you could have less protection of your shareholder rights than you would under U.S. law.

 

Provisions of our Amended and Restated Memorandum and Articles of Association may inhibit a takeover of the Company.

 

As a “foreign private issuer” and an “emerging growth company,” we are subject to certain reduced reporting requirements and other exemptions, which limits the information you might otherwise receive and could make our Ordinary Shares less attractive to investors.

 

Our controlling shareholder has substantial influence over us.

 

2

 

 

Risks Related to Doing Business in Countries in Which the Company Operates

 

We are subject to political and economic conditions in Fujairah, the UAE, and the region in which we operate.

 

Our business operations could be adversely affected by terrorist attacks, natural disasters or other catastrophic events beyond our control.

 

Climate change-related legislation or regulations could result in increased operating and capital costs and reduced demand for our storage services.

 

We may incur significant costs to maintain compliance with, or address liabilities under, environmental, health and safety regulation applicable to our business.

 

We could be adversely affected by violations of anti-corruption laws or economic sanctions programs.

 

Tax liabilities associated with indirect taxes on the oil products we service could result in losses.

 

Changes to VAT law in the UAE may have an adverse effect on us.

 

Our business may be adversely affected if the US dollar/UAE dirham-tied exchange rate were to be removed or adjusted.

 

Our business may be materially adversely affected by unlawful or arbitrary governmental action.

 

Legal and regulatory systems may create an uncertain environment for investment and business activities.

 

The grant and future exercise of registration rights, or sales of a substantial number of our securities in the public market, could adversely affect the market price of our Ordinary Shares.

 

NASDAQ may delist our securities.

 

General Risk Factors

 

Fluctuations in our operating results, quarter-to-quarter earnings and other factors, may result in significant decreases in the price of our securities.

 

The market for our securities may not be sustained, which would adversely affect the liquidity and price of our securities.

 

The price of our Ordinary Shares may be volatile.

 

Reports published by analysts could adversely affect the price and trading volume of our Ordinary Shares.

 

Risks Related to BPGIC

 

The Company has a limited operating history, which makes it particularly difficult for a potential investor to evaluate the Company’s financial performance and predict its future prospects.

 

BPGIC commenced operations of Phase I in late Fourth Quarter 2017 and began operating it at full capacity on April 1, 2018, and Phase II in September 2021 and began operating it at full capacity from January 2022 As a result, although the Company’s Senior Management and site teams have relevant international and industry experience, the Company has only limited operating results to demonstrate its ability to operate its business on which a potential investor may rely to evaluate the Company’s business and prospects. Accordingly, the financial information included in this Report may be of limited use in assessing the Company’s business. The Company is also subject to the business risks and uncertainties associated with any new business, including the risk that it will not achieve its operating objectives and business strategy. The Company’s limited operating history increases the risks and uncertainties that potential investors face in making an investment in our securities and the lack of historic information may make it particularly difficult for a potential investor to evaluate the Company’s financial performance and forecast reliable long-term trends.

 

3

 

 

BPGIC is currently reliant on the Company’s storage customers of Phase I and Phase II for the majority of its revenues and any material non-payment or non-performance by Company’s storage customers would have a material adverse effect on the Company’s business, financial condition and results of operations.

 

Phase I of the BPGIC Terminal consists of 14 oil storage tanks with an aggregate geometric oil storage capacity of approximately 0.399 million m3 and related infrastructure. Phase II of the BPGIC Terminal consists of 8 oil storage tanks with an aggregate geometric oil storage capacity of approximately 0.601 million m3 and related infrastructure.

 

A majority of the BPGIC’s revenues for the immediate future are expected to consist of the fees it receives from storage customers.

  

We are susceptible to general economic conditions, natural catastrophic events and public health crises, which could adversely affect our operating results.

 

Our results of operations could be adversely affected by general conditions in the global economy, including conditions that are outside of our control, such as the impact of health and safety concerns from any potential future outbreaks of COVID-19. Governments in affected countries, including the UAE, have imposed travel bans, quarantines and other emergency public health measures in the past. Those measures, though temporary in nature, may happen again depending on developments of new strains of the COVID-19’s virus. Though neither our oil storage and services operations nor the activities of our executives and corporate staff was significantly impacted by the COVID-19 pandemic, some of the vendors and professionals with whom we work have experienced disruptions which resulted in the delay of the construction and commencement of operations of Phase II. Our executives and corporate staff have been, and may continue to be, focused on mitigating potential future effects of COVID-19, which may delay other value-add initiatives.

  

In addition, the COVID-19 pandemic significantly increased economic uncertainty. Such adverse impact on the global economy may negatively impact the availability of debt and equity financing on commercially reasonable terms, which, in turn, may adversely affect our ability to successfully execute our business strategies and initiatives, such as the funding of capital expenditures.

 

The extent, if any, to which the coronavirus impacts our results will depend on future developments, which will include emerging information concerning the severity of the coronavirus and the actions taken by governments and private businesses to attempt to contain the coronavirus.

 

The ongoing Ukrainian Russian conflict has had a significant impact on the oil industry, with increased volatility in oil prices and disruptions to logistics and supply chains. The Company’s operations could be adversely affected by these developments, as changes in oil prices and logistics could impact demand for its storage services and increase its operating costs. The Company has implemented measures to manage these risks, such as maintaining flexible logistics arrangements, and having long-term contracts. However, the Company cannot guarantee that these measures will be effective in mitigating the potential impacts of the Ukrainian Russian conflict on its business, financial condition, and results of operations.

 

4

 

 

The Phase I and Phase II users’ usage of the Company’s ancillary services has an impact on the Company’s profitability. The demand for such ancillary services can be influenced by a number of factors including current or expected prices and market demand for refined petroleum products, each of which can be volatile.

 

With respect to the Commercial Storage Agreements currently in effect, the total monthly storage fees are fixed and the total monthly fees for the Company’s ancillary services are subject to variation based on the customers’ usage of the Company’s ancillary services. The Company expects its revenue from the ancillary services offered in Phase I and Phase II to vary based on the orders received from the Storage Customers. The needs of the Storage Customers’ tend to vary based on a number of factors including current or expected refined petroleum product prices and trading activity. Factors that could lead to a decrease in the demand for the Company’s ancillary services include:

 

  changes in expectations for future prices of refined petroleum products;
     
  the level of worldwide oil and gas production and any disruption of those supplies;
     
  a decline in global trade volumes, economic growth, or access to markets;
     
  higher fuel taxes or other governmental or regulatory actions that increase, directly or indirectly, the cost of gasoline and diesel; and

 

New sanctions or changes of laws.

 

Any of the factors referred to above, either alone or in combination, may result in the Storage Customers’ reduced usage of the Company’s ancillary services, which would ultimately have a material adverse effect on the Company’s business, financial condition and results of operations.

 

In the event that the Commercial Storage Agreements expire or otherwise terminate, the Company may have difficulty locating replacements due to competition with other oil storage companies in the Port of Fujairah and at other ports.

 

The Commercial Storage Agreements currently in effect have terms ranging from one to six years, subject to renewals. There can be no assurance that any of the Commercial Storage Agreements currently in effect will be renewed or that any of such agreements will not be terminated prior to expiration of its term or that we will find adequate replacements upon non-renewal or earlier termination of such agreements.

 

The Company may have to compete with other oil storage companies in the Port of Fujairah to secure a third party to contract for the Company’s services in the event that any of the Commercial Storage Agreements currently in effect expire or otherwise terminate. Such third parties may not only consider competitors in the Port of Fujairah but may also consider companies located at other ports. Although the Company believes that it has a best-in-class technically designed terminal in Fujairah and there is a scarcity of land in Fujairah available for expansion by competitors, the Company’s ability to compete could be harmed by factors it cannot control, including:

 

  the Company’s competitors’ construction of new assets or conversion of existing terminals in a manner that would result in more intense competition in the Port of Fujairah;
     
  the Company’s competitors, which currently provide services to their own businesses (i.e., captive storage), seeking to provide their services to third parties, including third-party oil companies and oil traders;
     
  the Company’s competitors making significant investments to upgrade or convert their facilities in a manner that, while limiting their capacity in the short term, would eventually enable them to meet or exceed the Company’s capabilities;
     
  the perception that another company or port may provide better service; and
     
  the availability of alternative heating and blending facilities located closer to users’ operations.

 

Any combination of these factors could result in third parties entering into long-term contracts to utilize the services of the Company’s competitors instead of the Company’s services, or the Company being required to lower its prices or decrease its costs to attract such parties or retain its existing customers, either of which could adversely affect the Company’s business, financial condition and results of operations.

 

5

 

 

The Company will become reliant on revenue from the Modular Refinery, and the delay in the construction of the Modular Refinery would have a material adverse effect on the Company’s business, financial condition and results of operations.

  

Upon completion of the Modular Refinery, the Company would become reliant on the Modular Refinery for another portion of its revenues. The Company may incur substantial cost if it suffers delays in locating a third party or if modifications or installation of a new refinery are required. The occurrence of any one or more of these events could have a material adverse effect on the Company’s business, financial condition and results of operations.

  

The scarcity of available land in the Fujairah oil zone region could subject the Company to competition for additional land, unfavorable lease terms for that land and limit the Company’s ability to expand its facilities in Fujairah beyond Phase III.

 

BPGIC entered into the Phase III Land Lease, a land lease agreement, dated as of February 2, 2020, by and between BPGIC and FOIZ, to lease the Phase III Land, for an additional plot of land that has a total area of approximately 450,000 m2. On October 1, 2020, BPGIC, FOIZ and BPGIC III, entered into a novation agreement, whereby BPGIC novated the Phase III Land Lease to BPGIC III. The Company intends to use the relevant land to expand its storage, service and refinery capacity.

 

However, all land in the Fujairah oil zone region is owned and controlled by FOIZ. The Fujairah oil zone region currently has limited available land to lease. As a result, the Company’s ability to further expand its facilities if it wishes to expand in Fujairah beyond Phase III is limited. This could subject the Company to enhanced competition both in terms of price and lease terms for any land that becomes available to lease.

 

If the Company is able to lease additional land, there can be no assurance that it would be able to do so on terms that are as favorable as or more favorable than the terms of the Phase I & II Land Lease or the Phase III Land Lease, or that would allow the Company to use the land as intended. The Company’s inability to secure new land from FOIZ in the Fujairah oil zone region could substantially impair the Company’s regional growth prospects in Fujairah beyond Phase III, leading to fewer remaining options for its expansion in Fujairah, other than the acquisition of an existing third-party owned oil storage terminal in Fujairah.

 

The Company is baring development cost for Phase III and there is no assurance that it can eventually materialize due to unforeseen changes in the investment and commercial environment.

 

Accidents involving the handling of oil products at the BPGIC Terminal could disrupt the Company’s business operations and/or subject it to environmental and other liabilities.

 

Accidents in the handling of oil products (hazardous or otherwise) at the BPGIC Terminal could disrupt the Company’s business operations during any repair or clean-up period, which could negatively affect its business operations. The BPGIC Terminal was designed to minimize the risk of oil leakage and has state-of-the-art control facilities. In addition, pursuant to the Fujairah Municipality environmental regulations, BPGIC installed impermeable lining over the ground soil throughout its tank farm area in the Phase I & II Land and any other area where oil leakage could occur and potentially reach the ground soil as well as the Company has in place Physical Loss or Damage and Business Interruption Insurances to minimize any risk of business disruption. The Company intends to take similar steps to minimize the risk of oil leakage in connection with Phase III. Nevertheless, there is a risk that oil leakages or fires could occur at the terminal and, in the event of an oil leakage, there can be no assurance that the installed lining will prevent any oil products from reaching the ground soil. Although the Company believes that it has adequate insurance in place to insure against the occurrence of any of the foregoing events, any such leakages or fires could disrupt terminal operations and result in material remediation costs. Any such damage or contamination could reduce gross throughput and/or subject the Company to liability in connection with environmental damage, any or all of which could have a material adverse effect on its business, financial condition and results of operations.

 

6

 

 

The Modular Refinery, once completed, will face operating hazards, and the potential limits on insurance coverage could expose us to potentially significant liability costs.

 

Once completed, the Modular Refinery will be subject to certain operating hazards, and our cash flow from its operations could decline if it experiences a major accident, pipeline rupture or spill, explosion or fire, or if it is damaged by severe weather or other natural disaster, or otherwise is forced to curtail its operations or shut down. These operating hazards could result in substantial losses due to personal injury and/or loss of life, severe damage to and destruction of property and equipment and pollution or other environmental damage and may result in significant curtailment or suspension of our related operations.

 

Although we intend to maintain insurance policies, including personal and property damage and business interruption insurance for each of our facilities, we cannot assure you that this insurance will be adequate to protect us from all material expenses related to potential future claims for personal and property damage or significant interruption of operations.

  

When the Modular Refinery is completed, our financial results will be affected by volatile refining margins, which are dependent upon factors beyond our control, including the price of crude oil, to the extent such volatility reduces customer demand of ancillary services.

 

When the Modular Refinery is operational, our financial results will be affected by the relationship, or margin, between refined petroleum product prices and the prices for crude oil and other feedstocks to the extent decreases in refining margins reduce the use of the Modular Refinery and our ancillary services. Historically, refining margins have been volatile, and we believe they will continue to be volatile in the future. The costs to acquire feedstocks and the price at which it can ultimately sell refined petroleum products depend upon several factors beyond its, and our, control, including regional and global supply of and demand for crude oil, gasoline, diesel, and other feedstocks and refined petroleum products. These in turn depend on, among other things, the availability and quantity of imports, production levels, levels of refined petroleum product inventories, productivity and growth (or the lack thereof) of global economies, international relations, political affairs, and the extent of governmental regulation. Some of these factors can vary by region and may change quickly, adding to market volatility, while others may have longer-term effects. The longer-term effects of these and other factors on refining and marketing margins are uncertain. Decreased refining margins could have a significant effect on the extent to which we use the Modular Refinery and our ancillary services which, in turn, could have a significant effect on our financial results.

 

The Green Hydrogen and Green Ammonia Project, once completed, will face operating hazards, and the potential limits on insurance coverage could expose us to potentially significant liability costs.

 

Once completed, the Green Hydrogen and Green Ammonia Project will be subject to certain operating hazards, and our cash flow from its operations could decline if it experiences a major accident, pipeline rupture, explosion or fire, or if it is damaged by severe weather or other natural disaster, or otherwise is forced to curtail its operations or shut down. These operating hazards could result in substantial losses due to personal injury and/or loss of life, severe damage to and destruction of property and equipment or other environmental damage and may result in significant curtailment or suspension of our related operations.

 

Although we intend to maintain insurance policies, including personal and property damage and business interruption insurance for each instance of this project, we cannot assure you that this insurance will be adequate to protect us from all material expenses related to potential future claims for personal and property damage or significant interruption of operations.

 

7

 

 

Our competitive position and prospects depend on the expertise and experience of Senior Management and our ability to continue to attract, retain and motivate qualified personnel.

 

Our business is dependent on retaining the services of, or in due course promptly obtaining equally qualified replacements for Senior Management. Competition in the UAE for personnel with relevant expertise is intense and it could lead to challenges in locating qualified individuals with suitable practical experience in the oil storage industry. Although the Company has employment agreements with all of the members of Senior Management, the retention of their services cannot be guaranteed. Should they decide to leave the Company, it may be difficult to replace them promptly with other managers of sufficient expertise and experience or at all. To mitigate this risk, the Company intends to enter into long-term incentive plans with members of Senior Management in due course. In the event of any increase in the levels of competition in the oil storage industry or general price levels in the Fujairah region, the Company may experience challenges in retaining members of the Senior Management team or recruiting replacements with the appropriate skills. Should the Company lose any of the members of Senior Management without prompt and equivalent replacement or if the Company is otherwise unable to attract or retain such qualified personnel for the Company’s requirements, this could have a material adverse effect on the Company’s business, financial condition and results of operations. For more information regarding Senior Management, see “Item 6.A Directors, Senior Management and Employees — Directors and Executive Officers”.

 

In connection with the preparation of the Company’s consolidated financial statements as of and for the years ended December 31, 2019, 2020, 2021 and 2022, the Company and its independent registered public accounting firm identified two material weaknesses in the Company’s internal control over financial reporting, one related to lack of sufficient skilled personnel and one related to lack of sufficient entity level and financial reporting policies and procedures.

 

Prior to the consummation of the Business Combination, the Company was neither a publicly listed company, nor an affiliate or a consolidated subsidiary of, a publicly listed company, and it has had limited accounting personnel and other resources with which to address its internal controls and procedures. Effective internal control over financial reporting is necessary for the Company to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud.

 

In connection with the preparation and external audit of the Company’s financial statements as of and for the years ended December 31, 2019, 2020, 2021 and 2022, the Company and our auditors, noted material weaknesses in the Company’s internal control over financial reporting. The SEC defines a material weakness as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s financial statements will not be prevented or detected on a timely basis.

 

The material weaknesses identified were (i) a lack of sufficient skilled personnel with requisite IFRS and SEC reporting knowledge and experience and (ii) a lack of sufficient entity level and financial reporting policies and procedures that are commensurate with IFRS and SEC reporting requirements. During the years 2020, 2021, and 2022, the Company took the steps below to minimize the effects of both these material weaknesses:

 

The Company appointed a new chief financial officer and other finance personnel with relevant public reporting experience and also conducted trainings for new employees with respect to IFRS and SEC reporting requirements; and

 

The Company appointed a third party consultant to prepare the processes of financial reporting and help the Company to implement them.

 

In this regard, the Company has, and is continuing to, dedicate internal resources, training their personnel with public reporting experience, and ensure that outside consultants adopted a detailed work plan to assess and document the adequacy of its internal control over financial reporting. This has, and may continue to, include taking steps to improve control processes as appropriate, validating that controls are functioning as documented and implementing a continuous reporting and improvement process for internal control over financial reporting. 

 

The Company’s auditors did not undertake an audit of the effectiveness of its internal control over financial reporting. The Company’s independent registered public accounting firm will not be required to report on the effectiveness of the Company’s internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act until the Company’s first Annual Report on Form 20-F following the date on which it ceases to qualify as an “emerging growth company,” which may be up to five full fiscal years following the date of the Company’s initial sale of common equity pursuant to a registration statement declared effective under the Securities Act. The process of assessing the effectiveness of the Company’s internal control over financial reporting may require the investment of substantial time and resources, including by members of the Company’s senior management. As a result, this process may divert internal resources and take a significant amount of time and effort to complete. In addition, the Company cannot predict the outcome of this determination and whether the Company will need to implement remedial actions in order to implement effective control over financial reporting. If in subsequent years the Company is unable to assert that the Company’s internal control over financial reporting is effective, or if the Company’s auditors express an opinion that the Company’s internal control over financial reporting is ineffective, the Company could lose investor confidence in the accuracy and completeness of its financial reports, which could have a material adverse effect on the price of the Company’s securities.

 

For more information regarding our controls and procedures, see “Item 15. Controls and Procedures”.

 

8

 

 

The Company has hired new management personnel and has implemented a number of corporate governance and financial reporting procedures and other policies, processes, systems and controls which have a limited operating history. The effectiveness of these policies, processes systems and controls are impaired by material weaknesses related to lack of sufficient skilled personnel and lack of sufficient entity level and financial reporting policies and procedures.

 

The Company started hiring new management personnel subsequent to the listing of the Company, including a new chief financial officer, and implemented a number of corporate governance and financial reporting procedures and other policies, processes, systems and controls to comply with the requirements for a foreign private issuer on NASDAQ. The Company does not have a long track record on which it can assess the performance and effectiveness of these policies, processes, systems and controls or the analysis of their outputs.

 

The Company and its independent registered public accounting firm have identified two material weaknesses in internal control over financial reporting related to lack of sufficient skilled personnel and lack of sufficient entity level and financial reporting policies and procedures. Any material inadequacies, weaknesses or failures in the Company’s policies, processes, systems and controls could have a material adverse effect on the Company’s business, financial condition and results of operations.

 

The Company has implemented measures to address the material weaknesses, including (i) hiring personnel with relevant public reporting experience, (ii) conducting training for Company personnel with respect to IFRS and SEC financial reporting requirements and (iii) engaging a third party to prepare standard operating procedures for the Company. In this regard, the Company has, and will need to continue to, dedicate internal resources, train personnel with public reporting experience, ensuring outside consultant adopted a detailed work plan to assess and document the adequacy of their internal control over financial reporting. This has, and may continue to, include taking steps to improve control processes as appropriate, validating that controls are functioning as documented and implementing a continuous reporting and improvement process for internal control over financial reporting.

 

If the Company is unable to make acquisitions on economically acceptable terms, its future growth would be limited, and any acquisitions it makes could adversely affect its business, financial condition and results of operations.

 

As discussed further in “Item 4.B Business Overview — Strategy”, one of the Company’s medium to long-term strategies is to potentially grow its business through the acquisition and development of oil storage terminals globally. The Company’s strategy to grow its business is dependent on its ability to make acquisitions that improve its financial condition. If the Company is unable to make acquisitions from third parties because it is unable to identify attractive acquisition candidates or negotiate acceptable purchase contracts, it is unable to obtain financing for these acquisitions on economically acceptable terms or it is outbid by competitors, its future growth will be limited. Furthermore, even if the Company consummates acquisitions that it believes will be accretive, they may in fact harm its business, financial condition and results of operations. Any acquisition involves potential risks, some of which are beyond the Company’s control, including, among other things:

 

  inaccurate assumptions about revenues and costs, including synergies;
     
  an inability to successfully integrate the various business functions of the businesses the Company acquires;
     
  an inability to hire, train or retain qualified personnel to manage and operate the Company’s business and newly acquired assets;
     
  an inability to comply with current or future applicable regulatory requirements;
     
  the assumption of unknown liabilities;
     
  limitations on rights to indemnity from the seller;
     
  inaccurate assumptions about the overall costs of equity or debt;
     
  the diversion of management’s attention from other business concerns;
     
  unforeseen difficulties operating in new product areas or new geographic areas; and
     
  customer or key employee losses at the acquired businesses.

 

9

 

 

If the Company consummates any future acquisitions, its business, financial condition and results of operations may change significantly, and holders of the Company’s securities may not have the opportunity to evaluate the economic, financial and other relevant information that the Company will consider in making such acquisitions.

 

The Company is subject to a wide variety of regulations and may face substantial liability if it fails to comply with existing or future regulations applicable to its businesses or obtain necessary permits and licenses pursuant to such regulations.

 

The Company’s operations are subject to extensive international, national and local laws and regulations governing, among other things, the loading, unloading and storage of hazardous materials, environmental protection and health and safety. The Company’s ability to operate its business is contingent on its ability to comply with these laws and regulations and to obtain, maintain and renew as necessary related approvals, permits and licenses from governmental agencies and authorities in Fujairah and the UAE. Because of the complexities involved in ensuring compliance with different regulatory regimes, the Company’s failure to comply with all applicable regulations and obtain and maintain requisite certifications, approvals, permits and licenses, whether intentional or unintentional, could lead to substantial penalties, including criminal or administrative penalties or other punitive measures, result in revocation of its licenses and/or increased regulatory scrutiny, impair its reputation, subject it to liability for damages, or invalidate or increase the cost of the insurance that it maintains for its business. Additionally, the Company’s failure to comply with regulations that affect its staff, such as health and safety regulations, could affect its ability to attract and retain staff. The Company could also incur civil liabilities such as abatement and compensation for loss in amounts in excess of, or that are not covered by, its insurance. For the most serious violations, the Company could also be forced to suspend operations until it obtains such approvals, certifications, permits or licenses or otherwise brings its operations into compliance.

 

In addition, changes to existing regulations or tariffs or the introduction of new regulations or licensing requirements are beyond the Company’s control and may be influenced by political or commercial considerations not aligned with the Company’s interests. Any such changes to regulations, tariffs or licensing requirements could adversely affect the Company’s business by reducing its revenue, increasing its operating costs or both.

 

Finally, any expansion of the scope of the regulations governing the Company’s environmental obligations, in particular, would likely involve substantial additional costs, including costs relating to maintenance and inspection, development and implementation of emergency procedures and insurance coverage or other financial assurance of the Company’s ability to address environmental incidents or external threats. If the Company is unable to control the costs involved in complying with these and other laws and regulations, or pass the impact of these costs on to users through pricing, the Company’s business, financial condition and results of operations could be adversely affected.

 

Any material reduction in the quality or availability of the Port of Fujairah’s facilities could have a material adverse effect on the Company’s business, financial condition and results of operations.

 

The Company is dependent on the Port of Fujairah to operate and maintain the Port’s facilities at an appropriate standard and the Company is dependent on such facilities, including the berths, the VLCC jetty and the associated pipelines, to operate its business. Any interruptions or reduction in the capabilities or availability of these facilities would result in reduced volumes being transported through the BPGIC Terminal. Reductions of this nature are beyond the Company’s control. If the utilization or the costs to the Company or users to deliver oil products through these facilities were to significantly increase, the Company’s profitability could be reduced. The Port of Fujairah’s facilities are subject to deterioration or damage, due to potential declines in the physical condition of its facilities and ship collisions, among other things. Any failure of the Port of Fujairah to carry out necessary repairs, maintenance and expansions of its facilities and any resulting interruptions for access to its facilities could adversely affect the Company’s business volumes, cause delays in the arrival and departure of oil tankers or disruptions to the Company’s operations, in part or in whole, may subject the Company to liability or impact its brand and reputation and may otherwise hinder the normal operation of the BPGIC Terminal, which could have a material adverse effect on its business, financial condition and results of operations.

 

10

 

 

BPGIC is subject to restrictive covenants in the Bond Financing Facility that may limit its operating flexibility and, if it defaults under its covenants, it may not be able to meet its payment obligations.

 

BPGIC entered into the Bond Financing Facility of $200.00 million to repay the Phase I Financing Facilities, fund capital projects for Phase II, repay the promissory note payable to Early Bird Capital, pre-fund the Liquidity Account and for general corporate purposes. The proceeds of the bonds were drawn down during November 2020 and outstanding term loans were fully settled. The Bond Financing Facility contains covenants limiting BPGIC’s ability to incur indebtedness, grant liens, engage in transactions with affiliates and make distributions on or redeem or repurchase ordinary shares.

 

The Bond Financing Facility contains covenants which were amended under Amendment Agreements dated October 23, 2020 and April 27, 2022, requiring BPGIC (including its subsidiaries) and the Company to maintain the following covenants:

 

1. Financial Covenants

 

  i. Minimum Liquidity: Maintain $8.5 million in the Liquidity Account.
     
  ii.

Leverage Ratio: Not to exceed: (A) 3.5x at 31 December 2022 (for the 12-month period from and including 1 January 2022 to 31 December 2022 and so that no testing shall be made thereof until 31 December 2022); and (B) 3.0x anytime thereafter.

     
  iii. Working Capital: Maintain a positive working capital except for the period from 31 December 2021 to and including 30 December 2022 and during which period no such requirement shall apply.
     
  iv. Brooge Energy Limited to maintain a minimum equity ratio of 25%.

 

2. Account Maintenance Covenants

 

  i. BPGIC to maintain a Construction Funding Account.
     
  ii. BPGIC to maintain Debt Service Retention Account.
     
  iii. BPGIC to maintain Liquidity Account.

 

3. Other Covenants

 

i.BPGIC is subject to the following restrictions on distributions:

 

a.no distributions for one year from the Phase II facility completion date.

 

b.distributions cannot exceed in the aggregate 50% of BPGIC’s net profit after tax based on the audited annual financial statements for the previous financial year.

 

c.any distribution shall only be released out of BPGIC and its subsidiaries in the form of a group company loan to the Phase III company.

 

d.BPGIC must be in compliance with the financial covenants (on the last reporting date).

 

e.no event of default is continuing or would arise from such distribution.

  

ii.BPGIC (including its subsidiaries) cannot invest and/or undertake any capital expenditure obligation that exceeds an aggregate of $10.0 million during the term of the Bond Financing Facility, except for the remaining capital expenditure obligation under the construction contract for Phase II, any maintenance capital expenditure and/or enhancements relating to Phase I and/or Phase II in its ordinary course of business.

 

11

 

 

BPGIC’s ability to comply with these restrictions and covenants may be affected by events beyond its control, including prevailing economic, financial and industry conditions.

 

Due in part to the delayed ramp up of the Phase II storage facility, resulting primarily from logistical challenges associated with the COVID 19 pandemic, BPGIC was in technical breach with leverage ratio and working capital financial covenant requirements under the Bond Financing Facility document. In March 2022, the Group entered into an agreement with its lender to waive off the requirement for the Group to comply with leverage ratio and working capital financial covenant for December 31, 2021 and June 30, 2022. See “Item 10.C Material Contracts— Bond Waiver” for additional information regarding the waiver.

 

If BPGIC is unable to comply with these restrictions and covenants following such date, or is unable to comply with the restrictions and covenants as specified in the waiver approved by the Bondholders, a significant portion of the indebtedness under the Bond Financing Facility may become immediately due and payable. BPGIC might not have, or be able to obtain, sufficient funds to make these accelerated payments. In addition, BPGIC’s obligations under the Bond Financing Facility are secured by substantially all of BPGIC’s assets, and if BPGIC is unable to repay the indebtedness under the Bond Financing Facility, the Bond Trustee, on behalf of the bondholders, could seek to foreclose on such assets, which would adversely affect BPGIC’s business, financial condition and results of operations. The Bond Financing Facility also has cross-default provisions that apply to any other material indebtedness that BPGIC may have. For more information regarding the Bond Financing Facility, see “— Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Debt Sources of Liquidity”.

 

The fixed cost nature of the Company’s operations could result in lower profit margins if certain costs were to increase and the Company was not able to offset such costs with sufficient increases in its storage or ancillary service fees or its customers’ utilization of the Company’s ancillary services.

 

The Company’s fixed costs for Phase I, Phase II and the Modular Refinery are, or will be, paid for with the fixed storage fees it receives or will receive, as the case may be, from the Company’s existing and future storage customers. The Company expects that a large portion of its future expenses related to the operation of the BPGIC Terminal will be relatively fixed because the costs for full-time employees, rent in connection with the Land Leases, maintenance, depreciation, utilities and insurance generally do not vary significantly with changes in users’ needs. However, the Company expects that its profit margins could change if its costs change.

 

In particular, if wages in the region’s oil storage industry were to increase, the Company may need to increase the levels of its employee compensation more rapidly than in the past to remain competitive or keep up with increases in general price levels or inflation in the UAE and in Fujairah. If wage costs were to increase at a greater rate than our customers’ utilization of the Company’s ancillary services, then such increased wage costs may reduce the Company’s profit margins.

 

The Commercial Storage Agreements with the Storage Customers allow BPGIC to review its storage and ancillary service upon each renewal. As such, if wages were to increase, BPGIC may yield lower margins for a period of time before it is able to review and amend its storage and ancillary service fees.

  

BPGIC III expects that its fixed costs for Phase III will be paid for with the fixed storage fees it will receive from the Phase III customer(s). BPGIC III expects that a large portion of its future expenses related to the operation of Phase III will be relatively fixed because the costs for full-time employees, rent in connection with the Phase III Land Lease, maintenance, depreciation, utilities and insurance generally do not vary significantly with changes in users’ needs.

 

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BRE expects that its fixed costs for the Green Hydrogen and Green Ammonia project will be paid for with the fixed storage fees it will receive from the Ammonia offtake agreements. However, as with its fixed costs for Phase I and Phase II, BPGIC III and BRE expect that their profit margins could change if their costs, in particular wage costs, change.

 

If the Company is unable to maintain its margins, it could have a material adverse effect on its business, financial condition and results of operations.

 

The Company is dependent on its IT and operational systems, which may fail or be subject to disruption.

 

The Company relies on the proper functioning of its information technology, including the information technology systems in the Company’s operation control room, databases, computer systems, telecommunication networks and other infrastructure in its day-to-day operations. The Company’s business continuity procedures and measures may not anticipate, prevent or mitigate a network failure or disruption and may not protect against an incident in the limited event that there is no alternative system or backed-up data in place. The nature of the Company’s operations and the variety of systems in place to support its business can also present challenges to the efficiency of its information technology networks. The Company’s systems are vulnerable to interruptions or damage from a number of factors, including power loss, network and telecommunications failures, data corruption, computer viruses, security breaches, natural disasters, theft, vandalism or other acts, although the BPGIC Terminal’s operational system has limited vulnerability to computer viruses or security breaches because the systems are fully isolated. The Company is reliant on third party vendors to supply and maintain much of its information technology. In particular, as is the case for many of the Company’s competitors, a significant percentage of its core operations currently use information and technology systems provided by ABB Group, Emerson and Intelex Technologies, Inc., which the Company relies on for related support and upgrades. The Company may experience delay or failure in finding a suitable replacement in the event that one or more of the third-party vendors ceases operations or becomes otherwise unable or unwilling to meet the Company’s needs.

  

There have been an increasing number of cyber security incidents affecting companies around the world, which have caused operational failures or compromised sensitive or confidential corporate data. Although we do not believe our systems are at a greater risk of cyber security incidents than other similar organizations, such cyber security incidents may result in the loss or compromise of customer, financial, or operational data; loss of assets; disruption of billing, collections, or normal operating activities; disruption of electronic monitoring and control of operational systems; and delays in financial reporting and other management functions. Possible impacts associated with cyber security incidents (which generally are increasing in both frequency and sophistication) may include, among others, remediation costs related to lost, stolen, or compromised data; repairs to data processing systems; increased cyber security protection costs; reputational damage; lawsuits seeking damages; regulatory actions; and adverse effects on our compliance with applicable privacy and other laws and regulations. Such occurrences could have an adverse effect on our business, operating results, and financial condition.

 

Although the BPGIC Terminal, based on the nature of the Company’s business, is configured to keep its systems operational under abnormal conditions, including with respect to business processes and procedures, any failure or breakdown in these systems could interrupt the Company’s normal business operations and result in a significant slowdown in operational and management efficiency for the duration of such failure or breakdown. Any virus attack, e-mails scams or prolonged failure or breakdown could dramatically affect the Company’s ability to offer services to users, which could have a material adverse effect on the Company’s business, financial condition and results of operations.

 

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Beyond Phase II, expansion of the Company’s business may require substantial capital investment, and the Company may not have sufficient capital to make future capital expenditures and other investments as it deems necessary or desirable.

 

The Company operates in a capital-intensive industry that requires a substantial amount of capital and other long-term expenditures, including those relating to the expansion of existing terminal facilities and the development and acquisition of new terminal facilities. The Company has several plans for expansion beyond Phase II, including Phase III and the Green Hydrogen and Green Ammonia Project that may require significant capital investment. For example, the Company plans to establish an external connection to the local power grid in due course, which would provide the BPGIC Terminal with an additional source of power if necessary.

 

In addition, as discussed further in “Item 4B Business Overview — Strategy”, in 2020, BPGIC entered into the Phase III Land Lease to lease the Phase III Land on which it would build a new oil storage facility, and novated the Phase III Land Lease to BPGIC III. The Company has engaged MUC, the same advisor that designed the BPGIC Terminal, to create several proposals for the design of Phase III. If the Company decides to construct a new facility, it would require substantial capital investment, and the Company may not have sufficient capital to make the capital expenditures and other investments as it deems necessary or desirable.

 

To meet the financing requirements for such capital investments, the Company may have to utilize a combination of internally generated cash and external borrowings, including banking and capital markets transactions. The Company may also seek, in the event that further material expansion opportunities arise in the future, to obtain additional funding from the capital markets to further enhance its funding position. The Company’s ability to arrange external financing and the cost of such financing is dependent on numerous factors, including its future financial condition, the terms of any restrictive covenants under then existing credit facilities, general economic and capital market conditions, interest rates, credit availability from banks or other lenders, investor confidence in the Company, applicable provisions of tax and securities laws and political and economic conditions in any relevant jurisdiction. Moreover, the decline in global credit markets and reduced liquidity may affect the Company’s ability to secure financing on commercially reasonable terms, if at all. The Company cannot provide any assurance that it will be able to arrange any such external financing on commercially reasonable terms, and it may be required to secure any such financing with a lien over its assets or agree to contractual limitations on its business. If the Company is unable to generate or obtain funds sufficient to make necessary or desirable capital expenditure and other investments, it may be unable to grow its business, which may have a material adverse effect on its business, financial condition and results of operations.

 

Beyond Phase II, the aforementioned projects and the projects described herein, the Company may consider additional projects in the future, which would be subject to the same risks mentioned above.

 

Risks Related to the Company’s Structure and Capitalization

 

The value of your investment in the Company is subject to the significant risks affecting the Company and inherent in the industry in which the Company operates. You should carefully consider the risks and uncertainties described above and below and other information included in this Report. If any of the events described above or below occur, the Company’s business and financial results could be adversely affected in a material way. This could cause the trading price of the Company’s securities to decline, and you therefore may lose all or part of your investment.

 

The Company’s only significant asset is its ownership of BPGIC and BPGIC III and such ownership may not be sufficient to pay dividends or make distributions or obtain loans to enable the Company to pay any dividends on its Ordinary Shares or satisfy other financial obligations.

 

The Company is a holding company and does not directly own any operating assets other than its ownership of interests in BPGIC and BPGIC III. The Company depends on BPGIC and BPGIC III for distributions, loans and other payments to generate the funds necessary to meet its financial obligations, including its expenses as a publicly traded company and to pay any dividends. The earnings from, or other available assets of, BPGIC and BPGIC III may not be sufficient to make distributions or pay dividends, pay expenses or satisfy the Company’s other financial obligations.

 

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The Company incurs higher costs as a result of being a public company.

 

The Company has and will continue to incur significant additional legal, accounting, insurance and other expenses, including costs associated with public company reporting requirements. The Company will incur higher costs associated with complying with the requirements of the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and related rules implemented by the SEC and NASDAQ. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. These laws and regulations increase the Company’s legal and financial compliance costs and render some activities more time-consuming and costly. The Company may need to hire more employees or engage outside consultants to comply with these requirements, which will increase its costs and expenses. These laws and regulations could make it more difficult or costly for the Company to obtain certain types of insurance, and the Company may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on the Company’s board of directors, board committees or as executive officers. Furthermore, if the Company is unable to satisfy its obligations as a public company, it could be subject to delisting of its Ordinary Shares and/or Warrants, fines, sanctions and other regulatory action and potentially civil litigation.

 

The escrow release provisions of the Escrow Agreement may affect management decisions and incentives.

 

Under an Escrow Agreement dated as of May 10, 2019, by and among the Company, Continental, as escrow agent, and BPGIC Holdings (as amended, the “Seller Escrow Agreement”), up to 20,000,000 additional Ordinary Shares that were placed in escrow at Closing will be released to BPGIC Holdings in the event that the Company meets certain Annualized EBITDA (as defined in the Seller Escrow Agreement) or share price targets during the period commencing from the Closing until the end of the 20th fiscal quarter after the commencement date of the first full fiscal quarter beginning after the Closing (the “Seller Escrow Period”). As a result, the Company’s management may focus on increasing the Annualized EBITDA of the Company and its subsidiaries for quarters within the Seller Escrow Period rather than on increasing net income during such quarters. Additionally, the share price target can be achieved at any time during the Seller Escrow Period, and the share price targets could be achieved early in the Seller Escrow Period which would trigger release of the escrow shares even if the share price fell later in the Seller Escrow Period. See “Item 10.C Material Contracts – Seller Escrow Agreement”.

 

The Company may or may not pay cash dividends in the foreseeable future.

 

Although the Company announced in the Fourth Quarter of 2019 that it intends to pay a $0.25 quarterly dividend to its public shareholders beginning in the First Quarter of 2020, the Company has not paid such dividend, and has not committed to pay a cash dividend on such terms and in such amount with respect to its Ordinary Shares, and the Company may not pay cash dividends with respect to its Ordinary Shares. In light of the economic impact of the COVID-19 pandemic, the Company’s board of directors subsequently determined that, notwithstanding its prior announcement, it was in the best interests of the Company as a precautionary measure and to prudently preserve cash, to delay issuance of dividends. Any decision to declare and pay dividends in the future will be made at the discretion of the board of directors of the Company and will depend on, among other things, applicable law, regulations, restrictions, the Company’s results of operations, financial condition, cash requirements, contractual restrictions, the Company’s future projects and plans and other factors that the Company’s board of directors may deem relevant. In addition, the Company’s ability to pay dividends depends significantly on the extent to which it receives dividends from BPGIC and BPGIC III and there can be no assurance that BPGIC and/or BPGIC III will pay dividends. As a result, capital appreciation, if any, of the Company’s Ordinary Shares may be a shareholder’s sole source of gain for the foreseeable future.

 

The Company is currently the subject of an investigation by the staff of the SEC.

 

The Company is currently the subject of an investigation by the staff of the SEC concerning issues related to the Company’s prior revenue recognition and financial reporting practices and disclosures, its prior systems of internal controls, and certain of its past dealings with or communications to previous independent auditors.  Among other things, the SEC investigation concerns matters identified during an internal examination performed at the instance of the Company’s Audit Committee, which produced certain preliminary findings that caused the Company to withdraw reliance on its previously-issued financial statements for certain earlier periods.   

 

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As noted, the SEC investigation is ongoing.  The Company is currently unable to predict with any reasonable degree of certainty whether the investigation will lead to claims by the SEC against the Company or any of its present or former personnel.  The Company is also unable to predict with any reasonable degree of certainty the likelihood of a favorable or unfavorable outcome if any claims are asserted by the SEC related to these matters.   Further, the Company is unable to predict with any reasonable degree of certainty the likelihood of a favorable or unfavorable outcome if the SEC does assert such claims, or the precise character of any potential findings against or sanctions imposed on the Company to the extent the investigation produces an enforcement proceeding that results in an unfavorable outcome. 

 

The Company may issue additional Ordinary Shares or other equity securities without your approval, which would dilute your ownership interests and may depress the market price of the Company’s Ordinary Shares.

 

The Company may issue additional Ordinary Shares or other equity securities of equal or senior rank in the future in connection with, among other things, future acquisitions, repayment of outstanding indebtedness or our equity incentive plan, without shareholder approval, in a number of circumstances.

 

The Company’s issuance of additional Ordinary Shares or other equity securities of equal or senior rank would have the following effects:

 

  the Company’s existing shareholders’ proportionate ownership interest in the Company will decrease;
     
  the amount of cash available per share, including for payment of dividends in the future, may decrease;
     
  the relative voting strength of each previously outstanding Ordinary share may be diminished; and
     
  the market price of the Company’s Ordinary Shares may decline.

 

The exercise price of the Company’s Warrants can fluctuate under certain circumstances which, if triggered, can result in potentially material dilution of the Company’s then existing shareholders.

 

Currently, there are outstanding a total of 21,228,900 Warrants each to purchase one Ordinary Share at an exercise price of $11.50. The price at which such Ordinary Shares may be purchased upon exercise of the Warrants may be adjusted in certain circumstances, including, but not limited to, when (i) the Company undertakes certain share capitalizations, share sub-divisions, rights offerings or other similar events, or (ii) the Company pays certain dividends or makes certain distributions in cash, securities or other assets to the holders of Ordinary Shares on account of such Ordinary Shares. These adjustments are intended to provide the investors in the Company’s Warrants with partial protection from the effects of actions that dilute their interests in the Company on a fully-exercised basis. In addition, the Company may, in its sole discretion, temporarily lower the exercise price of the Company’s Warrants provided it lowers the price for not less than 20 business days, provides at least 20 days prior notice to the registered holders of such Warrants and applies such decrease consistently to all Warrants. These provisions could result in substantial dilution to investors in the Company’s Ordinary Shares.

 

The Company is a Cayman Islands exempted company and, because judicial precedent regarding the rights of shareholders is different under Cayman Islands law than under U.S. law, you could have less protection of your shareholder rights than you would under U.S. law.

 

The Company’s corporate affairs are governed by its Amended and Restated Memorandum and Articles of Association, the Companies Law, and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by non-controlling shareholders and the fiduciary responsibilities of the Company’s directors to the Company under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. Your rights as a shareholder and the fiduciary responsibilities of the Company’s directors under Cayman Islands law are different from under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a different body of securities laws from the United States and may provide significantly less protection to investors. In addition, some U.S. states, such as Delaware, have different bodies of corporate law than the Cayman Islands.

 

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The Company has been advised by its Cayman Islands legal counsel, Maples and Calder, that the courts of the Cayman Islands are unlikely (i) to recognize or enforce against the Company judgments of courts of the United States predicated upon the civil liability provisions of the securities laws of the United States or any U.S. State and (ii) in original actions brought in the Cayman Islands, to impose liabilities against the Company predicated upon the civil liability provisions of the securities laws of the United States or any U.S. State, so far as the liabilities imposed by those provisions are penal in nature. In those circumstances, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, and/or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands Court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere. There is recent Privy Council authority (which is binding on the Cayman Islands Court) in the context of a reorganization plan approved by the New York Bankruptcy Court which suggests that due to the universal nature of bankruptcy/insolvency proceedings, foreign money judgments obtained in foreign bankruptcy/insolvency proceedings may be enforced without applying the principles outlined above. However, a more recent English Supreme Court authority (which is highly persuasive but not binding on the Cayman Islands Court), has expressly rejected that approach in the context of a default judgment obtained in an adversary proceeding brought in the New York Bankruptcy Court by the receivers of the bankruptcy debtor against a third party, and which would not have been enforceable upon the application of the traditional common law principles summarized above and held that foreign money judgments obtained in bankruptcy/insolvency proceedings should be enforced by applying the principles set out above, and not by the simple exercise of the Courts’ discretion. Those cases have now been considered by the Cayman Islands Court. The Cayman Islands Court was not asked to consider the specific question of whether a judgment of a bankruptcy court in an adversary proceeding would be enforceable in the Cayman Islands, but it did endorse the need for active assistance of overseas bankruptcy proceedings. The Company understands that the Cayman Islands Court’s decision in that case has been appealed and it remains the case that the law regarding the enforcement of bankruptcy/insolvency related judgments is still in a state of uncertainty.

 

You have limited ability to bring an action against the Company or against its directors and officers, or to enforce a judgment against the Company or them, because the Company is incorporated in the Cayman Islands, because the Company conducts all of its operations in the UAE and because all of the Company’s directors and officers reside outside the United States.

 

The Company is incorporated in the Cayman Islands and currently conducts all of its operations through its subsidiary, BPGIC, and once phase III and the Green Hydrogen and Green Ammonia Project are ready, will conduct all of its operations through its subsidiaries, BPGIC, BPGIC III and BRE. All of the Company’s assets are located outside the United States. The Company’s officers and directors reside outside the United States and a substantial portion of the assets of those persons are located outside of the United States. As a result, it could be difficult or impossible for you to bring an action against the Company or against these individuals in the United States in the event that you believe that your rights have been infringed under the applicable securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of the UAE could render you unable to enforce a judgment against the Company’s assets or the assets of the Company’s directors and officers.

 

Shareholders of Cayman Islands exempted companies such as the Company have no general rights under Cayman Islands law to inspect corporate records and accounts or to obtain copies of lists of shareholders of these companies. The Company’s directors have discretion under Cayman Islands law to determine whether or not, and under what conditions, the Company’s corporate records could be inspected by the Company’s shareholders, but are not obliged to make them available to the Company’s shareholders. This could make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.

 

As a result of all of the above, the Company’s shareholders might have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a U.S. company.

 

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Provisions in the Company’s Amended and Restated Memorandum and Articles of Association may inhibit a takeover of the Company, which could limit the price investors might be willing to pay in the future for the Company’s securities and could entrench management.

 

The Company’s Amended and Restated Memorandum and Articles of Association contain provisions that may discourage unsolicited takeover proposals that shareholders of the Company may consider to be in their best interests. Among other provisions, the ability of the Company’s board of directors to issue preferred shares with preferences and voting rights determined by the board without shareholder approval may make it more difficult for the Company’s shareholders to remove incumbent management and accordingly discourage transactions that otherwise could involve payment of a premium over prevailing market prices for the Company’s securities. Other anti-takeover provisions in the Company’s Amended and Restated Memorandum and Articles of Association include the indemnification of the Company’s officers and directors, the requirement that directors may only be removed from the Company’s board of directors for cause and the requirement for a Special Resolution to amend provisions therein that affect shareholder rights. These provisions could also make it difficult for the Company’s shareholders to take certain actions and limit the price investors might be willing to pay for the Company’s securities.

 

As a “foreign private issuer” under the rules and regulations of the SEC, the Company is permitted to, does, and will, file less or different information with the SEC than a company incorporated in the United States or otherwise subject to these rules, and will follow certain home-country corporate governance practices in lieu of certain NASDAQ requirements applicable to U.S. issuers.

 

The Company is considered a “foreign private issuer” under the Exchange Act and is therefore exempt from certain rules under the Exchange Act, including the proxy rules, which impose certain disclosure and procedural requirements for proxy solicitations for U.S. and other issuers. Moreover, the Company is not required to file periodic reports and financial statements with the SEC as frequently or within the same time frames as U.S. companies with securities registered under the Exchange Act. The Company currently prepares its financial statements in accordance with IFRS. The Company will not be required to file financial statements prepared in accordance with or reconciled to U.S. GAAP so long as its financial statements are prepared in accordance with IFRS. The Company is not required to comply with Regulation FD, which imposes restrictions on the selective disclosure of material information to shareholders. In addition, the Company’s officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions of Section 16 of the Exchange Act and the rules promulgated thereunder with respect to their purchases and sales of the Company’s shares.

 

In addition, as a “foreign private issuer” whose securities are listed on NASDAQ, the Company is permitted to follow certain home-country corporate governance practices in lieu of certain NASDAQ requirements, except for certain matters including the composition and responsibilities of the audit committee and the independence of its members. A foreign private issuer must disclose in its annual reports filed with the SEC each NASDAQ requirement with which it does not comply followed by a description of its applicable home country practice. The Company currently follows some, but not all of the corporate governance requirements of NASDAQ. With respect to the corporate governance requirements of NASDAQ that the Company follows, the Company cannot make any assurances that it will continue to follow such corporate governance requirements in the future, and may therefore in the future, rely on available NASDAQ exemptions that would allow the Company to follow its home country practice.

 

The Company follows home country practice in lieu of NASDAQ corporate governance requirements with respect to the following NASDAQ requirements:

 

  Executive Sessions. We are not required to and, in reliance on home country practice, we may not, comply with certain NASDAQ rules requiring the Company’s independent directors to meet in regularly scheduled executive sessions at which only independent directors are present. The Company follows Cayman Islands practice which does not require independent directors to meet regularly in executive sessions separate from the full board of directors.

 

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  Nomination of Directors. The Company’s director nominees may not be selected or recommended for the board of director’s selection by either (i) independent directors constituting a majority of the board’s independent directors in a vote in which only independent directors participate, or (ii) a nominations committee comprised solely of independent directors, as required under NASDAQ rules. The Company follows Cayman Islands practice which does not require director nominations to be made or recommended solely by independent directors. Further, the Company does not have a formal written charter or board resolution addressing the director nominations process. The Company follows Cayman Islands practice which does not require the Company to have a formal written charter or board resolution addressing the director nominations process.
     
  Proxy Statements. Even though we are not required to and, in reliance on home country practice, we may not, comply with certain NASDAQ rules regarding the provision of proxy statements for general meetings of shareholders, the Company provides proxy statements for its annual general meeting. The Cayman Islands practice does not impose a regulatory regime for the solicitation of proxies.
     
  Shareholder Approval. The Company is not required to and, in reliance on home country practice, it does not intend to, comply with certain NASDAQ rules regarding shareholder approval for certain issuances of securities under NASDAQ Rule 5635. In accordance with the provisions of the Company’s Amended and Restated Memorandum and Articles of Association, the Company’s board of directors is authorized to issue securities, including Ordinary Shares, preferred shares, warrants and convertible notes, without shareholder approval.

 

Such Cayman Islands home country practices may afford less protection to holders of the Company’s securities.

 

The Company would lose its status as a “foreign private issuer” under current SEC rules and regulations if more than 50% of the Company’s outstanding voting securities become directly or indirectly held of record by U.S. holders and one of the following is true: (i) the majority of the Company’s directors or executive officers are U.S. citizens or residents; (ii) more than 50% of the Company’s assets are located in the United States; or (iii) the Company’s business is administered principally in the United States. If the Company loses its status as a foreign private issuer in the future, it will no longer be exempt from the rules described above and, among other things, will be required to file periodic reports and annual and quarterly financial statements as if it were a company incorporated in the United States. If this were to happen, the Company would likely incur substantial costs in fulfilling these additional regulatory requirements and members of the Company’s management would likely have to divert time and resources from other responsibilities to ensuring these additional regulatory requirements are fulfilled.

 

The Company is an “emerging growth company,” and any decision on the Company’s part to comply with certain reduced disclosure requirements applicable to emerging growth companies could make its Ordinary Shares less attractive to investors.

 

The Company is an “emerging growth company,” as defined in the JOBS Act and, for as long as it continues to be an emerging growth company, it may choose to take advantage of certain exemptions from various reporting requirements applicable to other public companies including, but not limited to: not being required to have its internal control over financial reporting audited by its independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act for a specified time period; reduced disclosure obligations regarding executive compensation in its periodic reports; and exemptions from the requirements to hold a nonbinding advisory vote on executive compensation and to obtain shareholder approval of any golden parachute payments not previously approved. The Company has taken, and may continue to take, advantage of some or all of such exemptions until such time as the Company is no longer an “emerging growth company”. The Company will cease to be an “emerging growth company” upon the earliest of: the first fiscal year following the fifth anniversary of its initial sale of common equity pursuant to a registration statement declared effective under the Securities Act; the first fiscal year after its annual gross revenue is $1.07 billion or more; the date on which it has, during the previous three-year period, issued more than $1 billion in non-convertible debt securities; or the date on which it is deemed to be a “large accelerated filer” as defined in the Exchange Act. To the extent the Company takes advantage of any of these reduced reporting burdens in its filings, the information that it provides to its security holders may be different than you might get from other public companies in which you hold securities. The Company cannot predict if investors find, or will find, its securities less attractive because of the Company’s reliance on these exemptions. If some investors find the Company’s securities less attractive as a result, there may be a less active trading market for the Company’s Ordinary Shares and its share price may be more volatile.

 

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The Company’s controlling shareholder has substantial influence over the Company and its interests may not be aligned with the interests of the Company’s other shareholders.

 

BPGIC Holdings holds approximately 85.6% of the Company’s voting equity. Each of BPGIC Holdings, Nicolaas Paardenkooper as a director of BPGIC Holdings, BPGIC PLC and the majority shareholder of BPGIC PLC have substantial influence over our business, including decisions regarding mergers, consolidations, the sale of all or substantially all of our assets, election of directors, declaration of dividends and other significant corporate actions. As the controlling shareholder, BPGIC Holdings may take actions that are not in the best interests of the Company’s other shareholders. These actions may be taken in many cases even if they are opposed by the Company’s other shareholders. In addition, this concentration of ownership may discourage, delay or prevent a change in control which could deprive you of an opportunity to receive a premium for your Ordinary Shares as part of a sale of the Company.

 

Risks Related to Doing Business in Countries in Which the Company Operates

 

The Company is subject to political and economic conditions in Fujairah and the UAE.

 

All of the Company’s operations are located in the UAE. The Company’s operations in Fujairah are located near an area of strategic economic and military importance for the entire region. As such, the Company’s future business may be affected by the financial, political and general economic conditions prevailing from time to time in the region and the UAE.

 

Although economic growth rates in the UAE remain above those of many more developed, as well as regional, markets, the UAE has experienced slower economic growth in recent years, following the downturn experienced as a result of the global financial crisis in 2008 and the sharp decline in oil prices in recent years, which remain volatile and below historic highs. There can be no assurance that economic growth or performance in Fujairah or the UAE, in general, will be sustained. The UAE’s wealth remains largely based on oil and gas. Despite the UAE being viewed as being less vulnerable than some of its Gulf Cooperation Council (“GCC”) neighbors, due to the growth in the non-oil sector and the sizeable wealth of the government of Abu Dhabi, fluctuations in energy prices have an important bearing on economic growth. To the extent that economic growth or performance in the UAE subsequently declines, the Company’s business, financial condition and results of operations may be adversely affected. In addition, the implementation by the governments of the UAE of restrictive fiscal or monetary policies or regulations, including in respect of interest rates, or new legal interpretations of existing regulations and the introduction of taxation or exchange controls could have a material adverse effect on the Company’s business, financial condition, results of operations and prospects.

 

While the UAE enjoys domestic political stability and generally healthy international relations, since early 2011 there has been political unrest in a range of countries in the MENA region, including Algeria, Bahrain, Egypt, Iraq, Libya, Morocco, Oman, Saudi Arabia, Syria, Tunisia and Yemen. This unrest has ranged from public demonstrations to, in extreme cases, armed conflict and civil war and has given rise to a number of regime changes and increased political uncertainty across the region. The MENA region is currently subject to a number of armed conflicts including those in Yemen (in which the UAE armed forces, along with a number of other Arab states, are involved), Syria and Iraq as well as the multinational conflict with Islamic State.

 

It is not possible to predict the occurrence of events or circumstances such as terrorism, war or hostilities, or more generally the financial, political and economic conditions prevailing from time to time, or the impact of such occurrences or conditions, and no assurance can be given that the Company would be able to sustain its current profit levels if adverse financial, political or economic events or circumstances were to occur. A general downturn or instability in certain sectors of the UAE or the regional economy, or political upheaval therein, could have an adverse effect on the Company’s business, results of operations and financial condition. Investors should also note that the Company’s business and financial performance could be adversely affected by political, economic or related developments both within and outside the MENA region because of interrelationships within the global financial markets.

 

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On June 5, 2017, three GCC countries, Saudi Arabia, the UAE and Bahrain, as well as Egypt and Yemen, severed diplomatic ties with Qatar, cut trade and transport links and imposed sanctions on Qatar. The stated rationale for such actions was Qatar’s support of terrorist and extremist organisations and Qatar’s interference in the internal affairs of other countries. However, these diplomatic relations are restoring, as UAE ended all measures taken against Qatar following the signing of AlUla agreement between GCC countries on January 5, 2021.

 

In the past, political conflicts have resulted in attacks on vessels, mining of waterways and other efforts to disrupt shipping. Despite its location outside the Strait of Hormuz, continuing conflicts, instability and other recent developments in the Middle East and elsewhere, including relatively recent attacks involving vessels and vessel seizures in the Strait of Hormuz, and the presence of U.S. or other armed forces in Syria, may lead to additional acts of terrorism or armed conflict around the world, and our customer’s vessels may face higher risks of being attacked or detained. The Company’s business and financial performance would be adversely affected by any reduction in use of the Port of Fujairah as a result of such tensions or conflict.

 

Prospective investors should also be aware that investments in emerging markets, such as the UAE, are subject to greater risks than those in more developed markets. The economy of the UAE, like those of many emerging markets, has been characterized by significant government involvement through direct ownership of enterprises and extensive regulation of market conditions, including foreign investment, foreign trade and financial services. While the policies of the local and central governments of the UAE generally resulted in improved economic performance in previous years, there can be no assurance that these levels of performance can be sustained.

 

Relatively recent geopolitical developments have increased the risk that the region in which the Company operates could be involved in an escalating conflict that could have a material adverse effect on our business, financial condition and results of operations.

 

On September 14, 2019, certain attacks on an oil processing plant and an oil field in Saudi Arabia took place, which, according to reports, significantly disrupted the oil production capacity of Saudi Arabia, and could cause short and/or long term geopolitical strife. The government of Saudi Arabia and the United States have reported their belief that the attacks were conducted by Iran or its proxy (possibly Yemen). Whether or not these reports are accurate, rising tensions in the region could significantly place the extraction, production and delivery of oil produced in the region at risk. Further, because the UAE is also involved in the conflict in Yemen, it is possible that the perpetrators of the attacks may seek to launch a similar attack against the UAE. Should such an attack occur, or should rising tension in the region cause a conflict, the ports, pipelines and terminal facilities of the UAE could be at risk and the Company’s operations could be materially and adversely affected.

 

The Company’s business operations could be adversely affected by terrorist attacks, natural disasters or other catastrophic events beyond its control.

 

The Company’s business operations could be adversely affected or disrupted by terrorist attacks, natural disasters (such as floods, fires, earthquakes or significant storms) or other catastrophic or otherwise disruptive events, including changes to predominant natural weather, sea and climatic patterns, piracy, sabotage, insurrection, military conflict or war, riots or civil disturbance, radioactive or other material environmental contamination, an outbreak of a contagious disease, or changes to sea levels, which may adversely affect global or regional trade volumes or user demand for oil products transported to or from affected areas, and denial of the use of any railway, port, airport, shipping service or other means of transport and disrupt users’ logistics chains. In addition, the Company may be exposed to extreme weather conditions such as severe heat, flooding, rain or wind conditions, which could disrupt activities at the BPGIC Terminal and the Port of Fujairah. Several of the Company’s competitors in the Fujairah oil zone region have experienced issues with flooding in the past due to the region’s close proximity to the Al Hajar mountainous region, where floods sometimes occur when a significant amount of rain mixes with the dirt from the mountains and subsequently clogs the region’s drainage system. Although the BPGIC Terminal has been designed with sufficient drainage capabilities to handle certain flooding scenarios and the Phase I and II oil storage tanks have been constructed to withstand high levels of radiation and fire in accordance with National Fire Protection Association (“NFPA”) standards, if the flooding, radiation or fire is significantly severe, there can be no assurance the Company’s business operations would be unaffected by it.

 

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The occurrence of any of these events at the BPGIC Terminal or in Fujairah may reduce the Company’s business volumes, cause delays in the arrival and departure of oil tankers or disruptions to its operations, in part or in whole, may increase the costs associated with storage, heating or blending activities, may subject the Company to liability or impact its brand and reputation and may otherwise hinder the normal operation of the BPGIC Terminal, which could substantially impair the Company’s growth prospects and could have a material adverse effect on its business, financial condition and results of operations. Although the Company has insurance in place to cover certain of these events if they occur at the BPGIC Terminal, including sabotage and terrorism and business interruption insurance, there can be no assurance that such insurance will be sufficient to cover all costs and lost business volumes associated with such events.

 

Climate change legislation or regulations restricting emissions of greenhouse gases could result in increased operating and capital costs and reduced demand for the Company’s storage services.

 

There is a growing belief that emissions of greenhouse gases (“GHGs”), such as carbon dioxide and methane, may be linked to climate change. Climate change and the costs that may be associated with its impacts and the regulation of GHGs have the potential to affect the Company’s business and the businesses of users in many ways, including negatively impacting the costs the Company incurs in providing its services and the demand for its services (due to change in both costs and weather patterns).

 

In February 2005, the Kyoto Protocol to the United Nations Framework Convention on Climate Change, or the Kyoto Protocol, entered into force. The UAE ratified the Kyoto Protocol in 2005. The first commitment period of the Kyoto Protocol ended in 2012, but it was nominally extended past its expiration date with a requirement for a new legal construct to be put into place by 2015. To that end, in December 2015, over 190 countries, including the UAE, reached an agreement to reduce global greenhouse gas emissions. From the time the Company completed construction of Phase I on November 19, 2017, its facilities have been in full compliance with the latest requirements. The Paris Agreement requires governments to take legislative and regulatory measures to reduce emissions that are thought to be contributing to climate change. While the Company has already taken certain measures to reduce emissions of volatile organic compounds, additional measures might become necessary, which could increase operating costs. Moreover, the Company’s business might be impacted by changes in demand of the oil products that it stores to the extent users are impacted by such regulations.

 

Although it is not possible at this time to accurately estimate how potential future laws or regulations addressing GHG emissions would impact the Company’s business, any future local, national, international or federal laws or implementing regulations that may be adopted to address GHG emissions could possibly require the Company to incur increased operating costs and could adversely affect demand for the oil or oil products it stores. The potential increase in the costs of the Company’s operations resulting from any legislation or regulation to restrict emissions of GHGs could include new or increased costs to operate and maintain its facilities, install new emission controls on its facilities, acquire allowances to authorize its greenhouse gas emissions, pay any taxes related to its GHG emissions and administer and manage a GHG emissions program. Moreover, incentives to conserve energy or use alternative energy sources could reduce demand for the Company’s services. The Company cannot predict with any certainty at this time how these possibilities may affect its operations. Many scientists have concluded that increasing concentrations of GHGs in the Earth’s atmosphere may produce climate change that could have significant physical effects, such as increased frequency and severity of storms, droughts, and floods and other climatic events; if such effects were to occur, they could have an adverse effect on the Company’s business, financial condition and results of operations.

 

Currently, the Company is exposed to physical risks associated with climate change, including extreme weather events such as hurricanes and flooding that could damage or disrupt its facilities and operations. The Company has implemented measures to mitigate these risks, such as investing in resilient infrastructure and insurance coverage. The Company is also exposed to transition risks related to climate change, including changes in market demand for oil products and the shift towards renewable energy sources. The Company has developed strategies to manage these risks, such as diversifying its business to provide services that support the energy transition including the planned modular refinery to produce IMO 2020 compliant LSFO and the planned green ammonia project. The potential impacts of climate change on the transportation of oil products include disruptions and delays due to extreme weather events, rising sea levels, changes in ocean currents, and stricter regulations, which could increase the cost of transportation and impact the Company’s supply chain.

 

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The Company may incur significant costs to maintain compliance with, or address liabilities under, environmental, health and safety regulations applicable to its business.

 

The Company’s business operations are subject to UAE, national, state and local environmental laws and regulations concerning, among other things, the management of hazardous substances, the storage and handling of hazardous waste, the control of the emission of vapor into the air and water discharges, the remediation of contaminated sites and employee health and safety. These laws and regulations are complex and subject to change. The Company could incur unexpected costs, penalties and other civil and criminal liability if it fails to comply with applicable environmental or health and safety laws. Although the Company has installed impermeable lining over the ground soil throughout the Phase I & II Land’s tank farm area and any other area where oil leakage could occur and potentially reach the ground soil, and intends to take similar preventative measures for the Green Hydrogen and Green Ammonia Project land and Phase III Land, there can be no assurance in the event of an accidental leak, release or spill of oil products or other products, that the Company will not experience operational disruptions or incur costs related to cleaning and disposing waste and oil products, remediating ground soil or groundwater contamination, paying for government penalties, addressing natural resource damage, compensating for human exposure or property damage, or a combination of these measures. Although the Company believes it has adequate insurance in place to insure against the occurrence of any of the foregoing events, there can be no assurance that the Company’s insurance would be sufficient to cover all potential costs. Therefore, the occurrence of any of the foregoing events could have a material adverse effect on the Company’s business, financial condition and results of operations.

 

Furthermore, although the Company monitors the exposure of its employees, neighbors and others to risks connected with its operations, future health claims of its employees or other such persons, caused by past, present or future exposure cannot be excluded. The Company could be subject to claims by government authorities, individuals and other third parties seeking damages for alleged personal injury or property damage resulting from hazardous substance contamination or exposure caused by its operations, facilities or products, and the Company’s insurance may not be sufficient to cover these claims.

 

In addition, compliance with future environmental or health and safety laws and regulations may require significant capital or operational expenditures or changes to the Company’s operations.

 

The Company could be adversely affected by violations of anti-corruption laws or economic sanctions programs.

 

Currently, all of the Company’s operations are conducted in the UAE. The Company is committed to doing business in accordance with all applicable laws and its own code of ethics. The Company is subject, however, to the risk that customers, end users, the Company, its subsidiaries or their respective officers, directors, employees and agents may take actions determined to be in violation of anti-corruption laws. In addition, as a result of the Business Combination, the Company is subject to the U.S. Foreign Corrupt Practices Act. Any violations of applicable anti-corruption laws could result in substantial civil and criminal penalties, and could have a damaging effect on the Company’s reputation and business relationships. Furthermore, the Company is subject to economic sanctions programs, including those administered by the United Nations Security Council, the UAE and the United States. Although the Company has policies and procedures designed to ensure compliance with applicable sanctions programs, there can be no assurance that such policies and procedures are or will be sufficient or that customers, users, the Company or their respective officers, directors, employees and agents will not take actions in violation of the Company’s policies and procedures (or otherwise in violation of the relevant sanctions regulations) for which the Company may ultimately be held responsible.

 

Tax liabilities associated with indirect taxes on the oil products the Company services could result in losses to it.

 

In Fujairah, the oil products that the Company stores and blends for the Storage Customers in the Phase I and II facilities are subject to taxes that are not based on income, sometimes referred to as “indirect taxes”, including import duties, excise duties, environmental levies and value-added taxes. Once the Modular Refinery becomes operational, the oil products that the Company will handle in connection with the Modular Refinery will be subject to similar “indirect taxes”. Under the terms and conditions of the respective customer agreements, the Company is, or expects to be, entitled to pass on such indirect taxes to its customers.

 

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However, changes to existing regulations for indirect taxes or the introduction of new regulations are beyond the Company’s control and may be influenced by political or commercial considerations not aligned with its interests. Any such regulations could adversely affect the Company’s business by increasing its costs to the extent it is unable to pass on such indirect taxes to the Storage Customers, and as a result, adversely affect its business, financial condition and results of operations.

 

Changes to VAT law in the UAE may have an adverse effect on the Company’s business, financial condition and results of operations.

 

On August 23, 2017, the government of the UAE published Federal Decree-Law No. 8 of 2017 (the “VAT Law”) on value added tax (“VAT”) which came into effect on January 1, 2018. Cabinet Decision No. 52 of 2017 on the executive regulations of the VAT Law, issued on November 26, 2017, and Cabinet Decision No. 59 of 2017 on designated zones for the purposes of the VAT Law, issued on December 28, 2017, provide that certain designated zones in the UAE are subject to special VAT treatment. Subject to it continuing to meet the conditions set out in the executive regulations to the VAT Law, the area in which the Company operates is a designated zone for the purposes of the VAT Law and therefore the Company benefits from certain exemptions under the VAT Law. There is no guarantee that the free zone in which the Company operates will remain a designated zone in the future. If the area in which the Company operates loses its designation as a designated zone or any change is made to the applicable rate on the supply of services for the area in which the Company operates, the Company’s business, financial condition and results of operations may be adversely affected.

 

The new UAE Corporate Tax Law may have an adverse effect on the Company’s business and financial condition

 

The UAE officially issued a federal decree-law on corporate tax at a nine (9) percent rate for taxable business profits exceeding AED375,000. The new law was announced in December 2022 and is set to come into effect for financial years starting June 1, 2023

 

The Company’s business may be materially adversely affected if the US dollar/UAE dirham-tied exchange rate were to be removed or adjusted.

 

All of the Company’s current revenues are received in US dollars and all of its operating costs are incurred in UAE dirhams. All of the Company’s current revenues and operating costs derive from its operations in the UAE. Although the US dollar/UAE dirham exchange rate is currently fixed, there can be no assurance that the government of the UAE will not de-peg the UAE dirham from the US dollar in the future. Alternatively, the existing fixed rate may be adjusted in a manner that increases the costs of certain equipment used in the Company’s business or decreases the Company’s receipt of payments from users. Any adjustment of the fixed rate or de-pegging of the UAE dirham from the US dollar in the future could cause the Company’s operations and reported results of operations and financial condition to fluctuate due to currency translation effects, which could have a material adverse effect on its business, financial condition and results of operations.

 

The Company’s business may be materially adversely affected by unlawful or arbitrary governmental action.

 

Governmental authorities in the UAE have a high degree of discretion and, at times, act selectively or arbitrarily, without hearing or prior notice, and sometimes in a manner that influenced by political or commercial considerations. Such governmental action could include, among other things, the expropriation of property without adequate compensation or the forcing of business acquisitions, combinations or sales. Any such action taken may have a material adverse effect on the Company’s business, financial condition and results of operations.

 

Legal and regulatory systems may create an uncertain environment for investment and business activities.

 

The UAE’s institutions and legal and regulatory systems are not yet as fully matured and as established as those of Western Europe and the United States. Existing laws and regulations may be applied inconsistently with anomalies in their interpretation or implementation. Such anomalies could affect the Company’s ability to enforce its rights under its contracts or to defend its business against claims by others. Changes in the UAE legal and regulatory environment, including in relation to foreign ownership restrictions, labor, welfare or benefit policies or in tax regulations could have a material impact on the Company’s business, financial condition and results of operations.

 

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The grant and future exercise of registration rights may adversely affect the market price of Ordinary Shares of the Company.

 

Pursuant to the existing registration rights agreement with Twelve Seas Sponsor and the registration rights agreement entered into in connection with the Business Combination and which are described elsewhere in this Report, Twelve Seas’ Sponsor and BPGIC Holdings can demand that the Company register their registrable securities under certain circumstances and will also have piggyback registration rights for these securities in connection with certain registrations of securities that the Company undertakes.

 

The registration of these securities will permit the public resale of such securities. The registration and availability of such a significant number of securities for trading in the public market may have an adverse effect on the market price of the Company’s Ordinary Shares.

 

Sales of a substantial number of the Company’s securities in the public market could adversely affect the market price of its Ordinary Shares.

 

As of the closing of the Business Combination, Twelve Seas Sponsor and certain officers and directors of Twelve Seas (the “Initial Twelve Seas Shareholders”) held 4,721,900 Ordinary Shares and 529,000 Warrants. 2,587,500 of such Ordinary Shares were subject to a one year lock up restriction following the Closing. On December 20, 2020, such shares were released from their lock up restriction and, except with respect to 1,552,500 of such shares currently held in escrow, are eligible for sale in the public market. The 1,552,500 Ordinary Shares held in escrow are subject to release and forfeiture on the terms and conditions of the Initial Shareholder Escrow Agreement (defined below). As and if the milestones in the Initial Shareholder Escrow Agreement are satisfied, portions of such escrowed shares will be released to the Twelve Seas Sponsor and will become eligible for future sale in the public market. Sales of a significant number of these Ordinary Shares of the Company in the public market, or the perception that such sales could occur, could reduce the market price of Ordinary Shares of the Company.

 

NASDAQ may delist the Company’s securities on its exchange, and delisting could limit investors’ ability to make transactions in the Company’s securities and subject the Company to additional trading restrictions.

 

The Company’s securities are currently listed on NASDAQ. The Company may be unable to maintain the listing of its securities in the future. If the Company is unable to maintain the listing of its securities on NASDAQ, the Company could face significant material adverse consequences, including:

 

  a limited availability of market quotations for its securities;
     
  a less liquid market for its securities;
     
  a limited amount of news and analyst coverage for the Company; and
     
  a decreased ability to issue additional securities or obtain additional financing in the future.

 

General Risk Factors

 

Fluctuations in operating results, quarter-to-quarter earnings and other factors, including incidents involving customers and negative media coverage, may result in significant decreases in the price of the Company’s securities.

 

The stock markets experience volatility that is often unrelated to operating performance. These broad market fluctuations may adversely affect the trading price of the Company’s securities and, as a result, there may be significant volatility in the market price of the Company’s securities. If the Company is unable to operate profitably as investors expect, the market price of the Company’s securities will likely decline when it becomes apparent that the market expectations may not be realized. In addition to operating results, many economic and seasonal factors outside of the Company’s control could have an adverse effect on the price of the Company’s securities and increase fluctuations in its periodic earnings. These factors include certain of the risks discussed herein, operating results of other companies in the same industry, changes in financial estimates or recommendations of securities analysts, speculation in the press or investment community, negative media coverage or risk of proceedings or government investigation, the possible effects of war, terrorist and other hostilities, pandemics, adverse weather conditions, changes in general conditions in the economy or the financial markets or other developments affecting the oil and gas storage industry.

 

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The market for the Company’s securities may not be sustained, which would adversely affect the liquidity and price of the Company’s securities.

 

The price of the Company’s securities may vary significantly due to general market or economic conditions. Furthermore, an active trading market for the Company’s securities may not be sustained. You may be unable to sell your securities unless a market can be sustained.

 

The price of the Company’s Ordinary Shares may be volatile.

 

The price of the Company’s Ordinary Shares may fluctuate due to a variety of factors, including but not limited to:

 

  actual or anticipated fluctuations in our periodic financial results and those of other public companies in the industry;
     
  mergers and strategic alliances in the oil and gas industries;

 

  market prices and conditions in the oil and gas markets;
     
  changes in government regulation;
     
  potential or actual military conflicts or acts of terrorism;
     
  existing or future global or regional health crises;
     
  the failure of securities analysts to publish research about us, or shortfalls in our operating results compared to levels forecast by securities analysts;
     
  announcements concerning us or our competitors; and
     
  the general state of the securities markets.

 

These market and industry factors may materially reduce the market price of our Ordinary Shares, regardless of our operating performance. Volatility in the price of our Ordinary Shares may increase volatility in the price of our Warrants.

 

Reports published by analysts, including projections in those reports that differ from our actual results, could adversely affect the price and trading volume of our Ordinary Shares.

 

We currently expect that securities research analysts will establish and publish, or will continue to publish, their own periodic projections for our business. These projections may vary widely and may not accurately predict the results we actually achieve. Our share price may decline if our actual results do not match the projections of these securities research analysts. Similarly, if one or more of the analysts who write reports on us downgrades our shares or publishes inaccurate or unfavorable research about our business, our share price could decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, our share price or trading volume could decline. While we expect continued research analyst coverage, if no analysts cover us, the trading price and volume for our Ordinary Shares could be adversely affected.

 

ITEM 4. INFORMATION ON THE COMPANY

 

A. History and development of the Company

 

The Company’s legal and commercial name is Brooge Energy Limited. Until April 7, 2020, the Company’s legal and commercial name was Brooge Holdings Limited. The Company was incorporated for the purpose of effectuating the Business Combination and to hold BPGIC. The Company was incorporated under the laws of the Cayman Islands as an exempted company on April 12, 2019. Prior to the Business Combination, the Company owned no material assets and did not operate any business. The name and mailing address of the Company’s agent and registered office is Maples Corporate Services Limited, P.O. Box 309, Ugland House, Grand Cayman KY1-1104, Cayman Islands. Its principal executive office is that of BPGIC, located at P.O. Box 50170, Fujairah, United Arab Emirates and its telephone number is +971 9 201 6666. The Company’s agent for service of process in the United States is Puglisi & Associates, located at 850 Library Avenue, Suite 204, Newark, Delaware 19711.

 

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In accordance with the terms and conditions of the Business Combination Agreement, on December 20, 2019, (i) Twelve Seas merged with Merger Sub with Twelve Seas continued as the surviving entity and a wholly-owned subsidiary of the Company under the name BPGIC International, with holders of Twelve Seas securities receiving substantially similar securities of the Company, and (i) the Company acquired all of the issued and outstanding ordinary shares of BPGIC from BPGIC Holdings in exchange for Ordinary Shares of the Company and BPGIC became a wholly-owned subsidiary of the Company. Upon consummation of the Business Combination, the Company’s Ordinary Shares and Warrants became listed on the Nasdaq Capital Market.

 

All of the Company’s operations are currently conducted through BPGIC and once the Green Hydrogen and Green Ammonia Project and the Phase III are ready through BPGIC, BPGIC III and BRE.

 

History and Development

 

The following timeline sets forth BPGIC’s major milestones.

 

 

 

BPGIC was incorporated in 2013 in the Fujairah Free Zone, UAE, to provide oil storage, heating and blending services. On February 10, 2013, the Fujairah Free Zone Authority provided BPGIC with a license to engage in the following activities: (i) trading and storing all varieties of oil products and gas, including crude and fuel oils; (ii) building, managing and investing in refineries and all other types of investments; and (iii) exploring and extracting crude oil and gas in both onshore and offshore fields.

 

On March 10, 2013, BPGIC entered into the 60-year Phase I & II Land Lease with the Fujairah Municipality, a local government organization specializing in municipal urban and rural municipal affairs, for a parcel of land to build and operate the BPGIC Terminal, which is in the Port of Fujairah. On September 1, 2014, the Phase I & II Land Lease was novated from the Fujairah Municipality to FOIZ.

 

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After several years of planning and design, BPGIC finalized plans for phase 1 during the first Quarter of 2015. On March 31, 2016, BPGIC entered into a Port Facilities Agreement with the Port of Fujairah. BPGIC signed an EPC agreement for Phase I (the “Phase I EPC Agreement”) on April 2, 2015 with Audex and commenced work in accordance with the Phase I EPC Agreement. Audex completed Phase I construction on November 19, 2017 and between 2014 and 2017, BPGIC incurred a total cost of $170 million in connection with its construction. BPGIC began testing operations on December 20, 2017 and commenced limited operations on January 18, 2018. From the time BPGIC began its operations on December 20, 2017 to February 28, 2018, BPGIC limited the availability of its Phase I storage capacity to 40 percent, allowing its management team to test all systems and make any necessary adjustments. BPGIC increased the availability of its Phase I storage capacity to approximately 70 percent on March 1, 2018 and to 100 percent on April 1, 2018.

 

As Phase I neared completion, BPGIC finalized plans for Phase II in the Third Quarter of 2017. In February 2017, BPGIC finalized and issued a front-end engineering document, which sets out the qualifications, specifications, drawings and designs of Phase II, to Audex. Phase II work commenced in September 2018. On September 3, 2018, BPGIC signed the Phase II Project Management Agreement with MUC to engage MUC to manage the construction plan of Phase II. In September 2021, the Company commenced the Phase II testing operations.

 

On October 15, 2018, BPGIC entered into the Phase II Financing Facility, which was a $95.3 million secured Shari’a compliant Istisna’ financing arrangement coordinated by FAB, to fund a portion of the capital expenditure in respect of Phase II.

 

As part of Phase II, the Company followed a similar approach to Phase I by investing in high-grade, long-life materials for the construction and development of its facilities. Phase II construction is completed with a total cost of $185.9 million, which includes the cost of construction, consultancy costs, borrowing costs and other miscellaneous cost.

  

As of December 31, 2019, the Company had funded the construction of Phase I, Phase II and all of its other cash requirements with funds from the Phase I Financing Facilities, and net equity contributions (other than share capital) since 2014 of $71.01 million from shareholders.

 

In August 2020, the Company commenced hydrotesting of the Phase II facility.

 

During September 2020, as part of the Bond Financing Facility, BPGIC issued bonds of $200 million to private investors with a face value of $1 and an issue price of $0.95. The issuance has a maximum size of $250.00 million, which includes the option for a tap issue of an additional $50.00 million subject to certain conditions. The proceeds of the Bond Financing Facility were used to repay Phase I Financing Facilities, fund capital project for Phase II, repay the promissory note payable to Early Bird Capital, pre-fund the Liquidity Account and for general corporate purposes. The proceeds of the bonds were drawn down during November 2020 and outstanding term loans were fully settled. The principal repayment of the Bond Financing Facility will be semi-annual payments of $7 million starting in September 2021 until March 2025, and one bullet repayment of $144 million in September 2025. The bonds bear interest at 8.5% per annum, payable semi-annually along with the principal installments.

 

In September 2021, the Company commenced operations of its Phase II.

 

The Company is in the advanced stages of planning Phase III, a major expansion in the Port of Fujairah and has commenced early preparation works. The Company has signed two contracts, one for $31.5 million and another for $37.0 million for terminal connectivity and early preparation works for Phase 1, 2 and 3A. In addition to these capital expenditures the Company incurred the cost of a FEED study for storage capacity of up to 3,500,000 m3 or a combination of 1,660,000 m3 and a refinery with a capacity of up to 180,000 b/d.

 

Where to Find Additional Information

 

The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, which is accessible at http://www.sec.gov. Since we are a “foreign private issuer,” we are exempt from the rules and regulations under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions contained in Section 16 of the Exchange Act, with respect to their purchase and sale of our shares. In addition, we are not required to file reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we are required to file with the SEC an Annual Report on Form 20-F containing financial statements audited by an independent accounting firm. The Company’s website is https://www.broogeenergy.com/. The information contained in, or accessible through, our website is not a part of this Report.

 

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B. Business Overview

 

In this section, references to “the Company,” “we,” “us,” and “our” are intended to refer to Brooge Energy Limited and its subsidiaries, unless the context clearly indicates otherwise.

 

This section contains forward-looking statements about the business and operations of the Company. The actual results of the Company may differ materially from those currently anticipated as a result of many factors, including those described under “Item 3.D Risk Factors” and elsewhere in this Report. See “Cautionary Note Regarding Forward-Looking Statements”.

 

Overview

 

BPGIC is an oil storage and service provider strategically located in the Port of Fujairah in the emirate of Fujairah in the UAE. BPGIC’s vision is to develop an oil storage business that differentiates itself from competitors by providing its customers with fast order processing times, excellent customer service and high accuracy blending services with low oil losses. BPGIC has a 60-year lease of land, consisting of an initial 30-year lease and a 30-year renewal lease, for its operations located in close proximity to the Port of Fujairah’s berth connection points. BPGIC developed its terminal’s storage capacity in two phases, Phase I and Phase II, both of which are already operational. Phase I commenced operations in December 2017, Phase II commenced operations in September 2021, and Phase III FEED, EIA and Soil Investigation Reports have been received and are underway for further update and development. On December 5, 2022, BPGIC and BPGIC III signed a land preparation work contract with Audex Fujairah LL FZE for Phase III, for the design and execution of the early preparation works for the Phase III land and for the terminal connectivity.

 

The Port of Fujairah is the main bunkering location in the MENA region and the second largest bunkering hub in the world. The Port of Fujairah has witnessed increased growth in port traffic in recent years with oil and oil product volumes increasing at a compound annual growth rate of 15 percent over the eight-year period from 2010 (34 million MT) to 2017 (90 million MT). Located just outside the Strait of Hormuz, the Port of Fujairah allows ships transporting oil and oil products to bypass the Strait of Hormuz, one of world’s most vulnerable chokepoints given that approximately 35 percent of the world’s seaborne oil and oil products passes through it each year. There is an increasing preference among companies to avoid sending their vessels through the Strait of Hormuz due to geopolitical risk, higher transportation costs due to increased insurance costs as well as congestion and queuing times at ports inside the Arabian Gulf. The Port of Fujairah’s geographic position outside the Strait of Hormuz allows vessels transporting oil and oil products to bypass the Strait of Hormuz and avoid incurring such additional costs and delays.

 

On March 10, 2013, we entered into the 60-year Phase I & II Land Lease for a parcel of land to build and operate the Phase I and Phase II facilities, which is in the Port of Fujairah.

 

Phase I comprises 14 oil storage tanks with an aggregate geometric oil storage capacity of approximately 0.399 million m3 and related infrastructure. The operations of Phase I are focused primarily on the storage, heating and blending of fuel oil and clean petroleum products, including aviation fuel, gas oil, gasoline, marine gas oil and naphtha. BPGIC designed Phase I to focus its operations on servicing such products after assessing the historical and expected demand for such services in the Port of Fujairah region and the evolution and availability of associated infrastructure. As described below, BPGIC designed Phase I with several key features that enable it to provide users with high accuracy blending services with low oil losses. In addition, due to the relatively long term of the Phase I & II Land Lease when compared to similar land leases for oil storage terminals located in the Port of Fujairah, BPGIC constructed Phase I with materials, including pumps, valves and steel structures, that have longer expected life spans than comparable materials utilized by other oil storage terminals. As a result, the Company believes Phase I will benefit from annual maintenance costs over the period of the Phase I & II Land Lease that are lower than the average for comparable oil storage terminals.

 

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The key features of Phase I include:

 

  all 14 oil storage tanks are inter-connected via the Phase I Internal Manifold, the fully segregated internal manifold that connects the 14 oil storage tanks of Phase I (the “Phase I Internal Manifold”);
     
  the pumping and stripping systems of the Phase I Internal Manifold are equipped with a fine stripping system, minimizing energy costs, lowering loss ratios and permitting a high degree of stripping to be achieved;
     
  the ability to more efficiently perform required maintenance activities and prepare pipelines for oil transfers;
     
  lower loss ratios and contamination risks;
     
  recirculation of oil products to assist with the blending process;
     
  the ability to simultaneously perform various operations including: tank-to-tank transfers, recirculation’s, blending, heating, loading and discharging, permitting the Company to service multiple user orders during the same time period;
     
  all 14 oil storage tanks have been designed to permit conversions from storing one clean petroleum product to another and from storing fuel oil to gas oil at a speed which is favorable compared to that of competitors in the UAE region, allowing the Company to adjust its services to meet changing market demands;
     
  high oil transfer flow rates; and
     
  an indirect connection to all the Port of Fujairah berths, including certain underutilized berths that are in close proximity to the BPGIC Terminal, to allow users to benefit from lower contamination risks and faster vessel turnaround times and permitting greater access to the BPGIC Terminal.

 

Since it began operations, BPGIC has won five awards and been shortlisted for several others. In 2023, BPGIC won the “Best Specialist Liquid Bulk Terminal of the Year” and the “Safe and Secure Terminal of the Year” awards by Global Ports Forum. In 2021, BPGIC won the “Terminal of the year 2021” award by Global Ports and Terminal Industry. In 2020, BPGIC won the “Emerging Port / Terminal of the year 2020“ award by Global Ports and Terminal Industry. In 2019, BPGIC was named the winner of the “Outstanding Port/Terminal Design of the Year 2019” award by The Global Ports Forum, the “Excellence in Terminal Optimisation Award” by Tank Storage Magazine’s Global Tank Storage Awards, and the “Logistics Service Provider of the Year Award 2019” by Energy Middle East. In March 2018, BPGIC was short-listed by Tank Storage magazine, despite its relatively short track record, for the “Most Efficient Storage Terminal” global award for best throughput rates and most effective operations. In March 2019, BPGIC was once again, short-listed by Tank Storage magazine for the “Most Efficient Storage Terminal” global award, as well as the “Safety Excellence in Bulk Liquid Storage” and “Biggest Commitment to Environmental Protection” global awards.

 

Phase II focus its operations primarily on the storage and blending of crude oil and clean petroleum products. Phase II involves eight additional oil storage tanks with an aggregate geometric oil storage capacity of approximately 0.601 million m3, which increased the Company’s aggregate geometric oil storage capacity to approximately 1 million m3. As part of Phase II, BPGIC has followed a similar approach to Phase I by investing in high-grade, long-life materials for the construction and development of its facilities. Phase II commenced operations in September 2021.

 

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The key features of Phase II include:

 

  all eight oil storage tanks are inter-connected via the Phase II Internal Manifold for crude oil operations and Phase I manifold for white oil operations;
     
  the pumping and stripping systems of the Phase II Internal Manifold is equipped with fine stripping systems to minimize energy costs and lower loss ratios;
     
  the cranes of the Phase II Internal Manifold allow the Company to more efficiently perform required maintenance activities and prepare pipelines for oil transfers;
     
  each of the two piggable crude oil jetty pipelines are directly connected between the Phase II Internal Manifold and Matrix Manifold 2, lowering loss ratios and contamination risks;
     
  Phase II facility is designed to perform various operations simultaneously, including tank-to-tank transfers, recirculations, blending, loading and discharging, which would permit the Company to service multiple user orders during the same time period; and
     
  All the Phase II oil storage tanks permit conversion between crude oil and white oil products, allowing the Company to adjust its services to meet changing market demands.

  

The Company is in the advanced stages of planning Phase III, a further major expansion in the Port of Fujairah. In February 2020, BPGIC entered into the Phase III Land Lease to secure the Phase III Land, a new plot of land of approximately 450,000 m2 near its existing Phase I and Phase II facilities. On October 1, 2020, BPGIC novated the Phase III Land Lease to BPGIC III. The Company believes that the Phase III Land can house additional storage capacity of up to 3,500,000 m3 or a storage capacity of 1,660,000 m3 combined with a refinery with a capacity of 180,000 b/d.. A FEED study, a Soil Investigation and an Environmental Impact Assessment (EIA) for the Phase III Land are being updated and discussions are going on with potential EPC contractors. Currently, the Company plans to use the Phase III Land to further increase its crude oil storage and refinery services capacity. On December 5, 2022, BPGIC and BPGIC III signed a land preparation work contract with Audex Fujairah LL FZE for Phase III, for the design and execution of the early preparation works for the Phase III land and for the terminal connectivity.

 

For the year ended December 31, 2022, the Company generated revenue from operations of $81.5 million, a profit and total comprehensive income of $27.2 million and an Adjusted EBITDA of $54.0 million. As at December 31, 2022, the Company had total assets of $473.6 million. For more information regarding the Company’s financial condition and results of operations, see “Item 5. Operating and Financial Review and Prospects”.

 

Competitive Strengths

 

Strategic location of the BPGIC Terminal.

 

The BPGIC Terminal is strategically located in the Port of Fujairah, which is the main bunkering location in the MENA region and the second largest bunkering hub in the world. The Port of Fujairah has witnessed increased growth in port traffic in recent years with oil and oil product volumes increasing at a compound annual growth rate of 15 percent over the eight-year period from 2010 (34 million MT) to 2017 (90 million MT). Located just outside the Port of Fujairah, the Strait of Hormuz is one of world’s most vulnerable chokepoints for the transportation of oil and oil products as approximately 35 percent of the world’s yearly average seaborne oil and oil products passes through it each year. There is an increasing preference among companies to avoid sending their vessels through the Strait of Hormuz due to the continued geopolitical uncertainty from Iran and the higher transportation costs due to increased insurance costs as well as congestion and queuing times at ports inside the Arabian Gulf. The Port of Fujairah’s geographic position outside the Strait of Hormuz allows vessels transporting oil and oil products to bypass the Strait of Hormuz and avoid incurring such additional costs and delays.

 

In addition, the BPGIC Terminal is strategically positioned in a prime location within the Port of Fujairah. BPGIC benefits from the BPGIC Terminal’s close proximately to berths 8 and 9 due to the shorter travel distances required for oil product transfers, which in effect lowers contamination risks and leads to faster vessel turnaround times.

 

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Best-in-class facility with low costs.

 

The Company operates the BPGIC Terminal under two 60-year leases, which has allowed, and will continue to allow, the Company to design and build a terminal for long term use by using materials that have longer expected life spans than comparable materials utilized by other oil storage terminals in the MENA region, which the Company believes enabled it to build a best-in-class facility.

 

Phase I was constructed by Audex, a third party independent EPC contractor that has a strong track record in building terminals and over 20 years of experience in the industry. All 14 oil storage tanks in Phase I have been designed to permit conversions from storing one clean petroleum product to another at an average speed of 48 hours and from storing fuel oil to gas oil at an average speed of 30 days, which the Company believes compares favorably to the Company’s competitors in the UAE region, allowing the Company to adjust its services to meet changing market demands. The Company can perform various simultaneous operations in Phase I, including tank-to-tank transfers, recirculation, blending, heating, loading, and discharging, permitting the Company to service multiple user orders during the same time period. Phase I has a fully segregated internal manifold, high oil transfer flow rates and an indirect connection to all the Port of Fujairah berths, including certain underutilized berths that are in close proximity to the BPGIC Terminal, to allow users to benefit from lower contamination risks and faster vessel turnaround times while permitting greater access to the BPGIC Terminal. A fine stripping system has been installed, to minimize energy costs, lowering loss ratios and enabling a higher degree of stripping.

 

Stable and predictable revenue stream for storage services.

 

The Company generates stable and predictable cash flows for its storage services by providing fee-based, take-or-pay storage services to the existing Storage Customers.

 

BPGIC entered into the Commercial Storage Agreements, pursuant to which the Storage Customers pay a monthly fixed storage fee to lease the respective storage capacity.

 

Suite of ancillary services, which provide additional revenue streams.

  

Under the existing Commercial Storage Agreements, the Company is able to supplement its revenue by providing the existing Storage Customers, ancillary services including throughput, blending, heating and inter-tank transfers. To provide these ancillary services, BPGIC charges a fee, that varies by service, equal to a contractual rate per m3 or by hour. As a result, the Company earns additional revenue in accordance with the type and quantity of ancillary services used by the existing Storage Customers. BPGIC’s ability to provide ancillary services is enhanced due to the design of Phase I, which was designed, among other things, to provide high accuracy blending services with low oil losses, high oil transfer flow rates and the ability to perform up to 11 simultaneous operations, which contributes to Phase I’s attractiveness as a one-stop location for extensive product customization. Since 2019, all of BPGIC’s direct costs for the Phase I facility are covered by the storage revenue, revenues from ancillary services (less any associated variable costs) are a supplement to the profitability of the Company. The Company’s monthly revenue for ancillary services will depend on the extent to which the existing Storage Customers and any future storage customers, utilize the ancillary services. The ancillary services under the storage agreements include

 

Experienced senior management team.

 

The Company is led by the members of Senior Management, who have several years of experience collectively in the oil storage terminal, infrastructure sectors and related markets. As a result, members of Senior Management will be able to leverage their significant experience while implementing and executing the Company’s business plan and to achieve certain growth milestones. Members of Senior Management also have experience with overseeing the construction of oil storage terminals as a result of the Phase I and Phase II construction process, which is expected to facilitate their management and execution of the Phase III construction process and other future projects.

 

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Strategy

 

The Company’s vision is to develop an oil storage business that differentiates itself from competitors by providing its customers with fast order processing times, excellent customer service and high accuracy blending services with low oil losses. In this pursuit, the key components of the Company’s business strategy are as follows:

 

Expand the scale of existing operations by operating a Modular Refinery.

 

The Company plans to leverage its experience from building and operating Phase I and Phase II. Phase II increased the Company’s aggregate geometric oil storage capacity to approximately 1.0 million m3. This has led to the BPGIC Terminal becoming one of the largest oil storage terminals by storage capacity in the Port of Fujairah. On September 3, 2018, BPGIC signed an EPC agreement for Phase II (the “Phase II EPC Agreement”) with Audex. Phase II work commenced in September 2018 and operations commenced in September 2021.

 

The Modular Refinery is intended to produce high-in-demand, IMO 2020 compliant, very low sulphur fuel oil as a step towards more environmentally friendly energy transition solutions.

 

Growth through Expansion of BPGIC’s Facilities and Geography

 

The Company intends to leverage Senior Management’s long-standing industry expertise in the oil and gas and storage sector, initially within the Gulf region and, ultimately more broadly geographically, to ensure the Company continues to enhance its competitiveness, expand its solution offerings to customers and increase shareholder value. As a result, the Company is continuously looking at numerous expansion opportunities such as its Phase III Project and its Green Hydrogen and Green Ammonia Project. Our ordinary course of business includes discussions with various potential parties, regarding different types of business opportunities, and in a variety of different geographic markets. None of these ongoing various discussions have yet reached the stage of definitive agreements and there can be no assurance that they ever will.

 

The business opportunities available vary widely from traditional customer contracts with global industry participants to various partnerships, ranging from operating or acquiring existing facilities to building new facilities and investing on the Green Energy Sector. Some potential partnership opportunities have included partial financing commitments from the prospective partner for the existing or new facilities. The Company carefully evaluates all growth opportunities to ensure its business remains focused on its high-end market positioning and value creation for existing shareholders.

 

For instance, within the Fujairah market, the Company has already completed the FEED study, the Soil Investigation and the Environmental Impact Assessment (EIA) for the Phase III and is even developing a new update to include enhanced versions of the designs. In February 2020, BPGIC executed the Phase III Land Lease, and on October 1 2020, novated the Phase III Land Lease to BPGIC III. The Company currently intends to use such land to further increase its capacity for crude oil storage and services. We expect that Phase III alone could be three-and-a-half (3.5) times the size of the Company’s projected operations post-Phase II. Concurrently, the Company is in discussions with top global oil majors, which have expressed interest in securing portions of the capacity of a Phase III facility. As of the date of this Report, the Company does not yet have any planned capital expenditures in connection with Phase III, other than the cost for storage capacity of up to 3.5 million m3 and a 180,000 b/d refinery.

 

In addition to Phase III, the Company may continue to pursue additional projects within the Fujairah market, either through partnerships with parties who have land leases or through efforts to secure additional land itself in Fujairah in addition to other ports of the world, including potentially Saudi Arabia.

 

Within the Green Energy Sector, the Company has established BRE as its wholly owned subsidiary, to focus on green energy related infrastructures activities. During the year of 2022, BRE has signed a preliminary land lease agreement for its planned Green Hydrogen and Green Ammonia Project, which aims to produce up to 700,000 MT of green ammonia per annum once fully completed, has engaged Ernst & Young to provide consulting services with respect to the same project and has engaged Thyssenkrupp Uhde to undertake the technical study. In February 2023, during the World Government Summit 2023, BRE and Siemens Energy announced a partnership to build a PV solar farm to supply BRE’s Green Hydrogen and Green Ammonia Project. The Green Hydrogen and Green Ammonia Project is one of the first privately owned company green ammonia projects in the United Arab Emirates, led by BRE, which aims to produce renewable, carbon-free fuel using solar power. This project aims to have a positive impact on the UAE economy by promoting the growth of the renewable energy sector, creating new job opportunities, and reducing the country’s reliance on fossil fuels.

  

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Continue to build relationships with potential customers.

 

The Company is focused on diversifying its potential customer base over the medium to long-term. Due to Phase I’s strong performance track record to date, and the Company’s reputation and business development efforts, including through inspections from potential users, the Company believes that it has developed strong relationships with several oil traders that could potentially utilize the services of Phase I and II. The familiarity that potential users have gained through their inspections and that oil traders have developed through their experience with the Company’s Phase I and Phase II facility represent a valuable marketing opportunity for the Company. Given the nature of the industry, positive word-of-mouth feedback by these groups can help to establish the Company’s industry reputation and thereby help drive potential customer business in the future. Moreover, by continuing to build upon the Company’s performance track record during Phase II and business developments efforts, the Company is able to expand its base of potential customers for future contracts for oil storage or ancillary services. Similarly, the Modular Refinery and the Green Hydrogen and Green Ammonia Project, once operational, will expand the scope of services that the Company can offer, diversifying the types of industry participants that it can service.

 

Phase I

 

Phase I went into operation in December 2017 and between 2014 and 2017, BPGIC incurred a total cost of $170 million in connection with its construction. BPGIC began development of the BPGIC Terminal after several years of planning and discussions with industry participants. BPGIC’s aim in developing the BPGIC Terminal was to create a new standard for oil storage tank terminals by designing a terminal that would reduce user oil losses and achieve better blending results than existing oil storage tank terminals. As described below, BPGIC designed Phase I with several key features that enable it to provide users with high-accuracy blending services with low oil losses. In addition, due to the relatively long term of the Phase I & II Land Lease, when compared to comparable land leases for oil storage terminals located in the Port of Fujairah, BPGIC constructed Phase I with materials that have longer expected life spans than comparable materials utilized by other oil storage terminals in the area. As a result, the Company believes Phase I will benefit from annual maintenance costs over the period of the Phase I & II Land Lease that are lower than average for comparable oil storage terminals.

 

The key features of Phase I include:

 

all 14 oil storage tanks are inter-connected via the Phase I Internal Manifold;

 

the pumping and stripping systems of the Phase I Internal Manifold are equipped with a fine stripping system, minimizing energy costs, lowering loss ratios and permitting a high degree of stripping to be achieved;

 

the ability to more efficiently perform required maintenance activities and prepare pipelines for oil transfers;

 

lower loss ratios and contamination risks;

 

recirculation of oil products to assist with the blending process;

 

the ability to simultaneously perform several Phase I operations, permitting BPGIC to service multiple user orders during the same time period; and

 

all 14 oil storage tanks have been designed to permit conversions from storing one clean petroleum product to another and from storing fuel oil to gas oil at a speed which is favorable compared to that of competitors in the UAE region, allowing BPGIC to adjust its services to meet changing market demands.

 

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Tanks

 

Phase I has 14 oil storage tanks, which are capable of storing Class I/II/III White Oil (WO) products such as gas oil, naphtha ( all grades), kerosene, gasoline ( all grades), condensate, pygas, raffinate etc and TK-101 – 104 are capable of storing Fuel Oil. Each of the oil storage tanks has been designed to allow fast and efficient cleaning, which permits efficient conversions from storing one product to another. The 14 oil storage tanks are also equipped with the following features:

 

accurate product level measurements: a real-time electronic measuring system that monitors product levels in each oil storage tank;

 

an efficient, high-quality blending system which improves the quality and speed of blends;

 

  effective drainage systems leading to lower product contamination risks and allowing for a faster product change process;
     
  automated fire-fighting systems: an automated fire system that activates automatically in the event of a fire;
     
  a well-designed pipeline connection: a pipeline connection to the Phase I Internal Manifold that allows any oil storage tank to be connected to the stripping systems and to any other oil storage tank or berth in the Port of Fujairah connected to Matrix Manifold 1 or Matrix Manifold 2; and
     
  heating services: eight of the oil storage tanks have heating coils installed. Currently, only four of the oil storage tanks are connected to the heating system.

 

The following table displays the key attributes of the 14 oil storage tanks of Phase I:

 

Tank No.   Capable of
Servicing(1)
  Diameter (m) x
Height (m)
  Blending
Capability
  Roof Type(2)   Tank Heating
Capability
  Geometric
Capacity (m3)
  Max
Capacity (m3)
 
101   GO/ FO   42 x 30   Yes   AGDR   Yes   41,563   40,207  
102   WO/ FO   42 x 30   Yes   AGDR with IFR   Yes   41,563   40,207  
103   GO/ FO   42 x 30   Yes   AGDR   Yes   41,563   40,207  
104   WO/ FO   42 x 30   Yes   AGDR with IFR   Yes   41,563   40,207  
105   WO   36 x 30   Yes   AGDR with IFR   Yes, but not currently enabled   30,536   29,031  
106   WO   36 x 30   Yes   AGDR with IFR   Yes, but not currently enabled   30,536   29,031  
107   WO   36 x 30   Yes   AGDR with IFR   Yes, but not currently enabled   30,536   29,031  
108   WO   36 x 30   Yes   AGDR with IFR   Yes, but not currently enabled   30,536   29,031  
109   WO   36 x 30   Yes   AGDR with IFR   No   30,536   29,031  
110   WO   36 x 30   Yes   AGDR with IFR   No   30,536   29,031  
111   WO   23 x 30   Yes   AGDR   No   12,464   11,850  
112   WO   23 x 30   Yes   AGDR   No   12,464   11,850  
113   WO   23 x 30   Yes   AGDR with IFR   No   12,464   11,850  
114   WO   23 x 30   Yes   AGDR with IFR   No   12,464   11,850  
Total Storage Capacity (m3)   399,324 382,400

 

(1)All the oil storage tanks are convertible and can be cleaned and converted to service other oil products; “WO” means White Oil ,“GO” means Gas Oil; “FO” means Fuel Oil;

 

(2)“AGDR” means Aluminium Geodesic Dome Roof; “AGDR with IFR” means Aluminium Geodesic Dome Roof with Internal Floating Roof.

 

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BPGIC transports oil products from the BPGIC Terminal to the Port of Fujairah’s berths through the use of pumps and four piggable jetty pipelines. The pumps facilitate on-loading operations from the Phase I Internal Manifold by pumping oil products through one or more of the four piggable jetty pipelines to Matrix Manifold 2, and then through the Port of Fujairah’s pipelines, to ships located at berths 8 and 9 or to ships located at berths 2-7 via Matrix Manifold 1. BPGIC has nine pumps that it can use to on-load oil products to Matrix Manifold 2. Four of the pumps are capable of transporting white oil at an individual flow rate of 1,250 m3/hr and at a combined flow rate of 5,000 m3/hr. Three of the pumps are capable of transporting fuel oil at an individual flow rate of 1,500 m3/hr and at a combined flow rate of 4,500 m3/hr. BPGIC also utilizes these pumps to facilitate inter-tank transfers, blending and other transfers throughout the BPGIC Terminal.

 

The users utilize their ship pumps to transport oil products from the relevant berths in the Port of Fujairah via Matrix Manifold 2 to the Phase I Internal Manifold and following the construction and commencement of operations of Phase II, to the proposed internal manifold that will connect the eight oil storage tanks of Phase II (the “Phase II Internal Manifold”).

 

The Phase I Internal Manifold is equipped with a general stripping system that removes any excess oil products left in the pipelines following any oil product transfers and adds it back to appropriate batches, and a fine stripping system that removes any excess oil products left in the general stripping system and adds it back to appropriate batches. The two levels of stripping permit a high degree of stripping to be achieved. All oil products transferred from any oil storage tank to the stripping systems flows downhill, minimizing energy costs. The Phase I Internal Manifold is also equipped with cranes to perform required maintenance activities and prepare pipelines for oil transfers.

  

Direct Connection to Matrix Manifold 2

 

The Phase I Internal Manifold is directly connected to the Port of Fujairah’s Matrix Manifold 2, which is approximately 500 meters away. The Matrix Manifold 2 is directly connected to berths 8 and 9, which are in close proximity to the BPGIC Terminal. The terminal benefits from its close proximately to berths 8 and 9 due to the shorter travel distances required for oil product transfers, which in effect lowers contamination risks and leads to faster vessel turnaround times. Berths 8 and 9 can accommodate vessels with a maximum overall length of 330 meters and a minimum overall length of 75 meters. As part of Phase II, BPGIC plans to directly connect the Phase II Internal Manifold to the Port of Fujairah’s Matrix Manifold 2.

 

The Matrix Manifold 2 is also connected to the Port of Fujairah’s Matrix Manifold 1, which is in turn connected to berths 2-7 of the Port of Fujairah, providing users with broad access to the BPGIC Terminal.

 

Generators

 

Four electricity generators were installed as part of the construction of Phase I. The generators, manufactured by Cummins Generator Technologies, are diesel-powered and can produce up to 6,000 kWh of power and with the additional two diesel generators of 2000 KVA each, the Company believes will be sufficient to provide for the needs of Phase I, Phase II. As BPGIC’s diesel fuel needs currently vary each month based on the Phase I and II existing Storage Customers’ activity levels, BPGIC entered into an arrangement with a local diesel fuel provider, pursuant to which it can order diesel fuel on a monthly or as-needed basis. At the beginning of each month, the local diesel fuel provider will send BPGIC a quote for the price of diesel fuel, and subject to any potential price negotiation, BPGIC will place orders based on its projected needs for the applicable month.

 

Blending

 

BPGIC believes that Phase I benefits from state-of-the-art blending capabilities, allowing high levels of accuracy in meeting customer blending specifications. BPGIC’s blending services are designed to accommodate a variety of mixing specifications and to prevent any evaporation or leakage. The stripping systems and oil storage tanks are designed to prevent losses, contamination and residue accumulation, enabling BPGIC to produce blends that precisely meet customer specifications and the volume/mass requested.

 

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All Phase I oil storage tanks are connected via the Phase I Internal Manifold and have blending capabilities, which permits BPGIC to utilize any available oil storage tank for blending purposes, leads to higher tank availability for processing user orders and allows BPGIC to perform mixtures within short timeframes.

 

Each of the oil storage tanks is equipped with some of the latest technology blending equipment and a real-time electronic measuring system that monitors product levels, resulting in faster blending times and more consistent blends. In connection with a standard blending request, BPGIC takes the specified quantity of oil products to be blended and adds them into a single oil storage tank. A part of the mixture is then withdrawn from and added back to the oil storage tank at high velocity. This typically causes the surrounding liquid to create a circulation path within the oil storage tank, which mixes the oil products and continues until the specified blend requirements are achieved. Generally, the purpose of blending fuel oil is to modify its viscosity or thickness to meet customer specifications and the purpose of blending gasoline is to modify its octane number to meet customer specifications.

 

Heating

 

As part of Phase I, BPGIC constructed a heating system, comprised of a boiler and direct pipeline connections to certain oil storage tanks that have heating coils installed. Generally, in connection with a heating request, BPGIC heats special purpose heating oil in the boiler and then circulates the heating oil via a pipeline connection to the heating coils located at the bottom of an applicable oil storage tank. The heating oil is then recirculated between the boiler and through the heating coils of the applicable oil storage tank until the oil product in the oil storage tank reaches the specified temperature.

 

Currently, eight of the Phase I oil storage tanks have heating coils installed, but due to current business needs, only four are connected to the heating system. As the heating needs of Phase I increase, BPGIC plans to connect additional oil storage tanks to the heating system. Each new connection will require BPGIC to establish a new pipeline connection between the supply / return header and the applicable oil storage tank. BPGIC also plans to construct four additional oil storage tanks with heating capacity in connection with Phase II. BPGIC believes that the current heating system will be sufficient to meet the heating needs of the eight oil storage tanks in Phase I that have, and the four oil storage tanks in Phase II that will have, heating capacity.

 

Customer Ordering Process

 

BPGIC is committed to providing excellent customer service. BPGIC has allocated a customer service officer (a “CSO”) to its customers and tested an online ordering system which was rolled out in the Third Quarter of 2020, which enables the existing Storage Customers to place storage, heating and blending orders and track order statuses in real-time. As an alternative, customers can also place service orders by submitting their nomination to CSO . When placing orders, customers must provide the relevant order details, including the requested services, oil product specifications and desired timing. Following the submission of a service order, the CSO responsible for reviewing the service order will correspond with the customers, as applicable, , coordinate logistics for discharging operations, including berth reservations through the Port of Fujairah’s reservation system and payment of Port fees on customer’s behalf, and liaise with operational staff to facilitate and process the service order. Upon the completion of the requested services, the CSO will notify the customers of the completion status, coordinate with surveyors to provide any required samples, organize logistics for on-loading operations and send an itemized invoice to the customers, for the services provided. In the future, if and when BPGIC engages with any additional users, BPGIC intends to designate a CSO to each additional user but may also expand the scope of the current CSO’s responsibilities to cover any such additional user.

 

Capital Expenditure

 

The expected capital expenditure by BPGIC in connection with the Modular Refinery is minimal.

 

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Key Features and Components

 

The key proposed features of the Modular Refinery:

 

will be capable of producing IMO 2020 compliant 0.5% sulphur shipping fuel; and

 

modular design will permit future expansion.

 

Phase II

 

Scope

 

Phase II is adjacent to Phase I on the remaining land available under the Phase I & II Land Lease. BPGIC had a soil investigation report completed for the land, which determined that the land was adequate for the purposes of construction and the operation of the facilities. Phase II involved the construction of (i) four crude oil / condensate / gas oil storage tanks with a projected aggregate geometric storage capacity of 0.431 million m3; (ii) four crude/fuel oil/clean petroleum products storage tanks with a projected aggregate geometric storage capacity of 0.171 million m3; (iii) the Phase II Internal Manifold to service only crude oil; and (iv) the associated infrastructure and facilities, including two new crude oil pipelines and four new pumps to carry crude oil between the Phase II Internal Manifold and Matrix Manifold 2. Portions of the infrastructure to support the two new crude oil pipelines and the Phase II Internal Manifold were developed during Phase I. Each of the four crude/fuel oil/clean petroleum products storage tanks is able to store crude, fuel oils and clean petroleum products. BPGIC considered Phase II when developing its plan for Phase I, and constructed infrastructure to accommodate the needs of Phase II, therefore, it was not required to substantially reconfigure its facilities or install additional utility systems in order to construct and operate the proposed facilities.

 

Capital Expenditure

 

Phase II construction is completed with a total cost of $185.9 million, which includes the cost of construction, consultancy costs, borrowing costs and other miscellaneous cost.

 

Key Features and Components

 

The key features of Phase II include:

 

  all eight oil storage tanks are inter-connected via the Phase II Internal Manifold for crude oil operations and Phase I manifold for white oil operations;
     
  the pumping and stripping systems of the Phase II Internal Manifold are equipped with fine stripping systems to minimize energy costs and lower loss ratios;
     
  the cranes of the Phase II Internal Manifold allow the Company to more efficiently perform required maintenance activities and prepare pipelines for oil transfers;
     
  each of the two piggable crude oil jetty pipelines are directly connected between the Phase II Internal Manifold and Matrix Manifold 2, lowering loss ratios and contamination risks;
     
  Phase II facility is designed to perform various operations simultaneously, including tank-to-tank transfers, recirculations, blending, loading and discharging, which would permit the Company to service multiple user orders during the same time period; and
     
  All the Phase II oil storage tanks permit conversion between crude oil and white oil products, allowing the Company to adjust its services to meet changing market demands.

 

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Tanks

 

As part of Phase II, BPGIC constructed eight oil storage tanks. The oil storage tanks are equipped with the following features:

 

accurate product level measurements: a real-time electronic measuring system that will monitor product levels in each oil storage tank;

 

effective drainage systems leading to lower product contamination risks and higher cleanliness levels;

 

automated fire-fighting systems that will activate automatically in the event of a fire;

 

a well-designed pipeline connection: a pipeline connection to the Phase II Internal Manifold and a fine stripping system.

 

The following table displays the key attributes of the eight oil storage tanks of Phase II:

 

Tank No.   Service   Diameter (m) x
Height (m)
  Blending
Capability
  Roof Type(1)   Tank Heating   Geometric
Capacity (m3)
  Max
Capacity (m3)
201   Crude Oil/ Condensate / Gas Oil   70 x 28   Yes   EFRT   No   107,756   101,900
202   Crude Oil/ Condensate / Gas Oil   70 x 28   Yes   EFRT   No   107,756   101,900
203   Crude Oil/ Condensate / Gas Oil   70 x 28   Yes   EFRT   No   107,756   101,900
204   Crude Oil/ Condensate / Gas Oil   70 x 28   Yes   EFRT   No   107,756   101,900
205   Crude Oil/Fuel Oil /WO   42 x 30   Yes   AGDR/ With CS IFR   Yes   42,558   40,600
206   Crude Oil/Fuel Oil/WO   42 x 30   Yes   AGDR/ With CS IFR   Yes   42,558   40,600
207   Crude Oil/Fuel Oil/WO   42 x 30   Yes   AGDR/ With CS IFR   Yes   42,558   40,600
208   Crude Oil/Fuel Oil/WO   42 x 30   Yes   AGDR/ With CS IFR   Yes   42,558   40,600
Total Storage Capacity (m3)   601,261   570,000

 

(1) “EFRT” means External Floating Roof Tank; “AGDR/ With CS IFR” means Aluminium Geodesic Dome Roof with Carbon Steel Internal Floating Roof. “WO” means Class I/II/III White Oil products.

 

Phase II Internal Manifold

 

As a part of the construction of the Phase II Internal Manifold, the Company installed two piggable jetty pipelines and four bulk loading pumps to transport crude oil from the BPGIC Terminal to the Port of Fujairah’s berths. The infrastructure to support the pipelines was built during Phase I. The four pumps are expected to facilitate on-loading operations from the Phase II Internal Manifold by pumping crude oil through one or more of the two proposed piggable crude oil jetty pipelines to Matrix Manifold 2. Each of the four pumps is expected to be capable of transporting product at a flow rate of 4,000 m3/hr and at a combined flow rate of 16,000 m3/hr. The Company plans to also utilize these pumps to facilitate inter-tank transfer operations.

 

Similar to the Phase I Internal Manifold, the Phase II Internal Manifold is expected to have general and fine stripping systems.

 

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Blending

 

Phase II Fuel / WO tanks equipped with state-of-the-art blending capabilities, similar to Phase I, which allows it to achieve high levels of accuracy in meeting customer blending specifications.

 

The Company plans to blend various grades of products to achieve customer specifications, including to attain specified properties for vapor pressure, viscosity, sulfur content and salt content.

 

All Phase 2 tanks are also equipped with side entry mixers for efficient BS&W (Basic sediment & water) control during crude oil operations.

 

In an effort to de-risk the construction of Phase II, BPGIC entered the Phase II EPC Agreement with Audex for the construction of Phase II (including all its component parts and associated infrastructure) on a fixed price lump sum basis. The Phase II EPC Agreement also included a clause for liquidated damages if the contractor fails to complete the work within the schedule in the Phase II EPC Agreement. BPGIC also entered into the Phase II Project Management Agreement with MUC, the same advisor that designed the facilities for the Port of Fujairah and the BPGIC Terminal, so that MUC could manage the construction plan of Phase II. Phase II operations commenced from September 2021.

 

The description of the Phase II EPC Agreement does not purport to summarize all of the provisions of the agreement and is qualified in its entirety by reference to the full text of the agreement, a copy of which is attached hereto and incorporated by reference herein as Exhibit 4.54.]

  

Proposed Phase III

 

The Company is in the advanced stages of planning Phase III, a further major expansion in the Port of Fujairah. In February 2020, BPGIC entered into the Phase III Land Lease to secure the Phase III Land, a new plot of land of approximately 450,000 m2 near its existing facilities. On October 1 2020, BPGIC, FOIZ and BPGIC III, entered into a novation agreement, whereby BPGIC novated the Phase III Land Lease to BPGIC III. The Company believes that the Phase III Land can house additional storage capacity of up to 3,500,000 m3 or a storage capacity of 1,660,000 m3 combined with a refinery with a capacity of 180,000 b/d. On December 5, 2022, BPGIC and BPGIC III signed a land preparation work contract with Audex Fujairah LL FZE for Phase III, for the design and execution of the early preparation works for the Phase III land and for the terminal connectivity.

 

Green Hydrogen and Green Ammonia Project

 

The Company is also in the advanced stages of planning the Green Hydrogen and Green Ammonia Project, which aims to produce up to 700,000 MT of green ammonia per annum once fully completed. In 2022, BRE entered into a preliminary land lease agreement, engaged Ernst & Young to provide consulting services and has engaged Thyssenkrupp Uhde to undertake the technical study. In 2023, BRE and Siemens Energy announced a partnership to build a PV solar farm to supply BRE’s Green Hydrogen and Green Ammonia Project. The Green Hydrogen and Green Ammonia Project is one of the first privately owned company green ammonia projects in the United Arab Emirates, led by BRE, which aims to produce renewable, carbon-free fuel using solar power.

 

Modular Refinery 

 

BPGIC intends to build a Modular Refinery at its Terminal with a capacity of 25,000 barrels per day to produce high-in-demand, IMO 2020 compliant, very low sulphur fuel oil as a step towards environmentally friendly energy transition solutions. The Modular Refinery will capitalize on the access to the Brooge land and storage infrastructure, which are critical advantages for the project. The refinery operation will have no commodity risk exposure due to the tolling fee business model.

 

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Security and Business Resilience

 

The BPGIC Terminal has a high degree of security. It has security cameras in various strategic locations inside and outside of the terminal. Fire alarm and detection systems are installed in all facilities and oil storage tanks. The terminal has firefighters on-site and conducts a fire drill every three months. The lighting system covers all areas of the facility on a 24-hour, seven day a week basis. The majority of the lights are solar powered and thus , reducing energy costs. The BPGIC Terminal is operational 24 hours a day and is pass-card protected. There are also multiple levels of clearance for employees and contractors.

 

The Company is committed to improving its security on an ongoing basis, while assuring quality service and continued customer satisfaction. The Company’s corporate security policy is designed to protect the Company’s personnel, assets, reputation and customers’ interests by employing the highest corporate, ethical and operational standards to meet the Company’s vision of excellence.

 

The Company’s security and business resilience objectives are met through the implementation of a planned set of security standards initiatives and internal programs. These are consistent with the relevant international security legislation and appropriately recognized and accredited quality management systems. All Phase I oil storage tanks are certified to the relevant NFPA, American Petroleum Industry and international standards.

 

Regulations of the Company

 

The Company’s operations are subject to various laws, standards and regulations relating to the oil and gas industry. The Company’s operations are extensively regulated by national and local authorities in the UAE, including with respect to labor, health, safety, environment, and licensing requirements. Additional requirements may also be imposed on the Company in connection with new or existing operations, including as a result of different or more stringent interpretation or enforcement of existing laws and regulations or a change in the laws and regulations. These additional requirements may not be anticipated by us. As a consequence, the Company may need to adjust its operations or incur extra costs in order to comply with such requirements. Compliance with any additional environmental requirements may be costly and time-consuming. In addition, violations of any new or existing requirements could result in fines or liabilities; delays in securing, or the inability to secure and maintain, permits, authorizations or licenses necessary for the Company’s business; injunctions; reputational damage; and other negative consequences, which may result in lost revenue and reputational damage.

 

The Company is subject to laws and regulations relating to the protection of the environment and natural resources including, among other things, the management of hazardous substances, the storage and handling of hazardous waste, the control of air emissions and water discharges and the remediation of contaminated sites. Non-compliance with environmental regulations could result in fines, additional costs, and suspension or permanent shut down of activities. The Company’s operations are subject to the environmental risks inherent in the oil and gas sector. The Company’s operations are or may become subject to laws and regulations, including applicable international conventions, controlling the discharge of materials into the environment, pollution, contamination and hazardous waste disposal or otherwise relating to the protection of the environment.

 

Specifically, the Company is subject to environmental laws and regulations in the UAE. Environmental laws and regulations applicable to the Company’s business activities, or which may become applicable, could impose additional liability on the Company for damages, clean-up costs, fines and penalties in the event of oil spills or similar discharges of pollutants or contaminants into the environment or improper disposal of hazardous waste generated in the course of operations. To date, such laws and regulations have not had a material adverse effect on the Company’s operating results, and the Company has not experienced an accident that has exposed it to material liability arising out of or relating to discharges of pollutants into the environment. However, there can be no assurance that such accidents will not occur in the future. Legislative, judicial and regulatory responses to such an incident could increase the Company’s and/or the Company’s clients’ liabilities. In addition to potential increased liabilities, such legislative, judicial or regulatory action could impose financial, insurance or other requirements that may adversely impact the entire oil industry.

 

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The legal frameworks in the UAE for environmental protection are under continual development and, in time, relevant legislative bodies may impose stricter environmental regulations or apply existing regulations more strictly, including regulations regarding discharges into air and water, the handling and disposal of solid and hazardous waste, land use and reclamation and remediation of contamination. Compliance with environmental laws, regulations and standards, where applicable, may require the Company to make additional capital expenditures, such as the installation of extra equipment or operational changes. These costs could have a material adverse effect on the Company’s business, financial position, results of operation and prospects. Any failure to comply with applicable laws and regulations may result in reputational damage to us, administrative and civil penalties, criminal sanctions or the suspension or termination of the Company’s operations. Failure to comply with these statutes and regulations may subject the Company to civil or criminal enforcement action, which may not be covered by contractual indemnification or insurance and could have a material adverse effect on the Company’s financial position, operating results and cash flows. New laws and government regulations or changes to existing laws and government regulations may add to costs, limit the Company’s operations or reduce demand for the Company’s services.

 

Environmental, Health and Safety, and Maintenance Matters

 

The Company is subject to laws and regulations relating to the protection of the environment and natural resources including, among other things, the management of hazardous substances, the storage and handling of hazardous waste, the control of air emissions and water discharges and the remediation of contaminated sites. The Company is also subject to health and safety regulations in the UAE, including, among other things, noise, workplace health and safety and regulations governing the handling, transport and packing of hazardous materials. Compliance with these laws and regulations may require the attainment of permits to conduct regulated activities; restrict the type, quantities and concentration of pollutants that may be emitted or discharged into or onto to the land, air and water; restrict the handling and disposal of solid and hazardous wastes; apply specific health and safety criteria addressing worker protection; and require remedial measures to mitigate pollution from former and on-going operations. These laws and regulations are subject to change by regulatory authorities, and continued or future compliance with such laws and regulations, or changes in the interpretation of such laws and regulations, may require the Company to incur expenditures. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of remedial obligations, and the issuance of injunctions that may limit or prohibit some or all of the Company’s operations. These impacts could directly and indirectly affect the Company’s business, and have an adverse impact on its financial position, results of operations and liquidity.

 

The Company’s facilities are in substantial compliance with applicable environmental and other laws and regulations, including security and safety at work laws. However, these laws and regulations are subject to change by regulatory authorities, and continued or future compliance with such laws and regulations, or changes in the interpretation of such laws and regulations, may require the Company to incur expenditures. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of remedial obligations, and the issuance of injunctions that may limit or prohibit some or all of the Company’s operations. Additionally, a discharge of hazardous waste into the environment could, to the extent that the event is not fully insured, subject the Company to substantial expenses, including costs to comply with applicable laws and regulations and to resolve claims made by third parties for personal injury and property damage. These impacts could directly and indirectly affect the Company’s business, and have an adverse impact on its financial position, results of operations and liquidity.

 

The Company has a corporate health and safety program to govern the way it conducts its operations at its facilities. Each of its employees and consultants is required to understand and follow the health and safety plan and have the necessary training for certain tasks performed at the facilities. The Company performs preventive and normal maintenance on all of its oil storage tanks and systems and makes repairs and replacements when necessary or appropriate. The Company also conducts routine and required inspections of such assets in accordance with applicable regulation. Most of the oil storage tanks are equipped with internal floating roofs in accordance with industry requirements to minimize regulated emissions and prevent potentially flammable vapor accumulation. The terminal was engineered in an innovative approach to reduce the terminal waste, achieving one of the lowest waste in the industry, furthermore it has the majority of its lights solar powered, and the soil surrounding the oil storage tanks is capable of resisting oil penetration and has an oil leakage detection system in place, which is intended to minimize the effects of any oil leakage and potential oil pollution. The terminal facilities also have response plans, spill prevention and control plans, and other programs in place to respond to emergencies.

 

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Information Technology and Operating Systems

 

The BPGIC Terminal’s IT systems, including the IT systems in the Company’s operational control room, are configured to remain in operation, including under abnormal conditions. Appropriate manual backup procedures and automatic processes have been devised to support the terminal’s operations in case of any unexpected system downtime or failure. The terminal’s four physical servers have redundant power supply sources and hard drive in RAID configuration to avoid data loss. The majority of the Company’s IT automation systems have been provided by the ABB Group.

 

In order to prevent both a disruption of the Company’s operations as well as to safeguard users’ data, automatic and manual data back-up procedures and recovery plans are in place to save and restore data and systems. System data and network device configurations are saved on network drives an offsite copy and external hard-disk drives. Additional recovery copy is saved on a secure cloud drive. The IT operations are maintained on a 24/7 basis, with automatic monitoring of all systems, emergency and standby duties, and third-party support and maintenance agreements in place where needed. The network infrastructure is periodically tested to ensure compliance with applicable security and performance requirements and appropriate tests are performed to ensure system security and performance are not compromised in connection with any updates to the IT infrastructure.

 

Any system interruptions caused by telecommunications failures, computer viruses, software errors, third party services, cloud computing providers, cyberattack or other attempts to harm our systems can result in the unavailability or slowdown of our IT systems.

 

In order to ensure a high degree of IT security, the Company has procedures in place to prevent external threats to the IT systems. All files and emails exchanged over the Company’s network are scanned. A web filtering policy in the firewall prevents access to websites with vulnerabilities. Intrusion prevention system is configured on Company’s firewall to monitor and block malicious attempts. A centrally managed anti-virus software with daily reporting of threats and vulnerabilities is installed in all user machines and servers at the BPGIC Terminal. In addition, the network is logically segmented between users, employees and network guests and provides different levels of access to different users.

 

The Company installed an online ordering system, which will enable users to place storage, heating and blending orders and track order statuses in real-time.

 

Employees

 

As of December 31, 2019, the Company employed 16 employees and 47 contractors. As of December 31, 2020, the Company employed 20 employees and 50 contractors where the 50 contractors were engaged under third-party outsourcing contracts and the 20 employees were engaged under individual employment contracts. As of December 31, 2021, the Company employed 24 employees and 64 contractors. As of December 31, 2022, 65 contractors were engaged under third-party outsourcing contracts and 23 employees were engaged under individual employment contracts.

 

Insurance

 

The Company’s operations and assets are insured under an insurance program administered by Lockton Insurance Brokers — Dubai, an insurance broker. The program covers the Phase I and Phase II facilities and related assets, and the liabilities of the Phase I and Phase II operations and the Company. The major elements of this program are property damage, business interruption, terrorism and political violence, worker’s compensation, environmental liability, employer liability, directors’ and officers’ liability insurance, personal injury and third-party liability, including that of terminal operators. The Company additionally maintains local insurance, including healthcare and other insurance required by the Company’s jurisdiction.

 

Premiums are allocated based on the insured values, history of claims and type of risk. The Company believes that the amount of coverage provided is comprehensive and appropriate for its business.

 

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Legal Proceedings

 

From time to time, we may be involved in legal proceedings in the ordinary course of our business.

 

C. Organizational structure

 

Brooge Energy Limited is a holding company with six direct and indirect wholly-owned subsidiaries:

 

Brooge Petroleum and Gas Investment Company FZE, incorporated in 2013 in the Fujairah Free Zone, UAE, to provide oil storage, heating and blending services;

 

BPGIC International (f/k/a Twelve Seas Investment Company), a Cayman Islands exempted company, a former special purpose acquisition company, incorporated in 2017 in the Cayman Islands;

 

Brooge Petroleum and Gas Investment Company Phase III FZE, incorporated in 2020 in the Fujairah Free Zone, UAE to provide oil storage, heating and blending services;

  

BPGIC Phase 3 Limited, an offshore company incorporated in 2020 in Jebel Ali Free Zone Authority;

 

Brooge Petroleum and Gas Investment Company FZE - Branch of Abu Dhabi 1 incorporated in 2018 in the Abu Dhabi, UAE and

 

Brooge Renewable Energy Limited, incorporated in 2021 in the Cayman Islands.

 

Note Brooge Petroleum and Gas Management Company Limited (BPGMC Limited) was officially dissolved (voluntary winding up) as of December 21, 2022. BPGMC Limited was a company with limited liability registered in Dubai International Financial Centre (DIFC) with commercial license number CL3852. BPGMC Limited was a 100% subsidiary of the Company.

 

The Company’s current organizational chart is set forth below.

 

All of the Company’s business is currently conducted through BPGIC and once Phase III and the Green Hydrogen and Green Ammonia Project are ready through BPGIC, BPGIC III and BRE.

 

 

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D. Property, plant and equipment

 

The Company has its headquarters in Dubai, United Arab Emirates. The table below summarizes its facilities as of December 31, 2022.

 

      Gross Area
(square
      Lease period
Country  Location  meter)   Use  Start  End
UAE  Port of Fujairah   153,916.93   Site of oil storage tanks and administrative building  On or around 3/10/2013 

On or around

3/31/2073(1)

UAE  Port of Fujairah   450,074.73   Intended site of additional oil storage tanks and refinery  On or around 2/2/2020 

On or around

2/2/2080(2)

 

(1) The lease ends on or around 3/11/2073 after giving effect to an automatic 30-year extension after the initial 30 year term ends on or around 3/11/2043.
   
(2) The lease ends on or around 2/2/2080 after giving effect to an automatic 30-year extension after the initial 30 year term ends on or around 2/2/2050.

 

The BPGIC Terminal

 

BPGIC began development of the BPGIC Terminal after several years of planning and discussions with industry participants. During this time, BPGIC engaged an industry consultant to conduct a market assessment of the oil storage industry in the Port of Fujairah region and to identify and assess business opportunities and strategies. BPGIC also engaged MUC, the same advisor that designed the facilities for the Port of Fujairah, to design the BPGIC Terminal. During the design stage, BPGIC assessed various challenges faced by other oil storage terminals, including preventing oil losses and precisely meeting customer blending requirements, and incorporated solutions to such challenges into the design of the terminal. BPGIC’s aim in developing the BPGIC Terminal was to create a new standard for oil storage tank terminals by designing a terminal that would reduce oil losses and achieve better blending results than existing oil storage tank terminals. As described below, BPGIC designed the BPGIC Terminal with several key features that enable it to provide users with high-accuracy blending services with low oil losses. In addition, due to the relatively long-term period of the Phase I & II Land Lease when compared to similar land leases for oil storage terminals located in the Port of Fujairah, BPGIC constructed Phase I and Phase II with materials, including pumps, valves and steel structures, that have longer expected life spans than comparable materials utilized by other oil storage terminals. As a result, BPGIC believes Phase I and Phase II will benefit from annual maintenance costs over the period of the Phase I & II Land Lease that are lower than the average for comparable oil storage terminals. As part of Phase II, BPGIC followed a similar approach as that followed in Phase I by investing in high-grade, long-life materials for the construction and development of its facilities.

 

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Location

 

 

The BPGIC Terminal is located in the Port of Fujairah in the emirate of Fujairah in the UAE, just outside the Strait of Hormuz. The Port of Fujairah is a gateway between the Indian Ocean and the Arabian Gulf, and is strategically situated in one of the world’s major oil markets for fuel oil, crude oil and refined oil products. In addition to the Port of Fujairah’s close access to major markets in the Middle East, it also serves as an outlet to East Africa and South Asia and serves as a consolidation point for fuel oil outlets and the regional fuel oil markets, reducing the need for ships to cross through the Strait of Hormuz.

 

The Strait of Hormuz has been a strategic geographic chokepoint for many years, and as such, it has often been a site of international military conflict and military exercises. Such events have caused safety concerns and travel delays for ships crossing through the Strait of Hormuz. The Strait of Hormuz has also been subject to repeated threats of closure and blockage by Iran. In 2012, Iran threatened to close the Strait of Hormuz due to international pressures to stop its nuclear program and an Iranian oil embargo that was enacted by the European Union in late January 2012. On September 14, 2019, an attack on Saudi Arabia’s oil facilities and fields, largely blamed on Iran or its proxies, significantly increased tensions in the area, and heightened the distinct possibility that similar attacks by Iran on strategic oil facilities and ports in the UAE or a regional conflict may result. Despite these recent and past threats, the Strait of Hormuz has never been closed.

 

The Habshan-Fujairah oil pipeline, which is a crude oil pipeline that runs between the emirate of Abu Dhabi and the Port of Fujairah, enables ships to obtain crude oil produced in Abu Dhabi without having to cross the Strait of Hormuz. The crude oil pipeline currently has the capacity to transport 1.5 million barrels a day, which is approximately half of the daily average amount of crude oil that was produced in the UAE in 2017. There is increasing focus in the UAE region on using the crude oil pipeline, as the government of Abu Dhabi has publicly stated that it intends to ensure that approximately 75 percent of the crude oil designated for export in Abu Dhabi goes through the pipeline and to Fujairah.

 

The Port of Fujairah is the largest multi-purpose port on the Eastern seaboard of the UAE, approximately 70 nautical miles from the Strait of Hormuz. Initial construction of the Port of Fujairah started in 1978 as part of the economic development of the UAE. Full operations commenced in 1983. Since then, the Port of Fujairah has embarked on a continuing process of enhancement to both its facilities and its comprehensive range of functions.

 

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The Port of Fujairah initially developed oil terminal 1 (“OT1”) comprising three marine loading berths (berths 1, 2 and 3), oil terminal 2 (“OT2”) comprising four marine loading berths (berths 4, 5, 6 and 7), and a matrix manifold connecting OT1 and OT2 to certain existing oil tank terminals (“Matrix Manifold 1”). To cater to the increasing demand arising from the growing storage capacity in Fujairah, the Port of Fujairah began developing the second phase of OT2, adding two new berths (berths 8 and 9) and a second matrix manifold (“Matrix Manifold 2”). The project, completed in 2014, raised the overall throughput capacity of the Port of Fujairah and contributed to the growth of Fujairah as the largest oil hub in the region. Matrix Manifold 2 is connected directly to berths 8 and 9 and, through a connection to Matrix Manifold 1, is connected indirectly to the remaining Port of Fujairah berths. The BPGIC Terminal is connected to Matrix Manifold 2, which gives it direct access to underutilized berths 8 and 9. Berth 1 is currently unavailable for BPGIC’s use as the Port of Fujairah granted exclusive access and use of berth 1 to four other parties, who have since installed pipelines and marine loading arms on the berth.

 

To further cater to the increasing demand arising from the growing storage capacity in Fujairah, the Port of Fujairah has developed a VLCC jetty in the Indian Ocean, which allows the Port of Fujairah to accommodate vessels with a maximum overall length of 344 meters and a minimum overall length of 240 meters. The Port of Fujairah completed construction of the VLCC jetty in June 2016 and the jetty went into operation on August 24, 2016.

 

The Port of Fujairah imposes certain requirements on the companies and oil tankers utilizing its port, including requirements for flow rate capacity and ground soil lining. The current minimum average required flow rates vary based on berth location and vessel and parcel size and range between 460 m3/hr and 3,900 m3/hr for black products and 380 m3/hr to 2463 m3/hr for white products, and although the Port of Fujairah has already increased the flow rate requirements in the past, it is possible that the Port of Fujairah could increase them again in the future. BPGIC is well positioned to satisfy any future increases for minimum required flow rates as the pumps in Phase I and II are capable of transporting gas oil/gasoline at a combined flow rate of 5,000 m3/hr and fuel oil at a combined flow rate of 4,500 m3/hr, which is more than the current minimum average required flow rate and exceeds the combined flow rates of many of the other oil storage terminals that are subject to the Port of Fujairah’s requirements. The Port of Fujairah also requires each oil storage terminal to install impermeable lining throughout its tank farm area and any other area where oil leakage could occur and potentially reach the ground soil. In connection with the construction of Phase I, BPGIC installed the required lining at the Phase I & II Land and is one of only a few oil storage terminals that has been able to satisfy this requirement.

 

The Port of Fujairah requires oil tankers to use the Port’s reservation system to reserve berths and imposes certain charges on such users, including fees, marine and administrative charges.

 

Phase I & II Land Lease

 

On March 10, 2013, BPGIC entered into the Phase I & II Land Lease, as amended by the Novation Agreement dated September 1, 2014. The amended agreement binds BPGIC and FOIZ for a total term of 60 years. The Phase I & II Land has a total area of 153,916.93 m2. BPGIC used this land to build Phase I and Phase II. Upon mutual agreement of the parties, the term of the Phase I & II Land Lease can be renewed or extended for a further period, the term of which is unspecified and therefore subject to agreement between the parties.

 

BPGIC began paying rent under the Phase I & II Land Lease in 2014. The rent for 2021 was $2.4 million which increases by 2 percent per annum and in 2022 was $2.45 million. Payments are required to be made in advance (the time period of which is unspecified) in instalments. BPGIC is required to pay all taxes imposed by the federal government of the UAE or FOIZ; however, the leased premises are in a free zone and BPGIC is entitled to all benefits applying to free zone entities, including benefits in respect of taxes.

 

The Phase I & II Land Lease required BPGIC to enter into the Port Facilities Agreement, which grants it certain usage and access rights in connection with the Port’s facilities. The initial term of the Port Facilities Agreement, which BPGIC entered into on March 31, 2016, is 25 years and it automatically renews for another 25 years at the end of its initial term. The Port Facilities Agreement requires BPGIC to pay certain fees in connection with the use of the Port of Fujairah’s facilities; however, the existing Commercial Storage Agreements provide that any fees charged by the Port of Fujairah in respect of services provided to the existing Storage Customers, including transportation, loading, unloading, use of berths, marine charges, administration charges, penalties and/or use of any of the Port of Fujairah’s facilities, shall be paid by the existing Storage Customers, respectively. Currently, the existing Storage Customers deliver any such amounts to be paid to BPGIC, and BPGIC then sends such amounts to the Port. Pursuant to the Port Facilities Agreement, BPGIC is required to pay such amounts and is responsible for such amounts.

 

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BPGIC is required to obtain the FOIZ’s prior permission in order to use the leased premises for any purpose other than in connection with Phase I and Phase II, or the Modular Refinery. The Phase I & II Land Lease contains representations and warranties, dispute resolution and indemnification clauses that are customary for the UAE and the oil storage industry. FOIZ can cancel the agreement if BPGIC fails to make certain required rental payments or fails to perform or meet in any material respect any material term, condition, covenant, agreement or obligation under the agreement.

 

BPGIC Terminal Office Building

 

In connection with Phase I, BPGIC built a five-story office building with an area of 3,388 m2 (the “BPGIC Terminal Office Building”) adjacent to the 14 oil storage tanks. Audex completed construction for the BPGIC Terminal Office Building in November 2017 and BPGIC incurred a total cost of $28.0 million in connection with its construction. BPGIC partially funded the construction of the BPGIC Terminal Office Building with funds obtained from the Phase I Construction Facilities. BPGIC owns the BPGIC Terminal Office Building. The BPGIC Terminal Office Building accommodates all terminal and office staff and contains the operational control room for the BPGIC Terminal, where BPGIC facilitates the performance of its services.

 

BPGIC Dubai Office

 

During 2022, the Group acquired corporate office space in Business Bay, Dubai for $2.2 million.

 

Phase III

 

Phase III Land Lease

 

On February 2, 2020, BPGIC entered into the Phase III Land Lease to secure the Phase III Land, a new plot of land of approximately 450,000 m2 near its existing facilities. On October 1, 2020, BPGIC, FOIZ and BPGIC III, entered into a novation agreement, whereby BPGIC novated the Phase III Land Lease to BPGIC III. The agreement provides for an initial 30 year term with an automatic 30 year renewal. Upon mutual agreement of the parties, the term of the Phase III Land Lease can be renewed or extended for a further period, the term of which is unspecified and therefore subject to agreement between the parties. BPGIC will begin paying rent under the Phase III Land Lease on the earlier of the date that is 18 months from the date of the Phase III Land Lease and the commissioning of the Phase III facility. In 2021, BPGIC entered into an agreement with the FOIZ for an additional one-year rent free period in respect of the Phase III. The initial annual rent is $6,126,800 and rent increases by 2 percent per annum. All amounts in respect of rent for each quarter shall be invoiced by and paid to FOIZ in AED by immediately available funds due net 30 days after receipt of invoice. BPGIC is required to pay all taxes imposed by the federal government of the UAE or FOIZ; however, the leased premises are in a free zone and BPGIC is entitled to all benefits applying to free zone entities, including benefits in respect of taxes.

 

The description of the Phase III Land Lease does not purport to summarize all of the provisions of the agreement and is qualified in its entirety by reference to the full text of the agreement, a copy of which is attached hereto and incorporated by reference herein as Exhibit [4.84] and the novation agreement relating thereto, a copy of which is attached hereto and incorporated by reference herein as Exhibit [4.95].

  

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The Company believes the Phase III Land can house additional storage capacity of up to 3,500,000 m3 or a combination of 1,660,000 m3 and a refinery with a capacity of up to 180,000 b/d. A FEED study, a Soil Investigation and the Environmental Impact Assessment (EIA) for Phase III have already been completed and the Company is now developing a new update to include enhanced versions of the designs. Currently, the Company plans to use the Phase III Land to further increase its storage and refinery services capacity.

 

 

Scope

 

The Company believes that the Phase III Land can house additional storage capacity of up to 3,500,000 m3 or a combination of 1,660,000 m3 and a refinery with a capacity of up to 180,000 b/d. The Company had an initial technical design with different layout options completed for the Phase III Land.

 

Capital Expenditure

 

As the Company is in the preconstruction stages of Phase III, it is not possible to reliably estimate the total related capital expenditures. However, the Company anticipates the cost per m3 of Phase III to be approximately equal to the cost per m3 of Phase I and Phase II. As of the date of this Report, the Company has commenced early preparation works in connection with Phase III, in addition to the costs of the completed FEED studies and the preconstruction cost, being the soil investigation and Environmental Impact Assessment activities.

 

Design

 

A FEED study for the Phase III Land was completed and the Company is now developing a new update to include enhanced versions of the designs. The FEED study, in parallel with prospective end-user discussions, will enable the Company to determine the optimal layout and product mix. Currently, the Company plans to use Phase III Land to further increase its storage and services and refinery capacity.

 

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Note: Illustrative Phase III plan may vary.

 

The Company engaged MUC for the FEED process, the same advisor that designed the facilities for the Port of Fujairah, Phase I and Phase II.

 

Modular Refinery 

 

The Modular Refinery is intended to produce high-in-demand, IMO 2020 compliant, very low sulphur fuel oil as a step towards more environmentally friendly energy transition solutions. The Modular Refinery is to be built and operated by BPGIC on a tolling fee base.

 

ITEM 4A. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

BROOGE ENERGY LIMITED MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion together with our financial statements and the related notes included elsewhere in this Report. This discussion contains forward-looking statements about our business and operations. Our actual results may differ materially from those we currently anticipate as a result of many factors, including those described under Item 3.D Risk Factorsand elsewhere in this Report. See “Cautionary Note Regarding Forward-Looking Statements”.

 

In this section, references to the “Company,” “we,” “us,” and “our” are intended to refer to Brooge Energy Limited, unless the context clearly indicates otherwise.

 

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is presented below in nine sections, as follows:

 

  Overview

 

  Key Factors Affecting Our Results of Operations

 

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  Business Combination and NASDAQ Listing Transactions

 

  Operating Results

 

  Liquidity and Capital Resources

 

  Trend Information

 

  Tabular Disclosure of Contractual Obligations

 

  Off Balance Sheet Commitments and Arrangements

 

  Critical Accounting Policies and Critical Accounting Estimates

 

OVERVIEW

 

The Company is a company with limited liability registered as an exempted company in the Cayman Islands. The Company was incorporated on April 12, 2019 for the sole purpose of consummating the Business Combination. On April 15, 2019, BPGIC entered into the Business Combination Agreement with Twelve Seas, a company then listed on NASDAQ, the Company and BPGIC FZE’s shareholders.

 

The business combination was accounted for as a reverse acquisition in accordance with IFRS. Under this method of accounting, the Company and Twelve Seas are treated as the “acquired” company. This determination was primarily based on BPGIC FZE comprising the ongoing operations of the combined company, BPGIC FZE’s senior management comprising the senior management of the combined company, and BPGIC FZE’s shareholders having a majority of the voting power of the combined company. For accounting purposes, BPGIC FZE is deemed to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of BPGIC FZE. Accordingly, the consolidated assets, liabilities and results of operations of BPGIC are the historical financial statements of the combined company, and the Company’s and Twelve Seas’ assets, liabilities and results of operations are consolidated with BPGIC beginning on the acquisition date.

 

As a result of the Business Combination, the Company became the ultimate parent of BPGIC and Twelve Seas on the acquisition date, December 20, 2019. The Company’s Ordinary Shares and Warrants are traded on the Nasdaq Capital Market under the ticker symbols “BROG” and “BROGW,” respectively.

 

Following the Business Combination, the Company became an independent oil storage and service provider, through its wholly-owned subsidiary, BPGIC. Unless otherwise indicated, for the purposes of this Item 5. Operating and Financial Review and Prospects, we collectively evaluate the business as “group” business consisting of the Company, Twelve Seas and BPGIC (the “Group”).

 

The Group’s vision was to develop an oil storage business that differentiates itself from competitors by providing its customers with fast order processing times, excellent customer service and high accuracy blending services with low oil losses. BPGIC has a 60-year lease of land for its operations located in close proximity to the Port of Fujairah’s berth connection points. The Group developed the BPGIC Terminal’s storage capacity in two phases, Phase I and Phase II, which are already operational, and is working on developing the Phase III and the Green Hydrogen and Green Ammonia Project. Phase I commenced operations in December 2017 and Phase II commenced operations in September 2021.

 

Tank storage facilities play a vital role in the business of refined petroleum products, crude oil and liquid chemicals. They serve as a critical logistical midstream link between the upstream (exploration and production) and the downstream (refining) segments of the refined petroleum product and crude oil industry. They are used to store primary, intermediate and end products and facilitate a continuous supply of the required feedstock to refineries and chemical plants in the processing industry on the one hand and absorb fluctuations in sales volumes on the other.

  

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KEY FACTORS AFFECTING OUR RESULTS OF OPERATIONS

 

The following factors can affect the results of our operations:

  

Customer Charges

  

Currently, the Group’s monthly revenue is primarily driven by the fixed take or pay storage fees for the period of the contract that it charges Storage Customers to use the Phase I and Phase II storage capacity. This storage revenue is highly dependent on the agreed storage fee with the Customers, the contracted storage percentage of the terminal and the duration of the contracts. The storage fee, which is billed monthly in advance, represents the lease of storage capacity and the service provided to the customer for handling an agreed level of throughput of fuel oil, crude oil and clean products. The Group’s monthly revenue is also impacted by the monthly variable ancillary service fees it charges, which varies each month based on usage of the following ancillary services by the existing Storage Customers: throughput, blending, heating and inter-tank transfers. BPGIC’s monthly revenue ultimately varies based on the existing Storage Customers’ usage of the terminal storage capacity and the level of the ancillary services.

   

Group’s Cost Structure and Margins

 

The Group’s cost structure and margins are derived from the Group’s revenues which currently come, and are expected to continue to come, from two types of fees, fees for storage and variable fees for ancillary services. Once the Modular Refinery and the Green Hydrogen and Green Ammonia Project are operational, the Group’s revenues are expected to come from different types of fees, refinery operations fees, green ammonia pricing, fees for storage and variable fees for ancillary services. The mix of these fees affects revenues, operating margins and net income. In particular, the relatively high fixed price nature of the Group’s operations could result in lower profit margins if certain costs were to increase and the Group was not able to offset the increase in costs with sufficient increases in its storage or ancillary service fees or the end users’ utilization of BPGIC’s ancillary services.

 

The Group’s direct costs, which are comprised principally of employee costs with related benefits and depreciation generally remain stable across broad ranges of activity levels at the terminal and, as discussed above, its storage fee revenues are dependent on terminal utilization, agreed storage fee and the duration of the contracts pursuant to the existing Commercial Storage Agreements. Accordingly, changes in the Group’s operating margins are largely driven by terminal utilization, agreed storage fee and the amount of ancillary services provided and the fees the group earns for such services. During the year ended December 31, 2019, the Group incurred cash expenses of $3.2 million as expenses incurred in connection with Brooge Energy Limited’s listing on NASDAQ. In addition, the Group, in accordance with the requirements of IFRS, has recorded a non-cash expense as listing expenses to the extent of $98.6 million which is the difference between the fair value of the 10.9 million Ordinary Shares (including 1.6 million Ordinary Shares held in escrow) issued to Twelve Seas’ shareholders in the Business Combination and the fair value of the net assets of Twelve Seas acquired at the time of Business Combination which had a significant impact on fiscal year 2019’s profitability. The listing expenses also include the fair value of 21.2 million warrants which were valued at a fair value of $0.8 per warrant amounting to $16.9 million.

 

During the year ended December 31, 2020, December 31, 2021 and December 31, 2022 there was no impact on account of such listing expenses as there were no combination activities, unlike 2019. With the start of operations of Phase II and once the Phase III and the Green Hydrogen and Green Ammonia Project are operational, our mix of relatively storage revenue and ancillary revenue will also depend on use and service requirements respectively.

 

National and International Expansion

 

The Group’s future revenue growth and results of operations will depend on its ability to secure additional land and develop additional facilities or acquire existing facilities on commercially favorable terms both in the UAE and outside the UAE. The Group operates in a capital-intensive industry that requires a substantial amount of capital and other long-term expenditures, including those relating to the expansion of existing terminal facilities and the development and acquisition of new terminal facilities. Accordingly, the Group’s successful expansion also depends on its ability to generate or obtain funds sufficient to make significant capital expenditures.

 

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Oil Market Pricing Structure

 

Increases or decreases in the price of crude oil has some impact on end-user demand for our ancillary services, unlike demand for storage which is fully contractually committed at fixed rates. For instance, when the expected future price for an oil product is believed to be higher than the current market price for that product, it is said to be in a “contango market”. In such a market, oil traders are more likely to store the product and put a hold on processing the product via ancillary services, until there is an upward revision in prices. Vice versa if the expected future price for an oil product is believed to be lower than the current market price for that product, it is said to be in a “backwardation market”. In such a market, oil traders are more likely to process the product via ancillary services in order to sell at the current market price, rather than store the product when future prices are expected to be lower.

  

Phase III & Refinery

 

The Group is in the early stages of pursuing a major expansion near its existing facilities, which it refers to as Phase III. Phase III alone could be three times the size of the Company’s combined Phase I and II operations. As of the date of this Report, the group has commenced early preparation works for Phase III. The recognized Phase III expenses include land rental which, as per the agreement, is AED 50 per m2 for 450,075 m2 per annum with 2% annual increase.

 

In addition to Phase III, the Group will continue to pursue additional projects within the Fujairah market, either through joint cooperation with parties who have land leases or through efforts to secure additional land itself in Fujairah. The Group already has in place contracts with existing customers and is working towards enhancing the relationship for additional ancillary and other services.

 

Green Hydrogen and Green Ammonia Project 

 

The Group is in the advanced stages of planning a Green Hydrogen and Green Ammonia Project in the United Arab Emirates, which aims to produce up to 700,000 MT of green ammonia per annum once fully completed. During 2022, BRE entered into a preliminary land lease agreement, engaged Ernst & Young to provide consulting services and has engaged Thyssenkrupp Uhde to undertake the technical study. In Feburary 2023, BRE and Siemens Energy announced a partnership to build a PV solar farm to supply BRE’s Green Hydrogen and Green Ammonia Project. The Green Hydrogen and Green Ammonia Project is one of the first privately owned company green ammonia projects in the United Arab Emirates, led by BRE, which aims to produce renewable, carbon-free fuel using solar power.

 

BUSINESS COMBINATION AND NASDAQ LISTING TRANSACTIONS

 

On December 20, 2019, pursuant to the Business Combination Agreement, among other things:

 

(i)Twelve Seas merged with and into Merger Sub, with Twelve Seas continuing as the surviving entity and a wholly-owned subsidiary of the Company (under the name BPGIC International), with the holders of Twelve Seas’ securities receiving substantially equivalent securities of the Company (the “Merger”); and

 

(ii)the Company acquired all of the issued and outstanding ordinary shares of BPGIC (the “Purchased Shares”) from BPGIC Holdings in exchange for Ordinary Shares of the Company, with BPGIC becoming a wholly-owned subsidiary of the Company (the “Acquisition”).

 

Twelve Seas was incorporated under the laws of the Cayman Islands on November 30, 2017. It was listed on the Nasdaq Capital Market and was a blank check company formed in order to effect a merger, capital stock exchange, asset acquisition or other similar business combination with one or more businesses or entities.

 

Merger Sub was incorporated in April 2019 solely to effectuate the Business Combination. From its formation through the Closing, Merger Sub owned no material assets and did not operate any business. Upon Closing, Merger Sub merged with and into Twelve Seas and ceased to exist as a separate entity.

 

The Merger and the Acquisition occurred simultaneously and their execution is interconnected, that is, the Acquisition could not occur without the Merger and vice versa, we consider the Merger and the Acquisition as one transaction.

 

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Pursuant to the Business Combination Agreement:

 

  (i) each outstanding ordinary share of Twelve Seas was exchanged for one Ordinary Share of Brooge Energy Limited;

 

  (ii) each outstanding warrant of Twelve Seas was exchanged for one warrant of Brooge Energy Limited;

 

  (iii) each outstanding right of Twelve Seas was converted into one-tenth of an Ordinary Share of Brooge Energy Limited, rounded down to the nearest whole share per shareholder; and

 

  (iv) each outstanding unit of Twelve Seas was separated into its component parts and then exchanged for one Ordinary Share of Brooge Energy Limited, one warrant of Brooge Energy Limited and one-tenth of an Ordinary Share of Brooge Energy Limited.

 

Pursuant to the Business Combination Agreement, BPGIC Holdings had the right, at the sole election of BPGIC (the “Cash Election”), to receive a portion of the consideration for the Purchased Shares at the Closing as cash in lieu of receiving Brooge Energy Limited Ordinary Shares in an amount not to exceed 40% of the Closing Net Cash (with the “Closing Net Cash” being the aggregate cash and cash equivalents of Twelve Seas and Brooge Energy Limited as of the Closing, including remaining funds in the Twelve Seas’ trust account after giving effect to the redemption and the proceeds of any potential private placement financing, less unpaid expenses and liabilities of Twelve Seas and the Company as of the Closing, prior to giving effect to any Cash Election).

 

In connection with the closing of the Business Combination, holders of 16,997,181 ordinary shares of Twelve Seas sold in Twelve Sea’s initial public offering (“IPO”) exercised their right to redeem such shares at a price of $10.31684239 per share, for an aggregate redemption amount of approximately $175.36 million. In addition, 1,035,000 ordinary shares of Twelve Seas were forfeited by certain pre-IPO shareholders. Effective December 23, 2019, Twelve Sea’s ordinary shares, warrants, rights and units ceased trading, and were replaced by Brooge Energy Limited’s Ordinary Shares and Warrants on the Nasdaq Capital Market under the symbols “BROG” and “BROGW,” respectively.

 

The total consideration paid by the Company to BPGIC Holdings for the purchased shares was 98,718,035 Ordinary Shares and cash in the amount of $13,225,827.22. 20,000,000 of the Company’s Ordinary Shares otherwise issuable to BPGIC Holdings at the Closing (together with any equity securities paid as dividends or distributions with respect to such shares or into which such shares are exchanged or converted, the “Seller Escrow Shares”) were instead issued to BPGIC Holdings in escrow, and are held by Continental, as escrow agent for the benefit of BPGIC Holdings, to be held and controlled, along with any other Escrow Property (as defined in the Seller Escrow Agreement and together with the Seller Escrow Shares, the “Seller Escrow Property”) by Continental in a separate segregated escrow account (the “Seller Escrow Account”), and released in accordance with the Seller Escrow Agreement.

 

The Seller Escrow Property will only become vested and not subject to forfeiture, and released to BPGIC Holdings, in the event that the Company meets the following performance or milestone requirements during the Seller Escrow Period, the period commencing from the Closing until the end of the twentieth fiscal quarter after the commencement date of the first full fiscal quarter beginning after the Closing:

 

  (i) One-half of the Seller Escrow Property shall become vested and no longer subject to forfeiture, and be released to BPGIC Holdings, in the event that either: (a) the Annualized EBITDA (as defined in the Seller Escrow Agreement) for any full fiscal quarter during the Seller Escrow Period (beginning with the first full fiscal quarter beginning after the Closing) (an “Seller Escrow Quarter”) equals or exceeds $175,000,000 or (b) at any time during the Seller Escrow Period, the closing price of the Company Ordinary Shares equals or exceeds $12.50 per share (subject to equitable adjustment) for any ten Trading Days (as defined in the Seller Escrow Agreement) within any twenty Trading Day period during the Seller Escrow Period.

 

  (ii) All Seller Escrow Property remaining in the Seller Escrow Account shall become vested and no longer subject to forfeiture, and be released to BPGIC Holdings, in the event that either: (a) the Annualized EBITDA for any Seller Escrow Quarter equals or exceeds $250,000,000 or (b) at any time during the Seller Escrow Period, the closing price of the Company Ordinary Shares equals or exceeds $14.00 per share (subject to equitable adjustment) for any ten Trading Days within any twenty Trading Day period during the Seller Escrow Period.

 

While the Seller Escrow Property is held in the Seller Escrow Account, BPGIC Holdings shall have all voting, consent and other rights (other than the rights to dividends, distributions or other income paid or accruing to the Seller Escrow Property). The Seller Escrow Agreement provides, however, that after the Closing, BPGIC Holdings shall be permitted to (i) pledge or otherwise encumber the Seller Escrow Property as collateral security for documented loans entered into by BPGIC Holdings, the Company or its subsidiaries, including BPGIC, after the Closing or (ii) transfer its rights to the Seller Escrow Property to a third party, provided, that (a) in each case of clauses (i) and (ii), that the lender’s or transferee’s rights to any such pledged or transferred Seller Escrow Property shall be subject to the provisions of the Seller Escrow Agreement and the sections of the Business Combination Agreement pertaining to the escrow, including the forfeiture provisions contained therein, and (b) in the event of a pledge or encumbrance of the Seller Escrow Property under clause (i) above, BPGIC Holdings may transfer the Seller Escrow Property to another escrow agent selected by BPGIC Holdings and reasonably acceptable to the Company.

 

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Twelve Seas’ Initial Shareholders beneficially owned and were entitled to vote an aggregate of 5,175,000 ordinary shares that were issued prior to Twelve Seas’ IPO. Simultaneously with the execution of the Business Combination Agreement, the Initial Twelve Seas Shareholders entered into a letter agreement with Twelve Seas, the Company and BPGIC (the “Founder Share Letter”), pursuant to which the Initial Twelve Seas Shareholders agreed, effective upon the Closing, on a pro-rata basis among the Initial Twelve Seas Shareholders based on the number of Founder Shares owned by each of them, to (i) forfeit 20% of the Founder Shares owned by the Initial Twelve Seas Shareholders at the Closing and (ii) subject 30% of the Founder Shares owned by the Initial Twelve Seas Shareholders at the Closing (including any Ordinary Shares issued in exchange therefor in the Merger) to escrow and vesting and potential forfeiture obligations that are substantially identical to those that apply to the Seller Escrow Property as described above.

 

A. OPERATING RESULTS

 

The consolidated financial statements are prepared as a continuation of the financial statements of BPGIC, the accounting acquirer, and retroactively adjusted to reflect the legal capital of the legal parent/acquiree (the Company, Brooge Energy Limited). The comparative financial years included herein are derived from the consolidated financial statements of BPGIC as adjusted to reflect the legal capital of the legal parent/acquiree (the Company, Brooge Energy Limited).

 

Description of Operations

 

We conduct our operations through a dedicated operation team at the BPGIC Terminal. Our operations are categorized into two reported business services: Storage and Ancillary services.

 

Storage. We own terminal and storage facilities in the UAE in the emirate of Fujairah, initially Phase 1 with 399,324 m3 storage capacity for storage of clean oil and fuel oil and subsequently Phase II expanding the BPGIC Terminal to a total capacity of approximately 1,000,000 m3 with the capability to store crude oil too. Phase III is projected to have a storage capacity of approximately 3,500,000 m3.

 

Ancillary Services. Ancillary services are further classified into four sub streams, Throughput, Blending & Circulation, Heating, and Intertank Transfer. The Company began offering ancillary services in April 2018 after initial tests of the facility had been satisfactorily completed.

 

BPGIC charges the existing Storage Customers variable fees based on usage for the following ancillary services:

 

  Throughput Fees. Pursuant to the existing Commercial Storage Agreements, the Storage Customers, are required to pay BPGIC a monthly fee based upon the total volume of oil products delivered from the BPGIC Terminal to the Port of Fujairah’s berths or from the berths to the BPGIC Terminal during an applicable month at the contracted rate per m3. Each month the existing Storage Customers are each allocated an initial amount of throughput volume at no charge that corresponds with the storage capacity that they each lease. The Storage Customers are required to pay BPGIC throughput fees on throughput volume to the extent the aggregate amount of throughput volume provided by BPGIC exceeds such initial amount. The revenue BPGIC generates from such service fees varies based upon, among other factors, the volume of oil products entering and exiting the BPGIC Terminal. As existing Storage Customers utilize the ancillary services, which involves sending and receiving oil products to and from the BPGIC Terminal, it will lead to corresponding increases in the throughput volumes delivered to the extent BPGIC sends oil products to the Port of Fujairah’s berths.

  

  Blending & Circulation Fees. Pursuant to the existing Commercial Storage Agreements, the existing Storage Customers, are required to pay BPGIC a monthly fee based upon the total volume of oil products blended during the blending processes performed during an applicable month at the contracted rate per hour. The existing Storage Customers are responsible for providing BPGIC with blend specifications, the component oil products and any additives in connection with any blend request. The revenue BPGIC generates from such service fees varies based upon the activity levels of the existing Storage Customers.

 

  Heating Fees. Pursuant to the existing Commercial Storage Agreements, the existing Storage Customers are required to pay BPGIC a monthly fee based upon the total volume of oil products heated during an applicable month at the contracted rate per hour. The revenue BPGIC generates from such service fees varies based upon the activity levels.

 

  Inter-Tank Transfer Fees. Pursuant to the existing Commercial Storage Agreements, the existing Storage Customers are required to pay BPGIC a monthly fee based upon the total volume of oil products that they transferred between oil storage tanks during an applicable month at the contracted rate per m3. The revenue BPGIC generates from such service fees varies based upon the activity levels of the existing Storage Customers.

 

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Summary Financial Results

 

   2018   2019   2020       
in $  (Restated)   (Restated)   (Restated)   2021   2022 
Revenue - Storage   5,694,418    13,397,209    23,754,376    37,467,396    77,577,633 
Revenue - Ancillaries   269,836    1,193,181    1,877,913    2,612,341    1,923,747 
Revenue - Miscellaneous (Port)   423,094    1,294,829    1,558,887    1,681,878    2,039,396 
TOTAL REVENUE   6,387,348    15,885,219    27,191,176    41,761,615    81,540,776 
Direct costs   (10,100,234)   (11,497,239)   (12,708,386)   (14,984,022)   (24,691,442)
GROSS PROFIT(LOSS)   (3,712,886)   4,387,980    14,482,790    26,777,593    56,849,334 
Listing Expenses   -    (101,773,877)   -    -    - 
General and administrative expenses   (1,824,380)   (2,470,425)   (6,664,303)   (7,422,870)   (15,652,819)
Finance costs   (6,951,923)   (5,782,430)   (8,335,269)   (6,810,718)   (25,417,989)
Change in estimated fair value of derivative warrant liabilities   -    1,273,740    2,547,622    1,486,023    7,430,035 
Changes in fair value of derivative financial instruments   (1,190,073)   (328,176)   (340,504)   5,422,917    3,840,379 
Other Income   8,554    4,188    828,332    6,237,620    180,345 
PROFIT(LOSS) FOR THE PERIOD   (13,670,708)   (104,689,000)   2,518,668    25,690,565    27,229,285 
PROFIT(LOSS) % to Revenue   -214%   -659%   9%   62%   33%

 

With the commencement of the Fujairah Terminal Phase 1 operations in December 2017 with a storage capacity of approximately 400,000 cbm, the 2018 year was the first full year of Phase 1 terminal operations. During 2018, the Company reported revenue of $6.4 million and a net loss of $13.7 million for the 2018 year.

 

As a consequence of the accounting for the Business Combination in 2019, the Company reported a gross profit of $4.4 million and a net loss of $104.7 million. This is primarily attributable to a non-cash expense of $98.6 million being the difference between the fair value of Ordinary Shares issued to Twelve Seas’ shareholders in the Business Combination plus fair value of warrants and the cash consideration received from Twelve Seas as a part of the Business Combination. This is in addition to the $3.2 million actual expenses incurred in connection with the Company’s listing on NASDAQ in 2019.

 

If that one-time expense were disregarded, the Company would have made a net loss of $2.9 million in 2019, based on which our management has concluded a decrease in net loss by $10.8 million, in comparison with 2018 due to higher utilization of the Phase 1 capacity during 2019.

 

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In 2020 there was a net profit of $2.5 million as against a net loss of $104.7 million in 2019, as there was a business combination exercise in 2019 resulting in a one-time extraordinary non-cash expense of $98.6 million, being the difference between the fair value of Ordinary Shares and warrants issued over cash consideration received as part of that Business Combination. If you disregard this 2019 one-time expense, then profit increased by $5.4 million in 2020 compared to 2019.

 

In 2021, the Company reported a net profit of $25.7 million as compared to $2.5 million in 2020. The Company’s gross profit also increased to $26.8 million in 2021 from $14.5 million in 2020 mainly due to around 50% increase in the average annual storage fee and the commencement of Phase II operations from September 2021 which also led to an increase in direct costs attributable to cost of operations.

 

In 2022, the Company reported total revenue of $81.5 million, a significant increase of 95% from 2021. This increase is primarily attributable to Fujairah terminal storage capacity of Phase 1 & 2 being operational during the year which also resulted in the increase in 2022 direct costs of $24.7 million, a 65% increase from 2021. There was also an increase in general and administrative expenses from $7.4 million in 2021 to $15.7 million in 2022 primarily due to legal and professional fees, sales and marketing expenses. Finance costs also increased from $6.8 million in 2021 to $25.4 million in 2022 but this was primarily due to $15.9 million finance cost being capitalized in 2021 as Phase II was still under construction and in 2022 there was no capitalization as Phase 2 construction was complete. Also, in 2022, there was a one-off payment of $3.7 million paid to Bondholders related to a waiver of Bond financial covenants. The resulting 2022 profit was $27.2 million, a 6% increase from 2021.

 

Revenue

 

   2018   2019   2020       
in $  (Restated)   (Restated)   (Restated)   2021   2022 
Revenue - Storage   5,694,418    13,397,209    23,754,376    37,467,396    77,577,633 
Revenue - Ancillaries   269,836    1,193,181    1,877,913    2,612,341    1,923,747 
Revenue - Miscellaneous (Port)   423,094    1,294,829    1,558,887    1,681,878    2,039,396 
TOTAL REVENUE   6,387,348    15,885,219    27,191,176    41,761,615    81,540,776 

 

Year ended December 31, 2018 Compared to Year ended December 31, 2019

 

During the year 2019, there was an increase in revenues of $9.5 million to $15.9 million in 2019 from $6.4 million in 2018 due to increased use of the storage capacity and higher average storage rates for the year 2019. In 2018, the Group recognised revenue from seven customers consisting of major oil producers and traders in the region which represented $5.7 million in storage revenues. The Group did not have direct contracts with any of them, whereas in 2019, the Group recognised revenue from eight customers which represented $13.4 million in storage revenues and had two direct customers.

 

Year ended December 31, 2019 Compared to Year ended December 31, 2020

 

During the year 2020, there was an increase in revenues of $11.3 million to $27.2 million in 2020 from $15.9 million in 2019 due to significantly higher storage rates. In 2019, the Group had 8 customers consisting of major oil producers and traders in the region which represented $13.4 million in storage revenues and the Group recognised revenue from eight customers with two direct customers, whereas in 2020, the Group recognised revenue from nine customers which represented $23.8 million in storage revenues and had four direct customers.

 

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Year ended December 31, 2020 Compared to Year ended December 31, 2021

 

During the year 2021, there was an increase in revenues of $14.6 million to $41.8 million, up from $27.2 million in 2020. This revenue increase was due to higher average storage rates and Phase II operations commencing in September 2021 at 50% capacity till December 2021. In 2020, the Group recognised revenue from nine customers consisting of major oil producers and traders in the region which represented $23.8 million in storage revenues and the Group with four direct customers. Whereas in 2021, the Group recognised revenue from eleven customers which represented $37.5 million in storage revenues, and all were direct customers except for one.

 

Year ended December 31, 2021 Compared to Year ended December 31, 2022

 

During the year 2022, there was an increase in revenues of $39.8 million to $81.5 million, up from $41.8 million in 2021 primarily due to the availability of Phase II storage capacity and operations for a full year with higher storage rates. In 2021, the Group had eleven customers consisting of major oil producers and traders in the region which represented $37.5 million in storage revenues with all direct customers except for one. Whereas in 2022, the Group had fourteen customers which represented $77.6 million in storage revenues and all were direct customers.

 

Direct Costs

 

The consolidated entities direct costs pertain only to BPGIC because there is no revenue generated at the Brooge Energy Limited level. Direct costs are comprised principally of employee costs and related benefits, depreciation and, to a lesser extent, insurance, and certain other miscellaneous operating costs.

 

Employee costs and related benefits consist of compensation to employees who provide customer support and services and external contractor costs.

 

Depreciation expenses consist of depreciation on Phase I’s and Phase II’s oil storage tanks, administrative buildings, and installations. The Company depreciates these assets using the straight-line depreciation method assuming an average useful life of 50 years for the tanks and 20 to 25 years for the buildings and installations.

 

  2018   2019   2020       
Direct Costs $ for  (Restated)   (Restated)   (Restated)   2021   2022 
Depreciation PPE   5,763,150    5,785,745    5,800,007    6,806,198    12,615,658 
Employees   2,808,702    3,074,727    3,482,431    3,891,969    4,232,980 
Reimbursable Port Charges   423,094    1,294,829    1,558,887    1,681,878    2,039,396 
Spare Parts & Consumables   592,471    788,792    657,917    938,386    1,460,979 
Insurance   377,053    323,702    397,976    782,357    955,977 
Maintenance   -    -    -    332,658    2,741,780 
Other   135,764    229,444    811,168    550,576    644,672 
Total Direct Costs   10,100,234    11,497,239    12,708,386    14,984,022    24,691,442 

 

Year ended December 31, 2018 Compared to Year ended December 31, 2019

 

There was an increase of total direct costs by $1.4 million from $10.1 million in 2018 to $11.5 million in 2019, representing a 14% increase over the previous year 2018. The major reasons for the increase are:

 

  1. $0.9 million increase in reimbursable port charges due to increased utilization of the Phase 1 terminal storage facility in 2019 compared to 2018.

 

  2. $0.3 million increase in employee cost & benefits.

 

  3. $0.2 million increase in spare parts & consumables due to second year of operations.

 

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Year ended December 31, 2019 Compared to Year ended December 31, 2020

 

There was an increase of total direct costs by $1.2 million from $11.5 million in 2019 to $12.7 million in 2020, representing an increase of 11% over the previous year 2019. The major reasons for the increase are:

 

  1. $0.6 million increase in other expenses is mainly attributable to a charge of $0.6 million being charged by FOIZ for the first time for Fujairah emergency services based on BPGIC’s operating terminal capacity compared to all the Fujairah terminals of which a share is attributed to BPGIC.

 

  2. $0.4 million increase in employee cost & benefits is mainly due to an increase in the cost of outsourced staff at the Fujairah plant in 2020 when compared to 2019.

 

Year ended December 31, 2020 Compared to Year ended December 31, 2021

 

There was an increase of total direct costs by $2.3 million from $12.7 million in 2020 to $15.0 million in 2021, representing an increase of 18% in comparison to 2020. The major reasons for the increase are:

 

  1. $1.0 million increase in depreciation is mainly attributable to the depreciation of Phase II for the period of two months, Phase II was capitalized in November 2021 when the storage capacity was fully operational.

 

  2. $0.4 million increase in employee cost & benefits is mainly due to an increase in the cost of outsourced staff at the Fujairah plant in 2021. Phase II operations commenced in September 2021 which required additional staff in comparison to 2020.

 

  3. $0.4 million increase in insurance due to Phase II insurance from September 2021.

 

  4. $0.3 million increase in spares and consumables due to commencement of Phase II operations.

 

 Year ended December 31, 2021 Compared to Year ended December 31, 2022

 

There was an increase of total direct costs by $9.7 million from $15.0 million in 2021 to $24.7 million in 2022, representing an increase of 65% in comparison to 2021. The major reasons for the increase are:

 

  1. $5.8 million increase in plant, property and equipment depreciation primarily attributable to the depreciation of Phase II for the full year of 2022 as Phase II was capitalized in November 2021 when the storage capacity was fully operational.

 

  2. $2.4 million increase in maintenance costs primarily due to a payment of $1.9 million to the Port of Fujairah for Piperack 3 concession fees.

 

  3.

$0.5 million increase in spares parts and consumables due to Phase II operations which commenced in September 2021.

 

  4. $0.4 million in reimbursable Port charges due to increased use of the terminal with Phase II operational during the 2022 year.

 

  5. $0.3 million increase in employee cost & benefits is mainly due to the cost of outsourced staff at the Fujairah plant in 2022 as Phase II operations commenced in September 2021 which required additional number of staff.

 

Gross Profit

 

Year ended December 31, 2018 Compared to Year ended December 31, 2019

 

The Company’s gross profit increased to $4.4 million in 2019 from a gross loss of $3.7 million in 2018 mainly due to increased utilization of terminal’s storage capacity with higher storage rates.

 

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Year ended December 31, 2019 Compared to Year ended December 31, 2020

 

The Company’s gross profit increased to $14.5 million in 2020 from $4.4 million in 2019 and this is mainly due to significantly higher storage rates.

 

Year ended December 31, 2020 Compared to Year ended December 31, 2021

 

The Company’s gross profit increased to $26.8 million in 2021, up from $14.5 million in 2020. This was mainly due to the commencement of Phase II operations in September 2021 and higher average storage rates.

 

Year ended December 31, 2021 Compared to Year ended December 31, 2022

 

The Company’s gross profit increased to $56.8 million in 2022, up from $26.8 million in 2021. This was mainly due to the availability of Phase II storage and operations for the 2022 year and higher average storage rates also contributed.

 

Listing Expenses

 

The Company’s listing expenses are of a one-time non-recurring nature and only impacts the 2019 financial statements as the Company listed on NASDAQ in 2019.

 

   For the year
Ended
December 31,
 
Listing Expenses $  2019 
Fair value of 10,869,719 Ordinary Shares (including 1,552,500 Founder Escrow Shares) Issued to Twelve Seas at $10.49 per share   114,023,352 
Fair value of 21,229,000 warrants at $0.80 per Warrant   16,983,200 
Net Liability of Twelve Seas at Business Combination   680,081 
Total Value of Consideration   131,686,633 
Less     
Proceeds received Post Merger Twelve Assets (Cash)   (33,064,615)
Listing Expenses Total (Non – Cash) – IFRS 2   98,622,019 
Listing Expenses Total (Cash)*   3,151,858 
Total Listing Expenses   101,773,877 

 

* Listing Expenses Total (Cash) represents promissory note of $1.5 million, fees paid to legal advisors, consultants, and other necessary expenses incurred in relation to the Group’s listing on the US market.

 

As per IFRS 2, the Ordinary Shares distributed at the time of Business Combination are valued at the fair value which was $10.49 as on December 19, 2019 and the fair value of the warrants is calculated at $0.80 per warrant. The difference between the fair value of the Ordinary Shares and warrants issued and the fair value of the net assets received amounting $98.62 million have been recognized as a listing expense. This is the primary reason for the substantial increase in indirect expenses which resulted in a net loss of $104.7 million in 2019.

 

There was no listing expense during 2020 as it was a one-time expense accounted due to Business Combination that occurred in 2019.

 

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General and Administrative Expenses

 

The Company’s general and administrative expenses include costs not directly attributable to the operations of the BPGIC Terminal and consist primarily of compensation costs for its executive, financial, human resources, and administrative functions. Other significant expenses include outside legal counsel, independent auditors and other outside consultants, recruiting, travel, rent and advertising.

 

  2018   2019   2020       
General & Administrative Expenses $  (Restated)   (Restated)   (Restated)   2021   2022 
Employee costs   1,210,102    1,473,335    2,014,858    2,486,933    3,292,361 
Legal and Professional   177,298    549,702    2,594,801    2,877,264    7,383,335 
Sales & Marketing   114,682    70,877    211,383    60,389    3,026,399 
Insurance   -    -    639,345    937,329    949,784 
Rent   22,325    10,346    177,850    112,306    166,894 
Office Expenses   106,943    248,752    270,259    393,187    409,544 
Board Fees and Expenses   -    -    354,169    518,278    356,493 
Travelling Expenses   5,667    42,871    154,336    15,035    67,464 
Repairs and Maintenance   75,985    74,542    247,302    22,149    545 
Other Expenses   111,378    -    -    -    - 
Total G&A Expenses   1,824,380    2,470,425    6,664,303    7,422,870    15,652,819 

 

Year ended December 31, 2018 Compared to Year ended December 31, 2019

 

General and administrative expenses increased by $0.6 million or 35% from $1.8 million in 2018 to $2.5 million in 2019. The major reasons for this increase are:

 

  1. $0.4 million increase in legal and professional expenses primarily related to pursuing the listing of the Company on the NASDAQ Stock Exchange in December 2019.

 

  2. $0.3 million increase in salaries due to the addition of new staff in mid-2019.

 

Year ended December 31, 2019 Compared to Year ended December 31, 2020

 

General and administrative expenses increased by $4.2 million or 170% from $2.5 million in 2019 to $6.7 million in 2020. The major reasons for this increase are:

 

  1. $2.0 million increase in legal and professional expenses, which were for a partial period in 2019 as compared to a full year in 2020 as listed company on NASDAQ. This also includes an increase in audit charges during 2020 when compared to 2019.

 

  2. $0.6 million increase in insurance as during the year 2020, the Company opted for new insurance cover of the Directors and Officers of the Company in 2020.

 

  3. $0.5 million increase in salaries due to addition of new staff towards in mid-2019.

 

  4. $0.4 million increase in board fees and expenses due to remuneration paid to the board members which was not there in 2019.

 

  5. $0.2 million increase in rent as in April 2020 as the Company leased an office for a period of one year with a rent of $0.2 million annually.

 

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Year ended December 31, 2020 Compared to Year ended December 31, 2021

 

General and administrative expenses increased by $0.8 million or 11% from $6.7 million in 2020 to $7.4 million in 2021. The major reasons for this increase are:

 

  1. $0.5 million increase in salaries mainly due to new hiring’s during the year and full-year expense of previous joiners in 2020.

 

  2. $0.3 million increase in legal and professional fees is primarily due to additional transactions with  lawyers relating to filings with the SEC and other related services.

 

  3. $0.3 million increase due to insurance expenses primarily due to the additional insurance policies for new directors in 2021 and an increase in the Director’s and Officers’ liability insurance.

 

  4. Partially offset by reductions in sales and marketing of $0.2 million, repairs and maintenance of $0.2 million and travel expenses of $0.1 million.

 

Year ended December 31, 2021 Compared to Year ended December 31, 2022

 

General and administrative expenses increased by $8.2 million or 111% from $7.4 million in 2021 to $15.7 million in 2022. The major reasons for this increase are:

 

  1. $4.5 million increase in legal and professional fees primarily due to legal and auditor costs associated with the SEC examination.

 

  2. $3.0 million increase in sales and marketing expenses related to obtaining new storage customers for the terminal.

 

  3. $0.8 million increase in salaries mainly due to new hiring’s during the year and full-year expense of previous joiners in 2021.

 

Finance Costs

 

The Company’s finance costs consist of amortization of lease liability interest and interest expense under the Company’s Financing Facilities.

 

The Phase I & II Land Lease entered into in March 2013 has an initial term of 30 years, which is extendable for another 30 years. The Company has concluded that it has the right to use of the land and, accordingly, recorded a lease liability in accordance with IFRS 16. Given the Company’s use of the land, it is reasonably certain that it will continue to lease the land until the end of lease period (i.e. 60 years) and, accordingly, the lease rental amounts cover a period up to 60 years and are discounted at the rate of 9.5% as the incremental borrowing rate of the Company over 60 years.

 

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The Phase III Land Lease entered into in February 2020 has an initial term of 30 years, which is extendable for another 30 years. The Company has concluded that it has the right to use of the land and, accordingly, recorded a lease liability in accordance with IFRS 16. Given the Company’s use of the land, it is reasonably certain that it will continue to lease the land until the end of lease period (i.e. 60 years) and, accordingly, the lease rental amounts cover a period up to 60 years and are discounted at the rate of 13% as the incremental borrowing rate of the Company over 60 years.

 

   2018   2019   2020       
Finance Cost $ for  (Restated)   (Restated)   (Restated)   2021   2022 
Interest expense on term loans   5,559,195    4,002,772    5,467,250    4,966,876    22,177,769 
Interest on lease liability   1,387,612    1,412,796    2,041,006    1,685,010    3,043,214 
Early Settlement changes   -    -    706,643    -    - 
Asset retirement obligation - accretion expenses   -    -    79,555    28,252    65,859 
Bank Charges   5,116    314,967    11,696    89,587    119,347 
Exchange loss   -    51,895    29,119    40,993    11,800 
Total Finance Cost   6,951,923    5,782,430    8,335,269    6,810,718    25,417,989 

  

Year ended December 31, 2018 Compared to Year ended December 31, 2019

 

During the year 2019, there was a decrease in finance cost by 17% in 2019 as compared to 2018 from $7.0 million in 2018 to $5.8 million in 2019. This was primarily due to a $1.6 million decrease in interest expense on term loans which was partially offset by $0.3 million increase in bank charges.

 

Year ended December 31, 2019 Compared to Year ended December 31, 2020

 

During the year 2020, there was an increase in finance cost by 44% in 2020 as compared to 2019 from $5.8 million in 2019 to $8.3 million in 2020. The main reasons for the increase in finance cost are:

 

  1. $1.5 million increase in interest expense on term loans due to interest for the year 2020 on the new $200 million Bond Financing Facility which was not there in 2019.

 

  2. $0.7 million increase due to the early settlement of the Phase 1 loan.

 

  3. $0.6 million increase in interest on lease liability on account of Phase III land lease recognised as per IFRS 16 for one month in December 2020 based on the lease commencement date assessed by management. As per the Phase III Land Lease, there is a rental free period for the first 18 months until July 2021, which was subsequently extended to August 2022. However, as per IFRS 16, land lease interest and depreciation had to be accounted for one month of December 2020 even though the rental free period had not expired and there was no actual outflow of cash towards lease rentals.

 

Year ended December 31, 2020 Compared to Year ended December 31, 2021

 

During the year 2021, there was a 18% decrease in finance costs to $6.8 million, down from $8.3 million in 2020. The main reasons for the decrease in finance cost is lower interest expense on term loans and lease liability and no settlement fees in 2021. 

 

Year ended December 31, 2021 Compared to Year ended December 31, 2022

 

During the year 2022, there was an increase in finance cost by 273% in 2022 as compared to 2021 from $6.8 million in 2021 to $25.4 million in 2022. The main reasons for the increase in finance cost are:

 

  1. $17.2 million increase in interest expense on term loans primarily due to $15.9 million of finance cost being capitalized during construction of Phase 2 in 2021 and there was a one-off payment of $ 3.7 million paid to Bond holders related to the waiver of Bond financial covenants.

 

  2. $1.4 million increase in interest on lease liability due to Phase III Land Lease rental payment commencing post completion of rental free period up until August 2022.

 

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Change in estimated fair value of derivative warrant liabilities

 

Year ended December 31, 2019 Compared to Year ended December 31, 2020

 

The gain of $2.5 million results from the change in fair value of warrants issued by the Company on December 20, 2019. The fair value of the warrants on December 31, 2019 was $0.74, which is further decreased on December 31, 2020 to $0.62, which resulted in a gain of $2.5 million on 21,228,900 warrants.

 

Year ended December 31, 2020 Compared to Year ended December 31, 2021

 

The gain of $1.5 million results from the change in fair value of warrants issued by the Company on December 20, 2019. The fair value of the warrants on December 31, 2020 was $0.62, which is further decreased on December 31, 2021 to $0.55, which resulted in a gain of $1.5 million on 21,228,900 warrants.

 

Year ended December 31, 2021 Compared to Year ended December 31, 2022

 

The gain of $7.4 million results from the change in the fair value of warrants issued by the Company on December 20, 2019. The fair value of the warrants on December 31, 2021 was $0.55, which is further decreased on December 31, 2022 to $0.20, which resulted in a gain of $7.4 million on 21,228,900 warrants.

 

Net Profit (Loss)

 

Year ended December 31, 2018 Compared to Year ended December 31, 2019fair value of warrants issued by the Company on December 20, 2019. The fair value of the

 

During the year 2019, the Company generated a net loss of $104.7 million, as against net loss of $13.7 million in 2018. The loss in 2019 was primarily due to a non-cash expense of $98.6 million being the difference between the fair value of Ordinary Shares issued to Twelve Seas’ shareholders in the Business Combination plus fair value of warrants and the cash consideration received from Twelve Seas as a part of the Business Combination.

 

Year ended December 31, 2019 Compared to Year ended December 31, 2020

 

During the year 2020, the Company generated net profit of $2.5 million, as against net loss of $104.7 million in 2019. As explained above, the loss in 2019 was primarily due to a non-cash expense of $98.6 million being the difference between the fair value of Ordinary Shares issued to Twelve Seas’ shareholders in the Business Combination plus fair value of warrants and the cash consideration received from Twelve Seas as a part of the Business Combination.

 

Year ended December 31, 2020 Compared to Year ended December 31, 2021

 

During the year 2021, the Company generated a net profit of $25.7 million, as compared to a net profit of $2.5 million in 2020.

 

Year ended December 31, 2021 Compared to Year ended December 31, 2022

 

During the year 2022, the Company generated a net profit of $27.2 million, as compared to a net profit of $25.7 million in 2021.

 

Non-IFRS Financial Measures

 

Adjusted EBITDA

 

We define Adjusted EBITDA as profit (loss) before finance costs, income tax expense (currently not applicable in the UAE but included here for reference purposes), depreciation, listing expenses and net change in the value of derivative financial instruments and derivative warrant liabilities. In addition to non-cash items, we have selected items for adjustment to EBITDA which management feels decreases the comparability of our results among periods. These items are identified as those which are generally outside of the results of day-to-day operations of the business. Except for listing expenses, these items are not considered non-recurring, infrequent or unusual, but do erode comparability among periods in which they occur with periods in which they do not occur or occur to a greater or lesser degree.

 

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Adjusted EBITDA Margin

 

Adjusted EBITDA Margin is calculated as net income add or subtract anomalies such as below or above market rents paid to related parties, below or above market compensation paid to employees, one-time expenses or revenue and then add personal expenses deducted by the business paid on behalf of its owners subtract interest expense, income taxes, depreciation, and amortization. Divided by gross revenue.

 

Discussion and Reconciliation

  

The Company’s Adjusted EBITDA increased by $7.5 million in 2019 when compared to 2018 from $0.2 million (4% of revenue) for the year ended December 31, 2018 to $7.7 million (49% of revenue) for the year ended December 31, 2019. The main reason for the increase of Adjusted EBITDA in 2019 was the net increase in revenue of $9.5 million in 2019 due to increased utilization of the Phase 1 storage facility at higher storage rates.

 

The Company’s Adjusted EBITDA increased by $6.7 million in 2020 when compared to 2019 from $7.7 million (49% of revenue) for the year ended December 31, 2019 to $14.4 million (53% of revenue) for the year ended December 31, 2020. The main reasons for the increase in Adjusted EBITDA in 2020 are:

 

  1. There was a net increase in revenue of $11.3 million in 2020 due primarily to higher storage rates.

 

  2. Also, as explained in direct costs and general and administrative sections above, there is an increase of total direct costs by $1.2 million from $10.1 million in 2019 to $11.5 million in 2020 which is around 11% over the previous year 2019. Also, general and administrative expenses increased by 170% or $4.2 million from $2.5 million in 2019 to $6.7 million in 2020.

 

  3. This increase in revenue by $11.3 million and increase in expenses by $5.4 million contributed to the increase in Adjusted EBITDA.

 

The Company’s Adjusted EBITDA increased by $18.0 million in 2021 when compared to 2020 from $14.4 million (53% of revenue) for the year ended December 31, 2020 to $32.4 million (78% of revenue) for the year ended December 31, 2021. The main reasons for increase of Adjusted EBITDA in 2021 are:

 

  1. There was a net increase in revenue of $14.6 million in 2021 due primarily to higher storage rates and the commencement of operations of Phase II in September 2021.

 

  2. Also, as explained in direct costs and general and administrative sections above, there is an increase of total direct costs by $2.3 million from $12.7 million in 2020 to $15.0 million in 2021, which is around 18% over the previous year 2020. Also, general and administrative expenses increased by 11% or $0.8 million from $6.7 million in 2020 to $7.4 million in 2021.

 

  3. This increase in revenue by $14.6 million and increase in expenses by $3.1 million contributed to the increase in Adjusted EBITDA.
     

The Company’s Adjusted EBITDA increased by $21.6 million in 2022 when compared to 2021 from $32.4 million (78% of revenue) for the year ended December 31, 2021 to $54.0 million (66% of revenue) for the year ended December 31, 2022. The main reasons for increase of Adjusted EBITDA in 2022 are:

 

  1. There was a net increase in revenue of $39.8 million in 2022 due primarily to higher storage rates and the full year of Phase II operations.

 

  2. Also, as explained in direct costs and general and administrative sections above, there is an increase of total direct costs by $9.7 million from $15.0 million in 2021 to $24.7 million in 2022, a 65% over the previous year 2021 attributed to the increased costs associated with Phase II being operational for a full year. Also, general and administrative expenses increased by 111% or $8.2 million from $7.4 million in 2021 to $15.7 million in 2022.

 

  3. This increase in revenue by $39.8 million and increase in expenses by $17.9 million contributed to the increase in Adjusted EBITDA.

 

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Adjusted EBITDA is not a financial measure presented in accordance with IFRS. Adjusted EBITDA should not be considered in isolation or as a substitute for or superior to analysis of our results, including net income, prepared in accordance with IFRS. Because Adjusted EBITDA is a non-IFRS measure, it may be defined differently by other companies in our industry. Our definition of this Non-IFRS financial measure may not be comparable to similarly titled measures of other companies, thereby diminishing the utility. We encourage investors and others to review our financial information in its entirety and not rely on a single financial measure.

 

We present Adjusted EBITDA as a supplemental performance measure because we believe that the presentation of this non-IFRS financial measure will provide useful information to investors in assessing our financial condition and results of operations. Profit (loss) is the IFRS measure most directly comparable to Adjusted EBITDA. Adjusted EBITDA has important limitations as an analytical tool because it excludes some, but not all, items that affect net income. Some limitations of Adjusted EBITDA are:

 

  Adjusted EBITDA does reflect finance costs of, or the cash requirements necessary to service interest on our debts; and

 

  Adjusted EBITDA excludes depreciation and although these are non-cash charges, the assets being depreciated may have to be replaced in the future.

 

Management compensates for the limitations of Adjusted EBITDA as an analytical tool by reviewing the comparable IFRS measure, understanding the difference between Adjusted EBITDA and profit (loss) and incorporating this knowledge into its decision-making processes. We believe that investors benefit from having access to the same financial measures that our management uses in evaluating our operating results.

 

The following table presents a reconciliation of net income to Adjusted EBITDA, the most directly comparable IFRS financial measure for the indicated periods:

 

   2018   2019   2020       
$  (Restated)   (Restated)   (Restated)   2021   2022 
Profit (loss) for the year/ period   (13,670,708)   (104,689,000)   2,518,668    25,690,565    27,229,285 
Adjustments for:                         
Depreciation charge   5,763,150    5,785,745    5,800,007    6,806,198    12,615,658 
Finance costs   6,951,923    5,782,430    8,335,269    6,810,718    25,417,989 
Listing Expenses   -    101,773,877    -    -    - 
Net changes in estimated fair value of derivative warrant liabilities   -    (1,273,740)   (2,547,622)   (1,486,023)   (7,430,035)
Net changes in fair value of derivative financial instruments   1,190,073    328,176    340,504    (5,422,917)   (3,840,379)
Total Adjustments   13,905,146    112,396,488    11,928,158    6,707,976    26,763,233 
Adjusted EBITDA   234,438    7,707,488    14,446,826    32,398,541    53,992,518 
Revenues   6,387,348    15,885,219    27,191,176    41,761,615    81,540,776 
Adjusted EBITDA % of Revenues   4%   49%   53%   78%   66%

 

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Inflation

 

Inflation in the UAE has not materially affected our results of operations in recent years. Although we have not been affected by inflation in the past, we may be affected if any of the countries in which we do business now, or in the future, experience high rates of inflation.

 

B. LIQUIDITY AND CAPITAL RESOURCES

 

Overview

 

Our capital requirements have primarily been for capital expenditures related to the development of Phase I and Phase II, debt service, operating expenses, and shareholder distributions. Historically, we have funded our capital requirements through the Financing Facilities and equity contributions. We anticipate funding our future capital requirements and debt service payments with cash generated from our operations, funds received through equity raises and future borrowings. To the extent we choose to seek additional financing in the future (whether for development, acquisition opportunities as they arise or the refinancing of the Bond Financing Facility when due at more favorable terms), we expect to fund such activities through cash generated from operations and through securing further debt financing from banks and the capital markets.

 

On December 31, 2018 the Company had cash and cash equivalents of $37 thousand and on December 31, 2019 the Company had cash and cash equivalents of $19.8 million.

 

On December 31, 2020 the Company had cash and cash equivalents of $39.4 million and on December 31, 2021 the Company had cash and cash equivalents of $7.4 million.

 

On December 31, 2022 the Company had cash and cash equivalents of $8.3 million.

 

During the year 2020, the Company received proceeds of $187 million (net of issuance discount and arranger fees) in connection with the Bond Financing Facility. The Company used an aggregate of $87.1 million to repay in full outstanding amounts owed on the Phase I Financing Facility, Phase I Admin Building Facility (including the hedging facility), $85.00 million allocated for Phase II construction in construction funding account, $1.50 million to repay a promissory note to Early Bird Capital, $8.5 million to fund the Liquidity Account and the remaining balance was used for general corporate purposes.

 

During the year 2021, the Company obtained a new term loan facility from a commercial bank in the UAE amounting to $2.4 million to partially finance the purchase of corporate office for the Company in Dubai. The new facility carries interest at 3 months EIBOR + 4% margin (minimum 6.5% per annum) and is repayable in 24 quarterly instalments commencing 6 months after the date of disbursement.

 

As of December 31, 2022, the Company have a Bond Financing Facility for an aggregate $171.3 million and a Term Loan for $2.2 million.

 

Cash Flows for the Years Ended

 

The following table summarizes our cash flows provided by (used in) operating, investing, and financing activities in $.

 

   2018   2019   2020       
   (Restated)   (Restated)   (Restated)   2021   2022 
Operating Activities   27,799,970    98,565,946    (17,187,084)   29,210,832    44,152,386 
Investing Activities   (8,192,537)   (93,283,096)   (75,518,059)   (41,393,422)   (25,429,091)
Financing Activities   (19,572,355)   14,510,570    93,864,342    (7,355,064)   (19,234,686)
Net Increase (Decrease) in Cash   35,078    19,793,420    1,159,199    (19,537,654)   (511,391)

 

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Operating Activities

 

Net cash generated from operating activities for the year ended December 31, 2019 was $98.6 million compared to net cash from operating activities of $27.8 million for the year ended December 31, 2018. This increase is attributed to the restatement adjustment and also due to the higher revenue generated by operations.

 

Net cash used in operating activities for the year ended December 31, 2020 was $17.2 million compared to net cash provided by operating activities of $98.6 million for the year ended December 31, 2019. There was a net loss reported for $104.7 million in 2019, this was primarily due to a listing expense of $101.8 million which includes non-cash listing expense of $98.6 million.

 

Net cash used in operating activities for the year ended December 31, 2020 was $17.2 million, which is primarily due to the Company adopting the practice of utilizing the proceeds from the Bond Financing Facility to settle maximum of outstanding payables in addition to utilizing current year revenue proceeds.

 

Net cash generated from operating activities for the year ended December 31, 2021 was $29.2 million, which is primarily due to an increase in revenues to $ 41.8 million in 2021. 

 

Net cash generated from operating activities for the year ended December 31, 2022 was $44.2 million, a $14.9 million increase compared to 2021 which is primarily due to an increase in non cash flow items and working capital adjustments.  

 

Investing Activities

 

Net cash used in investing activities for the year ended December 31, 2018 pertains to costs incurred on the Phase II facility construction for which additions to plant, property and equipment were made of $8.2 million.

 

Net cash used in investing activities for the year ended December 31, 2019 was $93.3 million for an advance of $21.7 million and $71.6 million for plant, property and equipment purchases related to Phase II facility construction.

 

Net cash used in investing activities for the year ended December 31, 2020 was $75.5 million pertaining to the construction of the Phase II facility. During 2020, $26.9 million was also paid into the restricted bank account as per the bond terms.

 

Net cash used in investing activities for the year ended December 31, 2021 was $41.4 million pertaining to construction of the Phase II facility and $8.6 million was incurred in capitalization of Phase III land lease costs as per IFRS 16. $12.5 million was also transferred from the restricted bank account as per the bond terms.

 

Net cash used in investing activities for the year ended December 31, 2022 was $25.4 million mainly pertaining to enhancements of the Phase II facility and $8.3 million pertaining to Phase III. In addition, $2.8 million was capitalized for the Dubai office building.

 

Financing Activities

  

Net cash generated by financing activities for the year ended December 31, 2019 was $14.5 million as compared to net cash use of $19.6 million for the year ended December 31, 2018. This cash generation was primarily related to the movements in the shareholder account.

 

Net cash generated by financing activities for the year ended December 31, 2020 was $93.9 million as compared to $14.5 million for the year ended December 31, 2019. In 2019 the proceeds were on account of the Business Combination, however, in 2020, the Company entered into the Bond Financing Facility wherein the Company received net proceeds of $187.0 million, which were used to settle Phase 1 loans to the extent of $88.7 million, with approximately $4.4 million going towards interest and derivatives, resulting in net cash provided by financing activities of $93.9 million.

 

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Net cash used in financing activities for the year ended December 31, 2021 was $7.4 million as compared to net cash generated of $93.9 million for the year ended December 31, 2020. In 2020 the proceeds were on account of the Bonds Financing Facility, however, in 2021, the Company made the interest payment and principal payment for the Bond Financing Facility for a full year as per the Bond terms.

 

Net cash used in financing activities for the year ended December 31, 2022 was $19.2 million as compared to $7.4 million for the year ended December 31, 2021. This use of cash was primarily for the interest of the Bond Financing Facility and the payment of lease liability.

 

Working Capital

 

As of December 31, 2018, the Company had negative working capital of $138.3 million, compared to negative working capital of $131.8 million as of December 31, 2019 compared to negative working capital of $73.9 million as of December 31, 2020, compared to negative working capital of $283.3 million as of December 31, 2021 and compared to negative working capital of $265.4 million as of December 31, 2022.

 

As of December 31, 2022, the Company had cash and cash equivalents of $8.3 million. Management forecasts that the Company’s existing cash balance, as well as cash generated from the Company’s ongoing operations, will provide sufficient liquidity for the Company to continue operations for the foreseeable future.

 

Capital Expenditures

 

In 2019, the Company incurred capital expenditures of $45.5 million ($1.2 million in 2018) including an advance paid to Audex, the Phase II contractor, primarily in connection with construction of the Phase II facility. These expenditures were financed by cash from operations and cash injected by the shareholders.

 

In 2020, the Company’s net expenditure towards capital expenses amounted to $37.0 million ($45.5 million in 2019) towards the Phase II construction.

 

During the year 2021, the Company’s incurred net expenditure towards capital expenses amounted to $22.2 million ($37.0 million in 2020).

 

During the year 2022, the Company’s incurred net expenditure towards capital expenses amounted to $21.2 million ($22.2 million in 2021).

 

Our anticipated additional capital expenditures during 2023 is approximately $53.5 million, which we expect to fund primarily through operations and/or financing arrangements. These planned capital expenditures will consist primarily of expenditures related to the interconnectivity project and enhancement of the Phase I and II facility and early preparation works for Phase III.

 

Debt Sources of Liquidity

          Dec-20         
Current ($)  Terms   Maturity  (Restated)   Dec-21   Dec-22 
Bond Financing Facility   8.5% per annum   On demand   7,000,000    182,781,617    171,343,445 
Term Loan   3 months EIBOR + 4% (min. 6.5% per annum)   On demand   -    -    396,134 
                        
Non-Current ($)                       
Bond Financing Facility   8.5% per annum   Sep-25   180,014,715    -    - 
Term Loan   3 months EIBOR + 4% (min. 6.5% per annum)   2028   -    -    1,782,603 
                        
Total Loan as on           187,014,715    182,781,617    173,522,182 

 

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Bond Financing Facility

 

During September 2020, as part of the Bond Financing Facility, BPGIC issued bonds of $200 million to private investors with a face value of $1 and an issue price of $0.95. The issuance has a maximum size of $250.00 million, which includes the option for a tap issue of an additional $50.00 million subject to certain conditions. The proceeds of the Bond Financing Facility were used to repay the Phase I Financing Facilities, fund capital project for Phase II, repay the promissory note payable to Early Bird Capital, pre-fund the Liquidity Account and for general corporate purposes. As of December 31, 2020, the Bond Financing Facility is the only outstanding financial debt in the Company’s books.

 

The principal repayment of the Bond Financing Facility will be semi-annual payments of $7 million starting in September 2021 until March 2025, and one bullet repayment of $144 million in September 2025. The bonds bear interest at 8.5% per annum, payable along with the principal installments.

 

The financial covenants stipulated by the Bond Financing Facility documents are as follows:

 

(i)Minimum Liquidity of $8,500,000 in the Liquidity Account at BPGIC FZE level.

 

(ii)Leverage Ratio: Not to exceed: (A) 3.5x at 31 December 2022 (for the 12-month period from and including 1 January 2022 to 31 December 2022 and so that no testing shall be made thereof until 31 December 2022); and (B) 3.0x anytime thereafter at BPGIC FZE level.

 

(iii)Positive Working Capital except for the period from 31 December 2021 to and including 30 December 2022 and during which period no such requirement shall apply.at BPGIC FZE level.

 

(iv)Minimum Equity Ratio of 25% at Group level.

 

As of December 31, 2021, the Group was in technical breach with leverage ratio and working capital financial covenant requirements. Even though the lender did not declare an event of default under the bond agreement, these breaches constituted events of default and could have resulted in the lender requiring immediate repayment of the bonds. As a result of this non-compliance and in accordance with guidance related to the classification of obligations that are callable by the bond holders, the group has classified the respective bonds as a current liability for December 31. 2021.

 

In April 2022, the Group entered into an agreement with its lender to waive off the requirement to comply with leverage ratio and working capital financial covenant for December 31 2021 and June 30 2022 which covers the Group up until December 30, 2022. See “Item 10.C Material Contracts— Bond Waiver” for additional information regarding the waiver.

 

Furthermore, for the year ending December 31, 2022 the Group is in the process of requesting further waivers or modification to the Bond terms from Bondholders including the following Clauses: 12.1 (a) and (b), 13.3, 13.13(a)(iii), Clause 13.13(b) and 1.1(d).

 

Although the Group is in technical breach of certain Covenants under the Bond Terms, Management believes the future cash flows from operations are sufficient to meet its payment obligations to the Bondholders. Since the Bond issuance, the Group has not defaulted on any payments.

 

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Term loan facility

 

During the year 2021, the Company obtained a new term loan facility from a commercial bank in the UAE amounting to USD 2,395,862 (AED 8,800,000) to partially finance the purchase of corporate office for the Group in Dubai. The new facility carries interest at 3 months EIBOR + 4% margin (minimum 6.5% per annum) and is repayable in 24 quarterly instalments commencing 6 months after the date of disbursement. Subsequent to the year end on February 28, 2022, the Company has made a drawdown of USD 2,376,804 (AED 8,730,000) on from the term loan facility.

 

The term loan facility was secured by:

 

-a mortgage on the corporate office;
-assignment of rental income and insurance proceeds;
-corporate guarantee from Brooge Energy Limited.

  

Note on Going Concern

  

Year Ended December 31, 2020

 

During the year ended 31 December 2020, the Group earned a profit of USD 2.5 million and generated negative cash flows of USD 17.1 million. Further, as at that date, the Group had cash and cash equivalents of USD 20.9 million.

 

In September 2020, BPGIC FZE issued bonds of USD 200 million to private investors with a face value of USD 1 with an issue price of USD 0.95. The bonds bear interest at 8.5% per annum to be paid along with the instalments. The Group settled its outstanding term loans using the proceeds of the bonds and will utilize the balance of the proceeds to fund phase II construction and working capital requirements. Management forecasts that the existing cash balances as well as cash generated from ongoing operations provide sufficient liquidity to the Group to continue in operations for the foreseeable future. Management is currently evaluating various options regarding funding of its phase III construction.

 

In view of the above, management has prepared the consolidated financial statements assuming that the Group will continue as a going concern. Accordingly, the consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, the amounts and classification of liabilities, or any other adjustments that might result in the event the Group is unable to continue as a going concern.

 

These financial statements are prepared on a going concern basis and in compliance with International Financial Reporting Standards issued by International Accounting Standards Board (IASB). The validity of this assumption depends upon the continued financial support to the Group by its Shareholders. The financial statements do not include any adjustment that should result from a failure to obtain such combined financial support. The Management has no intention to discontinue the operations of the Group. The assets and liabilities are recorded on the basis that the Group will be able to realise its assets and discharge its liabilities in the normal course of business. This position does not impair the financial position of the Group.

 

Year Ended December 31, 2021

 

During the year ended 31 December 2021, the Group earned a profit of USD 25.6 million and generated positive cash flows of USD 29 million. Further, as at that date, the Group had cash and cash equivalents of USD 7.4 million.

 

As of 31 December 2021, due to delay in construction of Phase II because of COVID, the Group was in breach with leverage ratio and working capital financial covenant requirements. Even though the lender did not declare an event of default under the bond agreement, these breaches constituted events of default and could have resulted in the lender requiring immediate repayment of the bonds. Accordingly, as of 31 December 2021, the Group has classified its debt balance of USD 182,781,617 as a current liability. As of 31 December 2021, the Group’s current liabilities exceeded its current assets by USD 283,342,631. All of the above represents a material uncertainty that casts significant doubt upon the Group’s ability to continue as a going concern.

 

Except for above, the Group is in compliance with the repayment schedule and other underlying covenants. Further, in April 2022, the Group has entered into an agreement with its lender to waive off the requirement for the Group to comply with leverage ratio and working capital financial covenant (note 21) for 31 December 2021 and 30 June 2022. As Phase II also started operating from September 2021. Management forecasts that the existing cash balances as well as cash generated from ongoing operations provide sufficient liquidity to the Group to continue in operations for the foreseeable future. Management is currently evaluating various options regarding funding of its phase III project.

 

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These financial statements are prepared on a going concern basis and in compliance with International Financial Reporting Standards issued by International Accounting Standards Board (IASB). The validity of this assumption depends upon the continued financial support to the Group by its Shareholders. The financial statements do not include any adjustment that should result from a failure to obtain such combined financial support. The Management has no intention to discontinue the operations of the Group. The assets and liabilities are recorded on the basis that the Group will be able to realise its assets and discharge its liabilities in the normal course of business. This position does not impair the financial position of the Group.

 

Year Ended December 31, 2022

 

During the year ended 31 December 2022, the Group earned a net profit of USD 27.2 million and generated positive cash flows of USD 44.1 million. Further, as at that date, the Group had cash equivalents of USD 8.3 million.

 

As of 31 December 2022, the Group was in technical breach with leverage ratio and working capital financial covenant requirements. Even though the lender did not declare an event of default under the bond agreement, these technical breaches constituted events of default and could have resulted in the lender requiring immediate repayment of the bonds. Accordingly, as of 31 December 2022, the Group has classified its debt balance of USD 171,739,579 as a current liability. As of 31 December 2022, the Group’s current liabilities exceeded its current assets by USD 265,445,772. All of the above represents a material uncertainty that casts significant doubt upon the Company’s ability to continue as a going concern.

 

These financial statements are prepared on a going concern basis and in compliance with International Financial Reporting Standards issued by International Accounting Standards Board (IASB). The validity of this assumption depends upon the continued financial support to the Group by its Shareholders. The financial statements do not include any adjustment that should result from a failure to obtain such combined financial support. The Management has no intention to discontinue the operations of the Group. The assets and liabilities are recorded on the basis that the Group will be able to realise its assets and discharge its liabilities in the normal course of business. This position does not impair the financial position of the Group.

 

C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

 

[Not Applicable].

 

D. TREND INFORMATION

 

Stability of Revenue and Margins

 

The Company began operation of the Phase I facility in December 2017 at reduced capacity while management undertook tests of the facility. As a result, the Phase I facility did not begin operating at full capacity or performing ancillary services until April 2018. Since the Phase I facility became fully operational, the Company’s revenue, and revenue split between storage fees and ancillary services fees, have been relatively stable. This stability is largely attributable to the fixed storage fees, and relatively stable usage history we have experienced. As a result, since commencing full operations from April 2018 through December 2021, the Company has operated at fairly stable margins, averaging around 40% net margin in absence of one-time non-cash listing expenses.

 

The Company commenced its operation of Phase II in September 2021 with a reduced capacity while management undertook tests of the facility. Phase II became fully operational from January 2022. The Company’s revenue from Phase II comprises of storage fees and ancillary services fees.

 

Management expects the Company’s operating margins to remain stable until the commencement of operations of new projects such as Phase III or the Green Ammonia and Green Hydrogen project.

 

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Phase III

 

The Group is in the early stages of pursuing a further major expansion near its existing facilities, which it refers to as Phase III. Phase III alone could be three times the size of the Company’s projected operations post-Phase II. Concurrently, the Group is in discussions with traders and oil majors, which have expressed interest in securing portions of the capacity of a Phase III facility.

 

Environmental, Health and Safety

 

The Company’s operations are subject to extensive international, federal, state and local environmental laws and regulations, in the UAE, including those relating to the discharge of materials into the environment, waste management, remediation, the characteristics and composition of fuels, climate change and greenhouse gases. The Company’s operations are also subject to extensive health, safety and security laws and regulations, including those relating to worker and pipeline safety, pipeline and storage tank integrity and operations security. The Company did not have any exposure to environmental matters as of and for the years ended December 31, 2022, 2021, 2020, 2019 and 2018. However, because more stringent environmental and safety laws and regulations are continuously being enacted or proposed, the Company expects the level of expenditures required for environmental, health and safety matters to increase in the future.

  

CRITICAL ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES

 

Critical Accounting Policies

 

Management’s discussion and analysis of our results of operations and liquidity and capital resources are based on our audited financial information. Our audited financial statements have been prepared in accordance with IFRS. We describe our significant accounting policies in Note 2.6 – Significant Accounting Estimates and Judgements, of the notes to the financial statements included in this Report. Of particular significance are the following policies:

 

Subsidiaries

 

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December 2022. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

 

Specifically, the Group controls an investee if and only if the Group has:

 

Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);

 

Exposure, or rights, to variable returns from its involvement with the investee; and

 

The ability to use its power over the investee to affect its returns

 

When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including

 

The contractual arrangement with the other vote holders of the investee;

 

Rights arising from other contractual arrangements; and

 

The Group’s voting rights and potential voting rights.

 

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control.

 

Assets, liabilities, income and expenses of a subsidiary acquired or disposed off during the year are included in the consolidated statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary.

 

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it:

 

Derecognises the assets (including goodwill) and liabilities of the subsidiary

 

Derecognises the carrying amount of any non-controlling interests

 

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Derecognises the cumulative translation differences recorded in equity

 

Recognises the fair value of the consideration received

 

Recognises the fair value of any investment retained

 

Recognises any surplus or deficit in profit or loss

 

Reclassifies the parent’s share of components previously recognised in OCI to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities.

 

The financial statements of the subsidiary are prepared for the same reporting year as the Group. Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances.

 

The carrying amount of the Company’s investment in the subsidiary and the equity of the subsidiary is eliminated on consolidation. All significant intra-group balances, and income and expenses arising from intra-group transactions are also eliminated on consolidation.

 

Non-Controlling Interests (“NCI”)

 

NCI are measured at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

 

Business combinations

 

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any noncontrolling interests in the acquiree. For each business combination, the Group elects whether to measure the noncontrolling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.

 

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

 

If the business combination is achieved in stages, any previously held equity interest is re-measured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss. It is then considered in the determination of goodwill.

 

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IFRS 9 Financial Instruments, is measured at fair value with changes in fair value recognised either in profit or loss or as a change to other comprehensive income.

 

Contingent consideration that is classified as equity is not re-measured and subsequent settlement is accounted for within equity.

 

A ‘reverse acquisition’ is a business combination in which the legal acquirer – i.e. the entity that issues the securities (i.e. listed entity) becomes the acquiree for accounting purposes and the legal acquiree becomes the acquirer for accounting purposes. It is the application in accordance with IFRS 3 Business Combinations on identifying the acquirer, which results in the identification of the legal acquiree as the accounting acquirer in a reverse acquisition. 

 

Application in accordance with IFRS 3 Business Combinations on identifying the acquirer may result in identifying the listed entity as the accounting acquiree and the unlisted entity as the accounting acquirer. In this case, if the listed entity is:

 

A business, IFRS 3 Business Combinations applies;

 

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Not a business, IFRS 2 Share-based Payment applies to the transaction once the acquirer has been identified following the principles in accordance with IFRS 3 Business Combinations. Under this approach, the difference between the fair value of the consideration paid less the fair value of the net assets acquired, is recognized as a listing expense in profit or loss.

 

Significant Accounting Estimates and Judgements

 

The preparation of the Group’s consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future.

 

Estimation and Assumptions

 

The key assumptions concerning the future, and other key sources of estimation uncertainty at the date of statement of financial position, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below:

 

Asset Retirement Obligation

 

As part of the land lease agreement between Fujairah Municipality and the Group, the Group has a legal obligation to remove the plant at the end of its lease term. The Group initially records a provision for asset retirement obligations at the best estimate of the present value of the expenditure required to settle the obligation at the time a legal (or constructive) obligation is incurred, if the liability can be reliably estimated. When the provision is initially recorded, the carrying amount of the related asset is increased by the amount of the liability. Provisions are adjusted at each balance sheet date to reflect the current best estimate. The unwinding of the discount is recognised as finance cost. The Group’s operating assets generally consist of storage tanks and related facilities. These assets can be used for an extended period of time as long as they are properly maintained and/or upgraded. It is the Group’s current intent to maintain its assets and continue making improvements to those assets based on technological advances.

 

The calculation of provision related to asset retirement obligation is most sensitive to following judgements and assumptions:

 

Discount rate of 3.24% based on inflation-adjusted long-term risk-free rate; and

 

Inflation rate of 0.8% used to extrapolate cash flows.

 

Useful Life and Depreciation of Property, Plant and Equipment

 

The Group’s management determines the estimated useful lives of its property, plant and equipment for calculating depreciation. This estimate is determined after considering the expected usage of the asset or physical wear and tear and the impact of expected residual value. Management reviews the useful lives annually and the future depreciation charge would be adjusted where management believes that the useful lives differ from previous estimates. The depreciation period of the right-of-use asset has been determined to be over the lease term on the basis that the land is expected to be used for the whole period of the lease considering the existing assets and future expansion on the land.

 

Impairment of Trade Receivables

The Group uses the simplified approach under IFRS 9 to assess impairment of its trade receivables and calculates expected credit losses (ECLs) based on lifetime expected credit losses. The Group calculates the ECL based on Group historical credit loss experience, adjusted for forward-looking factors specific to the customer and the economic environment.

 

Judgements

 

In the process of applying the Group’s accounting policies, management has made the following judgements which have the most significant effect on the amounts recognised in the consolidated financial statements:

 

Operating lease commitments – Group as a lessee

 

The Group has entered into a land lease agreement (the “Phase III Land Lease Agreement”), dated as of 2 February 2020 (the “lease inception date”), by and between the Group and the Fujairah Oil Industry Zone (“FOIZ”) to lease an additional plot of land that has a total area of approximately 450,000 square meters (the “Phase III Land”) for a rent of UAE Dirhams 50 (USD 13.61) per square meter per annum with an escalation of 2% per annum. Rental payments commence from the beginning of the eighteenth month of the lease inception date. The Group intends to use the Phase III Land to expand its crude oil storage and service and refinery capacity (“Phase III”). Management has exercised judgment in assessing the lease commencement date in the initial cancellable period of the lease and recognized the lease on the consolidated statement of financial position from 1 December 2020.

 

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Classification of warrants

 

In connection with the completion of the business combination on 20 December 2019 as described in Note 1 and Note 20 the Group issued warrants. The warrants agreement require the Group to issue a fixed number of shares for a fixed amount of cash, however it contains a clause that allows for cashless exercise (in the event that no effective registration is maintained), which may lead to the issuance of a variable number of shares. Management assessed that the maintenance of an effective registration statement is a matter not wholly within the control of the Group and as such classified the warrants as a financial liability at fair value through profit or loss.

 

Summary of Significant Accounting Policies

 

Revenue recognition

 

Revenue from contracts with customers is recognized when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those services or goods. Revenue is net of discounts and value added taxes. Monthly storage rates and prices for other services are contractually agreed before the services are rendered and do not contain material variable components. When it is probable that the future economic benefits will flow to the Group, the recognition in the consolidated statement of income is in proportion to the stage of the rendered performance as at the end of the reporting period. The Group has a right to a consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s services completed to date.

 

Tank storage rentals, including minimum guaranteed throughputs, are recognized on a straight-line basis over the contractual period during which the services are rendered. Revenues from excess throughputs, heating/cooling, homogenization, product movements and other services are recognized when these services are rendered. Customers simultaneously consume and benefit from the services at the moment that these are rendered, resulting in a situation where revenue is recognized over time. Where substantially the entire storage capacity is leased to a single customer, the contract contains a lease and the entire storage revenue is presented as lease revenue.

 

Storage fees are invoiced upfront in the month preceding the month to which the storage fees relate. Handling and other services are invoiced afterwards, based on the actual usage.

 

Inventories

 

Inventories are valued at the lower of cost, determined on the basis of weighted average cost, and net realizable value. Costs are those expenses incurred in bringing each item to its present location and condition. Net realisable value is valued at selling prices net of selling costs.

 

Fair values

 

The fair value of the financial assets and liabilities at the date of consolidated statement of financial position approximate their carrying amounts in the consolidated statement of financial position.

 

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. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

 

In the principal market for the asset or liability, or

 

In the absence of a principal market, in the most advantageous market for the asset or liability.

 

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The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

 

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

 

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

 

Level 2 inputs, other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

 

Level 3 inputs are unobservable inputs for the asset or liability.

 

Current and Non-Current Classification

 

The Group presents assets and liabilities in the consolidated statement of financial position based on current / non-current classification.

 

An asset is current when it is:

 

-Expected to be realized or intended to be sold or consumed in normal operating cycle.
-Held primarily for the purpose of trading.
-Expected to be realised within twelve months after the reporting period, or
-Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

 

All other assets are classified as non-current.

 

A liability is current when:

 

-It is expected to be settled in normal operating cycle.
-It is held primarily for the purpose of trading.
-It is due to be settled within twelve months after the reporting period, or
-There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.

 

The Group classifies all other liabilities as non-current.

 

Taxes

 

Value Added Tax:

 

Expenses and assets are recognized net of the amount of input tax, except:

 

-When the input tax is incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the input tax is recognized as part of the cost of acquisition of the asset or as part of the expense item, as applicable;
-The net amount of value added tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the consolidated statement of financial position, as applicable.

 

Input VAT and Output VAT

 

Input VAT is recognized when the goods or services are supplied to the BPGIC FZE and the tax on which is paid/due to be paid by the BPGIC FZE to the Supplier.

 

Output VAT is recognized in respect of taxable supply of goods/services rendered by the BPGIC FZE on which tax is charged and due to be paid to the UAE Federal Tax Authority.

 

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Borrowing costs

 

General and specific 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.

 

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

 

All other borrowing costs are recognised in the consolidated statement of comprehensive income (within profit and loss) in the period during which they are incurred.

 

Property, plant and equipment

 

Property, plant and equipment, is stated at historical costs less accumulated depreciation and any accumulated impairment losses. Historical costs includes expenditure that is directly attributable to bringing the assets to the location and condition necessary for it to be capable of operating in the manner intended by the Management.

 

The cost of replacing or addition to an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The costs of day-to-day servicing of property, plant and equipment are recognised in the profit or loss as incurred.

 

Depreciation is charged to write off the cost of assets using the straight line method as follows:

 

Buildings   25 years 
Tanks   50 years 
Installation (Pipeline, pumps and other equipment)   20 – 25 years 
Other equipment   5 years 
Right-of-use asset – Land   60 years 

 

The useful lives and depreciation method are reviewed periodically to ensure that the year and method of depreciation are consistent with the pattern of economic benefits expected to flow to the Group through the use of items of property, plant and equipment.

 

The carrying amounts are reviewed at each reporting date to assess whether they are recorded in excess of their recoverable amounts, and where carrying values exceed this estimated recoverable amount, assets are written down to their recoverable amount, being the higher of their fair value less costs to sell and their value in use.

 

The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised as profit or loss in the consolidated statement of comprehensive income. 

 

Capital work in progress

 

Capital work in progress is stated at cost, which represents costs for the design, development, procurement, construction and commissioning of the asset under development. Cost includes borrowing cost recognised and depreciation of the right of use asset during the construction phase. When the asset is in the location and condition necessary to operate in the manner intended by management, capital work in progress is transferred to the appropriate property, plant and equipment category and depreciated in accordance with the Group’s policies.

 

Leases

 

At inception of a contract, the Group assesses whether the 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.

 

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For a contract that is, or contains, a lease, the Group accounts for each lease component within the contract as a lease separately from non-lease components of the contract.

 

The Group determines the lease term as the non-cancellable period of a lease, together with both:

 

a)periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and
   
b)periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option.

 

In assessing whether a lessee is reasonably certain to exercise an option to extend a lease, or not to exercise an option to terminate a lease, the Group considers all relevant facts and circumstances that create an economic incentive for the lessee to exercise the option to extend the lease, or not to exercise the option to terminate the lease. The Group revises the lease term if there is a change in the non cancellable period of a lease. 

Group as a lessor

 

Leases where the Group does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as rental income. Contingent rents are recognised as revenue in the period in which they are earned.

 

Group as a lessee

 

For a contract that contains a lease component and one or more additional lease or non-lease components, the Group allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.

 

The relative stand-alone price of lease and non-lease components is determined on the basis of the price the lessor, or a similar supplier, would charge an entity for that component, or a similar component, separately. If an observable stand-alone price is not readily available, the Group estimates the stand-alone price, maximising the use of observable information.

 

For determination of the lease term, the Group reassesses whether it is reasonably certain to exercise an extension option, or not to exercise a termination option, upon the occurrence of either a significant event or a significant change in circumstances that:

 

a)is within the control of the Group; and
affects whether the Group is reasonably certain to exercise an option not previously included in its determination of the lease term, or not to exercise an option previously included in its determination of the lease term.

 

At the commencement date, the Group recognises a right-of-use asset classified within property, plant and equipment and a lease liability classified separately on the consolidated statement of financial position.

 

Short-term leases and leases of low-value assets

 

The Group has elected not to recognise right-of-use assets and lease liabilities for short-term leases that have a lease of 12 months or less and leases of low-value assets of USD 5,000 or less when new. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

 

Right-of-use assets

 

The right-of-use asset is initially recognised at cost comprising of:

 

a)the amount of the initial measurement of the lease liability;

 

b)any lease payments made at or before the commencement date, less any lease incentives received;

 

c)any initial direct costs incurred by the Group; and

 

d)an estimate of costs to be incurred by the Group in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease.

 

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These costs are recognised as part of the cost of the right-of-use asset when the Group incurs an obligation for these costs. The obligation for these costs is incurred either at the commencement date or as a consequence of having used the underlying asset during a particular period.

 

After initial recognition, the Group amortises the right-of-use asset over the term of the lease. In addition, the right of use asset is periodically reduced by impairment losses, if any, and adjusted for certain re-measurements of the lease liability. 

 

Lease liability

 

The lease liability is initially recognised at the present value of the lease payments that are not paid at the commencement date. The lease payments are discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the Group uses its incremental borrowing rate.

 

After initial recognition, the lease liability is measured by (a) increasing the carrying amount to reflect interest on the lease liability; (b) reducing the carrying amount to reflect the lease payments made; and (c) remeasuring the carrying amount to reflect any reassessment or lease modifications or to reflect revised in-substance fixed lease payments.

 

Where, (a) there is a change in the lease term as a result of the reassessment of certainty to exercise an option, or not to exercise a termination option as discussed above; or (b) there is a change in the assessment of an option to purchase the underlying asset, assessed considering the events and circumstances in the context of a purchase option, the Group remeasures the lease liabilities to reflect changes to lease payments by discounting the revised lease payments using a revised discount rate. The Group determines the revised discount rate as the interest rate implicit in the lease for the remainder of the lease term, if that rate can be readily determined, or its incremental borrowing rate at the date of reassessment, if the interest rate implicit in the lease cannot be readily determined.

 

Where, (a) there is a change in the amounts expected to be payable under a residual value guarantee; or (b) there is a change in future lease payments resulting from a change in an index or a rate used to determine those payments, including a change to reflect changes in market rental rates following a market rent review, the Group remeasures the lease liabilities by discounting the revised lease payments using an unchanged discount rate, unless the change in lease payments results from a change in floating interest rates. In such case, the Group uses a revised discount rate that reflects changes in the interest rate.

 

The Group accounts for a lease modification as a separate lease if both:

 

a)the modification increases the scope of the lease by adding the right to use one or more underlying

 

b)the consideration for the lease increases by an amount commensurate with the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the particular contract.

 

Financial Instruments

 

Financial assets and financial liabilities are recognized when the Group becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

 

Financial assets

 

Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss.

 

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The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them.

 

Receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under IFRS 15.

 

Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.

 

The Group’s financial assets at amortised cost include other receivables and due from related parties.

 

Financial assets at fair value through OCI, impairment losses or reversals are recognised in the statement of comprehensive income and computed in the same manner as for financial assets measured at amortised cost. The remaining fair value changes are recognised in OCI. Upon derecognition, the cumulative fair value change recognised in OCI is recycled to profit or loss.

 

Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss, or financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term.

 

The Group derecognizes a financial asset when the contractual rights to the cash flow from the assets cease and any interest in such derecognised financial assets that is created or retained by the Group is recognised as a separate asset. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.

 

Offsetting of Financial Instruments:

 

Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.

 

Impairment of financial assets

 

Under IFRS 9, the Group records an allowance for Expected Credit Loss (ECL) for all loans and debt financial assets not held at FVPL.

 

ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive. The shortfall is then discounted at an approximation to the asset’s original effective interest rate.

 

For trade and other receivables, the Group has applied the standard’s simplified approach and has calculated ECLs based on lifetime expected credit losses. The Group calculates the ECL based on the Group’s historical credit loss experience, adjusted for forward-looking factors specific to the customer and the economic environment.

 

The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group.

 

Equity instruments

 

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group comprising of share capital, share premium and shareholders’ accounts are recorded at the proceeds received, net of direct issue costs.

 

Escrow shares issued as part of the reverse acquisition are subject to meeting certain financial milestones during the vesting period as disclosed in Note 28. The fair value of the shares in escrow is not materially different from that of the shares which are not in escrow as the rights of these shares are similar to those of “normal ordinary shares”.

 

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Financial liabilities

 

Initial recognition

 

Financial liabilities within the scope of IFRS 9 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition.

 

Financial liabilities are recognized initially at fair value and in the case of loans and borrowings fair value of the consideration received less directly attributable transaction costs.

 

The Group’s financial liabilities include trade and other payables, lease liability, warrants and borrowings.

 

Subsequent measurement

 

The measurement of financial liabilities depends on their classification as follows:

 

Accounts payable

 

Liabilities are recognized for amounts to be paid in the future for goods and services received, whether billed by the supplier or not.

 

Loans and borrowings

 

All loans and borrowings are initially recognized at the fair values less directly attributable transaction costs. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using the effective interest method. Gains and losses are recognized in the consolidated statement of comprehensive income (within profit and loss) when liabilities are derecognized.

 

Derecognition

 

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the consolidated statement of comprehensive income (within profit and loss).

 

A non-substantial modification to a financial liability is not treated as a derecognition of the original liability. The difference between the carrying amount and the net present value of the modified terms discounted using the original effective interest rate is recognized in the consolidated statement of comprehensive income (within profit and loss).

 

Amortized cost of financial instruments

 

Amortized cost is computed using the effective interest method less any allowance for impairment and principal repayment or reduction. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of the effective interest rate.

 

Non-derivative financial assets and liabilities

 

Receivables

 

Receivables are those financial assets that have fixed or determinable payments and for which there is no active market are initially recognized at fair value plus any directly attributable transactions costs. Subsequent to initial recognition they are measured at amortized cost using the effective interest method. These comprise trade accounts and other receivables, receivables from related parties, bank balances including fixed and margin deposits with banks.

 

Receivables are carried at certified revenue less an estimate made for doubtful receivables based on a review of all outstanding amounts at the year-end. Bad debts are written off when identified.

 

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Trade Accounts and Other Receivable

 

Receivable are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.

 

The Management undertakes a periodic review of amounts recoverable from trade and other receivable, and determines recoverability based on various factors such as ageing of receivable, payment history, collateral available and other knowledge about the receivable.

 

Provision for bad and doubtful debts represents estimates of ultimate unrealizable debts. The estimates are judgmental and are based on case based evaluation by the management.

 

Provisions created during the year are reflected in the operating results of the year. Debts which are recognised as unrealizable are written off during the year.

 

Cash and Cash Equivalents

 

Cash and cash equivalents comprise of cash on hand, banks accounts and short term highly liquid deposits with a maturity date 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.

 

Statutory Reserve

 

As required by the Articles of Association of BPGIC FZE, 10% of the profit for the year must be transferred to the general reserve. The subsidiary has resolved to discontinue such annual transfers as the reserve has reached 50% of the subsidiary’s issued share capital. The general reserve is not available for distribution to the shareholders.

 

Employees’ End of Service Benefits

 

The Group provides end of service benefits to its employees. The entitlement to these benefits is based upon the employees’ final salary and length of service, subject to the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment.

 

Trade Accounts and Other Payable

 

Trade accounts and other payable are stated at nominal amounts payable for goods or services rendered.

 

Derivative Financial Instruments

 

The Group uses derivative financial instruments, interest rate swaps, to hedge its interest risks. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

 

Warrants are accounted for as derivative financial instruments (a financial liability) as they give the holder the right to obtain a variable number of common (ordinary) shares in case an effective registration statement is not maintained, which is not fully within the control of the Group.

 

Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value through profit or loss. The warrants shall lapse and expire after five years from the closing of the business combination.

 

Any gains or losses arising from changes in the fair value of derivatives are taken directly to the consolidated statement of comprehensive income (within profit and loss) as the Group has not designated derivative financial instruments under hedging arrangements.

 

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Provisions

 

Provisions are recognised when the Group has a present obligation as a result of past event and it is probable that the outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are measured at the present value of the amount expected to be required to settle the obligation and the risk specific to the obligation.

 

Foreign Currencies Translations

 

The consolidated financial statements are presented in US Dollars, which is the Group’s functional and presentation currency.

 

Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date. All differences are taken to the consolidated statement of comprehensive income (within profit and loss). Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.

 

Asset retirement obligation

 

As part of the land lease agreement between Fujairah Municipality and the Group, the Group has a legal obligation to remove the plant at the end of its lease term. The Group initially records a provision for asset retirement obligations at the best estimate of the present value of the expenditure required to settle the obligation at the time a legal (or constructive) obligation is incurred, if the liability can be reliably estimated. When the provision is initially recorded, the carrying amount of the related asset is increased by the amount of the liability. Provisions are adjusted at each balance sheet date to reflect the current best estimate. The unwinding of the discount is recognised as finance cost. The Group’s operating assets generally consist of storage tanks and related facilities.

 

Prior Year Restatements 

 

As disclosed on May 27, 2022, the Group has not been able to file the 2021 Form 20-F due to an ongoing non-public examination being conducted by the U.S Securities and Exchange Commission (the “SEC”) regarding the consolidated financial statements of the Group. Subsequently, the Audit Committee of the Board of Directors (the “Audit Committee”), engaged independent counsel to conduct under its supervision, an internal examination into the Group’s revenue recognition practices and related matters. As a result of the findings from this internal examination, on August 12, 2022, the Audit Committee, in consultation with the Group’s management, concluded that the previously issued audited consolidated financial statements as of and for the periods ending December 31, 2021, 2020 and 2019, and the previously issued unaudited consolidated financial statements for interim periods therein and the six months ended June 30, 2021 should no longer be relied upon.

 

In connection with the internal examination, the Group conducted a comprehensive review of the accounting policies, procedures, and internal controls related to revenue recognition. All available customer contracts were assessed based on International Financial Reporting Standard (IFRS) 15 ‘Revenue from Contracts with Customers’ and IFRS 16 ‘Leases’. This review identified that the funds received from a related party viz. M/s Al Brooge International Advisory LLC do not qualify to be recognised as revenue. Due to the qualitative nature of the matters identified in the Group’s internal examination, including the number of years over which the non-qualified revenue was recognized the Group determined that it would be appropriate to rectify the misstatements in the previously issued consolidated financial statements by restating such consolidated financial statements. Accordingly, an amount of USD 74,253,965 which represents funds received from BIA, was reversed from revenue and re-classified as Other payable under Liabilities for the financial years from 2018 to 2020.

 

The Management do not expect to settle these amounts using any of it’s current assets or any existing resources in the foreseeable future. Pending its potential receipt of confirmation or adequate supporting documentation from the related party, the Group has taken a conservative approach to recognise this as a liability. The Group continues to assess this liability and will evaluate whether there arises any obligation or it is discharged or cancelled or expires or is swapped out for one with significantly different terms or when the terms of are significantly modified, such an exchange or modification is recognized as a derecognition of the old liability and the recognition of a new liability or as equity contribution, as applicable and the difference in the respective carrying amounts will be recorded in the consolidated statement of either other comprehensive income or directly as equity as applicable.

 

The above changes pertaining to reversal of Revenue and recognition of such amount under Other payable were accounted retrospectively in accordance with IAS 8. The Group is working towards obtaining supporting documentation for the appropriate treatment of these amounts.

 

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2018

 

  As previously reported   Restatement adjustments   Restated 
In $  31/12/2018   01/01/2018   31/12/2018   01/01/2018   31/12/2018   01/01/2018 
STATEMENT OF COMPREHENSIVE INCOME                
Revenue   35,839,268    89,593    (29,451,920)        Nil     6,387,348    89,593 
Direct costs   (9,607,360)   (2,295,809)   (492,874)   Nil     (10,100,234)   (2,295,809)
Gross Profit / (Loss)   26,231,908    (2,206,216)   (29,944,794)   Nil     (3,712,886)   (2,206,216)
Other income   Nil     Nil    8,554    Nil     8,554    Nil 
General and administrative expenses   (2,029,260)   (574,266)   204,880    Nil     (1,824,380)   (574,266)
Profit / Loss and total comprehensive profit / (loss) for the year   16,060,652    (3,747,408)   (29,731,360)   Nil    (13,670,708)   (3,747,408)
                               
STATEMENT OF FINANCIAL POSITION                              
ASSETS                              
Current Assets                              
Trade receivables   1,877,887    Nil    (1,877,887)   Nil    Nil    Nil 
Total current assets   2,307,156    761,501    (1,877,887)   Nil    429,269    761,501 
Total Assets   199,936,270    196,200,380    (1,877,887)   Nil    198,058,383    196,200,380 
                               
LIABILITIES AND EQUITY                              
Current Liabilities                              
Other payable   Nil    Nil    27,854,947    Nil    27,854,947    Nil 
Total Current Liabilities   110,841,794    100,979,299    27,854,947    Nil    138,696,741    100,979,299 
                               
Equity                              
Retained Earnings / (accumulated losses)   11,218,242    (4,161,767)   (29,050,717)   Nil    (17,832,475)   (4,161,767)
Statutory reserve   680,643    Nil    (680,643)   Nil    Nil    Nil 
Total Equity   60,977,933    67,620,954    (29,731,360)   Nil    31,246,573    67,620,954 
Total Liabilities and Equity   199,936,270    196,200,380    (1,877,887)   Nil    198,058,383    196,200,380 

 

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2019

 

  As previously reported   Restatement Adjustment   As per the restated
Financial Statement
 
In $  31/12/2019   31/12/2018   31/12/2019   31/12/2018   31/12/2019   31/12/2018 
                         
Consolidated Statement of Comprehensive Income                
Revenue   44,085,374    35,839,268    (28,200,155)   (29,451,920)   15,885,219    6,387,348 
Direct costs   (10,202,465)   (9,607,360)   (1,294,774)   (492,874)   (11,497,239)   (10,100,234)
Gross Profit / (Loss)   33,882,909    26,231,908    (29,494,929)   (29,944,794)   4,387,980    (3,712,886)
Other Income    Nil      Nil     4,188    8,554    4,188    8,554 
General and administration expenses   (2,608,984)   (2,029,260)   138,559    204,880    (2,470,425)   (1,824,380)
Finance costs   (5,730,535)   (6,951,923)   (51,895)    Nil     (5,782,430)   (6,951,923)
Profit / (Loss)  for the year   (75,284,923)   16,060,652    (29,404,077)   (29,731,360)   (104,689,000)   (13,670,708)
                               
Consolidated Statement of Financial Position                              
ASSETS                              
Current Assets                              
Trade receivables   1,507,660    1,877,887    (1,344,093)   (1,877,887)   163,567     Nil  
Other receivable and prepayments   841,033    244,828    (362)    Nil     840,671    244,828 
Total Current Assets   22,359,108    2,307,156    (1,344,455)   (1,877,887)   21,014,653    429,269 
Total Assets   307,252,460    199,936,632    (1,344,455)   (1,878,249)   305,908,005    198,058,383 
                               
LIABILITIES AND EQUITY                              
Current Liabilities                              
Trade and accounts payable   61,115,121    9,003,798    18,846    (1,837)   61,133,967    9,001,961 
Other payable    Nil      Nil     57,794,495    27,854,947    57,794,495    27,854,947 
Total current liabilities   95,036,895    110,843,631    57,813,341    27,853,110    152,850,236    138,696,741 
                               
Equity                              
Retained Earnings / (accumulated losses)   (64,066,681)   11,218,242    (58,454,794)   (29,050,717)   (122,521,475)   (17,832,475)
Statutory reserve   680,643    680,643    (680,643)   (680,643)    Nil      Nil  
Shareholder’s account   71,017,815    47,717,763    (22,360)    Nil     70,995,455    47,717,763 
Total Equity   109,416,415    60,977,933    (59,157,797)   (29,731,360)   50,258,618    31,246,573 
                               
Total Equity & Liabilities   307,252,460    199,936,632    (1,344,455)   (1,878,249)   305,908,005    198,058,383 

 

86

 

 

2020

 

  As previously reported   Restatement adjustments   As per the restated
Financial Statement
 
In $  31/12/2020   31/12/2019   31/12/2020   31/12/2019   31/12/2020   31/12/2019 
                         
Consolidated Statement of Comprehensive Income                
Revenue  41,831,537   44,085,374   (14,640,361)  (28,200,155)  27,191,176   15,885,219 
Direct costs   (12,944,760)   (10,202,465)   236,374    (1,294,774)   (12,708,386)   (11,497,239)
Gross Profit / (Loss)   28,886,777    33,882,909    (14,403,987)   (29,494,929)   14,482,790    4,387,980 
Other income   828,332                      Nil                       Nil     4,188    828,332    4,188 
General and administration expenses   (6,456,884)   (2,608,984)   (207,419)   138,559    (6,664,303)   (2,470,425)
Change in estimated fair value of derivative warrant liability   2,547,542    1,273,740    80                      Nil     2,547,622    1,273,740 
Finance costs   (8,306,150)   (5,730,535)   (29,119)   (51,895)   (8,335,269)   (5,782,430)
Profit for the year   17,159,113    (75,284,923)   (14,640,445)   (29,404,077)   2,518,668    (104,689,000)
                               
Consolidated Statement of Financial Position                              
ASSETS                              
Current Assets                              
Trade receivables                     Nil     1,507,660                      Nil     (1,344,093)                     Nil     163,567 
Other receivable and prepayments   690,232    841,033    (296,363)   (362)   393,869    840,671 
Total Current Assets   40,401,956    22,359,108    (296,363)   (1,344,455)   40,105,593    21,014,653 
Non-Current Assets                              
Advances to contractor   16,418,065    21,664,764    40,187                      Nil     16,458,252    21,664,764 
Total Non-Current Assets   392,221,590    284,893,352    40,185                      Nil     392,261,775    284,893,352 
Total Assets   432,623,546    307,252,460    (256,178)   (1,344,455)   432,367,368    305,908,005 
                               
LIABILITIES AND EQUITY                              
Current Liabilities                              
Trade and accounts payable   13,829,897    61,115,121    3,936,678    18,846    17,766,575    61,133,967 
Other payable                     Nil                       Nil     73,453,606    57,794,495    73,453,606    57,794,495 
Lease liabilities   9,795,058    2,154,878    (7,203,501)                     Nil     2,591,557    2,154,878 
Total current liabilities   43,786,799    95,036,895    70,186,777    57,813,341    113,973,576    152,850,236 
Non-current liabilities                              
Lease liabilities   79,289,507    28,624,259    5,630,669                      Nil     84,920,176    28,624,260 
Total Non-Current Liabilities   260,218,070    102,799,150    5,630,669                      Nil     265,848,739    102,799,151 
                               
Equity                              
Share capital   8,801    8,804    3                      Nil     8,804    8,804 
Retained earnings   (46,907,568)   (64,066,681)   (73,440,087)   (58,454,794)   (120,347,655)   (122,521,475)
Statutory reserve   680,643    680,643    (335,795)   (680,643)   344,848                      Nil  
Shareholders’ account   73,059,743    71,017,815    (2,297,745)   (22,360)   70,761,998    70,995,455 
Total Equity   128,618,677    109,416,415    (76,073,624)   (59,157,797)   52,545,053    50,258,618 
Total Equity & Liabilities   432,623,546    307,252,460    (256,178)   (1,344,455)   432,367,368    305,908,005 

 

87

 

 

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

A. Directors and Executive Officers

 

The board of directors of the Company is comprised of six directors. Unless otherwise noted, the business address of each director and executive officer is c/o Brooge Petroleum and Gas Investment Company FZE, P.O. Box 50170, Fujairah, United Arab Emirates.

 

The Company’s Amended and Restated Memorandum and Articles of Association provide that persons standing for election as directors at a duly constituted general meeting with requisite quorum shall be elected by an Ordinary Resolution as a matter of Cayman Islands law.

 

The following sets forth certain information concerning the persons who serve as the Company’s directors and the Company’s and its subsidiaries’ executive officers as of April 2023:

 

Directors and Executive Officers   Age   Position/Title
Dr. Yousef Al Aassaf   62   Chairman and Director
Saleh Mohamed Yammout   34   Director
Lina S. Saheb   40   Interim Chief Executive Officer and Director
Tony Boutros   55   Director
Nariman N. Karbhari   74   Director
Firoze N. Kapadia   57   Director

 

Biographical information concerning the directors and executive officers listed above is set forth below.

 

Dr. Yousef Al Assaf