REG-Cadogan Petroleum: Annual Financial Report <Origin Href="QuoteRef">CADP.L</Origin> - Part 2
30/04/2015 18:40
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critical
members from the Group's team could
have an adverse effect on the
business.
Statement of Reserves and Resources
The Group did not commission an independent Reserves and Resources Evaluation
of the Group's oil and gas assets in Ukraine as at 31 December 2014 due to
insufficient new information arising from operational activity before the year
end. The summary of the Reserves and Resources below is based on the
Independent Reserves and Resources Evaluation performed by Gaffney Cline and
Associates as at 31 December 2009. These have been adjusted for
subsequent actual production and expert review and studies have been performed
with an external firm both in Kyiv and in-house.
Summary of Reserves
As of 31 December 2014
Working interest basis
Gas Condensate Oil
bcf mmbbl mmbbl
Proved and Probable Reserves at 1 January 2014 11.1 0.6 -
Production (0.2) - -
Reclassification (10.3) (0.6) -
Proved and Probable Reserves at 31 December 2014 0.6 - -
Possible Reserves at 1 January 2014 and 31 December 2014 19.5 1.5 -
Summary of Contingent Resources
As of 31 December 2014
Working interest basis
Gas Condensate Oil Total
Bcf mmbbl mmbbl mmboe
Contingent Resources at 1 January 2014 2,357.3 97.9 - 522.2
Change in working interest - - - -
Reclassification 10.3 0.6 - 2.2
Contingent Resources at 31 December 2014 2,367.6 98.5 - 524.4
Reserves are assigned only to the Debeslavetska and Cheremkhivska fields;
adjusted to consider the dry gas production only. The proved reserves in Pirk
1, tested by a third party company, produced an inconclusive result due to
damaged formation; therefore those reserves have been reclassified from
Reserves to Contingent Resources.
Contingent Resources are assigned to the Zagoryanska, Pirkovskoe, Borynya and
Bitlya fields, where development is contingent on further appraisal.
Prospective Resources of 165.9 bcf (2013: 165.9 bcf) of gas and 5.9 mmbl (2013:
5.9 mmbl) of condensate are attributed to the Pokrovskoe field (reflecting
Cadogan's working interest), where there has not yet been a production test.
Corporate Responsibility
The Board recognises the requirement under Section 414C of the Companies Act
2006 (the "Act") to detail information about employees, human rights and
community issues, including information about any policies it has in relation
to these matters and the effectiveness of these policies.
The Group considers the sustainability of its business as a key and competitive
element of its strategy. Meeting the expectations of our stakeholders is the
way in which we secure our licence to operate, and to be recognised in the
values we declare is the best added value we can bring in order to profitably
prolong our business. The Board recognises that it has an obligation to protect
the health and safety of its employees and communities as well as the
environment it impacts; these are the key drivers for the sustainable
development of the Company's activity. Our Code of Ethics and the adoption of
internationally recognised best practices and standards are our, and our
employees', references for conducting our operations.
Our activities are carried out in accordance with a policy manual, endorsed by
the Board, which has been disseminated to all staff. The manual includes
policies on business conduct and ethics, anti-bribery, the acceptance of gifts
and hospitality and whistleblowing.
The Group's Health, Safety and Environment Manager reports directly to the
Chief Operations Officer. His role is to ensure that the Group has developed
suitable procedures, and that operational management have incorporated them
into daily operations and that he has the necessary level of autonomy and
authority to discharge his duties effectively and efficiently.
The Board believes that health and safety procedures and training across the
Group should be to the standard expected in any company operating in the oil
and gas sector. Accordingly, it has set up a Committee to review and agree
health and safety initiatives and report back on progress. The monthly
management report to the Board contains a full report on health and safety,
environmental and key safety and environmental issues which are discussed by
the Executive Management. The Health, Safety and Environment Committee Report
is on page 37.
Health, safety and environment
The Group has developed an integrated Health, Safety and Environmental ("HSE")
management system. The system aims, by a continuous improvement programme, to
ensure that a safety and environmental protection culture is embedded in the
organisation. The HSE management system ensures that both Ukrainian and
international standards can be met, with the Ukrainian HSE legislation
requirements taken as an absolute minimum although the international
requirements are in the main met or exceeded. All the Group's local operating
companies in east and west Ukraine have all the necessary documentation and
systems in place to ensure compliance with Ukrainian legislation.
A proactive approach to the prevention of incidents has been in place
throughout 2014, which relies on an observation cards system and reliable
near-miss reporting. Staff training on HSE matters is recognised as the key
factor to generate continuous improvement. In-house training is provided to
help staff meet international standards and follow best practice. At present,
special attention is being given to training on risk assessments, emergency
response, incident prevention, reporting and investigation, as well as hazard
and operational ("HAZOP") studies to ensure that international standards are
maintained even if they exceed those required by Ukrainian legislation.
The Board monitors lost time incidents as a key performance indicator of the
business, to reasonably verify that the procedures in place are robust. The
Board has benchmarked safety performance against the HSE performance index
measured and published annually by the International Association of Oil & Gas
Producers. In 2014, the Group recorded a total of 400,000 man hours worked.
There were no Lost Time Incidents ("LTIs") recorded in 2014 and close to two
million man hours have been worked without an LTI since the previous incident
was recorded in July 2011.
Vehicle safety and driving conduct remain among the Company's priorities in
controlling hazards and preventing injuries. As of the end of 2014, the Company
has recorded over nine million kilometres driven without an LTI.
The year 2013 was the baseline year for the Company in terms of greenhouse gas
emissions reporting, as well as Company-wide collection of statistical data
related to consumption of electricity and industrial water and fuel consumption
by cars, plants and other work sites. Comparing the baseline figures with the
data for 2014 will allow the assessment of the Company's environmental
performance and identify the areas for improvement.
Employees
Certain of the Group's operations are undertaken by sub-contracting specialists
having the technical knowledge required for complex wells' drilling operations.
Local interest is part of the Company's sustainable development policy and
wherever possible local staff are recruited and procedures are in place to
ensure that all recruitments are undertaken on a transparent and fair basis
with no discrimination against applicants. Each operating company has its own
Human Resources staff to ensure that the Group's employment policies are
properly implemented and followed. As required by Ukrainian legislation,
Collective Agreements are in place with the Group's Ukrainian subsidiary
companies which provide an agreed level of staff benefits and other safeguards
for employees. The Group's Human Resources policy covers key areas such as
equal opportunities, wages, overtime and non-discrimination. All staff are
aware of the Group's grievance procedures.
Sufficient levels of health insurance are provided by the Group to employees to
ensure they have access to good medical facilities. Each employee's training
needs are assessed on an individual basis to ensure that their skills are
adequate to support the Group's operations, and to help them to develop.
Gender diversity
The Board of Directors of the Company comprised of six male Directors
throughout the year to 31 December 2014. The appointment of
any new Director is made on the basis of merit. See pages 21 to 23 for more
information on the composition of the Board. There were no females holding
Senior Manager(1) positions as at 31 December 2014.
As at 31 December 2014, the Company comprised a total of 96 employees, as
follows:
Male Female
Non-executive directors 4 -
Executive directors 2 -
Other employees 66 24
All employees 72 24
Human rights
Cadogan's commitment to the fundamental principles of human rights is embedded
in our HSE polices and throughout our business processes. We promote the core
principles of human rights pronounced in the UN Universal Declaration of Human
Rights. Our support for these principles is embedded throughout our Code of
Conduct, our employment practices and our relationships with suppliers wherever
we do business.
Community
The Group's activities are carried out in rural areas of Ukraine and the Board
is aware of its responsibilities to the local communities in which the Group
operates and from which some of the employees are recruited. At current
operational sites, management works with the local councils to ensure that the
impact of operations is as low as practicable by putting in place measures to
mitigate their effect. Key projects undertaken include improvement of the road
infrastructure in the area, which provides easier access to the operational
sites while at the same time minimising inconvenience for the local population
and allowing improved road communications in the local communities. Specific
charitable activities are undertaken for the direct benefit of local kindergartens,
schools, sporting facilities and medical services, as well as
other community-focused facilities. All activities are followed and supervised
by managers who are given specific responsibility for such tasks.
The Group's local companies see themselves as part of the community and are
involved not only with financial assistance, but also with practical help and
support. The recruitment of local staff generates additional income for areas
that otherwise are predominantly dependent on the agricultural sector.
Approval
The Strategic Report was approved by the Board of Directors on 30 April 2015
and signed on its behalf by:
Marta Halabala
Company Secretary
30 April 2015
(1) Senior Managers are directors of subsidiary companies or who otherwise have
responsibility for planning, directing or controlling the activities of the
company or a strategically significant part of it.
Zev Furst
Independent Non-executive Chairman
Bertrand des Pallieres
Chief Executive Officer
Adelmo Schenato
Chief Operating Officer
Gilbert Lehmann
Senior Independent non-executive Director
Michel Meeùs
Non-Independent non-executive Director
Enrico Testa
Independent non-executive Director
Dividends
The Directors do not recommend payment of a dividend for the year to 31
December 2014 (2013: nil).
Structure of share capital
The authorised share capital of the Company is currently £30,000,000 divided
into 1,000,000,000 Ordinary shares of 3 pence each. The number of shares in
issue as at 31 December 2014 was 231,091,734 Ordinary shares of 3 pence each
with a nominal value of £6,932,752. The Companies (Acquisition of Own Shares)
(Treasury Shares) Regulations 2003 allow companies to hold shares in treasury
rather than cancel them. Following the consolidation of the issued capital of
the Company on 10 June 2008, there were 66 residual Ordinary shares which were
transferred to treasury. No dividends may be paid on shares whilst held in
treasury and no voting rights attach to shares held in treasury. Total voting
rights amount to 231,091,668.
Going concern
After making enquiries, 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 Consolidated and Company Financial
Statements. For further detail refer to the detailed discussion of the
assumptions outlined in note 3(b) to the Consolidated Financial Statements.
Non-Statutory Accounts
The financial information set out below does not constitute the Company's
statutory accounts for the years ended 31 December 2014 and 31 December 2013,
but is derived from those accounts. Statutory accounts for 2013 have been
delivered to the Registrar of Companies, and those for 2014 will be delivered
in due course. The Auditors have reported on those accounts; their report was
(i) unqualified, (ii) did not include a reference to any matters to which the
Auditor drew attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under Section 498 (2) or (3) of the Companies
Act 2006. The text of the Auditor's report can be found in the Company's full
Annual Report and Financial Statements at www.cadoganpetroleum.com.
Statement of Directors' Responsibilities in respect of the Annual Report
and the Financial Statements
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. The Directors are required by law to prepare the Group
financial statements in accordance with International Financial Reporting
Standards ("IFRSs") as adopted by the European Union and Article 4 of the
International Accounting Standards ("IAS") regulation and have also elected to
prepare the Parent Company financial statements under IFRSs as adopted by the
European Union. Under Company law, the Directors must not approve the Financial
Statements unless they are satisfied that they give a true and fair view of the
state of affairs of the Company and Group and of the profit or loss for that
period. In preparing the Company and Group's financial statements, IAS
Regulation requires that Directors:
properly select and apply accounting policies;
present information, including accounting policies, in a manner that provides
relevant, reliable, comparable and understandable information;
provide additional disclosures when compliance with the specific requirements
in IFRSs are insufficient to enable users to understand the impact of
particular transactions, other events and conditions on the Company's and
Group's financial position and financial performance; and
make an assessment of the Company's and Group's ability to continue as a going
concern.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company and Group's transactions and
disclose with reasonable accuracy at any time the financial position of the
Company and Group and enable them to ensure that the financial statements
comply with the Companies Act 2006. They are also responsible for safeguarding
the assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors' Report, Annual Report on Remuneration,
Directors' Remuneration Policy and Corporate Governance Statement that comply
with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website,
www.cadoganpetroleum.com. Legislation in the United Kingdom governing the
preparation and dissemination of the financial statements may differ from
legislation in other jurisdictions.
Responsibility Statement of the Directors in respect of the Annual Report
We confirm to the best of our knowledge:
(1) the financial statements, prepared in accordance with International
Financial Reporting Standards as adopted by the European Union, give a true and
fair view of the assets, liabilities, financial position and profit or loss of
the Company and the undertakings included in the consolidation as a whole; and
(2) the Strategic Report, includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they face; and
(3) the annual report and the financial statements, taken as a whole, are fair,
balanced and understandable and provide the information necessary for the
shareholders to assess the Group's performance, business model and strategy.
On behalf of the Board
Zev Furst
Chairman
30 April 2015
Consolidated Income Statement
For the year ended 31 December 2014
2014 2013
30 April 2015 Notes $'000 $'000
CONTINUING OPERATIONS
Revenue 6 32,623 3,772
Cost of sales (29,813) (3,019)
Gross profit 2,810 753
Administrative expenses:
Other administrative expenses (7,002) (8,919)
Impairment of oil and gas assets 8 (5,134) -
Reversal of impairment of other assets 8 877 234
(11,259) (8,685)
Share of losses in joint ventures 19 (54,664) (6,630)
Net foreign exchange gains/(losses) 3,036 (271)
Other operating income, net 7 547 5
Operating loss (59,530) (14,828)
Investment income 12 852 434
Finance costs 13 (468) (6)
Loss before tax (59,146) (14,400)
Tax charge 14 (166) (289)
Loss for the year 9 (59,312) (14,689)
Attributable to:
Owners of the Company (59,271) (14,660)
Non-controlling interest (41) (29)
(59,312) (14,689)
Loss per Ordinary share cents cents
Basic 15 (25.6) (6.3)
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2014
2014 2013
$'000 $'000
Loss for the year (59,312) (14,689)
Other comprehensive loss
Items that may be reclassified subsequently to profit or
loss:
Unrealised currency translation differences (28,153) (3,551)
Other comprehensive loss (28,153) (3,551)
Total comprehensive loss for the year (87,465) (18,240)
Attributable to:
Owners of the Company (87,424) (18,211)
Non-controlling interest (41) (29)
(87,465) (18,240)
Consolidated Balance Sheet
As at 31 December 2014
2014 2013
Notes $'000 $'000
ASSETS
Non-current assets
Intangible exploration and evaluation assets 16 18,289 5,958
Property, plant and equipment 17 3,846 43,886
Investments in joint ventures 19 14,325 65,965
36,460 115,809
Current assets
Inventories 20 9,940 2,951
Trade and other receivables 21 17,891 6,879
Cash and cash equivalents 22 48,927 56,484
76,758 66,314
Total assets 113,218 182,123
LIABILITIES
Non-current liabilities
Deferred tax liabilities 23 (288) (675)
Provisions 26 (55) (195)
(343) (870)
Current liabilities
Short-term borrowings 24 (17,327) -
Trade and other payables 25 (5,068) (3,442)
Provisions 26 (647) (513)
(23,042) (3,955)
Total liabilities (23,385) (4,825)
NET ASSETS 89,833 177,298
EQUITY
Share capital 27 13,337 13,337
Retained earnings 223,600 282,871
Cumulative translation reserves (148,991) (120,838)
Other reserves 1,589 1,589
Equity attributable to owners of the Company 89,535 176,959
Non-controlling interest 298 339
TOTAL EQUITY 89,833 177,298
The consolidated financial statements of Cadogan Petroleum plc, registered in
England and Wales no. 5718406, were approved by the Board of Directors and
authorised for issue on 30 April 2015. They were signed on its behalf by:
Bertrand Des Pallieres
Chief Executive Officer
30 April 2015
The notes on pages 67 to 106 form an integral part of these financial
statements.
Consolidated Cash Flow Statement
For the year ended 31 December 2014
2014 2013
$'000 $'000
Operating loss (59,530) (14,828)
Adjustments for:
Depreciation of property, plant and equipment 938 1,201
Impairment of oil and gas assets 5,134 -
Share of losses in joint ventures 54,664 6,630
Charge/(release) of impairment of inventories (note 8) 253 (97)
Reversal of impairment of VAT recoverable (note 8) (727) (137)
Loss on disposal of property, plant and equipment 211 103
Effect of foreign exchange rate changes (4,892) (1,571)
Operating cash flows before movements in working capital (3,949) (8,699)
(Increase)/decrease in inventories (7,242) 628
(Increase)/decrease in receivables (10,285) 32,879
Increase/(decrease) in payables and provisions 1,424 (645)
Cash (used in)/from operations (20,052) 24,163
Interest paid (218) -
Income taxes paid (373) (169)
Net cash (outflow)/inflow from operating activities (20,643) 23,994
Investing activities
Investments in joint ventures (3,024) (4,687)
Purchases of property, plant and equipment (1,611) (783)
Purchases of intangible exploration and evaluation assets (468) (3,069)
Proceeds from sale of property, plant and equipment 84 127
Interest received 852 434
Net cash used in investing activities (4,167) (7,978)
Financing activities
Proceeds from short-term borrowings 17,327 -
Net cash from financing activities 17,327 -
Net (decrease)/increase in cash and cash equivalents (7,483) 16,016
Effect of foreign exchange rate changes (74) (9)
Cash and cash equivalents at beginning of year 56,484 40,477
Cash and cash equivalents at end of year 48,927 56,484
Consolidated Statement of Changes in Equity
For the year ended 31 December 2014
Cumulative Other reserves
Share Retained translation Share-based Non-controlling
capital earnings reserves payment Reorganisation interest Total
$'000 $'000 $'000 $'000 $'000 $'000 $'000
As at 1
January 2013 13,337 297,438 (117,287) 93 1,589 368 195,538
Net loss for
the year - (14,660) - - - (29) (14,689)
Other
comprehensive
loss - - (3,551) - - - (3,551)
Total
comprehensive
loss for the
year - (14,660) (3,551) - - (29) (18,240)
Share-based
payments - 93 - (93) - - -
As at 1
January 2014 13,337 282,871 (120,838) - 1,589 339 177,298
Net loss for
the year - (59,271) - - - (41) (59,312)
Other
comprehensive
loss - - (28,153) - - - (28,153)
Total
comprehensive
loss for the
year - (59,271) (28,153) - - (41) (87,465)
As at 31
December 2014 13,337 223,600 (148,991) - 1,589 298 89,833
Notes to the Consolidated Financial Statements
For the year ended 31 December 2014
1. General information
Cadogan Petroleum plc (the "Company", together with its subsidiaries the
"Group"), is registered in England and Wales under the Companies Act 2006. The
address of the registered office is 1st Floor, 40 Dukes Place, London, EC3A
7NH. The nature of the Group's operations and its principal activities are set
out in the Operations Review on pages 8 to 10 and the Financial Review on pages
11 to 13.
2. Adoption of new and revised Standards
Adoption of new and revised International Financial Reporting Standards
The following standards have been adopted by the Group for the first time for
the financial year beginning on or after 1 January 2014 and have no impact on
the Group:
Amendments to IFRS 10, IFRS 11 and IFRS 12 - "Consolidated Financial
Statements, Joint Arrangements and Disclosure of Interests in Other Entities:
Transition Guidance"
Amendment to IAS 27 "Separate Financial Statements" (revised 2011) - Investment
entities
Amendments to IAS 32 "Financial instruments: Presentation" - Application
guidance on the offsetting of financial assets and financial liabilities
Amendments to IAS 36 "Recoverable amounts disclosures for non-financial assets"
Amendments to IAS 39 "Novation of derivatives and continuation of hedge
accounting"
IFRIC 21 "Levies"
Consequential amendments to IFRS 12 and IAS 27 have been made to introduce new
disclosure requirements for investment entities.
In general, the amendments require retrospective application, with specific
transitional provisions.
As the reporting entity is not an investment entity (assessed based on the
criteria set out in IFRS 10 as at 1 January 2014), the application of the
amendments has had no impact on the disclosures or other amounts recognised in
the Group's consolidated financial statements.
The adoption of other new or revised standards did not have any effect on the
consolidated financial position or performance of the Group and any disclosures
in the Group's consolidated financial statements.
Standards and Interpretations in issue but not effective
At the date of authorisation of these consolidated financial statements, the
following Standards and Interpretations, as well as amendments to the Standards
were in issue but not yet effective:
Standards and Interpretations Effective for annual
period beginning on or
after
IFRS 9 "Financial Instruments" Not yet adopted in the EU
IFRS 15 "Revenue from contracts with customers" Not yet adopted in the EU
IFRS 14 "Regulatory Deferral Accounts" Not yet adopted in the EU
Amendment to IFRS 10, IFRS 12 and IAS 28: Investment Not yet adopted in the EU
Entities: Applying the consolidation exception
Standards and Interpretations Effective for annual
period beginning on or
after
Amendments to IAS 19 "Employee Benefits" - Defined Not yet adopted in the EU
Benefit Plans: Employee Contribution
Amendments to IAS 1: Disclosure Initiative Not yet adopted in the EU
Amendments to IAS 27: Equity Method in Separate Not yet adopted in the EU
Financial Statements
Amendments to IAS 16 and IAS 41: Bearer plants Not yet adopted in the EU
Amendments to IAS 16 and IAS 38: Classification of Not yet adopted in the EU
Acceptable Methods of Depreciation and Amortisation
Amendments to IFRS 10 and IAS 28: Sale or Contribution Not yet adopted in the EU
of Assets between an Investor and its Associate or Joint
Venture
Amendments to IFRS 11: Accounting for acquisitions of Not yet adopted in the EU
Interests in Joint Ventures
Amendments to IFRSs - "Annual Improvements to IFRSs Not yet adopted in the EU
2010-2012 Cycle"
Amendments to IFRSs - "Annual Improvements to IFRSs Not yet adopted in the EU
2011-2013 Cycle"
Amendments to IFRS 7 "Financial instruments: 1 January 2015
Disclosures" - Disclosures about the initial application
of IFRS
3. Significant accounting policies
(a) Basis of accounting
The financial statements have been 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"), and therefore the Group financial statements comply with Article 4 of
the EU IAS Regulation.
The financial statements have been prepared on the historical cost convention
basis, except for share-based payments, accounting for the WGI transaction and
other financial assets and liabilities, which have been measured at fair values
and using accounting policies consistent with IFRS.
The principal accounting policies adopted are set out below:
(b) Going concern
The Group's business activities, together with the factors likely to affect
future development, performance and position are set out in the Strategic
Report on pages 3 to 20. The financial position of the Group, its cash flow and
liquidity position are described in the Financial Review on pages 11 to 13.
The Group's cash balance at 31 December 2014 was $48.9 million (2013: $56.5
million) excluding $0.5 million (2013: $0.2 million) of Cadogan's share of cash
and cash equivalents in joint ventures. It includes $20 million of restricted
cash held in UK bank which represent security of borrowings (note 24). 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.
As the Group engages in oil and gas exploration and development activities, the
most significant financial risk faced by the Group is delays encountered in
achieving commercial production from the Group's major fields. The Group also
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 to spread
the risks associated with further exploration and development.
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 annual financial statements. In making its statement the
Directors have considered the recent political and economic uncertainty in
Ukraine, as described further in the note 4 (f).
(c) Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and entities controlled by the Company (its subsidiaries) made up
to 31 December each year. IFRS 10 defines control to be investor control over
an investee when it is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to control those returns
through its power over the investee.
The results of subsidiaries acquired or disposed during the year are included
in the consolidated income statement from the effective date of acquisition or
up to the effective date of disposal, as appropriate. Where necessary,
adjustments are made to the financial statements of subsidiaries to bring
accounting policies used into line with those used by the Group. All
intra-group transactions, balances, income and expenses are eliminated on
consolidation.
Non-controlling interests in subsidiaries are identified separately from the
Group's equity therein. Those interests of non-controlling shareholders that
are present ownership interests entitling their holders to a proportionate
share of net assets upon liquidation may be initially measured at fair value or
at the non-controlling interests' proportionate share of the fair value of the
acquiree's identifiable net assets. The choice of measurement is made on an
acquisition-by-acquisition basis. Other non-controlling interests are initially
measured at fair value.
Subsequent to acquisition, the carrying amount of non-controlling interests is
the amount of those interests at initial recognition plus the non-controlling
interests' share of subsequent changes in equity. Total comprehensive income is
attributed to non-controlling interests even if this results in the
non-controlling interests having a deficit balance.
Changes in the Group's interests in subsidiaries that do not result in a loss
of control are accounted for as equity transactions. The carrying amount of the
Group's interests and the non-controlling interests are adjusted to reflect the
changes in their relative interests in the subsidiaries. Any difference between
the amount by which the non-controlling interests are adjusted and the fair
value of the consideration paid or received is recognised directly in equity
and attributed to the owners of the Company.
When the Group loses control of a subsidiary, the profit or loss on disposal is
calculated as the difference between (i) the aggregate of the fair value of the
consideration received and the fair value of any retained interest and (ii) the
previous carrying amount of the assets (including goodwill), less liabilities
of the subsidiary and any non-controlling interests. Amounts previously
recognised in other comprehensive income in relation to the subsidiary are
accounted for (i.e. reclassified to profit or loss or transferred directly to
retained earnings) in the same manner as would be required if the relevant
assets or liabilities are disposed of. The fair value of any investment
retained in the former subsidiary at the date when control is lost is regarded
as the fair value on initial recognition for subsequent accounting under IAS 39
Financial Instruments: Recognition and Measurement or, when applicable, the
costs on initial recognition of an investment in an associate or jointly
controlled entity.
(d) Business combinations
The acquisition of subsidiaries is accounted for using the acquisition method.
The cost of the acquisition is measured at the aggregate of the fair values, at
the date of exchange, of assets given, liabilities incurred or assumed, and
equity instruments issued in exchange for control of the acquiree.
Acquisition-related costs are recognised in profit or loss as incurred. The
acquiree's identifiable assets, liabilities and contingent liabilities that
meet the conditions for recognition under IFRS 3 Business Combinations are
recognised at their fair value at the acquisition date, except for non-current
assets (or disposal groups) that are classified as held for resale in
accordance with IFRS 5 Non-Current Assets held for sale and Discontinued
Operations. These are recognised and measured at fair value less costs to sell.
(e) Investments in joint ventures
A joint venture is a joint arrangement whereby the parties that have joint
control of the arrangement have rights to the net assets of the arrangement. A
joint venture firm recognises its interest in a joint venture as an investment
and shall account for that investment using the equity method in accordance
with IAS 28 Investments in Associates and Joint Ventures.
Under the equity method, the investment is carried on the balance sheet at cost
plus changes in the Group's share of net assets of the entity, less
distributions received and less any impairment in value of the investment. The
Group Consolidated Income Statement reflects the Group's share of the results
after tax of the equity-accounted entity, adjusted to account for depreciation,
amortisation and any impairment of the equity accounted entity's assets. The
Group Statement of Comprehensive Income includes the Group's share of the
equity-accounted entity's other comprehensive income.
Financial statements of equity-accounted entities are prepared for the same
reporting year as the Group. The Group assesses investments in equity-accounted
entities for impairment whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. If any such indication of
impairment exists, the carrying amount of the investment is compared with its
recoverable amount, being the higher of its fair value less costs of disposal
and value in use. If the carrying amount exceeds the recoverable amount, the
investment is written down to its recoverable amount.
The Group ceases to use the equity method of accounting from the date on which
it no longer has joint control over the joint venture or significant influence
over the associate, or when the interest becomes classified as an asset held
for sale.
(f) Revenue recognition
Revenue is measured at the fair value of the consideration received or
receivable and represents amounts receivable for hydrocarbon products and
services provided in the normal course of business, net of discounts, value
added tax ('VAT') and other sales-related taxes. Sales of hydrocarbons are
recognised when the title has passed. Revenue from services is recognised in
the accounting period in which services are rendered. The main types of
services provided by the Group are drilling and construction services.
Interest income is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the expected life
of the financial asset to that asset's net carrying amount on initial
recognition.
To the extent that revenue arises from test production during an evaluation
programme, an amount is charged from evaluation costs to cost of sales, so as
to reflect a zero net margin.
(g) 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.
In preparing the financial statements of the individual companies, transactions
in currencies other than the functional currency of each Group company
('foreign currencies') are recorded in the functional currency at the rates of
exchange prevailing on the dates of the transactions. At each balance sheet
date, monetary assets and liabilities that are denominated in foreign
currencies are retranslated into the functional currency at the rates
prevailing on the balance sheet date. Non-monetary assets and liabilities
carried at fair value that are denominated in foreign currencies are translated
at the rates prevailing at the date when the fair value was determined.
Non-monetary items that are measured in terms of historical cost in a foreign
currency are not retranslated.
Exchange differences are recognised in the profit or loss in the period in
which they arise except for exchange differences on monetary items receivable
from or payable to a foreign operation for which settlement is neither planned
nor likely to occur. This forms part of the net investment in a foreign
operation which is recognised in the foreign currency translation reserve and
in profit or loss on disposal of the net investment.
For the purpose of presenting consolidated financial statements, the results
and financial position of each entity of the Group are translated into US
dollars as follows:
(i) assets and liabilities of the Group's foreign operations are translated at
the closing rate on the balance sheet date;
(ii) income and expenses are translated at the average exchange rates for the
period, unless exchange rates fluctuate significantly during that period, in
which case the exchange rates at the date of the transactions are used; and
(iii) all resulting exchange differences arising, if any, are recognised in
other comprehensive income and accumulated equity (attributed to
non-controlling interests as appropriate), transferred to the Group's
translation reserve. Such translation differences are recognised as income or
as expenses in the period in which the operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
The relevant exchange rates used were as follows:
Year ended 31 December Year ended 31
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