CADOGAN ENERGY SOLUTIONS PLC
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 30 June 31 December
2016 2015 2015
Average production (working boepd 115 93 109
interest basis) (1)
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) Incidents 1 - -
Emissions to the atmosphere (5) t/boe 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 Chief Executive
Marta Halabala Officer
Company Secretary
Cantor Fitzgerald +44 (0) 20 7894 7000
Europe
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 Licence Expiry Licence type(1)
interest (%)
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 Debeslavetska(2) November 2026 Production
99.2 Debeslavetska(2) September 2016 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
* Unconventional licenses
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 2015 2015
$'000 $'000 $'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 (12) 1,486 1,300
assets
(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 Year ended
June 31
December
2016 2015 2015
$'000 $'000 $'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 2015 2015
$'000 $'000 $'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 51,802 78,393 54,753
parent
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 2015 2015
$'000 $'000 $'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 (1,380) 477 (1,081)
capital
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 (46) (174) (281)
evaluation assets
Proceeds from sale of property, plant and - - 5
equipment
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 (1,300) 7,039 1,083
equivalents
Effect of foreign exchange rate changes (56) (861) (603)
Cash and cash equivalents at beginning of 49,407 48,927 48,927
period/year
Cash and cash equivalents at end of period/ 48,051 55,105 49,407
year
Condensed Consolidated Statement of Changes in Equity
Six months ended 30 June 2016
Share Retained Cumulative Other reserves Non-controlling Total
capital earnings translation Reorganisation interest $'000
$'000 $'000 reserves $'000 $'000
$'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 - - (6,647) - - (6,647)
differences on foreign
operations
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 - - (4,874) - - (4,874)
differences on foreign
operations
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 - - (4,929) - - (4,929)
differences on foreign
operations
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 Year ended
June 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 Year ended
June 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 Service Trading Consolidated
and
Production
$'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 - - 823 823
(1)
Interest on short-term - - (1,113) (1,113)
borrowings
Segment results (116) 567 (138) 314
Unallocated other administrative (2,093)
expenses
Share of losses in joint (1,360)
ventures
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 Service Trading Consolidated
and
Production
$'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 - - (1,114) (1,114)
borrowings
Segment results (535) 59 1,584 1,108
Unallocated other administrative (1,981)
expenses(4)
Share of losses in joint (4,243)
ventures
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 Year ended
June 31 December
Loss attributable to owners of the Company 2016 2015 2015
$'000 $'000 $'000
Loss for the purposes of basic profit per share 1,977 (4,495) (23,261)
being net loss attributable to owners of the
Company
Number Number Number
Number of shares '000 '000 '000
Weighted average number of Ordinary shares for the 231,092 231,092 231,092
purposes of basic loss per share
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 Year ended
June 31 December
2016 2015 2015
$'000 $'000 $'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 Year ended
June 31 December
2016 2015 2015
$'000 $'000 $'000
Revenues from services provided and 1,272 350 508
sales of goods
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 %)
CADOGAN PETROLEUM : Half Yearly Report for the Six Months ended 30 June 2016
August 25, 2016 at 12:25 pm EDT
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