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 

 

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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 

 

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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

 

Dr. Yousef Al Assaf is the Chairman of our board of directors and a member of the audit committee. Dr. Al Assaf joined the parent company of BPGIC in October 2018. Dr. Al Assaf is also the President of the Rochester Institute of Technology (Dubai). Prior to this, Dr. Al Assaf held a range of other academic positions over the last 30 years, most recently as the Dean of the College of Engineering at the American University of Sharjah (from 2006 to 2013), which he joined as an Associate Professor in 1991. Dr. Al Assaf started his academic career as a Research and Teaching Assistant at Oxford University from 1985 to 1987. Dr. Al Assaf holds a BSc from Sussex University in Electrical Engineering, a PhD from Oxford University and completed the Executive Leadership Certificate Program from Cornell University in 2008.

  

Saleh Yammout

 

Saleh Yammout is the former Chief Financial Officer of BPGIC and the Company. Mr. Yammout joined BPGIC in October 2018. Mr. Yammout serves as the Vice President (Finance & Administration) at the Rochester Institute of Technology (Dubai), having joined in 2014. Prior to this, he was a Senior Consultant at PwC from 2012 to 2014, and an Analyst at Al Hilal Bank from 2011 to 2012. Mr. Yammout holds a BSc in Economics with a concentration on International Relations from the Rochester Institute of Technology in New York.

 

Lina Saheb

 

Lina Saheb is the Interim Chief Executive Officer and Director for the Company and BPGIC. Ms. Saheb joined BPGIC in 2013. Prior to her appointment as Interim Chief Executive Officer in December 2022, Ms. Saheb served as Deputy Chief Executive Officer and as the Chief Strategy Officer for the Company and BPGIC. Prior to joining BPGIC, Ms. Saheb worked with the initial shareholders of BPGIC on many different ventures including the establishment of BPGIC in Fujairah in 2010. Ms. Saheb has a Bachelor’s degree in Software Engineering from Mansour University, and finished a course in Banking and Finance from Emirates College of Technology.

 

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Tony Boutros

 

Tony Boutros is the Chairman of the audit committee, member of the compensation committee and a Director of the Company. Mr. Boutros was the Managing Partner of Boutros, Cordahi & Associates (BCA) prior to joining the Company. BCA is a Professional Civil Company providing audit, tax and advisory practice including financial due diligence, feasibility studies and valuations. BCA is the Lebanese Member Firm of Ecovis International. From May 2013 – May 2019 he served as Managing Partner of Boutros, Saghir and Associates “BSA”, a Professional Civil Company. Prior to that he worked as an audit and advisory contractor at Usamah Tabbarah & Co – Nexia International (UTCNEXIA) from April 2012 – January 2013. Mr. Boutros worked at KPMG Lebanon from 2002 – 2012, including as the Lead Audit Partner, and at PricewaterhouseCoopers Lebanon from 1998 – 2002. Mr. Boutros is a Lebanese Certified Accountant and has a Master of Business Administration from the Lebanese American University.

 

Nariman Karbhari

 

Nariman Karbhari is the Chairman of the compensation committee, a member of the audit committee and a Director of the Company. Mr. Karbhari worked as the Managing Director and CEO of Spenta Advisory FZE from 2015 through 2021 where he was responsible for arranging banking facilities for clients. From 2013 – 2015 he was Head of Corporate and Commercial Banking, Finance House PJSC, and from 2009 – 2013 he was Head of Investments and Treasury, Al Jaber Group, where he was responsible for arranging syndications, raising other banking facilities and managing investment portfolios in excess of AED 2.5 billion to 3 billion. He was also Head of Corporate, National Bank of Dubai, Abu Dhabi Region from 2005 – 2009 and Deputy Head of Corporate Banking, National Bank of Abu Dhabi, from 1994 – 2008. Prior to that, he worked as a relationship manager at the National Bank of Fujairah and the Commercial Bank of Dubai and as an accountant at Al Abbas Trading Co., Dubai.

 

Firoze Kapadia

 

Firoze Kapadia is a member of the audit committee and a Director of the Company. Mr. Kapadia qualified in June 1994 as a Chartered Certified Accountant in the U.K. and has accumulated a diverse career experience of approximately 27 years in the field of accounting, finance and management as well as in taxation. He is currently the Chief Financial Officer at the Al Sayegh Group where he oversees the preparation of consolidated financial statements and appropriate accounting policies and procedures at a group level. Mr. Kapadia is also responsible for ensuring staff technical training for the finance department.

 

Family Relationships

 

There are no family relationships between any of our executive officers and directors.

 

Independence of Directors

 

The Company adheres to the rules of NASDAQ in determining whether a director is independent. The board of directors of the Company has consulted, and will consult, with its counsel to ensure that the board’s determinations are consistent with those rules and all relevant securities and other laws and regulations regarding the independence of directors. The NASDAQ listing standards define an “independent director” as a person, other than an executive officer of a company or any other individual having a relationship which, in the opinion of the issuer’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

 

The Company’s board of directors presently has six members, including four independent directors.

 

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B. Compensation

 

BPGIC Executive Officer and Director Compensation

 

In the year ended December 31, 2019, $803,610 was paid as remuneration to the Senior Managers in their capacity as executive officers. 

 

      Fees/Basic Salary   Bonus   Benefits   Total 
Name  Role  ($)   ($)   ($)   ($) 
Executive Officers                
Nicolaas Paardenkooper  Chief Executive Officer (CEO) & Executive Director   261,367    78,410    10,346    350,123 
Lina Saheb  Chief Strategy Officer & Executive Director   217,806    -    57,011    274,816 
Saleh Yammout  Chief Financial Officer   123,877    -    6,354    130,231 
Faisal Selim  Chief Marketing Officer   45,376    -    3,064    48,440 
Total Executive Remuneration   648,426    78,410    76,775    803,610 

 

In the year ended December 31, 2019, $302,325 was paid as remuneration to members of the board of directors in their capacity as directors. 

 

      Fees/Basic Salary   Bonus   Benefits   Total 
Name  Role  ($)   ($)   ($)   ($) 
Board of Directors                
Dr. Yousef Al Assaf  Chairman & Independent Director   83,800          -          -    83,800 
Nicolaas Paardenkooper 1  Executive Director   -    -    -    - 
Saleh Yammout  Executive Director   62,903    -    -    62,903 
Abu Bakar Chowdhury  Independent Director   17,138    -    -    17,138 
Saeb El-Zein  Independent Director   70,907    -    -    70,907 
Dr Simon Madgwick  Independent Director   67,577    -    -    67,577 
Total Board of Directors Remuneration   302,325    -    -    302,325 

 

1.Nicolaas Paardenkooper did not receive separate compensation for serving as Director.

 

In the year ended December 31, 2020, $1,040,695 was paid as remuneration to the Senior Managers in their capacity as executive officers. 

 

      Fees/Basic Salary   Bonus   Benefits   Total 
Name  Role  ($)   ($)   ($)   ($) 
Executive Officers                
Nicolaas Paardenkooper  Chief Executive Officer (CEO) & Executive Director   303,294    78,410    8,621    390,325 
Lina Saheb  Chief Strategy Officer & Executive Director   245,031    -    49,006    294,037 
Saleh Yammout 1  Chief Financial Officer   106,180    -    5,447    111,627 
Syed Masood 2  Chief Financial Officer (CFO)   165,330    -    25,810    191,140 
Faisal Selim  Chief Marketing Officer   53,090    -    476    53,566 
Total Executive Remuneration   872,925    78,410    89,360    1,040,695 

 

1.Mr. Yammout resigned his role as Chief Financial Officer effective as of April 27, 2020.
2.Mr. Masood joined as Chief Financial Officer effective as of April 28, 2020.

 

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In the year ended December 31, 2020, $376,571 was paid as remuneration to members of the board of directors in their capacity as directors. 

 

      Fees/Basic
Salary
   Bonus   Benefits   Total 
Name  Role  ($)   ($)   ($)   ($) 
Board of Directors                
Dr. Yousef Al Assaf  Chairman & Independent Director   93,312         -          -    93,312 
Nicolaas Paardenkooper 1  Executive Director   -    -    -    - 
Saleh Yammout 2  Executive Director   62,550    -    -    62,550 
Abu Bakar Chowdhury  Independent Director   82,375    -    -    82,375 
Saeb El-Zein 3  Independent Director   47,984    -    -    47,984 
Dr Simon Madgwick  Independent Director   90,350    -    -    90,350 
Lina Saheb 1,4  Executive Director   -    -    -    - 
Bryant Edwards 5  Independent Director   -    -    -    - 
Total Board of Directors Remuneration      376,571    -    -    376,571 

 

1.Executive Directors do not receive separate compensation for serving as Directors.
2.Mr. Yammout resigned his role as Chief Financial Officer effective as of April 27, 2020.
3.Saeb El-Zein resigned from the board of directors effective July 28, 2020.
4.Ms. Saheb was elected to the board of directors on December 18, 2020.
5.Mr. Edwards was elected to the board of directors on December 18, 2020 and did not receive compensation for 2020.

 

In the year ended December 31, 2021, $1,242,706 was paid as remuneration to the Senior Managers in their capacity as executive officers.

 

      Fees/Basic
Salary
   Bonus   Benefits   Total 
Name  Role  ($)   ($)   ($)   ($) 
Executive Officers                
Nicolaas Paardenkooper  Chief Executive Officer (CEO) & Executive Director   359,428    -    32,675    392,103 
Lina Saheb  Deputy CEO & Executive Director   245,065    -    56,814    301,879 
Syed Masood  Chief Financial Officer (CFO)   245,065    49,013    40,354    334,432 
Faisal Selim  Chief Marketing Officer   212,389    -    1,903    214,292 
Total Executive Remuneration      1,061,947    49,013    131,747    1,242,706 

 

In the year ended December 31, 2021, $421.233 was paid as remuneration to members of the board of directors in their capacity as directors. 

 

      Fees/Basic Salary   Bonus   Benefits   Total 
Name  Role  ($)   ($)   ($)   ($) 
Board of Directors                
Dr. Yousef Al Assaf  Chairman & Independent Director   92,391         -           -    92,391 
Nicolaas Paardenkooper 1  Executive Director   -    -    -    - 
Lina Saheb 1  Executive Director   -    -    -    - 
Saleh Yammout  Non-Independent Director   66,317    -    -    66,317 
Nariman Karbhari  Independent Director   43,914    -    -    43,914 
Tony Boutros  Independent Director & Audit Committee Chair   52,210    -    -    52,210 
Dr Simon Madgwick  Independent Director   74,137    -    -    74,137 
Bryant Edwards  Independent Director   76,238    -    -    76,238 
Abu Bakar Chowdhury  Independent Director   16,027    -    -    16,027 
Total Board of Directors Remuneration   421,233    -    -    421,233 

 

1.Executive Directors do not receive separate compensation for serving as Directors.

 

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In the year ended December 31, 2022, $1,229,114 was paid as remuneration to the Senior Managers in their capacity as executive officers.

 

      Fees/Basic Salary   Bonus   Benefits   Total 
Name  Role  ($)   ($)   ($)   ($) 
Executive Officers                
Nicolaas Paardenkooper 1  Chief Executive Officer (CEO) & Executive Director   355,870          -    18,407    374,277 
Lina Saheb 2  Interim CEO, Deputy CEO & Executive Director   310,510    -    8,604    319,114 
Syed Masood 3  Chief Financial Officer (CFO)   79,646    -    12,584    92,230 
Burgese Parekh 4  Interim CFO, Finance Manager   131,518    -    85,664    217,182 
Paul Ditchburn 5  CFO   11,067    -    952    12,019 
Faisal Selim  Chief Marketing Officer   212,389    -    1,903    214,292 
Total Executive Remuneration      1,101,001    -    128,113    1,229,114 

 

1.Nicolaas Paardenkooper was the Chief Executive Officer in 2022 up until 8 December.
2.Lina Saheb was the Deputy CEO in 2022 up until 8th December, when Board appointed her as Interim CEO on 9 December.
3.Syed Masood was the CFO in 2022 up until 27 April.
4.Burgese Parekh was Finance Manager in 2022 until his appointment of Interim CFO for the period 28 April until 13 December.
5.Paul Ditchburn joined as CFO on 14 December.

 

In the year ended December 31, 2022, $325,911 was paid as remuneration to members of the board of directors in their capacity as directors. 

 

      Fees/Basic Salary   Bonus   Benefits   Total 
Name  Role  ($)   ($)   ($)   ($) 
Board of Directors                
Dr. Yousef Al Assaf  Chairman & Independent Director   84,843        -         -    84,843 
Nicolaas Paardenkooper 1,2  Executive Director   -    -    -    - 
Lina Saheb 1  Executive Director   -    -    -    - 
Saleh Yammout  Non-Independent Director   58,736    -    -    58,736 
Nariman Karbhari  Independent Director   84,843    -    -    84,843 
Tony Boutros  Independent Director & Audit Committee Chair   84,843    -    -    84,843 
Firoze Kapadia 3  Independent Director & Compensation Committee Chair   12,645    -    -    12,645 
Total Board of Directors Remuneration   325,911    -    -    325,911 

 

1.Executive Directors do not receive separate compensation for serving as Directors.
2.Nicolaas Paardenkooper was an Executive Director in 2022 up until 8 December.
3.Firoze Kapadia joined as an Independent Director on 22 October 2022.

 

Other than end of service gratuity amounts required to be set aside pursuant to UAE labor laws, at December 31, 2022 for senior managers, no amounts were set aside or accrued by the Company to provide pension, retirement or similar benefits to the directors or the senior managers.

 

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Executive Officer and Director Compensation

 

The policies of the Company with respect to the compensation of its executive officers are administered by the Company’s board of directors in consultation with its compensation committee. The compensation policies followed by the Company are intended to provide for compensation that is sufficient to attract, motivate and retain executives of the Company and its subsidiaries as well as potential other individuals and to establish an appropriate relationship between executive compensation and the creation of shareholder value. To meet these goals, the compensation committee is charged with recommending executive compensation packages to the Company’s board of directors.

 

It is anticipated that performance-based and equity-based compensation will be an important foundation in executive compensation packages as the Company believes it is important to maintain a strong link between executive incentives and the creation of shareholder value. The Company believes that performance and equity-based compensation can be an important component of the total executive compensation package for maximizing shareholder value while, at the same time, attracting, motivating and retaining high-quality executives. The Company plans to adopt a long-term incentive plan which will reflect what the Company believes is a focus on performance- and equity-based compensation. The Company has not yet adopted any formal guidelines for allocating total compensation between equity compensation and cash compensation for executives hired in the future.

 

The Company intends to be competitive with other similarly situated companies in its industry.

 

The compensation decisions regarding the Company’s executives will be based on the Company’s need to attract individuals with the skills necessary for the Company to achieve its business plan, to reward those individuals fairly over time, and to retain those individuals who continue to perform at or above the Company’s expectations.

 

The Company has not yet adopted any formal or informal policies or guidelines for allocating compensation between long-term and currently paid out compensation, between cash and non-cash compensation, or among different forms of compensation.

 

In addition to the guidance provided by its compensation committee, the Company has utilized and may continue to utilize the services of third parties from time to time in connection with the hiring and the compensation awarded to executive employees. This could include subscriptions to executive compensation surveys and other databases. In particular, to ensure that the Company’s intended compensation is in line with the compensation offered by other similarly situated companies in its industry, the Company hired Tuscan Middle East, who conducted a comprehensive study on compensation levels. The compensation committee, and then the board of directors, have discussed the results of the study in detail.

 

The Company’s compensation committee is charged with performing an annual review of the Company’s executive officers’ cash compensation and equity holdings to determine whether they provide adequate incentives and motivation to executive officers and whether they adequately compensate the executive officers relative to comparable officers in other companies.

 

Compensation Components

 

Base Salary. The Company intends to preserve the cash compensation of its executive officers, until the compensation committee has adequate opportunity to fully assess its executive’s compensation. The Company will seek to maintain base salary amounts at or near the industry norms, while avoiding paying amounts in excess of what it believes is necessary to motivate executives to meet corporate goals. It is anticipated that base salaries will generally be reviewed annually, subject to terms of employment agreements, and that the compensation committee and board of directors will seek to adjust base salary amounts to realign such salaries with industry norms after taking into account individual responsibilities, performance and experience.

 

Annual Bonuses. The Company intends to utilize cash incentive bonuses for executives to focus them on achieving key operational and financial objectives within a yearly time horizon. Near the beginning of each year, the board of directors, upon the recommendation of the compensation committee and subject to any applicable employment agreements, will determine performance parameters for appropriate executives. At the end of each year, the board of directors and compensation committee will determine the level of achievement for each corporate goal.

 

Equity Awards. The Company intends to establish an equity incentive plan to incentivize its employees.

 

Severance Benefit. The Company currently has no severance benefits plan. The Company may consider the adoption of a severance plan for executive officers and other employees in the future.

 

Director Compensation. The Company has a compensation plan for its directors. The Company, working with the compensation committee, has set director compensation at a level comparable with those directors with similar positions at comparable companies. Each non-executive director receives an annual cash retainer of £45,000. The Chairman of the board of directors receives an additional £15,000 per year, each director that serves as the chairman of a committee receives an additional £10,000 per year and each other member of a committee receives an additional £5,000 per year per committee.

 

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C. Board Practices

 

Board Leadership Structure and Role in Risk Oversight

 

Dr. Yousef Al Assaf is the Chairman of the board of directors and Lina Saheb is the Interim Chief Executive Officer of the Company. The Company has determined that this structure, with separate Chairman and CEO roles, is in the best interests of the Company at this time. A number of factors support this leadership structure, including, among others:

 

  The separation of the Chairman and Interim CEO roles allows the Interim CEO to focus her time and energy on operating and managing the Company and its subsidiaries and to leverage the experience and perspectives of the Chairman.
     
  The Chairman serves as a liaison between the board and senior management but having an independent Chairman also enables non-management directors to raise issues and concerns for board consideration without immediately involving management.
     
  The Chairman sets the agenda for, and presides over, board meetings and independent sessions and coordinates the work of the committees of our board of directors, providing independent oversight and streamlining the Interim CEO’s duties.

 

The Company also believes in the importance of independent oversight. The Company looks to ensure that this oversight is truly independent and effective through a variety of means.

 

Terms of Office

 

Each director shall serve until he or she resigns or is removed. The Company intends to have its directors stand for re-election each year.

 

Directors’ Service Contracts

 

Each director who is not an employee of the Company or its subsidiaries provides their services pursuant to a Non-Executive Director Appointment Letter. Pursuant to each appointment letter, each non-executive director receives an annual cash retainer of £45,000. The Chairman receives an additional £15,000 per year, each director that serves as the chairman of a committee receives an additional £10,000 per year and each other member of a committee receives an additional £5,000 per year per committee. The terms of our directors’ appointment letters do not provide our directors with benefits upon termination.

 

Meetings and Committees of the Board of Directors

 

The Company has established separately a standing audit committee and a compensation committee.

 

Audit Committee Information

 

As of April 1, 2023, the audit committee consists of Mr. Tony Boutros, Mr. Nariman N. Karbhari, Dr. Yousef Al Assaf and Mr. Firoze Kapadia. Each of the members of the audit committee is independent under the applicable NASDAQ listing standards. The audit committee has a written charter. The purpose of the audit committee is, among other things, to appoint, retain, set compensation of, and supervise the Company’s independent accountants, review the results and scope of the audit and other accounting related services and review the Company’s accounting practices and systems of internal accounting and disclosure controls. The chairman of the audit committee is Tony Boutros.

 

Financial Experts on Audit Committee

 

The audit committee is, and will at all times be, composed exclusively of “independent directors,” as defined for audit committee members under the NASDAQ listing standards and the rules and regulations of the SEC, who are “financially literate,” as defined under NASDAQ listing standards. NASDAQ listing standards define “financially literate” as being able to read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash flow statement. In addition, the Company is required to certify to NASDAQ that the committee has, and will continue to have, at least one member who has past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background that results in the individual’s financial sophistication.

 

Mr. Tony Boutros serves as a financial expert on the audit committee.

 

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Compensation Committee Information

 

The compensation committee has a written charter. As of April 1, 2023, the compensation committee consists of two independent directors, being Mr. Tony Boutros and Mr. Nariman N. Karbhari. The chairman of the compensation committee is Mr. Karbhari.

 

The purpose of the compensation committee is to review and approve compensation paid to the Company’s officers and directors and to administer the Company’s incentive compensation plans, including authority to make and modify awards under such plans.

 

The compensation committee assists the board of directors in determining its responsibilities in relation to remuneration, including, among other matters, making recommendations to the board of directors on the Company’s policy on executive compensation, determining the individual remuneration and benefits package of each of the executive directors and recommending and monitoring the remuneration of senior management below board level.

 

The compensation committee meets formally four times a year and otherwise as required.

 

D. Employees

 

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 

 

All of the contractors are contracted through Flowi Facility Management LLC (“Flowi”). The contractors serve in various roles in several of BPGIC’s departments, including operations, information technology and health and safety.

 

The Company believes that the material terms of its third-party sourcing contracts and employment agreements are customary for the UAE and the oil storage industry and that it has a good relationship with its employees and contractors.

 

The following table sets out the number of employees and contractors employed by the Company from December 31, 2019 to December 31, 2022:

 

Location

 

   As at December 31, 2022 
   2019   2020   2021   2022 
Fujairah Employees   8    7    6    8 
Fujairah Contractors   47    49    64    65 
Dubai Employees   8    14    18    15 
Total   63    70    88    88 

 

E. Share Ownership

 

Ownership of the Company’s shares by its executive officers and directors as of March 1, 2023 is set forth in Item 7.A of this Report.

 

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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

A. Major Shareholders

 

The following table sets forth information regarding the beneficial ownership, as of March 1, 2023, of our Ordinary Shares by:

 

  each person known by us to be the beneficial owner of more than 5% of our outstanding Ordinary Shares;
     
  each of our officers and directors; and
     
  all our officers and directors as a group.

 

The percentage of shares beneficially owned is based on 109,587,854 Ordinary Shares outstanding on March 1, 2023.

 

Except as indicated in the footnotes below, we believe that the persons named below have shared voting and dispositive power with respect to all shares that they beneficially own. The shares owned by the persons named below do not have voting rights different from the shares owned by other holders. We believe that none of the persons named below own shares of record in the United States of America.

 

Name of Beneficial Owner  Number
of Shares
Beneficially
Owned
   % of
Class(16)
 
Directors and Executive Officers of the Company        
Dr. Yousef Al Assaf        
Nicolaas Paardenkooper   93,834,357(1)   85.6%
Saleh Yammout        
Lina S. Saheb        
Tony Boutros        
[Faisal Selim]        
Syed Masood Ali        
All executive officers and directors as a group ([  ] individuals)   93,834,357    85.6%
           
Five Percent Holders          
BPGIC Holdings Limited(2)   93,834,357    85.6%
Brooge Petroleum and Gas Investment Company (BPGIC) PLC(3)   93,834,357    85.6%
SBD International LP(4)   49,497,947    45.2%
SD Holding Limited(5)   49,497,947    45.2%
Salman Dawood Salman Al-Ameri(6)   59,122,314    53.9%
HBS Investments LP(7)   9,624,367    8.8%
O2 Investments Limited(8)   9,624,367    8.8%
H Capital International LP(9)   8,991,043    8.2%
Gyan Investments Limited(10)   8,991,043    8.2%
Hind Mohammed Muktar Ahmed(11)   8,991,043    8.2%
His Highness Sheikh Mohammad bin Khalifa bin Zayed Al Nayhan(12)   25,721,000    23.5%
MENA Energy Services Holdings Limited(13)   8,333,333    7.6%
IDB Infrastructure Fund II B.S.C(c)(14)   8,333,333    7.6%
ASMA Capital Partners B.S.C.(c). (15)   8,333,333    7.6%

 

(1) Represents the shares held by BPGIC Holdings. Mr. Paardenkooper is the CEO of BPGIC Holdings, consequently, in accordance with US laws/regulations he may be deemed to be the beneficial owner of 100% of the shares held by BPGIC Holdings. Mr. Paardenkooper disclaims beneficial ownership of any shares other than to the extent he may have a pecuniary interest therein.

 

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(2) 20,000,000 Ordinary Shares beneficially owned by BPGIC Holdings are held in escrow and subject to forfeiture until the Company satisfies certain milestones. MENA Energy holds convertible securities in BPGIC Holdings that entitle it to convert its securities in BPGIC Holdings into 8,333,333 of the Ordinary Shares of the Company owned by BPGIC Holdings. Accordingly, BPGIC Holdings has placed 8,333,333 Ordinary Shares into escrow for release to MENA Energy in the event it converts its securities in BPGIC Holdings. 1,500,000 Ordinary Shares beneficially owned by BPGIC Holdings have been placed in escrow as collateral for a guaranty by one of its shareholders, HBS Investments LP.
   
(3) Represents the shares held by BPGIC Holdings. Brooge Petroleum and Gas Investment Company (BPGIC) PLC is the sole shareholder of BPGIC Holdings, consequently, it may be deemed to be the beneficial owner of 100% of the shares held by BPGIC Holdings. MENA Energy holds convertible securities in BPGIC Holdings that entitle it to convert its securities in BPGIC Holdings into 8,333,333 of the Ordinary Shares of the Company owned by BPGIC Holdings. Accordingly, BPGIC Holdings has placed 8,333,333 Ordinary Shares into escrow for release to MENA Energy in the event it converts its securities in BPGIC Holdings. 1,500,000 Ordinary Shares beneficially owned by BPGIC Holdings have been placed in escrow as collateral for a guaranty by one of its shareholders, HBS Investments LP. Brooge Petroleum and Gas Investment Company (BPGIC) PLC disclaims beneficial ownership of any Ordinary Shares other than to the extent it may have a pecuniary interest therein.
   
(4) SBD International LP holds a controlling interest in Brooge Petroleum and Gas Investment Company (BPGIC) PLC which is the sole shareholder of BPGIC Holdings. Its beneficial ownership of the Company’s Ordinary Shares held by BPGIC Holdings is 49,497,947 Ordinary Shares. SBD International LP’s pro rata portion of the Ordinary Shares held in escrow and subject to forfeiture until the Company satisfies certain milestones is 58.9%. SBD International LP disclaims beneficial ownership of any Ordinary Shares other than to the extent it may have a pecuniary interest therein.
   
(5) Represents the interests of SBD International LP, as a shareholder of Brooge Petroleum and Gas Investment Company (BPGIC) PLC, in the Ordinary Shares held by BPGIC Holdings. SD Holding Limited is the general partner of SBD International LP, consequently, it may be deemed the beneficial owner of 49,497,947 Ordinary Shares held by BPGIC Holdings Limited. SD Holding Limited disclaims beneficial ownership of any Ordinary Shares other than to the extent it may have a pecuniary interest therein.
   
(6) Represents the interest of SBD International LP and HBS Investments LP, as shareholders of Brooge Petroleum and Gas Investment Company (BPGIC) PLC, in the Ordinary Shares held by BPGIC Holdings. Salman Dawood Salman Al-Ameri is the sole shareholder of SD Holding Limited (the general partner of SBD International LP) and the sole shareholder of O2 Investments Limited (the general partner of HBS Investments LP). Consequently, Mr. Al-Ameri may be deemed the beneficial owner of 59,122,314 of the Ordinary Shares held by BPGIC Holdings. Mr. Al-Ameri disclaims beneficial ownership of any Ordinary Shares other than to the extent he may have a pecuniary interest therein. 1,500,000 Ordinary Shares that may be deemed to be beneficially owned by Mr. Al-Ameri as the sole shareholder of O2 Investments Limited (the general partner of HBS Investments LP) have been placed in escrow as collateral for a guaranty by HBS Investments LP.
   
(7) Represents the interests of HBS Investments LP, as a shareholder of Brooge Petroleum and Gas Investment Company (BPGIC) PLC, in the Ordinary Shares held by BPGIC Holdings. HBS Investments LP’s pro rata portion of the Ordinary Shares held in escrow is 9.8%. HBS Investments LP disclaims beneficial ownership of any Ordinary Shares other than to the extent it may have a pecuniary interest therein. 1,500,000 Ordinary Shares that may be deemed to be beneficially owned by HBS Investments LP have been placed in escrow as collateral for a guaranty by HBS Investments LP.
   
(8) Represents the interests of HBS Investments LP, as a shareholder of Brooge Petroleum and Gas Investment Company (BPGIC) PLC, in the Ordinary Shares held by BPGIC Holdings. O2 Investments Limited is the general partner of HBS Investments LP, consequently, it may be deemed the beneficial owner of 9,624,367 of the Ordinary Shares held by BPGIC Holdings. O2 Investments Limited disclaims beneficial ownership of any Ordinary Shares other than to the extent it may have a pecuniary interest therein. 1,500,000 Ordinary Shares that may be deemed to be beneficially owned by O2 Investments Limited as the general partner of HBS Investments LP have been placed in escrow as collateral for a guaranty by HBS Investments LP.
   
(9) Represents the interests of H Capital International LP, as a shareholder of Brooge Petroleum and Gas Investment Company (BPGIC) PLC, in the Ordinary Shares held by BPGIC Holdings. H Capital International LP’s pro rata portion of the Ordinary Shares held in escrow is 9.1%. H Capital International LP disclaims beneficial ownership of any Ordinary Shares other than to the extent it may have a pecuniary interest therein.
   
(10) Represents the interests of H Capital International LP, as a shareholder of Brooge Petroleum and Gas Investment Company (BPGIC) PLC, in the Ordinary Shares held by BPGIC Holdings. Gyan Investments Limited is the general partner of H Capital International LP, consequently, it may be deemed the beneficial owner of 8,991,043, of the Ordinary Shares held by BPGIC Holdings. Gyan Investments Limited disclaims beneficial ownership of any Ordinary Shares other than to the extent it may have a pecuniary interest therein.

 

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(11) Represents the interest of H Capital International LP, as a shareholder of Brooge Petroleum and Gas Investment Company (BPGIC) PLC, in the shares held by BPGIC Holdings. Mrs. Hind Mohammed Muktar Ahmed is the sole shareholder of Gyan Holdings Limited, the general partner of H Capital International LP, consequently, she may be deemed the beneficial owner of 8,991,043 of the Ordinary Shares held by BPGIC Holdings. Mrs. Hind Mohammed Muktar Ahmed disclaims beneficial ownership of any Ordinary Shares other than to the extent she may have a pecuniary interest therein.
   
(12) Represents the interests of Mohammad Bin Khalifa bin Zayed Al Nahyan, as a shareholder of Brooge Petroleum and Gas Investment Company (BPGIC) PLC, in the Ordinary Shares held by BPGIC Holdings. Mohammad bin Khalifa bin Zayed Al Nahyan’s pro rata portion of the Ordinary Shares held in escrow is 22.2%.
   
(13) MENA Energy holds convertible securities in BPGIC Holdings that entitle it to convert its securities in BPGIC Holdings into 8,333,333 of the Ordinary Shares of the Company owned by BPGIC Holdings. MENA Energy disclaims beneficial ownership of any Ordinary Shares other than to the extent it may have a pecuniary interest therein.
   
(14) Represents the interest of MENA Energy in the Ordinary Shares held by BPGIC Holdings. IDB Infrastructure Fund II B.S.C(c) is the sole shareholder of MENA Energy, consequently it may be deemed the beneficial owner of the 8,333,333 Ordinary Shares of the Company that MENA Energy would receive upon conversion of its securities in BPGIC Holdings. IDB Infrastructure Fund II B.S.C(c) disclaims beneficial ownership of any Ordinary Shares other than to the extent it may have a pecuniary interest therein.
   
(15) Represents the interest of MENA Energy in the Ordinary Shares held by BPGIC Holdings. ASMA Capital holds 99% of the equity of IDB Infrastructure Fund II B.S.C(c), the sole shareholder of MENA Energy, consequently it may be deemed the beneficial owner of the 8,333,333 Ordinary Shares of the Company that MENA Energy would receive upon conversion of its securities in BPGIC Holdings. ASMA Capital disclaims beneficial ownership of any Ordinary Shares other than to the extent it may have a pecuniary interest therein.
   
(16) Based on 109,587,854 Ordinary Shares outstanding as of March 31, 2023. Does not reflect the 21,228,900 Ordinary Shares issuable upon exercise of the outstanding Warrants issued in exchange for Twelve Seas warrants.

 

Pursuant to certain letters from SBD International LP to nine individuals, BPGIC Holdings transferred an aggregate of 4,833,678 Ordinary Shares to such individuals in consideration of the valuable contributions they have made to the success of BPGIC.

 

As set forth above, BPGIC Holdings is the majority shareholder of the Company and holds 93,834,357 Ordinary Shares which is approximately 85.6% of the outstanding Ordinary Shares of the Company. BPGIC Holdings is wholly-owned by Brooge Petroleum and Gas Investment Company (BPGIC) PLC. SBD International LP is the majority owner of Brooge Petroleum and Gas Investment Company (BPGIC) PLC. As the Chief Executive Officer of BPGIC Holdings Nicolaas L. Paardenkooper may be deemed to have beneficial ownership of the 93,834,357 Ordinary Shares owned by BPGIC Holdings.

 

The Company is not aware of any existing arrangements that may result in a change of control of the Company.

 

B. Related Party Transactions

 

BPGIC Related Party Transactions and Policies

 

Related Party Transactions

 

During the year ended December 31, 2019, the shareholders of the Company transferred their ownership in the Company to BPGIC PLC, which is owned by the same shareholders that previously owned the Company and in the same ownership proportion. Upon the change of ownership, the Company changed its name from Brooge Petroleum and Gas Investment Company FZC to Brooge Petroleum and Gas Investment Company FZE. As a result of the above, BPGIC PLC became the parent of the Company. The owners made net cash contributions to the extent of $32.6 million.

 

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Subsequently, as part of a reorganization, BPGIC PLC transferred 100% of the issued and outstanding ordinary shares of BPGIC to BPGIC Holdings. As a result, BPGIC Holdings became the parent of the Company.

 

Movements in shareholders’ account are as follows:

 

   Year Ended December 31 
   2018   2019   2020       
   (Restated)   (Restated)   (Restated)   2021   2022 
   ($)   ($)   ($)   ($)   ($) 
Contributions by the shareholders   951,539    77,090,648    (233,457)   255,818    (626,029)
Amounts paid on behalf of the Group by the shareholders*   7,850,431    1,135,484    -    -    - 
Amounts paid by the Group on behalf of the shareholders   (2,296,354)   (1,669,424)   -    -    - 
Distributions to shareholders   (29,209,289)   (53,279,016)   -    -    - 
Total Movement in Shareholder Account   (22,703,673)   23,277,692    (233,457)   255,818    (626,029)

 

These amounts are repayable at the discretion of the board of directors of the Group and are interest free, therefore classified as part of equity.

 

* These include expenses paid on behalf of the Group, which includes other operational expenses paid by the shareholders on behalf of the Group.

 

Changes in shareholders’ account are as follows:

 

   Year Ended December 31 
   2018   2019   2020       
   (Restated)   (Restated)   (Restated)   2021   2022 
   ($)   ($)   ($)   ($)   ($) 
At beginning of period   70,421,436    47,717,763    70,995,455    70,761,998    71,017,816 
Net contributions (distributions) during the year   (22,703,673)   23,277,692    (233,457)   255,818    (626,029)
At end of period   47,717,763    70,995,455    70,761,998    71,017,816    70,391,787 

 

Due from related parties:

 

Movements in other related parties are as follows:

 

  Year Ended December 31 
   2018   2019   2020       
Due from Related Parties  (Restated)   (Restated)   (Restated)   2021   2022 
   ($)   ($)   ($)   ($)   ($) 
BPGIC Holdings (Shareholder)           -    -    -    504,214    34,136 
HBS Investments LP (shareholder)   -    13,388    17,479    4,187    10,381 
H Capital International LP (shareholder)   -    11,056    16,975    4,189    9,983 
O2 Investments Limited as GP (shareholder)   -    6,181    9,303    5,191    9,272 
SBD International LP (shareholder)   -    13,760    17,851    47,357    50,014 
SD Holding Limited as GP (shareholder)   -    6,984    9,850    19,938    21,842 
Gyan Investments Ltd (shareholder)   -    6,181    9,555    5,280    9,010 
Total Due from Related Parties   -    57,550    81,013    590,356    144,638 

 

  Year Ended December 31 
   2018   2019   2020       
Due To Related Parties  (Restated)   (Restated)   (Restated)   2021   2022 
   ($)   ($)   ($)   ($)   ($) 
Shareholder          -           -    2,041,927    2,041,927           - 
Total Due To Related Parties   -    -    2,041,927    2,041,927    - 

 

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Other Payables

 

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, 2020, 2019, and 2018, 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 Al Brooge International Advisory LLC (BIA) do not qualify to be recognized 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 Advance from customer under Liabilities for the financial years from 2018 to 2020.

 

The Group does not expect to settle these amounts using any of its current assets or any existing resources in the foreseeable future. Pending its potential receipt of confirmation or adequate supporting documentation from the party, the Group has taken a conservative approach to recognize 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 Company is working towards obtaining supporting documentation for the appropriate treatment of these amounts.

 

BIA

 

In order to determine whether there exists a related party relationship with BIA in accordance to Paragraph (9) of International Accounting Standards (IAS 24). The Group considered the following:

 

Clause 3.4(v) of the Audit Committee (the “Committee”) Charter requires that the Committee review and approve all related-party transactions, defined as those transactions required to be disclosed under Item 7(b) of Form 20-F and NASDAQ Corporate Governance Rule 5630.

 

Clause 3 of the Related Party Transactions Policy of the Company states that, it is the responsibility of the Audit Committee to administer the Related Party Transactions Policy.

 

Commercial license of BIA with issue date of 11 Feb 2019 which mentions Mrs. Muktar (considered as one of the UBO for the Company) as a Partner in BIA.

 

Commercial license of BIA with issue date of 10 Feb 2020 which reflects the change in ownership of BIA, with Mrs. Muktar now being removed as a Partner in BIA.

 

Commercial license of BIA with issue date of 12 April 2021 which does not mention Mrs. Muktar as a Partner for BIA.

 

The Company announcement on 20 Nov 2019 (Form F4 Filed with the SEC) on the planned sale of Mrs. Muktar’s shares in BIA, Al Brooge International Advisory LLC will no longer be a related party.

 

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It is noted that Mrs. Hind has left BIA in her capacity as a shareholder somewhere between November 2019 and February 2020.

 

The Committee has decided to be conservative on the BIA relationship and hence has considered BIA to be a related party throughout the years until further supporting documentation is obtained to prove otherwise.

 

  Year Ended December 31 
   2018   2019   2020       
Other Payables  (Restated)   (Restated)   (Restated)   2021   2022 
   ($)   ($)   ($)   ($)   ($) 
Brooge International Advisory LLC   27,854,947    57,794,495    73,453,606    74,253,965    74,253,965 
Total Other Payables   27,854,947    57,794,495    73,453,606    74,253,965    74,253,965 

 

Key management remuneration for the year ended December 31, 2022 amounted to $1,229,114 (2021: $1,676,921), charged to consolidated statement of comprehensive income (within profit and loss). The full amount of the key management remuneration relates to short-term employment benefits.

 

Related Party Transaction Policies

 

Our board of directors has adopted a code of ethics and business conduct that requires the Company’s directors, officers and employees to avoid conflicts of interest, such as related party transactions, unless specifically authorized. Our board of directors also adopted a related party transaction policy to govern the procedures for evaluation and authorization of related party transactions. Related party transactions, which require approval of the audit committee, are defined as any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which (i) the Group is or will be a participant, (ii) the aggregate amount involved will or may be expected to exceed $120,000 in any fiscal year, and (iii) any related party has or will have a direct or indirect interest. This also includes any material amendment or modification to an existing related party transaction.

 

The audit committee is responsible for reviewing and approving related party transactions to the extent the Company contemplates engaging in such a transaction. The audit committee will review all of the relevant facts and circumstances of all related party transactions that require its approval and either approve or disapprove of the entry into the related party transaction. The audit committee will approve the related party transaction only if it determines in good faith that, under all the circumstances, the transaction is in the best interests of the Company and its shareholders. The audit committee, in its sole discretion, will impose such conditions as it deems appropriate on the Company or the related party in connection with the approval of the related party transaction. No director will be permitted to participate in the discussions or approval of a transaction in which he or she is a related party, but that director will be required to provide all material information concerning the related party transaction to the audit committee.

 

C. Interests of Experts and Counsel

 

Not Applicable.

 

ITEM 8. FINANCIAL INFORMATION

 

A. Consolidated Statements and Other Financial Information

 

See Item 18 of this Report.

 

B. Significant Changes

 

None.

 

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ITEM 9. THE OFFER AND LISTING

 

A. Offer and Listing Details

 

Our Ordinary Shares and Warrants are listed on the Nasdaq Capital Market under the symbols “BROG” and “BROGW,” respectively. Holders of our Ordinary Shares and Warrants should obtain current market quotations for their securities.

 

B. Plan of Distribution

 

Not applicable.

 

C. Markets

 

Our Ordinary Shares and Warrants are listed on the Nasdaq Capital Market under the symbols “BROG” and “BROGW,” respectively.

 

D. Selling Shareholders

 

Not applicable.

 

E. Dilution

 

Not applicable.

 

F. Expenses of the Issue

 

Not applicable.

 

ITEM 10. ADDITIONAL INFORMATION

 

A. Share Capital

 

Not Applicable

 

B. Memorandum and Articles of Association

 

The Company was incorporated under the laws of the Cayman Islands as an exempted company. The Company’s objects are unrestricted and the Company shall have full power and authority to carry out any object not prohibited by the laws of the Cayman Islands. The Company’s objects can be found in paragraph number 3 of the Amended and Restated Memorandum of Association of the Company.

 

A director is free to vote in respect of any contract or transaction in which he or she is interested provided that the nature of the interest of such director in any such contract or transaction shall be disclosed by him or her at or prior to its consideration and any vote thereon. A director may give a general notice that he or she is a shareholder, director, officer or employee of any specified firm or company and is to be regarded as interested in any transaction with such firm or company. Such general notice is sufficient disclosure for the purposes of voting on a resolution in respect of a contract or transaction in which such director has an interest, and after such general notice, such director does not need to give special notice relating to any particular transaction. The directors’ power to vote compensation to be paid to themselves or any members of their body in the absence of an independent quorum is not restricted. The directors may exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property and assets (present and future) and uncalled capital or any part thereof and to issue debentures, debenture shares, mortgages, bonds and other such securities whether outright or as security for any debt, liability or obligation of the Company or of any third party. Such borrowing powers can be varied by an amendment to the Articles of Association. There is no age at which directors are required to retire. A person is not required to hold shares of the Company to serve as a director.

 

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Ordinary shares

 

The holders of Ordinary Shares are entitled to one vote for each Ordinary Share held of record on all matters to be voted on by shareholders. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voted for the election of directors can elect all of the directors. Holders of the Company’s Ordinary Shares do not have any conversion, preemptive or other subscription rights and there are no sinking fund or redemption provisions applicable to the Ordinary Shares.

 

Preferred Shares

 

The Amended and Restated Memorandum and Articles of Association of the Company authorize the issuance of up to 50,000,000 blank check preferred shares with such designations, rights and preferences as may be determined from time to time by the Company’s board of directors. Accordingly, the Company’s board of directors is empowered, without shareholder approval, to issue preferred shares with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of Ordinary Shares. In addition, the preferred shares could be utilized as a method of discouraging, delaying or preventing a change in control of the Company.

 

Variation of Rights of Shareholders

 

If at any time the share capital of the Company is divided into different classes of shares, all or any of the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may, whether or not the Company is being wound up, be varied without the consent of the holders of the issued shares of that class where such variation is considered by the directors not to have a material adverse effect upon such rights. In all other cases, variations shall be made only with the consent in writing of the holders of not less than two thirds of the issued shares of that class, or with the approval of a resolution passed by a majority of not less than two thirds of the votes cast at a separate meeting of the holders of the shares of that class. For the purposes of a separate class meeting, the directors may treat two or more or all the classes of shares as forming one class of shares if the directors consider that such class of shares would be affected in the same way by the proposals under consideration. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.

 

Meetings of Shareholders

 

The Company may, but shall not (unless required by Cayman Islands law) be obliged to, in each year hold a general meeting as its annual general meeting, and shall specify the meeting as such in the notices calling it. Any annual general meeting shall be held at such time and place as the directors shall appoint. At these meetings the report of the directors (if any) shall be presented. The directors may call general meetings. The directors are required to convene an extraordinary general meeting upon a requisition deposited by not less than twenty percent of par value of the issued shares which at that date carry the right to vote at general meetings. The requisition must state the objects of the meeting and must be signed by the depositing shareholders. Shareholders seeking to bring business before the annual general meeting or to nominate candidates for election as directors at the annual general meeting must deliver notice to the principal executive offices of the Company not later than the close of business on the 90th day nor earlier than the close of business on the 120th day prior to the scheduled date of the annual general meeting.

 

At least five clear days’ notice shall be given of any general meeting. Every notice shall specify the place, the day and the hour of the meeting and the general nature of the business to be conducted at the general meeting and shall be given in the manner hereinafter mentioned or in such other manner if any as may be prescribed by the Company, provided that a general meeting of the Company shall, whether or not the required notice has been given and whether or not the provisions of the Amended and Restated Memorandum and Articles of Association regarding general meetings have been complied with, be deemed to have been duly convened if it is so agreed: (i) in the case of an annual general meeting, by all of the shareholders entitled to attend and vote thereat; and (ii) in the case of an extraordinary general meeting, by a majority in number of the shareholders having a right to attend and vote at the meeting, together holding not less than ninety-five per cent in par value of the shares giving that right. The accidental omission to give notice of a general meeting to, or the non-receipt of notice of a general meeting by, any person entitled to receive such notice shall not invalidate the proceedings of that general meeting.

 

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No business shall be transacted at any general meeting unless a quorum is present. The holders of a majority of the shares being individuals present in person or by proxy or if a corporation or other non-natural person by its duly authorized representative or proxy shall be a quorum. A person may participate at a general meeting by conference telephone or other communications equipment by means of which all the persons participating in the meeting can communicate with each other. Participation by a person in a general meeting in this manner is treated as presence in person at that meeting. If a quorum is not present within half an hour from the time appointed for the meeting to commence or if during such a meeting a quorum ceases to be present, the meeting, if convened upon a shareholders’ requisition, shall be dissolved and in any other case it shall stand adjourned to the same day in the next week at the same time and/or place or to such other day, time and/or place as the directors may determine, and if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting to commence, the shareholders present shall be a quorum.

 

The chairman of the meeting may, with the consent of a meeting at which a quorum is present (and shall if so directed by the meeting) adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. When a general meeting is adjourned for thirty days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. Otherwise it shall not be necessary to give any such notice of an adjourned meeting.

 

A resolution put to the vote of the meeting shall be decided on a poll. A poll shall be taken as the chairman of the meeting directs, and the result of the poll shall be deemed to be the resolution of the general meeting at which the poll was demanded. A poll demanded on the election of a chairman or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such date, time and place as the chairman of the general meeting directs, and any business other than that upon which a poll has been demanded or is contingent thereon may proceed pending the taking of the poll. In the case of an equality of votes the chairman shall be entitled to a second or casting vote.

 

Limitations on Rights to Own Securities

 

There are no limitations on the rights to own securities in the Company.

 

Anti-Takeover Provisions

 

Certain provisions in the Amended and Restated Memorandum and Articles of Association of the Company, such as the super majority voting requirements for amendments thereto, may discourage unsolicited takeover proposals that the Company’s shareholders may consider to be in their best interest and may make the removal of the Company’s incumbent management more difficult. Other anti-takeover provisions under the Amended and Restated Memorandum and Articles of Association of the Company include:

 

Undesignated Preferred Shares. The Company’s board of directors has the ability to designate and issue preferred shares with voting or other rights or preferences that could deter hostile takeovers or delay changes in its control or management.

 

Directors Removed Only for Cause. The Company’s Amended and Restated Memorandum and Articles of Association provides that shareholders may remove directors only for cause.

 

For discussions on risks associated with the above anti-takeover provisions, please see “Item 3.D Risk Factors — Provisions in the Company’s amended and restated memorandum and articles of association may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for the Company’s securities and could entrench management”.

 

Bylaw Provision regarding Ownership Disclosure

 

There is no bylaw provision requiring shareholder ownership to be disclosed above a certain threshold.

 

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Certain Differences of Cayman Islands 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 shareholders 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.

 

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 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 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.

 

The Company is incorporated in the Cayman Islands and all of its operations are currently conducted through its subsidiary, BPGIC, and once phase III is ready, will be conducted through the Company’s subsidiaries, BPGIC and BPGIC III, in the UAE. 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. 

 

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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 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.

 

C. Material Contracts

 

Commercial Storage Agreements

 

As of March 2023, the Company had entered into around fifty-six go forward commercial storage agreements for its Phase I and II Facility with certain storage customers. These agreements are spread tank wise within reputed customers providing diversification of storage revenue. The descriptions of the commercial storage agreements do not purport to summarize all of the provisions of the agreements.

 

The storage agreements are compromised of the key commercial terms and the general terms and conditions. The services provided under the storage agreements compromise any operation carried out in respect of the product stored, including but not limited to providing storage space, storing, manipulating, moving, treating, processing, and delivering the product stored. For the services provided BPGIC invoice the customers rental and handling charges, throughput charges, tank cleaning charges, circulation charges, inter tank transfer charges and port tariffs.

 

As of March 2023, the BPGIC has signed several commercial storage agreements, including: Napag Trading LTD Commercial Agreement dated May 02, 2019, the Beneathco Storage Agreement dated June 19, 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 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.

 

On May 02,2019, BPGIC entered into a commercial storage agreement with Napag Trading LTD, pursuant to which BPGIC leased certain storage capacity of the Phase I facility to Napag Trading LTD for a period of six months subject to renewal for an additional six-month period with the mutual agreement of the parties.

 

On June 19,2019, BPGIC entered into a commercial storage agreement with Beneathco, pursuant to which BPGIC leased certain storage capacity of the Phase I facility to Beneathco for a period of six months subject to renewal for an additional six-month period with the mutual agreement of the parties.

 

On April 22, 2020, BPGIC entered into a commercial storage agreement with Totsa Total Oil Trading SA, pursuant to which BPGIC leased certain storage capacity of the Phase I facility to Totsa Total Oil Trading SA for a period of six months subject to renewal for an additional six-month period with the mutual agreement of the parties.

 

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On November 19, 2020, BPGIC entered into a commercial storage agreement with A&T, pursuant to which BPGIC leased certain storage capacity of the Phase I facility to A&T for a period of six months subject to renewal for an additional six-month period with the mutual agreement of the parties. On November 26, 2020, BPGIC and A&T entered into another commercial storage agreement whereby BPGIC leased an additional storage capacity of the Phase I facility to A&T for a period of six months subject to renewal for an additional six-month period with the mutual agreement of the parties. On March 04, 2021, BPGIC entered into the A&T Storage Agreement with A&T, pursuant to which BPGIC leased certain storage capacity of the Phase I facility to A&T for a period of six months subject to renewal for an additional three-month period with the mutual agreement of the parties.

 

On November 10, 2020’ and December 6, 2020, BPGIC entered into a commercial storage agreement with Jaykay, pursuant to which BPGIC leased certain storage capacity of the Phase I facility to Jaykay for a period of six months subject to renewal for an additional six-month period with the mutual agreement of the parties.

 

On January 13, 2021, BPGIC entered into the NuFuel Storage Agreement with NuFuel, pursuant to which BPGIC leased certain storage capacity of the Phase I facility to NuFuel for a period of three months, which was renewed on March 29, 2021’ for an additional three-month period.

 

On February 14, 2021, BPGIC entered into the SAA Storage Agreement with SAA, pursuant to which BPGIC leased certain storage capacity of the Phase I facility to SAA for a period of two months, the same agreement was renewed on April 8, 2021, and on June 2, 2021.

 

On March 30, 2021, BPGIC with mutual agreement with A&T novated the agreement entered on March 04, 2021, to the new customer Valor with effect from April 8, 2021, for the same quantity leased to A&T.

 

On November 11, 2020, and December 13, 2020, BPGIC entered into the Synergy Storage Agreement with Synergy, pursuant to which BPGIC leased certain storage capacity of the Phase I facility to Synergy. On April 22, 2021, the same agreement was renewed for a further 6 months period. On May 1, 2021, BPGIC entered into another Synergy Storage Agreements with Synergy, pursuant to which BPGIC leased certain storage capacity of the Phase I facility to Synergy for a period of two months.

 

On April 13, 20 and 22, 2021, BPGIC entered into the Valor Storage Agreements with Valor, pursuant to which BPGIC leased certain storage capacity of Phase I facility to Valor for a period of one year subject to renewal for an additional two-year period with the mutual agreement of the parties.

 

On April 27, 2021, BPGIC entered into a Commercial Storage Agreement with Golden Bridge Trading Refined Oil Products Abroad LLC, pursuant to which BPGIC leased certain storage capacity of Phase I facility to Golden Bridge for a period of one year subject to renewal for an additional two-year period with the mutual agreement of the parties.

 

On September 30, 2021, BPGIC entered into a Commercial Storage Agreement with Newton Petroleum Trading LLC, pursuant to which BPGIC leased certain storage capacity of Phase I facility to Newton for a period of one month. On 16 March 2022, BPGIC entered into another Commercial Storage Agreement with Newton Petroleum Trading LLC, pursuant to which BPGIC leased certain storage capacity of Phase II facility to Newton for a period of one month subject to renewal for an additional one-month period with the mutual agreement of the parties.

 

On September 30, 2021, BPGIC entered into a Commercial Storage Agreement with Basrah Energy FZC, pursuant to which BPGIC leased certain storage capacity of Phase I facility to Basrah for a period of one month. On December 16, 2021, BPGIC entered into another Commercial Storage Agreement with Basrah Energy FZC, pursuant to which BPGIC leased certain storage capacity of Phase I facility to Basrah for a period of one month, which was renewed on January 17, 2022, for a further one-month period. On April 11, 2022, BPGIC entered into a Commercial Storage Agreement with Basrah Energy FZC, pursuant to which BPGIC leased certain storage capacity of Phase I facility to Basrah for a period of one month.

 

On December 15, 2021, BPGIC entered into a Commercial Storage Agreement with Lecotra DMCC, pursuant to which BPGIC leased certain storage capacity of Phase I facility and of Phase II facility to Lecotra for a period of two months.

 

On May 04, 2021, BPGIC entered into the A Three Energy Agreement with A Three Energy FZE, pursuant to which BPGIC leased certain storage capacity of Phase II facility to A Three Energy for a period of one year subject to renewal for an additional two-year period with the mutual agreement of the parties.

 

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On August 16, 2021, BPGIC entered into the Ali Almutawa Agreement with Ali Almutawa Petroleum and Petrochemical Trading LLC, pursuant to which BPGIC leased certain storage capacity of Phase II facility to Ali Almutawa for a period of six months.

 

On January 21,2022 and on January 25, 2022, BPGIC entered into the Enoc Storage Agreements with Enoc Supply and Trading LLC, pursuant to which BPGIC leased certain storage capacity of Phase II facility to Enoc for a period of three months subject to renewal for an additional three-month period with the mutual agreement of the parties.

 

On March 3, 2022, BPGIC entered into a Commercial Storage Agreement with Orit Pte. Ltd. pursuant to which BPGIC leased certain storage capacity of Phase I facility to Orit for a period of one month, subject to renewal for an additional one-month period with the mutual agreement of the parties. On April 26, 2022, BPGIC entered into another Commercial Storage Agreement with Orit Pte. Ltd. pursuant to which BPGIC leased certain storage capacity of Phase I facility to Orit for a period of one month, subject to renewal for an additional one-month period with the mutual agreement of the parties.

 

On March 10, 2022, BPGIC entered into a Commercial Storage Agreement with South Kurdistan Company General Trading, pursuant to which BPGIC leased certain storage capacity of Phase I facility to South Kurdistan for a period of two month, subject to renewal for an additional two-month period with the mutual agreement of the parties.

 

On March 18, 2022, BPGIC entered into a Commercial Storage Agreement with Nova Seas Middle East. pursuant to which BPGIC leased certain storage capacity of Phase I facility to Nova Seas for a period of one month, subject to renewal for an additional one-month period with the mutual agreement of the parties, which was renewed on April 12, 2022, for a further one-month period.

 

On May 09, 2022, BPGIC entered into a Commercial Storage Agreement with Kurdos, pursuant to which BPGIC leased certain storage capacity of Phase I facility to Kurdos for a period of three months, subject to renewal for an additional three-months period with the mutual agreement of the parties.

 

On May 10, 2022, BPGIC entered into two Commercial Storage Agreements with Avis, pursuant to which BPGIC leased certain storage capacity of Phase I facility to Avis for a period of twelve months, subject to renewal for an additional twelve month period with the mutual agreement of the parties.

 

On May 19, 2022, BPGIC entered into two Commercial Storage Agreements with Euro American, pursuant to which BPGIC leased certain storage capacity of Phase II facility to Euro American for a period of three months, subject to renewal for an additional three months period with the mutual agreement of the parties.

 

On May 25, 2022, BPGIC entered into two Commercial Storage Agreements with Sahra, pursuant to which BPGIC leased certain storage capacity of Phase I and II facility to Sahra for a period of six months, subject to renewal for an additional six-month period with the mutual agreement of the parties. On November 21, 2022, BPGIC entered into another Commercial Storage Agreement with Sahra, pursuant to which BPGIC leased certain storage capacity of Phase I and II facility to Sahra for a period of thirteen months, subject to renewal for an additional period with the mutual agreement of the parties.

 

On June 06, 2022, BPGIC entered into a Commercial Storage Agreement with First Trust, pursuant to which BPGIC leased certain storage capacity of Phase I and II facility to First Trust for a period of six months, subject to renewal for an additional period with the mutual agreement of the parties.

 

On July 01, August 04, September 09 and December 13, 2022, BPGIC entered into three Commercial Storage Agreements with Cengeo, pursuant to which BPGIC leased certain storage capacity of Phase I and II facility to Cengeo for a period of one, subject to renewal for an additional period with the mutual agreement of the parties. On February 2023, Cengeo novated the agreements entered with BPGIC to Atlantis.

 

On July 15, 2022, BPGIC entered into a Commercial Storage Agreement with Aachim, pursuant to which BPGIC leased certain storage capacity of Phase II facility to Aachim for a period of twelve months, subject to renewal for an additional period with the mutual agreement of the parties.

 

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On August 19, 2022, BPGIC entered into a Commercial Storage Agreement with Actirays, pursuant to which BPGIC leased certain storage capacity of Phase II facility to Actirays for a period of twelve months, subject to renewal for an additional period with the mutual agreement of the parties.

 

On September 22, 2022, BPGIC entered into a Commercial Storage Agreement with Petraco pursuant to which BPGIC leased certain storage capacity of Phase I facility to Petraco for a period of two months, subject to renewal for an additional period with the mutual agreement of the parties.

 

On February 01, 2023, BPGIC entered into a Commercial Storage Agreement with Atlantis, pursuant to which BPGIC leased certain storage capacity of Phase I facility to Atlantis for a period of twelve months, subject to renewal for an additional period with the mutual agreement of the parties.

 

On December 5, 2022, BPGIC and BPGIC III signed a land preparation work contract with Audex for Phase III, for the design and execution of the early preparation works for the Phase III land and for the terminal connectivity.

 

Storage Fee

 

For the years ended December 31, 2018, 2019, 2020, 2021 and 2022, BPGIC generated, respectively, 89 percent, 84 percent, 87 percent 90 percent and 95 percent of its total Phase I and Phase II revenue from monthly fees for storage services.

 

Ancillary Services

 

BPGIC charges all 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 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. Upon mutual agreement, BPGIC could charge a supplementary fee to the extent to the existing Storage Customers exceed an agreed amount of throughput volume.
     
  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.

 

The existing Commercial Storage Agreements provide that any fees charged by the Port of Fujairah in respect of the existing Storage Customers, as applicable, 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, as applicable. 

 

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Business Combination Agreement

 

On April 15, 2019, the Company entered into the Business Combination Agreement.

 

On December 20, 2019, pursuant to a Business Combination Agreement, among other matters:

 

  (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; 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.

 

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

 

The description of the Business Combination Agreement does not purport to summarize all of the provisions of the agreement.

 

Amended Founders’ Share Escrow Agreement

 

On June 19, 2018, Twelve Seas entered into a Share Escrow Agreement, by and among Twelve Seas, the Initial Twelve Seas Shareholders and Continental, as escrow agent (the “Founders’ Share Escrow Agreement”). On December 20, 2019, the Company entered into the Share Escrow Agreement Amendment, by and among the Company, Twelve Seas, the Initial Twelve Seas Shareholders and Continental, as escrow agent (the Founders’ Share Escrow Agreement as amended by the Share Escrow Agreement Amendment, the “Amended Founders’ Share Escrow Agreement”).

 

The Amended Founders’ Share Escrow Agreement provided that 2,587,500 shares held by Twelve Seas Sponsor, (the “Founders’ Lock-Up Shares”) were be held in escrow, to be released one year after the date of the Closing, provided that 50% such Founders’ Lock-Up Shares were subject to earlier release upon certain milestones being met prior to one year after the date of the Closing. On December 20, 2020, the Founders’ Lock-Up Shares were released from their lock up restriction.

 

The description of the Amended Founders’ Share Escrow Agreement does not purport to summarize all of the provisions of the agreement and is qualified in its entirety by reference to both the full text of such agreement, a copy of which was filed by Twelve Seas as Exhibit 10.3 to the Current Report on Form 8-K, filed by Twelve Seas with the SEC on June 25, 2018 and is incorporated by reference herein as Exhibit 4.9, and by reference to the full text of the amendment to such agreement, a copy of which is attached hereto and incorporated by reference herein as Exhibit 4.74.

 

A&R Founders’ Registration Rights Agreement

 

The Company entered into the Amended and Restated Founders’ Registration Rights Agreement (the “A&R Founders’ Registration Rights Agreement”), dated as of December 20, 2019, by and among the Company, Twelve Seas, Early Bird Capital and the Initial Twelve Seas Shareholders (the Initial Twelve Seas Shareholders and Early Bird Capital, collectively, the “Twelve Seas Insiders” and the securities held by the Twelve Seas Insiders the “Twelve Seas Insider Securities”).

 

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Pursuant to the A&R Founders’ Registration Rights Agreement, the holders of a majority-in-interest of the Twelve Seas Insider Securities are entitled to make demands that the Company register such securities, however the Company is not obligated to effect more than an aggregate of two such demand registrations. With respect to such Twelve Seas Insider Securities which were subject to escrow under the Amended Founders’ Share Escrow Agreement, the holders of the majority-in-interest of the Twelve Seas Insider Securities were entitled to elect to exercise their registration rights at any time commencing two months prior to the date on which such securities were to be released from escrow. With respect to such Twelve Seas Insider Securities which are subject to escrow under the Initial Shareholder Escrow Agreement, the holders of the majority-in-interest of the Twelve Seas Insider Securities can elect to exercise their registration rights when such securities are released from escrow under the Initial Shareholder Escrow Agreement. With respect to such Twelve Seas Insider Securities which are not subject to any escrow, the registration rights may be exercised at any time on or after the date of Closing. Subject to certain exceptions, if the Company proposes to file a registration statement under the Securities Act with respect to the registration of or an offering of equity securities, under the A&R Founders’ Registration Rights Agreement, the Company must give notice to the Twelve Seas Insiders and all other holders of Registrable Securities (as defined in the A&R Founders’ Registration Rights Agreement) as to the proposed filing and offer them an opportunity to register the sale of such number of Registrable Securities as requested by the holders in writing, subject to customary cut-backs. In addition, the A&R Founders’ Registration Rights Agreement provides that subject to certain exceptions, the holders of Registrable Securities shall be entitled to request in writing that the Company register the resale of any or all of such Registrable Securities on Form F-3 or S-3 and any similar short-form registration that may be available at such time. Under the A&R Founders’ Registration Rights Agreement, the Company agreed to indemnify the holders of Registrable Securities and certain persons or entities related to them against any losses or damages resulting from any untrue statement of a material fact or omission of a material fact in any registration statement or prospectus pursuant to which they sell such Registrable Securities, unless such liability arose from the Company’s reliance upon and conformity with information furnished in writing by such holder (or certain persons or entities related to them), for use in such documents. The holders of Registrable Securities will indemnify the Company and certain persons or entities related to the Company, against any losses that arise out of or are based upon such untrue statement of a material fact or omission to state a material fact, in any registration statement or prospectus pursuant to which they sell their Registrable Securities, where they were made (or not made) by the Company in reliance upon and in conformity with information furnished in writing to it by such holder.

 

The description of the A&R Founders’ Registration Rights Agreement does not purport to summarize all of the provisions of the agreement.

 

Seller Escrow Agreement

 

As contemplated by the Business Combination Agreement, at the Closing, 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 Seller Escrow Property by Continental in a separate segregated escrow account (the “Seller Escrow Account”), and released in accordance with the Seller Escrow Agreement.

 

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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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 20th fiscal quarter after the commencement date of the first full fiscal quarter beginning after the Closing:

 

(i)One-half (½) 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 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 10 Trading Days (as defined in the Seller Escrow Agreement) within any 20 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 10 Trading Days within any 20 Trading Day period during the Seller Escrow Period.

 

The Annualized EBITDA for each fiscal quarter is equal to four times the earnings before interest, income taxes, depreciation and amortization of the Company and its subsidiaries, on a consolidated basis, for such fiscal quarter, as determined in accordance with IFRS, consistently applied, but subject to certain adjustments set forth in the Seller Escrow Agreement.

 

At the end of the Seller Escrow Period, if there is any Seller Escrow Property which has not vested and that BPGIC Holdings is not entitled to receive in accordance with the Seller Escrow Agreement and the Business Combination Agreement, such Seller Escrow Property will be forfeited and automatically surrendered by BPGIC Holdings and distributed to the Company from the Seller Escrow Account, for cancellation by the Company. All actions or determinations on behalf of the Company under the Seller Escrow Agreement after the Closing (other than certain reports to be delivered by the Company’s chief financial officer) will be exclusively made and determined by a majority of the independent directors then serving on the Company’s board of directors that are disinterested in the Seller Escrow Property.

 

The description of the Seller Escrow Agreement does not purport to summarize all of the provisions of the agreement and is qualified in its entirety by reference to both the full text of such agreement, a copy of which was filed by Twelve Seas as Exhibit 10.1 to the Current Report on Form 8-K, filed by Twelve Seas with the SEC on May 13, 2019 and is incorporated by reference herein as Exhibit 4.62, and by reference to the full text of the First Amendment to such agreement, a copy of which is attached hereto and incorporated by reference herein as Exhibit 4.71.

 

Initial Shareholder Escrow Agreement

 

As contemplated by the Business Combination Agreement, at the Closing, 1,552,500 of the Company’s Ordinary Shares otherwise issuable to the Initial Twelve Seas Shareholders at the Closing (together with any equity securities paid as dividends or distributions with respect to such Ordinary Shares or into which such Ordinary Shares are exchanged or converted, the “Founders’ Earn-Out Escrow Shares” and together with the Founders’ Lock-Up Shares, the “Founders’ Shares”) were instead issued to the Initial Twelve Seas Shareholders in escrow and are held by Continental, as escrow agent for the benefit of the Initial Twelve Seas Shareholders to be held and controlled, along with any other Founder Escrow Property (as defined in the Initial Shareholder Earn-Out Escrow Agreement and together with the Founders’ Earn-Out Escrow Shares, the “Founders’ Earn-Out Escrow Property”) by Continental in a separate segregated escrow account (the “Founders’ Earn-Out Escrow Account”), and released in accordance with the Escrow Agreement, dated December 20, 2019 by and among the Initial Twelve Seas Shareholders, Continental and the Company (the “Initial Shareholder Escrow Agreement”).

 

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While the Founders’ Earn-Out Escrow Property is held in the Founders’ Earn-Out Escrow Account, the Initial Twelve Seas Shareholders shall have all voting, consent and other rights (other than the rights to dividends, distributions or other income paid or accruing to the Founders’ Earn-Out Escrow Property). The Initial Shareholder Escrow Agreement provides, however, that each Initial Twelve Seas Shareholder shall be permitted to (i) pledge or otherwise encumber such Initial Twelve Seas Shareholder’s portion of the Founders’ Earn-Out Escrow Property as collateral security for documented loans entered into by such Initial Twelve Seas Shareholder, the Company or its subsidiaries, including BPGIC, after the Closing or (ii) transfer its rights to the Founders’ Earn-Out 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 Founders’ Earn-Out Escrow Property shall be subject to the provisions of the Initial Shareholder Escrow Agreement, the Voting Agreement (as applicable) and the Founder Share Letter (as defined in the Initial Shareholder Escrow Agreement), including the forfeiture provisions contained therein, and (b) in the event of a pledge or encumbrance of the Founders’ Earn-Out Escrow Property under clause (i) above, such Initial Twelve Seas Shareholder may transfer such Initial Twelve Seas Shareholder’s portion of the Founders’ Earn-Out Escrow Property to another escrow agent selected by such Initial Twelve Seas Shareholder and reasonably acceptable to the Company.

 

The Founders’ Earn-Out Escrow Property will only become vested and not subject to forfeiture, and released to the Initial Twelve Seas Shareholders (on the same proportional basis) upon the same events and milestones triggering, and at the same time as, the release of the Seller Escrow Property.

 

At the end of the Seller Escrow Period, if there is any Founders’ Earn-Out Escrow Property which has not vested and that the Initial Twelve Seas Shareholders are not entitled to receive in accordance with the Founder Share Letter and the Initial Shareholder Escrow Agreement (which will occur upon a determination being made under the Seller Escrow Agreement and the Business Combination Agreement that forfeitures shall be made with respect to the Seller Escrow Property), such Founders’ Earn-Out Escrow Property will be forfeited and automatically surrendered by the Initial Twelve Seas Shareholders and distributed to the Company from the Founders’ Earn-Out Escrow Account, for cancellation by the Company.

 

In connection with an agreement between Twelve Seas Sponsor and Magnetar Financial LLC and certain of its affiliates (collectively, “Magnetar”) whereby Twelve Seas Sponsor pledged, among other things, its Founders’ Earn-Out Escrow Shares to Magnetar as collateral, the Company agreed that, if the other pledged collateral is not sufficient to cover Twelve Seas Sponsor’s obligations to Magnetar, the Company will waive the escrow release conditions and release up to 100% of Twelve Seas Sponsor’s Founders’ Earn-Out Escrow Shares, as necessary, to cover the remainder of Twelve Seas’ Sponsor’s obligations to Magnetar (such agreement the “Limited Waiver”).

 

The description of the Initial Shareholder Escrow Agreement does not purport to summarize all of the provisions of the agreement and is qualified in its entirety by reference to both the full text of such agreement, a copy of which is attached hereto and incorporated by reference herein as Exhibit 4.76 and the Limited Waiver of such agreement, a copy of which is attached hereto and incorporated by reference herein as Exhibit 4.82.

 

The description of the Limited Waiver does not purport to summarize all of the provisions of the Limited Waiver and is qualified in its entirety by reference to the full text thereof, a copy of which is attached hereto and incorporated by reference herein as Exhibit 4.82.

 

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Seller Registration Rights Agreement

 

Pursuant to the Business Combination Agreement, the Company and BPGIC Holdings entered into a registration rights agreement, dated December 20, 2019 (the “Seller Registration Rights Agreement”), with respect to the Ordinary Shares of the Company received by BPGIC Holdings at the Closing (the “Seller Shares”). Under the Seller Registration Rights Agreement, BPGIC Holdings has registration rights that obligate the Company to register for resale under the Securities Act all or any portion of the Seller Shares (together with any securities issued as a dividend or distribution with respect thereto or in exchange therefor, the “Seller Registrable Securities”), except that the Company is not obligated to register Seller Registrable Securities subject to the Seller Escrow Agreement until they are released from the Seller Escrow Account. The holders of a majority-in-interest of the Seller Registrable Securities are entitled under the Seller Registration Rights Agreement to make written demands for registration under the Securities Act of all or part of their Seller Registrable Securities (provided, however, that the Company is not obligated to effect more than four of such written demands), and the other holders of Seller Registrable Securities will be entitled to join in such demand registration. Subject to certain exceptions, if the Company proposes to file a registration statement under the Securities Act with respect to the registration of or an offering of equity securities, under the Seller Registration Rights Agreement, the Company must give notice to BPGIC Holdings and all other holders of Seller Registrable Securities as to the proposed filing and offer them an opportunity to register the sale of such number of Registrable Securities as requested by the holders in writing, subject to customary cut-backs. In addition, the Seller Registration Rights Agreement provides that subject to certain exceptions, the holders of Seller Registrable Securities shall be entitled under the Seller Registration Rights Agreement to request in writing that the Company register the resale of any or all of such Seller Registrable Securities on Form F-3 or S-3 and any similar short-form registration that may be available at such time. Under the Seller Registration Rights Agreement, the Company agreed to indemnify the holders of Seller Registrable Securities and certain persons or entities related to them, such as their officers, directors, employees, agents and representatives, against any losses or damages resulting from any untrue statement of a material fact or omission of a material fact in any registration statement or prospectus pursuant to which they sell Seller Registrable Securities, unless such liability arose from the Company’s reliance upon and conformity with information furnished in writing by such holder (or certain persons or entities related to them), for use in such documents. The holders of Seller Registrable Securities will indemnify the Company and certain persons or entities related to the Company, such as its officers and directors and underwriters, against any losses that arise out of or are based upon such untrue statement of a material fact or omission to state to material fact, in any registration statement or prospectus pursuant to which they sell their Seller Registrable Securities, where they were made (or not made) by the Company in reliance upon and in conformity with information furnished in writing to it by such holder.

  

In connection with a number of transfers of Ordinary Shares by BPGIC Holdings to certain individual shareholders from July 2020 to September 2020, the Company entered into Joinders to the Seller Registration Rights Agreement with such transferees. As a result, such transferees hold Seller Registrable Securities and have the same rights, and are subject to the same obligations as BPGIC Holdings.

 

The description of the Seller Registration Rights 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 such agreement, a copy of which is attached hereto and incorporated by reference herein as Exhibit 4.75.

 

The description of the Joinders to Seller Registration Rights 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 such agreement, a copy of the form of which is attached hereto and incorporated by reference herein as Exhibit 4.1.

 

Amendment to Warrant Agreement and Rights Agreement

 

On June 19, 2018, Twelve Seas entered into both the Warrant Agreement and the Rights Agreement with Continental, pursuant to which Continental agreed to act as Twelve Seas’ warrant agent with respect to the issuance, registration, transfer, exchange, redemption and exercise of Twelve Seas’ warrants, and to act as Twelve Seas’ rights agent with respect to the issuance, registration, transfer and exchange of Twelve Seas’ rights.

 

On December 20, 2019, the Company, Twelve Seas and Continental entered into the Amendment to Warrant Agreement and Rights Agreement pursuant to which the Company became party to each of the Warrant Agreement and the Rights Agreement and the parties revised the terms of such agreements in order to, among other things, reflect the conversion of each Twelve Seas warrant into a Warrant of the Company having substantially the same terms and conditions as such original Twelve Seas warrant, and each Twelve Seas right converted into 1/10th of one Ordinary Share of the Company.

 

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The description of the Amendment to Warrant Agreement and Rights Agreement does not purport to summarize all of the provisions of the agreements and is qualified in its entirety by reference to the full text of (i) the Warrant Agreement, a copy of which was filed by Twelve Seas as Exhibit 4.1 to the Current Report on Form 8-K, filed by Twelve Seas with the SEC on June 25, 2018 and is incorporated by reference herein as Exhibit 2.3, (ii) the Rights Agreement, a copy of which was filed by Twelve Seas as Exhibit 4.2 to the Current Report on Form 8-K, filed by Twelve Seas with the SEC on June 25, 2018 and is incorporated by reference herein as Exhibit 2.4, and (iii) the Amendment to Warrant Agreement and Rights Agreement, a copy of which is attached hereto and incorporated by reference herein as Exhibit 2.5.

 

Business Combination Marketing Agreement Fee Amendment

 

Twelve Seas engaged Early Bird Capital to assist it in connection with Twelve Seas’ initial business combination. Pursuant to this arrangement, Early Bird Capital assisted Twelve Seas in holding meetings with Twelve Seas shareholders to discuss the Business Combination and BPGIC’s business attributes, introduced Twelve Seas to potential investors that may have been interested in purchasing Twelve Seas’ securities in connection with the Business Combination, assisted Twelve Seas in obtaining shareholder approval for the Business Combination and assisted Twelve Seas with its press releases and certain public filings in connection with the Business Combination. Pursuant to the original agreement, Twelve Seas agreed to pay Early Bird Capital a cash fee equal to 3.5% of the gross proceeds received in its initial public offering for such services upon the consummation of its initial business combination (exclusive of any applicable finders’ fees which might become payable); provided that up to 1.0% of the gross proceeds of initial public offering could be allocated at Twelve Seas’ sole discretion to one or more advisors that assisted Twelve Seas in identifying and consummating an initial business combination. Twelve Seas also agreed to reimburse Early Bird Capital for up to $20,000 of its reasonable costs and expenses incurred by it (including reasonable fees and disbursements of counsel) in connection with the performance of its services pursuant to the agreement; provided, however, all expenses in excess of $5,000 in the aggregate required Twelve Seas’ prior written approval, which approval would not be unreasonably withheld.

 

Pursuant to the Business Combination Agreement, on December 20, 2019, Twelve Seas, Early Bird Capital, and the Company entered into the Business Combination Marketing Agreement Fee Amendment (the “BCMA Fee Amendment”) whereby the Company became party to the Business Combination Marketing Agreement solely with respect to the provision relating to Early Bird Capital’s fees and Early Bird Capital’s fees were amended. Pursuant to the Business Combination Marketing Agreement, as amended by the BCMA Fee Amendment, Early Bird Capital received as full payment for any and all fees under the Business Combination Marketing Agreement, a cash fee equal to $3 million and a $1.5 million non-interest bearing promissory note of the Company due and payable on the earlier of (i) the first anniversary of the Closing and (ii) the consummation by the Company of a follow-on securities offering. After an event of default, the promissory note was to bear interest at the rate of 10% per annum.

 

The promissory note was repaid with proceeds from the Bond Financing Facility.

 

The description of the BCMA Fee Amendment 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 (i) the Business Combination Marketing Agreement, a copy of the form of which was filed by Twelve Seas as Exhibit 1.2 to the Registration Statement on Form S-1/A (File No. 001-225352), filed with the SEC on June 14, 2018 and is incorporated by reference herein as Exhibit 4.15, (ii) the BCMA Fee Amendment, a copy of which is attached hereto and incorporated by reference herein as Exhibit 4.77, and (iii) the $1,500,000 Promissory Note issued to Early Bird Capital, a copy of which is attached hereto and incorporated by reference herein as Exhibit 4.78.

 

Voting Agreement

 

Pursuant to the Business Combination Agreement, BPGIC Holdings and the Initial Twelve Seas Shareholders entered into the Voting Agreement, dated December 20, 2019 in favor of BPGIC Holdings (the “Voting Agreement”). The Voting Agreement applies to the Ordinary Shares and other voting securities of the Company issued to the Initial Twelve Seas Shareholders upon the consummation of the Business Combination (including upon the conversion, exercise, exchange of their securities in Twelve Seas) as well as other securities the Initial Twelve Seas Shareholders acquired or agreed to acquire up to and including the time of Closing (collectively, the “Subject Shares”). The Voting Agreement provides that from and after the Closing until the Voting Agreement terminates with respect to each Initial Twelve Seas Shareholder, at each meeting of the shareholders of the Company and in each written consent or resolutions of the Company shareholders in which an Initial Twelve Seas Shareholder is entitled to vote, consent or approve, such Initial Twelve Seas Shareholder unconditionally and irrevocably agrees to be present for such meeting and vote its Subject Shares (in person or by proxy), as directed by BPGIC Holdings, or consent to any action by written consent or resolution with respect to all such matters, as directed by BPGIC Holdings. The Voting Agreement terminates upon the earlier to occur of (i) the mutual written consent of BPGIC Holdings and the Initial Twelve Seas Shareholders and (ii) with respect to any Initial Twelve Seas Shareholder, automatically on the date such Initial Twelve Seas Shareholder no longer holds any Subject Shares.

 

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The description of the Voting 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 such agreement, a copy of which is attached hereto and incorporated by reference herein as Exhibit 4.72.

 

Transferee Voting Agreement

 

BPGIC Holdings is party a voting agreement with certain persons (each, an “Individual Transferee”) in favor of BPGIC Holdings (each a “Transferee Voting Agreement” and collectively, the “Transferee Voting Agreements”). The Transferee Voting Agreements apply to certain Ordinary Shares transferred to the Individual Transferees (collectively, the “Transferee Subject Shares”). Each Transferee Voting Agreement provides until such Transferee Voting Agreement terminates, at each meeting of the shareholders of the Company and in each written consent or resolutions of the Company’s shareholders in which an Individual Transferee is entitled to vote, consent or approve, such Individual Transferee unconditionally and irrevocably agrees to be present for such meeting and vote its Transferee Subject Shares (in person or by proxy), as directed by BPGIC Holdings, or consent to any action by written consent or resolution with respect to all such matters, as directed by BPGIC Holdings. Each Transferee Voting Agreement terminates upon the earlier to occur of (i) the mutual written consent of BPGIC Holdings and the subject Individual Transferee and (ii) with respect to an Individual Transferee, automatically on the date such Individual Transferee no longer holds any Transferee Subject Shares.

 

The description of the Transferee Voting Agreements 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 such agreement, a copy of the form of which is attached hereto and incorporated by reference herein as Exhibit 4.2.

 

Dividend Waivers

 

Prior to the Closing, BPGIC Holdings, MENA Energy, the Twelve Seas Insiders and certain assignees of Early Bird Capital (collectively the “Waiving Holders”) executed dividend waivers pursuant to which such Waiving Holders waived, for a period of two years from the date of Closing (the “Waiver Term”), their rights to any dividends with respect to (i) the Ordinary Shares received by BPGIC Holdings in exchange for the outstanding equity of BPGIC, (ii) the Founders’ Shares, and (iii) the ordinary shares issued to Early Bird Capital and its affiliates in connection with Twelve Seas’ initial public offering. Each dividend waiver terminates upon the earliest to occur of (i) the expiration of the Waiver Term, and (ii) with respect to the Twelve Seas Insiders and Early Bird Capital, if the Company and/or BPGIC Holdings or MENA Energy modify their waiver of their rights to dividends in any way.

 

The description of the Dividend Waiver does not purport to summarize all of the provisions thereof and is qualified in its entirety by reference to the full text of such waiver, a copy of the form of which is attached hereto and incorporated by reference herein as Exhibit 4.79.

 

Bond Offering Documents

 

In 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. 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 along with the principal installments.

 

The description of the Bond Financing Facility does not purport to summarize all of the provisions of the Bond Financing Facility and is qualified in its entirety by reference to the full text of the Bond Terms dated September 22, 2020, Amendment No. 1 to the Bond Terms dated October 23, 2020 and Amendment No. 2 to the Bond Terms dated April 27, 2022, copies of which are attached hereto and incorporated by reference herein as Exhibits 2.7 and 2.8.

 

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Bond Waiver letter

 

On April 27, 2022, the Group entered into an agreement with the Bondholders to implement following amendments to the Bond Financing Facility, effective immediately:

 

(a)Waiver of the Events of Defaults that are triggered by the technical breaches of the Leverage Ratio and positive Working Capital covenants until December 31, 2022.

 

(b)The requirement to maintain a Leverage Ratio to not exceed certain thresholds is suspended (waived) for the results period from December 31, 2021 to and including December 30, 2022, and shall be tested again for the 12 months results period from (and including) January 1, 2022 to December 31, 2022 (inclusive) at 3.5x, stepping down to 3.0x anytime thereafter (as per the original terms of the Bond Financing Facility). For the avoidance of doubt, the costs associated with the amendments shall not be taken into consideration in EBITDA when calculating Leverage Ratio.

 

(c)The requirement to maintain a positive Working Capital is suspended (waived) for the period from December 31, 2021 to and including December 30, 2022, and shall be tested again starting from and including December 31, 2022.

 

(d)Permitted Distribution:

 

(i)No Permitted Distribution shall be made before BPGIC is in compliance with financial covenant requirements under the original terms of the Bond Facility Financing.

 

(ii)Furthermore, BPGIC shall provide to the Bond Trustee a written statement signed by its chief executive officer and chief financial officer within three business days prior to any permitted distribution under the terms of the Bond Financing Facility that (A) states the amount being distributed as a permitted distribution, (B) confirms the conditions with respect to such distribution are satisfied, and (C) declares such distribution will not lead to an Event of Default on the next testing date.

 

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 the 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.

 

Phase III Land Lease

 

On February 2, 2020, BPGIC entered into the Phase III Land Lease to secure the Phase III Land. 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 will be $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 Dirhams 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.

 

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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].

 

Land Preparation Contract for Phase III

 

On December 5, 2022, BPGIC and BPGIC III signed a land preparation work contract with Audex, for the design and execution of the early preparation works for the Phase III land and for the terminal connectivity.

 

Preliminary Land Lease Agreement

 

As a first step in BRE’s planned Green Hydrogen and Green Ammonia Project, BRE has signed in June 2022, a preliminary land lease agreement for a 150,000 square meter plot in Abu Dhabi that will host the plant on a land plot with good access to the sea allowing for export of the produced products to its offtakers.

 

Term Loan

 

During the year, 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 a 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. Subsequent to the year end on February 28, 2022, the Company has made a drawdown from the term loan facility.

 

The description of the Term Loan Facility does not purport to summarize all of the provisions of the Term Loan Facility and is qualified in its entirety by reference to the full text of the Terms dated October 6, 2021, copy of which are attached hereto and incorporated by reference herein as Exhibits [2.7] and [2.8].

 

D. Exchange Controls and Other Limitations Affecting Security Holders

 

Under the laws of the Cayman Islands, there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions that affect the remittance of dividends, interest or other payments to nonresident holders of our Ordinary Shares.

 

E. Taxation

 

The following description is not intended to constitute a complete analysis of all tax consequences relating to the ownership and disposition of our securities. You should consult your own tax advisor concerning the tax consequences of your particular situation, as well as any tax consequences that may arise under the laws of any state, local, foreign or other taxing jurisdiction.

 

United States of America

 

This section is addressed to U.S. Holders of ordinary shares of the Company. Unless otherwise indicated, “ordinary shares” refers to ordinary shares of the Company.

 

Taxation of Dividends and Other Distributions on Ordinary Shares

 

Subject to the passive foreign investment company rules discussed below, the gross amount of distributions made by the Company to you with respect to its ordinary shares (including the amount of any taxes withheld therefrom) will generally be includable in your gross income as dividend income on the date of receipt by you, but only to the extent that the distribution is paid out of the Company’s current or accumulated earnings and profits (as determined under U.S. federal income tax principles). With respect to corporate U.S. Holders, the dividends will generally not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations.

 

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With respect to non-corporate U.S. Holders, including individual U.S. Holders, dividends will be taxed at the lower capital gains rate applicable to qualified dividend income, provided that (1) our ordinary shares are readily tradable on an established securities market in the United States, or the Company is eligible for the benefits of an approved qualifying income tax treaty with the United States that includes an exchange of information program, (2) the Company is not a passive foreign investment company (as discussed below) for either the taxable year in which the dividend is paid or the preceding taxable year, and (3) certain holding period requirements are met. You are urged to consult your tax advisors regarding the availability of the lower rate for dividends paid with respect to the Company’s ordinary shares.

 

To the extent that the amount of the distribution exceeds the Company’s current and accumulated earnings and profits (as determined under U.S. federal income tax principles), it will be treated first as a tax-free return of your tax basis in your ordinary shares, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain. We do not intend to calculate the Company’s earnings and profits under U.S. federal income tax principles.

 

Therefore, a U.S. Holder should expect that a distribution will be treated as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.

 

Taxation of Dispositions of the Company’s Ordinary Shares

 

Subject to the passive foreign investment company rules discussed below, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of a Company ordinary share equal to the difference between the amount realized (in US dollars) for the ordinary share and your tax basis (in US dollars) in the ordinary share. The gain or loss will be capital gain or loss. If you are a non-corporate U.S. Holder, including an individual U.S. Holder, who has held the ordinary shares for more than one year, you may be eligible for reduced tax rates on any such capital gains. The deductibility of capital losses is subject to limitations.

 

Passive Foreign Investment Company

 

A foreign (i.e., non-U.S.) corporation will be a PFIC for U.S. tax purposes if at least 75% of its gross income in a taxable year of such foreign corporation, including its pro rata share of the gross income of any corporation in which it is considered to own at least 25% of the shares by value, is passive income. Alternatively, a foreign corporation will be a PFIC if at least 50% of its assets in a taxable year, ordinarily determined based on fair market value and averaged quarterly over the year, including its pro rata share of the assets of any corporation in which it is considered to own at least 25% of the shares by value, are held for the production of, or produce, passive income. Passive income generally includes dividends, interest, rents and royalties (other than certain rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets. In determining the value and composition of its assets for purposes of the PFIC asset test, (1) the cash the Company owns at any time will generally be considered to be held for the production of passive income and (2) the value of the Company’s assets must be determined based on the market value of its ordinary shares from time to time, which could cause the value of its non-passive assets to be less than 50% of the value of all of its assets (including cash) on any particular quarterly testing date for purposes of the asset test.

 

A determination as to whether the Company is a PFIC with respect to any particular tax year will be made following the end of such tax year. If the Company is a PFIC for any year during which you hold the Company’s ordinary shares, it will continue to be treated as a PFIC for all succeeding years during which you hold ordinary shares. However, if the Company ceases to be a PFIC and you did not previously make a timely “mark-to-market” election as described below, you may avoid some of the adverse effects of the PFIC regime by making a “purging election” (as described below) with respect to the ordinary shares.

 

If the Company is determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. Holder of the Company securities and, in the case of the ordinary shares, the U.S. Holder did not make a timely “mark-to-market” election, as described below, such holder generally will be subject to special rules for regular U.S. federal income tax purposes with respect to:

 

  any gain recognized by the U.S. Holder on the sale or other disposition of the Company securities; and

 

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  any “excess distribution” made to the U.S. Holder (generally, any distributions to such U.S. Holder during a taxable year of the U.S. Holder that are greater than 125% of the average annual distributions received by such U.S. Holder in respect of the Company securities during the three preceding taxable years of such U.S. Holder or, if shorter, such U.S. Holder’s holding period for such securities).

 

Under these rules,

 

  the U.S. Holder’s gain or excess distribution will be allocated ratably over the U.S. Holder’s holding period for such securities;

 

  the amount allocated to the U.S. Holder’s taxable year in which the U.S. Holder recognized the gain or received the excess distribution, or to the period in the U.S. Holder’s holding period before the first day of the Company’s first taxable year in which it is a PFIC, will be taxed as ordinary income;

 

  the amount allocated to other taxable years (or portions thereof) of the U.S. Holder and included in its holding period will be taxed at the highest tax rate in effect for that year and applicable to the U.S. Holder; and

 

  the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such other taxable year(s) of the U.S. Holder.

 

If a U.S. Holder, at the close of its taxable year, owns (or is deemed to own) shares in a PFIC that are treated as marketable shares, the U.S. Holder may make a “mark-to-market” election with respect to such shares for such taxable year. If the U.S. Holder makes a valid mark-to-market election for the first taxable year of the U.S. Holder in which the U.S. Holder holds (or is deemed to hold) Company ordinary shares and for which the Company is determined to be a PFIC, such holder generally will not be subject to the PFIC rules described above in respect to its ordinary shares as long as such shares continue to be treated as marketable shares. Instead, in general, the U.S. Holder will include as ordinary income each year that the Company is treated as a PFIC the excess, if any, of the fair market value of such U.S. Holder’s ordinary shares at the end of its taxable year over the adjusted basis in its ordinary shares. The U.S. Holder also will be allowed to take an ordinary loss in respect of the excess, if any, of the adjusted basis of its Ordinary Shares over the fair market value of such shares at the end of the U.S. Holder’s taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market election). The U.S. Holder’s adjusted tax basis in its ordinary shares will be adjusted to reflect any such income or loss amounts, and any further gain recognized on a sale or other taxable disposition of the shares in a taxable year in which the Company is treated as a PFIC will be treated as ordinary income. Special tax rules may also apply if a U.S. Holder makes a mark-to-market election for a taxable year after the first taxable year in which the U.S. Holder holds (or is deemed to hold) ordinary shares and for which the Company is treated as a PFIC.

 

The mark-to-market election is available only for stock that is regularly traded on a national securities exchange that is registered with the Securities and Exchange Commission, including the Nasdaq Capital Market, or on a foreign exchange or market that the IRS determines has rules sufficient to ensure that the market price represents a legitimate and sound fair market value. U.S. Holders should consult their own tax advisors regarding the availability and tax consequences of a mark-to-market election in respect to the Company’s ordinary shares under their particular circumstances.

 

Alternatively, a U.S. Holder of stock in a PFIC may make a “qualified electing fund” election with respect to such PFIC to elect out of the tax treatment discussed above. A U.S. Holder who makes a valid qualified electing fund election with respect to a PFIC will generally include in gross income for a taxable year such holder’s pro rata share of the corporation’s earnings and profits for the taxable year. However, the qualified electing fund election is available only if such PFIC provides such U.S. Holder with certain information regarding its earnings and profits as required under applicable U.S. Treasury regulations. The Company does not currently intend to prepare or provide the information that would enable you to make a qualified electing fund election. If you hold ordinary shares in any taxable year in which the Company is a PFIC, you will be required to file U.S. Internal Revenue Service Form 8621 in each such year and provide certain annual information regarding such ordinary shares, including regarding distributions received on the ordinary shares and any gain realized on the disposition of the ordinary shares.

 

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If you do not make a timely “mark-to-market” election (as described above), and if the Company were a PFIC at any time during the period you hold its ordinary shares, then such ordinary shares will continue to be treated as stock of a PFIC with respect to you even if the Company ceases to be a PFIC in a future year, unless you make a “purging election” for the year we cease to be a PFIC. A “purging election” creates a deemed sale of such ordinary shares at their fair market value on the last day of the last year in which the Company is treated as a PFIC. The gain recognized by the purging election will be subject to the special tax and interest charge rules treating the gain as an excess distribution, as described above. As a result of the purging election, you will have a new basis (equal to the fair market value of the ordinary shares on the last day of the last year in which the Company is treated as a PFIC) and holding period (which new holding period will begin the day after such last day) in your ordinary shares for tax purposes.

 

The rules dealing with PFICs and with the QEF and mark-to-market elections are very complex and are affected by various factors in addition to those described above. Accordingly, you are urged to consult your tax advisors regarding the application of the PFIC rules to your investment in the Company’s ordinary shares and the elections discussed above.

 

Information Reporting and Backup Withholding

 

Certain U.S. Holders are required to report information to the IRS relating to an interest in “specified foreign financial assets,” including shares issued by a non-U.S. corporation, for any year in which the aggregate value of all specified foreign financial assets exceeds US$50,000 (or a higher dollar amount prescribed by the IRS), subject to certain exceptions (including an exception for shares held in custodial accounts maintained with a United States financial institution). These rules also impose penalties if a U.S. Holder is required to submit such information to the IRS and fails to do so.

 

Dividend payments with respect to the Company’s ordinary shares and proceeds from the sale, exchange or redemption of the Company’s ordinary shares may be subject to information reporting to the IRS and possible U.S. backup withholding at a current rate of 24%. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification on IRS Form W-9 or who is otherwise exempt from backup withholding. U.S. Holders who are required to establish their exempt status generally must provide such certification on IRS Form W-9. U.S. Holders are urged to consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.

 

Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the appropriate claim for refund with the IRS and timely furnishing any required information. Transactions effected through certain brokers or other intermediaries may be subject to withholding taxes (including backup withholding), and such brokers or intermediaries may be required by law to withhold such taxes.

 

F. Dividends and Paying Agents

 

Not Applicable

 

G. Statement by Experts

 

Not Applicable.

 

H. Documents on Display

 

We are subject to certain of the informational filing requirements of the Exchange Act. 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 SEC also maintains a website at http://www.sec.gov that contains reports and other information that we file with or furnish electronically with the SEC. You may read and copy any report or document we file, including the exhibits, at the SEC’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room.

 

I. Subsidiary Information

 

Not applicable.

 

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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

A. Market Risk Disclosures

 

The main risks arising from the Company’s financial instruments are price risk, capital risk, interest rate risk, credit risk, currency risk and liquidity risk. The Senior Management team reviews and agrees on policies for managing each of these risks, which are summarized below. The Company’s instruments are entered into for purposes other than trading purposes.

 

B. Price Risk

 

The Company’s activities expose it to the financial risks of changes in interest rates and price risk of the Warrants. As the Warrants are recognised at fair value on the consolidated statement of financial position of the Company, the Company’s exposure to market risks results from the volatility of the Warrants price. The Warrants are publicly traded on the Nasdaq Capital Market.

 

C. Capital Risk

 

The Company’s objective when managing capital is to safeguard its ability to continue as a going concern in order to provide returns for holders of Ordinary Shares and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

 

The Company’s capital structure consists of shareholders’ equity and debt, which as disclosed in the audited financial information for the period ended December 31, 2022 includes the borrowings under the Financing Facilities while excluding derivative financial liabilities.

 

Consistent with others in the industry, the Company monitors its debt levels including covenants contained within its financing facilities.

 

D. Interest Rate Risk

 

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

 

The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s balances with banks and interest bearing loans and borrowings at variable rates. However, currently, our bonds are not linked to any fluctuating rates and hence we do not anticipate a change in the rates. Also, the bonds currency is in US dollars and our expenses are in local AED currency. But since the currencies are pegged, we do not expect any major exchange rate fluctuations as well.

 

The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with other variables held constant, of the Group’s profit for one year corresponding to the impact of the floating rate borrowings for one year. The effect of the interest rate swap has been excluded from the sensitivity as the Group does not apply hedge accounting.

 

    Effect on
profit
USD
 
2021      
+40 increase in basis points   Not Applicable  
-40 decrease in basis points   Not Applicable  
2020      
+40 increase in basis points   Not Applicable  
-40 decrease in basis points   Not Applicable

E. Credit Risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Group is exposed to credit risk on bank balances and receivables as reflected in the consolidated statement of financial position, with a maximum exposure equal to the carrying amount of these instruments. The expected credit loss on trade and other receivables are considered insignificant for 2022. 

The Group has a low credit risk exposure on its trade receivables based on established policy, procedures and controls relating to customer credit risk management. Credit quality of the customer is assessed as part of contract negotiations. Outstanding receivables are regularly monitored. The Group had only five customers as at December 31, 2022. 

F. Currency Risk

The Company does not have any significant exposure to currency risk as most of its contracts, cash activities and financing arrangements are denominated in US dollars or AED, which is the currency of the UAE and pegged to the US dollar.

 G. Liquidity Risk

The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers projected financing requirements of the Group during the construction phase and cash projections from operations with outstanding bank facilities and outstanding bank commitments as defined under the finance documents. 

The Group manages its liquidity risk in relation to term loans to ensure compliance with all covenants for each specific facility. 

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The table below summarizes the maturity profile of the Group’s financial liabilities at December 31, 2022 based on contractual undiscounted payments.

 

   On Demand   Up to 1 Year   1-5 Years   >5 Years   Total 
   ($)   ($)   ($)   ($)   ($) 
December 31, 2022                    
Borrowings (incl. accrued interest)   171,343,445    396,134    1,782,603    -    173,522,182 
Lease Liability   -    5,428,131    17,164,474    68,280,806    90,873,411 
Accounts payable, accruals & other payables (excl. accrued interest)   -    93,903,217    -    -    93,903,217 
Total Due from Related Parties   171,343,445    99,727,482    18,947,077    68,280,806    358,298,810 
                          
December 31, 2021                         
Borrowings (incl. accrued interest)   182,781,617    -    -    -    182,781,617 
Lease Liability   -    5,978,847    18,899,037    64,903,296    89,781,180 
Accounts payable, accruals & other payables (excl. accrued interest)   -    86,300,281    -    -    86,300,281 
Total Due from Related Parties   182,781,617    92,279,128    18,899,037    64,903,296    358,863,078 
                          
December 31, 2020                         
Term Loans (incl. accrued interest)   -    11,250,000    180,014,715    -    191,264,715 
Lease Liability   -    6,586,405    20,812,094    60,113,234    87,511,733 
Accounts payable, accruals & other payables (excl. accrued interest)   -    84,928,254    -    -    84,928,254 
Total Due from Related Parties   -    102,764,659    200,826,809    60,113,234    363,704,702 
                          
December 31, 2019                         
Term Loans (incl. accrued interest)   -    17,834,569    33,610,603    40,550,347    91,995,519 
Lease Liability   -    2,359,590    9,919,810    213,469,800    225,749,200 
Derivative financial Instruments   -    1,518,249    -    -    1,518,249 
Accounts payable, accruals & other payables (excl. accrued interest)   -    115,633,080    -    -    115,633,080 
Total Due from Related Parties   -    137,345,488    43,530,413    254,020,147    434,896,048 
                          
December 31, 2018                         
Bank overdraft   3,745,048    -    -    -    3,745,048 
Term Loans (incl. accrued interest)   95,702,779    -    -    -    95,702,779 
Lease Liability   -    2,313,324    9,725,304    216,023,896    228,062,524 
Derivative financial Instruments   -    1,190,073    -    -    1,190,073 
Accounts payable, accruals & other payables (excl. accrued interest)   -    35,946,217    -    -    35,946,217 
Total Due from Related Parties   99,447,827    39,449,614    9,725,304    216,023,896    364,646,641 

 

The derivative warrant liabilities have not been included in the table above as there is no requirement to settle the Warrants in cash.

 

H. Operations Risk

 

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. Management believes that the amount of coverage provided is comprehensive and appropriate for the Company’s type of business and meets the standard requirements to comply with all statutory requirements.

 

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 

Not applicable.

 

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PART II

 

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

 

As of December 31, 2021, the Company was in technical breach of the requirements to comply with the leverage ratio and working capital thresholds. Even though the lenders 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, the Group has classified the respective bonds as a current liability at the end of December 31, 2021. Subsequent to the year end, the lenders have confirmed their intention to not require immediate repayment of the outstanding amounts or alter the repayment pattern in the original bond agreement. In April 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 the 12-month period from December 31 2021 to 31 December 2022.

 

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 the 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.

 

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

 

None

 

ITEM 15. CONTROLS AND PROCEDURES

 

(a) Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Interim Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, with a company have been detected. Based on their evaluation, our Interim Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) under the Exchange Act), were not effective to provide reasonable assurance described above as of December 31, 2022 due to the material weaknesses in our internal control over financial reporting described below in Management’s annual report on internal control over financial reporting.

 

(b) Management’s annual report on internal control over financial reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting, as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act, is a process designed by, or under the supervision of, our Interim Chief Executive Officer and Chief Financial Officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that:

 

  pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

 

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  provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our board of directors; and

 

  provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

 

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be circumvented by collusion or improper override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process, and it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

 

There are material weaknesses in the Company’s internal control over financial reporting as of December 31, 2022. A material weakness is 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 our annual or interim 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. These material weaknesses could allow errors to go undetected and resulted in corrected and uncorrected audit misstatements.

 

Remediation Activities

 

In order to address the material weaknesses in internal control over financial reporting described above, management has begun the process of developing a remediation plan to start addressing 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) engaged a third party to prepare standard operating procedures for the Company.

 

In this regard, the Company has, and will continue 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 material weaknesses will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

 

(c) Attestation report of the registered public accounting firm.

 

This annual report does not include an attestation report of our registered public accounting firm due to an exemption established by the rules of the SEC for emerging growth companies.

 

(d) Changes in internal control over financial reporting

 

For the years from 2018 to December 2022, there were no material change in our internal control over financial reporting that occurred during the period covered by this Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

In December 2022, the Group appointed a new management team who are overseeing the upgrading and improving of internal controls over financial reporting.

 

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ITEM 16 [RESERVED]

 

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

 

Our board of directors has determined that Tony Boutros qualifies as an “audit committee financial expert,” as that term is defined in Item 16A of Form 20-F and is independent. See “Item 6.A Directors, Senior Management and Employees—Directors and Executive Officers” for Mr. Boutros’s experience and qualifications.

 

ITEM 16B. CODE OF ETHICS

 

The Company has a Code of Ethics and Business Conduct, which establishes the practices that apply to all of our executive officers, directors and employees. The Code of Ethics and Business Conduct codifies the business and ethical principles that will govern all aspects of the Company’s business. A copy of the Company’s Code of Ethics and Business Conduct is filed herewith as an exhibit.

 

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

Our audit committee has reviewed and discussed with management the audited financial statements for the year ended December 31, 2022. Our audit committee also discussed all the matters required by professional auditing standards to be discussed with our independent registered public accounting firm, Affiniax A A S Auditors, the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board and the SEC. In addition, the audit committee has received from our independent registered public accounting firm written disclosure required by the Public Company Accounting Oversight Board Ethics and Independence Rule 3526, and has discussed with our independent registered public accounting firm its independence from the Company and its management. Based on its review and discussions, including discussions without management or members of the independent registered public accounting firm present, our audit committee recommended to our board of directors, and our board of directors has approved, that the audited financial statements be included in our Annual Report on Form 20-F for the year ended December 31, 2022.

 

The following table shows total fees for services rendered to the Group by its independent registered public accounting firms for the years ended December 31.

 

   Year Ended December 31 
   2018   2019   2020       
   Restated   Restated   Restated   2021   2022 
   ($)   ($)   ($)   ($)   ($) 
Audit Fees   219,996    600,410    497,015    701,518    507,800 
Audit-Related Fees   -    -    -    -    - 
Tax Fees   -    -    -    -    - 
All Other Fees   -    -    -    -    - 
Total   219,996    600,410    497,015    701,518    507,800 

 

Pre-approval Policy

 

To safeguard the continued independence of the Company’s independent registered public accounting firm, our audit committee has established a policy which requires all audit and non-audit services, subject to a de minimis exception pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X, to be performed by the Company’s independent registered public accounting firm, to be pre-approved by the audit committee prior to such services being performed. The policy also prohibits the Company’s independent registered public accounting firm from providing any services which would impair the accounting firm’s independence. The audit committee does not delegate to management its responsibilities to pre-approve services.

 

All audit services performed by the Company’s independent registered public accounting firm during the year ended December 31, 2022 were approved by our board of directors following recommendation of such approval by the audit committee.

 

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ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

 

Not applicable.

 

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

 

Not applicable.

 

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

 

Previously reported.

 

ITEM 16G. CORPORATE GOVERNANCE

 

As a foreign private issuer, the Company may generally follow home country practice with respect to certain matters of corporate governance in lieu of the comparable governance provisions of the NASDAQ Listing Rules, except for certain matters including the composition and responsibilities of the audit committee and the independence of its members within the meaning of the rules and regulations of the SEC.

 

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.

 

  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. 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 will follow Cayman Islands practice which 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, warrants and convertible notes.

 

ITEM 16H. MINE SAFETY DISCLOSURE

 

Not applicable.

 

ITEM 16I. DISCLOSURE ABOUT FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

 

Not applicable.

 

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PART III

 

ITEM 17. FINANCIAL STATEMENTS

 

See Item 18.

 

ITEM 18. FINANCIAL STATEMENTS

 

The consolidated financial statements of the Company, together with the report of the independent registered public accounting firm are included as the “F” pages to this Report.

 

ITEM 19. EXHIBITS

 

EXHIBIT INDEX

 

Exhibit No.   Description
1.1   Amended and Restated Memorandum and Articles of Association of Brooge Energy Limited (incorporated by reference to Exhibit 1.1 of Brooge Energy Limited’s Annual Report on Form 20-F (File No. 001-39171), filed with the SEC on June 30, 2020).
     
2.1   Specimen Ordinary Share Certificate of Brooge Energy Limited (incorporated by reference to Exhibit 2.1 of Brooge Energy Limited’s Annual Report on Form 20-F (File No. 001-39171), filed with the SEC on June 30, 2020).
     
2.2   Specimen Warrant Certificate of Brooge Energy Limited (incorporated by reference to Exhibit 2.2 of Brooge Energy Limited’s Annual Report on Form 20-F (File No. 001-39171), filed with the SEC on June 30, 2020).
     
2.3   Warrant Agreement, dated June 19, 2018, between Continental Stock Transfer & Trust Company and Twelve Seas Investment Company (incorporated by reference to Exhibit 4.1 of Twelve Seas Investment Company’s Form 8-K (File No. 001-38540), filed with the SEC on June 25, 2018).
     
2.4   Rights Agreement, dated June 19, 2018, between Twelve Seas Investment Company and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.2 of Twelve Seas Investment Company’s Form 8-K (File No. 001-38540), filed with the SEC on June 25, 2018).
     
2.5   Amendment to Warrant Agreement and Rights Agreement, dated as of December 20, 2019, by and among Continental Stock Transfer & Trust Company, Twelve Seas Investment Company, and Brooge Holdings Limited. (incorporated by reference to Exhibit 2.5 of Brooge Energy Limited’s Shell Company Report on Form 20-F (File No. 001-39171), filed with the SEC on December 30, 2019).
     
2.6   Description of the Registrant’s Securities (incorporated by reference to Exhibit 2.6 of Brooge Energy Limited’s Annual Report on Form 20-F (File No. 001-39171), filed with the SEC on June 30, 2020).

 

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2.7   Bond Terms, dated September 22, 2020, between Brooge Petroleum and Gas Investment Company FZE and Nordic Trustee AS (incorporated by reference to Exhibit 4.7 of Brooge Energy Limited’s Post-Effective Amendment No. 1 to Registration Statement on Form F-1 (File No. 333-248068) filed with the SEC on February 4, 2021).
     
2.8   Amendment Agreement No. 1, dated October 23, 2020 to Bond Terms between Brooge Petroleum and Gas Investment Company FZE and Nordic Trustee AS (incorporated by reference to Exhibit 4.8 of Brooge Energy Limited’s Post-Effective Amendment No. 1 to Registration Statement on Form F-1 (File No. 333-248068) filed with the SEC on February 4, 2021).
     
4.1   Form of Joinder to Seller Registration Rights Agreement (incorporated by reference to Exhibit 10.111 of Brooge Energy Limited’s Post-Effective Amendment No. 1 to Registration Statement on Form F-1 (File No. 333-248068) filed with the SEC on February 4, 2021).
     
4.2   Form of Transferee Voting Agreement (incorporated by reference to Exhibit 10.112 of Brooge Energy Limited’s Post-Effective Amendment No. 1 to Registration Statement on Form F-1 (File No. 333-248068) filed with the SEC on February 4, 2021).
     
4.3   Letter Agreement, dated June 19, 2018, by and between Twelve Seas and Twelve Seas Sponsors I LLC (incorporated by reference to Exhibit 10.5 of Twelve Seas’ Form 8-K (File No. 001-38540), filed with the SEC on June 25, 2018).
     
4.4   Letter Agreement, dated June 19, 2018, by and between Twelve Seas and Dimitri Elkin (incorporated by reference to Exhibit 10.6 of Twelve Seas’ Form 8-K (File No. 001-38540), filed with the SEC on June 25, 2018).
     
4.5   Letter Agreement, dated June 19, 2018, by and between Twelve Seas, Gregory A. Stoupnitzky and Suneel G. Kaji (incorporated by reference to Exhibit 10.7 of Twelve Seas’ Form 8-K (File No. 001-38540), filed with the SEC on June 25, 2018).
     
4.6   Letter Agreement, dated June 19, 2018, by and between Twelve Seas, Neil Richardson, Stephen A. Vogel, Bryant B. Edwards and Stephen N. Cannon (incorporated by reference to Exhibit 10.8 of Twelve Seas’ Form 8-K (File No. 001-38540), filed with the SEC on June 25, 2018).
     
4.7   Investment Management Trust Account Agreement, dated June 19, 2018, between Continental Stock Transfer & Trust Company and Twelve Seas (incorporated by reference to Exhibit 10.1 of Twelve Seas’ Form 8-K (File No. 001-38540), filed with the SEC on June 25, 2018).
     
4.8   Registration Rights Agreement, dated June 19, 2018, among Twelve Seas, Twelve Seas Sponsors I LLC, Gregory Stoupnitzky, Suneel G. Kaji and EarlyBirdCapital, Inc. (incorporated by reference to Exhibit 10.2 of Twelve Seas’ Form 8-K (File No. 001-38540), filed with the SEC on June 25, 2018).
     
4.9   Share Escrow Agreement, dated June 19, 2018, by and among Twelve Seas, Twelve Seas Sponsors I LLC, Gregory Stoupnitzky, Suneel G. Kaji and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 10.3 of Twelve Seas’ Form 8-K (File No. 001-38540), filed with the SEC on June 25, 2018).
     
4.10   Rights Agreement, dated June 19, 2018, between Twelve Seas and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.2 of Twelve Seas’ Form 8-K (File No. 001-38540), filed with the SEC on June 25, 2018).
     
4.11   Securities Subscription Agreement, dated December 11, 2017, between Twelve Seas and Twelve Seas Sponsors I LLC (incorporated by reference to Exhibit 10.5 of Twelve Seas’ Form S-1 (File No. 333-225352), filed with the SEC on June 1, 2018).
     
4.12   Amended and Restated Unit Subscription Agreement, dated June 19, 2018, by and between the Registrant and the Initial Shareholders for founders’ units (incorporated by reference to Exhibit 10.4 of Twelve Seas’ Form 8-K (File No. 001-38540), filed with the SEC on June 25, 2018).
     
4.13   Form of Indemnity Agreement (incorporated by reference to Exhibit 10.9 of Twelve Seas’ Form S-1/A (File No. 333-225352), filed with the SEC on June 14, 2018).

 

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4.14   Administrative Services Agreement, dated June 19, 2018, between Twelve Seas and Twelve Seas Capital, Inc. (incorporated by reference to Exhibit 10.9 of Twelve Seas’ Form 8-K (File No. 001-38540), filed with the SEC on June 25, 2018).
     
4.15   Form of Business Combination Marketing Agreement between Twelve Seas and EarlyBirdCapital, Inc. (incorporated by reference to Exhibit 1.2 of Twelve Seas’ Form S-1/A (File No. 001-225352), filed with the SEC on June 14, 2018). 
     
4.16   Letter Agreement, dated as of April 15, 2019, by and among Twelve Seas Investment Company, Brooge Petroleum And Gas Investment Company FZE, Twelve Seas Sponsors I LLC, Suneel G. Kaji and Gregory Stoupnitzky (incorporated by reference to Exhibit 10.1 of Twelve Seas’ Form 8-K (File No. 001-38540), filed with the SEC on April 19, 2019).
     
4.17   Sponsor Promissory Note, dated December 11, 2017 (incorporated by reference to Exhibit 10.7 of Twelve Seas’ Form S-1 (File No. 333-225352), filed with the SEC on June 1, 2018).
     
4.18   Sponsor Promissory Note, dated April 4, 2019 (incorporated by reference to Exhibit 10.1 of Twelve Seas’ Form 8-K (File No. 001-38540), filed with the SEC on April 5, 2019).
     
4.19   Land Lease Agreement, dated March 10, 2013, by and between Fujairah Municipality and Brooge Petroleum & Gas Investment Company FZC (incorporated by reference to Exhibit 10.20 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.20   Novation Agreement, dated September 1, 2014, by and among Fujairah Municipality, Fujairah Oil Industry Zone, and Brooge Petroleum & Gas Investment Company FZC (incorporated by reference to Exhibit 10.21 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.21   Access to and Use of Port Facilities Agreement, undated, by and between Port of Fujairah and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.22 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.22*   Offer Letter, dated April 6, 2014, by and between National Bank of Abu Dhabi, PJSC-Islamic Banking Division and BPGIC (incorporated by reference to Exhibit 10.23 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.23   Offer Letter (Addendum), dated July 24, 2014, by and between National Bank of Abu Dhabi, PJSC-Islamic Banking Division and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.24 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.24   Offer Letter (Addendum), dated November 13, 2014, by and between National Bank of Abu Dhabi, PJSC-Islamic Banking Division and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.25 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.25   Offer Letter (Addendum), dated December 31, 2014, by and between National Bank of Abu Dhabi, PJSC-Islamic Banking Division and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.26 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.26*   No Objection Letter in Respect of the Oil Storage Terminal Project, dated April 13, 2015, by and between Fujairah Oil Industry Zone and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.27 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.27   Offer Letter (Addendum), dated June 24, 2015, by and between National Bank of Abu Dhabi, PJSC-Islamic Banking Division and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.28 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).

 

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4.28   Master Istisna’ Agreement, dated June 29, 2015, by and between National Bank of Abu Dhabi, PJSC-Islamic Banking Division and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.29 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.29*   Offer Letter, dated June 29, 2015 by and between National Bank of Abu Dhabi, PJSC-Islamic Banking Division and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.30 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.30   Master Forward Lease Agreement, dated June 29, 2015, by and between National Bank of Abu Dhabi, PJSC-Islamic Banking Division and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.31 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.31   Forward Lease, dated June 29, 2015, by and between National Bank of Abu Dhabi, PJSC-Islamic Banking Division and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.32 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.32*   Common Terms Agreement, dated June 29, 2015, by and between National Bank of Abu Dhabi, PJSC-Islamic Banking Division and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.33 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.33   Commercial Mortgage, dated June 29, 2015, by and between National Bank of Abu Dhabi, PJSC-Islamic Banking Division and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.34 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.34   Assignment of Contracts, dated June 29, 2015, by and between National Bank of Abu Dhabi, PJSC-Islamic Banking Division and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.35 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.35*   Investment Agency Agreement, dated June 29, 2015, by and between National Bank of Abu Dhabi, PJSC-Islamic Banking Division and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.36 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.36   Service Agency Agreement, dated June 29, 2015, by and between National Bank of Abu Dhabi, PJSC-Islamic Banking Division and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.37 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.37   Purchase Undertaking, dated June 29, 2015, by and between National Bank of Abu Dhabi, PJSC-Islamic Banking Division and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.38 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.38   Sale Undertaking, dated June 29, 2015, by and between National Bank of Abu Dhabi, PJSC-Islamic Banking Division and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.39 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.39   Seller Option Deed, dated June 29, 2015, by and between National Bank of Abu Dhabi, PJSC-Islamic Banking Division and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.40 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).

 

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4.40*   Account Pledge and Assignment, dated June 29, 2015, by and between National Bank of Abu Dhabi, PJSC-Islamic Banking Division and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.41 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.41   Conditional Waiver Letter, dated June 29, 2015 by and between National Bank of Abu Dhabi, PJSC-Islamic Banking Division and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.42 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.42*   Common User Pipe Rack 3 Concession Agreement, dated March 31, 2016, by and between Port of Fujairah and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.43 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).

 

4.43*   The Service Agreement, dated April 1, 2017, by and between Brooge Petroleum and Gas Investment Company and Flowi Facility Management LLC (incorporated by reference to Exhibit 10.44 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.44*   Facility Offer Letter, dated April 9, 2017, by and between National Bank of Abu Dhabi, PJSC-Islamic Banking Division and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.45 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.45   Addendum to Forward Lease, dated April 26, 2017, by and between National Bank of Abu Dhabi, PJSC-Islamic Banking Division and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.46 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.46   Agreement, dated April 27, 2017, by and between National Bank of Abu Dhabi, PJSC-Islamic Banking Division and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.47 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.47   Employment Agreement, dated May 21, 2017, by and between Nicolaas Paardenkooper and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.48 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.48   Employment Agreement Annexure, dated January 8, 2018, by and between Brooge Petroleum and Gas Investment Company FZC and Nicolaas Paardenkooper (incorporated by reference to Exhibit 10.49 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.49*   Facility Offer Letter, dated June 4, 2018, by and between First Abu Dhabi Bank, PJSC-Islamic Banking Division and Brooge Petroleum and Gas Investment Company (incorporated by reference to Exhibit 10.50 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.50   Murabaha Agreement for the Sale and Purchase of Commodities, undated, by and between First Abu Dhabi Bank, PJSC-Islamic Banking Division and Brooge Petroleum and Gas Investment Company (incorporated by reference to Exhibit 10.51 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.51   Letter of Condition Waiver, dated June 21, 2018, by and between First Abu Dhabi Bank and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.52 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.52   Letter Agreement for Renewal of Service Agreement, dated July 1, 2018, by and between Flowi Facility Management LLC and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.53 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).

 

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4.53   Contract for the Provision of Project Management Consultancy (PMC) Services Agreement, dated July 26, 2018, by and between MUC Oil & Gas Engineering Consultancy and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.54 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.54*   The Contract Agreement, dated September 3, 2018, by and between Audex Fujairah LL FZE and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.55 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.55   Master Istisna’ Agreement, dated October 15, 2018, by and between First Abu Dhabi Bank PJSC and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.56 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.56   Master Forward Lease Agreement, dated October 15, 2018, by and between First Abu Dhabi Bank PJSC and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.57 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.57*   Common Terms Agreement, dated October 15, 2018, by and between First Abu Dhabi Bank PJSC and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.58 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.58   Title Agency Agreement, dated October 15, 2018, by and between First Abu Dhabi Bank PJSC and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.59 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.59   Indemnity Undertaking, dated October 15, 2018, by and between First Abu Dhabi Bank PJSC and Brooge Petroleum and Gas Investment Company FZC (incorporated by reference to Exhibit 10.60 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.60   Form of Non-Executive Director Agreement (incorporated by reference to Exhibit 10.96 of Brooge Energy Limited’s Registration Statement on Form F-1 (File No. 333-248068) filed with the SEC on August 17, 2020).
     
4.61   Business Combination Agreement, dated April 15, 2019, by and among Twelve Seas, the Company, Merger Sub, BPGIC, and BPGIC Holdings, as amended (incorporated by reference to Exhibit 2.1 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.62   Escrow Agreement, dated as of May 10, 2019, by and among Brooge Holdings Limited, BPGIC Holdings Limited (as assignee of Brooge Petroleum and Gas Investment Company (BPGIC) PLC), and Continental Stock Transfer and Trust Company (incorporated by reference to Exhibit 10.1 of Twelve Seas’ Form 8-K (File No. 001-38540), filed with the SEC on May 13, 2019).
     
4.63   Chief Financial Officer Employment Offer Letter, dated May 27, 2019, by and between Brooge Petroleum and Gas Investment Company FZE and Saleh Mohamed Yammout (incorporated by reference to Exhibit 10.65 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.64   Land Lease Initial Agreement, dated July 14, 2019 by and between Fujairah Oil Industry Zone and Brooge Petroleum & Gas Investment Company FZE (incorporated by reference to Exhibit 10.66 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).

 

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4.65   Employment Agreement, dated May 1, 2019, by and between Brooge Petroleum and Gas Investment Company FZE and Lina Saheb (incorporated by reference to Exhibit 10.67 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.67   Chief Marketing Officer Employment Offer Letter, dated August 28, 2019, by and between Brooge Petroleum and Gas Investment Company FZE and Faisal Elsaied Selim Hussain (incorporated by reference to Exhibit 10.70 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.68   Amendment to Facility Letter, dated September 10, 2019, by and between Brooge Petroleum and Gas Investment Company FZE and First Abu Dhabi Bank PJSC (incorporated by reference to Exhibit 10.71 of Brooge Holdings Limited’s Form F-4/A (File No. 333-233964), filed with the SEC on November 21, 2019).
     
4.70   Promissory Note, dated October 21, 2019, issued to Twelve Seas Sponsors I LLC (incorporated by reference to Exhibit 10.1 of Twelve Seas Investment Company’s Form 10-Q (File No. 001-38540), filed with the SEC on October 25, 2019).
     
4.71   First Amendment to Escrow Agreement, dated as of December 20, 2019, by and among Brooge Holdings Limited, BPGIC Holdings Limited (as assignee of Brooge Petroleum and Gas Investment Company (BPGIC) PLC), and Continental Stock Transfer and Trust Company (incorporated by reference to Exhibit 4.72 of Brooge Energy Limited’s Shell Company Report on Form 20-F (File No. 001-39171), filed with the SEC on December 30, 2019).
     
4.72   Voting Agreement, dated as of December 20, 2019, by and among BPGIC Holdings Limited, Twelve Seas Sponsors I LLC, Gregory Stoupnitzky and Suneel G. Kaji (incorporated by reference to Exhibit 4.73 of Brooge Energy Limited’s Shell Company Report on Form 20-F (File No. 001-39171), filed with the SEC on December 30, 2019).
     
4.73   Amended and Restated Founders’ Registration Rights Agreement, dated as of December 20, 2019, by and among Brooge Holdings Limited, Twelve Seas Sponsors I LLC, EarlyBirdCapital, Inc., Gregory Stoupnitzky and Suneel Kaji (incorporated by reference to Exhibit 4.74 of Brooge Energy Limited’s Shell Company Report on Form 20-F (File No. 001-39171), filed with the SEC on December 30, 2019).
     
4.74   Amendment to Share Escrow Agreement, dated as of December 20, 2019, by and among Brooge Holdings Limited, Twelve Seas Investment Company, Twelve Seas Sponsors I LLC, Suneel G. Kaji and Gregory Stoupnitzky (incorporated by reference to Exhibit 4.75 of Brooge Energy Limited’s Shell Company Report on Form 20-F (File No. 001-39171), filed with the SEC on December 30, 2019).
     
4.75   BPGIC Registration Rights Agreement, dated as of December 20, 2019, by and between Brooge Holdings Limited and BPGIC Holdings Limited (incorporated by reference to Exhibit 4.76 of Brooge Energy Limited’s Shell Company Report on Form 20-F (File No. 001-39171), filed with the SEC on December 30, 2019).
     
4.76   Initial Shareholder Escrow Agreement, dated as of December 20, 2019, by and between Brooge Holdings Limited, Twelve Seas Sponsors I LLC, Suneel G. Kaji and Gregory Stoupnitzky (incorporated by reference to Exhibit 4.77 of Brooge Energy Limited’s Shell Company Report on Form 20-F (File No. 001-39171), filed with the SEC on December 30, 2019).
     
4.77   Business Combination Marketing Agreement Fee Amendment, dated as of December 20, 2019, by and among Brooge Holdings Limited, Twelve Seas Investment Company and EarlyBirdCapital, Inc. (incorporated by reference to Exhibit 4.78 of Brooge Energy Limited’s Shell Company Report on Form 20-F (File No. 001-39171), filed with the SEC on December 30, 2019).
     
4.78   $1,500,000 Promissory Note issued to EarlyBirdCapital, Inc., dated as of December 20, 2019 (incorporated by reference to Exhibit 4.79 of Brooge Energy Limited’s Shell Company Report on Form 20-F (File No. 001-39171), filed with the SEC on December 30, 2019).

 

134

 

 

4.79   Form of Dividend Waiver (incorporated by reference to Exhibit 4.80 of Brooge Energy Limited’s Shell Company Report on Form 20-F (File No. 001-39171), filed with the SEC on December 30, 2019).
     
4.80   Amendment to Promissory Notes dated October 21, 2019 and April 4, 2019, issued to Twelve Seas Sponsors I LLC (incorporated by reference to Exhibit 4.81 of Brooge Energy Limited’s Shell Company Report on Form 20-F (File No. 001-39171), filed with the SEC on December 30, 2019).
     
4.81   Amendment to Phase I Construction Facilities Letter, dated December 30, 2019, by and between Brooge Petroleum and Gas Investment Company FZE and First Abu Dhabi Bank PJSC (incorporated by reference to Exhibit 4.82 of Brooge Energy Limited’s Shell Company Report on Form 20-F (File No. 001-39171), filed with the SEC on December 30, 2019).
     
4.82   Limited Waiver of Initial Shareholder Escrow Agreement Earn-Out Conditions, dated as of December 17, 2019, by and between Twelve Seas Sponsors I LLC and Brooge Holdings Limited (incorporated by reference to Exhibit 4.83 of Brooge Energy Limited’s Shell Company Report on Form 20-F (File No. 001-39171), filed with the SEC on December 30, 2019).
     
4.83   Amendment to the Master Forward Lease Agreement, dated as of December 29, 2019, by and between Brooge Petroleum and Gas Investment Company FZE and First Abu Dhabi Bank PJSC (incorporated by reference to Exhibit 4.84 of Brooge Energy Limited’s Shell Company Report on Form 20-F (File No. 001-39171), filed with the SEC on December 30, 2019).
     
4.84   Land Lease Agreement, dated as of February 2, 2020, by and between Fujairah Oil Industry Zone and Brooge Petroleum and Gas Investment Company FZE (incorporated by reference to Exhibit 15.3 of Brooge Energy Limited’s Annual Report on Form 20-F (File No. 001-39171), filed with the SEC on June 30, 2020).
     
4.89   Proposal for Front End Engineering Design (FEED), dated April 20, 2020, by and between MUC Oil & Gas Engineering Consultancy and Brooge Petroleum and Gas Investment Company (incorporated by reference to Exhibit 4.91 of Brooge Energy Limited’s Annual Report on Form 20-F (File No. 001-39171), filed with the SEC on June 30, 2020).
     
4.90   Chief Financial Officer Offer Letter, dated as of April 27, 2020, by and between Brooge Petroleum and Gas Investment Company FZE and Syed Masood Ali (incorporated by reference to Exhibit 15.3 of Brooge Energy Limited’s Annual Report on Form 20-F (File No. 001-39171), filed with the SEC on June 30, 2020) (incorporated by reference to Exhibit 4.92 of Brooge Energy Limited’s Annual Report on Form 20-F (File No. 001-39171), filed with the SEC on June 30, 2020).
     
4.91   Amendment to Phase I Construction Facilities Letter, dated June 15, 2020, by and between Brooge Petroleum and Gas Investment Company FZE and First Abu Dhabi Bank PJSC (incorporated by reference to Exhibit 4.93 of Brooge Energy Limited’s Annual Report on Form 20-F (File No. 001-39171), filed with the SEC on June 30, 2020).
     
4.92   Movable Asset Mortgage, dated as of June 15, 2020, by and between Brooge Petroleum and Gas Investment Company FZE and First Abu Dhabi Bank PJSC (incorporated by reference to Exhibit 4.94 of Brooge Energy Limited’s Annual Report on Form 20-F (File No. 001-39171), filed with the SEC on June 30, 2020).
     
4.93   Account Pledge (First Party), dated as of June 15, 2020, by and between by and between Brooge Petroleum and Gas Investment Company FZE and First Abu Dhabi Bank PJSC (incorporated by reference to Exhibit 4.95 of Brooge Energy Limited’s Annual Report on Form 20-F (File No. 001-39171), filed with the SEC on June 30, 2020).
     
4.95†   Novation Agreement, dated October 1, 2020, by and among Fujairah Oil Industry Zone, Brooge Petroleum & Gas Investment Company FZE and Brooge Petroleum & Gas Investment Company Phase III FZE (incorporated by reference to Exhibit 10.98 of Brooge Energy Limited’s Post-Effective Amendment No. 1 to Registration Statement on Form F-1 (File No. 333-248068) filed with the SEC on February 4, 2021).
     
4.96*   Commercial Storage Agreement dated November 10, 2020, between Brooge Petroleum and Gas Investment Company FZE and JayKay Trading Company FZE.

 

135

 

 

4.97*   Commercial Storage Agreement dated December 6, 2020, between Brooge Petroleum and Gas Investment Company FZE and JayKay Trading Company FZE.
     
4.98*   Commercial Storage Agreement dated November 19, 2020, between Brooge Petroleum and Gas Investment Company FZE and A&T Offshore FZC.
     
4.99*   Commercial Storage Agreement dated November 26, 2020, between Brooge Petroleum and Gas Investment Company FZE and A&T Offshore FZC.
     
4.100*   Commercial Storage Agreement dated March 4, 2021, between Brooge Petroleum and Gas Investment Company FZE and A&T Offshore FZC.
     
4.101*   Commercial Storage Agreement dated January 13, 2021, between Brooge Petroleum and Gas Investment Company FZE and NuFuel Trading FZE.
     
4.102*   Commercial Storage Agreement dated February 14, 2021, between Brooge Petroleum and Gas Investment Company FZE and S A A Trading Refined Oil Products Abroad.
     
4.103*   Commercial Storage Agreement dated March 30, 2021, between Brooge Petroleum and Gas Investment Company FZE and Valor International FZC.
     
4.112   Commercial Storage Agreement, dated April 27, 2021, by and between BPGIC and Golden Bridge Trading Refined Oil Products Abroad LLC (incorporated by reference to Exhibit 4.1 of Brooge Energy Limited’s Report on Form 6-K filed with the SEC on June 2, 2021).
     
4.113   Commercial Storage Agreement, dated April 8, 2021, by and between BPGIC and S A A Trading Refined Oil Products Abroad. (incorporated by reference to Exhibit 4.2 of Brooge Energy Limited’s Report on Form 6-K filed with the SEC on June 2, 2021).
     
4.114   Commercial Storage Agreement, dated May 1, 2021, by and between BPGIC and Synergy Petrochem L.L.C. (incorporated by reference to Exhibit 4.3 of Brooge Energy Limited’s Report on Form 6-K filed with the SEC on June 2, 2021).
     
4.115   Commercial Storage Agreement, dated April 22, 2021, by and between BPGIC and Synergy Petrochem L.L.C. (incorporated by reference to Exhibit 4.4 of Brooge Energy Limited’s Report on Form 6-K filed with the SEC on June 2, 2021).
     
4.116   Commercial Storage Agreement, dated April 20, 2021, by and between BPGIC and Valor International FZC (incorporated by reference to Exhibit 4.5 of Brooge Energy Limited’s Report on Form 6-K filed with the SEC on June 2, 2021).
     
4.117   Commercial Storage Agreement, dated April 22, 2021, by and between BPGIC and Valor International FZC (incorporated by reference to Exhibit 4.6 of Brooge Energy Limited’s Report on Form 6-K filed with the SEC on June 2, 2021).
     
4.118   Commercial Storage Agreement, dated April 22, 2021, by and between BPGIC and Valor International FZC. (incorporated by reference to Exhibit 4.7 of Brooge Energy Limited’s Report on Form 6-K filed with the SEC on June 2, 2021).
     
4.119   Commercial Storage Agreement dated May 02, 2019, between BPGIC and Napag Trading LTD
     
4.120   Commercial Storage Agreement dated June 19, 2019, between BPGIC and Beneathco
     
4.121   Commercial Storage Agreement dated April 22, 2020, between BPGIC and Totsa Total Oil Trading
     
4.122   Commercial Storage Agreement dated November 11, 2020, between BPGIC and Synergy.

 

136

 

 

4.123   Commercial Storage Agreement dated November 11, 2020, between BPGIC and Synergy.
     
4.124   Commercial Storage Agreement dated December 13, 2020, between BPGIC and Synergy.
     
4.125   Commercial Storage Agreement dated March 29, 2021, between BPGIC and Nufuel Trading FZE.
     
4.126   Commercial Storage Agreement dated April 13, 2021, between BPGIC and Valor International.
     
4.127   Commercial Storage Agreement dated April 13, 2021, between BPGIC and Valor International.
     
4.128   Commercial Storage Agreement dated May 04, 2021, between BPGIC and A Three Energy FZE.
     
4.129**   Commercial Storage Agreement dated June 02, 2021, between BPGIC and SAA Trading Refined Oil Products Abroad.
     
4.130**   Commercial Storage Agreement dated August 16, 2021, between BPGIC FZE and Ali AlMutawa Petroleum and Petrochemical Trading LLC.
     
4.131**   Commercial Storage Agreement dated September 30, 2021, between BPGIC and Basrah Energy FZC.
     
4.132**   Commercial Storage Agreement dated December 16, 2021, between BPGIC and Basrah Energy FZC.
     
4.133**   Commercial Storage Agreement dated January 17, 2022, between BPGIC and Basrah Energy FZC.
     
4.134**   Commercial Storage Agreement dated April 11, 2022, between BPGIC and Basrah Energy FZC.
     
4.135**   Commercial Storage Agreement dated December 15, 2022, between BPGIC and Lecotra DMCC.
     
4.136**   Commercial Storage Agreement dated January 21, 2022, between BPGIC and ENOC Supply & Trading LLC.
     
4.137**   Commercial Storage Agreement dated January 25, 2022, between BPGIC and ENOC Supply & Trading LLC.
     
4.138**   Commercial Storage Agreement dated September 30, 2021, between BPGIC and Newton Petroleum Trading LLC.
     
4.139**   Commercial Storage Agreement dated March 16, 2021, between BPGIC and Newton Petroleum Trading LLC.
     
4.140**   Commercial Storage Agreement dated May 10, 2022, between BPGIC and Avis Trading Crude Oil Abroad.
     
4.141**   Commercial Storage Agreement dated May 10, 2022, between BPGIC and Avis Trading Crude Oil Abroad.
     
4.142**   Commercial Storage Agreement dated May 19, 2022, between BPGIC and Euro American International Energy LLC.
     
4.143**   Commercial Storage Agreement dated May 19, 2022, between BPGIC and Euro American International Energy LLC.
     
4.144**   Commercial Storage Agreement dated May 25, 2022, between BPGIC and Sahra Oil FZE.
     
4.145**   Commercial Storage Agreement dated May 25, 2022, between BPGIC and Sahra Oil FZE.
     
4.146**   Commercial Storage Agreement dated June 06, 2022, between BPGIC and First Trust Energy Petrochemicals Trading.
     
4.147**   Commercial Storage Agreement dated July 15, 2022, between BPGIC and Aachim Energy FZE.
     
4.148**   Commercial Storage Agreements dated July 01, 2022, between BPGIC and Cengeo New Energy FZ-LLC.

 

137

 

 

4.149**   Commercial Storage Agreements dated August 04, 2022, between BPGIC and Cengeo New Energy FZ-LLC
     
4.150**   Commercial Storage Agreement dated November 21, 2022, between BPGIC and Sahra Oil FZE.
     
4.151**   Commercial Storage Agreements dated September 09, 2022, between BPGIC and Cengeo New Energy FZ-LLC
     
4.152**   Commercial Storage Agreement dated August 2022, between BPGIC and Actirays Middle East Trading FZE.
     
4.153**   Commercial Storage Agreement dated November 2022 between BPGIC and Sahra Oil FZE.
     
4.154**   Commercial Storage Agreements dated December 13, 2022, between BPGIC and Cengeo New Energy FZ-LLC
     
4.155**   Commercial Storage Agreements dated February 01, 2023, between BPGIC and Atlantis Commodities Trading HK Limited.
     
4.156**   Commercial Storage Agreement dated August 23, 2022 between BPGIC and Petraco.
     
8.1   List of Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 of Brooge Energy Limited’s Post-Effective Amendment No. 1 to Registration Statement on Form F-1 (File No. 333-248068) filed with the SEC on February 4, 2021). 
     
11.1   Code of Ethics and Business Conduct (incorporated by reference to Exhibit 11.1 of Brooge Energy Limited’s Shell Company Report on Form 20-F (File No. 001-39171), filed with the SEC on December 30, 2019).
     
12.1   Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
     
12.2   Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
     
13.1   Certification of the Principal Executive Officer pursuant to 18 U.S.C. 1350.
     
13.2   Certification of the Principal Financial Officer pursuant to 18 U.S.C. 1350.
     
15.1   Audit Committee Charter (incorporated by reference to Exhibit 15.1 of Brooge Energy Limited’s Shell Company Report on Form 20-F (File No. 001-39171), filed with the SEC on December 30, 2019).
     
15.2   Compensation Committee Charter incorporated by reference to Exhibit 15.2 of Brooge Energy Limited’s Shell Company Report on Form 20-F (File No. 001-39171), filed with the SEC on December 30, 2019).
     
101.INS**   Inline XBRL Instance Document
     
101.SCH**   Inline XBRL Taxonomy Extension Schema Document.
     
101.CAL**   Inline XBRL Taxonomy Extension Calculation Linkbase Document.
     
101.DEF**   Inline XBRL Taxonomy Extension Definition Linkbase Document.
     
101.LAB**   Inline XBRL Taxonomy Extension Label Linkbase Document.
     
101.PRE**   Inline XBRL Taxonomy Extension Presentation Linkbase Document.
     
104**   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

* Certain information has been redacted from this exhibit pursuant to Item 4 of the Instructions as to Exhibits of Form 20-F because it is both not material and is the type that the registrant treats as private or confidential. The registrant hereby agrees to furnish an unredacted copy of the exhibit and its materiality and privacy or confidentiality analyses to the SEC upon request.
** To be filed by amendment.
Schedules to this exhibit have been omitted pursuant to the Instructions as to Exhibits of Form 20-F. The registrant hereby agrees to furnish a copy of any omitted schedules to the SEC upon request.

 

138

 

 

SIGNATURES

 

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

  BROOGE ENERGY LIMITED
   
April 26, 2023 By: /s/ Lina Saheb
    Name:  Lina Saheb
    Title: Interim Chief Executive Officer

 

139

 

 

 

 

 

 

Brooge Energy Limited

(Formerly Brooge Holdings Limited)

 

CONSOLIDATED FINANCIAL STATEMENTS

 

31 DECEMBER 2022

 

 

 

 

 

 

 

 

 

 

 

BROOGE ENERGY LIMITED

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

    Page
     
Consolidated Financial Statements    
     
Report of Independent Registered Public Accounting Firm  

F-4 

     
Consolidated Statement of Comprehensive Income as of December 31, 2022, 2021, 2020, 2019, 2018 and Unaudited Interim Condensed Consolidated Financial Statements as of June 30, 2022   F-7
     
Consolidated Statement of Financial Position as of December 31, 2022, 2021, 2020, 2019, 2018 and Unaudited Interim Condensed Consolidated Financial Statements as of June 30, 2022   F-8
     
Consolidated Statement of Changes in Stockholders’ Equity for the years ended December 31, 2022, 2021, 2020, 2019, 2018 and Unaudited Interim Condensed Consolidated Financial Statements as of June 30, 2022   F-9
     
Consolidated Statement of Cash Flows for the years ended December 31, 2022, 2021, 2020, 2019, 2018 and Unaudited Interim Condensed Consolidated Financial Statements as of June 30, 2022   F-10
     
Notes to the Consolidated Financial Statements   F-11

 

F-1

 

 

 

 

 

 

 

 

 

 

 

Brooge Energy Limited

Consolidated Financial Statements
December 31, 2022

 

 

 

 

 

 

 

 

 

F-2

 

 

Brooge Energy Limited

 

Index to the Financial Statements

December 31, 2022

 

  Page
Independent Auditor’s Report F-4
Consolidated Statement of Comprehensive Income F-7
Consolidated Statement of Financial Position F-8
Consolidated Statement of Changes in Equity F-9
Consolidated Statement of Cash Flows F-10
Notes to the Financial Statements F-11

 

F-3

 

 

 

 

A picture containing graphical user interface

Description automatically generated  

Office 106, The Binary
Al Abraj Street
Business Bay
PO Box 413383
Dubai / UAE  

 

[T] +971 4 557 8358
[E] mail@affiniax.com

 

Independent Auditor’s Report

 

To the Board of Directors and Shareholders of Brooge Energy Limited and its Subsidiaries

 

Report on the Audit of the Consolidated Financial Statements

 

Opinion

 

We have audited the consolidated financial statements of Brooge Energy Limited and its Subsidiaries, (“the Group”), which comprise of the consolidated statement of financial position as at December 31, 2022, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended and notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory notes.

 

In our opinion, the accompanying consolidated financial statements, present fairly, in all material respects, the consolidated financial position of Brooge Energy Limited and its Subsidiaries as at December 31, 2022 and its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.

 

Basis for Opinion

 

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with PCAOB & International Standards on Auditing (ISA’s). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Emphasis of Matter

 

a. We draw your attention to Note 19 wherein the Group has allocated funds received in prior years from M/s Brooge International Advisory LLC. Since the Group could not obtain the confirmation from subject party to identify the purpose and repayment terms, if any; before signing date of this report, the amount has been classified as Other payable in the consolidated financial statements for the year ended December 31, 2022.

 

 

F-4

 

 

 

Emphasis of Matter (Continued)

 

b. Considering the significance of the above amount involved, we have further reviewed the legal documents of M/s Brooge Petroleum and Gas Investment Company and M/s Brooge International Advisory LLC (BIA) to determine whether they are related parties in accordance to Paragraph (9) of International Accounting Standards (IAS 24). The Company has further undertaken vide resolution dated April 23, 2023 to consider BIA as a related party.  Based on the above representation and applying the concept of substance over form, it indicates that BIA is a related party.

 

c. We draw attention to consolidated statement of financial position in the consolidated financial statements, which indicates that the as of December 31, 2022, the Group’s current liabilities exceed current assets by USD 265,445,772. The shareholders have undertaken to provide continued financial support. Our opinion is not modified in respect of this matter.

 

Key Audit Matters

 

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 

We have determined that there are no other key audit matters to communicate in our report.

 

Responsibility of the Management for the Consolidated Financial Statements

 

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards and for such internal controls as Management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the consolidated financial statements, the Management is responsible for assessing the Group’s ability to continue as a going concern, as applicable, matters related to going concern and using the going concern basis of accounting, unless Management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

 

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

 

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatements, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISA’s will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

 

 

 

F-5

 

 

 

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

 

As part of an audit in accordance with ISA’s, we exercise professional judgement and maintain professional skepticism throughout the audit. We also;

 

●     Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risks of not detecting a material misstatement resulting from fraud is higher than for one resulting from error as fraud may involve collusion, forgery, intentional omissions, misrepresentation or override of internal controls.

 

●    Obtain an understanding of internal controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal controls.

 

●     Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management.

 

●     Conclude on the appropriateness of Management’s use of going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

 

●     Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

We communicate with the Management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal controls that we identify during our audit.

 

We also provide the Management with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

 

From the matters communicated with the Management, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current year and are therefore the key audit matters.

 

Affiniax A A S Auditors

 

 

 

Dubai,

United Arab Emirates,

April 24, 2023

 

 

F-6

 

 

Brooge Energy Limited

 

Consolidated Statement of Comprehensive Income

Year Ended December 31, 2022

 

(Figures in USD)  Note  2022   2021 
            
Revenue  6   81,540,776    41,761,615 
Direct costs  7   (24,691,442)   (14,984,022)
Gross profit      56,849,334    26,777,593 
              
Other income  8   180,345    6,237,620 
Change in estimated fair value of derivative warrant liability  20   7,430,035    1,486,023 
General and administration expenses  9   (15,652,819)   (7,422,870)
Finance costs  10   (25,417,989)   (6,810,718)
Changes in fair value of derivative financial instruments  16   3,840,379    5,422,917 
Profit for the year      27,229,285    25,690,565 
Other comprehensive income      Nil    Nil 
Total Comprehensive Income for the year      27,229,285    25,690,565 
Basic and diluted earnings per share  28   0.31    0.29 

 

The accompanying notes form an integral part of the consolidated financial statements.

 

F-7

 

 

Brooge Energy Limited

 

Consolidated Statement of Financial Position

As at December 31, 2022

 

(Figures in USD)  Note  2022   2021 
            
ASSETS           
Current Assets           
Cash and cash equivalents  11   8,259,981    7,380,991 
Trade accounts receivables  12   5,275,047    3,771,492 
Inventories  13   315,576    250,360 
Other receivables and prepayments  14   724,093    1,131,868 
Total Current Assets      14,574,697    12,534,711 
              
Non-Current Assets             
Restricted bank balance  11   8,500,000    8,500,000 
Property, plant and equipment  15   426,040,639    427,266,913 
Derivative financial instrument  16   9,306,741    5,422,917 
Advances to contractor  17   15,223,215    3,499,988 
Total Non-Current Assets      459,070,595    444,689,818 
Total Assets      473,645,292    457,224,529 
              
LIABILITIES AND EQUITY             
              
Current Liabilities             
Trade and accounts payable  18   23,464,803    18,189,493 
Other payable  19   74,253,965    74,253,965 
Derivative warrant liability  20   4,245,780    11,675,815 
Borrowings  21   171,739,579    182,781,617 
Lease liabilities  22   6,316,342    8,976,452 
Total Current Liabilities      280,020,469    295,877,342 
              
Non-Current Liabilities             
Borrowings  21   1,782,603    Nil 
Lease liabilities  22   84,557,069    80,804,728 
Employees’ end of service benefits  23   134,200    60,624 
Asset retirement obligation  24   2,056,259    1,990,399 
Total Non-Current Liabilities      88,530,131    82,855,751 
              
Equity             
Share capital  25   8,804    8,804 
Share premium  25   101,777,058    101,777,058 
Statutory reserve      680,643    680,643 
Accumulated losses      (67,763,600)   (94,992,885)
Shareholder’s account      70,391,787    71,017,816 
Total Equity Attributable to the Shareholders      105,094,692    78,491,436 
Total Liabilities and Equity      473,645,292    457,224,529 

 

The accompanying notes form an integral part of the consolidated financial statements.

 

F-8

 

 

Brooge Energy Limited

 

Consolidated Statement of Changes in Equity

As at December 31, 2022

 

(Figures in USD)  Share
Capital
   Share
Premium
   Statutory
Reserve
   Retained Earnings   Shareholder’s
Account
   Total 
                         
As at January 01, 2021   8,804    101,777,058    344,848    (120,347,655)   70,761,998    52,545,053 
Profit for the year    Nil      Nil      Nil     25,690,565     Nil     25,690,565 
Transferred to statutory reserve    Nil      Nil     335,795    (335,795)    Nil      Nil  
Movements during the year      Nil       Nil        Nil       Nil     255,818    255,818 
As at December 31, 2021   8,804    101,777,058    680,643    (94,992,885)   71,017,816    78,491,436 
Profit for the year    Nil      Nil      Nil     27,229,285     Nil     27,229,285 
Movements during the year     Nil       Nil       Nil        Nil     (626,029)   (626,029)
As at December 31, 2022   8,804    101,777,058    680,643    (67,763,600)   70,391,787    105,094,692 

 

The accompanying notes form an integral part of the consolidated financial statements.

 

F-9

 

 

Brooge Energy Limited

 

Consolidated Statement of Cash Flows

Year Ended December 31, 2022

 

(Figures in USD)  2022   2021 
         
Cash Flow from Operating Activities        
         
Profit for the year   27,229,285    25,690,565 
           
Adjustments for:          
Depreciation of property, plant and equipment   13,541,757    7,948,404 
Interest charged on lease liability   10,398,008    11,774,031 
Provision for employees’ end of services benefits   256,890    31,551 
Change in estimated fair value of derivative warrant liability   (7,430,035)   (1,486,023)
Net changes in fair value of derivative financial instruments   (3,840,379)   (5,422,917)
Rent waiver    Nil     (6,126,800)
Write back of accrued interest not settled    Nil      Nil  
Asset retirement obligation - accretion expense   65,859    28,252 
           
Changes in operating assets and liabilities          
Increase in trade accounts and other receivable and prepayments   (1,095,780)   (4,509,487)
(Increase) / Decrease in inventories   (65,216)   71,423 
Increase in trade and accounts payable   5,275,311    422,915 
Increase in other payable    Nil     800,359 
Payment of employees’ end of services benefits   (183,314)   (11,441)
Net cash generated from operating activities   44,152,386    29,210,832 
           
Cash Flow from Investing Activities          
           
Amount (deposited) / withdrawn in restricted bank account   (1,390,381)   12,471,290 
Advance to contractors   (11,723,227)   12,958,264 
Purchase of property, plant and equipment   (12,315,483)   (66,822,976)
Net cash used in investing activities   (25,429,091)   (41,393,422)
           
Cash Flow from Financing Activities          
           
Proceeds from term loan   2,178,737     Nil  
Repayment of bonds   (11,481,617)   (4,233,098)
Payment of lease liability   (9,305,777)   (3,377,784)
Movement in shareholder’s account   (626,029)   255,818 
Net cash used in financing activities   (19,234,686)   (7,355,064)
           
Net change in cash and cash equivalents   (511,391)   (19,537,654)
Cash and cash equivalents at beginning of the year   1,452,316    20,989,970 
Cash and cash equivalents at end of the year   940,925    1,452,316 

 

The accompanying notes form an integral part of the consolidated financial statements.

 

F-10

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements
December 31, 2022

 

1Legal Status, Management and Business Activity

 

The consolidated financial statements comprise of the financial statements of Brooge Energy Limited (“Company”) and its subsidiaries on a line-by-line basis. The Company and its subsidiaries are collectively referred to as the “Group”.

 

The details of the Group are as follows:

 

a. Brooge Energy Limited (“Company”)

 

The Company, is a Company with limited liability registered as an exempted company in the Cayman Islands.

 

The registered office of the Company is at P.O Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. The Company’s principal executive office is located at P.O Box 50170, Al-Sodah, Khorr Fakkan Road, Fujairah, United Arab Emirates (“UAE”).

 

The Company changed its name from Brooge Holdings Limited to Brooge Energy Limited on April 07, 2020.

 

The subsidiaries of the Company are as follows:

 

i. Brooge Petroleum and Gas Investment Company FZE (“BPGIC FZE”)

 

BPGIC FZE is a Free Zone Establishment formed and registered in the Fujairah Free Zone Authority under registration number 13-FZE-1117.

 

BPGIC FZE is a 100% subsidiary of the Company.

 

ii. Brooge Petroleum and Gas Investment Company Phase III FZE (BPGIC Phase III FZE)

 

BPGIC Phase III FZE is a Free Zone Establishment formed and registered in the Fujairah Free Zone Authority under registration number 20-FZE-1972.

 

BPGIC Phase III FZE is a 100% subsidiary of the Company.

 

iii. BPGIC International

 

BPGIC International formerly known as Twelve Seas, is a company with limited liability registered as an exempted company in the Cayman Islands.

 

BPGIC International is a 100% subsidiary of the Company.

 

iv. Brooge Petroleum and Gas Management Company Limited (BPGMC Limited)

 

BPGMC Limited is 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.

 

As of December 21, 2022 BPGMC Limited has been officially dissolved (voluntary winding up ) and has ceased to exist as a DIFC entity.

 

v. BPGIC Phase 3 Limited (BPGIC Phase III Ltd)

 

BPGIC Phase 3 Limited is a Free Zone Company with limited liability formed in accordance with the provisions of Jebel Ali Free Zone Authority Offshore Companies Regulations 2018. The registration number of BPGIC Phase 3 Limited is 226933.

 

BPGIC Phase 3 Limited is a 100% subsidiary of the Company.

 

F-11

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2022

 

1Legal Status, Management and Business Activity (Continued)

 

The service provided by the group is oil storage and related services at the Port of Fujairah in the Emirate of Fujairah, UAE. The Group currently operates phase I and phase II, comprising 22 tanks with a total capacity of 1,001,388 cubic meters (“cbm”), fully operational for provision of storage and other ancillary processes of crude and clean oil. The Group has commenced early preparation work for its phase III project where it intends to construct additional storage and refinery facilities.

 

The Company was incorporated on 12 April 2019 for the sole purpose of consummating the business combination described further below.

 

On 15 April 2019, BPGIC FZE entered into a business combination agreement with Twelve Seas Investment Company (“Twelve Seas”), a company listed on National Association of Securities Dealers Automated Quotations (“NASDAQ”), the Company and BPGIC FZE’s shareholders. On 10 May 2019, BPGIC PLC became party to the business combination agreement by execution of a joinder thereto.

 

The business combination was accounted for as a reverse acquisition in accordance with the International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board (“IASB”).

 

Under this method of accounting, Brooge Energy 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 stockholders 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 FZE are the historical financial statements of the combined company, and Brooge Energy and Twelve Sea’s assets, liabilities and results of operations are consolidated with BPGIC FZE beginning on the acquisition date.

 

As a result of the above transaction, the Company became the ultimate parent of BPGIC FZE and Twelve Seas on 20 December 2019, being the acquisition date. The Company’s common stock and warrants are traded on the NASDAQ Capital Market under the ticker symbols BROG and BROGW, respectively. Upon the closing of business combination, Twelve Seas changed its name to ‘BPGIC International’.

 

The consolidated financial statements are prepared as a continuation of the financial statements of BPGIC FZE, the acquirer, and retroactively adjusted to reflect the legal capital of the legal parent/acquiree (Brooge Energy Limited).

 

The reaudited consolidated financial statements were authorised for issue by the Board of Directors.

 

On Aug. 17, 2022 the Company announced that its majority shareholder, BPGIC Holdings Limited (“Holdings”), has expressed an interest to acquire all the shares of the Company that it does not currently own and to take the Company private. The Board of Directors of the Company is considering the proposal and will be entering into substantive negotiations. Any transaction, if entered into, will be subject to the receipt of a fairness opinion and approval of the Company’s shareholders and bondholders. There can be no assurance that a transaction will be entered into.

 

F-12

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2022

 

2Basis of Preparation of Consolidated Financial Statements

 

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board “IASB”. These consolidated financial statements are presented in United States dollars (“USD”) which is the functional and presentation currency of the Group.

 

All financial information presented in USD has been rounded to the whole numbers, unless otherwise stated. The consolidated financial statements are prepared under the historical cost convention, except for re-measurement at fair value of derivative financial instruments and derivative liability.

 

(i) 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

 

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

 

Details of subsidiaries as at 31 December 2022 are stated in Note 1.

 

F-13

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2022

 

2Basis of Preparation of Consolidated Financial Statements (Continued)

 

(i) Subsidiaries (Continued)

 

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.

 

(ii) 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.

 

(iii) 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.

 

F-14

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2022

 

2Basis of Preparation of Consolidated Financial Statements (Continued)

 

(iii) Business combinations (Continued)

 

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;

 

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.

 

2.1Going Concern

 

During the year ended 31 December 2022, the Group earned a profit of USD 27.2 million and generated positive cash flows of USD 44.1 million. Further, as at that date, the Group had unrestricted cash and cash equivalents of USD 0.9 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.

 

F-15

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2022

 

3Changes in Accounting Policies And Disclosures

 

New and Amended Standards and Interpretations.

 

The Group has adopted the following new and amended IFRS’s in these consolidated financial statements.

 

Annual Improvements to IFRS Standards 2018 – 2020 – Amendments to IFRS 1, IFRS 9, illustrative examples accompanying IFRS 16 and IAS 41.

 

Property, Plant and Equipment - Proceeds before intended use - Amendments to IAS 16
   
 Reference to Conceptual Framework - Amendments to IFRS 3

 

Onerous Contracts - Cost of Fulfilling a Contract - Amendments to IAS 37

 

The adoption of above standards and amendments did not have any significant impact on the consolidated financial statements of the Group.

 

New Standards and Interpretations Not Yet Effective

 

The Group intends to adopt the following standards, if applicable, when they become effective.

 

IFRS 17 - Insurance contracts is effective for reporting periods beginning on or after 1 January 2023;

 

Amendments to IAS 1: Classification of Liabilities as Current or Non-current, the amendments are effective for annual reporting periods beginning on or after 1 January 2024;

 

Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of accounting policies, the amendments are effective for annual reporting periods beginning on or after 1 January 2023;

 

Amendments to IAS 8: Definition of accounting estimates is effective for reporting periods beginning on or after 1 January 2023;

 

Amendments to IAS 12: Deferred tax related to assets and liabilities arising from single transaction, the amendments are effective for annual reporting periods beginning on or after 1 January 2023;

 

Amendments to IFRS 4: Insurance Contracts – Extension of temporary exemption from applying, the amendments are effective for annual reporting periods beginning on or after 1 January 2023;

 

The Group does not expect these new standards and amendments to have any significant impact on the consolidated financial statements, when implemented in future periods.

 

4Significant 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:

 

F-16

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2022

 

4Significant Accounting Estimates And Judgements (Continued)

 

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.

 

F-17

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2022

 

4Significant Accounting Estimates And Judgements (Continued)

 

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.

 

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.

 

5Summary 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.

 

F-18

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2022

 

5Summary of Significant Accounting Policies (Continued)

 

Revenue Recognition (Continued)

 

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.

 

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.

 

F-19

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2022

 

5Summary of Significant Accounting Policies (Continued)

 

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.

 

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.

 

F-20

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2022

 

5Summary of Significant Accounting Policies (Continued)

 

Borrowing Costs (Continued)

 

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 
Installations   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 capitalised 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.

 

F-21

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2022

 

5Summary of Significant Accounting Policies (Continued)

 

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.

 

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 b) 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.

 

F-22

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2022

 

5Summary of Significant Accounting Policies (Continued)

 

Leases (Continued)

 

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. 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.

 

F-23

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements
December 31, 2022

 

5Summary of Significant Accounting Policies (Continued)

 

Leases (Continued)

 

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.

 

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.

 

F-24

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements
December 31, 2022

 

5Summary of Significant Accounting Policies (Continued)

 

Financial Instruments (Continued)

 

Financial assets (Continued)

 

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”.

 

F-25

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements
December 31, 2022

 

5Summary of Significant Accounting Policies (Continued)

 

Financial Instruments (Continued)

 

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.

 

F-26

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements
December 31, 2022

 

5Summary of Significant Accounting Policies (Continued)

 

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.

 

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.

 

F-27

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements
December 31, 2022

 

5Summary of Significant Accounting Policies (Continued)

 

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.

 

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.

 

F-28

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements
December 31, 2022

 

6Revenue

 

Storage rental income Miscellaneous income (Note 6.1) Ancillary services

 

(Figures in USD)  2022   2021 
Storage rental income   77,577,633    37,467,396 
Miscellaneous income (Note 6.1)   2,039,396    1,681,878 
Ancillary services   1,923,747    2,612,341 
    81,540,776    41,761,615 

 

Note 6.1

 

The Group has only one segment at the reporting date. Revenue generation from leasing of storage capacity of tanks and other ancillary services started in December 2017.

 

The commercial contracts with customers related to the Phase 1 and Phase 2 have been assigned as security against the borrowing obtained in 2020.

 

Miscellaneous income represents port charges of USD 2,039,396 that are paid by the Group to the port authority and recharged to the customers.

 

The revenues of the Group mainly comprise of fixed fees for storage and related services and variable fees for ancillary services provided under a contract with its customers. Accordingly, there is no cyclicality in the Group’s operations.

 

7Direct Costs

 

Depreciation on property, plant and equipment (Note 15)   12,615,658    6,806,198 
Employees’ costs   4,232,980    3,891,969 
Reimbursable port charges (Note 6.1)   2,039,396    1,681,878 
Spare parts and consumables used   1,460,979    938,386 
Insurance charges   955,977    782,357 
Maintenance charges   2,741,780    332,658 
Others   644,672    550,576 
    24,691,442    14,984,022 

 

8Other Income

 

Rent- waiver (Note 22)   Nil    6,126,800 

Miscellaneous

   180,345    110,820 
    180,345    6,237,620 

 

F-29

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements
December 31, 2022

 

9General and Administration Expenses

 

(Figures in USD)  2022   2021 
Employees’ cost   3,292,361    2,486,933 
Legal and professional   7,383,335    2,877,264 
Sales and marketing   3,026,399    60,389 
Insurance   949,784    937,329 
Rent   166,894    112,306 
Office expenses   409,544    393,187 
Board fees and expenses   356,493    518,278 
Travelling expenses   67,464    15,035 
Repairs and maintenance   545    22,149 
    15,652,819    7,422,870 

 

10Finance Costs

 

Interest expense on borrowings   22,177,769    4,966,876 
Interest on lease liability   3,043,214    1,685,010 
Asset retirement obligation - accretion expenses   65,859    28,252 
Bank charges   119,347    89,587 
Exchange loss   11,800    40,993 
    25,417,989    6,810,718 

 

11Cash and Cash Equivalents

 

Cash in hand   18,839    3,195 
Balances in current accounts   16,741,142    15,877,796 
    16,759,981    15,880,991 
           
The above consist of the following:          
Non-current          
Restricted bank balance   8,500,000    8,500,000 
    8,500,000    8,500,000 
Current          
Cash and Cash Equivalents   940,925    940,925 
Restricted bank balance   7,319,056    5,928,675 
    8,259,981    7,380,991 

 

F-30

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements
December 31, 2022

 

11Cash and Cash Equivalents (Continued)

 

The cash and bank balances disclosed above and in the consolidated statement of cash flows include USD 15,819,056 (2021: USD 14,428,675) which are held in restricted bank accounts under the Bond terms (Note 21). These include USD 8,500,000 held in the Liquidity account, nil balance is held in the Construction Funding account, the amount in the Construction Funding account in 2022 can be withdrawn up to a limit of USD 5,000,000 per month. Accordingly, USD 15,000,000 out of the balance in the Construction Funding account is considered as cash and cash equivalent and USD 7,319,056 (2021: USD 5,928,675) held in the Debt Service Retention account.

 

A first priority pledge over the balances in the Earnings account, Liquidity account, Construction Funding account and Debt Service Retention account is held as security under the Bond terms (Note 21).

 

12Trade Accounts Receivables

 

Trade accounts receivables   5,275,047    3,771,492 
    5,275,047    3,771,492 

 

a) As of the date of approval of these consolidated financial statements, the Group has realised amounts aggregating to USD 590,429 from the trade accounts receivables.

 

b) Credit Risk

 

On the basis of assessment of creditworthiness of customers judged by a combination of factors such as their conduct in the past and reputation, management’s trade experience and available market information, the credit period is extended up to 14 days of invoicing. The accounting staff monitor the outstanding amounts and follows up for recovery with periodic calls and also visits to the customers, if required.

 

At the end of the reporting period, there was no credit risk with respect to trade receivables outside the UAE as the Group’s customers are based in the UAE.

 

c) Currency Risk

 

The Group transacts its business in the local market. As such, it is not exposed to any exchange rate risk with respect to trade accounts receivables.

 

d) Impairment

 

The age analysis of trade accounts receivables as at the end of the reporting period was as follows:

 

Neither past-due nor impaired (0-150 days)   627,710    2,935,830 
Past-due:          
- 151 –365 days*   4,647,337    835,662 
Total   5,275,047    3,771,492 

 

*Tradereceivables past due as of the year end

 

The overdue amounts mainly pertains to be collected from a UAE based customer. The customer and the group were parties to a commercial storage agreement, pursuant to which the group provided the customer with storage capacity and ancillary services for their products. The group has initiated successful legal proceedings against this customer and the management expects to recover all the outstanding amounts from this customer. 

 

F-31

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements
December 31, 2022

 

13Inventories

 

(Figures in USD)  2022   2021 
Spare parts and consumables   315,576    250,360 
    315,576    250,360 

 

Cost of inventories recognised during the year amounted to USD 1,460,979 (2021: USD 938,386). No provision is required for inventories at 31 December 2022 (2021: Nil).

 

14Other Receivables and Prepayments

 

Due from shareholder   34,136    504,214 
Due from related parties   110,502    86,142 
Prepaid expenses   223,490    289,463 
Staff advances   30,216    152,389 
Deposits   320,475    99,660 
Other receivables   5,274    Nil 
    724,093    1,131,868 

 

15Property, Plant and Equipment

 

a)The movement schedule is set out on page 43.

 

16Derivative Financial Instruments

 

Call option   9,306,741    5,422,917 
    9,306,741    5,422,917 

 

On 24 September 2020, the Group issued long term fixed interest rate senior secured bonds of USD 200,000,000 to private investors with a face value of USD 1 at an issue price of USD 0.95. The Group has the option to redeem the bonds in full or in part any time after 24 September 2023 (the “call option”). The call option represents an embedded derivative that has been separated from the host contract and separately valued.

 

At 31 December 2022 management has assessed the value of the call option of USD 9,306,741 and classified as change in fair value of derivative financial instrument in the consolidated statement of comprehensive income (Note 21).

 

17Advances to Contractor

 

Advances to contractor   15,223,215    3,499,988 
    15,223,215    3,499,988 

 

The above amount mainly includes the advances paid towards Audex Fujairah LL FZE for the interconnectivity construction amounting USD 15Mn.

 

F-32

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements
December 31, 2022

 

18Trade and Accounts Payable

 

(Figures in USD)  2022   2021 
Trade accounts payable   9,853,157    9,113,183 
Accrued interest on borrowings   3,815,551    4,101,250 
Advances from customer   6,222,055    2,417,956 
Accrued expenses   3,076,957    394,611 
Due to a related party    Nil     2,041,927 
VAT payable   497,083    120,566 
    23,464,803    18,189,493 

 

19Other Payable

 

M/s Brooge International Advisory LLC   74,253,965    74,253,965 
    74,253,965    74,253,965 

 

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, 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 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.

 

F-33

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements
December 31, 2022

 

19Other Payable (Continued)

 

The above changes pertaining to reversal of Revenue and recognition of such amount under Other payable were accounted retrospectively in accordance with IAS 8.

 

20Derivative Warrant Liability

 

(Figures in USD)  2022   2021 
Issuance of 21,228,900 warrants in connection with merger   11,675,815    13,161,838 
Fair value remeasurement of derivative warrant liability   (7,430,035)   (1,486,023)
    4,245,780   11,675,815 

 

In accordance with IAS 32, a contract to issue a variable number of shares fails to meet the definition of equity and must instead be classified as a derivative liability and measured at fair value with changes in fair value recognized in the consolidated statement of comprehensive income at each reporting date. The derivative liabilities will ultimately be converted into the Group’s equity (ordinary shares) when the warrants are exercised, or will be extinguished on the expiry of the outstanding warrants, and will not result in the outlay of any cash by the Group.

 

In connection with the completion of the business combination on 20 December 2019, each of Twelve Sea’s 21,229,000 outstanding warrants were converted into the Group’s warrants at 1:1 ratio. The warrants allow the holder to subscribe for the ordinary shares of the Company at 1:1 basis at an exercise price of USD 11.50. The warrants shall lapse and expire after five years from the closing of the business combination. The holders of the warrants issued pursuant to the business combination may elect, if the Group does not have an effective registration statement or the prospectus contained therein is not available for the issuance of the warrant shares to the holder, in lieu of exercising the warrants for cash, a cashless exercise option to receive a variable number of common shares.

 

At initial recognition on 20 December 2019, the Group recorded a derivative warrant liability of USD 16,983,200 based on the quoted price on 20 December 2019 of USD 0.8 per warrant and then revalued at USD 0.74 at 31 December 2019 resulting in a fair value gain of USD 1,273,740 and a warrant derivative liability of USD 15,709,460. These warrants were accounted for as part of the consideration transferred under IFRS 2.

 

On 14 May 2020, holders of 100 warrants have exercised their rights through cash exercise and converted the warrants into ordinary shares.

 

At 31 December 2022, the Group recorded a derivative warrant liability of USD 4,245,780 (31 December 2021: USD 11,675,815) which resulted in a gain on revaluation of derivative warrant liability for the year ended 31 December 2021 of USD 7,430,035 (31 December 2021: USD 1,486,023).

 

F-34

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements
December 31, 2022

 

21Borrowings

 

(Figures in USD)  2022   2021 
Term loan   2,178,737    Nil 
Bonds   171,343,445    182,781,617 
    173,522,182    182,781,617 

 

The current and non- current break up as below:

 

Non- Current  Maturity        
Term loan  2028   1,782,603    Nil 
       1,782,603    Nil 
              
Current             
Term loan      396,134    Nil 
Bonds  On demand   171,343,445    182,781,617 
       171,739,579    182,781,617 

 

Bonds  Coupon
rate %
   Effective
interest
rate %
   Maturity date  2022
USD
   2021
USD
 
USD 200,000,000 bond net of transaction costs   8.50%   10.57%  Refer note below   171,343,445    182,781,617 

 

On 24 September 2020, the Group issued long term fixed interest rate senior secured bonds of USD 200,000,000 to private investors with a face value of USD 1 at an issue price of USD 0.95. The Group can issue further bonds of up to USD 50,000,000 under identical terms except issue price that can be above or below the nominal amount, subject to certain conditions. The proceeds of the bonds of USD 186,000,000 net of USD 4,000,000 of transaction costs were drawn down during November 2020. In accordance with the terms of the bonds, the proceeds were used to settle the existing term loans and promissory notes. An amount of USD 85,000,000 were transferred to a Construction account to be used solely to fund the remaining phase 2 construction costs. The balance proceeds were used for general corporate purposes.

 

The bonds will be repaid in semi-annual payments of USD 7,000,000 starting September 2021 until March 2025, and one bullet repayment of USD 144,000,000 in September 2025. Interest will accrue at a coupon rate of 8.5% and will be payable semi-annually in March and September each year. The Group has the option to redeem the bonds in full or in part any time after 24 September 2023 (the “call option”). The call option represents an embedded derivative that has been separated from the host contract and separately valued. At 31 December 2022, management has assessed the value of the call option of USD 9,306,741 and classified as change in fair value of derivative financial instrument.

 

F-35

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements
December 31, 2022

 

21Borrowings (Continued)

 

The bonds are secured by:

 

(i)pledge over all the existing and future shares of BPGIC FZE;

 

(ii)assignment of rights and pledge over the balance in the Earnings account;

 

(iii)pledge over the balance in the Liquidity account, the Debt Service Retention account and the Construction Funding account;

 

(iv)pledge over moveable assets of BPGIC FZE and its subsidiaries;

 

(v)security assignment of commercial contracts related to phase I and phase II, land lease agreement, port facilities agreement and EPC construction contract;

 

(vi)security assignment over insurance contracts for phase I terminal, phase II terminal and admin building;
   
 (vii) security assignment over group and intercompany loans; and

 

(viii)corporate guarantee from Brooge Energy Limited.

 

The bond agreement also restricts BPGIC FZE from making any distributions other than in the form of an inter company loan for phase III construction.

 

Under the bond agreement, BPGIC FZE is subject to the following financial covenants during the term of the bonds.

 

(i)Minimum Liquidity: BPGIC FZE to maintain $8.5 million in the Liquidity account;

 

(ii)Leverage Ratio: BPGIC FZE and its subsidiaries’ leverage ratio not to exceed: (A) 5.5x at 31 December 2020; (B) 3.5x at 31 December 2021; and (C) 3.0x anytime thereafter; and

 

(iii)Working Capital: BPGIC FZE and its subsidiaries to maintain a positive working capital.

 

The bond agreement requires the Group to comply with the following financial covenant: (i) Brooge Energy Limited to maintain a minimum equity ratio of 25%.

 

As of 31 December 2022, the Group was in technical breach of the requirements to comply with the leverage ratio and working capital thresholds. Even though the lenders 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, the Group has classified the respective bonds as a current liability at the end of 31 December 2022. Subsequent to the year end, the lenders have confirmed their intention to not require immediate repayment of the outstanding amounts or alter the repayment pattern in the original bond agreement.

 

Bond Waiver letter

 

On April 27, 2022, the Group entered into an agreement with the Bondholders to implement following amendments to the Bond Financing Facility, effective immediately:

 

(a)Waiver of the Events of Defaults that are triggered by the technical breaches of the Leverage Ratio and positive Working Capital covenants until December 31, 2022.

 

(b)The requirement to maintain a Leverage Ratio to not exceed certain thresholds is suspended (waived) for the results period from December 31, 2021 to and including December 30, 2022, and shall be tested again for the 12 months results period from (and including) January 1, 2022 to December 31, 2022 (inclusive) at 3.5x, stepping down to 3.0x anytime thereafter (as per the original terms of the Bond Financing Facility). For the avoidance of doubt, the costs associated with the amendments shall not be taken into consideration in EBITDA when calculating Leverage Ratio.

 

F-36

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements
December 31, 2022

 

21Borrowings (Continued)

 

(c)The requirement to maintain a positive Working Capital is suspended (waived) for the period from December 31, 2021 to and including December 30, 2022, and shall be tested again starting from and including December 31, 2022.

 

(d)Permitted Distribution:

 

(i)No Permitted Distribution shall be made before BPGIC is in compliance with financial covenant requirements under the original terms of the Bond Facility Financing.

 

(ii)Furthermore, BPGIC shall provide to the Bond Trustee a written statement signed by its chief executive officer and chief financial officer within three business days prior to any permitted distribution under the terms of the Bond Financing Facility that (A) states the amount being distributed as a permitted distribution, (B) confirms the conditions with respect to such distribution are satisfied, and (C) declares such distribution will not lead to an Event of Default on the next testing date.

 

Term loan

 

During the year, the Group obtained a new term loan facility from a commercial bank in the UAE amounting to USD 2,395,862 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.

 

The term loan is secured by

 

i.Corporate Guarantee of M/s Brooge Energy Limited

 

ii.BPGIC Phase III FZE grants in favor of the commercial bank a First Rank Degree Mortgage for a total mortgage of AED 13,000,000 of the corporate office.

 

iii.Rental Income generated by the corporate office to be automatically assigned to the commercial bank unless the parties agree otherwise in writing.

 

iv.Authority to debit account no: 1001752862 of BPGIC FZE signed by the signatories (RIM No. 1123593) v. Promissory note for the secured loan

 

vi.Security cheque covering the total facility limit drawn by the Group.

 

F-37

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements
December 31, 2022

 

22Lease Liabilities

 

(Figures in USD)  2022   2021 
Balance at the beginning of the year   89,781,180    87,511,733 
Rent waiver   Nil    (6,126,800)
Interest charged during the year   10,398,008    11,774,031 
Repayment during the year   (9,305,777)   (3,377,784)
Balance at the end of the year   90,873,411    89,781,180 
1) The analysis of lease liability is as follows          
Current   6,316,342    8,976,452 
Non-Current   84,557,069    80,804,728 

 

During 2013, the Group entered into a land lease agreement with the Municipality of Fujairah for a period of 30 years, extendable for another 30 years at the option of the Group. The Group has concluded that they have the right-to-use of the asset and accordingly, recorded a lease liability as per the requirements of IFRS 16. Given the use of the land, it is reasonably certain that the Group will continue to lease the land till the end of the lease period (i.e. 60 years) and accordingly the below lease rentals cover a period up to 60 years discounted at the rate of 9.5% (2021: 9.5%) as an incremental borrowing rate for the Group. Annual lease rental is increased by 2% on an annual basis as per the agreement.

 

During 2020, the Group entered into another land lease agreement in respect of its Phase III project with the Fujairah Oil Industry Zone for a period of 30 years, extendable for another 30 years. Given the use of the land, it is reasonably certain that the Group will continue to lease the land till the end of the lease period (i.e. 60 years) and accordingly the below lease rentals cover a period up to 60 years discounted at the rate of 13% (2020: 13%) as an incremental borrowing rate for the Group. Annual lease rental is increased by 2% on an annual basis and there is an initial rent free period of 18 months from the contract date.

 

During the year 2021, the Group entered into an agreement with the lessor for an additional one-year rent free period in respect of the Phase III land The Group has treated this to be a partial extinguishment of the lease liability as per IFRS 16 and IFRS 9. The rent waiver is recognised as a gain in the income statement with a corresponding reduction in the lease liability.

 

   Lease payments   Present value of minimum
lease payments
 
   2022   2021   2022   2021 
Not later than one year   8,878,338    8,704,253    5,428,131    5,978,847 
Later than one year and not later than five years   37,324,891    36,593,030    17,164,474    18,899,037 
Later than five years   839,614,067    849,825,794    68,280,806    64,903,296 
    885,817,296    895,123,077    90,873,411    89,781,180 
Finance costs   (794,943,885)   (805,341,897)   Nil      Nil   
Present value of minimum lease payments   90,873,411    89,781,180    90,873,411    89,781,180 

 

F-38

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements
December 31, 2022

 

23Employees’ End of Service Benefits

 

(Figures in USD)  2022   2021 
Balance at the beginning of the year   60,624    40,514 
Provision for the year   256,890    31,551 
Paid during the year   (183,314)   (11,441)
Balance at the end of the year   134,200    60,624 

 

24Asset Retirement Obligation

 

Asset retirement obligation   2,056,259    1,990,399 
    2,056,259    1,990,399 

 

As part of the land lease agreement between the Fujairah Oil Industry Zone (“FOIZ”) and the Group, the Group has a legal obligation to remove the plant at the end of its useful life, or earlier, if the Group is unable to continue its operations, and restore the land. The Group has employed professional valuers to estimate the amount of liability.

 

25Share Capital & Share Premium

 

Authorized  No. of Shares   USD 
Ordinary shares   450,000,000    450,000,000 

 

Share Capital  No. of Shares   USD 
As at 31 December 2021   88,035,353    8,804 
As at 31 December 2022   88,035,353    8,804 

 

Ordinary shares held in escrow (20,000,000 shares held by BPGIC and 1,552,500 shares held by the original founders of Twelve Seas) have been excluded from the share capital in the table above. These shares will be released upon the satisfaction of certain financial milestones and share price targets below the release or forfeiture of these shares in the future will not have an effect on the equity of the Group.

 

One-half (½) of the Escrow Property shall become vested and no longer subject to forfeiture, and be released to the seller, in the event that either: (a) the Annualized EBITDA (as defined in the Escrow Agreement) for any full fiscal quarter during the Escrow Period (beginning with the first full fiscal quarter beginning after the Closing) (an “Escrow Quarter”) equals or exceeds USD 175,000,000 or (b) at any time during the Escrow Period, the closing price of the Brooge Energy Limited ordinary shares equals or exceeds $12.50 per share (subject to equitable adjustment) for any ten (10) Trading Days (as defined in the Escrow Agreement) within any twenty (20) Trading Day period during the Escrow Period.

 

All Escrow Property remaining in the Escrow Account shall become vested and no longer subject to forfeiture, and be released to the seller, in the event that either: (a) the Annualized EBITDA for any Escrow Quarter equals or exceeds $250,000,000 or (b) at any time during the Escrow Period, the closing price of the Brooge Energy Limited ordinary shares equals or exceeds $14.00 per share (subject to equitable adjustment) for any ten (10) Trading Days within any twenty (20) Trading Day period during the Escrow Period. The Escrow Period represents the period commencing from the closing until the end of the twentieth (20th) fiscal quarter after the commencement date of the first full fiscal quarter beginning after the closing.

 

F-39

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements
December 31, 2022

 

25Share Capital & Share Premium (Continued)

 

(Figures in USD)  2022   2021 
         
Share Premium        
As at January 01   101,777,058    101,777,058 
As at December 31   101,777,058    101,777,058 

 

26Transactions with Related Parties

 

The Group, in the normal course of business carries out transactions with parties that fall within the definition of related party contained in the International Financial Reporting Standards. Significant transactions with related parties are as under:

 

Transactions in shareholders’ account

 

(Repayments to) / Contributions by the shareholders   (626,029)   255,818 
    (626,029)   255,818 

 

These amounts are repayable at the discretion of the Board of Directors of the Group and are interest free, therefore classified as part of equity.

 

Changes in shareholders’ account is as follows:        
At January 01   71,017,816    70,761,998 
Net contributions (distributions) during the year    (626,029)   255,818 
At December 31   70,391,787    71,017,816 
Expense (reimbursed by) / paid on behalf of related parties   24,360    509,343 
Key management remuneration   1,229,114    1,242,706 

 

Related party balances as at the year end are classified as under:

 

Related Party  Classification        
Shareholder  Shareholder’s account (Equity)   70,391,787    71,017,816 
BPGIC Holdings  Due from shareholder (Note 14)   34,136    504,214 
HBS Investments LP  Due from related parties (Note 14)   10,381    4,187 
H Capital International LP  Due from related parties (Note 14)   9,983    4,189 
O2 Investments Limited as GP  Due from related parties (Note 14)   9,272    5,191 
SBD International LP  Due from related parties (Note 14)   50,014    47,357 
SD Holding Limited as GP  Due from related parties (Note 14)   21,842    19,938 
Gyan Investments Ltd  Due from related parties (Note 14)   9,010    5,280 
Shareholder  Due to a related party (Note 18)   Nil    2,041,927 

 

F-40

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements
December 31, 2022

 

27Contingent Liabilities

 

(Figures in USD)  2022   2021 
Capital commitments within one year   53,500,000    22,000,000 
    53,500,000    22,000,000 

 

Capital commitments relate to construction project for interconnection of pipelines between Phase I and Phase II with Phase III and early preparation work for Phase III

 

28Earnings Per Share

 

Basic EPS is calculated by dividing the profit/(loss) for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

 

Diluted EPS is calculated by dividing the profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.

 

The following table reflects the income and share data used in the basic and diluted EPS calculations:

 

Profit attributable to ordinary equity holders of the parent   27,229,285    25,690,565 
Weighted average number of ordinary shares   88,035,321    88,035,321 

 

As part of the business combination warrants and ordinary shares subjected to escrow have been issued. In the calculation of diluted earnings per shares, the warrants have been excluded as the average market price of ordinary shares during the period exceeded the exercise price of the warrants i.e. they are not in the money.

 

The number of contingently issuable shares (21,552,000 escrow shares) to be included in the diluted earnings per shares calculation is based on the number of shares that would be issuable if the end of the period were the end of the Escrow Period. No ordinary shares would have been issuable on 31 December 2022 as the conditions attached to the escrow shares have not been met at reporting date. As a result, the escrow shares have been excluded from the calculation of diluted earnings per share for 31 December 2022 and the weighted average number of ordinary shares for basic earnings per share and diluted earnings per shares are the same.

 

F-41

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements
December 31, 2022

 

29Fair Value of Financial Instruments

 

Management considers that the fair value of financial assets and financial liabilities in the consolidated financial statements approximate their carrying amounts at the reporting date.

 

Fair Value Hierarchy

 

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.

 

Liabilities measured at fair value:  Level 1
USD
   Level 2
USD
   Level 3
USD
  Total Fair Value
USD
 
December 31, 2022               
Derivative warrant liability   4,245,780    Nil   Nil   4,245,780 
Borrowings   Nil    171,343,445   Nil   171,343,445 
Derivative financial instruments   Nil    9,306,741   Nil   9,306,741 

 

Liabilities measured at fair value:  Level 1
USD
   Level 2
USD
   Level 3
USD
  Total Fair Value
USD
 
December 31, 2021               
Derivative warrant liability   11,675,815    Nil   Nil   11,675,815 
Borrowings   Nil    182,781,617   Nil   182,781,617 
Derivative financial instruments   Nil    5,422,917   Nil   5,422,917 

 

The fair value of level 1 financial liability have been determined in accordance with quoted price.

 

The fair value of level 2 financial liability have been determined by using generally accepted pricing models based on a discounted cash flow analysis, respectively. The models incorporate various inputs including interest rate curves and forward rate curves of the underlying instruments.

 

During the year ended 31 December 2022 and 2021, there were no transfers between Level 1 and Level 2 fair value measurements.

 

30Subsequent Events

 

On January 11, 2023, the Group received an additional notice of non-compliance from the Listing Qualifications Staff (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) due to the Group not having been able to file interim financial statements for the period ended June 30, 2022 with the Securities and Exchange Commission (the “SEC”) by December 31, 2022, as required by Nasdaq Listing Rule 5250(c)(2) (the “Filing Rule”). The Staff stated that the additional filing delinquency could serve as an additional basis for the delisting of the Group’s securities from Nasdaq. The Group was provided with the opportunity to update the Nasdaq Hearings Panel (the “Panel”) regarding the status of its efforts to evidence compliance with the Filing Rule prior to the expiration of the extension previously granted by the Panel on April 26, 2023. The Group has updated to the Panel with respect to its compliance efforts.

 

F-42

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements
December 31, 2022

 

30Subsequent Events (Continued)

 

On February 15, 2023 the Group announced a partnership through the company’s subsidiary Brooge Renewable Energy (“BRE”) with Siemens Energy (“SE”), one of the world’s largest energy technology companies, to build a PV solar farm to supply BRE’s Green Hydrogen and Green Ammonia project in Abu Dhabi, United Arab Emirates. BRE and SE partnership is aimed to build up to 650 MW solar PV plant to supply BRE’s planned Phase 1 of the green ammonia project with renewable energy. Siemens Energy will serve as the Technical Partner to Brooge and exclusive provider of solutions including engineering, design procurement, and construction of up to a 650 MW solar PV plant including grid connection and operation and maintenance services. The two companies will partner to obtain the necessary project approvals from governmental agencies as a first step of the project.

 

31Financial Risk Management and Policies

 

The main risks arising from the Group’s financial instruments are interest rate risk, credit risk, currency risk and liquidity risk. Management reviews and agrees policies for managing each of these risks which are summarized below.

 

Interest Rate Risk

 

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

 

The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s balances with banks. The Group’s borrowing are issued at fixed rate of interest.

 

Market Risk

 

The Group’s activities expose it to the financial risks of changes in interest rates and price risk of the warrants. As the warrants are recognised at fair value on the consolidated statement of financial position of the Group, the Group’s exposure to market risks results from the volatility of the warrants price. The Warrants are publicly traded at the NASDAQ Stock Exchange.

 

At the reporting date, the exposure to derivative warrant liability at fair value listed on the NASDAQ was USD 4,245,780 (2021: 11,675,815). The Group has determined that an increase/(decrease) of 10% on the NASDAQ could have an impact of approximately USD 424,578 (2021: USD 1,167,582) increase/(decrease) on the income and equity attributable to the Group.

 

Currency Risk

 

The Group does not have any significant exposure to currency risk as most of its assets and liabilities are denominated in USD or UAE Dirhams, which are pegged to the USD.

 

Credit Risk

 

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Group is exposed to credit risk on bank balances and receivables as reflected in the consolidated statement of financial position, with a maximum exposure equal to the carrying amount of these instruments. The expected credit loss on trade and other receivables are considered insignificant for 2022 and 2021.

 

The Group has a low credit risk exposure on its trade receivables based on established policy, procedures and controls relating to customer credit risk management. Credit quality of the customer is assessed as part of contract negotiations. Outstanding receivables are regularly monitored.

 

F-43

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2022

 

31Financial Risk Management and Policies (Continued)

 

Liquidity Risk

 

The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers projected financing requirements of the Group during the construction phase and cash projections from operations with outstanding bank facilities and outstanding bank commitments as defined under the finance documents.

 

The Group manages its liquidity risk in relation to term loans to ensure compliance with all covenants for each specific facility.

 

The table below summarizes the maturity profile of the Group’s financial liabilities at December 31, 2022 and December 31, 2021 based on contractual undiscounted payments.

 

   On
Demand
   Upto
1 Year
   1 to 5
Years
   >5
Years
   Total 
   USD   USD   USD   USD   USD 
December 31, 2022                    
Borrowings
(Including accrued interest)
   171,343,445    396,134    1,782,603    Nil    173,522,182 
Lease liability   Nil    5,428,131    17,164,474    68,280,806    90,873,411 
Accounts payable, accruals and other payables
(excluding accrued interest)
   Nil    93,903,217    Nil    Nil    93,903,217 
Total   171,343,445    99,727,482    18,947,077    68,280,806    358,298,810 
                          
December 31, 2021                         
Borrowings
(Including accrued interest)
   182,781,617    Nil    Nil    Nil    182,781,617 
Lease liability   Nil    5,978,847    18,899,037    64,903,296    89,781,180 
Accounts payable, accruals and other payables
(excluding accrued interest)
   Nil    88,342,208    Nil    Nil    88,342,208 
Total   182,781,617    94,321,055    18,899,037    64,903,296    360,905,005 

 

F-44

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2022

 

31Financial Risk Management and Policies (Continued)

 

Capital Management

 

The primary objective of the Group’s capital management is to ensure that it maintains healthy capital ratios in order to support its business and maximize shareholder’s value and to meet its loan covenants.

 

The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust future distribution policy to shareholders, issue new shares or shareholders’ contributions.

 

The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group includes within net debt, the lease liability, term loans, and trade and other payables, less cash and cash equivalents. Capital includes share capital, shareholders’ accounts, general reserve and (accumulated losses) retained earnings.

 

(Figures in USD)   2022    2021 
Borrowing   173,522,182    182,781,617 
Lease liability   90,873,411    89,781,180 
Less: cash and cash equivalents   (940,925)   (1,452,316)
Net debt   263,454,668    271,110,481 
Total capital   105,094,692    78,491,436 
Capital and net debt   368,549,360    349,601,917 
           
Gearing ratio   71%   71%

 

32Rounding Off of Figures

 

All figures have been rounded off to the nearest US Dollars.

 

33Comparative Figures

 

Certain of the prior year figures have been regrouped to conform with the presentation of the current year.

 

F-45

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2022

(Figures in USD)

 

Groupings of Property, Plant and Equipment

   Buildings   Installations  

Other

Equipments

   Tanks  

Capital Work

in Progress

  

Right of use

Assets

   Total 
Cost:                            
As at January 01, 2022   28,037,886    179,268,276    307,695    154,532,494    8,685,182    84,989,427    455,820,960 
Additions during the year   2,775,806    99,130    915,994    Nil     8,524,553    Nil     12,315,483 
As at December 31, 2022   30,813,692    179,367,406    1,223,689    154,532,494    17,209,735    84,989,427    468,136,443 
                                    
Accumulated Depreciation:                                   
As at January 01, 2022   4,615,111    12,287,155    186,399    6,697,282    Nil     4,768,100    28,554,047 
Charge for the year   1,214,042    7,558,769    185,055    3,148,604    Nil     1,435,287    13,541,757 
As at December 31, 2022   5,829,153    19,845,924    371,454    9,845,886    Nil     6,203,387    42,095,804 
                                    
Net Carrying Value:                                   
As at December 31, 2022   24,984,539    159,521,482    852,235    144,686,608    17,209,735    78,786,040    426,040,639 
As at December 31, 2021   23,422,775    166,981,121    121,296    147,835,212    8,685,182    80,221,327    427,266,913 

 

Additions to buildings of USD 2,775,806 are mortgaged as security against loans obtained in 2022 (Note 21).

 

Capital work in progress at December 31, 2022 of USD 17,024,383 relates to the Group’s Phase III storage facilities under development & USD 185,352 relates to Group’s Phase II tanks under development.

 

Land lease agreement and the moveable assets of BPGIC FZE are pledged as security against borrowings obtained in 2020 (Note 21)

 

The depreciation charge for the year is allocated to the statement of comprehensive income (within profit and loss) and capital work in progress as follows.

 

   2022   2021 
Direct costs (Note 7)   12,615,658    6,806,198 
CWIP   926,099    1,142,207 
    13,541,757    7,948,405 

 

 

F-46

 

 

 

 

 

 

 

 

 

 

Brooge Energy Limited
(Formerly Brooge Holdings Limited)

 

Consolidated Financial Statements
December 31, 2021

 

 

 

 

 

 

 

 

 

 

F-47

 

 

Brooge Energy Limited
Index to the Financial Statements
December 31, 2021
 

 

  Page
   
Independent Auditor’s Report F-49
Consolidated Statement of Comprehensive Income F-53
Consolidated Statement of Financial Position F-54
Consolidated Statement of Changes in Equity F-55
Consolidated Statement of Cash Flows F-56
Notes to the Consolidated Financial Statements F-57

 

F-48

 

 

 

 

A picture containing graphical user interface

Description automatically generated  

Office 106, The Binary Al Abraj Street Business Bay
PO Box 413383
Dubai /UAE  

 
[T] +971 4 557 8358

[E] mail@affiniax.com  

 

Independent Auditor’s Report

 

To the Board of Directors and Shareholders of Brooge Energy Limited and its Subsidiaries

Report on the Audit of the Consolidated Financial Statements

 

Opinion

 

We have audited the consolidated financial statements of Brooge Energy Limited and its Subsidiaries, (“the Group”), which comprise of the consolidated statement of financial position as at December 31, 2021, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended and notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory notes.

 

In our opinion, the accompanying consolidated financial statements, present fairly, in all material respects, the consolidated financial position of Brooge Energy Limited and its Subsidiaries as at December 31, 2021 and its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.

 

Basis for Opinion

 

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with PCAOB & International Standards on Auditing (ISA’s). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the consolidated Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Other Matter

 

Attention is invited to Note 32 Prior Year Restatement, the prior year consolidated financial statements of the Group are re-audited to record the restatement pertaining to revenue, other payable and trade accounts receivable. Our opinion is not modified in respect of this matter.

 

 

F-49

 

 

Emphasis of Matter

 

a. We draw your attention to Note 19 wherein the Group has allocated funds received in prior years from M/s Brooge International Advisory LLC. Since the Group could not obtain the confirmation from subject party to identify the purpose and repayment terms, if any; before signing date of this report, the amount has been classified as Other payable in the consolidated financial statements for the year ended December 31, 2021.

 

b. Considering the significance of the above amount involved, we have further reviewed the legal documents of M/s Brooge Petroleum and Gas Investment Company and M/s Brooge International Advisory LLC (BIA) to determine whether they are related parties in accordance to Paragraph (9) of International Accounting Standards (IAS 24). The Company has further undertaken vide resolution dated April 23, 2023 to consider BIA as a related party.  Based on the above representation and applying the concept of substance over form, it indicates that BIA is a related party.

 

c. We draw attention to the consolidated statement of financial position in the consolidated financial statements, which indicates that as of December 31, 2021, the Group’s current liabilities exceed current assets by USD 283,342,631. Our opinion is not modified in respect of this matter.

 

Key Audit Matters

 

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 

We have determined that there are no other key audit matters to communicate in our report.

 

Responsibility of the Management for the Consolidated Financial Statements

 

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards and for such internal controls as Management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the consolidated financial statements, the Management is responsible for assessing the Group’s ability to continue as a going concern, as applicable, matters related to going concern and using the going concern basis of accounting, unless Management either intends to liquidate the Group or to cease operations or has no realistic alternative but to do so.

 

 

F-50

 

 

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

 

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatements, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISA’s will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

 

As part of an audit in accordance with ISA’s, we exercise professional judgement and maintain professional skepticism throughout the audit. We also;

 

●     Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risks of not detecting a material misstatement resulting from fraud is higher than for one resulting from error as fraud may involve collusion, forgery, intentional omissions, misrepresentation or override of internal controls.

 

●     Obtain an understanding of internal controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal controls.

 

●     Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management.

 

●     Conclude on the appropriateness of Management’s use of going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

 

●     Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

We communicate with the Management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal controls that we identify during our audit.

 

 

F-51

 

 

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

 

We also provide the Management with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

 

From the matters communicated with the Management, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current year and are therefore the key audit matters.

 

Affiniax A A S Auditors

 

 

 

Dubai,

United Arab Emirates,

April 24, 2023

 

 

F-52

 

 

Brooge Energy Limited

 

Consolidated Statement of Comprehensive Income

Year Ended December 31, 2021

 

(Figures in USD)  Note  2021   2020 
          (Re-stated) 
Revenue  6   41,761,615    27,191,176 
Direct costs  7   (14,984,022)   (12,708,386)
Gross profit      26,777,593    14,482,790 
              
Other income  8   6,237,620    828,332 
Change in estimated fair value of derivative warrant liability  20   1,486,023    2,547,622 
General and administration expenses  9   (7,422,870)   (6,664,303)
Finance costs  10   (6,810,718)   (8,335,269)
Changes in fair value of derivative financial instruments  16   5,422,917    (340,504)
Profit for the year      25,690,565    2,518,668 
Other comprehensive income      Nil    Nil 
Total Comprehensive Income for the year      25,690,565    2,518,668 
Basic and diluted earnings per share  28   0.29    0.03 

 

The accompanying notes form an integral part of the consolidated financial statements.

 

F-53

 

 

Brooge Energy Limited

 

Consolidated Statement of Financial Position

As at December 31, 2021

 

Figures in USD)  Note  2021   2020  
          (Re-stated) 
ASSETS           
            
Current Assets           
Cash and cash equivalents  11   7,380,991    39,389,935 
Trade accounts receivable  12   3,771,492    Nil 
Inventories  13   250,360    321,789 
Other receivable and prepayments  14   1,131,868    393,869 
Total Current Assets      12,534,711    40,105,593 
              
Non-Current Assets             
Restricted bank balance  11   8,500,000    8,500,000 
Property, plant and equipment  15   427,266,913    367,303,523 
Derivative financial instrument  16   5,422,917    Nil 
Advances to contractor  17   3,499,988    16,458,252 
Total Non-Current Assets      444,689,818    392,261,775 
Total Assets      457,224,529    432,367,368 
              
LIABILITIES AND EQUITY             
              
Current Liabilities             
Trade and accounts payable  18   18,189,493    17,766,575 
Other payable  19   74,253,965    73,453,606 
Derivative warrant liability  20   11,675,815    13,161,838 
Borrowings  21   182,781,617    7,000,000 
Lease liabilities  22   8,976,452    2,591,557 
Total Current Liabilities      295,877,342    113,973,576 
              
Non-Current Liabilities             
Borrowings  21    Nil    180,014,715 
Lease liabilities  22   80,804,728    84,920,176 
Employees’ end of service benefits  23   60,624    40,514 
Asset retirement obligation  24   1,990,399    873,334 
Total Non-Current Liabilities      82,855,751    265,848,739 
              
Equity             
Share capital  25   8,804    8,804 
Share premium  25   101,777,058    101,777,058 
Statutory reserve      680,643    344,848 
Accumulated losses      (94,992,885)   (120,347,655)
Shareholder’s account      71,017,816    70,761,998 
Total Equity Attributable to the Shareholders      78,491,436    52,545,053 
Total Liabilities and Equity      457,224,529    432,367,368 

 

The accompanying notes form an integral part of the consolidated financial statements.

 

F-54

 

 

Brooge Energy Limited

 

Consolidated Statement of Changes in Equity

Year Ended December 31, 2021

 

(Figures in USD)  Share
Capital
   Share Premium   Statutory Reserve   accumulated Losses   Shareholder’s Account   Total 
                         
As at January 01, 2020 (Restated)   8,804    101,775,834    Nil    (122,521,475)   70,995,455    50,258,618 
Exercise of 100 warrants in 100 ordinary shares   0.01    1,224    Nil    Nil    Nil    1,224 
Profit for the year   Nil    Nil    Nil    2,518,668    Nil    2,518,668 
Transferred to statutory reserve   Nil    Nil    344,848    (344,848)   Nil    Nil 
Movements during the year    Nil     Nil     Nil     Nil    (233,457)   (233,457)
As at December 31, 2020 (Restated)   8,804    101,777,058    344,848    (120,347,655)   70,761,998    52,545,053 
Profit for the year   Nil    Nil    Nil    25,690,565    Nil    25,690,565 
Transferred to statutory reserve   Nil    Nil    335,795    (335,795)   Nil    Nil 
Movements during the year   Nil    Nil    Nil    Nil    255,818    255,818 
As at December 31, 2021   8,804    101,777,058    680,643    (94,992,885)   71,017,816    78,491,436 

 

The accompanying notes form an integral part of the consolidated financial statements.

 

F-55

 

 

Brooge Energy Limited

 

Consolidated Statement of Cash Flows

Year Ended December 31, 2021

 

(Figures in USD)  2021   2020 
       (Re-stated) 
Cash Flow from Operating Activities        
         
Profit for the year   25,690,565    2,518,668 
           
Adjustments for:          
Depreciation of property, plant and equipment   7,948,404    6,109,313 
Interest charged on lease liability   11,774,031    3,525,982 
Provision for employees’ end of services benefits   31,551    29,047 
Change in estimated fair value of derivative warrant liability   (1,486,023)   (2,547,622)
Net changes in fair value of derivative financial instruments   (5,422,917)   340,504 
Rent waiver   (6,126,800)   Nil 
Write back of accrued interest not settled   Nil    (754,929)
Asset retirement obligation - accretion expense   28,252    79,555 
           
Changes in operating assets and liabilities          
(Increase) / Decrease in trade accounts and other receivable and prepayments   (4,509,491)   610,369 
Decrease / (Increase) in inventories   71,426    (142,145)
Increase / (Decrease) in trade and accounts payable   422,916    (42,612,463)
Increase in other payable   800,359    15,659,111 
Payment of employees’ end of services benefits   (11,441)   (2,474)
Net cash generated from / (used in) operating activities   29,210,832    (17,187,084)
           
Cash Flow from Investing Activities          
           
Amount withdrawn / (deposited) in restricted bank account   12,471,290    (26,899,965)
Advance to contractors   12,958,264    5,206,512 
Purchase of property, plant and equipment   (66,822,976)   (53,824,606)
Net cash used in investing activities   (41,393,422)   (75,518,059)
           
Cash Flow from Financing Activities          
           
Net of repayment from term loan   Nil    (88,700,137)
Repayment of / (Proceeds from) bonds   (4,233,098)   187,014,715 
Payment of lease liability   (3,377,784)   (2,359,250)
Payment of derivative financial instrument   Nil    (1,858,753)
Movement in shareholder’s account   255,818    (233,457)
Exercise of 100 warrants in 100 ordinary shares   Nil    1,224 
Net cash (used in) / generated from financing activities   (7,355,064)   93,864,342 
Net change in cash and cash equivalents   (19,537,654)   1,159,199 
Cash and cash equivalents at beginning of the year   20,989,970    19,830,771 
Cash and cash equivalents at end of the year   1,452,316    20,989,970 

 

The accompanying notes form an integral part of the consolidated financial statements

 

F-56

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements
December 31, 2021

 

1Legal Status, Management and Business Activity

 

The consolidated financial statements comprise of the financial statements of Brooge Energy Limited (“Company”) and its subsidiaries on a line-by-line basis. The Company and its subsidiaries are collectively referred to as the “Group”. The details of the Group are as follows:

 

a. Brooge Energy Limited (“Company”)

 

The Company (formerly known as Brooge Holdings Limited), is a Company with limited liability registered as an exempted company in the Cayman Islands.

 

The registered office of the Company is at P.O Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. The Company’s principal executive office is located at P.O Box 50170, Al-Sodah, Khorr Fakkan Road, Fujairah, United Arab Emirates (“UAE”).

 

The Company changed its name from Brooge Holdings Limited to Brooge Energy Limited on April 07, 2020.

 

The subsidiaries of the Company are as follows:

 

i. Brooge Petroleum and Gas Investment Company FZE (“BPGIC FZE”)

 

BPGIC FZE is a Free Zone Establishment formed and registered in the Fujairah Free Zone Authority under registration number 13-FZE-1117.

 

BPGIC FZE is a 100% subsidiary of the Company.

 

ii. Brooge Petroleum and Gas Investment Company Phase III FZE (BPGIC Phase III FZE)

 

BPGIC FZE is a Free Zone Establishment formed and registered in the Fujairah Free Zone Authority under registration number 20-FZE-1972.

 

BPGIC Phase III FZE is a 100% subsidiary of the Company.

 

iii. BPGIC International

 

BPGIC International formerly known as Twelve Seas, is a company with limited liability registered as an exempted company in the Cayman Islands.

 

BPGIC International is a 100% subsidiary of the Company.

 

iv. Brooge Petroleum and Gas Management Company Limited (BPGMC Limited)

 

BPGMC Limited is a company with limited liability registered in Dubai International Financial Centre with commercial license number CL3852.

 

BPGMC Limited is a 100% subsidiary of the Company.

 

v. BPGIC Phase 3 Limited (BPGIC Phase III Ltd)

 

BPGIC Phase 3 Limited is a Free Zone Company with limited liability formed in accordance with the provisions of Jebel Ali Free Zone Authority Offshore Companies Regulations 2018. The registration number of BPGIC Phase 3 Limited is 226933.

 

BPGIC Phase 3 Limited is a 100% subsidiary of the Company.

 

F-57

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

1Legal Status, Management and Business Activity (Continued)

 

The service provided by the group is oil storage and related services at the Port of Fujairah in the Emirate of Fujairah, UAE. The Group currently operates phase I and phase II, comprising 22 tanks with a total capacity of 1,001,388 cubic meters (“cbm”), fully operational for provision of storage and other ancillary processes of crude and clean oil. The construction of the Company’s phase II, with a total capacity of 602,064 cbm was completed in September 2021.The Group has commenced early preparation work for its phase 3 project where it intends to construct additional storage and refinery facilities. The Group’s has commenced preconstruction work for its phase 3. The Group intends to construct additional storage and refinery facility as part of the phase 3.

 

The Company was incorporated on 12 April 2019 for the sole purpose of consummating the business combination described further below.

 

On 15 April 2019, BPGIC FZE entered into a business combination agreement with Twelve Seas Investment Company (“Twelve Seas”), a company listed on National Association of Securities Dealers Automated Quotations (“NASDAQ”), the Company and BPGIC FZE’s shareholders. On 10 May 2019, BPGIC PLC became party to the business combination agreement by execution of a joinder thereto.

 

The business combination was accounted for as a reverse acquisition in accordance with the International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board (“IASB”) as disclosed in Note 31.

 

Under this method of accounting, Brooge Energy 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 stockholders 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 FZE are the historical financial statements of the combined company, and Brooge Energy and Twelve Sea’s assets, liabilities and results of operations are consolidated with BPGIC FZE beginning on the acquisition date.

 

As a result of the above transaction, the Company became the ultimate parent of BPGIC FZE and Twelve Seas on 20 December 2019, being the acquisition date. The Company’s common stock and warrants are traded on the NASDAQ Capital Market under the ticker symbols BROG and BROGW, respectively. Upon the closing of business combination, Twelve seas changed its name to ‘BPGIC International’.

 

The consolidated financial statements are prepared as a continuation of the financial statements of BPGIC FZE, the acquirer, and retroactively adjusted to reflect the legal capital of the legal parent/acquiree (Brooge Energy Limited).

 

The reaudited consolidated financial statements were authorised for issue by the Board of Directors.

 

2Basis of Preparation of Consolidated Financial Statements

 

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board “IASB”. These consolidated financial statements are presented in United States dollars (“USD”) which is the functional and presentation currency of the Group.

 

F-58

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

2Basis of Preparation of Consolidated Financial Statements (Continued)

 

All financial information presented in USD has been rounded to the nearest thousand, unless otherwise stated. The consolidated financial statements are prepared under the historical cost convention, except for re-measurement at fair value of derivative financial instruments and derivative liability.

 

(i) Subsidiaries

 

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December 2021. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

 

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

 

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

 

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

 

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 Details of subsidiaries as at 31 December 2021 are stated in Note 1.

 

F-59

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

2Basis of Preparation of Consolidated Financial Statements (Continued)

 

(i) Subsidiaries (Continued)

 

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.

 

(ii) 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.

 

(iii) 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.

 

F-60

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

2Basis of Preparation of Consolidated Financial Statements (Continued)

 

(iii) Business combinations (Continued)

 

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.

 

A business, IFRS 3 Business Combinations applies;

 

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.

 

2.1Going Concern

 

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 1.4 million.

 

As of 31 December 2021, due to delay in construction of Phase II because of COVID, 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 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.

 

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.

 

F-61

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

3Changes in Accounting Policies And Disclosures

 

New and amended standards and interpretations.

 

The accounting policies applied in the preparation of the consolidated financial statements are consistent with those of the previous year, except for the adoption of amendments to the existing standards and interpretations effective as of 1 January 2021 and early adoption of amendments to IAS 16 – Property, Plant and Equipment, as described below.

 

The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

 

Amendments to IFRS 16: Covid-19-Related Rent Concessions beyond 30 June 2021;

 

Amendments to IFRS 7, IFRS 9 and IAS 39 Interest Rate Benchmark Reform - Phase II.

 

The adoption of above standards and amendments did not have any significant impact on the consolidated financial statements of the Group.

 

Amendments to IAS 16 – Property, Plant and Equipment: Proceeds before Intended Use

 

In May 2020, the IASB issued the amendments to IAS 16 - Property, Plant and Equipment — Proceeds before Intended Use that are effective for annual reporting periods beginning on or after 1 January 2022 and must be applied retrospectively to items of property, plant and equipment made available for use on or after the beginning of the earliest period presented when the entity first applies the amendment.

 

The amendment prohibits an entity from deducting from the cost of an item of property, plant and equipment any proceeds received from selling items produced while the entity is preparing the asset for its intended use. It also clarifies that an entity is ‘testing whether the asset is functioning properly’ when it assesses the technical and physical performance of the asset. The financial performance of the asset is not relevant to this assessment.

 

New Standards and Interpretations Not Yet Effective

 

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s consolidated financial statements are disclosed below.

 

IFRS 17 Insurance contracts, IFRS 17 is effective for reporting periods beginning on or after 1 January 2023;

 

Amendments to IAS 1: Classification of Liabilities as Current or Non-current, the amendments are effective for annual reporting periods beginning on or after 1 January 2023;

 

Reference to the Conceptual Framework – Amendments to IFRS 3, the amendments are effective for annual reporting periods beginning on or after 1 January 2022;

 

Onerous Contracts – Costs of Fulfilling a Contract – Amendments to IAS 37, the amendments are effective for annual reporting periods beginning on or after 1 January 2022;

 

F-62

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

3Changes In Accounting Policies And Disclosures New Standards and Interpretations Not Yet Effective

 

IFRS 1 First-time Adoption of International Financial Reporting Standards – Subsidiary as a first-time adopter, the amendment is effective for annual reporting periods beginning on or after 1 January 2022;

 

IFRS 9 Financial Instruments – Fees in the ’10 per cent’ test for derecognition of financial liabilities, the amendment is effective for annual reporting periods beginning on or after 1 January 2022; and

 

IAS 41 Agriculture – Taxation in fair value measurements, the amendment is effective for annual reporting periods beginning on or after 1 January 2022

 

Amendments to IAS 8 - Definition of Accounting Estimates, the amendment is effective for annual reporting periods beginning on or after 1 January 2023.

 

Amendments to IAS 1 and IFRS Practice Statement 2- Disclosure of Accounting Policies, the amendment is effective for annual reporting periods beginning on or after 1 January 2023.

 

The Group does not expect these new standards and amendments to have any significant impact on the consolidated financial statements, when implemented in future periods.

 

4Significant 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:

 

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.

 

F-63

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

4Key Sources of Estimation Uncertainty (Continued)

 

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.

 

Impairment of trade receivables

 

The Company 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 Company calculates the ECL based on Company 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.

 

F-64

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

4Key Sources of Estimation Uncertainty (Continued)

 

Classification of warrants

 

In connection with the completion of the business combination on 20 December 2019 as described in Note 1, Note 20 and Note 31 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.

 

5Summary 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.

 

F-65

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

5Summary of Significant Accounting Policies (Continued)

 

Fair values

 

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

 

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 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 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.

 

F-66

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

5Summary of Significant Accounting Policies (Continued)

 

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 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.

 

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
Installations  20 - 25 years
Other Equipment  5 years
Right of use asset - Land  60 years

 

F-67

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

5Summary of Significant Accounting Policies (Continued)

 

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 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 capitalised 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.

 

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 Company 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 Company 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.

 

F-68

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

5Summary of Significant Accounting Policies (Continued)

 

Leases (Continued)

 

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

 

b) 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. 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.

 

F-69

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

5Summary of Significant Accounting Policies (Continued)

 

Leases (Continued)

 

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.

 

F-70

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

5Summary of Significant Accounting Policies (Continued)

 

Financial Instruments (Continued)

 

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.

 

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.

 

F-71

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

5Summary of Significant Accounting Policies (Continued)

 

Financial liabilities (Continued)

 

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 29. 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”.

 

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.

 

F-72

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

5Summary of Significant Accounting Policies (Continued)

 

Financial liabilities (Continued)

 

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.

 

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.

 

F-73

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

5Summary of Significant Accounting Policies (Continued)

 

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 Statutory 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 (Note 31).

 

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.

 

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.

 

F-74

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

5Summary of Significant Accounting Policies (Continued)

 

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.

 

F-75

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

(Figures in USD)  2021   2020  
                 (Re-stated) 

 

6Revenue

 

Storage rental income (Note 32)   37,467,396    23,754,376 
Miscellaneous income (Note 6.1)   1,681,878    1,558,887 
Ancillary services   2,612,341    1,877,913 
    41,761,615    27,191,176 

 

Note 6.1

 

The Group has only one segment at the reporting date. Revenue generation from leasing of storage capacity of tanks and other ancillary services started in December 2017.

 

The commercial contracts with customers related to the Phase 1 and Phase 2 have been assigned as security against the borrowing obtained in 2020.

 

Miscellaneous income includes port charges of USD 1,681,878 that are paid by the Group to the port authority and recharged to the customers.

 

The revenues of the Group mainly comprise of fixed fees for storage and related services and variable fees for ancillary services provided under a contract with its customers. Accordingly, there is no cyclicality in the Group’s operations.

 

7Direct Costs

 

Depreciation on property, plant and equipment (Note 15)   6,806,198    5,800,007 
Employees’ costs   3,891,969    3,482,431 
Reimbursable port charges (Note 6.1)   1,681,878    1,558,887 
Spare parts and consumables used   938,386    657,917 
Insurance charges   782,357    397,976 
Others   883,234    811,168 
    14,984,022    12,708,386 

 

8Other Income

 

Rent- waiver (Note 22)   6,126,800    Nil 
Write back of accrued interest not settled   Nil    754,929 
Miscellaneous   110,820    73,403 
    6,237,620    828,332 

 

F-76

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

(Figures in USD)  2021   2020  
                 (Re-stated) 

 

9General and Administration Expenses

 

Employees’ cost   2,486,933    2,014,858 
Legal and professional   2,877,264    2,594,801 
Insurance   937,329    639,345 
Board fees and expenses   518,278    354,169 
Office expenses   393,187    270,259 
Repairs and maintenance   22,149    247,302 
Sales and marketing   60,389    211,383 
Rent   112,306    177,850 
Travelling expenses   15,035    154,336 
    7,422,870    6,664,303 

 

10Finance Costs

 

Interest expense on borrowings   4,966,876    5,467,250 
Interest on lease liability   1,685,010    2,041,006 
Early settlement charges   Nil    706,643 
Asset retirement obligation - accretion expenses   28,252    79,555 
Bank charges   89,587    11,696 
Exchange loss   40,993    29,119 
    6,810,718    8,335,269 

 

11Cash and Cash Equivalents

 

Cash in hand   3,195    5,026 
Balances in current accounts   15,877,796    47,884,909 
    15,880,991    47,889,935 
The above consist of the following:          
Non-current          
Restricted bank balance   8,500,000    8,500,000 
    8,500,000    8,500,000 
Current          
Cash and Cash Equivalents   1,452,316    20,989,970 
Restricted bank balance   5,928,675    18,399,965 
    7,380,991    39,389,935 

 

F-77

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

(Figures in USD)  2021   2020  
                 (Re-stated) 

 

11Cash and Cash Equivalents (Continued)

 

The cash and bank balances disclosed above and in the consolidated statement of cash flows include USD 14,428,675 (2020: USD 26,899,965) which are held in restricted bank accounts under the Bond terms (Note 21). These include USD 8,500,000 held in the Liquidity account, Nil balance (2020 :USD 24,999,963) is held in the Construction Funding account, the amount in the Construction Funding account in 2020 can be withdrawn up to a limit of USD 5,000,000 per month. Accordingly, USD 15,000,000 out of the balance in the Construction Funding account is considered as cash and cash equivalent and USD 5,928,675 (2020: USD 8,400,000) held in the Debt Service Retention account.

 

A first priority pledge over the balances in the Earnings account, Liquidity account, Construction Funding account and Debt Service Retention account is held as security under the Bond terms (Note 21).

 

12Trade Accounts Receivable

 

Accounts receivables   3,771,492   Nil
    3,771,492   Nil

 

At 31 December 2021, all trade receivables were neither past due nor impaired.

 

Receivables are due within 14 days of invoicing.

 

Unimpaired trade receivables are expected to be fully recoverable. It is not the practice of the Group to obtain collateral over receivables and the vast majority is, therefore, unsecured.

 

As of the date of approval of these consolidated financial statements, the Group has realised amounts aggregating to USD 3,348,133 from the trade receivables.

 

The age analysis of trade receivables as at the end of the reporting period was as follows:

 

Neither past-due nor impaired (0-150 days)   2,935,830   Nil
Past-due:        
- 151 - 365 days   835,662   Nil
- Over 365 days   Nil  Nil
Total   3,771,492   Nil

 

13Inventories

 

Spare parts and consumables   250,360    321,789 
    250,360    321,789 

 

Cost of inventories recognised during the year amounted to USD 938,386 (2020: USD 657,917). No provision is required for inventories at 31 December 2021 (2020: Nil).

 

F-78

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements
December 31, 2021

 

(Figures in USD)  2021   2020  
                 (Re-stated) 

 

14Other Receivable and Prepayments

 

Due from shareholder   504,214    Nil 
Due from related parties   86,142    81,013 
Prepaid expenses   289,463    247,741 
Staff advances   152,389    6,288 
VAT receivable   Nil    37,290 
Deposits   99,660    21,537 
   1,131,868    393,869 

 

15Property, Plant and Equipment

 

a)The movement schedule is set out on page 45.

 

16Derivative Financial Instruments

 

Call option   5,422,917   Nil
    5,422,917   Nil

 

On 24 September 2020, the Group issued long term fixed interest rate senior secured bonds of USD 200,000,000 to private investors with a face value of USD 1 at an issue price of USD 0.95. The Group has the option to redeem the bonds in full or in part any time after 24 September 2023 (the “call option”). The call option represents an embedded derivative that has been separated from the host contract and separately valued.

 

At 31 December 2021 management has assessed the value of the call option of USD 5,422,917 and classified as change in fair value of derivative financial instrument in the consolidated statement of comprehensive income (Note 21).

 

17Advances to Contractor

 

Advances to contractor   3,499,988    16,458,252 
    3,499,988    16,458,252 

 

The above amount represents the advances paid for the purchase of new office space. Subsequent to the year end, the capital advances have been transferred to property, plant and equipment on handed over and transfer of title to the Group.

 

18Trade and Accounts Payable

 

Trade accounts payable   9,113,183    5,216,243 
Accrued interest on borrowings   4,101,250    4,250,000 
Advances from customer   2,417,956    1,340,252 
Due to a related party   2,041,927    2,041,927 
Accrued expenses   394,611    467,840 
VAT payable   120,566    Nil 
Capital accruals   Nil    4,450,313 
    18,189,493    17,766,575 

 

F-79

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

(Figures in USD)  2021   2020  
                 (Re-stated) 

 

19Other Payable

 

M/s Brooge International Advisory LLC (Note 32)   74,253,965    73,453,606 
    74,253,965    73,453,606 

 

20Derivative Warrant Liability

 

Issuance of 21,228,900 warrants in connection with merger   13,161,838    15,709,460 
Fair value remeasurement of derivative warrant liability   (1,486,023)   (2,547,622)
    11,675,815    13,161,838 

 

In accordance with IAS 32, a contract to issue a variable number of shares fails to meet the definition of equity and must instead be classified as a derivative liability and measured at fair value with changes in fair value recognized in the consolidated statement of comprehensive income at each reporting date. The derivative liabilities will ultimately be converted into the Group’s equity (ordinary shares) when the warrants are exercised, or will be extinguished on the expiry of the outstanding warrants, and will not result in the outlay of any cash by the Group.

 

In connection with the completion of the business combination on 20 December 2019, each of Twelve Sea’s 21,229,000 outstanding warrants were converted into the Group’s warrants at 1:1 ratio. The warrants allow the holder to subscribe for the ordinary shares of the Company at 1:1 basis at an exercise price of USD 11.50. The warrants shall lapse and expire after five years from the closing of the business combination. The holders of the warrants issued pursuant to the business combination may elect, if the Group does not have an effective registration statement or the prospectus contained therein is not available for the issuance of the warrant shares to the holder, in lieu of exercising the warrants for cash, a cashless exercise option to receive a variable number of common shares.

 

At initial recognition on 20 December 2019, the Group recorded a derivative warrant liability of USD 16,983,200 based on the quoted price on 20 December 2019 of USD 0.8 per warrant and then revalued at USD 0.74 at 31 December 2019 resulting in a fair value gain of USD 1,273,740 and a warrant derivative liability of USD 15,709,460. These warrants were accounted for as part of the consideration transferred under IFRS 2.

 

On 14 May 2020, holders of 100 warrants have exercised their rights through cash exercise and converted the warrants into ordinary shares.

 

At 31 December 2021, the Group recorded a derivative warrant liability of USD 11,675,815 (31 December 2020: USD 13,161,838 ) which resulted in a gain on revaluation of derivative warrant liability for the year ended 31 December 2021 of USD 1,486,023 (31 December 2020: USD 2,547,622).

 

F-80

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

(Figures in USD)  2021   2020  
                 (Re-stated) 

 

21Borrowings

 

Bonds   182,781,617    187,014,715 
    182,781,617    187,014,715 

 

The current and non- current break up as below: 

 

Non- Current  Maturity         
Bonds   2025    Nil    180,014,715 
        Nil    180,014,715 
Current               
Bonds   On demand    182,781,617    7,000,000 
        182,781,617    7,000,000 

 

  Coupon   Effective      2021   2020 
Bonds  rate %   interest
rate %
   Maturity date  USD   USD 
USD 200,000,000 bond net of transaction costs   8.50%   10.57%  Refer note below   182,781,617    187,014,715 

 

On 24 September 2020, the Group issued long term fixed interest rate senior secured bonds of USD 200,000,000 to private investors with a face value of USD 1 at an issue price of USD 0.95. The Group can issue further bonds of up to USD 50,000,000 under identical terms except issue price that can be above or below the nominal amount, subject to certain conditions. The proceeds of the bonds of USD 186,000,000 net of USD 4,000,000 of transaction costs were drawn down during November 2020. In accordance with the terms of the bonds, the proceeds were used to settle the existing term loans and promissory notes. An amount of USD 85,000,000 were transferred to a Construction account to be used solely to fund the remaining phase 2 construction costs. The balance proceeds were used for general corporate purposes.

 

The bonds will be repaid in semi-annual payments of USD 7,000,000 starting September 2021 until March 2025, and one bullet repayment of USD 144,000,000 in September 2025. Interest will accrue at a coupon rate of 8.5% and will be payable semi-annually in March and September each year. The Group has the option to redeem the bonds in full or in part any time after 24 September 2023 (the “call option”). The call option represents an embedded derivative that has been separated from the host contract and separately valued. At 31 December 2021, management has assessed the value of the call option of USD 5,422,917 and classified as change in fair value of derivative financial instrument. The comparative amount of USD 340,504 relates to the changes in fair value of interest rate swaps relating to Group’s previous term loans which were settled in November 2020.

 

F-81

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

21Borrowings (Continued)

 

Bonds (Continued)

 

The bonds are secured by:

 

(i) pledge over all the existing and future shares of BPGIC FZE;

 

(ii) assignment of rights and pledge over the balance in the Earnings account;

 

(iii) pledge over the balance in the Liquidity account, the Debt Service Retention account and the Construction Funding account;

 

(iv) pledge over moveable assets of BPGIC FZE and its subsidiaries;

 

(v) security assignment of commercial contracts related to phase I and phase II, land lease agreement, port facilities agreement and EPC construction contract;

 

(vi) security assignment over insurance contracts for phase I terminal, phase II terminal and admin building; (vii) security assignment over group and intercompany loans; and

 

(viii) corporate guarantee from Brooge Energy Limited.

 

The bond agreement also restricts BPGIC FZE from making any distributions other than in the form of an inter company loan for phase III construction.

 

Under the bond agreement, BPGIC FZE is subject to the following financial covenants during the term of the bonds:

 

(i) Minimum Liquidity: BPGIC FZE to maintain $8.5 million in the Liquidity account;

 

(ii) Leverage Ratio: BPGIC FZE and its subsidiaries’ leverage ratio not to exceed: (A) 5.5x at 31 December 2020; (B) 3.5x at 31 December 2021; and (C) 3.0x anytime thereafter; and

 

(iii) Working Capital: BPGIC FZE and its subsidiaries to maintain a positive working capital.

  

The bond agreement requires the Group to comply with the following financial covenant:

 

(i) Brooge Energy Limited to maintain a minimum equity ratio of 25%.

  

As of 31 December 2021, the Group was in technical breach of the requirements to comply with the leverage ratio and working capital thresholds. Even though the lenders 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, the Group has classified the respective bonds as a current liability at the end of 31 December 2021. Subsequent to the year end, the lenders have confirmed their intention to not require immediate repayment of the outstanding amounts or alter the repayment pattern in the original bond agreement.

 

Term loan

  

During the year, the Group obtained a new term loan facility from a commercial bank in the UAE amounting to USD 2,395,862 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 28 February 2022, the Group has made a drawdown of USD 2,376,804 from the term loan facility.

 

F-82

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

(Figures in USD)  2021   2020  
                 (Re-stated) 

 

22Lease Liabilities

 

Balance at the beginning of the year   87,511,733    30,779,138 
Additions during the year   Nil    55,565,863 
Rent waiver   (6,126,800)   Nil 
Interest charged during the year   11,774,031    3,525,982 
Repayment during the year   (3,377,784)   (2,359,250)
Balance at the end of the year   89,781,180    87,511,733 
1) The analysis of lease liability is as follows:          
Current   8,976,452    2,591,557 
Non-Current   80,804,728    84,920,176 

 

During 2013, the Group entered into a land lease agreement with the Municipality of Fujairah for a period of 30 years, extendable for another 30 years at the option of the Group. The Group has concluded that they have the right-to-use of the asset and accordingly, recorded a lease liability as per the requirements of IFRS 16. Given the use of the land, it is reasonably certain that the Group will continue to lease the land till the end of the lease period (i.e. 60 years) and accordingly the below lease rentals cover a period up to 60 years discounted at the rate of 9.5% (2020: 9.5%) as an incremental borrowing rate for the Group. Annual lease rental is increased by 2% on an annual basis as per the agreement.

 

During 2020, the Group entered into another land lease agreement in respect of its Phase III project with the Fujairah Oil Industry Zone for a period of 30 years, extendable for another 30 years. Given the use of the land, it is reasonably certain that the Group will continue to lease the land till the end of the lease period (i.e. 60 years) and accordingly the below lease rentals cover a period up to 60 years discounted at the rate of 13% (2020: 13%) as an incremental borrowing rate for the Group. Annual lease rental is increased by 2% on an annual basis and there is an initial rent free period of 18 months from the contract date.

 

During the year, the Group entered into an agreement with the lessor for an additional one-year rent free period in respect of the Phase III land The Group has treated this to be a partial extinguishment of the lease liability as per IFRS 16 and IFRS 9. The rent waiver is recognised as a gain in the income statement, with a corresponding reduction in the lease liability.

 

   Lease payments   Present value of minimum
lease payments
 
   2021   2020   2021   2020 
Not later than one year   8,704,253    8,533,582    5,978,847    6,586,405 
Later than one year and not later than five years   36,593,030    35,875,519    18,899,037    20,812,094 
Later than five years   849,825,794    858,043,766    64,903,296    60,113,234 
    895,123,077    902,452,867    89,781,180    87,511,733 
Finance costs   (805,341,897)   (814,941,134)    Nil     Nil 
Present value of minimum lease payments   89,781,180    87,511,733    89,781,180    87,511,733 

 

F-83

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

(Figures in USD)  2021   2020  
                 (Re-stated) 

 

23Employees’ End of Service Benefits

 

Balance at the beginning of the year   40,514    13,941 
Provision for the year   31,551    29,047 
Paid during the year   (11,441)   (2,474)
Balance at the end of the year   60,624    40,514 

 

24Asset Retirement Obligation

 

Asset retirement obligation   1,990,399    873,334 
    1,990,399    873,334 

 

As part of the land lease agreement between the Fujairah Oil Industry Zone (“FOIZ”) and the Group, the Group has a legal obligation to remove the plant at the end of its useful life, or earlier, if the Group is unable to continue its operations, and restore the land. The Group has employed professional valuers to estimate the amount of liability.

 

25Share Capital & Share Premium

 

   No. of
Shares
   USD 
Ordinary shares   450,000,000    450,000,000 
Share Capital          
As at January 01, 2020   88,035,253    8,804 
Conversion of 100 warrants into ordinary shares at 1 for 1   100    0.01 
As at 31 December 2020   88,035,353    8,804 
As at 31 December 2021   88,035,353    8,804 

 

Ordinary shares held in escrow (20,000,000 shares held by BPGIC and 1,552,500 shares held by the original founders of Twelve Seas) have been excluded from the share capital in the table above. These shares will be released upon the satisfaction of certain financial milestones and share price targets below the release or forfeiture of these shares in the future will not have an effect on the equity of the Group.

 

One-half (½) of the Escrow Property shall become vested and no longer subject to forfeiture, and be released to the seller, in the event that either: (a) the Annualized EBITDA (as defined in the Escrow Agreement) for any full fiscal quarter during the Escrow Period (beginning with the first full fiscal quarter beginning after the Closing) (an “Escrow Quarter”) equals or exceeds USD 175,000,000 or (b) at any time during the Escrow Period, the closing price of the Brooge Energy Limited ordinary shares equals or exceeds $12.50 per share (subject to equitable adjustment) for any ten (10) Trading Days (as defined in the Escrow Agreement) within any twenty (20) Trading Day period during the Escrow Period.

 

F-84

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

(Figures in USD)  2021   2020  
                 (Re-stated) 

 

25Share Capital & Share Premium (Continued)

 

Share Capital (Continued)

 

All Escrow Property remaining in the Escrow Account shall become vested and no longer subject to forfeiture, and be released to the seller, in the event that either: (a) the Annualized EBITDA for any Escrow Quarter equals or exceeds $250,000,000 or (b) at any time during the Escrow Period, the closing price of the Brooge Energy Limited ordinary shares equals or exceeds $14.00 per share (subject to equitable adjustment) for any ten (10) Trading Days within any twenty (20) Trading Day period during the Escrow Period. The Escrow Period represents the period commencing from the closing until the end of the twentieth (20th) fiscal quarter after the commencement date of the first full fiscal quarter beginning after the closing.

 

Share Premium

 

As at January 01   101,777,058   101,775,834 
Conversion of 100 warrants in ordinary shares at 1 for 1    Nil    1,224 
As at December 31   101,777,058    101,777,058 

 

26Transactions with Related Parties

 

The Group, in the normal course of business carries out transactions with parties that fall within the definition of related party contained in the International Financial Reporting Standards. Significant transactions with related parties are as under:

 

Transactions in shareholders’ account

 

Contributions by the shareholders   255,818    (233,457)
    255,818    (233,457)

 

These amounts are repayable at the discretion of the Board of Directors of the Group and are interest free, therefore classified as part of equality.

 

Changes in shareholders’ account is as follows:        
At January 01   70,761,998    70,995,455 
Net contributions (distributions) during the year   255,818    (233,457)
At December 31   71,017,816    70,761,998 
Expense paid on behalf of related parties   509,343    23,463 
Key management remuneration   1,676,921    1,417,266 

 

F-85

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

(Figures in USD)  2021   2020  
                 (Re-stated) 

 

26Transactions with Related Parties (Continued)

 

Related party balances as at the year end are classified as under:

 

Related Party  Classification      
Shareholder  Shareholder’s account (Equity)   71,017,816    70,761,998 
BPGIC Holdings  Due from shareholder (Note 14)   504,214    Nil 
HBS Investments LP  Due from related parties (Note 14)   4,187    17,479 
H Capital International LP  Due from related parties (Note 14)   4,189    16,975 
O2 Investments Limited as GP  Due from related parties (Note 14)   5,191    9,303 
SBD International LP  Due from related parties (Note 14)   47,357    17,851 
SD Holding Limited as GP  Due from related parties (Note 14)   19,938    9,850 
Gyan Investments Ltd  Due from related parties (Note 14)   5,280    9,555 
Shareholder  Due to a related party (Note 18)   2,041,927    2,041,927 

 

27Contingent Liabilities

 

Capital commitments within one year   22,000,000    33,125,477 
    22,000,000    33,125,477 

 

Capital commitments relate to construction of phase 2 which is expected to be completed by the end of third quarter of 2021.

 

Except for the above and ongoing purchase commitments in the normal course of business against which no loss is expected, there are no other known contingent liabilities existing at the balance sheet date.

 

28Earnings Per Share

 

Basic EPS is calculated by dividing the profit/(loss) for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

 

Diluted EPS is calculated by dividing the profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.

 

The following table reflects the income and share data used in the basic and diluted EPS calculations:

 

(Figures in USD)  2021   2020 
       (Re-stated) 
Profit attributable to ordinary equity holders of the parent   25,690,565    2,518,668 
Weighted average number of ordinary shares   88,035,321    88,035,321 

 

As part of the business combination warrants and ordinary shares subjected to escrow have been issued. In the calculation of diluted earnings per shares, the warrants have been excluded as the average market price of ordinary shares during the period exceeded the exercise price of the warrants i.e. they are not in the money.

 

F-86

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

28Earnings Per Share (Continued)

 

The number of contingently issuable shares (21,552,000 escrow shares) to be included in the diluted earnings per shares calculation is based on the number of shares that would be issuable if the end of the period were the end of the Escrow Period. No ordinary shares would have been issuable on 31 December 2020 as the conditions attached to the escrow shares have not been met at reporting date. As a result, the escrow shares have been excluded from the calculation of diluted earnings per share for 31 December 2020 and the weighted average number of ordinary shares for basic earnings per share and diluted earnings per shares are the same.

 

29Fair Value of Financial Instruments

 

Management considers that the fair value of financial assets and financial liabilities in the consolidated financial statements approximate their carrying amounts at the reporting date.

 

Fair Value Hierarchy

 

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.

 

Liabilities measured at fair value:  Level 1
USD
   Level 2
USD
   Level 3
USD
   Total Fair Value USD 
December 31, 2021                
Derivative warrant liability   11,675,815    Nil    Nil    11,675,815 
Borrowings   Nil    182,781,617    Nil    182,781,617 
Derivative financial instruments   Nil    5,422,917    Nil    5,422,917 

 

Liabilities measured at fair value:  Level 1
USD
   Level 2
USD
   Level 3
USD
   Total Fair Value USD 
December 31, 2020                
Derivative warrant liability   13,161,838    Nil    Nil    13,161,838 
Borrowings   Nil    187,014,715    Nil    187,014,715 

 

The fair value of level 1 financial liability have been determined in accordance with quoted price.

 

The fair value of level 2 financial liability have been determined by using generally accepted pricing models based on a discounted cash flow analysis, respectively. The models incorporate various inputs including interest rate curves and forward rate curves of the underlying instruments.

 

During the year ended 31 December 2021 and 2020, there were no transfers between Level 1 and Level 2 fair value measurements.

 

30Subsequent Events

 

In February 2022, the Group made a withdrawal of the term loan facility obtained in September 2021 of USD 2,376,804 from a commercial bank in UAE to partially finance the purchase of corporate office of the Group. The principal repayment will be 24 quarterly installments commencing six months from the disbursement date. This facility carries interest rate of 3 Months EIBOR + 4% p.a (minimum 6.5% p.a) to be paid along with the installments.

 

F-87

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

30Subsequent Events (Continued)

 

The Company had received a letter from The Nasdaq Stock Market dated May 23, 2022 (the “Notice”), stating that the Company is not in compliance with Listing Rule 5250(c)(1). The Notice does not impact the Company’s listing on the Nasdaq Capital Market at this time, provided that the Company cures the deficiency under Nasdaq Listing Rule 5250(c)(1) within the time period specified by the applicable rule.

 

On Nov. 22, 2022, the Company was notified that the Nasdaq Hearings Panel (the “Panel”) had granted its request to continue trading of Brooge Energy’s securities on Nasdaq at least through the completion of the Company’s hearing before the Panel and the expiration of any extension that may be granted by the Panel to the Company following the hearing.

 

The Company on Aug. 17, 2022 the Company announced that its majority shareholder, BPGIC Holdings Limited (“Holdings”), has expressed an interest to acquire all the shares of the Company that it does not currently own and to take the Company private. The Board of Directors of the Company is considering the proposal and will be entering into substantive negotiations. Any transaction, if entered into, will be subject to the receipt of a fairness opinion and approval of the Company’s shareholders and bondholders. There can be no assurance that a transaction will be entered into.

 

Bond Waiver letter

 

On April 27, 2022, the Group entered into an agreement with the Bondholders to implement following amendments to the Bond Financing Facility, effective immediately:

 

(a)Waiver of the Events of Defaults that are triggered by the technical breaches of the Leverage Ratio and positive Working Capital covenants until December 31, 2022.

 

(b)The requirement to maintain a Leverage Ratio to not exceed certain thresholds is suspended (waived) for the results period from December 31, 2021 to and including December 30, 2022, and shall be tested again for the 12 months results period from (and including) January 1, 2022 to December 31, 2022 (inclusive) at 3.5x, stepping down to 3.0x anytime thereafter (as per the original terms of the Bond Financing Facility). For the avoidance of doubt, the costs associated with the amendments shall not be taken into consideration in EBITDA when calculating Leverage Ratio.

 

(c)The requirement to maintain a positive Working Capital is suspended (waived) for the period from December 31, 2021 to and including December 30, 2022, and shall be tested again starting from and including December 31, 2022.

 

(d)Permitted Distribution:

 

(i)No Permitted Distribution shall be made before BPGIC is in compliance with financial covenant requirements under the original terms of the Bond Facility Financing.

 

(ii)Furthermore, BPGIC shall provide to the Bond Trustee a written statement signed by its chief executive officer and chief financial officer within three business days prior to any permitted distribution under the terms of the Bond Financing Facility that (A) states the amount being distributed as a permitted distribution, (B) confirms the conditions with respect to such distribution are satisfied, and (C) declares such distribution will not lead to an Event of Default on the next testing date.

 

F-88

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

31Financial Risk Management and Policies

 

The main risks arising from the Group’s financial instruments are interest rate risk, credit risk, currency risk and liquidity risk. Management reviews and agrees policies for managing each of these risks which are summarized below.

 

Interest Rate Risk

 

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

 

The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s balances with banks. The Group’s borrowing are issued at fixed rate of interest.

 

Market Risk

 

The Group’s activities expose it to the financial risks of changes in interest rates and price risk of the warrants. As the warrants are recognised at fair value on the consolidated statement of financial position of the Group, the Group’s exposure to market risks results from the volatility of the warrants price. The Warrants are publicly traded at the NASDAQ Stock Exchange.

 

At the reporting date, the exposure to derivative warrant liability at fair value listed on the NASDAQ was USD 11,675,815 (2020: 13,161,838). The Group has determined that an increase/(decrease) of 10% on the NASDAQ could have an impact of approximately USD 1,167,582 (2020: USD 1,316,838) increase/(decrease) on the income and equity attributable to the Group.

 

Currency Risk

 

The Group does not have any significant exposure to currency risk as most of its assets and liabilities are denominated in USD or UAE Dirhams, which are pegged to the USD.

 

F-89

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

(Figures in USD)  2021   2020  
                           

31Financial Risk Management And Policies (Continued)

 

Credit Risk

 

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Group is exposed to credit risk on bank balances and receivables as reflected in the consolidated statement of financial position, with a maximum exposure equal to the carrying amount of these instruments. The expected credit loss on trade and other receivables are considered insignificant for 2021 and 2020.

 

The Group has a low credit risk exposure on its trade receivables based on established policy, procedures and controls relating to customer credit risk management. Credit quality of the customer is assessed as part of contract negotiations. Outstanding receivables are regularly monitored.

 

Liquidity Risk

 

The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers projected financing requirements of the Group during the construction phase and cash projections from operations with outstanding bank facilities and outstanding bank commitments as defined under the finance documents.

 

The Group manages its liquidity risk in relation to term loans to ensure compliance with all covenants for each specific facility.

 

The table below summarizes the maturity profile of the Group’s financial liabilities at December 31, 2021 and December 31, 2020 based on contractual undiscounted payments.

 

December 31, 2021  On Demand
USD
   Upto 1 Year
USD
   1 to 5 Years
USD
   > 5 Years
USD
   Total
USD
 
Bonds (Including accrued interest)   182,781,617    Nil    Nil    Nil    182,781,617 
Lease liability    Nil    5,978,847    18,899,037    64,903,296    89,781,180 
Accounts payable, accruals and other payables (excluding accrued interest)    Nil    88,342,208     Nil     Nil    86,300,281 
Total   182,781,617    94,321,055    18,899,037    64,903,296    360,905,005 
                          
December 31, 2020                         
Term loans (Including accrued interest)   Nil    11,250,000    180,014,715     Nil    191,264,715 
Lease liability   Nil    6,586,405    20,812,094    60,113,234    87,511,733 
Accounts payable, accruals and other payables (excluding accrued interest)   Nil    86,970,181    Nil    Nil    86,970,181 
Total   Nil    86,970,181    Nil    Nil    86,970,181 

 

F-90

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

31Financial Risk Management And Policies (Continued)

 

Capital Management

 

The primary objective of the Group’s capital management is to ensure that it maintains healthy capital ratios in order to support its business and maximize shareholder’s value and to meet its loan covenants.

 

The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust future distribution policy to shareholders, issue new shares or shareholders’ contributions.

 

The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group includes within net debt, the lease liability, term loans, and trade and other payables, less cash and cash equivalents. Capital includes share capital, shareholders’ accounts, general reserve and (accumulated losses) retained earnings.

 

Borrowing   182,781,617    187,014,715 
Lease liability   89,781,180    87,511,733 
Less: cash and cash equivalents   (1,452,316)   (20,989,970)
Net debt   271,110,481    253,536,478 
Total capital   78,491,436    52,545,053 
Capital and net debt   349,601,917    306,081,531 
Gearing ratio   78%   83%

 

32Prior Year Restatement

 

i) The comparative figures for 2020 were restated previously on account of errors identified by the management subsequent to the issuance of the 2020 consolidated financial statements. In year 2022, subsequent to the issuance of the Group’s 2020 financial statements, the Group identified errors in the consolidated financial statements for the year ended 31 December 2020 and determined that the 2020 consolidated financial statements should be restated. The basis of such error and restatement is given as below:

 

Restatement Background

 

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, 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.

 

F-91

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

32Prior Year Restatement (Continued)

 

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 BIA do not qualify to be recognised as revenue. Due to the qualitative nature of the matters identified in the Company’s internal examination, including the number of years over which the non-qualified revenue was recognized, the Company determined that it would be appropriate to rectify the misstatements in the previously issued financial statements by restating such financial statements. Accordingly, for the year 2021 there were no restatement. In 2020 the Company reversed revenue amounting to USD 14,640,361 and USD 15,659,111 which mainly represents funds received from BIA, was reversed and re-classified as Other payables under Liabilities(Note 19).

 

The Management does 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 party. The Group has taken a conservative approach to recognize 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 and, accordingly the prior years’ consolidated financial statements have been restated as disclosed in Page 46:

 

33Rounding Off of Figures

 

All figures have been rounded off to the nearest US Dollars.

 

34Comparative Figures

 

Certain of the prior year figures have been regrouped to conform with the presentation of the current year.

 

F-92

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

34Comparative Figures (Continued)

 

Groupings for Property, Plant and Equipment  Buildings   Installations   Other Equipments   Tanks   Capital Work in Progress   Right of use Assets   (Figures in USD)
Total
 
Cost:                            
As at January 01, 2021   28,037,886    65,903,126    268,743    76,218,998    133,579,804    83,900,611    387,909,168 
Additions during the year   Nil    Nil    38,952    Nil    66,784,024    1,088,816    67,911,792 
Transfers during the year   Nil    113,365,150    Nil    78,313,496    (191,678,646)   Nil    Nil 
As at December 31, 2021   28,037,886    179,268,276    307,695    154,532,494    8,685,182    84,989,427    455,820,960 
                                    
Accumulated Depreciation:                                   
As at January 01, 2021   3,493,596    8,768,287    130,155    4,880,792     Nil    3,332,813    20,605,643 
Charge for the year   1,121,515    3,518,868    56,244    1,816,490    Nil    1,435,287    7,948,404 
As at December 31, 2021   4,615,111    12,287,155    186,399    6,697,282    Nil    4,768,100    28,554,047 
Net Carrying Value:                                   
As at December 31, 2021   23,422,775    166,981,121    121,296    147,835,212    8,685,182    80,221,327    427,266,913 
As at December 31, 2020   24,544,290    57,134,839    138,588    71,338,206    133,579,804    80,567,798    367,303,525 

 

During the year, in September 2021, ramp up of storage in Phase II tanks started and the hand over of the facility was completed in November 2021, when all the tanks were commissioned into operations. Accordingly, an amount of USD 191,678,646 was transferred from capital work in progress to tanks and installations.

 

Total amount capitalised includes an amount of USD 189,861,181 incurred for construction, consultancy work and capitalized borrowing costs along with USD 1,817,465 of depreciation of right-of-use assets.

 

Capital work in progress at December 31, 2021 of USD 8,685,182 relates to the Group’s Phase III storage facilities under development.

 

Land lease agreement and the moveable assets of BPGIC FZE are pledged as security against borrowings obtained in 2020 (Note 21).

 

The depreciation charge for the year is allocated to the statement of comprehensive income (within profit and loss) and capital work in progress as follows:

 

   2021   2020 
Direct costs (Note 7)   6,806,198    5,800,007 
CWIP   1,142,206    309,306 
    7,948,404    6,109,313 

 

F-93

 

 

Brooge Energy Limited

 

Notes to the Consolidated Financial Statements

December 31, 2021

 

(Figures in USD)

 

34Comparative Figures (Continued)

 

  As previously reported   Restatement adjustments   As per the restate Financial Statement 
Prior Year Restatement  31-12-20   31-12-20   31-12-20 
Consolidated Statement of Comprehensive Income            
Revenue   41,831,537    (14,640,361)   27,191,176 
Direct costs   (12,944,760)   236,374    (12,708,386)
Gross Profit / (Loss)   28,886,777    (14,403,987)   14,482,790 
Other income   828,332    Nil    828,332 
General and administration expenses   (6,456,884)   (207,419)   (6,664,303)
Change in estimated fair value of derivative warrant liability   2,547,542    80    2,547,622 
Finance costs   (8,306,150)   (29,119)   (8,335,269)
Profit for the year   17,159,113    (14,640,445)   2,518,668 
Consolidated Statement of Financial Position               
ASSETS               
Current Assets               
Trade receivables   Nil    Nil    Nil 
Other receivable and prepayments   690,232    (296,363)   393,869 
Total Current Assets   40,401,956    (296,363)   40,105,593 
Non-Current Assets               
Advances to contractor   16,418,065    40,187    16,458,252 
Total Non-Current Assets   392,221,590    40,185    392,261,775 
Total Assets   432,623,546    (256,178)   432,367,368 
LIABILITIES AND EQUITY               
Current Liabilities               
Trade and accounts payable   13,829,897    3,936,678    17,766,575 
Other payable   Nil    73,453,606    73,453,606 
Lease liabilities   9,795,058    (7,203,501)   2,591,557 
Total current liabilities   43,786,799    70,186,777    113,973,576 
Non-current liabilities               
Lease liabilities   79,289,507    5,630,669    84,920,176 
Total Non-Current Liabilities   260,218,070    5,630,669    265,848,739 
Equity               
Share capital   8,801    3    8,804 
Retained earnings   (46,907,568)   (73,440,087)   (120,347,655)
Statutory reserve   680,643    (335,795)   344,848 
Shareholders’ account   73,059,743    (2,297,745)   70,761,998 
Total Equity   128,618,677    (76,073,624)   52,545,053 
Total Equity & Liabilities   432,623,546    (256,178)   432,367,368 

 

F-94

 

 

 

 

 

 

 

 

 

 

Brooge Energy Limited

(Formerly Brooge Holdings Limited)

Consolidated Financial Statements
December 31, 2020

 

 

 

 

 

 

 

 

 

 

F-95

 

 

Brooge Energy Limited
Index to the Financial Statements
December 31, 2020

 

  Page
Independent Auditor’s Report F-97
Consolidated Statement of Comprehensive Income F-100
Consolidated Statement of Financial Position F-101
Consolidated Statement of Changes in Equity F-102
Consolidated Statement of Cash Flows F-103
Notes to the Consolidated Financial Statements F-104

 

F-96

 

 

 

A picture containing graphical user interface

Description automatically generated  

Office 106, The Binary
Al Abraj Street
Business Bay
PO Box 413383
Dubai / UAE

 

[T] +971 4 557 8358

[E] mail@affiniax.com

Independent Auditor’s Report
 

To the Board of Directors and Shareholders of Brooge Energy Limited and its Subsidiaries

 

Report on the Audit of the Consolidated Financial Statements

 

Opinion

 

We have audited the consolidated financial statements of Brooge Energy Limited and its Subsidiaries, (“the Group”), which comprise of the consolidated statement of financial position as at December 31, 2020, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended and notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory notes.

 

In our opinion, the accompanying consolidated financial statements, present fairly, in all material respects, the consolidated financial position of Brooge Energy Limited and its Subsidiaries as at December 31, 2020 and its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.

 

Basis for Opinion

 

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with PCAOB & International Standards on Auditing (ISA’s). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Emphasis of Matter

 

a. We draw your attention to Note no. 34 where the Group has reversed the revenue amounting to USD 14,640,361 which mainly represents funds received from M/s Brooge International Advisory LLC (BIA) which was earlier accounted as the revenue. Since the Group could not obtain the confirmation from subject party to identify the purpose and repayment terms, if any; before signing date of this report, an amount of USD 15,659,111 representing the funds received from BIA has been classified as Other payable in the financial statements for the year ended December 31, 2020.

 

b. Considering the significance of the above amount involved, we have further reviewed the legal documents of M/s Brooge Petroleum and Gas Investment Company and M/s Brooge International Advisory LLC (BIA) to determine whether they are related parties in accordance to Paragraph (9) of International Accounting Standards (IAS 24). The Company has further undertaken vide resolution dated April 23, 2023 to consider BIA as a related party.  Based on the above representation and applying the concept of substance over form, it indicates that BIA is a related party.

 

c. We draw attention to consolidated statement of financial position in the consolidated financial statements, which indicates that the as of December 31, 2020, the Group’s current liabilities exceed current assets by USD 73,867,983. Our opinion is not modified in respect of this matter.

 

 

 

F-97

 

 

 Reaudit of Consolidated Financial Statements for the Year Ended December 31, 2020

 

Attention is invited to Note 35 Reaudit of the consolidated financial statements. The consolidated financial statements of the Group are re-audited to record the restatement pertaining to revenue, other payable and trade accounts receivable, which were recorded erroneously due to the inadequate documents.

 

Key Audit Matters

 

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 

We have determined that there are no other key audit matters to communicate in our report.

 

Responsibility of the Management for the Consolidated Financial Statements

 

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards and for such internal controls as Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the consolidated financial statements, the Management is responsible for assessing the Group’s ability to continue as a going concern, as applicable, matters related to going concern and using the going concern basis of accounting, unless Management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

 

Reaudit of Consolidated Financial Statements for the Year Ended December 31, 2020

 

Attention is invited to Note 35 Reaudit of the consolidated financial statements. The consolidated financial statements of the Group are re-audited to record the restatement pertaining to revenue, other payable and trade accounts receivable, which were recorded erroneously due to the inadequate documents.

 

Key Audit Matters

 

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 

We have determined that there are no other key audit matters to communicate in our report.

 

Responsibility of the Management for the Consolidated Financial Statements

 

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards and for such internal controls as Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the consolidated financial statements, the Management is responsible for assessing the Group’s ability to continue as a going concern, as applicable, matters related to going concern and using the going concern basis of accounting, unless Management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

 

 

 

F-98

 

 

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

 

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatements, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISA’s will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

 

As part of an audit in accordance with ISA’s, we exercise professional judgement and maintain professional skepticism throughout the audit. We also;

 

●     Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risks of not detecting a material misstatement resulting from fraud is higher than for one resulting from error as fraud may involve collusion, forgery, intentional omissions, misrepresentation or override of internal controls.

 

●     Obtain an understanding of internal controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal controls.

 

●     Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management.

 

●     Conclude on the appropriateness of Management’s use of going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

 

●     Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

We communicate with the Management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal controls that we identify during our audit.

 

We also provide the Management with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

 

From the matters communicated with the Management, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current year and are therefore the key audit matters.

 

Affiniax A A S Auditors

 

 

 

Dubai,

United Arab Emirates

April 24, 2023

 

 

F-99

 

 

Brooge Energy Limited
Consolidated Statement of Comprehensive Income
Year Ended December 31, 2020

 

(Figures in USD)  Note  2020
(Re-stated)
   2019
(Re-stated)
 
            
Revenue  6   27,191,176    15,885,219 
Direct costs  7   (12,708,386)   (11,497,239)
Gross profit      14,482,790    4,387,980 
              
Other income      828,332    4,188 
Change in estimated fair value of derivative warrant liability  8   2,547,622    1,273,740 
Listing expenses  20   Nil    (101,773,877)
General and administration expenses  9   (6,664,303)   (2,470,425)
Finance costs  10   (8,335,269)   (5,782,430)
Changes in fair value of derivative financial instruments  11   (340,504)   (328,176)
Profit / (Loss) for the year  21   2,518,668    (104,689,000)
Other comprehensive income      Nil    Nil 
Total Comprehensive Income / (Loss) for the year      2,518,668    (104,689,000)
Basic and diluted earnings / (loss) per share  29   0.03    (1.30)

 

The accompanying notes form an integral part of the consolidated financial statements.

 

F-100

 

 

Brooge Energy Limited
Consolidated Statement of Financial Position
As at December 31, 2020

 

(Figures in USD)  Note  2020
(Re-stated)
   2019
(Re-stated)
 
            
ASSETS           
            
Current Assets           
Cash and cash equivalents  12   39,389,935    19,830,771 
Trade accounts receivable  13   Nil    163,567 
Inventories  14   321,789    179,644 
Other receivable and prepayments  15   393,869    840,671 
Total Current Assets      40,105,593    21,014,653 
              
Non-Current Assets             
Property, plant and equipment  16   367,303,523    263,228,588 
Advances to contractor  17   16,458,252    21,664,764 
Restricted bank balance  12   8,500,000    Nil 
Total Non-Current Assets      392,261,775    284,893,352 
Total Assets      432,367,368    305,908,005 
              
LIABILITIES AND EQUITY             
              
Current Liabilities             
Trade and accounts payable  18   17,766,575    61,133,967 
Other payables  19   73,453,606    57,794,495 
Derivative warrant liability  20   13,161,838    15,709,460 
Derivative financial instruments  21   Nil    1,518,249 
Borrowings  22   7,000,000    14,539,187 
Lease liabilities  23   2,591,557    2,154,878 
Total Current Liabilities      113,973,576    152,850,236 
              
Non-Current Liabilities             
Borrowings  22   180,014,715    74,160,950 
Lease liabilities  23   84,920,176    28,624,260 
Employees’ end of service benefits  24   40,514    13,941 
Asset retirement obligation  25   873,334    Nil 
Total Non-Current Liabilities      265,848,739    102,799,151 
              
Equity             
Share capital  26   8,804    8,804 
Share premium  26   101,777,058    101,775,834 
Statutory reserve      344,848    Nil 
Accumulated losses      (120,347,655)   (122,521,475)
Shareholder’s account      70,761,998    70,995,455 
Total Equity Attributable to the Shareholders      52,545,053    50,258,618 
Total Liabilities and Equity      432,367,368    305,908,005 

 

The accompanying notes form an integral part of the consolidated financial statements.

 

F-101

 

 

Brooge Energy Limited

Consolidated Statement of Changes in Equity

Year Ended December 31, 2020

 

(Figures in USD)  Share Capital   Share Premium   Statutory Reserve   Accumulated Losses   Shareholder’s Account   Total 
As at January 01, 2019 (Restated)   8,000    1,353,285    Nil    (17,832,475)   47,717,763    31,246,573 
Shares issuance in connection with a merger (Note 31)   932    114,022,421    Nil    Nil    Nil    114,023,353 
Cash election in lieu of shares   (128)   (13,599,872)   Nil    Nil    Nil    (13,600,000)
Loss for the year   Nil    Nil    Nil    (104,689,000)   Nil    (104,689,000)
Movements during the year   Nil    Nil    Nil    Nil    23,277,692    23,277,692 
As at December 31, 2019 (Restated)   8,804    101,775,834    Nil    (122,521,475)   70,995,455    50,258,618 
Exercise of 100 warrants in 100 ordinary shares   0.01    1,224    Ni    Nil    Nil    1,224 
Profit for the year   Nil    Nil    Nil    2,518,668    Nil    2,518,668 
Transferred to statutory reserve   Nil    Nil    344,848    (344,848)   Nil    Nil 
Movements during the year   Nil    Nil    Nil    Nil    (233,457)   (233,457)
As at December 31, 2020 (Restated)   8,804    101,777,058    344,848    (120,347,655)   70,761,998    52,545,053 

 

The accompanying notes form an integral part of the consolidated financial statements.

 

F-102

 

 

Brooge Energy Limited

Consolidated Statement of Cash Flows
Year Ended December 31, 2020

 

(Figures in USD)  2020
(Re-stated)
   2019
(Re-stated)
 
         
Cash Flow from Operating Activities        
         
Profit / (Loss) for the year   2,518,668    (104,689,000)
           
Adjustments for:          
Shares issuance in connection with a merger   Nil    114,023,353 
Depreciation of property, plant and equipment   6,109,313    6,018,858 
Interest charged on lease liability   3,525,982    2,871,035 
Provision for employees’ end of services benefits   29,047    9,488 
Change in estimated fair value of derivative warrant liability   (2,547,622)   (1,273,740)
Net changes in fair value of derivative financial instruments   340,504    328,176 
Written back of accrued interest not settled   (754,929)   Nil  
Asset retirement obligation - accretion expense   79,555    Nil  
           
Changes in operating assets and liabilities          
Decrease / (Increase) in trade accounts and other receivable and prepayments   610,369    (759,410)
Increase in inventories   (142,145)   (32,554)
(Decrease) / Increase in Trade and accounts payable   (42,612,463)   52,132,006 
Increase in other payable   15,659,111    29,939,548 
Payment of employees’ end of services benefits   (2,474)   (1,814)
Net cash used in operating activities   (17,187,084)   98,565,946 
           
Cash Flow from Investing Activities          
           
Amount deposited in restricted bank account   (26,899,965)   Nil  
Advance to contractors   5,206,512    (21,664,764)
Purchase of property, plant and equipment   (53,824,606)   (71,618,332)
Net cash used in investing activities   (75,518,059)   (93,283,096)
           
Cash Flow from Financing Activities          
           
Issuance of 21,229,000 warrants in connection with merger   Nil    16,983,200 
Net of repayment from term loan   (88,700,137)   (9,836,999)
Proceeds from bonds   187,014,715    Nil  
Payment of lease liability   (2,359,250)   (2,313,323)
Payment of derivative financial instruments   (1,858,753)   Nil  
Movement in shareholder’s account   (233,457)   23,277,692 
Exercise of 100 warrants in 100 ordinary shares   1,224    Nil  
Cash election in lieu of shares   Nil    (13,600,000)
Net cash generated from financing activities   93,864,342    14,510,570 
Net change in cash and cash equivalents   1,159,199    19,793,420 
Cash and cash equivalents at beginning of the year   19,830,771    37,351 
Cash and cash equivalents at end of the year   20,989,970    19,830,771 

 

The accompanying notes form an integral part of the consolidated financial statements.

 

F-103

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

1Legal Status, Management and Business Activity

 

The consolidated financial statements comprise of the financial statements of Brooge Energy Limited (“Company”) and its subsidiaries on a line-by-line basis. The Company and its subsidiaries are collectively referred to as the “Group”. The details of the Group are as follows:

 

a. Brooge Energy Limited

 

The Company (formerly known as Brooge Holdings Limited) is a Company with limited liability registered as an exempted company in the Cayman Islands.

 

The registered office of the Company is at P.O Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. The Company’s principal executive office is located at P.O Box 50170, Al-Sodah, Khorr Fakkan Road, Fujairah, United Arab Emirates (“UAE”).

 

The Company changed its name from Brooge Holdings Limited to Brooge Energy Limited on April 07, 2020.

 

The subsidiaries of the Company are as follows:

 

i. Brooge Petroleum and Gas Investment Company FZE (“BPGIC FZE”)

 

BPGIC FZE is a Free Zone Establishment formed and registered in the Fujairah Free Zone Authority under registration number 13-FZE-1117.

 

BPGIC FZE is a 100% subsidiary of the Company.

 

ii. Brooge Petroleum and Gas Investment Company Phase III FZE (BPGIC Phase III FZE)

 

BPGIC Phase III FZE is a Free Zone Establishment formed and registered in the Fujairah Free Zone Authority under registration number 20-FZE-1972.

 

BPGIC Phase III FZE is a 100% subsidiary of the Company.

 

iii. BPGIC International

 

BPGIC International formerly known as Twelve Seas, is a company with limited liability registered as an exempted company in the Cayman Islands.

 

BPGIC International is a 100% subsidiary of the Company.

 

iv. Brooge Petroleum and Gas Management Company Limited (BPGMC Limited)

 

BPGMC Limited is a company with limited liability registered in Dubai International Financial Centre with commercial license number CL3852.

 

BPGMC Limited is a 100% subsidiary of the Company.

 

v. BPGIC Phase 3 Limited (BPGIC Phase III Ltd)

 

BPGIC Phase 3 Limited is a Free Zone Company with limited liability formed in accordance with the provisions of Jebel Ali Free Zone Authority Offshore Companies Regulations 2018. The registration number of BPGIC Phase 3 Limited is 226933.

 

BPGIC Phase 3 Limited is a 100% subsidiary of the Company.

 

F-104

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

1Legal Status, Management and Business Activity (Continued)

 

The service provided by the group is oil storage and related services at the Port of Fujairah in the Emirate of Fujairah, UAE. The Group currently operates phase I and phase II, comprising 22 tanks with a total capacity of 1,001,388 cubic meters (“cbm”), fully operational for provision of storage and other ancillary processes of crude and clean oil. The construction of the Company’s phase II, with a total capacity of 602,064 cbm was completed in September 2021.The Group has commenced early preparation work for its phase 3 project where it intends to construct additional storage and refinery facilities. The Group’s has commenced preconstruction work for its phase 3 project where it intends to construct additional storage and refinery facilities.

 

The Company was incorporated on 12 April 2019 for the sole purpose of consummating the business combination described further below.

 

On 15 April 2019, BPGIC FZE entered into a business combination agreement with Twelve Seas Investment Company (“Twelve Seas”), a company listed on National Association of Securities Dealers Automated Quotations (“NASDAQ”), the Company and BPGIC FZE’s shareholders. On 10 May 2019, BPGIC PLC became party to the business combination agreement by execution of a joinder thereto.

 

The business combination was accounted for as a reverse acquisition in accordance with the International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board (“IASB”) as disclosed in Note 31.

 

Under this method of accounting, Brooge Energy 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 stockholders 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 FZE are the historical financial statements of the combined company, and Brooge Energy and Twelve Sea’s assets, liabilities and results of operations are consolidated with BPGIC FZE beginning on the acquisition date.

 

As a result of the above transaction, the Company became the ultimate parent of BPGIC FZE and Twelve Seas on 20 December 2019, being the acquisition date. The Company’s common stock and warrants are traded on the NASDAQ Capital Market under the ticker symbols BROG and BROGW, respectively. Upon the closing of business combination, Twelve Seas changed its name to ‘BPGIC International’.

 

The consolidated financial statements are prepared as a continuation of the financial statements of BPGIC FZE, the acquirer, and retroactively adjusted to reflect the legal capital of the legal parent/acquiree (Brooge Energy Limited).

 

The reaudited consolidated financial statements were authorised for issue by the Board of Directors.

 

2Basis of Preparation of Consolidated Financial Statements

 

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board “IASB”. These consolidated financial statements are presented in United States dollars (“USD”) which is the functional and presentation currency of the Group.

 

F-105

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

2Basis of Preparation of Consolidated Financial Statements (Continued)

 

All financial information presented in USD has been rounded to the nearest thousand, unless otherwise stated. The consolidated financial statements are prepared under the historical cost convention, except for re-measurement at fair value of derivative financial instruments and derivative liability.

 

(i) Subsidiaries

 

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December 2020. 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

 

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.

 

Details of subsidiaries as at 31 December 2020 are stated in Note 1.

 

 

F-106

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

2Basis of Preparation of Consolidated Financial Statements (Continued)

 

(i) Subsidiaries (Continued)

 

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.

 

(ii) 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.

 

(iii) 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.

 

F-107

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

2Basis of Preparation of Consolidated Financial Statements (Continued)

 

(iii) Business combinations (Continued)

 

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;

 

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 Consolidated statement of comprehensive income.

 

2.1Going Concern

 

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.

 

F-108

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

3Changes In Accounting Policies And Disclosures

 

New and amended standards and interpretations.

 

New and amended standards and interpretations adopted by the Group.

 

The Group applied certain standards, interpretations and amendments for the first time, which are effective for annual periods beginning on or after 1 January 2020.

 

Amendments to IFRS 3: Definition of a Business;

 

Amendments to IFRS 7, IFRS 9 and IAS 39 Interest Rate Benchmark Reform;

 

Amendments to IAS 1 and IAS 8 Definition of Material;

 

Amendments to IFRS 16 Covid-19 Related Rent Concessions.

 

The adoption of above standards and amendments did not have any significant impact on the consolidated financial statements of the Group.

 

4Significant 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:

 

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.

 

F-109

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

4Key Sources of Estimation Uncertainty (Continued)

 

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.

 

Discount rate used for initial measurement of lease liability

 

The Group, as a lessee, measures the lease liability at the present value of the unpaid lease payments 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 on initial recognition of the lease uses its incremental borrowing rate. Incremental borrowing rate is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use assets in similar economic environment. The Group determined its incremental borrowing rate at 9.5% (2019: 9.5%) in respect of the lease liability (Note 23).

 

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.

 

F-110

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

4Key Sources of Estimation Uncertainty (Continued)

 

Valuation of derivative financial instruments

 

The Group has entered into derivative financial instruments (interest rate swaps) with a financial institution with investment grade credit rating. Interest rate swaps are valued using valuation techniques, which employ the use of market observable inputs. The most frequently applied valuation techniques include swap models using present value calculations. The models incorporate various inputs including the credit quality of counterparties and interest rate curves. The most frequently applied valuation techniques include swap models using present value calculations. The models incorporate various inputs including the credit quality of counterparties and interest rate curves. The most frequently applied valuation techniques include swap models using present value calculations. The models incorporate various inputs including the credit quality of counterparties and interest rate curves. The changes in counterparty credit risk had no material effect on the derivative financial instruments recognised at fair value.

 

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.

 

Classification of warrants

 

In connection with the completion of the business combination on 20 December 2019 as described in Note 1, Note 20 and Note 31 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.

 

Business combination (reverse acquisition)

 

As the reverse acquisition of Brooge Energy did not constitute a business combination, the transaction was accounted for as an asset acquisition by the issuance of shares of the BPGIC FZE, for the net assets of Twelve Seas and its public listing. Accordingly, the transaction had been accounted for at the fair value of the equity instruments granted to the shareholders and warrant holders of Twelve Seas.

 

F-111

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

4Key Sources of Estimation Uncertainty (Continued)

 

Business combination (reverse acquisition) (Continued)

 

Management applied the following primary judgments in accounting for the reverse acquisition:

 

1. BPGIC FZE was assessed as the accounting acquirer due to majority shareholding and representatives on the board of directors.

 

2. The accounting acquiree is not a business and not in scope of IFRS 3.

 

3. The acquisition has been accounted for in terms of IFRS 2 which is aligned to guidance issued by the IFRIC. The difference between the fair value of the consideration paid and the fair value of the net assets acquired has been recognised in profit and loss.

 

4. Fair value of ordinary shares issued: Refer to Note 31.

 

5. The fair value of the shares in escrow was not materially different from that of the shares which were not in escrow as the rights of these shares are similar to those of “normal ordinary shares”. Fair value of the shares in escrow: Refer to Note 26.

 

6. Fair value of warrants issued: Refer to Note 20.

 

7. Deemed share issue has been presented in the financing activities in the Statement of Cash Flows.

 

5Summary 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.

 

F-112

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

5Summary of Significant Accounting Policies (Continued)

 

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 statement of financial position approximate their carrying amounts in the 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

 

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 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 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.

 

F-113

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

5Summary of Significant Accounting Policies (Continued)

 

Fair values (Continued)

 

- 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 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.

 

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.

 

F-114

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

5Summary of Significant Accounting Policies (Continued)

 

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
Installations  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 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 capitalised 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.

 

F-115

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

5Summary of Significant Accounting Policies (Continued)

 

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.

 

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 noncancellable 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 b) 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.

 

F-116

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

5Summary of Significant Accounting Policies (Continued)

 

Leases (Continued)

 

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. 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.

 

F-117

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

5Summary of Significant Accounting Policies (Continued)

 

Leases (Continued)

 

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 assets; and

 

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.

 

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.

 

F-118

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

5Summary of Significant Accounting Policies (Continued)

 

Financial Instruments (Continued)

 

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 Fair value through profit & loss (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.

 

F-119

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

5Summary of Significant Accounting Policies (Continued)

 

Financial liabilities (Continued)

 

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 31 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”.

 

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.

 

F-120

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

5Summary of Significant Accounting Policies (Continued)

 

Financial liabilities (Continued)

 

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.

 

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.

 

F-121

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

5Summary of Significant Accounting Policies (Continued)

 

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 Statutory reserve. 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  ion 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 (Note 31).

 

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.

 

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.

 

F-122

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

5Summary of Significant Accounting Policies (Continued)

 

Foreign Currencies Translations

 

The 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.

 

F-123

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

(Figures in USD)  2020
(Re-stated)
   2019
(Re-stated)
 
                             

6Revenue

 

Storage rental income (Note 34)   23,754,376    13,397,209 
Miscellaneous income (Note 6.1)   1,558,887    1,294,829 
Ancillary services   1,877,913    1,193,181 
    27,191,176    15,885,219 

 

The Group has only one segment at the reporting date. Revenue generation from leasing of storage capacity of tanks and other ancillary services started in December 2017.

 

The commercial contracts with customers related to the Phase 1 and Phase 2 have been assigned as security against the borrowing obtained in 2020.

 

Miscellaneous income represents port charges of USD 1,558,887 that are paid by the Group to the port authority and recharged to the customers.

 

The revenues of the Group mainly comprise of fixed fees for storage and related services and variable fees for ancillary services provided under a contract with its customers. Accordingly, there is no cyclicality in the Group’s operations.

 

7Direct Costs

 

Depreciation on property, plant and equipment (Note 16)   5,800,007    5,785,745 
Employees’ costs   3,482,431    3,074,727 
Reimbursable port charges (Note 6.1)   1,558,887    1,294,829 
Spare parts and consumables used   657,917    788,792 
Insurance charges   397,976    323,702 
Others   811,168    229,444 
    12,708,386    11,497,239 

 

8Other Income

 

Written back of accrued interest   754,929    Nil 
Miscellaneous   73,403    4,188 
    828,332    4,188 

 

9Listing Expenses

 

IFRS 2 listing expense   Nil    98,622,019 
Other listing expenses (Note 9.1)   Nil    3,151,858 
    Nil    101,773,877 

 

9.1Other listing expenses represents promissory note of USD 1.5 million, fees paid to legal advisors, consultants, and other necessary expenses incurred in relation to the Group’s listing on the NASDAQ.

 

F-124

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

(Figures in USD)  2020
(Re-stated)
   2019
(Re-stated)
 
                             

10General and Administration Expenses

 

Employees’ cost   2,014,858    1,473,335 
Legal and professional   2,594,801    549,702 
Insurance   639,345    Nil 
Board fees and expenses   354,169    Nil 
Office expenses   270,259    248,752 
Repairs and maintenance   247,302    74,542 
Sales and marketing   211,383    70,877 
Rent   177,850    10,346 
Travelling expenses   154,336    42,871 
    6,664,303    2,470,425 

 

11Finance Costs

 

Interest expense on borrowings   5,467,250    4,002,772 
Interest on lease liability   2,041,006    1,412,796 
Early settlement charges   706,643    Nil 
Asset retirement obligation - accretion expenses   79,555    Nil 
Bank charges   11,696    314,967 
Exchange loss   29,119    51,895 
    8,335,269    5,782,430 

 

12Cash and Cash Equivalents

 

Cash in hand   5,026    1,960 
Balances in current accounts   47,884,909    19,828,811 
    47,889,935    19,830,771 
The above consist of the following:          
Non-current.   8,500,000    Nil 
Restricted bank balance   8,500,000    Nil 
           
Current          
Cash and Cash Equivalents   20,989,970    19,830,771 
Restricted bank balance   18,399,965    Nil  
    39,389,935    19,830,771 

 

The cash and bank balances disclosed above and in the consolidated statement of cash flows include USD 26,899,965 which are held in restricted bank accounts under the Bond terms. These include USD 8,500,000 held in the Liquidity account, USD 24,999,963 is held in the Construction Funding account, and USD 8,400,000 held in the Debt Service Retention account. The amount in the Construction Funding account can be withdrawn up to a limit of USD 5,000,000 per month. Accordingly, USD 15,000,000 out of the balance in the Construction Funding account is considered as cash and cash equivalent.

 

F-125

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

(Figures in USD)  2020
(Re-stated)
   2019
(Re-stated)
 
                             

12Cash and Cash Equivalents (Continued)

 

A first priority pledge over the balances in the Earnings account, Liquidity account, Construction Funding account and Debt Service Retention account is held as security under the Bond terms (Note 22).

 

13Trade Accounts Receivables

 

Accounts receivables   Nil    163,567 
    Nil    163,567 

 

Receivables are due within 14 days of invoicing.

 

Unimpaired trade receivables are expected to be fully recoverable. It is not the practice of the Group to obtain collateral over receivables and the vast majority is, therefore, unsecured.

 

14Inventories

 

Spare parts and consumables   321,789    179,644 
    321,789    179,644 

 

Cost of inventories recognised during the year amounted to USD 657,917 (2019: USD 788,792). No provision is required for inventories as at 31 December 2020 (2019: Nil).

 

15Other Receivables and Prepayments

 

Prepaid expenses   247,741    57,543 
Due from related parties (Note 27)   81,013    57,550 
VAT receivable   37,290    573,923 
Deposits   21,537    15,526 
Staff advances   6,288    Nil 
Advance paid to suppliers and contractors   Nil     136,129 
    393,869    840,671 

 

16Property, Plant and Equipment

 

a)The movement schedule is set out on page 48.

 

17Advances to Contractor

 

Advances to contractor   16,458,252    21,664,764 
    16,458,252    21,664,764 

 

The amount represents the advances paid to a contractor (Audex) for future services in relation to phase 2 amounting USD 15,655,981 and USD 802,271 paid as an advance for the purchase of new office space.

 

F-126

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

(Figures in USD)  2020
(Re-stated)
   2019
(Re-stated)
 
                             

18Trade and Accounts Payable

 

Trade accounts payable   5,216,243    25,989,965 
Capital accruals   4,450,313    31,466,080 
Accrued interest on term loans   4,250,000    3,295,382 
Due to a related party (Note 27)   2,041,927    Nil 
Advances from customer   1,340,252    Nil 
Accrued expenses   467,840    360,180 
Payables to third parties   Nil    22,360 
    17,766,575    61,133,967 

 

19Other Payable

 

M/s Brooge International Advisory LLC   73,453,606    57,794,495 
    73,453,606    57,794,495 

 

Please refer Note 34 for more details.

 

20Derivative Warrant Liability

 

Issuance of 21,228,900 warrants in connection with merger (Note 31)   15,709,460    16,983,200 
Fair value remeasurement of derivative warrant liability   (2,547,622)   (1,273,740)
    13,161,838    15,709,460 

 

In accordance with IAS 32, a contract to issue a variable number of shares fails to meet the definition of equity and must instead be classified as a derivative liability and measured at fair value with changes in fair value recognized in the consolidated statement of comprehensive income at each reporting date. The derivative liabilities will ultimately be converted into the Group’s equity (ordinary shares) when the warrants are exercised or will be extinguished on the expiry of the outstanding warrants, and will not result in the outlay of any cash by the Group.

 

In connection with the completion of the business combination on 20 December 2019, each of Twelve Sea’s 21,229,000 outstanding warrants were converted into the Group’s warrants at 1:1 ratio. The warrants allow the holder to subscribe for the ordinary shares of the Company at 1:1 basis at an exercise price of USD 11.50. The warrants shall lapse and expire after five years from the closing of the business combination. The holders of the warrants issued pursuant to the business combination may elect, if the Group does not have an effective registration statement or the prospectus contained therein is not available for the issuance of the warrant shares to the holder, in lieu of exercising the warrants for cash, a cashless exercise option to receive a variable number of common shares.

 

At initial recognition on 20 December 2019, the Group recorded a derivative warrant liability of USD 16,983,200 based on the quoted price on 20 December 2019 of USD 0.8 per warrant and then revalued at USD 0.74 at 31 December 2019 resulting in a fair value gain of USD 1,273,740 and a warrant derivative liability of USD 15,709,460. These warrants were accounted for as part of the consideration transferred under IFRS 2. Additional information is provided in Note 26.

 

F-127

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

(Figures in USD)  2020
(Re-stated)
   2019
(Re-stated)
 
                             

20Derivative Warrant Liability (Continued)

 

On 14 May 2020, holders of 100 warrants have exercised their rights through cash exercise and converted the warrants into ordinary shares.

 

At 31 December 2020, the Group recorded a derivative warrant liability of USD 13,161,838 (31 December 2019: USD 15,709,460) which resulted in a gain on revaluation of derivative warrant liability for the year ended 31 December 2020 of USD 2,547,622 (31 December 2019: USD 1,273,740).

 

21Derivative Financial Instruments

 

Interest rate swaps   Nil    1,518,249 
    Nil    1,518,249 

 

In 2018, the Group entered into an interest rate swap with a commercial bank exchanging variable interest for fixed interest at specified dates on its term loan 1. The interest rate swap matures in June 2023.

 

The Group is exposed to variability in future interest cash flows on terms loan and Islamic ijara loan which bears interest at a variable rate.

 

During the year, the Group fully settled the term loans as well as the interest rate swaps. The Group have repaid USD 1,858,753 in settlement.

 

The details of these derivative financial instruments are as follows:

 

   Notional   Fair value   Fair value 
   Amount
(USD)
   asset
(USD)
   liability
(USD)
 
31 December 2020            
Designated at FVTPL            
Interest rate swaps   Nil    Nil    Nil 
                
31 December 2019               
Designated at FVTPL               
Interest rate swaps   79,253,015    Nil    1,518,249 

 

22Borrowings

 

Bonds        187,014,715    Nil 
Secured term loans        Nil    86,435,137 
Promissory notes        Nil    2,265,000 
         187,014,715    88,700,137 

 

The current and non- current break up as below:

 

Non- Current   Maturity
2025
           
Bonds       180,014,715    Nil 
Term loan 1        Nil    68,271,743 
Term loan 2        Nil    5,889,207 
         180,014,715    74,160,950 

 

F-128

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

(Figures in USD)  2020
(Re-stated)
   2019
(Re-stated)
 
                             

22Borrowings (Continued)

 

Current        
Bonds   7,000,000    Nil 
Term loan 1   Nil    10,135,939 
Term loan 2   Nil    2,138,248 
Term loan 3   Nil    Nil 
Promissory notes   Nil    2,265,000 
    7,000,000    14,539,187 

 

  Coupon   Effective interest      2020   2019 
Bonds  rate %   rate %   Maturity date  USD   USD 
USD 200,000,000 bond net of transaction costs   8.50%   10.57%  September
2015
   187,014,715    Nil 

 

On 24 September 2020, the Group issued long term fixed interest rate senior secured bonds of USD 200,000,000 to private investors with a face value of USD 1 at an issue price of USD 0.95. The Group can issue further bonds of up to USD 50,000,000 under identical terms except issue price that can be above or below the nominal amount, subject to certain conditions. The proceeds of the bonds of USD 186,000,000 net of USD 4,000,000 of transaction costs were drawn down during November 2020. In accordance with the terms of the bonds, the proceeds were used to settle the existing term loans and promissory notes. An amount of USD 85,000,000 were transferred to a Construction account to be used solely to fund the remaining phase 2 construction costs. The balance proceeds were used for general corporate purposes.

 

The bonds will be repaid in semi-annual payments of USD 7,000,000 starting September 2021 until March 2025, and one bullet repayment of USD 144,000,000 in September 2025. Interest will accrue at a coupon rate of 8.5% and will be payable semi-annually in March and September each year. The Group has the option to redeem the bonds in full or in part any time after 24 September 2023 (the “call option”). The call option represents an embedded derivative that has been separated from the host contract and separately valued. At 31 December 2020, management has assessed the value of the call option to be immaterial.

 

The bonds are secured by:

 

(i) pledge over all the existing and future shares of BPGIC FZE;

 

(ii) assignment of rights and pledge over the balance in the Earnings account;

 

(iii) pledge over the balance in the Liquidity account, the Debt Service Retention account and the Construction Funding account;

 

(iv) pledge over moveable assets of BPGIC FZE and its subsidiaries;

 

(v) security assignment of commercial contracts related to phase I and phase II, land lease agreement, port facilities agreement and EPC construction contract;

 

(vi) security assignment over insurance contracts for phase I terminal, phase II terminal and admin building; (vii) security assignment over group and intercompany loans; and

 

(viii) corporate guarantee from Brooge Energy Limited.

 

F-129

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

22Borrowings (Continued)

 

Bonds (Continued)

 

The bond agreement also restricts BPGIC FZE from making any distributions other than in the form of an inter-company loan for phase III construction.

 

Under the bond agreement, BPGIC FZE is subject to the following financial covenants during the term of the bonds:

 

(i) Minimum Liquidity: BPGIC FZE to maintain $8.5 million in the Liquidity account;

 

(ii) Leverage Ratio: BPGIC FZE and its subsidiaries’ leverage ratio not to exceed: (A) 5.5x at 31 December 2020; (B) 3.5x at 31 December 2021; and (C) 3.0x anytime thereafter; and

 

(iii) Working Capital: BPGIC FZE and its subsidiaries to maintain a positive working capital.

 

The bond agreement requires the Group to comply with the following financial covenant: (i) Brooge Energy Limited to maintain a minimum equity ratio of 25%.

 

As of 31 December 2020, BPGIC FZE and the Group was in compliance with its commitments under the bond agreement.

 

Included in secured loans are the below term loans:

 

Term loan 1

 

In 2014, the Group obtained term loan facility (1) amounting to USD 84,595,154 from a commercial bank in the UAE to partially finance the construction of phase 1 (14 oil storage tanks in Fujairah). During the year 2019, the Group has not drawn down any amounts (2018: USD 550,445) from this facility. The loan was repayable in 48 quarterly instalments, commencing 27 months after the start of the construction with final maturity not exceeding 31 March 2028 and is stated net of prepaid finance cost of USD 499,158. The interest is due on a quarterly basis from the loan drawdown date.

 

In 2018, the Group entered into an agreement to amend term loan facility (1). As a result of this amendment the loan was repayable in 48 quarterly instalments starting October 2018 with final maturity in July 2030. The loan carries interest at 3 month EIBOR + 3% as compared to interest at 6 month EIBOR + 3.5% previously. As of 31 December 2018, the Group had not paid USD 3.7 million of principal and accrued interest that was due under the Phase I Financing Facilities. Also, as of 31 December 2018, the Group was not in compliance with its debt covenants, including the debt service coverage ratio contained in the Phase I Financing Facilities. Even though the lender did not declare an event of default under the loan agreements, these breaches constituted events of default and could have resulted in the lender requiring immediate repayment of the loans. Accordingly, as of 31 December 2018, the Group classified its debt balance of $94.8 million as a current liability.

 

On 10 September 2019, the Group entered into an agreement with the bank to again amend term loan facility (1). The loan was payable in 45 instalments starting 31 October 2019 with final maturity on 30 July 2030. One of the instalments included a one-time lump sum repayment of USD 5,729,418 which represented the cumulative instalments including interest outstanding from periods prior to this amended agreement of USD 5,494,063 and an amendment fee of USD 235,355.

 

F-130

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

22Borrowings (Continued)

 

Term loan 1 (Continued)

 

On 30 December 2019, the Group entered into an amendment for term loan facility (1). The loan was payable in 44 instalments starting 31 January 2020 with final maturity on 30 July 2030. One of the instalments included a one-time lump sum repayment of USD 6,612,194, which represented the cumulative instalments including interest outstanding from periods prior to this amended agreement of USD 6,520,130 and an amendment fee of USD 92,064. At 31 December 2019, the Group’s current liabilities exceeded its current assets by USD 72.7 million. Subsequent to the year end, the Group defaulted on its commitments under its term loans and the Group was not in compliance with its debt covenants, including the debt service coverage ratio contained in the Group’s loan agreements. Even though the lender did not declare an event of default under the loan agreements, these breaches constituted events of default and could have resulted in the lender requiring immediate repayment of the loans.

 

On 15 June 2020, the Group entered into another amendment for term loan facility (1). The new payment terms comprised of 46 instalments starting 30 June 2020 with final maturity on 31 July 2030. The loan carried interest at 6 month EIBOR + 4% [minimum 5%] per annum to be further enhanced to 6 month EIBOR + 4.5% [minimum 5%] per annum starting from January 2021, compared to interest at 3 month EIBOR + 3% per annum previously. An amendment fee of USD 136,128 was paid.

 

In November 2020, the Group fully settled the term loan facility (1) using the proceeds of the Bond issue. The Group paid USD 74,082,548 in final settlement in addition to repayments of USD 4,824,291 during the year. The final settlement amount included USD 559,637 as a prepayment penalty.

 

Term loan 2

 

During 2017, the Group obtained an additional term loan facility (2) of USD 11,108,086 from a commercial bank in the UAE for the construction of an administrative building in Fujairah. The loan was repayable in 20 quarterly instalments starting after a 6 months grace period commencing in April 2017 and is stated net of prepaid finance cost of USD 58,578 .The interest is due on a quarterly basis from the loan drawdown date.

 

During the year 2018, the Group has entered in to an agreement to amend term loan facility (2). The loan was repayable in 20 quarterly instalments starting October 2018 with final maturity in July 2023.The loan carried interest at 3 month EIBOR + 3% as compared to interest at 3 month EIBOR + 3.5% previously. Term loan (2) was not amended as part of the 10 September 2019 and 30 December 2019 agreements to amend loan (1). In 2019, the Group repaid all instalments due in accordance with the repayment schedule.

 

On 15 June 2020, the Group entered into another amendment by revoking the previous amendment for term loan facility (2). The loan was payable in 16 instalments starting 30 June 2020 with final maturity on 31 July 2030. The loan carried interest at 3 month EIBOR + 4% [minimum 5%] per annum to be further enhanced to 3 month EIBOR + 4.5% [minimum 5%] per annum starting from January 2021 as compared to interest at 3 month EIBOR + 3% per annum previously.

 

In November 2020, the Group fully settled the term loan facility (2) using the proceeds of the Bond issue. The Group paid USD 7,546,964 in final settlement in addition to repayments of USD 539,069 during the year. The final settlement amount included USD 147,006 as a prepayment penalty.

 

F-131

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

(Figures in USD)  2020   2019 
                             

22Borrowings (Continued)

 

Term loan 2 (Continued)

 

The term loans 1 and 2 were secured by a mortgage on the tanks and the office/administration building, step-in right to the leased land and assignment of insurance policies. The security was released upon the settlement of loans.

 

Term Loan 3

 

In 2018, the Group obtained a new facility from a commercial bank in the UAE amounting to USD 95,290,000 to partially finance the construction of phase 2. The new facility carries interest at 3 month EIBOR + 3% margin and is repayable in 17 bi-annual instalments commencing 6 months after the date of completion of phase 2.

 

The Group did not make any drawdowns on the term loan facility (4). In 2020, the Group has cancelled the facility subsequent to the issuance of the bonds.

 

Promissory notes

 

Pursuant to the Business Combination Agreement, on December 20, 2019, Twelve Seas, Early Bird Capital (EBC), and the Company entered into the Business Combination Marketing Agreement Fee Amendment (the “BCMA Fee Amendment”) whereby the Company became party to the Business Combination Marketing Agreement solely with respect to the provision relating to EBC’s fees and EBC’s fees were amended. Pursuant to the Business Combination Marketing Agreement, as amended by the BCMA Fee Amendment, EBC received as full payment for any and all fees under the Business Combination Marketing Agreement, a cash fee equal to USD 3 million and a USD 1.5 million non interest bearing promissory note of the Company due and payable on the earlier of (i) the first anniversary of the Closing and (ii) the consummation by the Company of a follow-on securities offering. In case of default, the promissory note would bear interest at the rate of 10% per annum.

 

There is an additional promissory note of USD 765,000 that was issued by Twelve Seas prior to the Business Combination payable to Twelve Seas sponsors which was included in the net assets contributed by Twelve Seas as part of the Business Combination, further details disclosed in Note 31.

 

23Lease Liabilities

 

Balance at the beginning of the year   30,779,138    30,221,426 
Additions during the year   55,565,863    Nil 
Interest charged during the year   3,525,982    2,871,035 
Lease rentals during the year   (2,359,250)   (2,313,323)
Balance at the end of the year   87,511,733    30,779,138 

 

1) The analysis of lease liability is as follows:

 

Current   2,591,557    2,154,878 
Non-Current   84,920,176    28,624,260 

 

F-132

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

(Figures in USD)  2020   2019 
                             

23Lease Liabilities (Continued)

 

During 2013, the Group entered into a land lease agreement with the Municipality of Fujairah for a period of 30 years, extendable for another 30 years at the option of the Group. The Group has concluded that they have the right-to-use of the asset and accordingly, recorded a lease liability as per the requirements of IFRS 16. Given the use of the land, it is reasonably certain that the Group will continue to lease the land till the end of the lease period (i.e. 60 years) and accordingly the below lease rentals cover a period up to 60 years discounted at the rate of 9.5% (2019: 9.5%) as an incremental borrowing rate for the Group. Annual lease rental is increased by 2% on an annual basis as per the agreement.

 

During the year, the Group entered into another land lease agreement in respect of its phase 3 project with the Fujairah Oil Industry Zone for a period of 30 years, extendable for another 30 years. Given the use of the land, it is reasonably certain that the Group will continue to lease the land till the end of the lease period (i.e. 60 years) and accordingly the below lease rentals cover a period up to 60 years discounted at the rate of 13% (2019:nil) as an incremental borrowing rate for the Group. Annual lease rental is increased by 2% on an annual basis and there is an initial rent free period of 18 months from the contract date.

 

   Lease payments   Present value of minimum lease payments 
   2020   2019   2020   2019 
Not later than one year   8,533,582    2,359,590    6,586,405    2,154,878 
Later than one year and not later than five years   35,875,519    9,919,810    20,812,094    7,241,240 
Later than five years   858,043,766    213,469,800    60,113,234    21,383,020 
    902,452,867    225,749,200    87,511,733    30,779,138 
Finance costs   (814,941,134)   (194,970,062)   Nil    Nil 
Present value of minimum lease payments   87,511,733    30,779,138    87,511,733    30,779,138 

 

24Employees’ End of Service Benefits

 

Balance at the beginning of the year   13,941    6,267 
Provision for the year   29,047    9,488 
Paid during the year   (2,474)   (1,814)
Balance at the end of the year   40,514    13,941 

 

25Asset Retirement Obligation

 

Asset retirement obligation   873,334   Nil
    873,334   Nil

 

As part of the land lease agreement between the Fujairah Oil Industry Zone (“FOIZ”) and the Group, the Group has a legal obligation to remove the plant at the end of its useful life, or earlier, if the Group is unable to continue its operations, and restore the land. The Group has employed professional valuers to estimate the amount of liability.

 

F-133

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

(Figures in USD)

 

26Share Capital & Share Premium

 

   No. of Shares   USD 
Ordinary shares   450,000,000    450,000,000 

 

Share Capital

 

Conversion of 100 BPGIZ FZE ordinary shares at 1 for 1 million to the legal acquirer, Brooge Energy (Note 1)          
Cash election   80,000,000    8,000 
Changes in share capital due to business combination (Note 31)   (1,281,695)   (128)
As at December 31, 2019   9,316,948    932 
    88,035,253    8,804 
Changes in share capital due to reverse acquisition transaction          
    (30,000)   (3)
Conversion of 100 warrants into ordinary shares at 1 for 1          
As at 31 December 2020   100    0.01 
    88,035,353    8,804 

 

Note 1: Ordinary shares held in escrow (20,000,000 shares held by BPGIC and 1,552,000 shares held by the original founders of Twelve Seas) have been excluded from the share capital in the table above. Additional information on escrow shares are included in Note 31.

 

   2020   2019 
Share Premium  (Re-stated)   (Re-stated) 
         
As at January 01   101,775,834    1,353,285 
Conversion of 100 warrants in ordinary shares at 1 for 1   1,224    Nil 
Ordinary shares issued on merger with Twelve Seas   Nil    114,022,421 
Cash election   Nil    (13,599,872)
As at December 31   101,777,058    101,775,834 

 

27Transactions with Related Parties

 

The Group, in the normal course of business carries out transactions with parties that fall within the definition of related party contained in the International Financial Reporting Standards. Significant transactions with

related parties are as under:

 

Transactions in shareholders’ account        
Contributions/ (distributions) by/to the shareholders   (233,457)   77,090,648 
Amounts paid on behalf of the Group by the shareholders*   Nil    1,135,484 
Amounts paid by the Group on behalf of the shareholders   Nil    (1,669,424)
Distributions to shareholders   Nil    (53,279,016)
    (233,457)   23,277,692 

 

These amounts are repayable at the discretion of the Board of Directors of the Group and are interest free, therefore classified as part of equity.

 

*These include expenses paid on behalf of the Group which includes other operational expenses paid by the shareholders on behalf of the Group.

 

F-134

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

(Figures in USD)  2020
(Re-stated)
   2019
(Re-stated)
 
                              

27Transactions with Related Parties (Continued)

 

Changes in shareholders’ account is as follows:

 

At January 01   70,995,455    47,717,763 
Net contributions (distributions) during the year   (233,457)   23,277,692 
At December 31   70,761,998    70,995,455 
           
Expense paid on behalf of related parties   23,463    57,550 
Key management remuneration   1,417,266    1,160,293 

 

(Figures in USD)  2020
(Re-stated)
   2019
(Re-stated)
 
        
At January 01   70,995,455    47,717,763 
Net contributions (distributions) during the year   (233,457)   23,277,692 
At December 31   70,761,998    70,995,455 
           
Expense paid on behalf of related parties   23,463    57,550 
Key management remuneration   1,417,266    1,160,293 

 

Related party balances as at the year end are classified as under:

 

Related Party  Classification        
Shareholder  Shareholder’s account (Equity)   70,761,998    70,995,455 
HBS Investments LP  Due from related parties (Note 15)   17,479    13,388 
H Capital International LP  Due from related parties (Note 15)   16,975    11,056 
O2 Investments Limited as GP  Due from related parties (Note 15)   9,303    6,181 
SBD International LP  Due from related parties (Note 15)   17,851    13,760 
SD Holding Limited as GP  Due from related parties (Note 15)   9,850    6,984 
Gyan Investments Ltd  Due from related parties (Note 15)   9,555    6,181 
Shareholder  Due to a related party (Note 18)   2,041,927    Nil 

 

28Contingent Liabilities

 

Capital commitments within one year   33,125,477    79,334,742 
    33,125,477    79,334,742 

 

Capital commitments relate to construction of phase 2 which is expected to be completed by the end of third quarter of 2021.

 

Except for the above and ongoing purchase commitments in the normal course of business against which no loss is expected, there are no other known contingent liabilities existing at the balance sheet date.

 

29Earnings Per Share

 

Basic EPS is calculated by dividing the profit/(loss) for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

 

Diluted EPS is calculated by dividing the profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.

 

F-135

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

(Figures in USD)  2020
(Re-stated)
   2019
(Re-stated)
 
                              

29Earnings Per Share (Continued)

 

The following table reflects the income and share data used in the basic and diluted EPS calculations:

 

Profit / (Loss) attributable to ordinary equity holders of the parent   2,518,668    (104,689,000)
Weighted average number of ordinary shares   88,035,321    80,264,186 

 

As part of the business combination (Note 31) warrants and ordinary shares subjected to escrow has been issued. In the calculation of diluted earnings per shares, the warrants have been excluded as the average market price of ordinary shares during the period exceeded the exercise price of the warrants i.e. they are not in the money.

 

The number of contingently issuable shares (escrow shares) to be included in the diluted earnings per shares calculation is based on the number of shares that would be issuable if the end of the period were the end of the contingency period. No ordinary shares would have been issuable on 31 December 2020 as the conditions attached to the escrow shares have not been met at reporting date. As a result, the escrow shares have been excluded from the calculation of diluted earnings per share for 31 December 2020 and the weighted average number of ordinary shares for basic earnings per share and diluted earnings per shares are the same.

 

On 14 May 2020, holders of 100 warrants (2019: Nil) have exercised their rights through cash exercise and converted the warrants into ordinary shares.

 

30Fair Value of Financial Instruments

 

Management considers that the fair value of financial assets and financial liabilities in the consolidated financial statements approximate their carrying amounts at the reporting date.

 

Fair Value Hierarchy

 

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.

 

Liabilities measured at fair value:  Level 1   Level 2   Level 3   Total Fair Value 
   USD   USD   USD   USD 
                 
December 31, 2020                
Derivative financial instruments   13,161,838    Nil    Nil    13,161,838 
                     
December 31, 2019                    
Derivative financial instruments   15,709,460    1,518,249    Nil    17,227,709 

 

The fair values of the financial liabilities measured at fair value included in the Level 1 and Level 2 category above, have been determined in accordance with quoted price and generally accepted pricing models based on a discounted cash flow analysis, respectively. The models incorporate various inputs including interest rate curves and forward rate curves of the underlying instruments.

 

During the year ended 31 December 2020 and 2019, there were no transfers between Level 1 and Level 2 fair value measurements.

 

F-136

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

31Business Combination

 

In connection with the Business Combination as described in Note 1, the following occurred:

 

Twelve Seas:

 

(i) Each outstanding ordinary share of Twelve Seas has been exchanged for one (1) ordinary share of Brooge Energy.

 

(ii) Each outstanding warrant of Twelve Seas has been exchanged for one warrant of Brooge Energy.

 

(iii) As part of the Business Combination, 10,869,719 shares were issued to Twelve Seas which included 1.5 million Escrow shares subject to meeting certain financial milestones stated in this note below. Further, million Escrow shares subject to meeting certain financial milestones stated in this note below. Further, million Escrow shares subject to meeting certain financial milestones stated in this note below. Further, 21,229,000 warrants were issued to Twelve Seas in exchange ratio stated above and further details disclosed in Note 20.

 

(iv) In connection with the closing of the Business Combination, holders of 16,997,181 ordinary shares of Twelve Seas sold in Twelve Seas’s Initial Public Offering (“IPO”) exercised their right to redeem such shares at a price of $10.31 per share, for an aggregate redemption amount of approximately USD 175.36 million.

 

Brooge Petroleum and Gas Investment Company FZE:

 

Twelve Seas issued a total of 100 million shares (inclusive of 20 million of escrowed shares) to BPGIC in exchange for 100 ordinary shares of BPGIC. All 100 million shares were simultaneously replaced with Brooge Energy shares at the ratio of 1:1.

 

The fair value of the shares that were swapped between the parties above was based on the closing share price of Brooge Energy’s as traded on NASDAQ on December 20, 2019 which was USD 10.49 per share.

 

The fair value of the warrants that were swapped between the parties above was based on the closing price of Brooge Energy’s as traded on NASDAQ on December 20, 2019 which was USD 0.80 per warrant.

 

As part of the above-mentioned business combination, Twelve Seas’ net assets of USD 32.4 million (see below) were assumed by the Company and the issuance of ordinary shares and warrants by the Company was recognized at fair value of USD 131.0 million, with the resulting difference amounting to USD 98.6 million representing the listing expense recognized on the transaction. In addition, the Group incurred other listing expenses such as lawyers and consultants fees of USD 3.1 million, resulting in a total listing expense of USD 101.9 million as reflected in the consolidated statement of comprehensive income.

 

The net assets of USD 32,383,568 were assumed on December 20, 2019 comprised of:

 

Cash and cash equivalent   33,064,568 
Current assets   84,000 
Accounts payable   (765,000)
    32,383,568 

 

Shares issued to Twelve Seas as part of the Business Combination included escrow shares of 1,552,000 being 30% of the founder shares which are subject to meeting certain financial milestones as mentioned below. 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” since, management has a reasonable expectation that the subject financial milestones will be met.

 

F-137

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

31Business Combination (Continued)

 

The total shares issued by Brooge Energy to BGPIC was 98,718,035 (inclusive of the 20 million shares in escrow) after reduction of 1,281,965 shares due to the 40% cash election exercised by BPGIC. 20,000,000 of the Exchange Shares (“Escrow Property”) otherwise issuable to BPGIC is set aside in escrow until released upon the satisfaction of certain financial milestones and share price targets below:

 

(i) One-half (½) of the Escrow Property shall become vested and no longer subject to forfeiture, and be released to the seller, in the event that either: (a) the Annualized EBITDA (as defined in the Escrow Agreement) for any full fiscal quarter during the Escrow Period (beginning with the first full fiscal quarter beginning after the Closing) (an “Escrow Quarter”) equals or exceeds USD 175,000,000 or (b) at any time during the Escrow Period, the closing price of the Brooge Energy ordinary shares equals or exceeds $12.50 per share (subject to equitable adjustment) for any ten (10) Trading Days (as defined in the Escrow Agreement) within any twenty (20) Trading Day period during the Escrow Period.

 

(ii) All Escrow Property remaining in the Escrow Account shall become vested and no longer subject to forfeiture, and be released to the seller, in the event that either: (a) the Annualized EBITDA for any Escrow Quarter equals or exceeds $250,000,000 or (b) at any time during the Escrow Period, the closing price of the Brooge Energy ordinary shares equals or exceeds $14.00 per share (subject to equitable adjustment) for any ten (10) Trading Days within any twenty (20) Trading Day period during the Escrow Period.

 

The same conditions mentioned above applied for the escrow founder shares.

 

32Subsequent Events

 

On September 21, 2022 the Group announced that its wholly owned subsidiary, Brooge Petroleum and Gas Investment Company FZE inaugurated its Phase II storage facility. The new Phase II facility was built utilizing state-of-the-art technology to maximize performance and efficiency and can store not only crude and fuel oils but also clean petroleum products which is a competitive edge the company is able to provide to its customers. Additionally, the Company is also able to provide is customers with ancillary services including product blending and heating.

 

F-138

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

33Financial Risk Management and Policies

 

The main risks arising from the Group’s financial instruments are interest rate risk, credit risk, currency risk and liquidity risk. Management reviews and agrees policies for managing each of these risks which are summarized below.

 

Interest Rate Risk

 

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

 

The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s balances with banks. The Group’s borrowing are issued at fixed rate of interest.

 

Market Risk

 

The Group’s activities expose it to the financial risks of changes in interest rates and price risk of the warrants. As the warrants are recognised at fair value on the consolidated statement of financial position of the Group, the Group’s exposure to market risks results from the volatility of the warrants price. The Warrants are publicly traded at the NASDAQ Stock Exchange.

 

At the reporting date, the exposure to derivative warrant liability at fair value listed on the NASDAQ was USD 13,161,838 (2019: 15,709,460). The Group has determined that an increase/(decrease) of 10% on the NASDAQ could have an impact of approximately USD 1,316,838 (2019: USD 1,570,946) increase/(decrease) on the income and equity attributable to the Group.

 

Currency Risk

 

The Group does not have any significant exposure to currency risk as most of its assets and liabilities are denominated in USD or UAE Dirhams, which are pegged to the USD.

 

Credit Risk

 

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Group is exposed to credit risk on bank balances and receivables as reflected in the consolidated statement of financial position, with a maximum exposure equal to the carrying amount of these instruments. The expected credit loss on trade and other receivables are considered insignificant for 2020 and 2019.

 

The Group has a low credit risk exposure on its trade receivables based on established policy, procedures and controls relating to customer credit risk management. Credit quality of the customer is assessed as part of contract negotiations. Outstanding receivables are regularly monitored.

 

Liquidity Risk

 

The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers projected financing requirements of the Group during the construction phase and cash projections from operations with outstanding bank facilities and outstanding bank commitments as defined under the finance documents.

 

F-139

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

33Financial Risk Management And Policies (Continued)

 

Liquidity Risk (Continued)

 

The Group manages its liquidity risk in relation to term loans to ensure compliance with all covenants for each specific facility.

 

The table below summarizes the maturity profile of the Group’s financial liabilities at December 31, 2020 and December 31, 2019 based on contractual undiscounted payments.

 

   On   Upto   1 to 5   > 5    
   Demand   1 Year   Years   Years   Total 
   USD   USD   USD   USD   USD 
December 31, 2020                         
Bonds (Including accrued interest)   Nil    11,250,000    180,014,715    Nil    191,264,715 
Lease liability   Nil    2,591,557    25,823,081    59,097,095    87,511,733 
Derivative financial instruments   Nil    Nil    Nil    Nil    Nil 
Accounts payable, accruals and other payables (excluding accrued interest)   Nil    86,970,181    Nil    Nil    86,970,181 
Total   Nil    100,811,738    205,837,796    59,097,095    365,746,629 
                          
December 31, 2019                         
                          
Term loans (Including accrued interest)    Nil    17,834,569    33,610,603    40,550,347    91,995,519 
Lease liability   Nil    2,359,590    9,919,810    213,469,800    225,749,200 
Derivative financial instruments   Nil    1,518,249    Nil    Nil    1,518,249 
Accounts payable, accruals and other payables (excluding accrued interest)   Nil    115,633,080    Nil    Nil    115,633,080 
Total   Nil    137,345,488    43,530,413    254,020,147    434,896,048 

 

F-140

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

(Figures in USD)  2020
(Re-stated)
   2019
(Re-stated)
 
                             

33Financial Risk Management And Policies (Continued)

 

Capital Management

 

The primary objective of the Group’s capital management is to ensure that it maintains healthy capital ratios in order to support its business and maximize shareholder’s value and to meet its loan covenants.

 

The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust future distribution policy to shareholders, issue new shares or shareholders’ contributions.

 

The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group includes within net debt, the lease liability, term loans, and trade and other payables, less cash and cash equivalents. Capital includes share capital, shareholders’ accounts, general reserve and (accumulated losses) retained earnings.

 

Borrowings   187,014,715    88,700,137 
Lease liability   87,511,733    30,779,138 
Less: Cash and cash   (20,989,970)   (19,830,771)
equivalents   253,536,478    99,648,504 
Net debt   52,545,053    50,258,618 
Total capital   306,081,531    149,907,122 
Capital and net debt   83%   66%
Gearing ratio          

 

34Current Year and Prior Year Restatement

 

i) The comparative figures for 2019 were restated previously on account of errors identified by the management subsequent to the issuance of the 2019 audited consolidated financial statements.

 

ii) In year 2022, subsequent to the issuance of the Group’s 2020 financial statements, the Group identified errors in the consolidated financial statements for the year ended 31 December 2020 and determined that the year 2020 consolidated financial statements should be restated. The basis of such error and restatement is given as below:

 

Restatement Background

 

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 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, 2020 and 2019 the previously issued unaudited financial statements for interim periods therein and the six months ended June 30, 2021 should no longer be relied upon.

 

F-141

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

34Current Year and Prior Year Restatement (Continued)

 

In connection with the internal examination, the Company 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 BIA do not qualify to be recognised as revenue. Due to the qualitative nature of the matters identified in the Company’s internal examination, including the number of years over which the non-qualified revenue was recognized, the Company determined that it would be appropriate to rectify the misstatements in the previously issued financial statements by restating such financial statements. Accordingly, for the year 2020 the Company reversed revenue amounting to USD 14,640,361 (2019:USD 28,200,155) and USD 15,659,111 (2019: USD 29,939,548), which mainly represents funds received from BIA, was reversed and re-classified as Other payables under Liabilities.

 

The Management does 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 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 and, accordingly the prior years’ financial statements have been restated as disclosed in Page 49.

 

35Reaudit of the Consolidated Financial Statements

 

The consolidated financial statements are re-audited as the Group has undertaken a restatement of its consolidated financial statement for the year ended December 31, 2018, the details of which are mentioned in Note 34. The restatement mainly pertains to revenue, other payable and trade account receivable.

 

36Rounding Off of Figures

 

All figures have been rounded off to the US Dollars.

 

37Comparative Figures

 

Certain of the prior year figures have been regrouped to conform with the presentation of the current year.

 

F-142

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

37Comparative Figures (Continued)

 

Groupings for Property, Plant and Equipment                    
   Buildings   Installations   Other Equipments   Tanks   Capital Work in Progress   Right of use
Assets
   (Figures in USD)
Total
 
Cost:                                   
As at January 01, 2020   28,037,886    65,878,129    218,827    76,100,795    79,948,312    27,540,969    277,724,918 
Additions during the year   Nil    24,997    49,916    118,201    53,631,492    56,359,642    110,184,248 
As at December 31, 2020   28,037,886    65,903,126    268,743    76,218,996    133,579,804    83,900,611    387,909,166 
Accumulated Depreciation:                                   
As at January 01, 2020   2,372,081    5,978,336    79,673    3,312,144    Nil    2,754,096    14,496,330 
Charge for the year   1,121,515    2,789,951    50,482    1,568,648    Nil    578,717    6,109,313 
As at December 31, 2020   3,493,596    8,768,287    130,155    4,880,792    Nil    3,332,813    20,605,643 
Net Carrying Value:                                   
As at December 31, 2020   24,544,290    57,134,839    138,588    71,338,204    133,579,804    80,567,798    367,303,523 
As at December 31, 2019   25,665,805    59,899,793    139,154    72,788,651    79,948,312    24,786,873    263,228,588 

 

Capital work in progress at December 31, 2020 includes total amount of USD 133,255,464 capitalized relating to the construction of phase 2 and USD 324,340 for phase 3 and includes an amount of USD 1,484,977 (2019: USD 1,458,069) related to finance charge on lease liability for phase 2 and an amount of USD 232,131 (2019: USD 233,113) for phase 2 and USD 77,175 (2019: Nil) for phase 3 related to depreciation charge on right-of-use asset capitalised.

 

The capitalized borrowing costs of phase 2 amounting to USD 4,719,888 (2019: USD 1,546,108) have been included in “additions” in the table above. These include general borrowing cost of USD 2,274,051 (2019: USD 1,546,108) and specific borrowing cost of USD 2,445,837 (2019: Nil). The capitalization rates used to determine the general borrowing costs were 7.35% (2019: 6.1%) in respect of term loans and 10.1% (2019: Nil) in respect of bonds per annum.

 

Land lease agreement and the moveable assets of BPGIC FZE are pledged as security against borrowing obtained in 2020 (Note 22).

 

The depreciation charge for the year is allocated to the statement of comprehensive income (within profit and loss) and capital work in progress as follows:

 

  2020   2019 
Direct costs (Note 7)   5,800,007    5,785,745 
CWIP   309,306    233,113 
    6,109,313    6,018,858 

 

F-143

 

 

Brooge Energy Limited
Notes to the Consolidated Financial Statements
December 31, 2020

 

37Comparative Figures (Continued)

 

(Figures in USD) 

As previously

reported

   Restatement adjustments   As per the restated Financial Statement 
   31-12-20   31-12-19   31-12-20   31-12-19   31-12-20   31-12-19 
                         
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 

 

F-144

 

 

 

 

 

 

 

Brooge Energy Limited

(Formerly Brooge Holdings Limited)

Consolidated Financial Statements

December 31, 2019

 

 

 

 

 

 

F-145

 

 

Brooke Energy Limited

Index to the Financial Statements

December 31, 2019

 

  Page
Independent Auditor’s Report F-147
Consolidated Statement of Comprehensive Income F-151
Consolidated Statement of Financial Position F-152
Consolidated Statement of Changes in Equity F-153
Consolidated Statement of Cash Flows F-154
Notes to the Consolidated Financial Statements F-155

 

F-146

 

 

 

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Description automatically generated  

Office 106, The Binary
Al Abraj Street
Business Bay
PO Box 413383
Dubai / UAE

[T] +971 4 557 8358
[E] mail@affiniax.com  

Independent Auditor’s Report

 

To the Board of Directors and Shareholders of Brooge Energy Limited and its Subsidiaries

 

Report on the Audit of the Consolidated Financial statements

 

Opinion

 

We have audited the consolidated financial statements of Brooge Energy Limited and its Subsidiaries, (“the Group”), which comprises of the consolidated statement of financial position as at December 31, 2019, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended and notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory notes.

 

In our opinion, the accompanying consolidated financial statements, present fairly, in all material respects, the consolidated financial position of Brooge Energy Limited and its Subsidiaries as at December 31, 2019 and its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.

 

Basis for Opinion

 

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the and the PCAOB.

 

We conducted our audit in accordance with PCAOB & International Standards on Auditing (ISA’s). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the consolidated Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Emphasis of Matter

 

a. We draw your attention to Note no. 33 where the Group has reversed the revenue amounting to USD 28,200,155 which mainly represents funds received from M/s Brooge International Advisory LLC (BIA) which was earlier accounted as the revenue. Since the Group could not obtain the confirmation from subject party to identify the purpose and repayment terms, if any; before signing date of this report, an amount of USD 29,939,548 representing the funds received from BIA has been classified as Other payable in the financial statements for the year ended December 31, 2019.

 

 

 

F-147

 

 

Emphasis of Matter (Continued)

 

b. Considering the significance of the above amount involved, we have further reviewed the legal documents of M/s Brooge Petroleum and Gas Investment Company and M/s Brooge International Advisory LLC (BIA) to determine whether they are related parties in accordance to Paragraph (9) of International Accounting Standards (IAS 24). The Company has further undertaken vide resolution dated April 23, 2023 to consider BIA as a related party.  Based on the above representation and applying the concept of substance over form, it indicates that BIA is a related party.

 

c. We draw attention to consolidated statement of comprehensive income in the consolidated financial statements, which indicates that the Group incurred a net loss of USD 104,689,000 during the year ended December 31, 2019 and, as of that date, the Group’s current liabilities exceed current assets by USD 131,835,583. Our opinion is not modified in respect of this matter.

 

Reaudit of Consolidated Financial Statements for the Year Ended December 31, 2019

 

Attention is invited to Note 34 Reaudit of the consolidated financial statements. The consolidated financial statements of the Group are re-audited to record the restatement pertaining to revenue, other payable and trade accounts receivable, which were recorded erroneously due to the inadequate documents.

 

Key Audit Matters

 

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 

We have determined that there are no other key audit matters to communicate in our report.

 

Responsibility of the Management for the Consolidated Financial Statements

 

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards and for such internal controls as Management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the consolidated financial statements, the Management is responsible for assessing the Group’s ability to continue as a going concern, as applicable, matters related to going concern and using the going concern basis of accounting, unless Management either intends to liquidate the Group or to cease operations or has no realistic alternative but to do so.

 

 

 

F-148

 

 

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

 

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatements, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISA’s will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

 

As part of an audit in accordance with ISA’s, we exercise professional judgement and maintain professional skepticism throughout the audit. We also;

 

●     Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risks of not detecting a material misstatement resulting from fraud is higher than for one resulting from error as fraud may involve collusion, forgery, intentional omissions, misrepresentation or override of internal controls.

 

●     Obtain an understanding of internal controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal controls.

 

●     Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management.

 

●     Conclude on the appropriateness of Management’s use of going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

 

●     Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

We communicate with the Management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal controls that we identify during our audit.

 

 

 

 

F-149

 

 

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

 

We also provide the Management with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

 

From the matters communicated with the Management, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current year and are therefore the key audit matters.

 

Affiniax A A S Auditors

 

 

 

Dubai,

United Arab Emirates,

April 24, 2023

 

 

 

 

F-150

 

  

Brooge Energy Limited

Consolidated Statement of Comprehensive Income
Year Ended December 31, 2019

 

(Figures in USD)  Note  2019   2018 
    (Re-stated)   (Re-stated) 
            
Revenue  6   15,885,219    6,387,348 
Direct costs  7   (11,497,239)   (10,100,234)
Gross profit / (loss)      4,387,980    (3,712,886)
              
Other income  8   4,188    8,554 
Change in estimated fair value of derivative warrant liability  20   1,273,740    Nil 
Listing expenses  9   (101,773,877)   Nil 
General and administration expenses  10   (2,470,425)   (1,824,380)
Finance costs  11   (5,782,430)   (6,951,923)
Changes in fair value of derivative financial instruments  21   (328,176)   (1,190,073)
Loss for the year      (104,689,000)   (13,670,708)
Other comprehensive income      Nil    Nil 
Total Comprehensive Loss for the year      (104,689,000)   (13,670,708)
              
Basic and diluted loss per share  28   (1.30)   (0.17)

 

The accompanying notes form an integral part of the consolidated financial statements.

 

F-151

 

 

Brooge Energy Limited

Consolidated Statement of Financial Position
As at December 31, 2019

 

(Figures in USD)  Note  2019   2018 
    (Re-stated)   (Re-stated) 
ASSETS           
Current Assets           
Cash and cash equivalents  12   19,830,771    37,351 
Trade accounts receivable  13   163,567    Nil 
Inventories  14   179,644    147,090 
Other receivable and prepayments  15   840,671    244,828 
Total Current Assets      21,014,653    429,269 
Non-Current Assets             
Property, plant and equipment  16   263,228,588    197,629,114 
Advances to contractor  17   21,664,764    Nil 
Total Non-Current Assets      284,893,352    197,629,114 
Total Assets      305,908,005    198,058,383 
              
LIABILITIES AND EQUITY             
Current Liabilities             
Trade and accounts payable  18   61,133,967    9,001,961 
Other payable  19   57,794,495    27,854,947 
Derivative warrant liability  20   15,709,460    Nil 
Derivative financial instruments  21   1,518,249    1,190,073 
Borrowings  22   14,539,187    98,537,136 
Lease liabilities  23   2,154,878    2,112,624 
Total Current Liabilities      152,850,236    138,696,741 
Non-Current Liabilities             
Borrowings  22   74,160,950    Nil 
Lease liabilities  23   28,624,260    28,108,802 
Employees’ end of service benefits  24   13,941    6,267 
Total Non-Current Liabilities      102,799,151    28,115,069 
Equity             
Share capital  25   8,804    8,000 
Share premium  25   101,775,834    1,353,285 
Retained earnings      (122,521,475)   (17,832,475)
Shareholder’s account      70,995,455    47,717,763 
Total Equity Attributable to the Shareholders      50,258,618    31,246,573 
Total Liabilities and Equity      305,908,005    198,058,383 

 

The accompanying notes form an integral part of the consolidated financial statements.

 

F-152

 

 

Brooge Energy Limited

Consolidated Statement of Changes in Equity

Year Ended December 31, 2019

 

(Figures in USD)  Share
Capital
   Share
Premium
   Accumulated Losses   Shareholder’s Account   Total 
                     
As at January 01, 2018 (Restated)   8,000    1,353,285    (4,161,767)   70,421,437    67,620,955 
Loss for the year    Nil     Nil    (13,670,708)    Nil    (13,670,708)
Movements during the year    Nil     Nil     Nil    (22,703,674)   (22,703,674)
As At December 31, 2018 (Restated)   8,000    1,353,285    (17,832,475)   47,717,763    31,246,573 
Shares issuance in connection with a merger (Note 30)   932    114,022,421     Nil     Nil    114,023,353 
Cash election in lieu of shares   (128)   (13,599,872)    Nil     Nil    (13,600,000)
Loss for the year    Nil     Nil    (104,689,000)    Nil    (104,689,000)
Movements during the year    Nil     Nil     Nil    23,277,692    23,277,692 
As At December 31, 2019 (Restated)   8,804    101,775,834    (122,521,475)   70,995,455    50,258,618 

 

The accompanying notes form an integral part of the consolidated financial statements.

 

F-153

 

 

Brooge Energy Limited

Consolidated Statement of Cash Flows

Year Ended December 31, 2019

 

(Figures in USD)  2019   2018 
  (Re-stated)   (Re-stated) 
         
Cash Flow from Operating Activities        
Loss for the year   (104,689,000)   (13,670,708)
           
Adjustments for:          
Depreciation of property, plant and equipment   6,018,858    6,002,294 
Interest charged on lease liability   2,871,035    2,818,714 
Provision for employees’ end of services benefits   9,488    5,748 
Change in estimated fair value of derivative warrant liability   (1,273,740)   Nil 
Net changes in fair value of derivative financial instruments   328,176    Nil 
Shares issuance in connection with a merger   114,023,353    Nil 
           
Changes in operating assets and liabilities          
(Increase) / Decrease in trade accounts, other receivable and prepayments   (759,410)   331,996 
(Increase) / Decrease in inventories   (32,554)   29,561 
Increase in trade and accounts payable   52,132,006    4,427,550 
Increase in other payable   29,939,548    27,854,947 
Payment of employees’ end of services benefits   (1,814)   (132)
Net cash (used in) / generated from operating activities   98,565,946    27,799,970 
           
Cash Flow from Investing Activities          
           
Advance to contractors   (21,664,764)   Nil 
Purchase of property, plant and equipment   (71,618,332)   (8,192,537)
Net cash used in investing activities   (93,283,096)   (8,192,537)
           
Cash Flow from Financing Activities          
           
Issuance of 21,229,000 warrants in connection with merger   16,983,200    Nil 
Issuance of interest rate swaps   Nil    1,190,073 
Net of (repayment) / proceeds from term loan   (9,836,999)   4,209,210 
Payment of lease liability   (2,313,323)   (2,267,964)
Movement in shareholder’s account   23,277,692    (22,703,674)
Cash election in lieu of shares   (13,600,000)   Nil 
Net cash generated from / (used in) financing activities   14,510,570    (19,572,355)
           
Net change in cash and cash equivalents   19,793,420    35,078 
Cash and cash equivalents at beginning of the year   37,351    2,273 
Cash and cash equivalents at end of the year   19,830,771    37,351 

 

The accompanying notes form an integral part of the consolidated financial statements.

 

F-154

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

1Legal Status, Management and Business Activity

 

The consolidated financial statements comprise of the consolidation of the financial statements of Brooge Energy Limited (the “Company”) and its subsidiaries on a line-by-line basis. The Company and its subsidiaries are collectively referred to as the “Group”. The details of the Group are as follows:

 

a. Brooge Energy Limited

 

The Company (formerly known as Brooge Holdings Limited) is a company with limited liability registered as an exempted company in the Cayman Islands.

 

The registered office of the Company is at P.O Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. The Company’s principal executive office is located at P.O Box 50170, Al-Sodah, Khorr Fakkan Road, Fujairah, United Arab Emirates (“UAE”).

 

The Company changed its name from Brooge Holdings Limited to Brooge Energy Limited on April 07, 2020.

 

The subsidiaries of the Company are as follows:

 

i. Brooge Petroleum and Gas Investment Company FZE (“BPGIC FZE”)

 

BPGIC FZE is a free zone Company formed and registered in the Fujairah Free Zone Authority under registration number 13-FZE-1117.

 

BPGIC FZE is a 100% subsidiary of the Company.

 

ii. BPGIC International (“BPGIC International”)

 

BPGIC International formerly known as Twelve Seas, is a company with limited liability registered as an exempted company in the Cayman Islands.

 

BPGIC International is a 100% subsidiary of the Company.

 

The service provided by the group is oil storage and related services at the Port of Fujairah in the Emirate of Fujairah, UAE. The Group currently operates phase I and phase II, comprising 22 tanks with a total capacity of 1,001,388 cubic meters (“cbm”), fully operational for provision of storage and other ancillary processes of crude and clean oil. The construction of the Company’s phase II, with a total capacity of 602,064 cbm was completed in September 2021.

 

The Company was incorporated on 12 April 2019 for the sole purpose of consummating the business combination described further below.

 

On 15 April 2019, BPGIC FZE entered into a business combination agreement with Twelve Seas Investment Company (“Twelve Seas”), a company listed on National Association of Securities Dealers Automated Quotations (“NASDAQ”), the Company and BPGIC FZE’s shareholders. On 10 May 2019, BPGIC PLC became party to the business combination agreement by execution of a joinder thereto.

 

The business combination was accounted for as a reverse acquisition in accordance with the International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board (“IASB”) as disclosed in Note 30.

 

F-155

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

1Legal Status, Management and Business Activity (Continued)

 

Under this method of accounting, Brooge Energy 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 stockholders 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 FZE are the historical financial statements of the combined company, and Brooge Energy and Twelve Sea’s assets, liabilities and results of operations are consolidated with BPGIC FZE beginning on the acquisition date.

 

As a result of the above transaction, the Company became the ultimate parent of BPGIC FZE and Twelve Seas on 20 December 2019, being the acquisition date. The Company’s common stock and warrants are traded on the NASDAQ Capital Market under the ticker symbols BROG and BROGW, respectively. Upon the closing of business combination, Twelve Seas changed its name to ‘BPGIC International’.

 

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

 

The reaudited consolidated financial statements were authorised for issue by the Board of Directors.

 

2Basis of Preparation of Consolidated Financial Statements

 

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board “IASB”. These consolidated financial statements are presented in United States dollars (“USD”) which is the functional and presentation currency of the Group. All financial information presented in USD has been rounded to the nearest thousand, unless otherwise stated. The consolidated financial statements are prepared under the historical cost convention, except for re-measurement at fair value of derivative financial instruments and warrant liability.

 

(i) Subsidiaries

 

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at December 31, 2019. 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

 

F-156

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

2Basis of Preparation of Consolidated Financial Statements (Continued)

 

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:

 

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

 

derecognizes the carrying amount of any non-controlling interests

 

derecognizes the cumulative translation differences recorded in equity

 

recognizes the fair value of the consideration received

 

recognizes the fair value of any investment retained

 

recognizes any surplus or deficit in profit or loss

 

reclassifies the parent’s share of components previously recognized 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

 

Details of subsidiaries as at December 31, 2019 and December 31, 2018 are stated in Note 1.

 

The financial statements of the subsidiaries 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 subsidiaries and the equity of the subsidiaries are eliminated on consolidation. All significant intra-group balances, and income and expenses arising from intra-group transactions are also eliminated on consolidation.

 

(ii) 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.

 

(iii) 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.

 

F-157

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

2Basis of Preparation of Consolidated Financial Statements (Continued)

 

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;

 

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.

 

2Fundamental Accounting Concept

 

As of 31 December 2018, the Group had not paid USD 3.7 million of principal and accrued interest that was due under the Group’s Phase I Financing Facilities. Also, as of 31 December 2018, the Group was not in compliance with its debt covenants, including the debt service coverage ratio contained in the Group’s Phase I Financing Facilities. Even though the lender did not declare an event of default under the loan agreements, these breaches constituted events of default and could have resulted in the lender requiring immediate repayment of the loans. Accordingly, as of 31 December 2018, the Group has classified its debt balance of USD 94.8 million as a current liability.

 

On September 10, 2019 and again on December 30, 2019 the Group entered into agreements with its lender to amend the Phase 1 Financing Facility such that on December 31, 2019 the Group was in compliance with the amended facility agreement. At December 31, 2019, the Group’s current liabilities exceeded its current assets by USD 131.8 million.

 

F-158

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

2Basis of Preparation of Consolidated Financial Statements (Continued)

 

Fundamental Accounting Concept (Continued)

 

Subsequent to the year end, the Group defaulted on its commitments under its term loans and the Group was not in compliance with its debt covenants, including the debt service coverage ratio contained in the Group’s loan agreement. Even though the lender did not declare an event of default under the loan agreements, these breaches constituted events of default and could have resulted in the lender requiring immediate repayment of the loans.

 

On June 15, 2020, the Group entered into an agreement with its lender to amend its Phase I Financing Facilities (note 22). The Group will have to pay principal and accrued interest of USD 8.8 million in 2020 which represents the cumulative instalments including interest outstanding from periods prior to this amended agreement and an amendment fee of USD 136,000.

 

Term loan (1) and Term loan (2) is now payable in 46 and 16 instalments respectively starting June 30, 2020 with final maturity on July 31, 2030 and July 31, 2023, respectively.

 

During 2018, the Group signed a sales agreement for phase 2 to provide storage and ancillary services to an international commodity trading company, which was novated to a new party during the year. Phase 2 operations are scheduled to start in fourth quarter of 2020 and management expects this will generate significant operating cash flows. The Group is in receipt of a loan facility letter date 15 October 2018 from a lender. The Group intends to draw down from this facility to finance the payments due to the contractor in respect of Phase 2 construction in the third quarter of 2020. The ability of the Group to draw down on this facility is contingent upon a number of conditions agreed in the facility letter which will need to be assessed and approved by the bank prior to the disbursement of funds.

 

Group incurred a net loss of USD 104,689,000 during the year ended December 31, 2019 and, as of that date, the Group’s current liabilities exceed current assets by USD 131,835,583.

 

Based on the above noted, management has considered the going concern status of the Group and believes there to be a material uncertainty that casts significant doubt upon the Group’s ability to continue as a going concern. Based on management’s forecasts the capital expenditure requirements for phase 2 and debt servicing as described above will be funded by cash generated through the ongoing operations and further drawdowns from loan facilities. The Group’s management acknowledge that there is a risk that the quantum and timing of cash flows may not be achievable in line with the twelve months forecasts from the date of approval of the Group’s financial statements. Accordingly, there is significant doubt that the Group will be able to pay its obligations as they fall due and this significant doubt is not alleviated by management’s plans.

 

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.

 

F-159

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

3Changes in Accounting Policies and Disclosures

 

Newand amended standards and interpretations.

 

The Group applied certain standards, interpretations and amendments for the first time, which are effective for annual periods beginning on or after 1 January 2019. Except for IFRS 16, which was early adopted during the year ended 31 December 2016, the Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

 

a)Amendments to IFRS 9 Prepayment Features with Negative Compensation;

 

b)IFRIC Interpretation 23 Uncertainty over Income Tax Treatments

 

c)Amendments to IAS 19 Plan Amendment, Curtailment or Settlement; and

 

d)Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures.

 

Annual Improvements 2015-2017 Cycle

 

a)IFRS 3 Business Combinations;

 

b)IFRS 11 Joint Arrangements;

 

c)IAS 12 Income Taxes; and

 

d)IAS 23 Borrowing Costs

 

The adoption of above standards and amendments did not have any significant impact on the consolidated financial statements of the Group except the amendments in IAS 23. These amendments clarify that an entity treats as part of general borrowings any borrowing originally made to develop a qualifying asset when substantially all of the activities necessary to prepare that asset for its intended use or sale are complete. The entity applies the amendments to borrowing costs incurred on or after the beginning of the annual reporting period in which the entity first applies those amendments. An entity applies those amendments for annual reporting periods beginning on or after 1 January 2019. The implementation of the amendments resulted in USD 1,546,108 capitalisation of borrowing cost to Property, plant and equipment.

 

4Significant 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.

 

F-160

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

4Significant Accounting Estimates and Judgements (Continued)

 

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:

 

Useful Life and Depreciation of Property, Plant and Equipment

 

The Company’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.

 

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. There is no data or information that can be derived from past practice, industry practice or the Group’s intentions that could be used to make a reliable estimate of the decommissioning cost. Accordingly, the Group has not recorded a liability or corresponding asset as the amounts of such potential future costs are not reliably determinable.

 

Discount rate used for initial measurement of lease liability

 

The Group, as a lessee, measures the lease liability at the present value of the unpaid lease payments 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 on initial recognition of the lease uses its incremental borrowing rate. Incremental borrowing rate is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use assets in similar economic environment. The Group determined its incremental borrowing rate at 9.5% (2018: 9.5%) in respect of the lease liability (Note 23).

 

Impairment of trade receivables

 

The Company 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 Company calculates the ECL based on Group historical credit loss experience, adjusted for forward-looking factors specific to the customer and the economic environment.

 

F-161

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

4Significant Accounting Estimates and Judgements (Continued)

 

Valuation of derivative financial instruments

 

The Group has entered into derivative financial instruments (interest rate swaps) with a financial institution with investment grade credit rating. Interest rate swaps are valued using valuation techniques, which employ the use of market observable inputs. The most frequently applied valuation techniques include swap models using present value calculations. The models incorporate various inputs including the credit quality of counterparties and interest rate curves. The most frequently applied valuation techniques include swap models using present value calculations. The models incorporate various inputs including the credit quality of counterparties and interest rate curves. The most frequently applied valuation techniques include swap models using present value calculations. The models incorporate various inputs including the credit quality of counterparties and interest rate curves. The changes in counterparty credit risk had no material effect on the derivative financial instruments recognised at fair value.

 

Fair value of Other Financial Instruments

 

Where the fair value of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active markets, they are determined using valuation techniques including discounted cash flow model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of estimation is required in establishing fair values. The estimates include consideration of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.

 

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:

 

Business combination (reverse acquisition)

 

As the reverse acquisition of Brooge Energy did not constitute a business combination, the transaction was accounted for as an asset acquisition by the issuance of shares of the Company, for the net assets of Twelve Seas and its public listing. Accordingly, the transaction had been accounted for at the fair value of the equity instruments granted to the shareholders and warrant holders of Twelve Seas.

 

Management applied the following primary judgments in accounting for the reverse acquisition:

 

1.BPGIC was assessed as the accounting acquirer due to majority shareholding and representatives on the board of directors.

 

2.The accounting acquiree is not a business and not in scope of IFRS 3.

 

3.The acquisition has been accounted for in terms of IFRS 2 which is aligned to guidance issued by the IFRIC. The difference between the fair value of the consideration paid and the fair value of the net assets acquired has been recognised in profit and loss.

 

4.Fair value of ordinary shares issued: Refer to Note 30.

 

5.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”. Fair value of the shares in escrow: Refer to Note 30.

 

6.Fair value of warrants issued: Refer to note 20.

 

7.Deemed share issue has been presented in the financing activities in the Statement of Cash Flows.

 

F-162

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

4Significant Accounting Estimates And Judgements (Continued)

 

Classification of warrants

 

Classification of warrants in connection with the completion of the business combination on 20 December 2019 as described in Note 1, Note 20 and Note 30 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.

 

5Summary 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.

 

F-163

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

5Summary of Significant Accounting Policies (Continued)

 

 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

 

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.

 

The principal or the most advantageous market must be accessible to the Group.

 

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

 

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 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.

 

-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.

 

F-164

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

5Summary of Significant Accounting Policies (Continued)

 

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 statement of financial position, as applicable.

 

Input VAT and Output VAT

 

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

 

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

 

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. Capital work under progress is stated at cost and subsequently transferred to assets when it is available for use.

 

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

 

Office Buildings   25 years 
Tanks   50 years 
Installations   20 - 25 years 
Other Equipment   5 years 
Right of use asset - Land   60 years 

 

F-165

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

5Summary of Significant Accounting Policies (Continued)

 

Property, Plant and Equipment (Continued)

 

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 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 capitalised 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.

 

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.

 

F-166

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

5Summary of Significant Accounting Policies (Continued)

 

Leases (Continued)

 

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 recognized over the lease term on the same bases as rental income. Contingent rents are recognized as revenue in the period in which they are earned.

 

Group as a lessee

 

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: is within the control of the Group; and

 

At the commencement date, the Group recognizes a right-of-use asset classified within property, plant and equipment and a lease liability presented separately on the consolidated statement of financial position.

 

Short-term leases and leases of low-value assets

 

The Group has elected not to recognize 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 when new. The Group recognizes 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 recognized at cost comprising of the amount of the initial measurement of the lease liability; any lease payments made at or before the commencement date, less any lease incentives received; any initial direct costs incurred by the Group; and an estimate of costs to be incurred by the Company 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. These costs are recognized 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.

 

F-167

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

  

5Summary of Significant Accounting Policies (Continued)

 

Lease liability

 

The lease liability is initially recognized 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 recognizes the amount of the re-measurement of the lease liability as an adjustment to the right-of use asset. Where the carrying amount of the right-of-use asset is reduced to zero and there is a further reduction in the measurement of the lease liability, the Group recognizes any remaining amount of the re-measurement in the consolidated statement of comprehensive income (within profit and loss).

 

The Group accounts for a lease modification as a separate lease if both:

 

the modification increases the scope of the lease by adding the right to use one or more underlying assets; and 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.

 

F-168

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

5Summary of Significant Accounting Policies (Continued)

 

FinancialInstruments

 

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.

 

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.

 

Financial liabilities

 

On 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 recognised 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 and term loans.

 

Derecognition of financial assets and liabilities

 

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.

 

F-169

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

5Summary of Significant Accounting Policies (Continued)

 

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.

 

Amortised cost of financial instruments

 

Amortised 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.

 

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

 

Statutory reserve is created by appropriating 10% of the net profits BPGIC FZE for the year as required by Article 103 of the UAE Federal Law No. 2 of 2015 on commercial companies, concerning commercial companies in the UAE.

 

F-170

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

5Summary of Significant Accounting Policies (Continued)

 

Employees’ End of Service Benefits

 

Provision is made for the amounts payable under the UAE labour law applicable to the employees and is based on current basic remuneration and cumulative period of service at the balance sheet date.

 

Provision is made on the assumption that all employees were to leave as of the balance sheet date since this provides, in Management’s opinion, a reasonable estimate of the present value of terminal benefits.

 

Trade Accounts and Other Payable

 

Trade accounts and other payable are stated at nominal amounts payable for goods or services rendered.

 

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 recognized 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. There is no data or information that can be derived from past practice, industry practice or the Group’s intentions that could be used to make a reliable estimate of the decommissioning cost. Accordingly, the Group has not recorded a liability or corresponding asset as the amounts of such potential future costs are not reliably determinable.

 

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 financial statements are presented in US Dollars, which is the Group’s functional and presentation currency.

 

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year - end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

 

F-171

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

5Summary of Significant Accounting Policies (Continued)

 

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 (Note 30).

 

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.

 

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 30. 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”.

 

F-172

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

(Figures in USD)   2019     2018  
    (Re-stated)     (Re-stated)  

 

6Revenue

 

Storage rental income (Note 33)   13,397,209    5,694,418 
Miscellaneous income (Note 6.1)   1,294,829    423,094 
Ancillary services   1,193,181    269,836 
    15,885,219    6,387,348 

 

The Group has only one segment at the reporting date. Revenue generation from leasing of storage capacity of tanks and other ancillary services started in December 2017.

 

6.1: Miscellaneous income represents port charges that are paid by the Group to the port authority and recharged to the customers.

 

7Direct Costs

 

Depreciation on property, plant and equipment (Note 16)   5,785,745    5,763,150 
Employees’ costs   3,074,727    2,808,702 
Port expense (Note 6.1)   1,294,829    423,094 
Spare parts and consumables used   788,792    592,471 
Insurance charges   323,702    377,053 
Others   229,444    135,764 
    11,497,239    10,100,234 

 

8Other Income

 

Miscellaneous income   4,188    8,554 
    4,188    8,554 

  

9Listing Expenses

 

IFRS 2 listing expense   98,622,019    Nil 
Other listing expenses (Note 9.1)   3,151,858    Nil 
    101,773,877    Nil 

 

9.1Other listing expenses represents promissory note of USD 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.

 

F-173

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

(Figures in USD)   2019     2018  
    (Re-stated)     (Re-stated)  

 

10General and Administration Expenses

 

Employees’ cost   1,473,335    1,210,102 
Legal and professional   549,702    177,298 
Office expenses   248,752    106,943 
Repairs and maintenance   74,542    75,985 
Sales and marketing   70,877    114,682 
Travelling expenses   42,871    5,667 
Rent   10,346    22,325 
Other expense   Nil    111,378 
    2,470,425    1,824,380 

 

11Finance Costs

 

Interest expense on term loans   4,002,772    5,559,195 
Interest on lease liability   1,412,796    1,387,612 
Bank charges   314,967    5,116 
Exchange loss   51,895    Nil 
    5,782,430    6,951,923 

 

12Cash and Cash Equivalents

 

Cash in hand   1,960    5,013 
Balances in current accounts   19,828,811    32,338 
    19,830,771    37,351 

 

There are no restricted cash balances for the Group.

 

13Trade Accounts Receivable

 

Accounts receivables   163,567    Nil 
    163,567    Nil 

 

At December 31, 2019, all trade receivables were neither past due nor impaired.

 

Receivables are due within 14 days of invoicing.

 

Unimpaired trade receivables are expected to be fully recoverable. It is not the practice of the Group to obtain collateral over receivables and the vast majority is, therefore, unsecured.

 

14Inventories

 

Spare parts and consumables   179,644    147,090 
    179,644    147,090 

 

Cost of inventories recognised during the year amounted to USD 788,792 (2018: USD 592,471). No provision is required for inventories as at December 31, 2019 (2018: Nil).

 

F-174

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

(Figures in USD)   2019     2018  
    (Re-stated)     (Re-stated)  

 

15Other Receivable and Prepayments

 

VAT receivable   573,923    221,448 
Prepaid expenses   57,543    Nil 
Due from related parties   57,550    Nil 
Deposits   15,526    10,352 
Advance paid to suppliers and contractors   136,129    13,028 
    840,671    244,828 

 

16Property, Plant and Equipment

 

a)The groupings are mentioned on page 47.

 

17Advances to Contractor

 

Advances to contractor   21,664,764    Nil 
    21,664,764    Nil 

 

The amount represents the advances paid to a contractor (Audex) for future services in relation to Phase 2.

 

18Trade and Accounts Payable

 

Trade accounts payable   25,989,965    1,566,717 
Capital accruals   31,466,080    5,978,220 
Accrued interest on term loans   3,295,382    910,691 
Accrued expenses   360,180    546,333 
Payables to third parties   22,360    Nil 
    61,133,967    9,001,961 

 

Trade accounts payables mainly includes the payables to Audex (Phase 2 contractor) amounting to USD 21.5 million. Capital accruals represents contractor’s capital accruals for Phase 2.

 

19Other Payable

 

 

M/s Brooge International Advisory LLC   57,794,495    27,854,947 
   57,794,495    27,854,947 

 

Please refer Note 33 for more details.

 

F-175

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

(Figures in USD)   2019     2018  
    (Re-stated)     (Re-stated)  

 

 

20Derivative Warrant Liability

 

Issuance of 21,229,000 warrants in connection with merger (Note 30)   16,983,200    Nil 
Fair value remeasurement of derivative warrant liability   (1,273,740)   Nil 
    15,709,460    Nil 

 

In accordance with IAS 32, a contract to issue a variable number of shares fails to meet the definition of equity and must instead be classified as a derivative liability and measured at fair value with changes in fair value recognized in the consolidated statement of comprehensive income at each reporting date. The derivative liabilities will ultimately be converted into the Group’s equity (ordinary shares) when the warrants are exercised or will be extinguished on the expiry of the outstanding warrants, and will not result in the outlay of any cash by the Group.

 

In connection with the completion of the business combination on 20 December 2019, each of Twelve Sea’s 21,229,000 outstanding warrants were converted into the Group’s warrants at 1:1 ratio. The warrants allow the holder to subscribe for the ordinary shares of the Company at 1:1 basis at an exercise price of USD 11.50. The warrants shall lapse and expire after five years from the closing of the business combination. The holders of the warrants issued pursuant to the business combination may elect, if the Group does not have an effective registration statement or the prospectus contained therein is not available for the issuance of the warrant shares to the holder, in lieu of exercising the warrants for cash, a cashless exercise option to receive a variable number of common shares.

 

At initial recognition on 20 December 2019, the Group recorded a derivative warrant liability of USD 16,983,200 based on the quoted price on 20 December 2019 of USD 0.8 per warrant and then revalued at USD 0.74 at December 31, 2019 resulting in a fair value gain of USD 1,273,740 and a warrant derivative liability of USD 15,709,460. These warrants were accounted for as part of the consideration transferred under IFRS 2. Additional information is provided in Note 30.

 

On 14 May 2020, holders of 100 warrants have exercised their rights through cash exercise and converted the warrants into ordinary shares.

 

21Derivative Financial Instruments

 

Interest rate swaps   1,518,249    1,190,073 
    1,518,249    1,190,073 

 

In 2018, the Group entered into an interest rate swap with a commercial bank exchanging variable interest for fixed interest at specified dates on its term loan 1. The interest rate swap matures in June 2023.

 

The Group is exposed to variability in future interest cash flows on terms loan and Islamic ijara loan which bears interest at a variable rate.

 

F-176

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

  

21Derivative Financial Instruments (Continued)

 

In order to reduce its exposure to interest rates fluctuations on the loans, the Group has entered into an interest rate arrangement with counter-party banks for a notional amount that mirrors the draw down schedule of the loans, covering not less than 90% of the outstanding term loan. At December 31, 2019 the fixed interest rates varied from 2.78% to 4.76% (2018: 2.78% to 4.76%). The floating interest rate is based on EIBOR. The notional amount outstanding at December 31, 2019 was USD 79.2 million (2018: USD 83.8 million). The interest rate swap match the terms of the fixed rate loan (i.e., notional amount, maturity, payment and reset dates).

 

The details of these derivative financial instruments are as follows:

 

   Notional
Amount
(USD)
   Fair value
asset
(USD)
   Fair value
liability
(USD)
 
             
December 31, 2019
Designated at FVTPL
Interest rate swaps
   79,253,015    Nil    1,518,249 
December 31, 2018
Designated at FVTPL
Interest rate swaps
   83,855,305    Nil    1,190,073 

 

22Borrowings

 

(Figures in USD)  2019   2018 
Secured term loans   86,435,137    94,792,088 
Promissory notes   2,265,000    Nil  
Bank overdraft   Nil    3,745,048 
    88,700,137    98,537,136 

 

The current and non- current break up as below:

 

  Maturity         
Non- Current            
Term loan 1  2030    68,271,743    Nil 
Term loan 2  2023    5,889,207    Nil 
       74,160,950    Nil 

 

  Maturity         
Current            
Term loan 1  2020   10,135,939  82,245,595 
Term loan 2  2020    2,138,248    10,165,703 
Term loan 3  2020    Nil    2,380,790 
Promissory notes      2,265,000    Nil 
       14,539,187    94,792,088 

 

F-177

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

22Borrowings (Continued)

 

Included in secured loans are the below term loans:

 

Term loan 1

 

In 2014, the Group obtained term loan facility (1) amounting to USD 84,595,154 from a commercial bank in the UAE to partially finance the construction of Phase 1 (14 oil storage tanks in Fujairah). During the year 2019, the Group has not drawn down any amounts (2018: USD 550,445) from this facility. The loan was repayable in 48 quarterly instalments, commencing 27 months after the start of the construction with final maturity not exceeding 31 March 2028 and is stated net of prepaid finance cost of USD 499,158 (2018: USD 559,607). The interest is due on a quarterly basis from the loan drawdown date. The loan was drawn down in AED.

 

In 2018, the Group entered into an agreement to amend term loan facility (1). As a result of this amendment the loan was repayable in 48 quarterly instalments starting October 2018 with final maturity in July 2030. The loan carries interest at 3 month EIBOR + 3% as compared to interest at 6 month EIBOR + 3.5% previously.

 

On 10 September 2019, the Group entered into an agreement with the bank to again amend term loan facility (1). The loan was payable in 45 instalments starting 31 October 2019 with final maturity on 30 July 2030. One of the instalments included a one-time lump sum repayment of USD 5,729,418 which represented the cumulative instalments including interest outstanding from periods prior to this amended agreement of USD 5,494,063 and an amendment fee of USD 235,355.

 

On 30 December 2019, the Group entered into another amendment by revoking the previous amendment for term loan facility (1). The loan is now payable in 44 instalments starting 31 January 2020 with final maturity on 30 July 2030. One of the instalments includes a one-time lump sum repayment of USD 6,612,194, which represents the cumulative instalments including interest outstanding from periods prior to this amended agreement of USD 6,520,130 and an amendment fee of USD 92,064.

 

Term loan 2

 

During 2017, the Group obtained an additional term loan facility (2) of USD 11,108,086 from a commercial bank in the UAE for the construction of an administrative building in Fujairah. The loan was repayable in 20 quarterly instalments starting after a 6 months grace period commencing in April 2017 and is stated net of prepaid finance cost of USD 58,578 (2018: USD 76,606). The interest is due on a quarterly basis from the loan drawdown date. The loan was drawn down in AED.

 

During the year 2018, the Group has entered in to an agreement to amend term loan facility (2). The loan was repayable in 20 quarterly instalments starting October 2018 with final maturity in July 2023.The loan carried interest at 3 month EIBOR + 3% as compared to interest at 3 month EIBOR + 3.5% previously.

 

Term loan (2) was not amended as part of the 10 September 2019 and 30 December agreement to amend loan (1). In 2019, the Group repaid all instalments due under the repayment schedule.

 

F-178

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

22Borrowings (Continued)

 

Term loan 1 and 2

 

The term loans are secured by a mortgage on the tanks and the office/administration building, step-in right to the leased land and assignment of insurance policies.

 

Under the term loan facility agreements, the Group is subject to certain covenants requiring amongst other things, the maintenance of:

 

i) a minimum debt service coverage ratio of 150% at all times and if the ratio decreases to 120% or less, it results in an event of default; the debt service coverage ratio (DSCR) is defined as net operating income divided by total debt service and;

 

ii) an amount equivalent to one quarterly instalment including interest in a debt service reserve account at all times.

 

Under the amended agreement signed on 30 December 2019, the maintenance of above covenants is required to be complied from 28 February 2020. As of December 31, 2019, the Group was in compliance with its commitments under the loan agreements and has accordingly classified the balance between current and non-current liability based on the loan agreements in effect at December 31, 2019.

 

Subsequent to year end, the Group has again defaulted on the instalments due under the loan agreements and are also in breach of the loan covenants. The lender has not declared an event of default under the loan agreement.

 

The Group negotiated another amendment to the term loan facilities (1) and (2) on 15 June 2020. Loans (1) and (2) are now payable in 46 and 16 instalments, respectively, with the first installment starting from 30 June 2020 with final maturity in 30 July 2030 and 31 July 2023, respectively. The loan 1 carries interest at 6 months EIBOR + 4% (minimum 5%) and to be further increased to 6 month EIBOR + 4.5% (minimum 5%) from January 2021 as compared to interest at 3 month EIBOR + 3% previously, and, the loan 2 carries interest at 3 months EIBOR + 4% (minimum 5%) and to be further increased to 3 month EIBOR + 4.5% (minimum 5%) as compared to interest at 3 month EIBOR + 3% previously.

 

The Group has to pay USD 8.8 million for term loan (1) and (2) in 2020 which represents the cumulative instalments including interest outstanding from periods prior to this amended agreement and an amendment fee of USD 136,000.

 

All securities and covenants under the original agreements remain in effect under the amended agreement except debt service reserve account (DSRA) balance to be maintained from 31 October 2020 and debt service coverage ratio (DSCR) to be commenced from 31 December 2020. Under this agreement, term loans (1) and (2) are also secured by assignment of the proceeds from operation of the tanks of Phase 1 and 2.

 

Term Loan 3

 

In 2018, the Group has obtained a facility from a commercial bank in the UAE to settle accrued interest on term loan (1) amounting to USD 3,539,341. The facility carried interest at 1 month EIBOR + 2% margin and was repayable in 15 equal monthly instalments commencing from date of disbursement. The facility has been fully settled during the year.

 

F-179

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

22Borrowings (Continued)

 

Term Loan 4

 

In 2018, the Group obtained a new facility from a commercial bank in the UAE amounting to USD 95,290,000 to partially finance the construction of Phase 2. The new facility carries interest at 3 month EIBOR + 3% margin and is repayable in 17 bi-annual instalments commencing 6 months after the date of completion of Phase 2.

 

The term loan facility (4) is secured by a mortgage on the Phase 2 storage tanks, step-in right to the leased land and assignment of the proceeds from operation of the tanks and insurance policies.

 

Under the term loan facility agreement, the Group is subject to certain covenants requiring amongst other things, the maintenance of (i) a minimum facility service coverage ratio of 1.25:1, (ii) a participations to value ratio not exceeding 1.50:1 at all times, (iii) a participations to cost ratio not exceeding 57% at any date, and (iv) an amount equivalent to one instalment including interest in a facility service reserve account at all times or in the event of an initial public offering, the amount should be equivalent to the next two instalments including interest. The facility service coverage ratio is calculated as revenues minus expenses from the phase 2 storage tanks divided by the current debt commitments on term loan (4) including interest. The participations to value ratio at any date is calculated as total debt commitments on term loan facility (4) as of that date divided by the most recent valuation of the phase 2 storage tanks. The participations to cost ratio at any date is calculated as the total debt commitments on term loan facility (4) as of that date as a percentage of the sum of actual constructions costs plus project expenses paid as of that date on the phase 2 storage tanks.

 

The term loan facility (4) agreement includes an initial condition precedent that requires evidence of initial equity contribution by the Group towards the phase 2 storage tanks before the loan facility can be utilised. The Group has not made any drawdowns on the term loan facility (4) as of the date of issuance of these consolidated financial statements.

 

Promissory notes

 

Pursuant to the Business Combination Agreement, on December 20, 2019, Twelve Seas, Early Bird Capital (EBC), and the Company entered into the Business Combination Marketing Agreement Fee Amendment (the “BCMA Fee Amendment”) whereby the Company became party to the Business Combination Marketing Agreement solely with respect to the provision relating to EBC’s fees and EBC’s fees were amended. Pursuant to the Business Combination Marketing Agreement, as amended by the BCMA Fee Amendment, EBC received as full payment for any and all fees under the Business Combination Marketing Agreement, a cash fee equal to USD 3.0 million and a USD 1.5 million non-interest bearing promissory note of the Company due and payable on the earlier of (i) the first anniversary of the Closing and (ii) the consummation by the Company of a follow-on securities offering. In case of default, the promissory note would bear interest at the rate of 10% per annum.

 

There is an additional promissory note of USD 0.8 million that was issued by Twelve Seas prior to the Business Combination payable to Twelve Seas sponsors which was included in the net assets contributed by Twelve Seas as part of the Business Combination, further details disclosed in Note 30.

 

F-180

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

(Figures in USD)   2019     2018  
  (Re-stated)     (Re-stated)  

 

23Lease Liabilities

 

Balance at the beginning of the year   30,221,426    29,670,676 
Interest charged during the year   2,871,035    2,818,714 
Repayment during the year   (2,313,323)   (2,267,964)
Balance at the end of the year   30,779,138    30,221,426 

 

1) The analysis of lease liability is as follows:          
           
Current   2,154,878    2,112,624 
Non-Current   28,624,260    28,108,802 

 

2) The Group has entered into a land lease agreement with the municipality of Fujairah. The lease commenced in 2013 and is for a period of 30 years extendable for another 30 years at the option of the Group. Considering the use the land, it is reasonably certain that the land will be used until the end of the lease period (i.e. 60 years) and the lease rentals have been discounted at the incremental borrowing rate of 9.5% . As per the land lease agreement, the lease rentals will be increased by 2% every year.

 

The maturity of the lease liability is as follows:

 

   lease payments   Present value of minimum
lease payments
 
   2019   2018   2019   2018 
                 
Not later than one year   2,359,590    2,313,324    2,154,878    2,112,624 
Later than one year and not later than five years   9,919,810   9,725,304
  7,241,240 7,099,256  
Later than five years   213,469,800    216,023,896    21,383,020    21,009,546 
    225,749,200    228,062,524    30,779,138    30,221,426 
Finance costs   (194,970,062)   (197,841,098)   Nil    Nil 
Present value of minimum lease payments   30,779,138    30,221,426    30,779,138    30,221,426 

 

24Employees’ End of Service Benefits

 

Balance at the beginning of the year   6,267    651 
Provision for the year   9,488    5,748 
Paid during the year   (1,814)   (132)
Balance at the end of the year   13,941    6,267 

 

25Share Capital & Share Premium

 

Authorized   No. of Shares   USD
         
Ordinary shares   450,000,000   450,000,000

 

F-181

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

(Figures in USD)   2019     2018  
  (Re-stated)     (Re-stated)  

 

25Share Capital & Share Premium (Continued)

 

Share Capital        
         
Conversion of 100 BPGIZ FZE ordinary shares at 1 for 1 million to the legal acquirer, Brooge Energy (Note 1)   80,000,000    8,000 
Cash election   (1,281,695)   (128)
Changes in share capital due to business combination (Note 30)   9,316,948    932 
As at December 31, 2019   88,035,253    8,804 

 

Note 1: Ordinary shares held in escrow (20,000,000 shares held by BPGIC FZE and 1,552,500 shares held by the original founders of Twelve Seas) have been excluded from the share capital in the table above. Additional information on escrow shares are included in Note 30.

 

Share Premium        
         
As at January 01   1,353,285    Nil 
Reverse acquisition adjustment   Nil    1,353,285 
Ordinary shares issued on merger with Twelve Seas   114,022,421    Nil 
Cash election   (13,599,872)   Nil 
As at December 31   101,775,834    1,353,285 

 

26Transactions with Related Parties

 

The Group, in the normal course of business carries out transactions with parties that fall within the definition of related party contained in the International Financial Reporting Standards. Significant transactions with related parties are as under:

 

Transactions in shareholders’ account        
Contributions by the shareholders   77,090,648    951,539 
Amounts paid on behalf of the Group by the shareholders*   1,135,484    7,850,431 
Amounts paid by the Group on behalf of the shareholders   (1,669,424)   (2,296,354)
Distributions to shareholders   (53,279,016)   (29,209,289)
    23,277,692    (22,703,673)

 

These amounts are repayable at the discretion of the Board of Directors of the Group and are interest free, therefore classified as part of equity.

 

*These include expenses paid on behalf of the Group which includes other operational expenses paid by the shareholders on behalf of the Group.

 

Changes in shareholders’ account is as follows:

 

At January 01   47,717,763    70,421,436 
Net contributions (distributions) during the year   23,277,692    (22,703,673)
At December 31   70,995,455    47,717,763 

 

F-182

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

(Figures in USD)   2019     2018  
  (Re-stated)     (Re-stated)  

 

26Transactions with Related Parties (Continued)

 

Expense paid on behalf of related parties   57,550    Nil 

 

Key management remuneration for the year ended December 31, 2019 amounted to USD 1,160,293 (2018: USD 677,291), charged to consolidated statement of comprehensive income (within profit and loss). The full amount of the key management remuneration relates to short term employment benefits.

 

Related party balances as at the year end are classified as under:

 

Related Party  Classification         
Shareholder  Shareholder’s account (Equity)    70,995,455    47,717,763 
HBS Investments LP  Due from related parties (Note 15)    13,388    Nil 
H Capital International LP  Due from related parties (Note 15)    11,056    Nil 
O2 Investments Limited as GP  Due from related parties (Note 15)    6,181    Nil 
SBD International LP  Due from related parties (Note 15)    13,760    Nil 
SD Holding Limited as GP  Due from related parties (Note 15)    6,984    Nil 
Gyan Investments Ltd  Due from related parties (Note 15)    6,181    Nil 

 

Prior year restatement:

 

Regarding prior year restatements with the related party Al Brooge International Advisory (“BIA”) refer to note 33.

 

27Contingent Liabilities

 

Capital commitments   79,334,742    160,562,646 
    79,334,742    160,562,646 

 

Capital commitments relate to the construction of phase 2 which completed by the last quarter of 2021.

 

Except for the above and ongoing purchase commitments in the normal course of business against which no loss is expected, there are no other known contingent liabilities existing at the balance sheet date.

 

28Earnings Per Share

 

Basic EPS is calculated by dividing the profit/(loss) for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

 

Diluted EPS is calculated by dividing the profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.

 

The following table reflects the income and share data used in the basic and diluted EPS calculations:

 

(Loss) / profit attributable to ordinary equity holders of the parent   (104,689,000)   (13,670,708)
Weighted average number of ordinary shares   80,264,186    80,000,000 

 

As part of the business combination (Note 30) warrants and ordinary shares subjected to escrow has been issued. In the calculation of diluted earnings per shares, the warrants have been excluded as the average market price of ordinary shares during the period exceeded the exercise price of the warrants i.e. they are not in the money.

 

F-183

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

28Earnings Per Share (Continued)

 

The number of contingently issuable shares (escrow shares) to be included in the diluted earnings per shares calculation is based on the number of shares that would be issuable if the end of the period were the end of the contingency period. No ordinary shares would have been issuable on December 31, 2019 as the conditions attached to the escrow shares have not been met at reporting date. As a result, the escrow shares have been excluded from the calculation of diluted earnings per share for December 31, 2019 and the weighted average number of ordinary shares for basic earnings per share and diluted earnings per shares are the same.

 

On 14 May 2020, holders of 100 warrants have exercised their rights through cash exercise and converted the warrants into ordinary shares.

 

29Fair Value of Financial Instruments

 

Management considers that the fair value of financial assets and financial liabilities in the consolidated financial statements approximate their carrying amounts at the reporting date.

 

Fair Value Hierarchy

 

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.

 

Liabilities measured at fair value:  Level 1   Level 2   Level 3   Total Fair Value 
                
31-Dec-19
Derivative financial instruments
   15,709,460    1,518,249    Nil    17,227,709 
31-Dec-18
Derivative financial instruments
Nil 1,190,073 Nil 1,190,073  

 

The fair values of the financial liabilities measured at fair value included in the Level 1 and Level 2 category above, have been determined in accordance with quoted price and generally accepted pricing models based on a discounted cash flow analysis, respectively. The models incorporate various inputs including interest rate curves and forward rate curves of the underlying instruments.

 

During the year ended December 31, 2019 and 2018, there were no transfers between Level 1 and Level 2 fair value measurements.

 

30Business Combination

 

In connection with the Business Combination as described in Note 1, the following occurred:

 

Twelve Seas:

 

(i) Each outstanding ordinary share of Twelve Seas has been exchanged for one (1) ordinary share of Brooge Energy.

 

(ii) Each outstanding warrant of Twelve Seas has been exchanged for one warrant of Brooge Energy.

 

F-184

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

30Business Combination (Continued)

 

(iii) As part of the Business Combination, 10,869,719 shares were issued to Twelve Seas which included 1.5 million Escrow shares subject to meeting certain financial milestones stated in this note below. Further, million Escrow shares subject to meeting certain financial milestones stated in this note below. Further, 21,229,000 warrants were issued to Twelve Seas in exchange ratio stated above and further details disclosed in Note 19.

 

(iv) In connection with the closing of the Business Combination, holders of 16,997,181 ordinary shares of Twelve Seas sold in Twelve Seas’s Initial Public Offering (“IPO”) exercised their right to redeem such shares at a price of $10.31 per share, for an aggregate redemption amount of approximately USD 175.36 million.

 

Brooge Petroleum and Gas Investment Company FZE:

 

Twelve Seas issued a total of 100 million shares (inclusive of 20 million of escrowed shares) to BPGIC in exchange for 100 ordinary shares of BPGIC. All 100 million shares were simultaneously replaced with Brooge Energy shares at the ratio of 1:1.

 

The fair value of the shares that were swapped between the parties above was based on the closing share price of Brooge Energy’s as traded on NASDAQ on December 20, 2019 which was USD 10.49 per share.

 

The fair value of the warrants that were swapped between the parties above was based on the closing price of Brooge Energy’s as traded on NASDAQ on December 20, 2019 which was USD 0.80 per warrant.

 

As part of the above-mentioned business combination, Twelve Seas’ net assets of USD 32.4 million (see below) were assumed by the Company and the issuance of ordinary shares and warrants by the Company was recognized at fair value of USD 131.0 million, with the resulting difference amounting to USD 98.6 million representing the listing expense recognized on the transaction. In addition, the Group incurred other listing expenses such as lawyers and consultants fees of USD 3.1 million, resulting in a total listing expense of USD 101.9 million as reflected in the consolidated statement of comprehensive income.

 

The net assets of USD 32,383,568 were assumed on December 20, 2019 comprised of:

 

Cash and cash equivalent   33,064,568 
Current assets   84,000 
Accounts payable   (765,000)
    32,383,568 

 

Shares issued to Twelve Seas as part of the Business Combination included escrow shares of 1,552,000 being 30% of the founder shares which are subject to meeting certain financial milestones as mentioned below. 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” since, management has a reasonable expectation that the subject financial milestones will be met.

 

F-185

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

30Business Combination (Continued)

 

The total shares issued by Brooge Energy to BGPIC was 98,718,035 (inclusive of the 20 million shares in escrow) after reduction of 1,281,965 shares due to the 40% cash election exercised by BPGIC. 20,000,000 of the Exchange Shares (“Escrow Property”) otherwise issuable to BPGIC is set aside in escrow until released upon the satisfaction of certain financial milestones and share price targets below:

 

(i) One-half (½) of the Escrow Property shall become vested and no longer subject to forfeiture, and be released to the seller, in the event that either: (a) the Annualized EBITDA (as defined in the Escrow Agreement) for any full fiscal quarter during the Escrow Period (beginning with the first full fiscal quarter beginning after the Closing) (an “Escrow Quarter”) equals or exceeds USD 175,000,000 or (b) at any time during the Escrow Period, the closing price of the Brooge Energy ordinary shares equals or exceeds $12.50 per share (subject to equitable adjustment) for any ten (10) Trading Days (as defined in the Escrow Agreement) within any twenty (20) Trading Day period during the Escrow Period.

 

(ii) All Escrow Property remaining in the Escrow Account shall become vested and no longer subject to forfeiture, and be released to the seller, in the event that either: (a) the Annualized EBITDA for any Escrow Quarter equals or exceeds $250,000,000 or (b) at any time during the Escrow Period, the closing price of the Brooge Energy ordinary shares equals or exceeds $14.00 per share (subject to equitable adjustment) for any ten (10) Trading Days within any twenty (20) Trading Day period during the Escrow Period.

 

The same conditions mentioned above applied for the escrow founder shares.

 

31Subsequent Events

 

The outbreak of Novel Coronavirus (COVID 19) continues to progress and evolve. Therefore, it is challenging now, to predict the full extent and duration of its business and economic impact. The outbreak of Covid-19 has had an impact on demand for oil and petroleum products. Recent global developments in March 2020 have caused further volatility in commodity markets.

 

The extent and duration of such impacts remain uncertain and dependent on future developments that cannot be accurately predicted at this time, such as the transmission rate of the coronavirus and the extent and effectiveness of containment actions taken. Given the ongoing economic uncertainty, a reliable estimate of the impact cannot be made at the date of authorisation of these consolidated financial statements. These developments could impact our future financial results, cash flows and financial condition.

 

The Group has entered into a land lease agreement, dated as of February 2, 2020 (the “Phase III Land Lease Agreement”), by and between Group and the Fujairah Oil Industry Zone (“FOIZ”) to lease an additional plot of land that has a total area of approximately 450,000 m2 (the “Phase III Land”). Group intends to use the relevant land to expand its crude oil storage and service and refinery capacity (“Phase III”).

 

On April 7, 2020 the Company changed its name from Brooge Holding Limited to Brooge Energy Limited.

 

The Group negotiated another amendment to the term loan facilities (1) and (2) on 15 June 2020. Loans (1) and (2) are now payable in 46 and 16 instalments, respectively, with the first installment starting from June 30, 2020 with final maturity in July 30, 2030 and July 31, 2023, respectively. The loan 1 carries interest at 6 months EIBOR + 4% (minimum 5%) and to be further enhanced to 6 month EIBOR + 4.5% (minimum 5%) from January 2021 as compared to interest at 3 month EIBOR + 3% previously, and, the loan 2 carries interest at 3 months EIBOR + 4% (minimum 5%) and to be further enhanced to 3 month EIBOR + 4.5% (minimum 5%) as compared to interest at 3 month EIBOR + 3% previously The Group has to pay USD 8.8 million for term loan (1) and (2) in 2020 which represents the cumulative instalments including interest outstanding from periods prior to this amended agreement and an amendment fee of USD 136,000. All securities and covenants under the original agreements remain in effect under the amended agreement except debt service reserve account (DSRA) balance to be maintained from October 31, 2020 and debt service coverage ratio (DSCR) to be commenced from December 31, 2020. Under this agreement, term loans (1) and (2) are also secured by assignment of the proceeds from operation of the tanks of Phase 1 and Phase 2.

 

As part of management’s plans to alleviate the significant doubt disclosed in Note 2.2, in September 2020, BPGIC FZE issued bonds amounting to USD 200 million to private investors. Each bond has a face value of USD 1 and an issue price of USD 0.95. The semi-annual bond repayment of USD 7 million commenced in November 2021 and continuous until May 2025, with one final bullet repayment of USD 144 million due in November 2025. These bonds carry interest at a rate of 8.5% per annum payable semi-annually. The proceeds from the bond issue were used to fund capital projects and settle the Group’s outstanding term loans with the remaining balance (if any) to be used to fund working capital requirements. The proceeds of the bonds were drawn down on November 13, 2020 and the outstanding term loan fully settled.

 

F-186

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

32Financial Risk Management And Policies

 

The main risks arising from the Group’s financial instruments are interest rate risk, credit risk, currency risk and liquidity risk. Management reviews and agrees policies for managing each of these risks which are summarized below.

 

Interest Rate Risk

 

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

 

The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s balances with banks and interest bearing loans and borrowings at variable rates.

 

Market Risk

 

The Group’s activities expose it to the financial risks of changes in interest rates and price risk of the warrants. As the warrants are recognised at fair value on the consolidated statement of financial position of the Group, the Group’s exposure to market risks results from the volatility of the warrants price. The Warrants are publicly traded at the NASDAQ Stock Exchange.

 

Currency Risk

 

The Group does not have any significant exposure to currency risk as most of its assets and liabilities are denominated in USD or UAE Dirhams, which are pegged to the USD.

 

Credit Risk

 

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Group is exposed to credit risk on bank balances and receivables as reflected in the consolidated statement of financial position, with a maximum exposure equal to the carrying amount of these instruments. The expected credit loss on trade and other receivables are considered insignificant for 2019 and 2018.

 

The Group has a low credit risk exposure on its trade receivables based on established policy, procedures and controls relating to customer credit risk management. Credit quality of the customer is assessed as part of contract negotiations. Outstanding receivables are regularly monitored.

 

F-187

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

32Financial Risk Management And Policies (Continued)

 

Liquidity Risk

 

The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers projected financing requirements of the Group during the construction phase and cash projections from operations with outstanding bank facilities and outstanding bank commitments as defined under the finance documents.

 

The Group manages its liquidity risk in relation to term loans to ensure compliance with all covenants for each specific facility.

 

The table below summarizes the maturity profile of the Group’s financial liabilities at December 31, 2019 and December 31, 2018 based on contractual undiscounted payments.

 

   On   Upto   1 to 5   > 5    
   Demand   1 Year   Years   Years   Total 
   USD   USD   USD   USD   USD 
December 31, 2019                    
Term loans (Including accrued interest)   Nil    17,834,569    33,610,603    40,550,347    91,995,519 
Lease liability   Nil    2,359,590    9,919,810    213,469,800    225,749,200 
Derivative financial instruments   Nil    1,518,249    Nil    Nil    1,518,249 
Accounts payable, accruals and other payables (excluding accrued interest)   Nil    115,633,080    Nil    Nil    115,633,080 
Total   Nil    137,345,488    43,530,413    254,020,147    434,896,048 
December 31, 2018                         
Bank overdraft/ Term loans   3,745,048    Nil    Nil    Nil    3,745,048 
(Including accrued interest)   95,702,779    Nil    Nil    Nil    95,702,779 
Lease liability   Nil    2,313,324    9,725,304    216,023,896    228,062,524 
Derivative financial instruments   Nil    1,190,073    Nil    Nil    1,190,073 
Accounts payable, accruals and other payables (excluding accrued interest)   Nil    35,946,217    Nil    Nil    35,946,217 
Total   99,447,827    39,449,614    9,725,304    216,023,896    364,646,641 

 

The derivative warrant liabilities have not been included in the table above as there is no requirement to settle the warrants in cash.

 

F-188

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

32Financial Risk Management And Policies (Continued)

 

Capital Management

 

The primary objective of the Group’s capital management is to ensure that it maintains healthy capital ratios in order to support its business and maximize shareholder’s value and to meet its loan covenants.

 

The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust future distribution policy to shareholders, issue new shares or shareholders’ contributions.

 

The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group includes within net debt, the lease liability, term loans, and trade and other payables, less cash and cash equivalents. Capital includes share capital, shareholders’ accounts, general reserve and (accumulated losses) retained earnings.

 

Term loans        
Lease liability   88,700,137    94,792,088 
Less: cash and cash   30,779,138    30,221,426 
equivalents   (19,830,771)   3,707,697 
Net debt   99,648,504    128,721,211 
Total capital   50,258,618    31,246,573 
Capital and net debt   149,907,122    159,967,784 
Gearing ratio   66%   80%

 

33Current Year and Prior Year Restatement

 

i) The comparative figures for 2018 were restated previously on account of errors identified by the management subsequent to the issuance of the 2018 financial statements.

 

ii) In year 2022, subsequent to the issuance of the Group’s 2019 consolidated financial statements, the Group identified errors in the consolidated financial statements for the year ended December 31, 2019 and determined that the 2019 consolidated financial statements should be restated. The basis of such error and restatement is given as below:

 

Restatement Background

 

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, 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.

 

F-189

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

 

33Current Year and Prior Year Restatement (Continued)

 

In connection with the internal examination, the Company 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 BIA do not qualify to be recognised as revenue. Due to the qualitative nature of the matters identified in the Company’s internal examination, including the number of years over which the non-qualified revenue was recognized, the Company determined that it would be appropriate to rectify the misstatements in the previously issued financial statements by restating such financial statements. Accordingly, for the year 2019 the Company reversed revenue amounting to USD 28,200,155 (2018: USD 29,451,920) and USD 29,939,548 (2018: USD 27,854,947), which mainly represents funds received from BIA, was reversed and re-classified as Other payables under Liabilities.

 

The Management does 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 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 and, accordingly the prior years’ consolidated financial statements have been restated as disclosed on Page 48.

 

34Reaudit of the Consolidated Financial Statements

 

The consolidated financial statements are re-audited as the Group has undertaken a restatement of its consolidated financial statement for the year ended December 31, 2018, the details of which are mentioned in note 33. The restatement mainly pertains to revenue, other payable and trade account receivable.

 

35Rounding Off of Figures

 

All figures have been rounded off to the nearest US Dollars.

 

36Comparative Figures

 

Certain of the prior year figures have been regrouped to conform with the presentation of the current year. The comparative financial years included herein are derived from the financial statements of BPGIC FZE as adjusted to reflect the legal capital of legal parent / acquiree (Brooge Energy Limited).

 

F-190

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

(Figures in USD)

 

36Comparative Figures (Continued)

 

Groupings for Property, Plant and Equipment

 

   Buildings   Installations   Other Equipments   Tanks   Capital Work in Progress   Right of use assets   Total 
Cost:                            
As at January 01, 2019   28,037,886    65,868,246    213,843    76,100,795    8,344,847    27,540,969    206,106,586 
Additions during the year    Nil     9,883    4,984     Nil     71,603,465     Nil     71,618,332 
As at December 31, 2019   28,037,886    65,878,129    218,827    76,100,795    79,948,312    27,540,969    277,724,918 
                                    
Accumulated Depreciation:                                   
As at January 01, 2019   1,250,566    3,148,665    36,436    1,746,725     Nil     2,295,080    8,477,472 
Charge for the year   1,121,515    2,829,671    43,237    1,565,419     Nil     459,016    6,018,858 
As at December 31, 2019   2,372,081    5,978,336    79,673    3,312,144     Nil     2,754,096    14,496,330 
                                    
Net Carrying Value:                                   
                                    
As at December 31, 2019   25,665,805    59,899,793    139,154    72,788,651    79,948,312    24,786,873    263,228,588 
                                    
As at December 31, 2018   26,787,320    62,719,581    177,407    74,354,070    8,344,847    25,245,889    197,629,114 

 

Capital work in progress at December 31, 2019 includes total amount capitalised relating to the construction of phase 2 and includes an amount of USD 1,458,069 related to finance charge on lease liability and an amount of USD 233,113 related to depreciation charge on right-of-use asset capitalised.

 

The capitalised borrowing costs have been included under “additions” in the table above. The capitalisation rate used to determine these finance costs was 6.1% (2018: Nil).

 

Tanks and related assets with a carrying value of USD 158,493,403 (2018: USD 164,038,378) are mortgaged as security against loans obtained in 2014 and 2017 (Note 22). Further, as security against the term loan (2), a step-in right to use the leased land, has been provided to the commercial bank.

 

The depreciation charge for the year is allocated to the statement of comprehensive income (within profit and loss) and capital work in progress as follows:

 

   2018   2019 
Direct costs (Note 7)   5,763,150    5,785,745 
CWIP   239,144    233,113 
    6,002,294    6,018,858 

 

F-191

 

 

Brooge Energy Limited

Notes to the Consolidated Financial Statements
December 31, 2019

(Figures in USD)

 

36Comparative Figures (Continued)

 

Current Year and Prior Year Restatement

 

Significant balances change during the year are as follows

 

   As previously
reported
   Restatement Adjustment   As per the restated
Financial Statement
 
   31-12-19   31-12-18   31-12-19   31-12-18   31-12-19   31-12-18 
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 

 

F-192

 

 

 

 

 

 

 

Brooge Petroleum and Gas Investment Company FZE

Financial Statements

December 31, 2018

 

 

 

 

 

 

F-193

 

 

Brooke Energy Limited

 

Index to the Financial Statements

December 31, 2018

 

  Page
Independent Auditor’s Report F-195
Statement of Financial Position F-198
Statement of Comprehensive Income F-199
Statement of Changes in Equity F-200
Statement of Cash Flows F-201
Notes to the Financial Statements F-202

 

F-194

 

 

 

                  A picture containing graphical user interface

Description automatically generated   Office 106, The Binary
  Al Abraj Street
  Business Bay
  PO Box 413383
  Dubai / UAE
 
  [T] +971 4 557 8358
  [E] mail@affiniax.com
   

Independent Auditor’s Report

 

To the Board of Directors and Shareholders of Brooge Petroleum and Gas Investment Company FZE

 

Report on the Audit of the Financial Statements

 

Opinion

 

We have audited the financial statements of Brooge Petroleum and Gas Investment Company FZE, (“the Company”), which comprises of the statement of financial position as at December 31, 2018, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended and notes to the financial statements, including a summary of significant accounting policies and other explanatory notes.

 

In our opinion, the accompanying financial statements, present fairly, in all material respects, the financial position of Brooge Petroleum and Gas Investment Company FZE as at December 31, 2018 and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards.

 

Basis for Opinion

 

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the and the PCAOB.

 

We conducted our audit in accordance with PCAOB & International Standards on Auditing (ISA’s). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Emphasis of Matter

 

a. We draw your attention to Note no. 24 where the Company has reversed the revenue amounting to USD 29,451,920. Out of this reversed revenue an amount of USD 27,854,947 was received from M/s Brooge International Advisory LLC (BIA). Since the Company could not obtain the confirmation from subject party to identify the purpose and repayment terms, if any; before signing date of this report, an amount of USD 27,854,947 representing the funds received from BIA has been classified as Other payable in the financial statements for the year ended December 31, 2018.

 

b. Considering the significance of the above amount involved, we have further reviewed the legal documents of M/s Brooge Petroleum and Gas Investment Company and M/s Brooge International Advisory LLC (BIA) to determine whether they are related parties in accordance to Paragraph (9) of International Accounting Standards (IAS 24). The Company has further undertaken vide resolution dated April 23, 2023 to consider BIA as a related party.  Based on the above representation and applying the concept of substance over form, it indicates that BIA is a related party.

 

 

F-195

 

 

 

Emphasis of Matter (Continued)

 

c. We draw attention to statement of comprehensive income in the financial statements, which indicates that the Company incurred a net loss of USD 13,670,708 during the year ended December 31, 2018, and, as of that date, the Company’s current liabilities exceed current assets by USD 138,267,472. Our opinion is not modified in respect of this matter.

 

Reaudit of Financial Statements for the Year Ended December 31, 2018

 

Attention is invited to Note no. 24 Reaudit of the financial statements. The financial statements of the Company are re-audited to record the restatement pertaining to revenue, other payable and trade accounts receivable, which were recorded erroneously due to the inadequate documents.

 

Key Audit Matters

 

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current year. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 

We have determined that there are no other key audit matters to communicate in our report.

 

Responsibility of the Management for the Financial Statements

 

Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards and for such internal controls as Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the financial statements, the Management is responsible for assessing the Company’s ability to continue as a going concern, as applicable, matters related to going concern and using the going concern basis of accounting, unless Management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

 

Auditor’s Responsibilities for the Audit of the Financial Statements

 

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatements, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISA’s will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

 

As part of an audit in accordance with ISA’s, we exercise professional judgement and maintain professional skepticism throughout the audit. We also;

 

●    Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risks of not detecting a material misstatement resulting from fraud is higher than for one resulting from error as fraud may involve collusion, forgery, intentional omissions, misrepresentation or override of internal controls.

 

 

 

F-196

 

 

A picture containing graphical user interface

Description automatically generated  Auditor’s Responsibilities for the Audit of the Financial Statements
   
●     Obtain an understanding of internal controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal controls.
   
●     Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management.
   
●     Conclude on the appropriateness of Management’s use of going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.
   
●     Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
   
●     We communicate with the Management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal controls that we identify during our audit.
   
We also provide the Management with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
   
From the matters communicated with the Management, we determine those matters that were of most significance in the audit of the financial statements of the current year and are therefore the key audit matters.
   
Affiniax A A S Auditors

 

 

 

Dubai,
United Arab Emirates,
April 24, 2023

 

 

 

F-197

 

 

Brooge Petroleum and Gas Investment Company FZE

 

Statement of Financial Position

As at December 31, 2018

 

(Figures in USD)  Note  2018   2017 
    (Re-stated)   (Re-stated) 
            
ASSETS           
            
Current Assets           
Cash and cash equivalents  14   37,351    2,273 
Inventories  15   147,090    176,651 
Other receivables  16   244,828    582,585 
Total Current Assets      429,269    761,509 
              
Non-Current Assets             
Property, plant and equipment  17   197,629,114    195,438,871 
Total Non-Current Assets      197,629,114    195,438,871 
Total Assets      198,058,383    196,200,380 
              
LIABILITIES AND EQUITY             
              
Current Liabilities             
Trade and accounts payable  18   9,001,961    4,580,173 
Other payable  24   27,854,947    Nil 
Derivative financial instruments  13   1,190,073     Nil  
Borrowings  19   98,537,136    94,327,926 
Lease liabilities  21   2,112,624    2,071,200 
Total Current Liabilities      138,696,741    100,979,299 
              
Non-Current Liabilities             
Employees’ end of service benefits  20   6,267    651 
Lease liabilities  21   28,108,802    27,599,476 
Total Non-Current Liabilities      28,115,069    27,600,127 
              
Equity             
Share capital  22   1,361,285    1,361,285 
Retained earnings      (17,832,475)   (4,161,767)
Owners’ account      47,717,763    70,421,436 
Total Equity Attributable to the owners      31,246,573    67,620,954 
Total Liabilities and Equity      198,058,383    196,200,380 

 

These financial statements were approved by the Management on April ___, 2023 and signed by:

 

Authorised Signatory

 

The accompanying notes form an integral part of the financial statements

 

F-198

 

 

Brooge Petroleum and Gas Investment Company FZE

 

Statement of Comprehensive Income

Year Ended December 31, 2018

 

(Figures in USD)  Note  2018   2017 
    (Re-stated)   (Re-stated) 
            
Revenue  8   6,387,348    89,593 
Direct costs  9   (10,100,234)   (2,295,809)
Gross loss      (3,712,886)   (2,206,216)
              
Other income  10   8,554     Nil  
General and administration expenses  11   (1,824,380)   (574,266)
Finance costs  12   (6,951,923)   (966,926)
Changes in fair value of derivative financial instruments  13   (1,190,073)      Nil  
Loss for the year      (13,670,708)   (3,747,408)
              
Other comprehensive income          Nil         Nil  
Total comprehensive income for the year      (13,670,708)   (3,747,408)

 

The accompanying notes form an integral part of the financial statements

 

F-199

 

 

Brooge Petroleum and Gas Investment Company FZE

 

Statement of Changes in Equity

Year Ended December 31, 2018

 

(Figures in USD)  Share Capital  

(Accumulated

Losses)

   Owners’ Account   Total 
                 
As at January 01, 2017 (Restated)   1,361,285    (414,359)   57,039,100    57,986,026 
                     
Net movements during the year    Nil      Nil     13,382,336    13,382,336 
                     
Loss for the year         Nil     (3,747,408)     Nil     (3,747,408)
As at December 31, 2017 (Restated)   1,361,285    (4,161,767)   70,421,436    67,620,954 
                     
Loss for the year    Nil     (13,670,708)    Nil     (13,670,708)
                     
Net movements during the year         Nil          Nil     (22,703,673)   (22,703,673)
As at December 31, 2018 (Restated)   1,361,285    (17,832,475)   47,717,763    31,246,573 

 

The accompanying notes form an integral part of the financial statements

 

F-200

 

 

Brooge Petroleum and Gas Investment Company FZE

 

Statement of Cash Flows

Year Ended December 31, 2018

 

(Figures in USD)  2018   2017 
  (Re-Stated)   (Re-Stated) 
Cash Flow from Operating Activities        
         
Loss for the year   (13,670,708)   (3,747,408)
           
Adjustments for:          
Depreciation of property, plant and equipment   6,002,294    1,098,175 
Finance costs   6,951,923    966,926 
Provision for employees’ end of services benefits   5,748    365 
Net changes in fair value of derivative financial instruments   1,190,073     Nil  
           
Changes in operating assets and liabilities          
Increase in other receivables   337,757    255,569 
Decrease / (Increase) in inventories   29,561    (176,651)
Increase / (Decrease) in trade and accounts and payable   4,421,788    (1,522,807)
Increase / (Decrease) in other payable   27,854,947          Nil 
Payment of employees’ end of services benefits   (132)     Nil  
Net cash generated from / (used in) operating activities   33,123,251    (3,125,831)
           
Cash Flow from Investing Activities          
           
Purchase of property, plant and equipment   (8,192,537)   (28,512,831)
Net cash used in investing activities   (8,192,537)   (28,512,831)
           
Cash Flow from Financing Activities          
           
Net (distributions to) / contribution from the owners   (22,703,673)   13,382,336 
Repayment of principal and interest on lease liability   (2,267,964)   (2,223,494)
Interest charge   2,818,714    4,476,134 
Borrowings and term loans   (2,742,713)   15,863,493 
Net cash (used in) / generated from financing activities   (24,895,636)   31,498,469 
           
Net change in cash and cash equivalents   35,078    (140,193)
Cash and cash equivalents at beginning of the year   2,273    142,466 
Cash and cash equivalents at end of the year   37,351    2,273 

 

The accompanying notes form an integral part of the financial statements

 

F-201

 

 

Brooge Petroleum and Gas Investment Company FZE

 

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2018

 

1Legal Status, Owners Management and Business Activity

 

Brooge Petroleum and Gas Investment Company FZE, (the “Company”), formerly known as Brooge Petroleum and Gas Investment Company FZC, is a free zone company registered and incorporated on 10 February 2013 in Fujairah, United Arab Emirates (“UAE”). The free zone is income tax free without a set time limit. The Company provides oil storage and related services at the Port of Fujairah in the Emirate of Fujairah in the UAE. The Company currently operates Phase I and Phase II, comprising 22 tanks with a total capacity of 1,001,388 cubic meters (“cbm”), fully operational for provision of storage and other ancillary processes of crude and clean oil. The construction of the Company’s Phase II, with a total capacity of 602,064 cbm was completed in September 2021.

 

The Company’s share capital was divided amongst three shareholders (referred to as the owners or shareholders). Emirates Investment LLC FZC was the parent company.

 

On 25 February 2019, the shareholders of Brooge Petroleum and Gas Investment Company FZC transferred their ownership in the Company to Brooge Petroleum and Gas Investment Company plc (“BPGIC plc”), a company incorporated under the laws of England and Wales and owned by the same shareholders that previously owned Brooge Petroleum and Gas Investment Company FZC and in the same ownership proportion. Upon the change of ownership, Brooge Petroleum and Gas Investment Company FZC changed its name to Brooge Petroleum and Gas Investment Company FZE. As a result of the above, BPGIC plc became the parent of the Company.

 

On 15 April 2019, the Company entered into a business combination agreement with Twelve Seas Investment Company (“Twelve Seas”), Brooge Energy Limited (Formerly known as Brooge Holdings Limited), Brooge Merger Sub Limited, a subsidiary of Brooge Energy Limited, and the Company’s shareholders. On 10 May 2019, BPGIC plc became party to the business combination agreement by execution of a joinder thereto. Pursuant to the business combination agreement, subject to the terms and conditions set forth therein, at the closing of the transactions contemplated by the business combination agreement, Twelve Seas will merge with Brooge Merger Sub Limited, with Twelve Seas continuing as the surviving entity and with holders of Twelve Seas securities receiving securities of Brooge Energy Limited, and Brooge Energy Limited will acquire all of the issued and outstanding ordinary shares of the Company from BPGIC plc in exchange for ordinary shares of Brooge Energy Limited, with the Company becoming a wholly-owned subsidiary of Brooge Energy Limited.

 

The registered office is at P.O Box 50170 Al-Sodah, Khorr Fakkan Road, Fujairah, United Arab Emirates.

 

The owners of the Company are:

 

Name of Owner  Number of Shares   % of Shares   Value in USD 
HH Sheikh Mohammed Khalifa Zayed Al Nahyan   1,000,000    20%   272,257 
M/s. AL Brooge Capital Providing for Oil and Gas LLC   1,000,000    20%   272,257 
M/s. Emirates Investment LLC FZC   3,000,000    60%   816,771 
    5,000,000    100%   1,361,285 

 

F-202

 

 

Brooge Petroleum and Gas Investment Company FZE

 

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2018

 

2Application of New and Revised International Financial Reporting Standards (IFRS)

 

The Company has adopted the following new and amended IFRS’s in these financial statements. The adoption of the standards did not have a material impact on the financial statements of the Company.

 

Description  Effective for annual periods beginning on or after
IFRS 15 - Revenue from Contracts with Customers  January 01, 2018
IFRS 9 - Financial Instruments  January 01, 2018
IFRIC 22 - Foreign Currency Transactions and Advance Consideration  January 01, 2018
Amendments to IAS 40 Transfers of Investment Property;  January 01, 2018

 

3New Standards Issued but Not Yet Adopted

 

Certain new standards, amendments to standards and interpretations (annual improvements to IFRS, amendments to IFRS 4, IFRS 17, IFRS Practice Statement 2, IAS 1, IAS 8 and IAS 12) are not yet effective for up to the date of issuance of the Company’s financial statements. The Company anticipates that these new standards, interpretations and amendments will be adopted in the financial statements as and when they are applicable and adoption of these new standards, interpretations and amendments may have no material impact on the financial statements of the Company in the period of initial application.

 

4Basis of Preparation of Financial Statements

 

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 Company 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 Company. The assets and liabilities are recorded on the basis that the Company 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 Company.

 

The financial statements have been prepared under the historical cost convention basis, except for re-measurement at fair value of derivative financial instruments.

 

These financial statements are presented in United States dollars (“USD”) which is the functional and presentation currency of the Company. All financial information presented in USD has been rounded to the nearest thousand, unless otherwise stated.

 

The preparation of financial statements in conformity with International Financial Reporting Standards requires Management to make judgements, estimates and assumptions that affect the application of accounting policies and the carrying amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant and reasonable under the circumstances.

 

F-203

 

 

Brooge Petroleum and Gas Investment Company FZE

 

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2018

 

4Basis of Preparation of Financial Statements (Continued)

 

Estimates and the underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that year, or in the year of revision and future periods if the revision affects both current and future years.

 

Estimation and assumptions

 

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, 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:

 

Useful lives of property, plant and equipment

 

The Company’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.

 

Asset retirement obligation

 

As part of the land lease agreement between Fujairah Municipality and the Company, the Company has a legal obligation to remove the plant at the end of its lease term. The Company 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 Company’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 Company’s current intent to maintain its assets and continue making improvements to those assets based on technological advances. There is no data or information that can be derived from past practice, industry practice or the Company’s intentions that could be used to make a reliable estimate of the decommissioning cost. Accordingly, the Company has not recorded a liability or corresponding asset as the amounts of such potential future costs are not reliably determinable.

 

Discount rate used for initial measurement of lease liability

 

The Company, as a lessee, measures the lease liability at the present value of the unpaid lease payments 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 Company on initial recognition of the lease uses its incremental borrowing rate. Incremental borrowing rate is the rate of interest that the Company would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use assets in similar economic environment. The Company determined its incremental borrowing rate at 9.5% (2017: 9.5%) in respect of the lease liability (Note 21).

 

F-204

 

 

Brooge Petroleum and Gas Investment Company FZE

 

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2018

 

4Basis of Preparation of Financial Statements (Continued)

 

Estimation and assumptions (continued)

 

Impairment of trade receivables

 

The Company 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 Company calculates the ECL based on Company historical credit loss experience, adjusted for forward-looking factors specific to the customer and the economic environment.

 

Valuation of derivative financial instruments

 

The Company has entered into derivative financial instruments (interest rate swaps) with a financial institution with investment grade credit rating. Interest rate swaps are valued using valuation techniques, which employ the use of market observable inputs. The most frequently applied valuation techniques include swap models using present value calculations. The models incorporate various inputs including the credit quality of counterparties and interest rate curves. The changes in counterparty credit risk had no material effect on the derivative financial instruments recognised at fair value.

 

Judgements

 

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

 

Functional currency

 

The Company’s operating costs and borrowings are primarily in UAE Dirham (“AED”) and are expected to remain principally denominated in AED in the future. However, the construction contract for Phase1 and 2 and the current revenue contracts of the Company are dominated in USD. Management has determined USD is the Company’s functional currency.

 

F-205

 

 

Brooge Petroleum and Gas Investment Company FZE

 

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2018

 

5Summary 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 Company 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 Company, 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 Company 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 realisable 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

 

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. The principal or the most advantageous market must be accessible to the Company.

 

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

 

F-206

 

 

Brooge Petroleum and Gas Investment Company FZE

 

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2018

 

5Summary of Significant Accounting Policies (Continued)

 

Fair Values (Continued)

 

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

 

Level 2 inputs, other than quoted prices included within Level 1 that are observable for the asset or liability,

 

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

 

Current versus non-current classification

 

The Company presents assets and liabilities in statement of financial position based on current/non-current classification. An asset is current when it is:

 

Expected to be realised or intended to be sold or consumed in a 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

 

Held primarily for the purpose of trading

 

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 Company 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 statement of financial position, as applicable.

 

F-207

 

 

Brooge Petroleum and Gas Investment Company FZE

 

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2018

 

5Summary of Significant Accounting Policies (Continued)

 

Taxes (Continued)

 

Input VAT and Output VAT

 

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

 

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

 

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 capitalization.

 

All other borrowing costs are recognized in the 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 Company 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. Capital work under progress is stated at cost and subsequently transferred to assets when it is available for use.

 

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

 

Buildings  25 years
Tanks  50 years
Installations  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 Company through the use of items of property, plant and equipment.

 

F-208

 

 

Brooge Petroleum and Gas Investment Company FZE

 

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2018

 

5Summary of Significant Accounting Policies (Continued)

 

Property, Plant and Equipment (Continued)

 

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

 

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 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 capitalized 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 Company’s policies.

 

Leases

 

At inception of a contract, the Company 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.

 

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

 

The Company 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 Company 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 Company revises the lease term if there is a change in the non-cancellable period of a

 

Company as a lessor

 

Leases where the Company 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 recognized over the lease term on the same bases as rental income. Contingent rents are recognized as revenue in the period in which they are earned.

 

F-209

 

 

Brooge Petroleum and Gas Investment Company FZE

 

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2018

 

5Summary of Significant Accounting Policies (Continued)

 

Leases (Continued)

 

Company as a lessee

 

For a contract that contains a lease component and one or more additional lease or non-lease components, the Company 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 Company estimates the stand-alone price, maximising the use of observable information.

 

For determination of the lease term, the Company 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: is within the control of the Company; and

 

At the commencement date, the Company recognizes a right-of-use asset classified within property, plant and equipment and a lease liability presented separately on the consolidated statement of financial position.

 

Short-term leases and leases of low-value assets

 

The Company has elected not to recognize 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 when new. The Company recognizes 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 recognized 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 Company; and

 

d)an estimate of costs to be incurred by the Company 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. These costs are recognized as part of the cost of the right-of-use asset when the Company 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 Company amortises the right-of-use asset over the term of the lease. In addition, the right of use asset is periodically reduced, if any, and adjusted for certain re-measurements of the lease liability.

 

Lease liability

 

The lease liability is initially recognized 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 Company uses its incremental borrowing rate.

 

F-210

 

 

Brooge Petroleum and Gas Investment Company FZE

 

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2018

 

5Summary of Significant Accounting Policies (Continued)

 

Leases (Continued)

 

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 Company remeasures the lease liabilities to reflect changes to lease payments by discounting the revised lease payments using a revised discount rate. The Company 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 Company 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 Company uses a revised discount rate that reflects changes in the interest rate.

 

The Company recognizes the amount of the re-measurement of the lease liability as an adjustment to the right- of-use asset. Where the carrying amount of the right-of-use asset is reduced to zero and there is a further reduction in the measurement of the lease liability, the Company recognizes any remaining amount of the re- measurement in the consolidated statement of comprehensive income (within profit and loss).

 

The Company 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 assets; and

 

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 Company 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.

 

F-211

 

 

Brooge Petroleum and Gas Investment Company FZE

 

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2018

 

5Summary of Significant Accounting Policies (Continued)

 

Financial Instruments (Continued)

 

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.

 

The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Company’s business model for managing them.

 

Receivables that do not contain a significant financing component or for which the Company 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 Company’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.

 

Financial liabilities

 

On 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 Company determines the classification of its financial liabilities at initial recognition.

 

Financial liabilities are recognised initially at fair value and in the case of loans and borrowings fair value of the consideration received less directly attributable transaction costs.

 

The Company’s financial liabilities include trade and other payables, lease liability and term loans.

 

Derecognition of financial assets and liabilities

 

The Company 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 Company is recognised as a separate asset. The Company derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.

 

F-212

 

 

Brooge Petroleum and Gas Investment Company FZE

 

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2018

 

5Summary of Significant Accounting Policies (Continued)

 

Financial Instruments (Continued)

 

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 Company 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.

 

Amortised cost of financial instruments

 

Amortised 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.

 

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

 

Statutory reserve is created by appropriating 10% of the net profits of the Company for the year as required by Article 103 of the UAE Federal Law No. 2 of 2015 on commercial companies, concerning commercial companies in the UAE.

 

F-213

 

 

Brooge Petroleum and Gas Investment Company FZE

 

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2018

 

5Summary of Significant Accounting Policies (Continued)

 

The non-derivative financial liabilities comprise of trade accounts and other payables and Owners’ accounts.

 

Employees’ End of Service Benefits

 

Provision is made for the amounts payable under the UAE labour law applicable to the employees and is based on current basic remuneration and cumulative period of service at the balance sheet date.

 

Provision is made on the assumption that all employees were to leave as of the balance sheet date since this provides, in Management’s opinion, a reasonable estimate of the present value of terminal benefits.

 

Trade Accounts and Other Payable

 

Trade accounts and other payable are stated at nominal amounts payable for goods or services rendered.

 

Decommissioning liabilities

 

As part of the land lease agreement between Fujairah Municipality and the Company, the Company has a legal obligation to remove the plant at the end of its lease term. The Company 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 recognized as finance cost. The Company’s operating assets generally consist of storage tanks and related facilities.

 

Provisions

 

Provisions are recognised when the Company 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

 

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year - end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

 

Financial Risk Management

 

The Company is exposed to financial risks of markets mainly related to currency risk, interest rate risks, other price risks, credit risks and liquidity risk. The Company’s policies and procedures keeps the Management updated on these risks and it takes appropriate measures to control or minimise its adverse effects if any on the financial position and performance of the Company.

 

F-214

 

 

Brooge Petroleum and Gas Investment Company FZE

 

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2018

 

5Summary of Significant Accounting Policies (Continued)

 

Market Risks

 

Market risks is the risk that is associated with the changes in market prices and market rates, such as interest rates, equity prices and currency rates will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risks exposures within acceptable parameters, while optimising the returns on the risks.

 

Currency Risk

 

The Company’s substantial assets and liabilities are denominated in Arab Emirates Dirhams or in United States Dollars to which the Arab Emirate Dirham is fixed, hence there is no material exchange rate risks.

 

At the balance sheet date, since there was no material exposure to currencies other than United States Dollars and Gulf Corporation Council currencies, net profits for the year is not materially sensitive to currency risks.

 

Interest Rate Risk

 

The Company has interest rate risk as at the year end under review. The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s balances with banks and interest bearing loans and borrowings at variable rates.

 

Credit Risk

 

Credit risk is the risk of financial loss to the Company if the customer or counterparty to the financial instrument fails to meet its contractual obligations. Credit risk is mainly attributable to trade accounts and other receivables and cash at bank. The exposure to credit risk on trade and other receivables and amounts due from related parties is monitored on an ongoing basis by the Management and these are considered as recoverable by the Management. The Company’s bank account are placed with regulated financial institutions.

 

Advances and other receivable are settled in the ordinary course of business.

 

Liquidity Risk

 

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. Liquidity risk relates to amounts due to related parties and long-term payables. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities and obligations as and when they fall due without having to face any losses which may adversely effect the Company’s financial position and reputation.

 

Capital Management

 

The primary objective of the Company is to maintain adequate capital to support its business and to maximise Owners’ value.

 

The Company manages its capital structure and make adjustments to it, in light of changes in economic conditions. To maintain or to adjust structure, the Company may adjust the dividend payment to Owners or issue new shares.

 

F-215

 

 

Brooge Petroleum and Gas Investment Company FZE

 

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2018

 

(Figures in USD)   2018 (Re-Stated)     2017 (Re-Stated)  

 

 

8Revenue

 

Storage rental income (Note 24)   5,694,418    62,995 
Miscellaneous income (Note 8.1)   423,094    Nil 
Ancillary services   269,836    26,598 
    6,387,348    89,593 

 

8.1Miscellaneous income represents port charges that are paid by the Company to the port authority and recharged to the customers.

 

9Direct Costs

 

Depreciation on property, plant and equipment (Note 17)   5,763,150    692,775 
Operations staff salary   2,808,702    1,518,794 
Port expenses (Note 8.1)   423,094    Nil 
Spare parts and consumables (Note 15)   592,471    50,891 
Insurance charges   377,053    31,304 
Maintenance charges   95,357    Nil 
Operations pickup charges   10,352    Nil 
Repairs & maintenance consumables   5,049    Nil 
License fees   7,907    Nil 
Power and electricity   1,247    Nil 
Other expenses   15,852    2,045 
    10,100,234    2,295,809 

 

10Other Income

 

Miscellaneous income   8,554    Nil 
    8,554    Nil 

 

11General and Administration Expenses

 

Employees’ cost   1,210,102    287,481 
Legal and professional   177,298    131,313 
Sales and marketing   114,682    37,223 
Office expenses   106,943    22,015 
Repairs and maintenance   75,985    Nil 
Rent   22,325    43,380 
Other expenses   111,378    36,310 
Travelling expenses   5,667    16,544 
    1,824,380    574,266 

 

F-216

 

 

Brooge Petroleum and Gas Investment Company FZE

 

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2018

 

(Figures in USD)   2018
(Re-Stated)
    2017
(Re-Stated)
 

 

 

12Finance Costs

 

Interest expense   5,559,195    647,969 
Interest on lease liability   1,387,612    318,957 
Bank charges   5,116          Nil 
    6,951,923    966,926 

 

13Changes in Fair Value of Derivative Financial Instruments

 

Interest rate swaps

 

During the year 2018, the Company entered into an interest rate swap with a commercial bank exchanging variable interest for fixed interest at specified dates on its term loan 1 (Note 19). The interest rate swap matures in June 2023.

 

The details of these derivative financial instruments are as follows:

 

   Notional   Fair value   Fair value 
   Amount   asset   liability 
31 December 2018   USD    USD    USD 
Designated at FVTPL               
Interest rate swaps   83,855,305    Nil    1,190,073 

 

14Cash and Cash Equivalents

 

Cash in hand   5,013    2,273 
Balance in local currency account   32,338          Nil 
    37,351    2,273 

 

15Inventories

 

Spare parts and consumables   147,090    176,651 
    147,090    176,651 

 

Cost of inventories recognised during the year amounted to USD 592,471 (2017: USD 50,891). No provision is required for inventories at 31 December 2018 (2017: Nil).

 

16Other Receivables

 

VAT receivable   221,448    Nil 
Deposits   10,352    448,952 
Advance paid to suppliers and contractors   13,028    133,633 
    244,828    582,585 

 

F-217

 

 

Brooge Petroleum and Gas Investment Company FZE

 

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2018

 

(Figures in USD)

 

17Property, Plant and Equipment

 

  Buildings   Installations   Other Equipment   Tanks   Capital
work in
progress
   Right - of
Use Asset
(land)
   Total 
                             
Cost:                            
As at January 01, 2018 (Re-stated)   28,037,886    65,860,351    79,645    76,100,795    294,403    27,540,969    197,914,049 
Additions during the year     Nil    7,895    134,198      Nil    8,050,444      Nil    8,192,537 
As at December 31, 2018   28,037,886    65,868,246    213,843    76,100,795    8,344,847    27,540,969    206,106,586 
                                    
Accumulated Depreciation:                                   
As at January 01, 2018 (Re-stated)   129,051    325,525    3,232    181,306    Nil    1,836,064    2,475,178 
Charge for the year   1,121,515    2,823,140    33,204    1,565,419         Nil    459,016    6,002,294 
As at December 31, 2018   1,250,566    3,148,665    36,436    1,746,725         Nil    2,295,080    8,477,472 
                                    
Net Carrying Amount:                                   
                                    
As at December 31, 2018   26,787,320    62,719,581    177,407    74,354,070    8,344,847    25,245,889    197,629,114 
                                    
As at December 31, 2017 (Restated)   27,908,835    65,534,826    76,413    75,919,489    294,403    25,704,905    195,438,871 

 

Tanks and related assets with a carrying value of USD 164,038,378 (2017: USD 169,439,563) are mortgaged as security against loans obtained in 2014 and 2017 (Note 19). Further, as security against the term loan (2), a step-in right to use the leased land, has been provided to the commercial bank.

 

Capital work in progress at December 31, 2018 includes total amount capitalised relating to the construction of Phase 2 and includes an amount of USD 1,151,797 related to finance charge on lease liability and an amount of USD 239,144 related to depreciation charge on right-of-use asset capitalised.

 

The Company has entered into a land lease agreement with the municipality of Fujairah. The lease commenced in 2013 and is for a period of 30 years extendable for another 30 years at the option of the Company. Considering the use of the land, it is reasonably certain that the Company will continue to lease the land till the end of the lease period (i.e. 60 years) and the lease rentals have been discounted at the incremental borrowing rate of 9.5%. As per the land lease agreement, the lease rentals will be increased by 2% every year.

 

The depreciation charge for the year is allocated to the statement of comprehensive income (within profit and loss) and capital work in progress as follows.

 

   2018   2017 
Direct costs (Note 9)   5,763,150    692,775 
CWIP   239,144    405,647 
    6,002,294    1,098,422 

 

F-218

 

 

Brooge Petroleum and Gas Investment Company FZE

 

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2018

 

(Figures in USD)   2018
(Re-Stated)
    2017
(Re-Stated)
 

 

 

18Trade and Accounts payable

 

Trade accounts payable   1,566,717    1,750,774 
Capital accruals   5,978,220     Nil  
Accrued expenses   546,333    43,227 
Accrued interest on term loans   910,691    2,620,150 
Advance from customers    Nil    166,022 
    9,001,961    4,580,173 

 

19Borrowings

 

Bank overdraft   3,745,048    164,175 
Secured term loans   94,792,088    94,163,751 
    98,537,136    94,327,926 

 

Included in secured loans are the below term loans:

 

Term loan 1

 

The term loan facility was obtained in 2014 to partially finance the construction of 14 oil storage tanks in Fujairah (Phase 1). The loan facility amounted to USD 84,595,154. As per the initial agreement, the loan was repayable in 48 quarterly instalments commencing 27 months after the constructing’s with final maturity not exceeding 31 March 2028, however, as per the amended agreements, the loan was repayable starting October 2018 with final maturity in July 2030.

 

The interest rate on the loan was initially at 6 month EIBOR + 3.5%, however as per above mentioned amendment, it was revised to 6 month EIBOR+3%.

 

Term loan 2

 

The term loan facility was obtained in 2017 for constructing an administrative building in Fujairah. The loan facility amount to USD 11,108,086 and was repayable in 20 quarterly instalments. The repayable period commenced after a 6 months grace period on April 2017. The loan is recorded net of prepaid finance cost of USD 76,606 (2017: USD 94,634).

 

During the year, the term loan agreement was amended to revise the repayable date starting on October 2018 with final maturity in July 2023. The interest rate on the loan was initially charged at 3 month EIBOR + 3.5%, however after the amendment, it was revised to 3 month EIBOR + 3%.

 

F-219

 

 

Brooge Petroleum and Gas Investment Company FZE

 

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2018

 

19Borrowings (Continued)

 

Term loans 1 and 2

 

The below covenants were applicable to Term Loans 1 and 2:

 

i)a minimum debt service coverage ratio (net operating income divided by total debt service) of 150% at all times and if the ratio decreases to 120% or less, it results in an event of default;

 

ii)an amount equivalent to one quarterly instalment including interest in a debt service reserve account at all times.

 

As at the year end, both the above covenants were not met by Company, however the lender did not declare these events as defaults under the loan agreements. This non-compliance resulted in classification of the bank loans as a current liability.

 

The securities on Term Loans 1 and 2 are as below:

 

(i)mortgage on the tanks and the office/administration building

 

(ii)step-in right to the leased land and assignment of insurance policies

 

(iii)corporate guarantees from M/s Al Brooge Capital Providing for Oil and Gas LLC and M/s Emirates Investment Company LLC FZC.

 

(iv)assignment of the proceeds from operation of the tanks and insurance policies

 

As at the year end, the Company did not pay the principal and accrued interest on this loan. Although this event constituted as a default under the loan agreement, the lender did not declare this event as a breach requiring immediate repayment of the loan.

 

Term Loan 3

 

The term loan facility was obtained during the year to settle the accrued interest on Term Loan 1. The loan facility amounted to USD 3,539,341 and carried 1 month EIBOR + 2% margin and is repayable in 15 equal monthly instalments commencing from date of disbursement and is due on 14 October 2019.

 

The term loan facility (3) is secured by a mortgage on the tanks and office/administration building, step-in right to the leased land and assignment of the proceeds from operation of the tanks and insurance policies. The term loan is also secured by guarantees from the following owners: (i) Al Brooge Capital Providing for Oil and Gas LLC, and (ii) Emirates Investment Company LLC FZC.

 

Term Loan 4

 

The term loan facility was obtained during the year to partially finance the construction of Phase 2. The facility amounted to USD 95,290,000 and carried an interest at 3 month EIBOR + 3% margin. The loan is repayable in 17 bi-annual instalments and commences 6 months after the date of completion of Phase 2.

 

F-220

 

 

Brooge Petroleum and Gas Investment Company FZE

 

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2018

 

19Borrowings (Continued)

 

Term Loan 4 (Continued)

 

The term loan facility 4 is secured by a mortgage on the Phase 2 storage tanks, step-in right to the leased land and assignment of the proceeds from operation of the tanks and insurance policies. The term loan is also secured by guarantees from the following owners: (i) Al Brooge Capital Providing for Oil and Gas LLC, and (ii) Emirates Investment Company LLC FZC.

 

Under the term loan facility agreement, the Company is subject to certain covenants requiring amongst other things, the maintenance of (i) a minimum facility service coverage ratio of 1.25:1, (ii) a participations to value ratio not exceeding 1.50:1 at all times, (iii) a participations to cost ratio not exceeding 57% at any date, and (iv) an amount equivalent to one instalment including interest in a facility service reserve account at all times or in the event of an initial public offering, the amount should be equivalent to the next two instalments including interest. The facility service coverage ratio is calculated as revenues minus expenses from the Phase 2 storage tanks divided by the current debt commitments on term loan (4) including interest. The participations to value ratio at any date is calculated as total debt commitments on term loan facility (4) as of that date divided by the most recent valuation of the Phase 2 storage tanks. The participations to cost ratio at any date is calculated as the total debt commitments on term loan facility (4) as of that date as a percentage of the sum of actual constructions costs plus project expenses paid as of that date on the Phase 2 storage tanks.

 

A condition was included in the agreement requiring evidence of initial contribution by the Company towards Phase 2 storage tanks prior to utilisation of the loan facility. There were no drawdowns of the term loan made as at the year end.

 

All the above loans were drawn in AED.

 

20Employees’ End of Service Benefits

 

(Figures in USD)  2018   2017 
Balance at the beginning of the year   651    286 
Provision for the year   5,748    365 
Paid during the year   (132)         Nil 
Balance at the end of the year   6,267    651 

 

F-221

 

 

Brooge Petroleum and Gas Investment Company FZE

 

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2018

 

(Figures in USD)   2018
(Re-Stated)
    2017
(Re-Stated)
 

 

21Lease Liabilities

 

Balance at the beginning of the year   29,670,676    29,127,095 
Interest charge   2,818,714    2,767,074 
Repayment during the year   (2,267,964)   (2,223,494)
Balance at the end of the year   30,221,426    29,670,676 

 

a) The analysis of lease liability is as follows:          
           
Current   2,112,624    2,071,200 
Non-Current   28,108,802    27,599,476 

 

During 2013, The Company has entered into a land lease agreement with the Municipality of Fujairah. The lease commenced in 2013 and is for a period of 30 years extendable for another 30 years at the option of the Company. The Company has concluded that they have the right-to-use of the asset and accordingly, recorded a lease liability as per the requirements of IFRS 16. Considering the use of the land, it is reasonably certain that the land will be used until the end of the lease period (i.e. 60 years) and the lease rentals have been discounted at the incremental borrowing rate of 9.5%. As per the land lease agreement, the lease rentals will be increased by 2% every year.

 

   Minimum lease payments   Present value of Minimum lease payments 
   2018   2017   2018   2017 
                 
Not later than one year   2,313,323    2,267,964    2,112,624    2,071,200 
Later than one year and not later than five years   9,725,304    9,534,612    7,099,255    6,960,054 
Later than five years   216,023,896    218,527,911    21,009,546    20,639,421 
    228,062,523    230,330,487    30,221,425    29,670,675 
Finance costs   (197,841,098)   (200,659,812)   -    - 
Present value of minimum lease payments   30,221,425    29,670,675    30,221,425    29,670,675 

 

22Share Capital

 

100 ordinary shares of USD 13,612.85 each   1,361,285    1,361,285 
   1,361,285    1,361,285 

 

F-222

 

 

Brooge Petroleum and Gas Investment Company FZE

 

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2018

 

(Figures in USD)

 

23Transactions with Related Parties

 

Related parties represent associated companies, owners, directors and key management personnel of the Company, and entities controlled, jointly controlled or significantly influenced by such parties. Pricing policies and terms of these transactions are approved by the Company’s Chief Executive Officer.

 

Transactions with related parties

 

Movements in owners’ account are as follows.

 

   2018   2017 
   (Re-Stated)   (Re-Stated) 
Contributions by the owners   951,539    3,878,302 
Amounts paid on behalf of the Company by the owners*   7,850,431    9,504,034 
Amounts paid by the Company on behalf of the owners   (2,296,354)   Nil 
Distributions to owners   (29,209,289)    Nil 
    (22,703,673)   13,382,336 

 

These amounts are repayable at the discretion of the Chief Executive Officer of the Company and are interest free, therefore classified as part of equity.

 

*These include expenses paid on behalf of the Company including lease liability payments and other operational expenses paid by the owners on behalf of the Company.

 

Changes in owners’ account is as follows:

 

At 1 January   70,421,436    57,039,100 
Net (distributions) contributions during the year   (22,703,673)   13,382,336 
    47,717,763    70,421,436 

 

A member of key management personnel was employed by the owners and her compensation amounting to USD 163,354 was borne by them for the year ended 31 December 2017. Key management remuneration for the year ended 31 December 2018 amounted to USD 677,291(2017: USD 144,569), charged to statement of comprehensive income (within profit and loss).

 

Prior year restatement:

 

Regarding prior year restatements with the related party Al Brooge International Advisory (“BIA”) refer to Note 24.

 

Guarantees by related parties:

 

The owners have issued corporate guarantees to secure the term loans described in Note 19.

 

F-223

 

 

Brooge Petroleum and Gas Investment Company FZE

 

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2018

 

24Prior Year Restatement

 

i)The comparative figures for 2017 were restated previously on account of errors identified by the management subsequent to the issuance of the 2017 financial statements.

 

The errors comprised the following:

 

Use of incorrect discount rate

 

The Company erroneously used a 10% discount rate for the measurement of its land lease liability and the corresponding right of use asset instead of using its incremental borrowing rate of 9.5%. The correction of this error resulted in an increase in the lease liability and the right-of-use asset (recorded within property, plant and equipment). There correction also resulted in an increase in depreciation expense and finance costs for the year ended December 31, 2017.

 

Incorrect classification of term loans

 

As of December 31, 2017 and 1 January 2017, the Company had erroneously classified its debt balance of USD 86,314,012 and USD 77,497,507, respectively, as a non-current liability. As of December 31, 2017 and 1 January 2017, the Company was not in compliance with its debt covenants contained in the Company’s term loans (1) and (2) (Note 19). As a result of this non-compliance, the bank loans should be classified as a current liability. To correct the error, the Company reclassified its debt balance to current.

 

Incorrect calculation of accrued interest

 

As of December 31, 2017, management identified an error in the calculation of accrued interest on term loan (1). The correction of this error resulted in a decrease in the amount of interest capitalised (recorded within property, plant and equipment), a decrease in finance costs and a decrease in accrued interest (recorded within Trade and accounts payable).

 

Incorrect determination of functional currency

 

The Company incorrectly concluded that its functional currency was the UAE Dirham. The UAE Dirham has been pegged to the US Dollar for all periods since the Company’s inception. Thus, the correction of this error has no impact on the 2017 financial statements or prior periods.

 

The aforementioned changes were accounted for retrospectively in accordance with IAS 8 and, accordingly the prior years’ financial statements have been restated as follows:

 

   As previously   Restatement     
   reported   adjustments   Restated 
   31-12-17   01-01-17   31-12-17   01-01-17   31-12-17   01-01-17 
Statement of Comprehensive Income                        
                         
Direct costs   (2,292,082)    Nil     (3,727)    Nil     (2,295,809)    Nil  
Gross loss   (2,202,489)    Nil     (3,727)    Nil     (2,206,216)    Nil  
                               
Finance costs   (1,007,305)    Nil     40,379     Nil     (966,926)    Nil  
                               
Loss and total comprehensive loss for the year   (3,784,060)    Nil     36,652     Nil     (3,747,408)    Nil  

 

F-224

 

 

Brooge Petroleum and Gas Investment Company FZE

 

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2018

 

24Prior Year Restatement (Continued)

 

   As previously   Restatement     
   reported   adjustments   Restated 
   31-12-17   01-01-17   31-12-17   01-01-17   31-12-17   01-01-17 
                         
Statement of Financial Position                        
                         
ASSETS                        
                         
Non-Current Assets                        
Property, plant and equipment   193,987,928    168,024,215    1,450,943    1,709,059    195,438,871    169,733,274 
Total Non-current assets   193,987,928    168,024,215    1,450,943    1,709,059    195,438,871    169,733,274 
Total Assets   194,680,205    169,004,835    1,450,943    1,709,059    196,131,148    170,713,894 
                               
LIABILITIES AND EQUITY                              
                               
Current Liabilities                              
Term loans (current portion)   7,849,739     Nil     86,314,012    77,497,507    94,163,751    77,497,507 
Accounts payable, accruals and other payables   4,995,806    6,103,266    (320,039)   Nil    4,675,767    6,103,266 
Lease liability (current portion)   2,061,785    2,021,358    9,415    9,230        2,071,200     2,030,588 
Total Current Liabilities   14,907,330    8,124,624    86,003,388    77,506,737    100,910,718    85,631,361 
                               
Non-Current Liabilities                              
Term loans (non-current portion)   86,314,012    77,497,507    (86,314,012)   (77,497,507)    Nil      Nil  
Lease liability (non-current portion)   25,874,561    25,396,678    1,724,915    1,699,829    27,599,476    27,096,507 
Total Non-Current Liabilities   112,188,573    102,894,185    (84,589,097)   (75,797,678)   27,599,476    27,096,507 
Total Liabilities   127,095,903    111,018,809    1,414,291    1,709,059    128,510,194    112,727,868 
                               
Equity                              
Accumulated losses   (4,198,419)   (414,359)   36,652           Nil     (4,161,767)   (414,359)
Total Equity   67,584,302    57,986,026    36,652           Nil     67,620,954    57,986,026 
Total Liabilities and Equity   194,680,205    169,004,835    1,450,943          Nil     196,131,148    170,713,894 

 

i)In year 2022, subsequent to the issuance of the Company’s 2018 financial statements, the Company identified errors in the financial statements for the year ended December 31, 2018 and determined that the 2018 financial statements should be restated. The basis of such error and restatement is given as below:

 

Restatement Background

 

As disclosed on May 27, 2022, the Company 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 financial statements of the Company. 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 Company’s revenue recognition practices and related matters.

 

F-225

 

 

Brooge Petroleum and Gas Investment Company FZE

 

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2018

 

24Prior Year Restatement (Continued)

 

Restatement Background (Continued)

 

As a result of the findings from this internal examination, on August 12, 2022, the Audit Committee, in consultation with the Company’s management, concluded that the previously issued audited consolidated financial statements as of and for the periods ending December 31, 2020 and 2019 and the previously issued unaudited 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 Company 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 do not qualify to be recognised as revenue. Due to the qualitative nature of the matters identified in the Company’s internal examination, including the number of years over which the non-qualified revenue was recognized, the Company determined that it would be appropriate to rectify the misstatements in the previously issued financial statements by restating such financial statements. Accordingly, for the year 2018 the Company reversed revenue amounting to USD 29,451,920 and USD 27,854,947, which mainly represents funds received from BIA, was reversed and re-classified as Other payables under Liabilities.

 

The Management does not expect to settle these amounts using any of its current assets or any existing resources in the foreseeable future. Pending its potential receipt of confirmation or adequate supporting documentation from BIA, the Company has taken a conservative approach to recognise this as a liability. The Company 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 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 and, accordingly the prior years’ financial statements have been restated as follows:

 

    As previously reported     Restatement adjustments     Restated  
    31-12-18     01-01-18     31-12-18     01-01-18     31-12-18     01-01-18  
                                         
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 )

 

F-226

 

 

Brooge Petroleum and Gas Investment Company FZE

 

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2018

 

24Prior Year Restatement (Continued)

 

(Figures in USD)

 

   As previously reported   Restatement adjustments   Restated 
   31-12-18   01-01-18   31-12-18   01-01-18   31-12-18   01-01-18 
                         
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 

 

25Contingent Liabilities

 

Capital commitments  2018   2017 
Within one year   144,027,770    Nil 
More than 1 year and less than 5 years   16,534,876          Nil 
At 31 December   160,562,646          Nil 

 

Capital commitments relate to construction of Phase 2 which is expected quarter of 2020.

 

Capital commitments include advances to suppliers which are contingent on an advance payment guarantee being issued by the supplier in favour of the Company, therefore not recognised as at December 31, 2018.

 

Except for the above and ongoing purchase commitments in the normal course of business against which no loss is expected, there are no other known contingent liabilities existing at the balance sheet date.

 

F-227

 

 

Brooge Petroleum and Gas Investment Company FZE

 

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2018

 

26Subsequent Events

 

The significant events that occurred after the balance sheet date, which require disclosures in the financial statements are as follows:

 

February 25, 2019

 

The owners transferred the ownership in Brooge Petroleum and Gas Investment Company FZC to Brooge Petroleum and Gas Investment Company plc (“BPGIC plc”). Thereafter, the Company has become “Brooge Petroleum and Gas Investment Company FZE”.

 

March 31, 2019

 

An amount of USD 75,000,000 was contributed by the owners.

 

April 15, 2019

 

A business combination agreement was entered into between the Company’s owners and Twelve Seas, Brooge Holdings Limited, Brooge Merger Sub Limited, a subsidiary of Brooge Holdings Limited. BPGIC plc became party to the business combination agreement by execution of a joinder thereto on May 10, 2019.

 

September 10, 2019

 

The Company entered into an agreement with its lender to amend the terms of it’s Term Loan 1.

 

24September 2020

 

On 24 September 2020, the Company issued long term fixed interest rate senior secured bonds of USD 200,000,000 to private investors with a face value of USD 1 at an issue price of USD 0.95. The Company can issue further bonds of up to USD 50,000,000 under identical terms except issue price that can be above or below the nominal amount, subject to certain conditions. The proceeds of the bonds of USD 186,000,000 net of USD 4,000,000 of transaction costs were drawn down during November 2020. In accordance with the terms of the bonds, the proceeds were used to settle the existing term loans. An amount of USD 85,000,000 were transferred to a Construction account to be used solely to fund the remaining Phase 2 construction costs. The balance proceeds were used for general corporate purposes.

 

27Reaudit of the Financial Statements

 

The financial statements are re-audited as the Company has undertaken a restatement of its financial statement for the year ended December 31, 2018, the details of which are mentioned in Note 24 the restatement mainly pertains to revenue, other payable and trade account receivable.

 

28Rounding Off of Figures

 

All figures have been rounded off to the nearest US Dollar.

 

29Comparative Figures

 

Certain of the prior year figures have been regrouped to conform with the presentation of the current year.

 

F-228

 

 

 

 

 

 

 

Brooge Energy Limited

Interim Condensed Consolidated Financial Statements
June 30, 2022

 

 

 

 

 

 

F-229

 

 

 

  Office 106, The Binary
  Al Abraj Street
  Business Bay
  PO Box 413383
  Dubai / UAE
   
  [T] +971 4 557 8358
  [E] mail@affiniax.com

 

Independent Auditor’s Review Report

 

The Shareholders

Brooge Energy Limited

 

Report on the Interim Condensed Consolidated Financial Statements

 

We have reviewed the accompanying interim condensed consolidated financial statements of Brooge Energy Limited and its Subsidiaries, (“the Group”), which comprise of the consolidated statement of financial position as at June 30, 2022, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the period then ended and notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory notes.

 

Management’s and Auditor’s Responsibility for the Interim Condensed Consolidated Financial Statements 

 

The Management is responsible for the preparation of these interim condensed consolidated financial statements in accordance with International Financial Reporting Standards and for such internal controls as Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Our responsibility is to express a conclusion on the interim condensed consolidated financial statements based on our review.

 

Scope of Review

 

We conducted our review in accordance with International Standards on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity”. This Standard requires that we plan and perform the review to obtain moderate assurance as to whether the interim condensed consolidated financial statements are free of material misstatement. A review is limited primarily to inquiries of Group personnel and analytical procedures applied to financial data and thus provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed financial statements are not prepared, in all material respects, in accordance with International Financial Reporting Standards.

 

Affiniax A A S Auditors

 

 

 

Dubai,

United Arab Emirates,

April 24, 2023

 

 

F-230

 

 

Brooge Energy Limited

 

Interim Condensed Consolidated Statement of Comprehensive Income

Period Ended June 30, 2022

 

(Figures in USD)  Note  June 30,
2022
(6 Months)
   June 30,
2021
(6 Months)
(Restated)
 
            
Revenue  5   28,399,372    23,119,734 
Direct costs      (10,634,706)   (7,202,719)
Gross profit      17,764,666    15,917,015 
              
Other income      23,154    38,196 
Change in estimated fair value of derivative warrant liability      4,458,069    2,536,780 
General and administration expenses      (5,690,986)   (3,744,100)
Finance costs      (14,577,131)   (5,556,008)
Changes in fair value of derivative financial instruments      1,916,269    1,716,742 
Profit for the period      3,894,041    10,908,625 
              
Other comprehensive income      Nil     Nil  
              
Total Comprehensive Income for the period      3,894,041    10,908,625 
              
Basic and diluted earnings per share 23  23   0.04    0.126 

 

The accompanying notes form an integral part of the interim condensed consolidated financial statements.

 

F-231

 

 

Brooge Energy Limited

 

Interim Condensed Consolidated Statement of Financial Position

As at June 30, 2022

 

(Figures in USD)  Note  June 30,
2022
   December 31,
2021
(Restated)
 
            
ASSETS           
Current Assets           
Cash and cash equivalents  6   3,838,072    7,380,991 
Trade accounts receivable  7   8,667,673    3,771,492 
Inventories  8   277,366    250,360 
Other receivable and prepayments  9   1,876,169    1,131,868 
Total Current Assets      14,659,280    12,534,711 
              
Non-Current Assets             
Restricted bank balance  6   8,500,000    8,500,000 
Property, plant and equipment  10   428,257,635    427,266,913 
Derivative financial instrument  11   7,364,829    5,422,917 
Advances to contractor  12   15,571,215    3,499,988 
Total Non-Current Assets      459,693,679    444,689,818 
Total Assets      474,352,959    457,224,529 
              
LIABILITIES AND EQUITY             
Current Liabilities             
Trade and accounts payable  13   37,652,318    18,189,493 
Other payable  14   74,253,965    74,253,965 
Derivative warrant liability  15   7,217,746    11,675,815 
Borrowings  16   177,321,777    182,781,617 
Lease liabilities  17   9,872,066    8,976,452 
Total Current Liabilities      306,317,872    295,877,342 
              
Non-Current Liabilities             
Borrowings  16   1,980,670    Nil 
Lease liabilities  17   82,051,676    80,804,728 
Employees’ end of service benefits  18   168,803    60,624 
Asset retirement obligation  19   2,023,329    1,990,399 
Total Non-Current Liabilities      86,224,478    82,855,751 
              
Equity             
Share capital  20   8,804    8,804 
Share premium  20   101,777,058    101,777,058 
Statutory reserve      680,643    680,643 
Retained earnings      (91,098,844)   (94,992,885)
Shareholder’s account      70,442,948    71,017,816 
Total Equity Attributable to the Shareholders      81,810,609    78,491,436 
Total Liabilities and Equity      474,352,959    457,224,529 

 

The accompanying notes form an integral part of the interim condensed consolidated financial statements.

 

F-232

 

 

Brooge Energy Limited

 

Interim Condensed Consolidated Statement of Changes in Equity

Period Ended June 30, 2022

 

(Figures in USD)  Share
Capital
   Share
Premium
   Statutory
Reserve
   Retained
Earnings
   Shareholder’s
Account
   Total 
As at January 01, 2021   8,804    101,777,058    344,848    (120,347,655)   70,761,998    52,545,053 
Profit for the period   Nil    Nil    Nil    10,908,625    Nil    10,908,625 
As at June 30, 2021   8,804    101,777,058    344,848    (109,439,030)   70,761,998    63,453,678 
Transfer to statutory reserve   Nil    Nil    335,795    (335,795)   Nil    Nil 
Movements during the year   Nil    Nil    Nil    14,781,940    255,818    15,037,758 
As at December 31, 2021   8,804    101,777,058    680,643    (94,992,885)   71,017,816    78,491,436 
Profit for the period   Nil    Nil    Nil    3,894,041    Nil    3,894,041 
Movements during the period   Nil    Nil    Nil    Nil    (574,868)   (574,868)
As at June 30, 2022   8,804    101,777,058    680,643    (91,098,844)   70,442,948    81,810,609 

 

The accompanying notes form an integral part of the interim condensed consolidated financial statements.

 

F-233

 

 

Brooge Energy Limited

 

Interim Condensed Consolidated Statement of Cash Flows

Period Ended June 30, 2022

 

(Figures in USD)  June 30,
2022
(6 Months)
   June 30,
2021
(6 Months)
(Restated)
 
         
Cash Flow from Operating Activities        
Profit for the period / year   3,894,041    10,908,625 
           
Adjustments for:          
Depreciation of property, plant and equipment   6,735,923    2,918,162 
Interest charged on lease liability   5,199,006    5,541,882 
Change in estimated fair value of derivative warrant liability   (4,458,069)   (2,536,780)
Net changes in fair value of derivative financial instruments   (1,916,269)   (1,716,742)
Asset retirement obligation - accretion expense   32,930    14,126 
           
Changes in operating assets and liabilities          
Increase in trade accounts and other receivable and prepayments   (7,682,409)   (4,053,072)
(Increase) / Decrease in inventories   (27,006)   (3,591)
Increase in trade accounts and other payable   19,462,823    504,056 
Increase in employees’ end of services benefits   108,179    34,184 
Net cash generated from operating activities   21,349,149    11,610,850 
           
Cash Flow from Investing Activities          
Amount withdrawn from restricted bank account   3,106,502    10,629,961 
Advance to contractors   (12,071,227)   Nil 
Purchase of property, plant and equipment   (7,726,643)   (11,511,001)
Net cash used in investing activities   (16,691,368)   (881,040)
           
Cash Flow from Financing Activities          
Proceeds from term loan   2,376,804    Nil 
Repayment of  borrowings   (5,881,617)   (8,600,807)
Payment of lease liability   (3,056,444)   (2,174,483)
Movement in shareholder’s account   (574,868)   Nil 
Net cash used in from financing activities   (7,136,125)   (10,775,290)
           
Net change in cash and cash equivalents   (2,478,344)   (45,480)
Cash and cash equivalents at beginning of the period / year   3,494,243    20,989,970 
Cash and cash equivalents at end of the period / year   1,015,899    20,944,490 

 

The accompanying notes form an integral part of the interim condensed consolidated financial statements.

 

F-234

 

 

Brooge Energy Limited

 

Notes to the Interim Condensed Consolidated Financial Statements

June 30, 2022

 

1Legal Status, Management and Business Activity

 

The interim condensed consolidated financial statements comprise of the interim condensed financial statements of Brooge Energy Limited (“Company”) and its subsidiaries on a line-by-line basis. The Company and its subsidiaries are collectively referred to as the “Group”. The details of the Group are as follows:

 

a. Brooge Energy Limited (“Company”)

 

The Company, is a Company with limited liability registered as an exempted company in the Cayman Islands.

 

The registered office of the Company is at P.O Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. The Company’s principal executive office is located at P.O Box 50170, Al-Sodah, Khorr Fakkan Road, Fujairah, United Arab Emirates (“UAE”).

 

The Company changed its name from Brooge Holdings Limited to Brooge Energy Limited on April 07, 2020.

 

The subsidiaries of the Company are as follows:

 

i. Brooge Petroleum and Gas Investment Company FZE (“BPGIC FZE”)

 

BPGIC FZE is a Free Zone Establishment formed and registered in the Fujairah Free Zone Authority under registration number 13-FZE-1117.

 

BPGIC FZE is a 100% subsidiary of the Company.

 

ii. Brooge Petroleum and Gas Investment Company Phase III FZE (BPGIC Phase III FZE)

  

BPGIC Phase III FZE is a Free Zone Establishment formed and registered in the Fujairah Free Zone Authority under registration number 20-FZE-1972.

 

BPGIC Phase III FZE is a 100% subsidiary of the Company.

 

iii. BPGIC International

 

BPGIC International formerly known as Twelve Seas, is a company with limited liability registered as an exempted company in the Cayman Islands.

 

BPGIC International is a 100% subsidiary of the Company.

 

iv. Brooge Petroleum and Gas Management Company Limited (BPGMC Limited)

 

BPGMC Limited is a company with limited liability registered in Dubai International Financial Centre with commercial license number CL3852.

 

BPGMC Limited is a 100% subsidiary of the Company.

 

v. BPGIC Phase 3 Limited (BPGIC Phase III Ltd)

 

BPGIC Phase 3 Limited is a Free Zone Company with limited liability formed in accordance with the provisions of Jebel Ali Free Zone Authority Offshore Companies Regulations 2018. The registration number of BPGIC Phase 3 Limited is 226933.

 

BPGIC Phase 3 Limited is a 100% subsidiary of the Company.

 

F-235

 

 

Brooge Energy Limited

 

Notes to the Interim Condensed Consolidated Financial Statements

June 30, 2022

 

1Legal Status, Management and Business Activity (Continued)

 

The service provided by the group is oil storage and related services at the Port of Fujairah in the Emirate of Fujairah, UAE. The Group currently operates phase I and phase II, comprising 22 tanks with a total capacity of 1,001,388 cubic meters (“cbm”), fully operational for provision of storage and other ancillary processes of crude and clean oil. The construction of the Company’s phase II, with a total capacity of 602,064 cbm was completed in September 2021.The Group has commenced early preparation work for its phase 3 project where it intends to construct additional storage and refinery facilities. The Group’s has commenced preconstruction work for its phase 3. The Group intends to construct additional storage and refinery facility as part of the phase 3.

 

The Company was incorporated on 12 April 2019 for the sole purpose of consummating the business combination described further below.

 

On 15 April 2019, BPGIC FZE entered into a business combination agreement with Twelve Seas Investment Company (“Twelve Seas”), a company listed on National Association of Securities Dealers Automated Quotations (“NASDAQ”), the Company and BPGIC FZE’s shareholders. On 10 May 2019, BPGIC PLC became party to the business combination agreement by execution of a joinder thereto.

 

The business combination was accounted for as a reverse acquisition in accordance with the International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board (“IASB”).

 

Under this method of accounting, Brooge Energy 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 stockholders 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 FZE are the historical financial statements of the combined company, and Brooge Energy and Twelve Sea’s assets, liabilities and results of operations are consolidated with BPGIC FZE beginning on the acquisition date.

 

As a result of the above transaction, the Company became the ultimate parent of BPGIC FZE and Twelve Seas on 20 December 2019, being the acquisition date. The Company’s common stock and warrants are traded on the NASDAQ Capital Market under the ticker symbols BROG and BROGW, respectively. Upon the closing of business combination, Twelve seas changed its name to ‘BPGIC International’.

 

The consolidated financial statements for the year ended December 31, 2019 were prepared as a continuation of the financial statements of BPGIC FZE, the acquirer, and retroactively adjusted to reflect the legal capital of the legal parent/acquiree (Brooge Energy Limited).

 

F-236

 

 

Brooge Energy Limited

 

Notes to the Interim Condensed Consolidated Financial Statements

June 30, 2022

 

2Basis of Preparation of Consolidated Financial Statements

 

The interim condensed consolidated financial statements for the six-month period ended 30 June 2022 have been prepared in accordance with International Accounting Standard 34 (“IAS 34”) “Interim Financial Reporting”.

 

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual consolidated financial statements and should be read in conjunction with the Group’s annual consolidated financial statements as at and for the year ended 31 December 2021.

 

The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period, except for the adoption of new and amended standards as set out below.

 

These interim condensed consolidated financial statements are presented in United States dollars (“USD”) which is the functional and presentation currency of the Group.

 

The consolidated financial statements are prepared under the historical cost convention, except for re-measurement at fair value of warrant liability.

 

2.1Going Concern

 

During the period ended 30 June 2022, the Group earned a profit of USD 3.9 million and generated positive cash flows of USD 23.4 million. Further, as at that date, the Group had cash and cash equivalents of USD 1 million.

 

As of 30 June 2022, the Group had a waiver for leverage ratio and working capital financial covenant requirements, however it was in technical breach of its Information Undertakings requirements. Even though the lender did not declare an event of default under the bond agreement, this constituted events of default and could have resulted in the lender requiring immediate repayment of the bonds. Accordingly, as of 30 June 2022, the Group has classified its debt balance of USD 177,321,777 as a current liability. As of 30 June 2022, the Group’s current liabilities exceeded its current assets by USD 289,616,665. All of the above represents a material uncertainty that casts significant doubt upon the Group’s ability to continue as a going concern.

 

These interim condensed consolidated 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.

 

F-237

 

 

Brooge Energy Limited

 

Notes to the Interim Condensed Consolidated Financial Statements

June 30, 2022

 

3Changes in Accounting Policies And Disclosures

 

New and amended standards and interpretations

 

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s annual consolidated financial statements for the year ended 31 December 2021. The Group has adopted the following new and amended IFRS’s in these interim condensed consolidated financial statements.

 

Annual Improvements to IFRS Standards 2018 – 2020 – Amendments to IFRS 1, IFRS 9, illustrative examples accompanying IFRS 16 and IAS 41.

 

Classification of Liabilities as Current or Non-current-Amendments to IAS 1

 

Property, Plant and Equipment - Proceeds before intended use - Amendments to IAS 16 Reference to Conceptual Framework - Amendments to IFRS 3

 

Onerous Contracts - Cost of Fulfilling a Contract - Amendments to IAS 37

 

The adoption of above standards and amendments did not have any significant impact on the consolidated financial statements of the Group.

 

4Significant Accounting Estimates And Judgements

 

The preparation of the interim condensed consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and reported amounts of financial assets and liabilities and the disclosure of contingent liabilities. These judgments, estimates and assumptions also affect the revenue, expenses and provisions as well as fair value changes. Actual results may differ from these estimates.

 

In preparing these interim condensed consolidated financial statements, the significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty are the same as those applied to the preparation of the Group’s consolidated financial statements as at and for the year ended 31 December 2021.

 

F-238

 

 

Brooge Energy Limited

 

Notes to the Interim Consolidated Financial Statements

June 30, 2022

 

(Figures in USD)   June 30,
2022
(6 Months)
    June 30,
2021
(6 Months)
 

 

5Revenue

 

Storage rental income   27,405,640    16,413,047 
Miscellaneous income (Note 5.1)   473,092    1,282,098 
Ancillary services   520,640    5,424,589 
    28,399,372    23,119,734 

 

Note 5.1

 

The Group has only one segment at the reporting date. Revenue generation from leasing of storage capacity of tanks and other ancillary services started in December 2017.

 

The commercial contracts with customers related to the Phase 1 and Phase 2 have been assigned as security against the borrowing obtained in 2020.

 

Miscellaneous income includes port charges of USD 473,092 that are paid by the Group to the port authority and recharged to the customers.

 

The revenues of the Group mainly comprise of fixed fees for storage and related services and variable fees for ancillary services provided under a contract with its customers. Accordingly, there is no cyclicality in the Group’s operations.

 

    June 30,
2022
    December 31,
2021
 

 

6Cash and Cash Equivalents

 

Cash in hand   12,141    3,195 
Balances in current accounts   12,325,931    15,877,796 
    12,338,072    15,880,991 
           
The above consist of the following:          
Non-current          
Restricted bank balance   8,500,000    8,500,000 
    8,500,000    8,500,000 
Current          
Cash and Cash Equivalents   1,015,899    1,452,316 
Restricted bank balance   2,822,173    5,928,675 
    3,838,072    7,380,991 

 

F-239

 

 

Brooge Energy Limited

 

Notes to the Interim Consolidated Financial Statements

June 30, 2022

 

(Figures in USD)   June 30,
2022
    December 31,
2021
 

 

7Trade Accounts Receivable

 

Trade accounts receivable   8,667,673    3,771,492 
    8,667,673    3,771,492 

 

8Inventories

 

Spare parts and consumables   277,366    250,360 
    277,366    250,360 

 

Cost of inventories recognised during the year amounted to USD 630,939 (2021: USD 938,386). No provision is required for inventories at 30 June 2022 (2021: Nil).

 

9Other Receivable and Prepayments

 

Prepaid expenses   1,284,586    289,463 
Due from shareholder   Nil    504,214 
Due from related parties (Note 21)   92,553    86,142 
Staff advances   152,389    152,389 
Deposits   342,921    99,660 
Other receivable   3,720    Nil 
    1,876,169    1,131,868 

 

10Property, Plant and Equipment

 

a)The movement schedule is set out on page 25.

 

11Derivative financial instruments

 

Call option   7,364,829    5,422,917 
    7,364,829    5,422,917 

 

On 24 September 2020, the Group issued long term fixed interest rate senior secured bonds of USD 200,000,000 to private investors with a face value of USD 1 at an issue price of USD 0.95. The Group has the option to redeem the bonds in full or in part any time after 24 September 2023 (the “call option”). The call option represents an embedded derivative that has been separated from the host contract and separately valued.

 

At 30 June 2022 management has assessed the value of the call option of USD 7,364,829 and classified as change in fair value of derivative financial instrument in the interim consolidated statement of comprehensive income (Note 16).

 

F-240

 

 

Brooge Energy Limited

 

Notes to the Interim Consolidated Financial Statements

June 30, 2022

 

(Figures in USD)   June 30,
2022
    December 31,
2021
 

 

12Advances to Contractor

 

Advances to contractor   15,571,215    3,499,988 
    15,571,215    3,499,988 

 

The above amount mainly includes the advances paid towards Audex Fujairah LL FZE for the interconnectivity construction amounting USD 15,006,262.

 

13Trade and Accounts Payable

 

Trade accounts payable   17,627,226    9,113,183 
Accrued interest on borrowings   3,965,660    4,101,250 
Advances from customer   4,876,252    2,417,956 
Accrued expenses   9,054,622    394,611 
Due to a related party (Note 21)   2,041,927    2,041,927 
VAT payable   20,766    20,566 
Payables to third parties   65,865    Nil 
    37,652,318    18,189,493 

 

14Other Payable

 

M/s Brooge International Advisory LLC   74,253,965    74,253,965 
    74,253,965    74,253,965 

 

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 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, 2020, 2019, and 2018, and the previously issued unaudited 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 financial statements by restating such financial statements.

 

F-241

 

 

Brooge Energy Limited

 

Notes to the Interim Consolidated Financial Statements

June 30, 2022

 

14Other Payable (Continued)

 

Accordingly, the above USD 74,253,965 mainly represents funds received from BIA, which was reversed from revenue and re-classified as Other payables under Liabilities.

 

The Management does 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 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 statement of either other comprehensive income or directly as equity as applicable.

 

15Derivative Warrant Liability

 

Issuance of 21,228,900 warrants in connection with merger   11,675,815    13,161,838 
Fair value remeasurement of derivative warrant liability   (4,458,069)   (1,486,023)
    7,217,746    11,675,815 

 

In accordance with IAS 32, a contract to issue a variable number of shares fails to meet the definition of equity and must instead be classified as a derivative liability and measured at fair value with changes in fair value recognized in the interim consolidated statement of comprehensive income at each reporting date. The derivative liabilities will ultimately be converted into the Group’s equity (ordinary shares) when the warrants are exercised, or will be extinguished on the expiry of the outstanding warrants, and will not result in the outlay of any cash by the Group.

 

In connection with the completion of the business combination on 20 December 2019, each of Twelve Sea’s 21,229,000 outstanding warrants were converted into the Group’s warrants at 1:1 ratio. The warrants allow the holder to subscribe for the ordinary shares of the Company at 1:1 basis at an exercise price of USD 11.50. The warrants shall lapse and expire after five years from the closing of the business combination. The holders of the warrants issued pursuant to the business combination may elect, if the Group does not have an effective registration statement or the prospectus contained therein is not available for the issuance of the warrant shares to the holder, in lieu of exercising the warrants for cash, a cashless exercise option to receive a variable number of common shares.

 

At initial recognition on 20 December 2019, the Group recorded a derivative warrant liability of USD 16,983,200 based on the quoted price on 20 December 2019 of USD 0.8 per warrant and then revalued at USD 0.74 at 31 December 2019 resulting in a fair value gain of USD 1,273,740 and a warrant derivative liability of USD 15,709,460. These warrants were accounted for as part of the consideration transferred under IFRS 2.

 

On 14 May 2020, holders of 100 warrants have exercised their rights through cash exercise and converted the warrants into ordinary shares.

 

At 30 June 2022, the Group recorded a derivative warrant liability of USD 7,217,746 (31 December 2021: USD 11,675,815 ) which resulted in a gain on revaluation of derivative warrant liability for the year ended 30 June 2022 of USD 4,458,069 (31 December 2021: USD 1,486,023).

 

F-242

 

 

Brooge Energy Limited

 

Notes to the Interim Consolidated Financial Statements

June 30, 2022

 

(Figures in USD)   June 30,
2022
    December 31,
2021
 

 

16Borrowings

 

Term loan   2,376,804    Nil 
Bonds   176,925,643    182,781,617 
    179,302,447    182,781,617 

 

The current and non- current break up as below:
Non- Current  Maturity        
Term loan  2028   1,980,670    Nil 
       1,980,670    Nil 
Current             
Term loan      396,134    Nil 
Bonds  On demand   176,925,643    182,781,617 
       177,321,777    182,781,617 

 

  Coupon   Effective interest      2022   2021 
Bonds  rate %   rate %   Maturity date  USD   USD 
USD 200,000,000 bond net of transaction costs   8.50%   10.57%   Refer note below   176,925,643    182,781,617 

 

On 24 September 2020, the Group issued long term fixed interest rate senior secured bonds of USD 200,000,000 to private investors with a face value of USD 1 at an issue price of USD 0.95. The Group can issue further bonds of up to USD 50,000,000 under identical terms except issue price that can be above or below the nominal amount, subject to certain conditions. The proceeds of the bonds of USD 186,000,000 net of USD 4,000,000 of transaction costs were drawn down during November 2020. In accordance with the terms of the bonds, the proceeds were used to settle the existing term loans and promissory notes. An amount of USD 85,000,000 were transferred to a Construction account to be used solely to fund the remaining phase 2 construction costs. The balance proceeds were used for general corporate purposes.

 

The bonds will be repaid in semi-annual payments of USD 7,000,000 starting September 2021 until March 2025, and one bullet repayment of USD 144,000,000 in September 2025. Interest will accrue at a coupon rate of 8.5% and will be payable semi-annually in March and September each year. The Group has the option to redeem the bonds in full or in part any time after 24 September 2023 (the “call option”). The call option represents an embedded derivative that has been separated from the host contract and separately valued. At 31 December 2021, management has assessed the value of the call option of USD 5,422,917 and classified as change in fair value of derivative financial instrument. The comparative amount of USD 340,504 relates to the changes in fair value of interest rate swaps relating to Group’s previous term loans which were settled in November 2020.

 

F-243

 

 

Brooge Energy Limited

 

Notes to the Interim Consolidated Financial Statements

June 30, 2022

 

16Borrowings (Continued)

 

The bonds are secured by:

 

(i)pledge over all the existing and future shares of BPGIC FZE;
   
(ii)assignment of rights and pledge over the balance in the Earnings account;
   
(iii)pledge over the balance in the Liquidity account, the Debt Service Retention account and the Construction Funding account;
   
(iv)pledge over moveable assets of BPGIC FZE and its subsidiaries;

 

(v)security assignment of commercial contracts related to phase I and phase II, land lease agreement, port facilities agreement and EPC construction contract;

 

(vi)security assignment over insurance contracts for phase I terminal, phase II terminal and admin building; (vii) security assignment over group and intercompany loans; and

 

(viii)corporate guarantee from Brooge Energy Limited.

 

The bond agreement also restricts BPGIC FZE from making any distributions other than in the form of an inter company loan for phase III construction.

 

Under the bond agreement, BPGIC FZE is subject to the following financial covenants during the term of the bonds:

 

(i)Minimum Liquidity: BPGIC FZE to maintain $8.5 million in the Liquidity account;
   
(ii)Leverage Ratio: BPGIC FZE and its subsidiaries’ leverage ratio not to exceed: (A) 5.5x at 31 December 2020; (B) 3.5x at 31 December 2021; and (C) 3.0x anytime thereafter; and

 

(iii)Working Capital: BPGIC FZE and its subsidiaries to maintain a positive working capital.
   
 The bond agreement requires the Group to comply with the following financial covenant:
   
(i)Brooge Energy Limited to maintain a minimum equity ratio of 25%.

 

As of 30 June 2022, the Group was in technical breach of the requirements to comply with the leverage ratio and working capital thresholds. Even though the lenders 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, the Group has classified the respective bonds as a current liability at the end of 30 June 2022. Subsequent to the year end, the lenders have confirmed their intention to not require immediate repayment of the outstanding amounts or alter the repayment pattern in the original bond agreement.

 

Bond Waiver letter

 

On April 27, 2022, the Group entered into an agreement with the Bondholders to implement following amendments to the Bond Financing Facility, effective immediately:

 

(a)Waiver of the Events of Defaults that are triggered by the technical breaches of the Leverage Ratio and positive Working Capital covenants until December 31, 2022.

 

F-244

 

 

Brooge Energy Limited

 

Notes to the Interim Consolidated Financial Statements

June 30, 2022

 

16Borrowings (Continued)

 

(b)The requirement to maintain a Leverage Ratio to not exceed certain thresholds is suspended (waived) for the results period from December 31, 2021 to and including December 30, 2022, and shall be tested again for the 12 months results period from (and including) January 1, 2022 to December 31, 2022 (inclusive) at 3.5x, stepping down to 3.0x anytime thereafter (as per the original terms of the Bond Financing Facility). For the avoidance of doubt, the costs associated with the amendments shall not be taken into consideration in EBITDA when calculating Leverage Ratio.

 

(c)The requirement to maintain a positive Working Capital is suspended (waived) for the period from December 31, 2021 to and including December 30, 2022, and shall be tested again starting from and including December 31, 2022.

 

(d)Permitted Distribution:

 

(i)No Permitted Distribution shall be made before BPGIC is in compliance with financial covenant requirements under the original terms of the Bond Facility Financing.

 

(ii)Furthermore, BPGIC shall provide to the Bond Trustee a written statement signed by its chief executive officer and chief financial officer within three business days prior to any permitted distribution under the terms of the Bond Financing Facility that (A) states the amount being distributed as a permitted distribution, (B) confirms the conditions with respect to such distribution are satisfied, and (C) declares such distribution will not lead to an Event of Default on the next testing date.

 

Term loan

 

During the year, the Group obtained a new term loan facility from a commercial bank in the UAE amounting to USD 2,395,862 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.

 

F-245

 

 

Brooge Energy Limited

 

Notes to the Interim Consolidated Financial Statements

June 30, 2022

 

16Borrowings (Continued)

 

Term loan (Continued)

 

The term loan is secured by:

 

i.Corporate Guarantee of M/s Brooge Energy Limited.
   
ii.BPGIC Phase III FZE grants in favor of the commercial bank a First Rank Degree Mortgage for a total mortgage of AED 13,000,000 of the corporate office.
   
iii.Rental Income generated by the corporate office to be automatically assigned to the commercial bank unless the parties agree otherwise in writing.
   
iv.Authority to debit account no: 1001752862 of BPGIC FZE signed by the signatories (RIM No.1123593)
   
v.Promissory note for the secured loan.
   
vi.Security cheque covering the total facility limit drawn by the Group.

 

(Figures in USD)   June 30,
2022
    December 31,
2021
 

 

17Lease Liabilities

 

Balance at the beginning of the period / year   89,781,180    87,511,733 
Rent waiver   Nil    (6,126,800)
Interest charged during the period / year   5,199,006    11,774,031 
Repayment during the period / year   (3,056,444)   (3,377,784)
Balance at the end of the period / year   91,923,742    89,781,180 
           
1) The analysis of lease liability is as follows:          
Current   9,872,066    8,976,452 
Non-Current   82,051,676    80,804,728 

 

During 2013, the Group entered into a land lease agreement with the Municipality of Fujairah for a period of 30 years, extendable for another 30 years at the option of the Group. The Group has concluded that they have the right-to-use of the asset and accordingly, recorded a lease liability as per the requirements of IFRS 16. Given the use of the land, it is reasonably certain that the Group will continue to lease the land till the end of the lease period (i.e. 60 years) and accordingly the below lease rentals cover a period up to 60 years discounted at the rate of 9.5% (2019: 9.5%) as an incremental borrowing rate for the Group. Annual lease rental is increased by 2% on an annual basis as per the agreement.

 

During 2020, the Group entered into another land lease agreement in respect of its Phase III project with the Fujairah Oil Industry Zone for a period of 30 years, extendable for another 30 years. Given the use of the land, it is reasonably certain that the Group will continue to lease the land till the end of the lease period (i.e. 60 years) and accordingly the below lease rentals cover a period up to 60 years discounted at the rate of 13% (2020: 13%) as an incremental borrowing rate for the Group. Annual lease rental is increased by 2% on an annual basis and there is an initial rent free period of 18 months from the contract date.

 

During the year, the Group entered into an agreement with the lessor for an additional one-year rent free period in respect of the Phase III land The Group has treated this to be a partial extinguishment of the lease liability as per IFRS 16 and IFRS 9. The rent waiver is recognised as a gain in the income statement, with a corresponding reduction in the lease liability.

 

F-246

 

 

Brooge Energy Limited

 

Notes to the Interim Consolidated Financial Statements

June 30, 2022

 

(Figures in USD)   June 30,
2022
    December 31,
2021
 

 

17Lease Liabilities (Continued)

 

   Lease payments   Present value of minimum
lease payments
 
   2022   2021   2022   2021 
Not later than one year   4,439,169    8,704,253    2,714,066    5,978,847 
Later than one year and   18,662,445    36,593,030    8,582,236    18,899,037 
not later than five years                    
Later than five years   466,294,070    849,825,794    80,627,440    64,903,296 
    489,395,684    895,123,077    91,923,742    89,781,180 
Finance costs   (397,471,942)   (805,341,897)   Nil    Nil 
Present value of minimum lease payments   91,923,742    89,781,180    91,923,742    89,781,180 

 

18Employees’ End of Service Benefits

 

Balance at the beginning of the period / year   60,624    40,514 
Provision for the period / year   147,928    31,551 
Paid during the period / year   (39,749)   (11,441)
Balance at the end of the period / year   168,803    60,624 

 

19Asset Retirement Obligation

 

Asset retirement obligation   2,023,329    1,990,399 
    2,023,329    1,990,399 

 

As part of the land lease agreement between the Fujairah Oil Industry Zone (“FOIZ”) and the Group, the Group has a legal obligation to remove the plant at the end of its useful life, or earlier, if the Group is unable to continue its operations, and restore the land. The Group has employed professional valuers to estimate the amount of liability.

 

20Share Capital & Share Premium

 

Authorized   No. of Shares    USD 
Ordinary shares   450,000,000    450,000,000 
           
Share Capital          
As at 31 December 2021   88,035,353    8,804 
As at 30 June 2022   88,035,353    8,804 

 

Ordinary shares held in escrow (20,000,000 shares held by BPGIC and 1,552,500 shares held by the original founders of Twelve Seas) have been excluded from the share capital in the table above. These shares will be released upon the satisfaction of certain financial milestones and share price targets below the release or forfeiture of these shares in the future will not have an effect on the equity of the Group.

 

F-247

 

 

Brooge Energy Limited

 

Notes to the Interim Consolidated Financial Statements

June 30, 2022

 

(Figures in USD)   June 30,
2022
    December 31,
2021
 

 

20Share Capital & Share Premium (Continued)

 

One-half (½) of the Escrow Property shall become vested and no longer subject to forfeiture, and be released to the seller, in the event that either: (a) the Annualized EBITDA (as defined in the Escrow Agreement) for any full fiscal quarter during the Escrow Period (beginning with the first full fiscal quarter beginning after the Closing) (an “Escrow Quarter”) equals or exceeds USD 175,000,000 or (b) at any time during the Escrow Period, the closing price of the Brooge Energy Limited ordinary shares equals or exceeds $12.50 per share (subject to equitable adjustment) for any ten (10) Trading Days (as defined in the Escrow Agreement) within any twenty

(20) Trading Day period during the Escrow Period.

 

All Escrow Property remaining in the Escrow Account shall become vested and no longer subject to forfeiture, and be released to the seller, in the event that either: (a) the Annualized EBITDA for any Escrow Quarter equals or exceeds $250,000,000 or (b) at any time during the Escrow Period, the closing price of the Brooge Energy Limited ordinary shares equals or exceeds $14.00 per share (subject to equitable adjustment) for any ten (10) Trading Days within any twenty (20) Trading Day period during the Escrow Period. The Escrow Period represents the period commencing from the closing until the end of the twentieth (20th) fiscal quarter after the commencement date of the first full fiscal quarter beginning after the closing.

 

Share Premium        
         
As at January 01   101,777,058    101,777,058 
As at June 30 / December 31   101,777,058    101,777,058 

 

21Transactions with Related Parties

 

The Group, in the normal course of business carries out transactions with parties that fall within the definition of related party contained in the International Financial Reporting Standards. Significant transactions with

related parties are as under:

 

Transactions in shareholders’ account          
           
(Repayments to) / Contributions by the shareholders   (574,868)   255,818 
    (574,868)   255,818 

 

These amounts are repayable at the discretion of the Board of Directors of the Group and are interest free, therefore classified as part of equity.

 

Changes in shareholders’ account is as follows:        
         
At January 01   71,017,816    70,761,998 
Net contributions (distributions) during the period / year   (574,868)   255,818 
At June 30 / December 31   70,442,948    71,017,816 
Expense paid on behalf of related parties   6,411    5,129 
Key management remuneration   654,633    509,343 

 

F-248

 

 

Brooge Energy Limited

 

Notes to the Interim Consolidated Financial Statements

June 30, 2022

 

(Figures in USD)   June 30,
2022
    December 31,
2021
 

 

21Transactions with Related Parties (Continued)

 

Related party balances as at the period / year end are classified as under:

 

Related Party  Classification      
            
Shareholder  Shareholder’s account (Equity)   70,442,948    71,017,816 
BPGIC Holdings  Due from shareholder (Note 9)   Nil    504,214 
HBS Investments LP  Due from related parties (Note 9)   5,300    4,187 
H Capital International LP  Due from related parties (Note 9)   5,302    4,189 
O2 Investments Limited as GP  Due from related parties (Note 9)   5,775    5,191 
SBD International LP  Due from related parties (Note 9)   48,470    47,357 
SD Holding Limited as GP  Due from related parties (Note 9)   21,842    19,938 
Gyan Investments Ltd  Due from related parties (Note 9)   5,864    5,280 
Shareholder  Due to a related party (Note 13)   2,041,927    2,041,927 

 

22Contingent Liabilities

 

Capital commitments within one year   53,500,000    22,000,000 
    53,500,000    22,000,000 

 

Capital commitments relate to construction project for interconnection of pipelines between Phase I and Phase II with Phase III and early preparation work for Phase III

 

23Earnings Per Share

 

Basic EPS is calculated by dividing the profit/(loss) for the period / year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period / year.

 

Diluted EPS is calculated by dividing the profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.

 

The following table reflects the income and share data used in the basic and diluted EPS calculations:

 

(Figures in USD)  June 30,
2022
   December 31,
2021
 
         
Profit attributable to ordinary equity holders of the parent   3,894,041    25,690,565 
Weighted average number of ordinary shares   88,035,321    88,035,321 

 

As part of the business combination warrants and ordinary shares subjected to escrow has been issued. In the calculation of diluted earnings per shares, the warrants have been excluded as the average market price of ordinary shares during the period exceeded the exercise price of the warrants i.e. they are not in the money.

 

F-249

 

 

Brooge Energy Limited

 

Notes to the Interim Consolidated Financial Statements

June 30, 2022

 

23Earnings Per Share

 

The number of contingently issuable shares (21,552,500 escrow shares) to be included in the diluted earnings per shares calculation is based on the number of shares that would be issuable if the end of the period were the end of the Escrow Period. No ordinary shares would have been issuable on 30 June 2022 as the conditions attached to the escrow shares have not been met at reporting date. As a result, the escrow shares have been excluded from the calculation of diluted earnings per share for 30 June 2022 and the weighted average number of ordinary shares for basic earnings per share and diluted earnings per shares are the same.

 

24Fair Value of Financial Instruments

 

Management considers that the fair value of financial assets and financial liabilities in the interim consolidated financial statements approximate their carrying amounts at the reporting date.

 

Fair Value Hierarchy

 

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.

 

Liabilities measured at fair value:   Level 1
USD
    Level 2
USD
    Level 3
USD
  Total Fair Value
USD
 
June 30, 2022                      
Derivative warrant liability     7,217,746       Nil     Nil     7,217,746  
Borrowings     Nil       176,925,643     Nil     176,925,643  
Derivative financial instruments     Nil       7,364,829     Nil     7,364,829  
                             
December 31, 2021                            
Derivative warrant liability     11,675,815        Nil      Nil     11,675,815  
Borrowings     Nil       182,781,617     Nil     182,781,617  
Derivative financial instruments     Nil       5,422,917     Nil     5,422,917  

 

The fair value of level 1 financial liability have been determined in accordance with quoted price.

 

The fair value of level 2 financial liability have been determined by using generally accepted pricing models based on a discounted cash flow analysis, respectively. The models incorporate various inputs including interest rate curves and forward rate curves of the underlying instruments.

 

During the period ended 30 June 2022 and 31 December 2021, there were no transfers between Level 1 and Level 2 fair value measurements.

 

25Subsequent Events After the Reporting Date

 

The Company on Aug. 17, 2022 announced that its majority shareholder, BPGIC Holdings Limited has expressed an interest to acquire all the shares of the Company that it does not currently own and to take the Company private. The Board of Directors of the Company is considering the proposal and will be entering into substantive negotiations. Any transaction, if entered into, will be subject to the receipt of a fairness opinion and approval of the Company’s shareholders and bondholders. There can be no assurance that a transaction will be entered into.

 

F-250

 

 

Brooge Energy Limited

 

Notes to the Interim Consolidated Financial Statements
June 30, 2022

 

26Financial Risk Management And Policies

 

The main risks arising from the Group’s financial instruments are interest rate risk, credit risk, currency risk and liquidity risk. Management reviews and agrees policies for managing each of these risks which are summarized below.

 

Interest Rate Risk

 

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

 

The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s balances with banks. The Group’s borrowing are issued at fixed rate of interest.

 

Market Risk

 

The Group’s activities expose it to the financial risks of changes in interest rates and price risk of the warrants. As the warrants are recognised at fair value on the interim consolidated statement of financial position of the Group, the Group’s exposure to market risks results from the volatility of the warrants price. The Warrants are publicly traded at the NASDAQ Stock Exchange.

 

At the reporting date, the exposure to derivative warrant liability at fair value listed on the NASDAQ was USD 7,217,746 (2021: 11,675,815). The Group has determined that an increase/(decrease) of 10% on the NASDAQ could have an impact of approximately USD 721,774 (2021: USD 1,167,581) increase/(decrease) on the income and equity attributable to the Group.

 

Currency Risk

 

The Group does not have any significant exposure to currency risk as most of its assets and liabilities are denominated in USD or UAE Dirhams, which are pegged to the USD.

 

Credit Risk

 

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Group is exposed to credit risk on bank balances and receivables as reflected in the interim consolidated statement of financial position, with a maximum exposure equal to the carrying amount of these instruments. The expected credit loss on trade and other receivables are considered insignificant for 2022 and 2021.

 

The Group has a low credit risk exposure on its trade receivables based on established policy, procedures and controls relating to customer credit risk management. Credit quality of the customer is assessed as part of contract negotiations. Outstanding receivables are regularly monitored.

 

Liquidity Risk

 

The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers projected financing requirements of the Group during the construction phase and cash projections from operations with outstanding bank facilities and outstanding bank commitments as defined under the finance documents.

 

F-251

 

 

Brooge Energy Limited

 

Notes to the Interim Consolidated Financial Statements

June 30, 2022

 

26Financial Risk Management And Policies (Continued)

 

Liquidity Risk (Continued)

 

The Group manages its liquidity risk in relation to term loans to ensure compliance with all covenants for each specific facility.

 

The table below summarizes the maturity profile of the Group’s financial liabilities at June 30, 2022 and December 31, 2021 based on contractual undiscounted payments.

 

    On Demand     Upto 1 Year     1 to 5 Years     > 5 Years     Total  
    USD     USD     USD     USD     USD  
June 30, 2022                              
Bonds (Including accrued interest)     176,925,643       4,361,794       1,980,670       Nil       183,268,107  
                                         
Lease liability     Nil       9,872,066       Nil       82,051,676       91,923,742  
Accounts payable, accruals and other payables (excluding accrued interest)     Nil       107,940,623       Nil       Nil       107,940,623  
Total     176,925,643       122,174,483       1,980,670       82,051,676       383,132,472  
                                         
December 31, 2021                                        
Bonds (Including accrued interest)     182,781,617       Nil       Nil       Nil       182,781,617  
Lease liability     Nil       5,978,847       18,899,037       64,903,296       89,781,180  
Accounts payable, accruals and other payables (excluding accrued interest)     Nil       88,342,208       Nil       Nil       88,342,208  
Total     182,781,617       94,321,055       18,899,037       64,903,296       360,905,005  

 

F-252

 

 

Brooge Energy Limited

 

Notes to the Interim Consolidated Financial Statements
June 30, 2022

 

(Figures in USD)   June 30,
2022
    December 31,
2021
 

 

26Financial Risk Management And Policies (Continued)

 

Capital Management

 

The primary objective of the Group’s capital management is to ensure that it maintains healthy capital ratios in order to support its business and maximize shareholder’s value and to meet its loan covenants.

 

The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust future distribution policy to shareholders, issue new shares or shareholders’ contributions.

 

The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group includes within net debt, the lease liability, term loans, and trade and other payables, less cash and cash equivalents. Capital includes share capital, shareholders’ accounts, general reserve and (accumulated

losses) retained earnings.

 

Borrowing   179,302,447    182,781,617 
Lease liability   91,923,742    89,781,180 
Less: cash and cash equivalents   (1,015,899)   (1,452,316)
Net debt   270,210,290    271,110,481 
Total capital   81,810,609    78,491,436 
Capital and net debt   352,020,899    349,601,917 
Gearing ratio   77%   78%

 

27Rounding Off of Figures

 

All figures have been rounded off to the nearest US Dollars.

 

28Comparative Figures

 

Certain of the prior year figures have been regrouped to conform with the presentation of the current year.

 

F-253

 

 

Brooge Energy Limited

 

Notes to the Interim Consolidated Financial Statements

June 30, 2022

 

Groupings of Property, Plant and Equipment

 

           Other       Capital Work   Right of use   (Figures in USD) 
   Buildings   Installations   Equipments   Tanks   in Progress   Assets   Total 
Cost:                            
As at January 01, 2022   28,037,886    179,268,276    307,697    154,532,494    8,685,182    84,989,427    455,820,962 
Additions during the period   2,775,806    Nil    776,561    Nil    4,174,276    Nil    7,726,643 
As at June 30, 2022   30,813,692    179,268,276    1,084,258    154,532,494    12,859,458    84,989,427    463,547,605 
                                    
Accumulated Depreciation:                                   
As at January 01, 2022   4,615,112    12,287,155    186,398    6,697,283    Nil    4,768,100    28,554,048 
Charge for the period   597,768    3,752,486    90,691    1,577,334    Nil    717,644    6,735,923 
As at June 30, 2022   5,212,880    16,039,641    277,089    8,274,617    Nil    5,485,744    35,289,971 
                                    
Net Carrying Value:                                   
As at June 30, 2022   25,600,812    163,228,635    807,169    146,257,877    12,859,458    79,503,684    428,257,635 
As at December 31, 2021   23,422,774    166,981,121    121,298    147,835,211    8,685,182    80,221,327    427,266,913 

 

Additions to buildings of USD 2,775,806 are mortgaged as security against loans obtained in 2022 (Note 16).

 

Capital work in progress at June 30, 2022 of USD 12,840,335 relates to the Group’s Phase III storage facilities under development & USD 19,123 relates to Group’s Phase II tanks under development.

 

Land lease agreement and the moveable assets of BPGIC FZE are pledged as security against borrowings obtained in 2020 (Note 16)

 

The depreciation charge for the year is allocated to the statement of comprehensive income (within profit and loss) and capital work in progress as follows:

 

(Figures in USD)  June 30,
2022
   December 31,
2022
 
Direct costs    6,244,880    6,806,198 
CWIP   491,042    1,142,206 
    6,735,923    7,948,404 

 

F-254