CADOGAN PETROLEUM PLC
Half Yearly Report
for the Six Months ended 30 June
2017
(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 2017.
- H1 2017 has been another semester without LTI and TRI,
notwithstanding an increased number of manhours worked, and a
further step in our reduction of normalized emissions.
- Production operations have continued in the Debeslavetska,
Cheremkhivska and Monastyretska licences and the average net
production rate has increased by 24%, from 115 boepd in H1 2016 to
143 boepd in the current reporting period.
- Two old, suspended oil wells drilled in Monastyretska licence
have been successfully re-entered and were producing an
aggregated amount of 49 boepd at 30 June
2017; the wells have been rented from Ukrnafta under a
profit sharing agreements.
- The application to convert the Zagoryanska exploration licence
into a production licence was not approved: it was a casualty of
the stalemate in the award process created by a disagreement
between Central and local authorities on the distribution of the
royalties; the application to convert Pirkovska exploration
licences has also been caught into the same stalemate, but as it
was filed one year later there are still 17 months in which to
secure approval.
- Traded volumes of gas and trading margins shrank compared to H1
2016 due to increased competition. Both revenues and margins have
been negatively impacted with the result that gas trading has
not contributed to the company profit over the reporting
period.
- The service business has focused on internal projects
(work-overs of the re-entered wells), while successfully
participating in tenders for third party projects; one contract was
won and the work is expected to be executed in the second half of
the year
- The active pursuit of opportunities to renew and diversify the
portfolio has achieved its first milestone with the acquisition of
90% of the shares of Exploenergy, an Italian company
which has filed the applications for two exploration licences
located in the prolific Po Valley, in close proximity to existing
gas fields. The sellers will receive a deferred cash consideration
of €50,000 for each licence payable upon an award of the licences
and will be carried for their 10% interest until first gas in each
licence.
- The group received $1 million of
VAT refunds over the reporting period as a result of an
application filed in March 2017.
- The efforts to preserve cash through optimization of working
capital has continued and as a result net cash, i.e. cash and cash
equivalents less short term borrowings, slightly increased during
the period to $40.3 million over the
value at the end of 2016, of $39.7
million(1).
- The Group has recorded a loss after tax of $2 million (H1 2016: restated loss of
$3.2 million)(2)
(1) The cash refund of $ 1milion of VAT credit and the lack of
short term borrowing at 30 June 2017,
a situation which is not representative of the normal business
conditions,had a major role in this result.
(2) The group changed the functional currency of UK subsidiaries
from GBP to USD as at 1 January 2016.
The H1 2016 results previously issued did not include this change
in functional currency. The results of H1 2016 (loss of
$3.2 million previously reported as a
profit of $2.0 million) have been
amended to reflect this restatement and provide comparability.
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.
The Group’s performance during the first six months of 2017
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. The
positive trend in the HSE performances continue with zero incidents
and decrease of the emissions.
|
Unit |
30
June 2017 |
30
June 2016 |
31
December 2016 |
|
|
|
|
|
Average production
(working interest basis) (1) |
Boepd |
143 |
115 |
116 |
Administrative
expenses (2) |
$million |
2.7 |
2.5 |
5.6 |
Basic loss per share
(3) |
Cent |
(0.9) |
(1.4) |
(2.6) |
Lost time
incidents (4)
Emissions to the atmosphere (5) |
Incidents
t/boe |
0
23.89 |
1
31.06 |
1
27.44 |
(1) Average production is calculated as the average daily
production during the period/year.
(2) 0.3 millions of one-off costs related to the streamlining of
operating structure is included in H1 2017 cost
(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 |
|
|
Guido
Michelotti
Ben Harber |
Chief
Executive Officer
Company Secretary |
+380 (44)
594 5870
+44 (0) 207 264 4366 |
Cantor Fitzgerald
Europe |
|
|
David
Porter
Sarah Wharry |
|
+44 (0) 207 894
7000 |
Summary
Introduction
The first semester of 2017 has been another challenging time for
Ukraine. The political and
military crisis related to the confrontation with Russia has remained unresolved and the overall
economic situation has only marginally improved. Much needed
reforms in the oil and gas industry have not yet been implemented
and the areas of attention of the recent past have not been
addressed: the licencing authority is still managed by an acting
Chairman after two and half years, though a new acting
Chairman has in the meantime been appointed, and the disagreement
between Local and Central Authorites on the royalty
distribution, which brought the licence award process to a halt,
remained unresolved. In addition, Cadogan has remained subject to a punitive
royalty regime on its marginal gas production(3).
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.
(3) As of January 1, 2016 the
punitive 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.
Operations
The E&P activity has focused on using the assets in the
Country as a platform for growth by increasing production from the
existing fields within the Debeslavetska, Cheremkhivska and
Monastyretska licences. At the end of the reporting period
gross production rate increased to 155 boepd (143 boepd net), 24%
higher than in the six months ended 30 June
2016 (123 boepd gross, 115 boepd net). Cadogan has
shifted its focus of operations to the West of the country by
closing its Operating base in Poltava and relocating the
local warehouse to the East into one, wholly owned premise (vs the
two of the past).
The activity has primarily consisted in the re-entry of two old,
suspended oil wells drilled in the Monastyretska licence. The
wells, which have been rented from Ukrnafta under profit sharing
agreements, have been worked-over with the objective of putting
them back in production. At the end of the reporting period the
first work-over had been completed and the well was pumping 49 bpd
of oil. The second work-overis being completed and once completed
the wells will be tested in order to gather data on their
performances which will be used to update the reservoir study.
In Italy activity has focused
on securing the award of the two licences under application in the
Po Valley. The timeline to award is difficult to predict, but
Managament remains confident that the licences will be
awarded.
Trading
H1 2017 has been another difficult semester for gas trading
which has witnessed a further shrinking of both volumes and
margins. The Group has lost the competitive advantage of being an
early mover and it is now competing against the major European
traders which have moved to Ukraine as they have seen an opportunity in
the Country’s decision to halt gas import from Russia.
Increasing competition is forcing margins down for all parties,
for the benefit of Ukrainian consumers, and our margins are further
squeezed as we cannot compete on a levelled field with the larger
European traders on the cost of supply.
The Group has focused its efforts in significantly reducing its
fixed costs by simplifying the organization of its Trading Group
and on optimising working capital. The benefits of these actions
will be felt in the second part of the year.
Financial position
At 30 June 2017 the Group had cash
and cash equivalents of $40.3
million, including $5.8
million of pledged cash. Part of the cash and cash
equivalents in the amount of $5
million related to security of borrowings and held at a
European bank in the UK. Also as at 30 June
2017 cash and cash equivalents of $0.8 million were held in the Ukrainian
subsidiary of the European bank as a financial covered guarantee in
favour of PJSC Ukrtransgas to fulfill the requirement of the
Ukrainian legislation on gas trading. Net cash, which included cash
and cash equivalents less short-term borrowings, increased to
$40.3 million at 30 June 2017 compared to $39.7 million at 31
December 2016, mostly due to working capital optimisation
and recovery of VAT receivables. 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.
In Ukraine, Cadogan has completed its transformation from
a geographically dispersed to a West focused Operator and will use
its assets as a platform for growth. The short term focus
will remain on increasing production and safeguarding the licences
with a minimum capital deployment while looking for farm-in
partners to conduct the riskier, but higher reward activities.
Efforts to monetize non E&P assets such as accumulated VAT
credits and inventory will also continue.
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. The acquisition of Exploenergy
s.r.l. has only been a first step of this strategy.
Operations
Review
In H1 2017 the Group held working interests in four (2016: four)
conventional gas, condensate and oil exploration and production
licences in the West of Ukraine.
All these assets are operated by the Group and are located in the
prolific Carpathian basin, in close proximity to the Ukrainian gas
distribution infrastructure. In the East, Cadogan has taken all necessary actions to
convert the exploration Pirkovskoe licence which expired in 2015
into a production license and is awaiting approval. The Group’s
primary focus during the period continued to be on the cost
optimisation and enhancement of current production.
The application to convert the Zagoryanska exploration licence
into a production licence was not approved: it was a casualty of
the stalemate in the award process created by a disagreement
between Central and local authorities on the distribution of the
royalties.
Summary of the Group’s licences (as of 30 June
2017) |
Working
interest (%) |
Licence |
Expiry |
Licence type(1) |
99.8 |
Bitlyanska |
December 2019 |
E&D |
99.2
54.2 |
Debeslavetska(2)
Cheremkhivska(2) |
November 2026
May 2018 |
Production
Production |
99.2 |
Monastyretska |
November 2019 |
E&D |
|
|
|
|
(1) E&D = Exploration and Development.
(2) 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”).
In addition to the above licences, the Group has a 15%,
carried-through-exploration interest in the ENI-led
WGI(1), which holds the Cheremkhivsko-Strupkivska,
Debeslavetska Production, Baulinska, Filimonivska, Kurinna,
Sandugeyivska and Yakovlivska licences for unconventional
activities.
(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 %)
Below we provide an update to the full Operations Review
contained in the Annual Financial Report for 2016 published on
27 April 2017.
Bitlyanska licence
Borynya 3 well is routinely monitored as required by existing
regulations for wells which are suspended. The re-evaluation of the
licence is ongoing, focusing on shallow oil targets.
Monastyretska licence
Blazh 1 well continues its regular production of oil at a rate
of 48 boepd. Blazh 3 well was re-entered and is currently producing
at the same rate as Blazh 1. Blazh-Mon 3 well is under workover.
Blazh 3 and Blazh-Mon 3 are the two wells rented from Ukrnafta.
Debeslavetska Production licence
area
During the reporting period, the field produced 56 boepd
gross (H1 2016: 60 boepd). Rigless activity is regularly run to
mitigate the production decline.
Cheremkhivska Production licence
area
Thanks to the successful debottlenecking and production
optimization the field production during the reporting period
increased by some 60 %, from 16 boepd of H1 2016 to
26 boepd of H1 2017.
Unconventional licences
The unfavourable market conditions brought the Operator to defer
the drilling of the first well to 2018.
Service Company
activities
Cadogan’s 100% owned subsidiary, Astro Service LLC, has
continued to pursue opportunities to build a larger portfolio of
orders, while executing the re-entry and work-over of the two
rented wells (for an estimated value of 143 KUSD of intra group
gross revenues).
Financial Review
Overview
Income statement
Revenues have decreased to $5.0
million in the first half of 2017 (30
June 2016: $12.3 million,
31 December 2016: $19.7 million) due to a decrease in gas trading
operations, which represent $3.9
million (30 June 2016:
$10.5 million, 31 December 2016: $15.6
million) of the total revenues; revenues from production
more than doubled to $1.1 million
(30 June 2016: $0.5 million) due to the increase of both
production volumes (+27% over H1 2016) and average realized
price (+32% over H1 2016).
The service business in first half 2017 was focused on internal
projects, in particular, on services to the Monastyretska
licence.
Cost of sales consists of $3.8
million of purchases of gas for the trading operating
segment, and $0.7 million of
production royalties and taxes, depreciation and depletion of
producing wells and direct staff costs for exploration and
development.
Gross profit has decreased to $0.5
million (30 June 2016:
$1.0 million, 31 December 2016: $1.1
million).
Other administrative expenses of $2.7
million (30 June 2016:
$2.5 million, 31 December 2016: $5.6
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 $0.4
million (30 June 2016: loss
$1.4 million, 31 December 2016: loss $0.2 million) represent recognition of Cadogan’s
share of losses of Westgasinvest LLC.
The reversal of impairment of other assets includes reversal of
impairment of VAT provision of $0.4
million due to the received refund of VAT that was
previously impaired and reversal of impairment of inventores of
$0.1 million for the inventories that
have been impaired in previous periods and which were sold at above
cost.
Net finance costs have reduced by $0.15
million from H1 2016 mainly reflecting the reduction in gas
trading.
Balance sheet
The cash position of $40.3 million
as at 30 June 2017, including pledged
cash of $5.8 million, has decreased
from $43.3 million at 31 December 2016. Part of the cash and cash
equivalents in the amount of $5
million related to security of borrowings and held at the
European bank in the UK. Also as at 30 June
2017 cash and cash equivalents of $0.8 million were held in the Ukrainian
subsidiary of the European bank as a financial covered guarantee in
favour of PJSC Ukrtransgas to fulfill the requirement of the
Ukrainian legislation on gas trading. Net cash, which included cash
and cash equivalents less short-term borrowings, increased to
$40.3 million at 30 June 2017 compared to $39.7 million at 31
December 2016 mainly due to optimisation of working capital,
and also to the receipt of $1
million of VAT refunds.
Intangible Exploration and Evaluation (“E&E”) assets of
$2.8 million (30 June 2016: $2.6
million, 31 December 2016:
$2.4 million) represent the carrying
value of the Group’s investment in E&E assets as at
30 June 2017, which increased due to
workover at Monastyretska licence. The Property, Plant and
Equipment (“PP&E”) balance of $1.2
million at 30 June 2017
(30 June 2016: $1.5 million, 31 December
2016: $1.3 million)
represented other PP&E of the Group. Investments in joint
ventures of $1.9 million
(30 June 2016: $1.2 million, 31 December
2016: $2.3 million) represent
the carrying value of the Group’s investments in Westgasinvest
LLC.
Trade and other receivables of $2.9
million (30 June 2016:
$7.1 million, 31 December 2016: $4.1
million) include $1.9 million
trading prepayments and receivables, and VAT recoverable of
$0.3 million (30 June 2016: $1.5
million, 31 December 2016:
$0.8 million). VAT recoverable has
significantly decreased due to received refund in cash of
$1 million.
Short-term borrowings as at 30 June
2017 were nil (30 June 2016:
$7.5 million, 31 December 2016: $3.6
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 $5.8
million of cash placed at a European bank in the UK.
Proceeds from VAT refund were used for the prepayment of the gas
held in inventory at the end of the reporting period, thus allowing
short term borrowings to be reduced to zero(4). The
$1.5 million of trade and other
payables as of 30 June 2017
(30 June 2016: $1.3 million, 31 December
2016: $1.6 million) represent
$0.8 million (30 June 2016: $0.9
million, 31 December 2016:
$0.5 million) of other creditors and
$0.7 million of accruals
(30 June 2016: $0.4 million, 31 December
2016: $0.9 million).
(4) Short term borrowings are expected to increase as more gas
is bought to be sold during the next winter season.
Cash flow statement
The Consolidated Cash Flow Statement shows operating cash
outflow before movements in working capital of $2.1 million (30 June
2016: outflow $1.4 million,
31 December 2016: outflow
$4.4 million). Cash inflows from
movements in working capital in first half 2017 of $3.2 million represent a decrease in trade
and other receivables of $2.1
million, decrease in inventories of $1.1 million, and a decrease in trade and
other payables of $13
thousand.
The Group had capital expenditure of $0.4
million on intangible Exploration and Evaluation (“E&E”)
assets for the six months ended 30 June
2017 (30 June 2016:
$46 thousand , 31 December 2016: $39
thousand ) related to workovers on Monasteretska licence and
nil capital expenditure (30 June
2016: $28 thousand,
31 December 2016: $119 thousand) on Property, Plant and Equipment
(“PP&E”).
In 2017 the Group continued to finance its trading operations
with short-term borrowings and for the six months ended
30 June 2017 proceeds were
$0.7 million (30 June 2016: $1.8
million, 31 December 2016:
$1.9 million) and repayments were
$4.3 million (30 June 2016: $6.7
million, 31 December 2016:
$10.2 million).
Commitments
There has not been any material change in the commitments and
contingencies reported as at 31 December
2016 (refer to page 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 Interim Financial
Statements. For further detail refer to the detailed discussion of
the assumptions outlined in note 2(a) to the Interim 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 11 to 12 of the 2016
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
- Changes in economic environment risk
- Counterparty risk
- Commodity price risk
Country risk
- Regulatory and licence issues
- Emerging market risk
Other risks
- Risk of losing key staff members
- Risk of entry into new countries
Director’s
Responsibility Statement
We confirm that to the best of our knowledge:
(a) the
Interim 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
28 August 2017
Consolidated Income Statement
Six months ended
30 June 2017
|
|
Six
months ended 30 June |
Year ended
31 December |
|
|
2017
$’000 |
2016
$’000 |
2016
$’000 |
|
Notes |
(Unaudited) |
(Unaudited)
Restated (note 2d) |
(Audited) |
CONTINUING OPERATIONS |
|
|
|
|
Revenue |
3 |
4,967 |
12,295 |
19,692 |
Cost of sales |
3 |
(4,496) |
(11,262) |
(18,623) |
Gross profit |
|
471 |
1,033 |
1,069 |
|
|
|
|
|
Administrative expenses |
|
(2,697) |
(2,523) |
(5,603) |
Impairment of oil and gas
assets |
|
- |
- |
(90) |
Reversal of impairment/(Impairment)
of other assets |
|
503 |
(12) |
(82) |
Share of losses in joint
ventures |
6 |
(359) |
(1,360) |
(143) |
Net foreign exchange
(losses)/gains |
|
(34) |
42 |
38 |
Other operating income/(costs) |
|
174 |
(76) |
(9) |
Operating loss |
|
(1,942) |
(2,896) |
(4,820) |
|
|
|
|
|
Gain on acquisition |
|
- |
- |
99 |
Finance costs |
|
(51) |
(216) |
(1,087) |
Loss before tax |
|
(1,993) |
(3,112) |
(5,808) |
|
|
|
|
|
Tax charge |
|
- |
(113) |
(110) |
Loss for the period/year |
|
(1,993) |
(3,225) |
(5,918) |
|
|
|
|
|
Attributable to: |
|
|
|
|
Owners of the Company |
4 |
(1,991) |
(3,223) |
(5,912) |
Non-controlling interest |
|
(2) |
(2) |
(6) |
|
|
|
|
|
|
|
|
|
|
Loss per Ordinary share |
|
Cents |
cents |
Cents |
Basic |
4 |
(0.9) |
(1.4) |
(2.6) |
Consolidated Statement of Comprehensive Income
Six months ended
30 June 2017
|
|
Six
months ended 30 June |
Year ended
31 December |
|
|
2017
$’000 |
2016
$’000 |
2016
$’000 |
|
|
(Unaudited) |
(Unaudited)
Restated (note 2d) |
(Audited) |
Loss for the period/year |
|
(1,993) |
(3,225) |
(5,918) |
Other comprehensive loss |
|
|
|
|
Items that may be reclassified
subsequently to profit or loss |
|
|
|
|
Unrealised currency translation
differences |
|
423 |
271 |
(987) |
Other comprehensive loss |
|
423 |
271 |
(987) |
Total comprehensive loss for the
period/year |
|
(1,570) |
(2,954) |
(6,905) |
|
|
|
|
|
Attributable to: |
|
|
|
|
Owners of the Company |
|
(1,568) |
(2,952) |
(6,899) |
Non-controlling interest |
|
(2) |
(2) |
(6) |
|
|
(1,570) |
(2,954) |
(6,905) |
Consolidated Statement of Financial Position
Six months ended
30 June 2017
|
|
Six
months ended 30 June |
Year ended
31 December |
|
|
|
2017
$’000 |
2016
$’000 |
2016
$’000 |
|
|
Notes |
(Unaudited) |
(Unaudited)
Restated (note 2d) |
(Audited) |
|
|
ASSETS |
|
|
|
|
|
Non-current
assets |
|
|
|
|
|
Intangible exploration
and evaluation assets |
5 |
2,819 |
2,568 |
2,354 |
|
Property, plant and
equipment |
|
1,169 |
1,485 |
1,312 |
|
Investments in joint
ventures |
6 |
1,964 |
1,221 |
2,323 |
|
|
|
5,952 |
5,274 |
5,989 |
|
Current
assets |
|
|
|
|
|
Inventories |
7 |
1,015 |
2,331 |
1,879 |
|
Trade and other
receivables |
8 |
2,861 |
7,143 |
4,146 |
|
Cash and cash
equivalents |
|
40,344 |
48,051 |
43,300 |
|
|
|
44,220 |
57,525 |
49,325 |
|
Total assets |
|
50,172 |
62,799 |
55,314 |
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
Non-current
liabilities |
|
|
|
|
|
Deferred tax
liabilities |
|
- |
- |
- |
|
Long-term
provisions |
|
(705) |
(698) |
(670) |
|
|
|
(705) |
(698) |
(670) |
|
Current
liabilities |
|
|
|
|
|
Short-term
borrowings |
9 |
- |
(7,483) |
(3,574) |
|
Trade and other
payables |
10 |
(1,520) |
(1,346) |
(1,640) |
|
Current provisions |
|
(1,393) |
(1,196) |
(1,306) |
|
|
|
(2,913) |
(10,025) |
(6,520) |
|
Total
liabilities |
|
(3,618) |
(10,723) |
(7,190) |
|
|
|
|
|
|
|
Net assets |
|
46,554 |
52,076 |
48,124 |
|
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
Share capital |
|
13,337 |
13,337 |
13,337 |
|
Retained earnings |
|
192,436 |
197,117 |
194,427 |
|
Cumulative translation
reserves |
|
(161,076) |
(160,241) |
(161,499) |
|
Other reserves |
|
1,589 |
1,589 |
1,589 |
|
Equity attributable
to equity holders of the parent |
|
46,286 |
51,802 |
47,854 |
|
Non-controlling
interest |
|
268 |
274 |
270 |
|
Total equity |
|
46,554 |
52,076 |
48,124 |
|
|
|
|
|
|
|
|
|
Consolidated Statement of Cash Flows
Six months ended
30 June 2017
|
|
Six
months ended 30 June |
Year
ended
31 December |
|
|
|
2017
$’000 |
2016
$’000 |
2016
$’000 |
|
|
|
(Unaudited) |
(Unaudited)
Restated (note 2d) |
(Audited) |
|
|
Operating
loss |
(1,942) |
(2,896) |
(4,820) |
|
Adjustments for: |
|
|
|
|
Depreciation of
property, plant and equipment |
69 |
94 |
138 |
|
Impairment of oil and
gas assets |
- |
- |
90 |
|
Share of losses in joint
ventures |
359 |
1,360 |
143 |
|
Impairment of
receivables |
4 |
- |
59 |
|
(Reversal of impairment)
/ impairment of inventories |
(152) |
4 |
92 |
|
(Reversal of impairment)
/ impairment of VAT recoverable |
(389) |
3 |
(69) |
|
Loss on disposal of
property, plant and equipment |
- |
- |
13 |
|
Effect of foreign
exchange rate changes |
(34) |
55 |
(38) |
|
Operating cash flows
before movements in working capital |
(2,085) |
(1,380) |
(4,391) |
|
Decrease in
inventories |
1,125 |
997 |
1,047 |
|
Decrease in
receivables |
2,077 |
8,591 |
9,321 |
|
(Decrease)/Increase in
payables and provisions |
(13) |
(3,331) |
(2,014) |
|
Cash from
operations |
1,104 |
4,877 |
3,963 |
|
Interest paid |
(108) |
(1,158) |
(1,591) |
|
Interest on receivables
received |
- |
- |
230 |
|
Income taxes paid |
(109) |
- |
(8) |
|
Net cash inflow from
operating activities |
887 |
3,719 |
2,594 |
|
|
|
|
|
|
|
|
Investing
activities |
|
|
|
|
|
|
Investments in joint
ventures |
|
- |
(400) |
(2,337) |
|
|
Purchases of property,
plant and equipment |
|
- |
(28) |
(119) |
|
|
Purchases of intangible
exploration and evaluation assets |
|
(374) |
(46) |
(39) |
|
|
Proceeds from sale of
property, plant and equipment |
|
- |
- |
29 |
|
|
Net cash
inflow from acquisition of subsidiaries |
|
- |
- |
2,041 |
|
|
Interest
received |
|
79 |
300 |
156 |
|
|
Net cash used in
investing activities |
|
(295) |
(174) |
(269) |
|
|
|
|
|
|
|
|
|
Financing
activities |
|
|
|
|
|
|
Proceeds from short-term
borrowings |
|
699 |
1,839 |
1,908 |
|
|
Repayment of short-term
borrowings |
|
(4,316) |
(6,684) |
(10,232) |
|
|
Net cash used in
financing activities |
|
(3,617) |
(4,845) |
(8,324) |
|
|
|
|
|
|
|
|
|
Net decrease in cash
and cash equivalents |
|
(3,025) |
(1,300) |
(5,999) |
|
|
Effect of foreign
exchange rate changes |
|
69 |
(56) |
(108) |
|
|
Cash and cash
equivalents at beginning of period/year |
|
43,300 |
49,407 |
49,407 |
|
|
Cash and cash
equivalents at end of period/year |
|
40,344 |
48,051 |
43,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Changes in Equity
Six months ended
30 June 2017
|
Share
capital
$’000 |
Retained earnings
$’000 |
Cumulative
translation
reserves
$’000 |
Other
reserves
Reorganisation
$’000 |
Equity
attributable to owners of the Company
$’000 |
Non-controlling
interest
$’000 |
Total
$’000 |
As at 1 January
2016 |
13,337 |
200,339 |
(160,512) |
1,589 |
54,753 |
276 |
55,029 |
Net loss for the
period |
- |
(3,223) |
- |
- |
(3,223) |
(2) |
(3,225) |
Exchange translation
differences on foreign operations |
- |
- |
271 |
- |
271 |
- |
271 |
As at 30 June 2016
(as restated) |
13,337 |
197,117 |
(160,241) |
1,589 |
51,802 |
274 |
52,076 |
Net loss for the
period |
- |
(2,690) |
- |
- |
(2,690) |
(4) |
(2,694) |
Exchange translation
differences on foreign operations |
- |
- |
(1,258) |
- |
(1,258) |
- |
(1,258) |
As at 31 December
2016 |
13,337 |
194,427 |
(161,499) |
1,589 |
47,854 |
270 |
48,124 |
Net loss for the
period |
- |
(1,991) |
- |
- |
(1,991) |
(2) |
(1,993) |
Exchange translation
differences on foreign operations |
- |
- |
423 |
- |
423 |
- |
423 |
As at 30 June
2017 |
13,337 |
192,436 |
(161,076) |
1,589 |
46,286 |
268 |
46,554 |
Notes to the Condensed Financial Statements
Six months ended
30 June 2017
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 6th Floor, 60 Gracechurch Street,
London EC3V 0HR. 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.
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 27 April 2017.
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 2017. The adoption of these
standards and amendments did not have a material effect on the
financial statements of the Group.
(a) 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
2017 was $40.3 million
(31 December 2016: $43.3 million), including pledged cash of
$5.8 million (2016: $10.9 million).
The Group’s forecasts and projections, taking into account
reasonably possible changes in operational performance, and the
price of hydrocarbons sold to Ukrainian customers, show that there
are reasonable expectations that the Group will be able to operate
on funds currently held and those generated internally, for the
foreseeable future.
The Group continues to pursue its farm-out strategy on
Bitlyanska licence with the objective of managing risks and
mitigating capital deployment.
After making enquiries and considering the uncertainties
described above, the Directors have a reasonable expectation that
the Company and the Group have adequate resources to continue in
operational existence for the foreseeable future and consider the
going concern basis of accounting to be appropriate and, thus, they
continue to adopt the going concern basis of accounting in
preparing the financial statements. In making its statement the
Directors have considered the recent political and economic
uncertainty in Ukraine.
(b) Foreign
currencies
The individual financial statements of each Group company are
presented in the currency of the primary economic environment in
which it operates (its functional currency). The functional
currency of the Company is US dollar. For the purpose of the
consolidated financial statements, the results and financial
position of each Group company are expressed in US dollars, which
is the presentation currency for the consolidated financial
statements.
The relevant exchange rates used were as follows:
1 US$ =
£ |
Six
months ended 30 June |
Year
ended
31 Dec 2016 |
|
|
2017 |
2016 |
|
|
Closing rate |
1.3004 |
1.3393 |
1.2346 |
|
Average rate |
1.2589 |
1.4339 |
1.3557 |
|
|
|
|
|
1 US$ = UAH |
Six
months ended 30 June |
Year
ended
31 Dec 2016 |
|
|
2017 |
2016 |
|
|
Closing rate |
26.1819 |
25.0649 |
27.4770 |
|
Average rate |
26.9720 |
25.7136 |
25.8169 |
|
|
|
|
|
|
|
|
|
|
|
(c) Dividend
The Directors do not recommend the payment of a dividend for the
period (30 June 2016: $nil;
31 December 2016: $nil).
(d) Restatement of
period ended 30 June 2016
The Group changed the functional currency of its UK subsidiaries
from GBP to USD as at 1 January 2016,
as disclosed in the Annual Report for the year ended 31 December
2016. The Group’s H1 2016 results did not reflect this change
in functional currency and have been restated accordingly in these
H1 2017 results. The impact of the restatement related to
unrealised foreign exchange was as follows:
|
As previously
reported |
As
restated |
|
$’000 |
$’000 |
Profit / (losses) after tax |
1,975 |
(3,225) |
Retained earnings |
202,317 |
197,117 |
Cumulative translation reserve |
(165,441) |
(160,241) |
The change had no impact on net assets.
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
executive 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
Service
Trading
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 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 2017 and for the six
months then ended the Group’s segmental information was as
follows:
|
Exploration and
Production |
Service(1) |
Trading |
Consolidated |
|
$’000 |
$’000 |
$’000 |
$’000 |
Sales of hydrocarbons |
832 |
- |
4,135 |
4,967 |
Sales between segments |
188 |
- |
(188) |
- |
Total revenue |
1,020 |
|
3,947 |
4,967 |
Other cost of sales |
(704) |
- |
(3,774) |
(4,478) |
Depreciation |
(5) |
(13) |
- |
(18) |
Other administrative expenses |
(198) |
(13) |
(143) |
(354) |
Finance cost,
net(2) |
- |
- |
(88) |
(88) |
Segment results |
113 |
(26) |
(58) |
29 |
Unallocated other administrative
expenses |
- |
- |
- |
(2,360) |
Share of losses in joint
ventures |
- |
- |
- |
(359) |
Net foreign exchange gains |
- |
- |
- |
(34) |
Other income, net |
- |
- |
- |
731 |
Loss before
tax |
|
|
|
(1,993) |
(1) In first half 2017 the Service business was focused on
internal projects, in particular, providing ervices to
Monastyretska licence.
(2) Finance cost includes $108
thousand of interest on short-term borrowings and
$20 thousand of interet on cash
deposits used for trading.
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 |
108 |
- |
10,915 |
11,023 |
Other revenue |
- |
1,272 |
- |
1,272 |
Sales between segments |
451 |
- |
(451) |
- |
Total revenue |
559 |
1,272 |
10,464 |
12,295 |
Other cost of sales |
(427) |
(644) |
(10,097) |
(11,168) |
Depreciation |
(55) |
(39) |
- |
(94) |
Other administrative expenses |
(193) |
(22) |
(215) |
(430) |
Finance cost, net |
- |
- |
(290)(1) |
(290) |
Segment results |
(116) |
567 |
(138) |
313 |
Unallocated other administrative
expenses |
|
|
|
(2,093) |
Share of losses in joint
ventures |
|
|
|
(1,360) |
Net foreign exchange
gain(2) |
|
|
|
42 |
Other losses, net |
|
|
|
(14) |
Loss before
tax |
|
|
|
(3,112) |
(1) Finance cost includes $1,141
thousand of interest on short-term borrowings, $823 thousand of interest income on receivables
and $28 thousand of interet on cash
deposits used for trading.
(2) The group changed its functional currency from GBP to USD as at
1 January 2016. Results of H1 2016
(loss of $3.2 million) have been
amended to reflect this change and make such a comparison
correct.
4. Reversal of impairment of other
assets
Reversal of impairment of other assets includes reversal of
impairment of VAT provision of $0.4
million due to the received refund of VAT that was
previously impaired and reversal of impairment of inventores of
$0.1 million for the inventories that
have been impaired in previous periods and were sold higher than
the cost.
5. Finance cost, net
|
Six months ended 30 June |
Year
ended
31 December |
|
2017 |
2016 |
2016 |
|
$’000 |
$’000 |
$’000 |
Interest on short-term
borrowings |
(108) |
(1
141) |
(1
414) |
Interest on tax
provision |
(17) |
- |
(33) |
|
|
|
|
Total interest
expenses on financial liabilities |
(125) |
(1
141) |
(1
447) |
|
|
|
|
interest income on
receivbles |
- |
823 |
230 |
Investment
revenue |
59 |
69 |
125 |
Interest income on
cash deposit in Ukraine |
20 |
28 |
31 |
|
|
|
|
Total interest
income on ecommiss assets |
79 |
920 |
386 |
|
|
|
|
Unwinding of discount
on ecommissioning provision (note 24) |
(5) |
5 |
(26) |
|
(51) |
(216) |
(1
087) |
6. Loss per ordinary share
Profit per ordinary share is calculated by dividing the net 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. 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 |
2017
$’000 |
2016
$’000 |
2016
$’000 |
|
|
|
|
Loss for the purposes
of basic loss per share being net loss attributable to owners of
the Company |
(1,991) |
(3,223) |
(5,912) |
|
|
|
|
|
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 |
Loss per Ordinary share |
|
|
|
Basic |
(0.9) |
(1.4) |
(2.6) |
7. Intangible exploration and
evaluation assets
As of 30 June 2017 the intangible
assets balance has increased in comparison to 31 December 2016 due to work overs on
Monastyretska licence.
8. Investments in joint ventures
Share of losses in joint ventures represents the recognition of
Cadogan share of losses of
Westgasinvest LLC.
9. Inventories
The Group had significant volumes of natural gas as at
31 December 2016 which have been sold
during the six months ended 30 June
2017 that resulted in a reduction of the natural gas balance
from $0.9 million to $0.1 million. No
other substantial changes in inventories balances occurred.
10. Trade and other receivables
|
|
Six
months ended 30 June |
Year ended
31 December |
|
|
|
2017
$’000 |
2016
$’000 |
2016
$’000 |
|
Trading
receivables |
|
1,405 |
2,662 |
2,163 |
Trading
prepayments |
|
445 |
53 |
777 |
VAT recoverable |
|
277 |
1,466 |
829 |
Prepayments |
|
269 |
148 |
1 |
Receivable from
joint-ventures |
|
- |
2,412 |
58 |
Other receivables |
|
465 |
402 |
318 |
|
|
2,861 |
7,143 |
4,146 |
|
|
|
|
|
|
|
The Directors consider that the carrying amount of the other
receivables approximates their fair value.
Management expects to realise VAT recoverable through the
activities of the business segments.
11. Short-term borrowings
In 2017 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
$5 million of cash balance placed at
a European bank in the UK.
During the six months ended 30 June
2017 the Group repaid the credit line in full using the
proceeds from VAT refund using proceeds from VAT refund and the
outstanding amount as at 30 June 2017
was nil (30 June 2016: $7.5 million, 31 December
2016: $3.6 million). Interest
is paid monthly and as at 30 June
2017 the accrued interest is nil (30
June 2016: $0.2 million,
31 December 2016: $0.04 million).
12. Trade and other payables
The $1.5 million of trade and
other payables as of 30 June 2017
(30 June 2016: $1.3 million, 31 December
2016: $1,6 million) represent
$0.8 million (30 June 2016: $0.9
million, 31 December 2016:
$0.8 million) of other creditors and
$0.7 million of accruals
(30 June 2016: $0.4 million, 31 December
2015: $0.8 million).
13. Commitments and contingencies
There have been no significant changes to the commitments and
contingencies reported on page 71 of the Annual Report.