CADOGAN PETROLEUM PLC
Half Yearly Report
for the Six Months ended 30 June
2016
(Unaudited and
unreviewed)
____________________________________________________________________________________________
Highlights
Cadogan Petroleum plc (“Cadogan” or
the “Company”), an independent oil and gas exploration, development
and production company with onshore gas, condensate and oil assets
in Ukraine, announces its
unaudited results for the six months ended 30 June 2016.
- Production has continued from Debeslavetska, Cheremkivska and
Monastyretska licences and average net production for the reporting
period was 115 boepd, versus 93 boepd in H1 2015. Notwithstanding a
reduction of the weighted average realized price
($206/mcm for gas and $27.4/bbl for oil in H1 2016 vs $394/mcm for gas and $48.1/bbl for oil in H1 2015) the Exploration and
Production (“E&P”) segment results have improved thanks to cost
saving and recovery efficiency initiatives.
- The renewal of the expired Zagoryanska and Pirkovska licences
follows the process, with some delay caused by the new legislation
entered in force early this period; the Slobodo-Rungurska licence
expired in April 2016 and no further
application for awarding was filed as the remaining exploration
potential was deemed not to be worth drilling.
- Traded volumes of gas and trading margins shrank compared to
Half Year 2015 due to increased competition; besides the
continuing economic difficulties faced by the country are now
taking a toll on the solvency of buyers.
- The lower volumes of traded gas and lower margins have impacted
both revenues and costs of sales which have substantially decreased
over the same period of last year, with the result that gas trading
has not contributed to the company profit over the reporting
period. Conversely the service business has done much better than
last year and has mitigated part of the negative impact of the
trading segment on the Group performance.
- The active review of opportunities to expand and diversify the
portfolio has continued and Cadogan has maintained a healthy pipeline;
though results have so far not met the expectations, Managment
remains confident that these efforts will deliver results and the
portfolio will be reloaded and diversified.
- The efforts to preserve cash have successfully continued;
optimization of working capital, discounts negotiated on some
contracts and margins realized by the Service business have
mitigated the impact of an unfavorable scenario, i.e. lower
oil and gas realized prices and lower trading margins. Net cash,
i.e. cash and cash equivalents less short term borrowings,
increased during the period to $4.1
million over the value at the end of 2015 and is now
$40.6 million.
- The Group has recorded a profit after tax of $1.98 million (H1 2015: loss of $4.5 million), which is primarily the results of
the GBP devaluation versus the USD. Net of the devaluation the
Group would have incurred a loss for the period of $3.3 million.
Key performance indicators
The Group has monitored its performance in conducting its
business with reference to a number of key performance
indicators (‘KPIs’):
- to increase oil, gas and condensate production measured on the
barrels of oil equivalent produced per day (‘boepd’);
- to decrease administrative expenses;
- to increase the Group’s basic earnings per share; and
- to maintain an accident free working environment.
Last year the Group has added an additional KPI related to its
emissions to the atmosphere.
The Group’s performance during the
first six months of 2016 against these targets is set out in the
table below, together with the prior year performance data. No
changes have been made to the sources of data or calculations used
in the period/year. Not withstanding the continuous improvement
process in Health, Safety and Environment (“HSE”), leading to a
remarkable zero LTI since 23 July
2011 (close to 2.25 million working hours) on February 20 2016 one sub-contractor was injured
during the Zagoryanska plug and abandonment activities.
|
Unit |
30
June 2016 |
30
June 2015 |
31
December 2015 |
|
|
|
|
|
Average production
(working interest basis) (1) |
boepd |
115 |
93 |
109 |
Administrative
expenses (2) |
$million |
2.5 |
3.6 |
6.1 |
Basic profit/(loss)
per share (3) |
cent |
0.9 |
(1.9) |
(10.1) |
Lost time
incidents (4)
Emissions to the atmosphere (5) |
Incidents
t/boe |
1
31.06 |
-
36.32 |
-
42.49 |
(1) Average production is calculated as the
average daily production during the period/year.
(2) Administrative expenses for the six months
ended 30 June 2015 of $3.6 million includes $0.9
million of provision for trading costs.
(3) Basic loss per Ordinary share is calculated
by dividing the net loss for the year attributable to equity
holders of the parent company by the weighted average number of
Ordinary shares during the period.
(4) Lost time incidents relate to injuries where
an employee/contractor is injured and has time off work (IOGP
standard).
(5) For E&P activity. Normalised to tons of
CO2 per total wellhead
production, ton/boe.
Enquiries:
Cadogan Petroleum
Plc |
|
+380 (44) 594
5870 |
Guido
Michelotti
Marta Halabala |
Chief
Executive Officer
Company Secretary |
|
Cantor Fitzgerald
Europe |
|
+44 (0) 20 7894
7000 |
David
Porter |
|
|
Summary
Introduction
The reporting period has not been
easy for the oil and gas industry, in general, and for companies
operating in Ukraine in
particular. The negative impact of persistent low prices has been
compounded in Ukraine by a further
devaluation of the currency and the extension into 2016 of the
harsh fiscal regime introduced in 2014 as a temporary
measure[1].
The political climate has remained
uncertain and this has delayed the implementation of some much
needed reforms as well as a resolution of the ongoing debate on the
distribution of roles and responsibilities on the management of
licences between the Ministry of Environment and Natural Resources
and the Ministry of Energy. In addition, the ratification of a new
law which has redistributed authority between central and local
authorities has de facto brought to a halt the award of licences,
particularly in the East of the country; this has affected the
process of awarding the production licences for Zagoryanska and
Pirkovska licences.
In this challenging context the
Group has continued to focus on safely and efficiently producing
the existing fields, on controlling its costs in order to preserve
cash while continuing to look at opportunities to grow and
diversify its portfolio.
Operations
The E&P activity has focused on
maintaining the validity of the licences of interest and on safely
and efficiently producing from the existing fields within the
Debeslavetska, Cheremkhivska and Monastyretska licences. At the end
of the reporting period gross production rate increased to 123
boepd (115 boepd net), higher than in the six months ended
30 June 2015 (99 boepd gross, 93
net).
The plug and abandonment of
Zagoryanska and Pokrovska Licences’ wells, site restoration and the
disposal of drilling waste are progressing in line with
schedule.
Trading
Traded volumes of gas and trading
margins decreased in the first half of the year, with volumes 54%
lower than in the corresponding period of 2015. The Group
lost its two larger customers and it is focusing its efforts on
expanding the customer base by engaging a larger number of small
clients, while trying to increase competitiveness in order to
regain its large clients. Management are looking at options to
re-baseline the cost structure to align it to the new scenario
while pursuing further optimisations of the working capital that
have brought a positive impact to the Group’s financial
position.
Financial
position
At 30 June
2016 the Group had cash and cash equivalents of
approximately $48.1 million excluding
$0.7 million of Cadogan’s share of
cash and cash equivalents in the joint ventures, including
$20 million of restricted cash[2].
Net cash, which included cash and cash equivalents less short-term
borrowings, increased to $40.6
million at 30 June 2016
compared to $36.5 million at
31 December 2015, mostly due to
working capital optimisation. The Directors believe that the
capital available at the date of this report is sufficient for the
Company and the Group to continue operations for the foreseeable
future.
Outlook
Cadogan remains well positioned to pursue and
exploit the opportunities which will materialize in the
E&P domain, outside of Ukraine
and in Ukraine once the country
re-bounds from the current situation.
In Ukraine, Cadogan on the one hand will continue
to protect its licences of interest while working on a
solution to bring the subsoil use tax to the normal level and on
the other hand will prepare for the new heating season. The
possible combination of declining gas prices in Europe and low level of gas storage and
curtailments to local production in Ukraine could create trading
opportunities.
Outside of Ukraine, the Company will continue to actively
pursue a reload and geographic diversification of its portfolio
using its cash, lean organization and low cost structure as
levers.
Operations
Review
In H1 2016 the Group held working
interests in six (2015: eight) operated, gas, condensate and oil
exploration and production licences in the East and West of
Ukraine. Zagoryanska expired in
2014 and Pirkovskoe licence expired in 2015 and Cadogan has taken all necessary actions to
re-obtain the licences. All these assets are operated by the Group
and are located in either the Carpathian basin or the
Dnieper-Donets basin, in close proximity to the Ukrainian gas
distribution infrastructure. The Group’s primary focus during the
period continued to be on the cost optimisation and enhancement of
current production.
Summary of the Group’s licences (as of 30 June
2016) |
Working
interest (%) |
Licence |
Expiry |
Licence type(1) |
Major licences |
|
|
|
100.0 |
Zagoryanska |
Expired(3) |
E&D |
70.0 |
Pokrovska |
August
2016(4) |
E&D |
100.0 |
Pirkovska |
Expired(3) |
E&D |
99.8 |
Bitlyanska |
December 2019 |
E&D |
Minor licences |
|
|
|
99.2
99.2 |
Debeslavetska(2)
Debeslavetska(2) |
November 2026
September 2016 |
Production
E&D |
54.2 |
Cheremkhivska(2) |
May 2018 |
Production |
99.2 |
Monastyretska |
November 2019 |
E&D |
|
|
|
|
(1) E&D =
Exploration and Development.
(2) Debeslavetska and Cheremkhivska licences are
held by WGI, in which the Group has a 15% interest. The Group has
respectively 99.2% and 54.2% of economic benefit in conventional
activities in Debeslavetska and Cheremkhivska licences through
Joint Activity Agreements (“JAA”).
(3) Their application to be awarded a 20 year
production licence has been filed. Though the Group has fulfilled
the legal obligations and requirements and applied for the licence
before the expiration date delays have occurred because of recently
introduced changes to the awarding process.
(4) Pokrovska licence expired on 10 August 2016.
In addition to the above licences,
the Group has a 15%, carried-through-exploration interest in
eni-lead WGI1, which holds the Reklynetska, Zhuzhelianska,
Cheremkhivsko-Strupkivska, Debeslavetska Exploration, Debeslavetska
Production, Baulinska, Filimonivska, Kurinna, Sandugeyivska and
Yakovlivska licences for unconventional activities.
Below we provide an update to the
full Operations Review contained in the Annual Financial Report for
2015 published on 26 April 2016.
Zagoryanska
licence
The process for requesting the award
of a 20 years’ production licence is further delayed because of the
introduction of a new law which re-allocates the licencing
authority amongst the involved state entities.
Pokrovskoe
licence
The licence expired on
10 August 2016 and Cadogan is
evaluating whether to retain it by filing a new application.
Pirkovska
licence
Likewise for Zag the approval
process is further delayed by the new law.
Bitlyanska
licence
Borynya 3 well is routinely
monitored as requested by existing regulations for wells which are
suspended.
Monastyretska
licence
Blazh 1 well continues regular
production of oil at a rate of 48 boepd.
Minor fields
These licences are located in Western
Ukraine, and include the following:
- Debeslavetska Production licence area
During the reporting period, the field produced 60 boepd
gross (H1 2015: 65 boepd). Rigless activity is regularly run to
mitigate the production decline.
- Debeslavetska Exploration licence area
The licence will expire on 7 September
2016. Cadogan is evaluating
the eventual request for a new E&P period after the present
licence expiry.
- Cheremkhivska Production licence area
During the reporting period, the field produced 16 boepd
gross (H1 2015: 16 boepd). July average production increased to 30
boepd gross for debottlenecking.
- Slobodo-Rungurska exploration and development licence
area
Expired in April 2016; no further
application for awarding as the remaining exploration potential was
deemed not to be economically viable
The unfavourable market conditions brought the Operator to defer
the drilling of the first well to 2017.
Service Company
activities
Cadogan’s 100% owned subsidiary,
Astro Service LLC, has continued to pursue opportunities to build a
larger portfolio of orders while working to execute the contracts
won in the final months of the last year.
Financial
Review
Overview
Income
statement
Revenues have decreased to
$12.3 million in the first half of
2016 (30 June 2015: $40.6 million, 31 December
2015: $75.4 million) due to a
decrease in gas trading operations, which represent $10.5 million (30 June
2015: $39.6 million,
31 December 2015: $73.2 million) of the total revenues; revenues
from production have slightly declined to $0.5 million (30 June
2015: $0.8 million,
31 December 2015: $1.8 million) mainly due to the price
decrease.
Revenues from the service business
increased to $1.3 million
(30 June 2015: $0.2 million, 31 December
2015: $0.4 million) mainly due
to the execution this year of activities which the clients had
originally planned for the previous year.
Cost of sales consists of
$10.1 million of purchases of gas for
trading operating segment, $0.4
million of production royalties and taxes, depreciation and
depletion of producing wells and direct staff costs for exploration
and development and $0.6 million
related to the service segment.
Gross profit has decreased to
$1.0 million (30 June 2015: $3.8
million, 31 December 2015:
$5.9 million).
Other administrative expenses of
$2.5 million (30 June 2015: $3.6
million, 31 December 2015:
$6.1 million) comprise other staff
costs, professional fees, Directors’ remuneration and depreciation
charges on non-producing property, plant and equipment.
Share of loss in joint ventures of
$1.4 million (30 June 2015: loss $4.2
million, 31 December 2015:
loss $12.8 million) mainly represent
by impairment of Pokrovska licence due to expiration of the
licence.
Profit of $1.9 million (30 June
2015: loss of $4.5 million,
31 December 2015: loss of
$23.3 million) mainly due to GBP
devaluation versus the USD; before devaluation effects the six
months ended 30 June 2016 would have
a loss of $3.3 million.
Balance sheet
The cash position of $48.1 million as at 30
June 2016, including restricted cash of $20 million, has decreased from $49.4 million at 31
December 2015. Net cash, which included cash and cash
equivalents less short-term borrowings, increased to $40.6 million at 30 June
2016 compared to $36.5 million
at 31 December 2015 mainly due to
optimisation of working capital.
Intangible Exploration and
Evaluation (“E&E”) assets of $2.6
million (30 June 2015:
$14.0 million, 31 December 2015: $2.7
million) represent the carrying value of the Group’s
investment in E&E assets as at 30 June
2016. The Property, Plant and Equipment (“PP&E”) balance
of $1.5 million at 30 June 2016 (30 June
2015: $2.8 million,
31 December 2015: $1.7 million) represented other PP&E of the
Group.
Investments in joint ventures of
$1.2 million (30 June 2015: $10.1
million, 31 December 2015:
$2.2 million) represent the carrying
value of the Group’s investments in Westgasinvest LLC net of the
Group’s commitments to fund Zagoryanska and Pokrovska licences that
have been fully impaired.
Trade and other receivables of
$7.1 million (30 June 2015: $8.9
million, 31 December 2015:
$14.4 million) include $2.7 million trading prepayments and receivables,
$2.4 million receivable from joint
ventures in respect of management charges and services provided
(30 June 2015: $1.6 million, 31 December
2015: $1.8 million) and VAT
recoverable of $1.5 million
(30 June 2015: $1.4 million, 31 December
2015: $nil).
Short-term borrowings as at
30 June 2016 were $7.5 million (30 June
2015: $5.7 million,
31 December 2015: $12.9 million). Borrowings are represented by a
credit line drawn in UAH at a Ukrainian bank, a 100% subsidiary of
a European bank. The credit line is secured by $20 million of cash placed at a European bank in
the UK.
The $1.3
million of trade and other payables as of 30 June 2016 (30 June
2015: $8.4 million,
31 December 2015: $3.7 million) represent $0.9 million (30 June
2015: $2.2 million,
31 December 2015: $1.7 million) of other creditors and $0.4 million of accruals (30 June 2015: $1.1
million, 31 December 2015:
$0.6 million).
Cash flow
statement
The Consolidated Cash Flow Statement
shows operating cash outflow before movements in working capital of
$1.4 million (30 June 2015: inflow $0.5
million, 31 December 2015:
outflow $1.1 million). Cash inflows
from movements in working capital in first half 2016 of
$6.3 million represent a decrease in
trade and other receivables of $8.6
million, decrease in inventories of $1.0 million, and a decrease in trade and other
payables of $3.3 million.
The Group contributed $0.4 million to joint ventures (30 June 2015: $nil, 31
December 2015: $0.7 million).
In addition, the Group had minimal capital expenditure of
$46 thousand on intangible
Exploration and Evaluation (“E&E”) assets for the six months
ended 30 June 2016 (30 June 2015: $0.1
million, 31 December 2015:
$0.3 million) and minimal capital
expenditure of $28 thousand
(30 June 2015: $0.4 million, 31 December
2015: $0.2 million) on
Property, Plant and Equipment (“PP&E”).
In 2016 the Group continued to
finance its trading operations with short-term borrowings and for
the six months ended 30 June 2016
proceeds were $1.8 million
(30 June 2015: $1.6 million, 31 December
2015: $13.2 million) and
repayments were $6.7 million
(30 June 2015: $9.2 million, 31 December
2015: $12.2 million).
Commitments
There has not been any significant
change in the commitments and contingencies reported as at
31 December 2015 (refer to pages
70-71 of the Annual Report).
Treasury
The Group continually monitors its
exposure to currency risk. It maintains a portfolio of cash and
cash equivalent balances mainly in US dollars (‘USD’) held
primarily in the UK and holds these mostly in call deposits.
Production revenues from the sale of hydrocarbons are received in
the local currency in Ukraine
(‘UAH’) and to date funds from such revenues have been held in
Ukraine for further use in
operations rather than being remitted to the UK. Funds are
transferred to the Company’s subsidiaries in USD to fund
operations, at which time the funds are converted to UAH. Some
payments are made on behalf of the affiliates from the UK.
Going concern
The Directors have a reasonable
expectation that the Company and the Group have adequate resources
to continue in operational existence for the foreseeable future.
Accordingly, they continue to adopt the going concern basis in
preparing the Condensed Consolidated and Company Financial
Statements. For further detail refer to the detailed discussion of
the assumptions outlined in note 2(b) to the Condensed Consolidated
Financial Statements.
_______________________________________________________________________________________
Cautionary Statement
The business review and certain
other sections of this Half Yearly Report contain forward looking
statements that have been made by the Directors in good faith based
on the information available to them up to the time of their
approval of this report. However they should be treated with
caution due to inherent uncertainties, including both economic and
business risk factors, underlying any such forward-looking
information and no statement should be construed as a profit
forecast.
Risks and
uncertainties
There are a number of potential
risks and uncertainties inherent in the oil and gas sector which
could have a material impact on the long-term performance of the
Group and which could cause the actual results to differ materially
from expected and historical results. The Company has taken
reasonable steps to mitigate these where possible. Full details are
disclosed on pages 14 to 15 of the 2015 Annual Financial Report.
There have been no changes to the risk profile during the first
half of the year. The risks and uncertainties are summarised
below:
Operational risks
- Health, safety, and environment
- Drilling and work-over operations
- Production and maintenance
- Subsurface risks
Financial risks
- Recoverability of the Group’s assets
- Liquidity risk, management and going concern assumption
- Regulatory and tax compliance risk
- Fraud risk
- Foreign exchange risk
- Inflation risk
- Credit risk
- Counterparty risk
- Commodity price risk
Corporate risks
- Regulatory and licence issues
- Emerging market risk
- Insurance risk
Director’s
Responsibility Statement
We confirm that to the best of our knowledge:
(a) the
Condensed set of Financial Statements has been prepared in
accordance with IAS 34 ‘Interim Financial Reporting’;
(b) the
interim management report includes a fair review of the information
required by DTR 4.2.7R (indication of important events during the
first six months and description of principal risks and
uncertainties for the remaining six months of the year);
(c) the
interim management report includes a fair review of the information
required by DTR 4.2.8R (disclosure of related parties’
transactions and changes therein); and
(d) the
condensed set of financial statements, which has been prepared in
accordance with the applicable set of accounting standards, gives a
true and fair view of the assets, liabilities, financial position
and profit or loss of the issuer, or the undertakings included in
the consolidation as a whole as required by DTR 4.2.4R.
This Half Yearly Report consisting
of pages 1 to 20 has been approved by the Board and signed on its
behalf by:
Guido Michelotti
Chief Executive Officer
25 August 2016
Condensed
Consolidated Income Statement
Six months ended 30 June 2016
|
|
Six
months ended 30 June |
Year ended
31 December |
|
|
2016
$’000 |
2015
$’000 |
2015
$’000 |
|
Notes |
(Unaudited) |
(Unaudited) |
(Audited) |
CONTINUING OPERATIONS |
|
|
|
|
Revenue |
3 |
12,295 |
40,603 |
75,440 |
Cost of sales |
3 |
(11,262) |
(36,758) |
(69,562) |
Gross profit |
|
1,033 |
3,845 |
5,878 |
|
|
|
|
|
Administrative expenses |
|
(2,523) |
(3,604) |
(6,115) |
Impairment of oil and gas
assets |
|
- |
- |
(10,480) |
(Impairment)/Reversal of impairment
of other assets |
|
(12) |
1,486 |
1,300 |
|
|
(2,535) |
(2,118) |
(15,295) |
|
|
|
|
|
Share of losses in joint
ventures |
6 |
(1,360) |
(4,243) |
(12,844) |
Net foreign exchange
gains/(losses) |
|
5,242 |
(953) |
2,494 |
Other operating (costs)/income |
|
(76) |
43 |
31 |
Operating profit/(loss) |
|
2,304 |
(3,426) |
(19,736) |
|
|
|
|
|
Interest income |
|
892 |
81 |
118 |
Finance costs |
|
(1,108) |
(1,128) |
(2,625) |
Profit/(loss) before tax |
|
2,088 |
(4,473) |
(22,243) |
|
|
|
|
|
Tax |
|
(113) |
(28) |
(1,040) |
Profit/(loss) for the
period/year |
|
1,975 |
(4,501) |
(23,283) |
|
|
|
|
|
Attributable to: |
|
|
|
|
Owners of the Company |
4 |
1,977 |
(4,495) |
(23,261) |
Non-controlling interest |
|
(2) |
(6) |
(22) |
|
|
|
|
|
|
|
|
|
|
Profit/(loss) per Ordinary
share |
|
Cent |
cent |
cent |
Basic |
4 |
0.9 |
(1.9) |
(10.1) |
Condensed Consolidated Statement of Comprehensive Income
Six months ended 30 June 2016
|
|
Six
months ended 30 June |
Year ended
31 December |
|
|
2016
$’000 |
2015
$’000 |
2015
$’000 |
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
Profit/(Loss) for the
period/year |
|
1,975 |
(4,501) |
(23,283) |
Other comprehensive loss |
|
|
|
|
Items that may be reclassified
subsequently to profit or loss |
|
|
|
|
Unrealised currency translation
differences |
|
(4,929) |
(6,647) |
(11,521) |
Other comprehensive loss |
|
(4,929) |
(6,647) |
(11,521) |
Total comprehensive loss for the
period/year |
|
(2,954) |
(11,148) |
(34,804) |
|
|
|
|
|
Attributable to: |
|
|
|
|
Owners of the Company |
|
(2,952) |
(11,142) |
(34,782) |
Non-controlling interest |
|
(2) |
(6) |
(22) |
|
|
(2,954) |
(11,148) |
(34,804) |
Condensed Consolidated Statement of Financial Position
Six months ended 30 June 2016
|
|
Six
months ended 30 June |
Year ended
31 December |
|
|
|
2016
$’000 |
2015
$’000 |
2015
$’000 |
|
|
Notes |
(Unaudited) |
(Unaudited) |
(Audited) |
|
|
ASSETS |
|
|
|
|
|
Non-current
assets |
|
|
|
|
|
Intangible exploration
and evaluation assets |
5 |
2,568 |
14,049 |
2,700 |
|
Property, plant and
equipment |
|
1,485 |
2,791 |
1,661 |
|
Investments in joint
ventures |
6 |
1,221 |
10,082 |
2,181 |
|
|
|
5,274 |
26,922 |
6,542 |
|
Current
assets |
|
|
|
|
|
Inventories |
7 |
2,331 |
2,687 |
3,503 |
|
Trade and other
receivables |
8 |
7,143 |
8,895 |
14,411 |
|
Cash and cash
equivalents |
|
48,051 |
55,105 |
49,407 |
|
|
|
57,525 |
66,687 |
67,321 |
|
Total assets |
|
62,799 |
93,609 |
73,863 |
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
Non-current
liabilities |
|
|
|
|
|
Deferred tax
liabilities |
|
- |
(307) |
- |
|
Long-term
provisions |
|
(698) |
(37) |
(726) |
|
|
|
(698) |
(344) |
(726) |
|
Current
liabilities |
|
|
|
|
|
Short-term
borrowings |
9 |
(7,483) |
(5,664) |
(12,903) |
|
Trade and other
payables |
10 |
(1,346) |
(8,437) |
(3,682) |
|
Current provisions |
|
(1,196) |
(479) |
(1,523) |
|
|
|
(10,025) |
(14,580) |
(18,108) |
|
Total
liabilities |
|
(10,723) |
(14,924) |
(18,834) |
|
|
|
|
|
|
|
Net assets |
|
52,076 |
78,685 |
55,029 |
|
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
Share capital |
|
13,337 |
13,337 |
13,337 |
|
Retained earnings |
|
202,316 |
219,105 |
200,339 |
|
Cumulative translation
reserves |
|
(165,441) |
(155,638) |
(160,512) |
|
Other reserves |
|
1,589 |
1,589 |
1,589 |
|
Equity attributable
to equity holders of the parent |
|
51,802 |
78,393 |
54,753 |
|
Non-controlling
interest |
|
274 |
292 |
276 |
|
Total equity |
|
52,076 |
78,685 |
55,029 |
|
|
|
|
|
|
|
|
|
Condensed Consolidated Cash Flow Statement
Six months ended 30 June 2016
|
|
Six
months ended 30 June |
Year
ended
31 December |
|
|
2016
$’000 |
2015
$’000 |
2015
$’000 |
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
Operating
income/(loss) |
2,304 |
(3,426) |
(19,736) |
|
Adjustments for: |
|
|
|
|
Depreciation of
property, plant and equipment |
94 |
267 |
434 |
|
Impairment of oil and
gas assets |
- |
- |
10,480 |
|
Share of losses in joint
ventures |
1,360 |
4,243 |
12,844 |
|
Impairment of
inventories |
4 |
- |
90 |
|
Reversal of impairment
of VAT recoverable |
3 |
(1,486) |
(1,390) |
|
Loss on disposal of
property, plant and equipment |
- |
18 |
24 |
|
Effect of foreign
exchange rate changes |
(5,145) |
861 |
(3,827) |
|
Operating cash flows
before movements in working capital |
(1,380) |
477 |
(1,081) |
|
Decrease in
inventories |
997 |
4,758 |
1,258 |
|
Decrease in
receivables |
8,591 |
8,231 |
4,871 |
|
(Decrease)/Increase in
payables and provisions |
(3,331) |
2,880 |
(1,429) |
|
Cash from
operations |
4,877 |
16,346 |
3,619 |
|
Interest paid |
(1,158) |
(1,168) |
(2,379) |
|
Income taxes paid |
- |
(7) |
- |
|
Net cash inflow from
operating activities |
3,719 |
15,170 |
1,240 |
|
|
|
|
|
|
|
Investing
activities |
|
|
|
|
|
Investments in joint
ventures |
|
(400) |
- |
(700) |
|
Purchases of property,
plant and equipment |
|
(28) |
(362) |
(261) |
|
Purchases of intangible
exploration and evaluation assets |
|
(46) |
(174) |
(281) |
|
Proceeds from sale of
property, plant and equipment |
|
- |
- |
5 |
|
Interest
received |
|
300 |
81 |
118 |
|
Net cash from/(used
in) investing activities |
|
(174) |
(455) |
(1,119) |
|
|
|
|
|
|
|
Financing
activities |
|
|
|
|
|
Proceeds from short-term
borrowings |
|
1,839 |
1,569 |
13,187 |
|
Repayment of short-term
borrowings |
|
(6,684) |
(9,245) |
(12,225) |
|
Net cash (used
in)/from financing activities |
|
(4,845) |
(7,676) |
962 |
|
|
|
|
|
|
|
Net
(decrease)/increase in cash and cash equivalents |
|
(1,300) |
7,039 |
1,083 |
|
Effect of foreign
exchange rate changes |
|
(56) |
(861) |
(603) |
|
Cash and cash
equivalents at beginning of period/year |
|
49,407 |
48,927 |
48,927 |
|
Cash and cash
equivalents at end of period/year |
|
48,051 |
55,105 |
49,407 |
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Changes in Equity
Six months ended 30 June 2016
|
Share
capital
$’000 |
Retained
earnings
$’000 |
Cumulative
translation
reserves
$’000 |
Other
reserves
Reorganisation
$’000 |
Non-controlling
interest
$’000 |
Total
$’000 |
As at 1 January 2015 |
13,337 |
223,600 |
(148,991) |
1,589 |
298 |
89,833 |
Net loss for the period |
- |
(4,495) |
- |
- |
(6) |
(4,501) |
Exchange translation differences on
foreign operations |
- |
- |
(6,647) |
- |
- |
(6,647) |
As at 30 June 2015 |
13,337 |
219,105 |
(155,638) |
1,589 |
292 |
78,685 |
Net loss for the period |
- |
(18,766) |
- |
- |
(16) |
(18,782) |
Exchange translation differences on
foreign operations |
- |
- |
(4,874) |
- |
- |
(4,874) |
As at 31 December 2015 |
13,337 |
200,339 |
(160,512) |
1,589 |
276 |
55,029 |
Net profit for the period |
- |
1,977 |
- |
- |
(2) |
1,975 |
Exchange translation differences on
foreign operations |
- |
- |
(4,929) |
- |
- |
(4,929) |
As at 30 June 2016 |
13,337 |
202,316 |
(165,441) |
1,589 |
274 |
52,075 |
Notes to the
Condensed Financial Statements
Six months ended 30 June 2016
1.
General information
Cadogan Petroleum plc (the
‘Company’, together with its subsidiaries the ‘Group’), is
incorporated in England and
Wales under the Companies Act. The
address of the registered office is c/o Bridgehouse Company
Secretaries Ltd, Unit 205, Clerkenwell Workshops, 31 Clerkenwell
Close, London, EC1R 0AT. The
nature of the Group’s operations and its principal activities are
set out in the Operations Review on pages 5 to 6 and the Financial
Review on pages 7 to 8.
The financial information for the
year ended 31 December 2015 does not
constitute statutory accounts as defined in section 434 of the
Companies Act 2006, but is derived from those accounts.
This Half Yearly Report has not been
audited or reviewed in accordance with the Auditing Practices Board
guidance on ‘Review of Interim Financial
Information’.
A copy of this Half Yearly Report
has been published and may be found on the Company’s website at
www.cadoganpetroleum.com.
2. Basis
of preparation
The annual financial statements of
the Group are prepared in accordance with International Financial
Reporting Standards (‘IFRS’) as issued by the International
Accounting Standards Board (‘IASB’) and as adopted by the European
Union (‘EU’). These Condensed Financial Statements have been
prepared in accordance with IAS 34 Interim Financial
Reporting, as issued by the IASB.
The same accounting policies and
methods of computation are followed in the condensed financial
statements as were followed in the most recent annual financial
statements of the Group, which were included in the Annual Report
issued on 30 April 2016.
The Group has not early adopted any
amendment, standard or interpretation that has been issued but is
not yet effective. It is expected that where applicable, these
standards and amendments will be adopted on each respective
effective date.
The Group has adopted the standards,
amendments and interpretations effective for annual periods
beginning on or after 1 January 2015.
The adoption of these standards and amendments did not have a
material effect on the financial statements of the Group.
(a) Assessment of the
political situation in Ukraine
Recent political situation in
Ukraine has made it necessary for
management to assess the extent of its impact on the Group’s
operations and assets.
Management have concluded that there
were no significant adverse consequences in relation to the Group’s
operations, cash flows and assets that impact the 2016 condensed
financial statements, apart from continued uncertainty related to
key assumptions used by management in assessment of the recoverable
amount of production assets including the gas price and the
discount factor in particular.
(b) Going concern
The Directors have continued to use
the going concern basis in preparing these condensed financial
statements. The Group's business activities, together with the
factors likely to affect future development, performance and
position are set out in the Operations Review. The financial
position of the Group, its cash flow and liquidity position are
described in the Financial Review.
The Group’s cash balance at
30 June 2016 of $48.1 million (31 December
2015: $49.4 million) excluding
$0.7 million (31 December 2015: $0.9
million) of Cadogan’s share of cash and cash equivalents in
joint ventures. It includes $20
million of restricted cash used to guarantee the trading
credit line, and held in an international bank. The Directors
believe that the funds available at the date of the issue of these
financial statements are sufficient for the Group to manage its
business risks successfully.
The Group’s forecasts and
projections, taking into account reasonably possible changes in
operational performance, start dates and flow rates for commercial
production and the price of hydrocarbons sold to Ukrainian
customers, show that there are reasonable expectations that the
Group will be able to operate on funds currently held and those
generated internally, for the foreseeable future.
The Group continues to pursue its
farm-out campaign, which, if successful, will enable it to farm-out
a portion of its interests in its oil and gas licences.
After making enquiries and
considering the uncertainties described above, the Directors have a
reasonable expectation that the Company and the Group have adequate
resources to continue in operational existence for the foreseeable
future and consider the going concern basis of accounting to be
appropriate and, thus, they continue to adopt the going concern
basis of accounting in preparing the financial statements. In
making its statement the Directors have considered the recent
political and economic uncertainty in Ukraine.
(c) Foreign
currencies
The individual financial statements
of each Group company are presented in the currency of the primary
economic environment in which it operates (its functional
currency). The functional currency of the Company is pounds
sterling. For the purpose of the consolidated financial statements,
the results and financial position of each Group company are
expressed in US dollars, which is the presentation currency for the
consolidated financial statements.
The relevant exchange rates used were as follows:
1 US$ =
£ |
Six
months ended 30 June |
Year
ended
31 Dec 2015 |
|
2016 |
2015 |
|
Closing rate |
1.3393 |
1.5720 |
1.4805 |
|
Average rate |
1.4339 |
1.5239 |
1.5289 |
|
|
|
|
|
1 US$ = UAH |
Six
months ended 30 June |
Year
ended
31 Dec 2015 |
|
2016 |
2015 |
|
Closing rate |
25.0649 |
21.4515 |
24.2731 |
|
Average rate |
25.7136 |
21.5125 |
22.0584 |
|
|
|
|
|
|
|
|
|
|
(d)
Dividend
The Directors do not recommend the
payment of a dividend for the period (30
June 2015: $nil; 31 December
2015: $nil).
3.
Segment information
Segment information is presented on
the basis of management’s perspective and relates to the parts of
the Group that are defined as operating segments. Operating
segments are identified on the basis of internal assessment
provided to the Group’s chief operating decision maker (“CODM”).
The Group has identified its top management team as its CODM and
the internal assessment used by the top management team to oversee
operations and make decisions on allocating resources serve as the
basis of information presented.
Segment information is analysed on
the basis of the type of activity, products sold or services
provided.
The majority of the Group’s
operations are located within Ukraine.
Segment information is analysed on
the basis of the types of goods supplied by the Group’s operating
divisions.
The Group’s reportable segments
under IFRS 8 are therefore as follows:
Exploration and
Production
- E&P activities on the production licences for natural gas,
oil and condensate
Service
- Drilling services to exploration and production companies
- Construction services to exploration and production
companies
Trading
- Import of natural gas from European countries
- Local purchase and sales of natural gas operations with
physical delivery of natural gas
The accounting policies of the
reportable segments are the same as the Group’s accounting
policies. Sales between segments are carried out at market prices.
The segment result represents operating profit under IFRS before
unallocated corporate expenses. Unallocated corporate expenses
include management and Board remuneration and expenses incurred in
respect of the maintenance of Kiev
office premises. This is the measure reported to the CODM for the
purposes of resource allocation and assessment of segment
performance.
The Group does not present
information on segment assets and liabilities as the CODM does not
review such information for decision-making purposes.
As of 30 June
2016 and for the six months then ended the Group’s segmental
information was as follows:
|
Exploration and
Production |
Service |
Trading |
Consolidated |
|
$’000 |
$’000 |
$’000 |
$’000 |
Sales of hydrocarbons |
107 |
- |
10,915 |
11,022 |
Other revenue |
- |
1,272 |
- |
1,272 |
Sales between segments |
451 |
- |
(451) |
- |
Total revenue |
558 |
1,272 |
10,464 |
12,295 |
Other cost of sales |
(427) |
(644) |
(10,097) |
(11,169) |
Depreciation |
(54) |
(39) |
- |
(93) |
Other administrative expenses |
(193) |
(22) |
(215) |
(430) |
Interest income on
receivables(1) |
- |
- |
823 |
823 |
Interest on short-term
borrowings |
- |
- |
(1,113) |
(1,113) |
Segment results |
(116) |
567 |
(138) |
314 |
Unallocated other administrative
expenses |
|
|
|
(2,093) |
Share of losses in joint
ventures |
|
|
|
(1,360) |
Net foreign exchange gains |
|
|
|
5,242 |
Other income, net |
|
|
|
(14) |
Profit before
tax |
|
|
|
2,088 |
(1) Since January 1, 2016 interest is charged for late
payments starting from the day the payments were due
As of 30 June 2015 and for the six
months then ended the Group’s segmental information was as
follows:
|
Exploration and
Production |
Service |
Trading |
Consolidated |
|
$’000 |
$’000 |
$’000 |
$’000 |
Sales of hydrocarbons |
141(1) |
- |
40,270 |
40,411 |
Other revenue |
- |
192 |
- |
192 |
Sales between segments |
688 |
- |
(688) |
- |
Total revenue |
829 |
192 |
39,582 |
40,603 |
Other cost of sales |
(713) |
(86) |
(35,731) |
(36,530) |
Depreciation |
(181) |
(47) |
- |
(228) |
Other administrative expenses |
(470)(2) |
- |
(1,153)(3) |
(1,623) |
Interest on short-term
borrowings |
- |
- |
(1,114) |
(1,114) |
Segment results |
(535) |
59 |
1,584 |
1,108 |
Unallocated other administrative
expenses(4) |
|
|
|
(1,981) |
Share of losses in joint
ventures |
|
|
|
(4,243) |
Net foreign exchange losses |
|
|
|
(953) |
Other income, net |
|
|
|
1,595 |
Loss before
tax |
|
|
|
(4,473) |
(1)
Sales of hydrocarbons of the Exploration and Production segment
represent sales of oil from Monastyretska licence only in May and
June 2015, as Monastyretska licence
production was shut-in until May
2015
(2) Other administrative expenses of
E&P segment also includes part of costs of personnel of
Ukrainian head office
(3) Other administrative expenses of
trading segment includes $0.9 million
of provision for trading costs
(4) Unallocated other administrative
expenses includes depreciation of $39
thousands
4. Profit per ordinary share
Profit per ordinary share is
calculated by dividing the net profit 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. The calculation of the basic loss per share is based
on the following data:
|
|
Six
months ended 30 June |
Year ended
31 December |
Loss attributable to owners of
the Company |
|
2016
$’000 |
2015
$’000 |
2015
$’000 |
|
|
|
|
|
Loss for the purposes
of basic profit per share being net loss attributable to
owners of the Company |
1,977 |
(4,495) |
(23,261) |
|
|
|
|
|
Number |
Number |
Number |
Number of shares |
‘000 |
‘000 |
‘000 |
Weighted average number of Ordinary
shares for the purposes of basic loss per share |
231,092 |
231,092 |
231,092 |
|
|
|
|
|
Cent |
Cent |
Cent |
Profit/(Loss) per Ordinary
share |
|
|
|
Basic |
0.9 |
(1.9) |
(10.1) |
5. Intangible exploration and
evaluation assets
As of 30 June
2016 the intangible assets balance has decreased in
comparison to 31 December 2015 due to
increase of the UAH against the USD, being the presentation
currency of the Group.
6.
Investments in joint ventures
Share of losses in joint ventures
mostly represents the impairment of Pokrovskoe licence due to
expiration of licence.
The Group is committed together with
its partner eni to provide LLC Astroinvest-Energy and LLC
Gazvydobuvannya with the funds necessary to fulfil the residual
obligations of the Joint Ventures; the Group’s share of such
residual obligations is estimated in the amounts of $1.8 million and $0.5
million, respectively.
7.
Inventories
The Group had significant volumes of
natural gas as at 31 December 2015
which have been sold during the six months ended 30 June 2016 that resulted in a reduction of the
natural gas balance from $2.5 million to
$1.2 million.
8.
Trade and other receivables
|
|
Six
months ended 30 June |
Year ended
31 December |
|
|
2016
$’000 |
2015
$’000 |
2015
$’000 |
Trading
receivables |
|
2,662 |
1,558 |
1,824 |
Receivable from
joint-ventures |
|
2,412 |
4,238 |
8,514 |
VAT recoverable |
|
1,466 |
1,358 |
- |
Prepayments |
|
148 |
96 |
64 |
Trading
prepayments |
|
53 |
893 |
3,206 |
Other receivables |
|
402 |
752 |
803 |
|
|
7,143 |
8,895 |
14,411 |
The Directors consider that the
carrying amount of the other receivables approximates their fair
value and none of which are past due.
Management expects to realise VAT
recoverable through the activities of the business segments.
9.
Short-term borrowings
In 2016 the Group continued to use
short-term borrowings as a financing facility for its trading
activities. Borrowings are represented by a credit line drawn in
UAH at a Ukrainian bank, a 100% subsidiary of a European bank. The
credit line is secured by $20 million
of cash balance placed at a European bank in the UK.
During the six months ended
30 June 2016 the Group repaid a
significant amount of the credit line and the outstanding amount as
at 30 June 2016 was $7.5 million (30 June
2015: $5.7 million,
31 December 2015: $12.9 million) with effective interest rate of
19.75% p.a (H1 2015: 24% p.a.). Interest is paid monthly and as at
30 June 2016 the accrued interest
amounted to $0.2 million
(30 June 2015: $0.1 million, 31 December
2015: $0.2 million). The
$4.0 million outstanding as of
25 August 2016 represents UAH 100.0
million borrowed in UAH to purchase gas.
10. Trade and other
payables
The $1.3
million of trade and other payables as of 30 June 2016 (30 June
2015: $8.4 million,
31 December 2015: $4.6 million) represent $0.9 million (30 June
2015: $7.3 million,
31 December 2015: $4.0 million) of other creditors and $0.4 million of accruals (30 June 2015: $1.1
million, 31 December 2015:
$0.6 million).
11. Related party
transactions
Transactions between the Group and
its subsidiaries, which are related parties, have been eliminated
on consolidation and are not disclosed in this note. The
application of IFRS 11 has resulted in the existing joint ventures
LLC Astroinvest-energy, LLC Gazvydobuvannya and LLC Westgasinvest,
being accounted for under the equity method and disclosed as
related parties. During the period, Group companies entered into
the following transactions with related parties who are not members
of the Group:
|
|
Six
months ended 30 June |
Year ended
31 December |
|
|
2016
$’000 |
2015
$’000 |
2015
$’000 |
|
Revenues from services
provided and sales of goods |
|
1,272 |
350 |
508 |
|
Purchases of
goods |
|
117 |
28 |
9 |
|
Amounts owed by
related parties |
|
2,412 |
1,558 |
1,824 |
|
Amounts owed to
related parties |
|
234 |
148 |
96 |
The amounts outstanding are
unsecured and will be settled in cash. No provisions have been made
for doubtful debts on the amounts owed by related parties.
12. Post balance
sheet events
On 10 August
2016 the Pokrovskoe licence expired.
13. Commitments and
contingencies
There have been no significant
changes to the commitments and contingencies reported on page 71 of
the Annual Report.
[1] As of January 1, 2016 the
harsh 70 % subsoil use tax for gas has remained in force only for
licenses operated under Joint Activity Agreements, Debeslavetska
and Cheremkhivsk production licences fall into this
category.
[2] This amount is held into an account with BNP Paribas in
the UK and backs-up a credit line in Ukraine used for trading.
1 WGI is a Ukraine registered
company in which Cadogan owns a 15
% participating interest; the remaining participating interest is
held by eni ukraine LLC (50.01 %) and Nadra Ukrayny (34.99 %)