REG-Cadogan Petroleum: Annual Financial Report <Origin Href="QuoteRef">CADP.L</Origin> - Part 2

Cadogan Energy SolutionsAnnouncement

28/04/2017 08:35

- Part 2: For the preceding part double click  ID:nPRrS1DE1a 

was CEO of a
Luxembourg based Private Equity fund investing in E&P.

Mr Michelotti is a Senior Advisor to the Energy Practice of the Boston
Consulting Group, a member of the Society of Petroleum Engineers (SPE) and a
former member of SPE’s Industry Advisory Council.

Bertrand des Pallieres, 50, French

Chief Trading Officer

Mr des Pallieres was appointed as Chief Executive Officer on 1 August 2011,
having joined the Board as a non-executive Director on 26 August 2010. Mr des
Pallieres is also the CEO of SPQR Capital Holdings SA, a major shareholder of
the Company. On 22 June 2015, Mr des Pallieres resigned as CEO and was
appointed as Chief Trading Officer.

Previously he was the Global Head of Principal Finance and member of the
Global Market Leadership Group of Deutsche Bank from 2005 to 2007. From 1992
to 2005 he held various positions at JPMorgan including Global Head of
Structured Credit, European Head of Derivatives Structuring and Marketing, and
Co-Head of sales for Europe, Middle East and Africa. He is an executive
director of Versatile Systems Inc. listed on the Toronto and London Stock
Exchanges and a non-executive director of Equus Total return, Inc., listed on
the NYSE.

Mr des Pallieres is a member of the Nomination Committee.

Adelmo Schenato, 65, Italian

Chief Operating Officer (1)

Mr Schenato was appointed to the Board as Chief Operating Officer on 25
January 2012. He joined the Company after a 35 year career at eni, the Italian
integrated energy business, where he served in senior global and regional
positions. His global roles at eni included Well Operations Research and
Development and Technical Management, and Vice President HSE & Sustainability.
His regional roles include General Manager of Tunisia, Gabon and Angola as
well as CEO of eni’s Italian gas storage company.

Mr Schenato is the Chairman of the Health, Safety and Environment Committee.

In January 2017, Mr Schenato stepped down as Chief Operating Officer to take
up the role of Chairman and CEO of Exploenergy, the Italian company recently
bought by Cadogan.

(1 ) In the first quarter 2017 Mr Schenato stepped down from his COO role and
became a non-Executive Director of Cadogan Petroleum plc

Gilbert Lehmann, 71, French

Senior Independent non-executive Director

Mr Lehmann was appointed to the Board on 18 November 2011. He is currently
acting as an adviser to the Executive Board of Areva, the French nuclear
energy business, having previously been its Deputy Chief Executive Officer
responsible for finance. He is also a former Chief Financial Officer and
deputy CEO of Framatone, the predecessor to Areva, and was CFO of Sogee, part
of the Rothschild Group. Mr Lehmann is also Deputy Chairman and Chairman of
the Audit Committee of Eramet, the French minerals and alloy business. He is
Deputy Chairman and Audit Committee Chairman of Assystem SA, the French
engineering and innovation consultancy. He was Chairman of ST Microelectronics
NV, one of the world’s largest semiconductor companies, from 2007 to 2009,
and stepped down as Vice Chairman in 2011.

Mr Lehmann is currently Chairman of the Company’s Audit Committee and a
member of the Remuneration and Nomination Committees.

Michel Meeùs, 64, Belgian

Non-executive Director

Mr Meeùs was appointed as a Non-executive Director on 23 June 2014. Mr.
Meeùs is currently acting as Chairman of the Board of Directors of Theolia,
an independent international developer and operator of wind energy projects,
of which he is a major shareholder. Since 2007, he has been a director within
the Alcogroup SA Company (which gathers the ethanol production units of the
homonymous group), as well as within some of its subsidiaries. Before joining
Alcogroup, Mr Meeùs carried out a career in the financial sector, at Chase
Manhattan Bank in Brussels and London, then at Security Pacific Bank in
London, then finally at Electra Kingsway Private Equity in London.

Enrico Testa, 65, Italian

Independent non-executive Director

Appointed to the Board on 1 October 2011, Mr Testa has a long and varied
background in the energy market. He was Chairman of the Board of ACEA (the
Rome electricity and water utility company) from 1996 to 2002. He was Chairman
of the Board of Enel S.p.A, the major Italian electricity supplier, during its
privatisation. From 2005 to 2009 he was Chairman of Roma Metropolitane, the
Rome council-owned company constructing new underground lines. He was also
Chairman of the Organising Committee for the 20th World Energy Congress held
in Rome in November 2007, Senior Partner at the Franco Bernabè Group which
owns several investments in the IT sector from 2002 to 2005 he was member of
the Advisory Board of Carlyle Europe and has been Chairman of the Italian
Nuclear Forum since 2010. In addition, between 2004 and August 2012 Mr Testa
was Managing Director of Rothschild S.p.A.

He is currently Chairman of the AIM listed telecommunications company Telit
Communications Plc, Vice Chairman of Intecs S.p.A and Chairman of E.VA –
Energie Valsabbia S.p.A. – a company developing hydropower and solar
generating plants.

Mr Testa is Chairman of the Company’s Remuneration Committee and a member of
the Audit and Nomination Committees.

Report of the Directors

Directors

The Directors in office during the year and at the date of this report are as
shown below:

Non-executive Directors                   Executive Directors

Zev Furst (Chairman)                                 Guido
Michelotti

Gilbert Lehmann                                      
 Bertrand des Pallieres

Michel Meeùs                                          
 Adelmo Schenato

Enrico Testa

In the first quarter of 2017 Mr Schenato stepped down as Chief Operating
Officer of the Company but remains as a non-executive director of Cadogan
Petroleum plc and as a technical adviser to the Chief
Executive.                                  
                               

Directors’ re-election

The Board has decided previously that all Directors must be subject to annual
election by shareholders, in accordance with the best practice guidance for
FTSE 350 companies contained in the UK Corporate Governance Code that was
issued in April 2016 by the Financial Reporting Council (the ‘Code’). As
such, all of the Directors will be seeking re-election at the Annual General
Meeting to be held on 22 June 2017.

The biographies of the Directors in office at the date of this report are
shown on pages 20 and 21.

Appointment and replacement of Directors

The Board may appoint any individual willing to act as a Director either to
fill a vacancy or act as an additional Director. The appointee may hold office
only until the next annual general meeting of the Company whereupon his or her
election will be proposed to the shareholders.

The Company’s Articles of Association prescribe that there shall be no fewer
than three Directors and no more than fifteen.

Directors’ interests in shares

The beneficial interests of the Directors in office as at 31 December 2016 and
their connected persons in the Ordinary shares of the Company at 31 December
2016 are set out below.

 Director              Number of Shares 
 Z Furst                              - 
 G Michelotti                         - 
 B des Pallieres                200,000 
 G Lehmann                            - 
 M Meeùs                     26,000,000 
 A Schenato                           - 
 E Testa                              - 

Directors’ indemnities and insurance

The Company continues to maintain Directors’ and Officers’ Liability
Insurance. The Company’s Articles of Association provide, subject to the
provisions of the Companies Act 2006, an indemnity for Directors in respect of
any liability incurred in connection with their duties, powers or office. Save
for such indemnity provisions, there are no qualifying third party indemnity
provisions.

Powers of Directors

The Directors are responsible for the management of the business and may
exercise all powers of the Company (including powers to issue or buy back the
Company’s shares), subject to UK legislation, any directions given by
special resolution and the Articles of Association. The authorities to issue
and buy back shares, granted at the 2016 Annual General Meeting, remains
unused.

Dividends

The Directors do not recommend payment of a dividend for the year to 31
December 2016 (2015: nil).

Principal activity and status

The Company is registered as a public limited company (registration number
05718406) in England and Wales. Its principal activity is oil and gas
exploration, development and production.

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 2016 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.

Rights and obligations of Ordinary shares

On a show of hands at a general meeting every holder of Ordinary shares
present in person or by proxy and entitled to vote shall have one vote and, on
a poll, every member present in person or by proxy, shall have one vote for
every Ordinary share held. In accordance with the provisions of the
Company’s Articles of Association, holders of Ordinary shares are entitled
to a dividend where declared and paid out of profits available for such
purposes. On a return of capital on a winding up, holders of Ordinary shares
are entitled to participate in such a return.

Exercise of rights of shares in employee share schemes

None of the share awards under the Company’s incentive arrangements are held
in trust on behalf of the beneficiaries.

Agreements between shareholders

The Board is unaware of any agreements between shareholders, which may
restrict the transfer of securities or voting rights.

Restrictions on voting deadlines

The notice of any general meeting of the Company shall specify the deadline
for exercising voting rights and appointing a proxy or proxies to vote at a
general meeting. It is the Company’s policy at present to take all
resolutions at a general meeting on a poll and the results of the poll are
published on the Company’s website after the
meeting.             

Substantial shareholdings

As at 31 December 2016 and 27 April 2017, the Company had been notified of the
following interests in voting rights attached to the Company’s shares:

                                               31 December 2016                                  27 April 2017                   
 Major shareholder              Number of shares held  % of total voting rights  Number of shares held  % of total voting rights 
 SPQR Capital Holdings SA                  67,298,498                     29.12             67,298,498                     29.12 
 Mr Pierre Salik                           40,550,000                     17.55             40,550,000                     17.55 
 Mr Michel Meeùs                           26,000,000                     11.25             26,000,000                     11.25 
 CA Indosuez (Switzerland) SA              18,683,000                      8.08             18,683,000                      8.08 
 Kellet Overseas Inc.                      14,002,696                      6.06             14,002,696                      6.06 
 Cynderella Trust                           7,657,886                      3.31              7,657,886                      3.31 

Amendment of the Company’s Articles of Association

The Company’s Articles of Association may only be amended by a special
resolution of shareholders.

Disclosure of information to auditor

As required by section 418 of the Companies Act 2006, each of the Directors as
at 27 April 2017 confirms that:

(a) so far as the Director is aware, there is no relevant audit information of
which the Company’s auditor is unaware; and

(b) the Director has taken all the steps that he ought to have taken as a
Director in order to make himself aware of any relevant audit information and
to establish that the Company’s auditor is aware of that information.

This confirmation is given and should be interpreted in accordance with
section 418 of the Companies Act 2006.

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.

Reporting year

The reporting year coincides with the Company's fiscal year, which is 1
January 2016 to 31 December 2016.

Change of control – significant agreements

The Company has no significant agreements containing provisions, which allow a
counterparty to alter and amend the terms of the agreement following a change
of control of the Company.

Should a change in control occur then certain Executive directors are entitled
to a payment of salary and benefits for a period of six months.

Global greenhouse gas emissions

This section contains information on greenhouse gas (“GHG”) emissions
required by the Companies Act 2006 (Strategic Report and Directors' Report)
Regulations 2013 (the “Regulations”).

 Methodology

The principal methodology used to calculate the emissions is drawn from the
‘Environmental Reporting Guidelines: including mandatory greenhouse gas
emissions reporting guidance (June 2013)’, issued by the Department for
Environment, Food and Rural Affairs (“DEFRA”). Additionally, ‘Petroleum
Industry Guidelines for Reporting Greenhouse Gas Emissions (2nd edition, May
2011)’ were used to cover issues specific for the petroleum industry. DEFRA
GHG conversion factors for company reporting were utilised to calculate the
CO2 equivalent of emissions from various sources.

The Company has reported on all of the emission sources required under the
Regulations.

The Company does not have responsibility for any emission sources that are not
included in its consolidated statement.

Consolidation approach and organisation boundary

An operational control approach was used to define the Company's
organisational boundary and responsibility for GHG emissions. All material
emission sources within this boundary have been reported upon, in line with
the requirements of the Regulations.

Scope of reported emissions

Emissions data from the sources within Scope 1 and Scope 2 of the Company's
operational boundaries is detailed below. This includes direct emissions from
assets that fall within the Company’s organisational boundaries (Scope 1
emissions), as well as indirect emissions from energy consumption, such as
purchased electricity and heating (Scope 2 emissions).

Scope of emissions increased comparatively to 2015 results due to 10 wells
plug and abandonment carried-out by Cadogan Group service subsidiary
Astro-Service LLC (results incorporated). The 2016 results of the E&P activity
(which is directly related to production) improved compared to the previous
year.

Intensity ratio

In order to express the GHG emissions in relation to a quantifiable factor
associated with the Company's activities, wellhead production of crude oil,
condensates and natural gas has been chosen as the normalisation factor for
calculating the intensity ratio. This will allow comparison of the Company’s
performance over time, as well as with other companies in the Company’s peer
group.

The intensity ratio for E&P operations (same reporting perimeter) decreased
from 30.47 CO(2)e/boe in 2015 to 27.44 CO(2)e/boe in 2016.

Total greenhouse gas emissions data for the year from 1 January 2016 to 31
December 2016

                                                                       Greenhouse gas emissions source                                                                             E&P         Service        Total      
                                                                                                                                                                                2016    2015  2016  2015    2016    2015 
 Scope 1                                                                                                                                                                                                                 
 Direct emissions, including combustion of fuel and operation of facilities (tonnes of CO (2)equivalent)                                                                         514     554   444    23     958     577 
 Scope 2                                                                                                                                                                                                                 
 Indirect emissions from energy consumption, such as electricity and heating purchased for own use (tonnes of CO (2)equivalent)                                                  754     741     -     -     754     741 
 Total (Scope 1 & 2)                                                                                                                                                           1,268   1,295   444    23   1,712   1,318 
 Normalisation factor                                                                                                                                                                                                    
 Barrels of oil equivalent                                                                                                                                                    46,191  42,493     -     -  46,191  42,493 
 Intensity ratio                                                                                                                                                                                                         
 Emissions reported above normalised to tonnes of CO (2)e per total wellhead production of crude oil, condensates and natural gas, in thousands of Barrel of Oil Equivalent    27.44   30.47   n/a   n/a     n/a     n/a 

2017 Annual General Meeting

The 2017 Annual General Meeting (“AGM”) of the Company will be an
opportunity to communicate with shareholders and the Board welcomes their
participation. Board members constantly strive to keep in touch with
shareholder opinion and to discuss strategy and governance issues with them
through direct contacts.

The Board looks forward to welcoming shareholders to the AGM and shareholder
information will be enclosed as usual with the AGM notice to facilitate voting
and feedback in the usual way.

The AGM notice will be issued to shareholders well in advance of the meeting
with notes to provide an explanation of all resolutions to be put to the AGM.

Board and committee members will be available for shareholders participation
at the AGM. All relevant shareholder information including the annual report
for 2016 and any other announcements will be published on our website –
www.cadoganpetroleum.com

This Report of Directors comprising pages 22 to 27 has been approved by the
Board and signed on its behalf by:

Ben Harber
Company Secretary
27 April 2017

Viability Statement

In accordance with provision C2.2 of the 2016 revision of the UK Corporate
Governance Code, the Board has assessed the prospect of the Group over a
longer period than the twelve months required by the ‘Going Concern’
provision.

Look-out period

The Board selected a three-year period as appropriate for the assessment for
the reason that the Group’s strategy is aligned with a three-year view and
that the current volatility in commodity markets makes confidence in a longer
assessment of prospects highly challenging.

Assessment

The Board has conducted a stress test in one combined scenario as well as
assessment of the principal risks facing the Group (as set out on pages 13 to
15), including those that would threaten its business model, future
performance, solvency or liquidity. The factors considered include:
* consideration of potential impact of political situation and renewal of the
licences that will expire during following three years
* foreign exchange movements to which the Group is exposed as a result of its
operations in Ukraine
* downturn in the price and demand of hydrocarbon products most impacting
Group’s operations
* consideration of exploration investments in Italy, if the licences been
awarded and the execution permits been granted
Key assumptions

The key assumptions underpinning the Board’s assessment include oil and gas
prices, trading volumes, foreign exchange rates, the ability to repay
borrowing facilities as they fall due and the expectations for capital
expenditures.

Expectations

Based on the results of the related analysis and taking account of the
Group’s current position, particularly its cash availability, and the
principal risks, and the effect of the licences that expired during the year
the Board has a reasonable expectation that the Group will be able to continue
its operation and meet its liabilities as they fall due over the three-year
period of the assessment.

Corporate Governance Statement

The Board of the Company is committed to the highest standards of corporate
governance and bases its actions on the principles set out in the UK Corporate
Governance Code issued by the Financial Reporting Council (‘FRC’) in April
2016 (the ‘Code’). The Code can be found on the FRC’s website at
www.frc.org.uk

This statement describes how the Group applies the principles of the Code. On
20 December 2011 the Company’s listing category on the London Stock Exchange
was transferred from ‘Premium Listing’ to ‘Standard Listing’. Although
companies with a standard listing are subject to less stringent corporate
governance requirements, the Board has decided that the Group will continue to
govern itself in accordance with the principles of the Code and explain why it
has chosen not to comply with any of the provisions of the Code.

During the year under review, the Group has complied with the Code’s
provisions with the following exceptions:
* Code provision A.4.2 – During the year, the Chairman did not hold meetings
with the non-executive Directors without the executives present
* Code provision E.1.1 – The Senior Independent Director has not attended
meetings with major shareholders
The reasons for these two areas of non-compliance are as follows:
* Although the Chairman did not hold formal meetings with the non-executive
Directors during the year, regular discussions took place by telephone and
email
* The Senior Independent Director, Mr Lehmann, did not attend meetings with
major shareholders as this responsibility was undertaken by the Chairman and
the Executive Directors. Mr Lehmann is available to shareholders who have
concerns that they feel would be inappropriate to raise via the Chairman or
Executive Directors
In addition to the two areas of non-compliance described above, Bertrand des
Pallieres served as a non-executive director on the board of Equus Total
Return Inc. during the year ended 31 December 2016 and the Directors'
Remuneration Report does not include a statement as to whether or not Bertrand
des Pallieres retained his earnings in connection with these appointments and,
if so, what the remuneration in respect of each appointment was, as required
under Code provision D.1.2. These appointments have not been considered
relevant to the Company since Mr des Pallieres held these positions prior to
his appointment as an Executive Director of the Company and his
responsibilities have not prevented Mr des Pallieres from fulfilling his
duties as the Company's Chief Trading Officer during the year ended 31
December 2016.

Board

The Board provides leadership and oversight. The Board comprises a
non-executive Chairman, Chief Executive Officer, Chief Trading Officer, Chief
Operating Officer 7 , two independent non-executive Directors and a
non-executive Director who is not deemed independent.  The membership of the
Board and biographical details for each of the Directors are incorporated into
this report by reference and appear on page 20 and 21.

As at the date of this report, the Chairman had no significant commitments
that might affect his ability to allocate sufficient time to the Company to
discharge his responsibilities effectively.

Under the Company’s Articles of Association, all Directors must seek
re-election by members at least once every three years. However, the Board has
agreed that all Directors will be subject to annual election by shareholders,
as recommended by the Code in respect of FTSE 350 companies. Accordingly, all
members of the Board will be standing for re-election at the 2017 Annual
General Meeting due to be held on 22 June 2017.

The Board has a formal schedule of matters specifically reserved for it to
decide, including approval of acquisitions and disposals, major capital
projects, financial results, Board appointments, dividend recommendations,
material contracts and Group strategy.

The Chairman, in conjunction with the Company Secretary, plans the programme
for the Board during the year. The agenda for Board and Committee meetings is
considered by the relevant Chairman and issued with supporting papers during
the week preceding the meeting. For each Board meeting, the Directors receive
a Board pack including management accounts, briefing papers on commercial and
operational matters and major capital projects including acquisitions. The
Board also receives briefings from key management on specific issues. Six
Board meetings took place during 2016.The attendance of those Directors in
place at the year end at Board and Committee meetings during the year was as
follows:

                   Board  Audit  Committee  Nomination Committee  Remuneration Committee 
 No. Held              6                 3                     1                       2 
 No. Attended:                                                                           
 Z Furst               6               N/A                     1                       2 
 G Michelotti          6               N/A                   N/A                     N/A 
 B des Pallieres       4               N/A                     1                     N/A 
 G Lehmann             6                 3                     1                       2 
 M Meeùs               5               N/A                   N/A                     N/A 
 A Schenato            6               N/A                   N/A                     N/A 
 E Testa               5                 3                     1                       2 

A procedure exists for the Directors, in the furtherance of their duties, to
take independent professional advice if necessary, under the guidance of the
Company Secretary and at the Company’s expense. All Directors have access to
the advice and services of the Company Secretary, who is responsible to the
Chairman for ensuring that Board procedures are complied with and that
applicable rules and regulations are followed.

Board independence

The roles and responsibilities of the Chairman and Chief Executive Officer are
separate. A formal division of each individual’s responsibilities has been
agreed and documented by the Board. Mr Lehmann is the Senior Independent
Director.

The non-executive Directors bring an independent view to the Board’s
discussions and the development of its strategy. Their range of experience
ensures that management’s performance in achieving the business goals is
challenged appropriately. Two non-executive Directors, Lehmann and Testa are
considered by the Board in accordance with the Code, to be independent. Michel
Meeùs, who is a significant shareholder, is not considered to be independent
(1). The letters of appointment for the non-executive Directors are available
for review at the Registered Office and prior to the Annual General Meeting.

(1 ) In the first quarter January 2017 Mr Schenato stepped down from his COO
role and became a non-Executive Director of Cadogan Petroleum plc

Responsibilities and membership of Board Committees

The Board has agreed written terms of reference for the Nomination Committee,
Remuneration Committee and Audit Committee. The terms of reference for all
three Board Committees are published on the Company’s website,
www.cadoganpetroleum.com, and are also available from the Company Secretary at
the Registered Office. A review of the terms of reference, membership and
activities of all Board Committees is provided on pages 33 to 41.

Board performance evaluation and effectiveness

Principle B.6 of the Code recommends that boards undertake a formal and
rigorous annual evaluation of its own performance and that of its committees
and individual Directors. The Board is mindful that it needs to continually
monitor and identify ways in which it might improve its performance and
recognises that board evaluation is a useful tool for enhancing a board’s
effectiveness. For the year ended 31 December 2016, the Board opted to
undertake self-evaluation by way of a questionnaire designed specifically to
assess the strengths of the Board and identify any areas for development.

The process was led by Mr Furst as Chairman and the evaluation of the
Chairman’s performance was led by Mr Lehmann as the Senior Independent
Director. The Board discussed the evaluation questionnaire findings, which
were also used by the Nomination Committee in its annual assessment of the
Board’s composition. There were no material areas of improvement identified
for action at the time of conducting the evaluation.

The Directors are committed to ensuring that the Board continues to represent
a broad balance of skills, experience, independence and knowledge and that
there is sufficient diversity within the composition of the Board. All
appointments are made on merit against objective criteria – which include
gender and diversity generally – in the context of the requirements of the
business and the overall balance of skills and backgrounds that the Board
needs to maintain in order to remain effective.

The Chairman is responsible for the induction of new Directors and ongoing
development of all Directors.  The induction process typically includes an
induction pack, operational site visits, meetings with key individuals and the
Company’s advisers, and briefings on key business, legal and regulatory
issues facing the Company.

Whilst no formal structured continuing professional development programme has
been established every effort is made to ensure that the Directors are fully
briefed before Board meetings on the Company’s business.  In addition, the
Non-executive Directors receive updates from time to time on specific topics
affecting the Company from the Executive Directors, and all Directors receive
updates on recent developments in corporate governance and compliance from the
Company Secretary. Each of the Directors independently ensures that they
update their skills and knowledge sufficiently to enable them to fulfil their
duties effectively.

Internal control

The Directors are responsible for the Group’s system of internal control and
for maintaining and reviewing its effectiveness. The Board has delegated
responsibility for the monitoring and review of the Group’s internal
controls to the Audit Committee. The Group’s systems and controls are
designed to safeguard the Group’s assets and to ensure the reliability of
information used both within the business and for publication.

Systems are designed to manage, rather than eliminate, the risk of failure to
achieve business objectives and can provide only reasonable, and not absolute,
assurance against material misstatement or loss.

The key features of the Group’s internal control and risk management systems
that ensure the accuracy and reliability of financial reporting include
clearly defined lines of accountability and delegation of authority, policies
and procedures that cover financial planning and reporting, preparing
consolidated financial statements, capital expenditure, project governance and
information security.

The key features of the internal control systems, which operated during 2016
and up to the date of signing the Financial Statements are documented in the
Group’s Corporate Governance Policy Manual and Finance Manual. These manuals
and policies have been circulated and adopted throughout the Group, except the
joint venture Westgasinvest LLC (“WGI”), where eni’s policies are
adopted.

Day-to-day responsibility for the management and operations of the business
has been delegated to the Chief Executive Officer and senior management.
Certain specific administrative functions are controlled centrally. Taxation
and treasury functions report to the Group Director of Finance who reports
directly to the Chief Executive Officer. Trading business is managed by the
Chief Trading Officer, who reports directly to Chief Executive Officer. The
legal function for Ukraine’s related assets and activities is managed by the
General Counsel, who reports to the General Director of Cadogan Ukraine. The
Health, Safety and Environment functions report to the Chief Operating
Officer. An overview of the Group’s treasury policy is set out on page 12.
The Group does not have an internal audit function. Due to the small scale of
the Group’s operations at present, the Board does not feel that it is
appropriate or economically viable to have this function in place. The Audit
Committee will continue to consider the position annually.

The Board has reviewed the process, which has been in place from the start of
the year to the date of approval of this report and which is in accordance
with the Code. During the course of its review of the risk management and
internal control systems, the Board has not identified nor been advised of any
failings or weaknesses which it has deemed to be significant. Therefore a
confirmation in respect of necessary actions has not been considered
appropriate.

Relations with shareholders

The Chairman and Executive Directors of the Company have a regular dialogue
with analysts and substantial shareholders. The outcome of these discussions
is reported to the Board and discussed in detail. Mr Lehmann, as the Senior
Independent Director, is available to shareholders who have questions that
they feel would be inappropriate to raise via the Chairman or Executive
Directors.

The Annual General Meeting is used as an opportunity to communicate with all
shareholders. In addition, financial results are posted on the Company’s
website, www.cadoganpetroleum.com, as soon as they are announced. The Notice
of the Annual General Meeting is contained also on the Company’s website,
www.cadoganpetroleum.com. It is intended that the Chairmen of the Nomination,
Audit and Remuneration Committees will be present at the Annual General
Meeting. The results of all resolutions will be published on the Company’s
website, www.cadoganpetroleum.com.

Board Committee Reports

Audit Committee Report

The Audit Committee is appointed by the Board, on the recommendation of the
Nomination Committee, from the non-executive Directors of the Group. The Audit
Committee’s terms of reference include all matters indicated by the Code.
They are reviewed annually by the Audit Committee and any changes are then
referred to the Board for approval. The terms of reference of the Committee
are published on the Company’s website, www.cadoganpetroleum.com, and are
also available from the Company Secretary at the Registered Office. Two
members constitute a quorum.

Responsibilities
* To monitor the integrity of the annual and interim financial statements, the
accompanying reports to shareholders, and announcements regarding the
Group’s results
* To review and monitor the effectiveness and integrity of the Group’s
financial reporting and internal financial controls
* To review the effectiveness of the process for identifying, assessing and
reporting all significant business risks and the management of those risks by
the Group
* To oversee the Group’s relations with the external auditor and to make
recommendations to the Board, for approval by shareholders, on the appointment
and removal of the external auditor
* To consider whether an internal audit function is appropriate to enable the
Audit Committee to meet its objectives
* To review the Group’s arrangements by which staff of the Group may, in
confidence, raise concerns about possible improprieties in matters of
financial reporting or other matters
Assessment of the effectiveness of the external auditor

The Committee has assessed the effectiveness of the external audit process.
They did this by:
* Reviewing the 2016 external audit plan;
* Discussing the results of the audit including the auditor’s views on
material accounting issues and key judgements and estimates, and their audit
report;
* Considering the robustness of the audit process;
* Reviewing the quality of the service and people provided to undertake the
audit; and
* Considering their independence and objectivity.
Governance

Mr Testa and Mr Lehmann, who are both independent non-executive Directors
under provision B.1.1 of the Code, are the members of the Audit Committee. The
Audit Committee is chaired by Mr Lehmann who has recent and relevant financial
experience as a former finance director of major European companies as well as
holding several non-executive roles in major international entities.

At the invitation of the Audit Committee, the Group Director of Finance and
external auditor regularly attend meetings. The Company Secretary attends all
meetings of the Audit Committee.

The Audit Committee also meets the external auditor without management being
present.

Activities of the Audit Committee

During the year, the Audit Committee discharged its responsibilities as
follows:

Financial statements

The Audit Committee examined the Group’s consolidated and Company’s
financial statements and, prior to recommending them to the Board, considered
the appropriateness of the accounting policies adopted and reviewed critical
judgements, estimates and underlying assumptions and whether the financial
statements are fair, balanced and understandable.

Significant issues relating to the 2016 financial statements

For the year ended 31 December 2016 the Audit Committee identified the
significant issues that should be considered in relation to the financial
statements, being areas which may be subject to heightened risk of material
misstatement.

Reserves

Oil and gas reserves, as discussed in the Statement of Reserves and Resources,
are based on the Independent Reserves and Resources Evaluation performed by
Brend Vik concluded in March 2016.

However, reserves estimates are inherently uncertain, especially under present
market volatility or in the early stages of a field’s life, and are
routinely revised over the producing lives of oil and gas fields as new
information becomes available and as economic conditions evolve. The Audit
Committee acknowledges that such revisions may impact the Group’s future
financial position and results, in particular, in relation to impairment
testing of oil and gas property, plant and equipment.

Recoverability of investments in joint ventures

Recoverability of the Group’s investments in joint ventures is based on
assessment of exploration and evaluation assets impairment, which constitute
most of the investments in joint ventures cost. As of
              31 December 2016 impairment assessment of the
joint ventures’ exploration and evaluation assets was based on the value in
use of the assets held by joint venture company.

Impairment of E&E

The Audit Committee considered the Group’s intangible exploration and
evaluation assets individually for any indicators of impairment, including
those indicators set out in IFRS 6 Exploration for and Evaluation of Mineral
Resources. The Audit Committee has discussed the Group’s exploration and
evaluation assets with both management and the auditors and concurs with the
treatment adopted.

Following discussions with management and the auditor, including discussing
the range of sensitivities, the Committee is satisfied with results of the
assessment of the recoverable amount of development and production assets. The
recoverability assessment involves the use of significant judgement both in
the review of impairment indicators and, in any subsequent impairment test,
the consideration of estimates, which are dependent on assumptions about the
future.

Recoverability of receivables

In accordance with IAS 39 the Group makes an assessment at the end of each
reporting period, as to whether there is an objective evidence that a
financial asset or group of financial assets (including trade receivables)
needs to be impaired.

Going concern

After making enquiries and considering the uncertainties described above, the
Committee has 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.
For further detail refer to the detailed discussion of the assumptions
outlined in note 3(b) to the Consolidated Financial Statements. The Committee
also review the Group’s viability statement presented on page 28.

Political and economic situation in Ukraine

The political situation in Ukraine has made it necessary for management to
assess the extent of its impact on the Group’s operations and assets.

The Committee reviewed reports from management, which considered whether
adjustments are required to the carrying values of assets and the
appropriateness of the going concern assumption. As a result management have
concluded that, other than the impacts derived from the Subsoil use tax and
the uncertainties on the timing of the approval process, there were no
significant adverse consequences in relation to the Group’s operations, cash
flows and assets that impact the 2016 financial statements.

In discussion with management, the Committee acknowledged the inherent
difficulty in making any assessment as to the eventual outcome of the present
political situation and, as a consequence, the difficulty of making a reliable
judgement as to the future impact, if any, on the Group’s business. The
Committee concurs with conclusions reached by management summarised in Note 4
and in Note 29 to the financial statements.

Internal controls and risk management

The Audit Committee reviews and monitors financial and control issues
throughout the Group including the Group’s key risks and the approach for
dealing with them. Further information on the risks and uncertainties facing
the Group are detailed on pages 13 to 15 and in Note 26 to the financial
statements.

External auditor

The Audit Committee is responsible for recommending to the Board, for approval
by the shareholders, the appointment of the external auditor.

The Audit Committee considers the scope and materiality for the audit work,
approves the audit fee, and reviews the results of the external auditor’s
work. Following the conclusion of each year’s audit, it considers the
effectiveness of the external auditor during the process. An assessment of the
effectiveness of the audit process was made, giving consideration to reports
from the auditor on its internal quality procedures. The Committee reviewed
and approved the terms and scope of the audit engagement, the audit plan and
the results of the audit with the external auditor, including the scope of
services associated with audit-related regulatory reporting services.
Additionally, auditor independence and objectivity were assessed, giving
consideration to the auditor’s confirmation that its independence is not
impaired, the overall extent of non-audit services provided by the external
auditor and the past service of the auditor.

There is an agreed policy on the engagement of the external auditor for
non-audit services to ensure that its independence and objectivity are
safeguarded. Work closely related to the audit, such as financial reporting
matters, can be awarded to the external auditor by the executive Directors
provided the work does not exceed £50,000 in fees per item. Work exceeding
£50,000 requires approval by the Audit Committee. All other non-audit work
either requires Audit Committee approval or forms part of a list of prohibited
services, where it is felt the external auditor’s independence or
objectivity may be compromised.

A breakdown of the non-audit fees is disclosed in Note 9 to the Consolidated
Financial Statements. The Company’s external auditor, Deloitte LLP, has
provided non-audit services (excluding audit related services), which amounted
to $55,000 (2015: $125,000). The Audit Committee has reviewed the level of
these services in the course of the year and is confident that the objectivity
and independence of the auditor are not impaired by the reason of such
non-audit work.

We have also taken account of the latest recommendations of the Code in
relation to the regular tendering    of the external audit appointment, and
as required conducted a tender for the audit for the year end at 31 December
2017.

Group external audit tender for the audit of 2017 Annual Report

Since IPO, Deloitte have been the Group’s auditor for ten years and in
accordance with the Code, the Group held in 2016 a tender for the audit of the
2017 Annual Report.

Process and selection criteria

The tender process and selection criteria adopted by the committee, in
relation to the external ?audit services, closely followed those detailed in
the audit tender notes of best practice set out?by the FRC (focusing on
quality and clarity of approach, understanding of the business and risks,
appropriate geographic breadth, appropriate team structure and experience,
cultural fit and approach to independence and conflict issues). The audit
committee was provided with an assessment of the external audit service
providers and eight firms were invited to tender for the external audit.

Process summary October 2016 – April 2017

The Group issued the Request for Proposal (RFP) to the audit firms invited to
tender. An introduction and information sharing meetings were held between the
audit firms and the Group in November and December 2016.

RFP vendors submitted their final written tenders by the end of December 2016,
which were analysed by the Group in January and February 2016. After extensive
consideration and based on the proven track record of audit quality, the audit
committee concluded to recommend to the board that BDO be appointed as the
Group’s external auditors from 2017 onwards, subject to shareholder approval
at the AGM in June 2017.

Internal audit

The Audit Committee considers annually the need for an internal audit function
and believes that, due to the size of the Group and its current stage of
development, an internal audit function will be of little benefit to the
Group.

The Group’s whistleblowing policy encourages employees to report suspected
wrongdoing and sets out the procedures employees must follow when raising
concerns. The policy, which was implemented during 2008, was refreshed in 2013
and recirculated to staff as part of a manual that includes the Group’s
policies on anti-bribery, the acceptance of gifts and hospitality, and
business conduct and ethics.

Overview

As a result of its work during the year, the Audit Committee has concluded
that it has acted in accordance with its terms of reference and has ensured
the independence and objectivity of the external auditor. A formal review of
the Audit Committee’s performance was undertaken after the year end and
concluded that the Committee is effective in its scrutiny of the accounts and
financial reporting process, its oversight of risk management systems and its
monitoring of internal control testing.

The Chairman of the Audit Committee will be available at the Annual General
Meeting to answer any questions about the work of the Audit Committee.

Gilbert Lehmann
Chairman of the Audit Committee
27 April 2017

Health, Safety and Environment Committee Report

The Health, Safety and Environment Committee (the ”HSE Committee”) is
appointed by the Board, on the recommendation of the Nomination Committee. The
HSE Committee’s terms of reference are reviewed annually by the HSE
Committee and any changes are then referred to the Board for approval. The
terms of reference of the Committee are published on the Company’s website,
www.cadoganpetroleum.com, and are also available from the Company Secretary at
the Registered Office. Two members constitute a quorum, one of whom must be a
Director.

Responsibilities
* To develop a framework of the policies and guidelines for the management of
health, safety and environment issues within the Group.
* Evaluate the effectiveness of the Group’s policies and systems for
identifying and managing health, safety and environmental risks within the
Group’s operation.
* Assess the policies and systems within the Group for ensuring compliance
with health, safety and environmental regulatory requirements.
* Assess the performance of the Group with regard to the impact of health,
safety, environmental and community relations decisions and actions upon
employees, communities and other third parties and also assess the impact of
such decisions and actions on the reputation of the Group and make
recommendations to the Board on areas for improvement.
* On behalf of the Board, receive reports from management concerning any
fatalities and serious accidents within the Group and actions taken by
management as a result of such fatalities or serious accidents.
* Evaluate and oversee, on behalf of the Board, the quality and integrity of
any reporting to external stakeholders concerning health, safety,
environmental and community relations issues.
* Where it deems it appropriate to do so, appoint an independent auditor to
review performance in regard to health, safety, environmental and community
relations matters and review any strategies and action plans developed by
management in response to issues raised and, where appropriate, make
recommendations to the Board concerning the same.
Governance

The HSE Committee was in place throughout 2016. Members of the HSE Committee
were Mr Adelmo Schenato (Chief Operating Officer and HSE Committee Chairman),
Ms Snizhana Buryak (HSE Manager), Mr Andriy Bilyi (Cadogan Ukraine General
Director). The CEO and the Company Secretary attend meetings of the HSE
Committee. The HSE Committee meets monthly to monitor continuously progress by
management.

Activities of the Health, Safety and Environment Committee

During the year, the HSE Committee discharged its responsibilities as follows:
* The existing HSE policies and procedures, as well as the development of new
ones, was regularly discussed at the Committee meetings in relation to the
current activities.
* Compliance with HSE regulatory requirements was ensured through discussion
of the results of inspections, both internal ones and those carried out by the
Authorities.
* HSE performances, key indicators and statistics were a standing item in the
agenda of every meeting, allowing the HSE Committee to assess the Company’s
performance by analysing any lost-time incidents (of which there were none
during 2013, 2014 and 2015), near misses, HSE training and other indicators.
* Interaction with contractors, Authorities, local communities and other
stakeholders was discussed among other HSE activities.
* Updating of the legal requirements in the working sites, especially related
to the production plants and rig sites.
Overview

As a result of its work during the year, the HSE Committee has concluded that
it has acted in accordance with its terms of reference.

Adelmo Schenato

HSE Committee Chairman (1)

27 April 2017

(1 ) In the first quarter 2017 Mr Schenato stepped down from his COO role and
became a non-Executive Director

Nomination Committee Report

The Nomination Committee is appointed by the Board predominantly from the
non-executive Directors of the Group. The Nomination Committee’s terms of
reference include all matters indicated by the Code. They are reviewed
annually by the Nomination Committee and any changes are then referred to the
Board for approval. The terms of reference of the Nomination Committee are
published on the Company’s website, www.cadoganpetroleum.com, and are also
available from the Company Secretary at the Registered Office. Two members
constitute a quorum.

Responsibilities

To regularly review the structure, size and composition (including the skills,
knowledge and experience) required of the Board compared to its current
position and make recommendations to the Board with regard to any changes.

Be responsible for identifying and nominating for the approval of the Board
candidates to fill Board vacancies as and when they arise.

Before appointment is made by the Board, evaluate the balance of skills,
knowledge, experience and diversity on the Board and, in the light of this
evaluation, prepare a description of the role and capabilities required for a
particular appointment.

In identifying suitable candidates, the Nomination Committee shall use open
advertising or the services of external advisers to facilitate the search and
consider candidates from a wide range of backgrounds on merit, taking care
that appointees have enough time available to devote to the position.

The Nomination Committee shall also make recommendations to the Board
concerning:

Formulating plans for succession for both executive and non-executive
Directors and in particular for the key roles of Chairman and Chief Executive
Officer.

Membership of the Audit and Remuneration Committees, in consultation with the
Chairmen of those committees.

The reappointment of any non-executive Director at the conclusion of their
specified term of office, having given due regard to their performance and
ability to continue to contribute to the Board in the light of the knowledge,
skills and experience required.

The re-election by shareholders of any Director having due regard to their
performance and ability to continue to contribute to the Board in the light of
the knowledge, skills and experience required.

Any matters relating to the continuation in office of any Director at any time
including the suspension or termination of service of an executive Director as
an employee of the Company subject to the provisions of the law and their
service contract.

Governance

Mr Zev Furst (Board and Nomination Committee Chairman), Mr Bertrand des
Pallieres (Chief Trading Officer), and Messrs Gilbert Lehmann and Enrico Testa
(independent non-executive Directors) are the members of the Nomination
Committee. The Company Secretary attends all meetings of the Nomination
Committee.

Activities of the Nomination Committee

The Nomination Committee carried out a review of the size, structure and
composition of the Board in the light of the current business environment and
the Company's anticipated future activities and approved a recommendation of
the CEO to reduce the number of Executive Directors from three to one,
effective as early as possible in 2017. The Board also mandated the CEO to
implement the necessary adjustments to the organisation and roles of the
management team.

Pending the implementation of this recommendation, the Nomination Committee
recommends the re-election of each of the Directors at the AGM, with Mr Adelmo
Schenato as a Non-Executive Director.

Overview

As a result of its work during the year, the Nomination Committee has
concluded that it has acted in accordance with its terms of reference. The
Chairman of the Nomination Committee will be available at the Annual General
Meeting to answer any questions about the work of the Nomination Committee.

Zev Furst
Nomination Committee Chairman
27 April 2017

Remuneration Committee

Statement from the Chairman

I am pleased to present the Annual Report on Remuneration for the year ended
31 December 2016.

During 2016 there were no changes made to the Remuneration Policy approved by
the shareholders at the Annual General Meeting held on 25 June 2015, nor to
the composition of directors' remuneration, and there was no increase to
executive and non-executive directors' salary and fees in base currency;
notwithstanding the devaluation of the British pound against most currencies,
all directors agreed to maintain their base compensation “as is” and to
review it the following year.

In 2016 the Committee enrolled the CEO in a performance-related, bonus scheme
built around a scorecard with a set of challenging KPI’s aligned with the
company strategy, preserving cash and operating safely and efficiently while
actively pursuing opportunities to re-load and geographically diversify the
portfolio. Based on the results achieved, the Committee has determined to
award him a bonus of €200,000, which the CEO undertook to use in its
entirety to subscribe for newly issued ordinary shares in the Company at the
prevailing market value of such shares on the date that bonus is to be paid. 
Further, the CEO agreed to fund the income tax due on his bonus from his own
resources (so that there is no immediate need to sell some of the subscribed
shares).  

The Company’s aim is to develop a, long-term and balanced Remuneration
Policy aligned to strategy and performance and linked to shareholder value. 
The Committee which I chair, with the support of the Executive management and
of qualified advisors, if and to the extent which is required, will work in
the second part of this year to produce a new policy which meets our aim and
which will be presented to 2018 AGM for approval.

At this year AGM we will present the 2016 Remuneration Approval to our
shareholders for approval.

Enrico Testa
Chairman of the Remuneration Committee
27 April 2017

ANNUAL REPORT ON REMUNERATION 2016

Remuneration Committee Report

The Remuneration Committee is committed to principles of accountability and
transparency to ensure that remuneration arrangements demonstrate a clear link
between reward and performance. In its work, the Remuneration Committee
considers fully the principles and provisions of the Code. In designing
performance-related remuneration schemes for executive Directors, the
Remuneration Committee has considered and applied Schedule A of the Code.

Governance

The Remuneration Committee is appointed by the Board from the non-executive
Directors of the Company. The Remuneration Committee’s terms of reference
include all matters indicated by the Code. They are reviewed annually by the
Remuneration Committee and any changes are then 

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