144
regime
(2)
interest (%)
(4)
interest (%)
(3)(5)
Licence 1.........
RTC
Kuwait Energy
(1)
45.00
50.00
PKN Orlen
45.00
50.00
Latvian state entity (Ministry of Oil)
10.00
Carried
North Block ....
RTC
Kuwait Energy
(1)
45.00
50.00
PKN Orlen
45.00
50.00
Latvian state entity (Ministry of Oil)
10.00
Carried
(1) The party indicated is the operator of the asset.
(2) RTC = Royalty Tax Contract.
(3) A “carried” cost interest indicates that the carried entity’s undivided interest in the costs, obligations and liabilities associated with the asset
were not borne by the carried entity and were instead borne by its JV partners pursuant to the relevant licence.
(4) Revenue Interest is the percentage interest of the Group in the revenues derived from sale of production from an asset, before taking into
account any taxes, fees, royalties or other payments.
(5) Cost Interest is the percentage contribution of the Group in the costs associated with an asset, before taking into account contractual cost
recovery available to the Group, if any.
The Group completed drilling operations in Latvia on 11 June 2013, initially resulting in a dry hole that required the
Group to recognise an exploration expenditure write off on its consolidated income statement for the year ended 31
December 2013 in the amount of $29.2 million, representing the full amount of costs capitalised on this well.
Exploration and appraisal assets
The Licence 1/2009 and Licence 1/2004 areas cover a gross area of 765 km
2
and 899 km
2
, respectively and are located
offshore in the Baltic Sea approximately 125 km from the shoreline in water depths varying from 30 to 300 metres. The
Group holds a 45% revenue interest and a 50% cost interest in each of the Licence 1/2009 and Licence 1/2004
hydrocarbon exploration and production licences, granted by the Latvian Ministry of Economy. The Group acquired its
interest in Licence 1/2004 in 2008 through a purchase from Odin Energi and its interest in Licence 1/2009 in 2009 after
winning a bid round. A Group company is the operator of each licence and in each case its JV partners are PKN Orlen,
which holds a 45% revenue interest and a 50% cost interest and a Latvian state entity, which holds an interest of 10%.
The costs associated with the Latvian state entity’s working interest are shared by the other JV partners in proportion to
their revenue interests.
Licence 1/2004 is valid for a period of 30 years, until 2034, and the Group has no commitments to fulfil under the
licence. The licence could remain in a passive state until expiration, which means that Balin Energy could keep the asset
until 2034 without carrying out exploration or development activity. It is in the production phase, following the expiry of
the exploration period in 2009.
Licence 1/2009 is valid for a period of 30 years, until 2039. The licence is in the five-year exploration phase, which is set
to expire in September 2014.
Fiscal regimes
The Group’s operations in Latvia are governed by a tax and royalty regime. The Group holds interests in two exploration
licences in Latvia, granted by the Latvian Ministry of Economy: Licence 1/2004 and Licence 1/2009. Under these
licences, the JV partners have to perform certain minimum work obligations within the exploration sub-period applicable
to each licence, with minimum expenditure commitments of approximately $20 million for Licence 1/2009 and $600,000
for Licence 1/2004. A Group company is the operator under the licences and performs those obligations on behalf of the
JV partners. These include (i) the acquisition and processing of drilling data and (ii) the acquisition and interpretation of
seismic data. For Licence 1/2009, it also includes conducting ground surveys and the drilling of two exploration wells in
the licence area.
