CADOGAN ENERGY SOLUTIONS PLC
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 30 June 31 December
2017 2016 2016
Average production (working Boepd 143 115 116
interest basis) (1)
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) Incidents 0 1 1
Emissions to the atmosphere (5) t/boe 23.89 31.06 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 Chief Executive Officer +380 (44) 594 5870
Ben Harber Company Secretary +44 (0) 207 264 4366
Cantor Fitzgerald Europe
David Porter +44 (0) 207 894 7000
Sarah Wharry
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 Licence Expiry Licence type(1)
interest (%)
99.8 Bitlyanska December 2019 E&D
99.2 Debeslavetska(2) November 2026 Production
54.2 Cheremkhivska(2) May 2018 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 2016 2016
$'000 $'000 $'000
Notes (Unaudited) (Unaudited) (Audited)
Restated
(note 2d)
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 503 (12) (82)
other assets
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 2016 2016
$'000 $'000 $'000
(Unaudited) (Unaudited) (Audited)
Restated (note
2d)
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 423 271 (987)
differences
Other comprehensive loss 423 271 (987)
Total comprehensive loss for the period/ (1,570) (2,954) (6,905)
year
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 2016 2016
$'000 $'000 $'000
Notes (Unaudited) (Unaudited) (Audited)
Restated (note
2d)
ASSETS
Non-current assets
Intangible exploration and evaluation 5 2,819 2,568 2,354
assets
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 46,286 51,802 47,854
the parent
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 2016 2016
$'000 $'000 $'000
(Unaudited) (Unaudited) (Audited)
Restated (note
2d)
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 (152) 4 92
inventories
(Reversal of impairment) / impairment of VAT (389) 3 (69)
recoverable
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 (2,085) (1,380) (4,391)
capital
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 (374) (46) (39)
evaluation assets
Proceeds from sale of property, plant and - - 29
equipment
Net cash inflow from acquisition of - - 2,041
subsidiaries
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 43,300 49,407 49,407
period/year
Cash and cash equivalents at end of period 40,344 48,051 43,300
/year
Consolidated Statement of Changes in Equity
Six months ended 30 June 2017
Share Retained Cumulative Other reserves Equity Non-controlling Total
capital earnings translation Reorganisation attributable interest $'000
$'000 $'000 reserves $'000 to owners of $'000
$'000 the Company
$'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 - - 271 - 271 - 271
differences on foreign
operations
As at 30 June 2016 (as 13,337 197,117 (160,241) 1,589 51,802 274 52,076
restated)
Net loss for the period - (2,690) - - (2,690) (4) (2,694)
Exchange translation - - (1,258) - (1,258) - (1,258)
differences on foreign
operations
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 - - 423 - 423 - 423
differences on foreign
operations
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 Year ended
June 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 Year ended
June 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 (165,441) (160,241)
reserve
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
* 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 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 Service(1) Trading Consolidated
and
Production
$'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 - - - (2,360)
expenses
Share of losses in joint - - - (359)
ventures
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 Service Trading Consolidated
Production
$'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 (2,093)
administrative expenses
Share of losses in joint (1,360)
ventures
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 Year ended
June 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 (125) (1 141) (1 447)
liabilities
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 (5) 5 (26)
provision (note 24)
(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 2016 2016
$'000 $'000 $'000
Loss for the purposes of basic loss per share (1,991) (3,223) (5,912)
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 231 231,092 231,092
purposes of basic loss per share 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 Year ended
June 31 December
2017 2016 2016
$'000 $'000 $'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.
Cadogan Petroleum : Half Yearly Report for the Six Months ended 30 June 2017
August 29, 2017 at 07:42 am EDT
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