REG-Cadogan Petroleum: Annual Financial Report <Origin Href="QuoteRef">CADP.L</Origin> - Part 3
30/04/2015 18:40
- Part 3: For the preceding part double click ID:nPRrU112Ab
December
2014 2013
GBP/USD USD/UAH GBP/USD USD/UAH
Closing 1.5534 16.0960 1.6491 8.3920
rate
Average 1.6481 12.1705 1.5648 8.2545
rate
(h) Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax.
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from net profit as reported in the consolidated income statement
because it excludes items of income or expense that are taxable or deductible
in other years and it further excludes items that are never taxable or
deductible. The Group's liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit. This is accounted for using the balance sheet liability method.
Deferred tax liabilities are generally recognised for all taxable temporary
differences and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which deductible
temporary differences can be utilised. Such assets and liabilities are not
recognised if the temporary difference arises from the initial recognition of
goodwill or from the initial recognition (other than in a business combination)
of other assets and liabilities in a transaction that affects neither the
taxable profit nor the accounting profit. Deferred tax liabilities are
recognised for taxable temporary differences arising on investments in
subsidiaries and associates, and interests in joint ventures, except where the
Group is able to control the reversal of the temporary difference and it is
probable that the temporary difference will not reverse in the foreseeable
future.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
recovered. Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is realised.
Deferred tax is charged or credited in the income statement, except when it
relates to items charged or credited in other comprehensive income, in which
case the deferred tax is also dealt with in other comprehensive income.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax liabilities
and when they relate to income taxes levied by the same taxation authority and
the Group intends to settle its current tax assets and liabilities on a net
basis.
(i) Property, plant and equipment
Property, plant and equipment ('PP&E') are carried at cost less accumulated
depreciation and any recognised impairment loss. Depreciation and amortisation
is charged so as to write-off the cost or valuation of assets, other than land,
over their estimated useful lives, using the straight-line method, on the
following bases:
Buildings 4%
Fixtures and equipment 10% to 30%
The gain or loss arising on the disposal or retirement of an asset is
determined as the difference between the sales proceeds and the carrying amount
of the asset and is recognised in income.
(j) Impairment of property, plant and equipment
At each balance sheet date, the Group reviews the carrying amounts of its PP&E
to determine whether there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable amount of the
asset is estimated in order to determine the extent of the impairment loss (if
any). Where the asset does not generate cash flows that are independent from
other assets, the Group estimates the recoverable amount of the cash-generating
unit to which the asset belongs. The recoverable amount is the higher of fair
value less costs to sell and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset for which the estimates of
future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to
be less than its carrying amount, the carrying amount of the asset
(cash-generating unit) is reduced to its recoverable amount. An impairment loss
is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the
asset (cash-generating unit) is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does not exceed
the carrying amount that would have been determined had no impairment loss been
recognised for the asset (cash-generating unit) in prior years. A reversal of
an impairment loss is recognised as income immediately.
(k) Intangible exploration and evaluation assets
The Group applies the modified full cost method of accounting for intangible
exploration and evaluation ('E&E') expenditure which complies with requirement
set out in IFRS 6 Exploration for and Evaluation of Mineral Resources. Under
the modified full cost method of accounting, expenditure made on exploring for
and evaluating oil and gas properties is accumulated and initially capitalised
as an intangible asset, by reference to appropriate cost centres being the
appropriate oil or gas property. E&E assets are then assessed for impairment
on a geographical cost pool basis.
E&E assets comprise costs of (i) E&E activities which are in progress at the
balance sheet date, but wherethe existence of commercial reserves has yet to be
determined (ii) E&E expenditure which, whilst representing part of the E&E
activities associated with adding to the commercial reserves of an established
cost pool, did not result in the discovery of commercial reserves.
Costs incurred prior to having obtained the legal rights to explore an area are
expensed directly to the income statement as incurred.
Exploration and Evaluation costs
E&E expenditure is initially capitalised as an E&E asset. Payments to acquire
the legal right to explore, costs of technical services and studies, seismic
acquisition, exploratory drilling and testing are also capitalised as
intangible E&E assets.
Tangible assets used in E&E activities (such as the Group's vehicles, drilling
rigs, seismic equipment and other property, plant and equipment) are normally
classified as PP&E. However, to the extent that such assets are consumed in
developing an intangible E&E asset, the amount reflecting that consumption is
recorded as part of the cost of the intangible asset. Such intangible costs
include directly attributable overheads, including the depreciation of PP&E
items utilised in E&E activities, together with the cost of other materials
consumed during the exploration and evaluation phases.
E&E assets are not amortised prior to the conclusion of appraisal activities.
Treatment of E&E assets at conclusion of appraisal activities
Intangible E&E assets related to each exploration property are carried forward,
until the existence (or otherwise) of commercial reserves has been determined.
If commercial reserves have been discovered, the related E&E assets are
assessed for impairment on individual assets basis as set out below and any
impairment loss is recognised in the income statement. Upon approval of a
development programme, the carrying value, after any impairment loss, of the
relevant E&E assets is reclassified to the development and production assets
within PP&E.
Intangible E&E assets that relate to E&E activities that are determined not to
have resulted in the discovery of commercial reserves remain capitalised as
intangible E&E assets at cost less accumulated amortisation, subject to meeting
a pool-wide impairment test in accordance with the accounting policy for
impairment of E&E assets set out below.
Impairment of E&E assets
E&E assets are assessed for impairment when facts and circumstances suggest
that the carrying amount may exceed its recoverable amount. Such indicators
include, but are not limited to, those situations outlined in paragraph 20 of
IFRS 6 Exploration for and Evaluation of Mineral Resources and include the
point at which a determination is made as to whether or not commercial reserves
exist.
Where there are indications of impairment, the E&E assets concerned are tested
for impairment. The aggregate carrying value of the relevant assets is compared
against the expected recoverable amount of the asset, generally by reference to
the present value of the future net cash flows expected to be derived from
production of commercial reserves from that pool. Where the assets fall into
an area that does not have an established pool or if there are no producing
assets to cover the unsuccessful exploration and evaluation costs, those assets
would fail the impairment test and be written off to the income statement in
full.
Impairment losses are recognised in the income statement as additional
depreciation and amortisation and are separately disclosed.
Reclassification from development and production assets back to exploration and
evaluation
Where development efforts are unsuccessful in the target geological formation
of the license area but the Company see a potential for oil and gas discoveries in
other geological formations of the same license area, reclassification of
recoverable amount of assets from development and production assets back to
exploration and evaluation is appropriate following the impermanent assessment.
(l) Development and production assets
Development and production assets are accumulated on a field-by-field basis and
represent the cost of developing the commercial Reserves discovered and
bringing them into production, together with E&E expenditures incurred in
finding commercial Reserves transferred from intangible E&E assets.
The cost of development and production assets comprises the cost of
acquisitions and purchases of such assets, directly attributable overheads,
finance costs capitalised, and the cost of recognising provisions for future
restoration and decommissioning.
Depreciation of producing assets
Depreciation is calculated on the net book values of producing assets on a
field-by-field basis using the unit of production method. The unit of
production method refers to the ratio of production in the reporting year as a
proportion of the proved and probable Reserves of the relevant field, taking
into account future development expenditures necessary to bring those Reserves
into production.
Producing assets are generally grouped with other assets that are dedicated to
serving the same Reserves for depreciation purposes, but are depreciated
separately from producing assets that serve other Reserves.
(m) Inventories
Raw materials and oil and gas stock are stated at the lower of cost and net
realisable value. Costs comprise direct materials and, where applicable, direct
labour costs and those overheads that have been incurred in bringing the
inventories to their present location and condition. Cost is allocated using
the weighted average method. Net realisable value represents the estimated
selling price less all estimated costs of completion and costs to be incurred
in marketing, selling and distribution.
(n) Financial instruments
Recognition of financial assets and financial liabilities
Financial assets and financial liabilities are recognised on the Group's
balance sheet when the Group becomes a party to the contractual provisions of
the instrument.
Derecognition of financial assets and financial liabilities
The Group derecognises a financial asset only when the contractual rights to
cash flows from the asset expire; or it transfers the financial asset and
substantially all the risks and rewards of ownership of the asset to another
entity. If the Group neither transfers nor retains substantially all the risks
and rewards of ownership and continues to control the transferred asset, the
Group recognises its retained interest in the asset and an associated liability
for the amount it may have to pay. If the Group retains substantially all the
risks and rewards of ownership of a transferred financial asset, the Group
continues to recognise the financial asset and also recognises a collateralised
borrowing for the proceeds received.
The Group derecognises financial liabilities when the Group's obligations are
discharged, cancelled or expired.
Financial assets
The Group classifies its financial assets in the following categories: loans
and receivables; available-for-sale financial assets; held to maturity
investments; and financial assets at fair value through profit or loss
("FVTPL"). The classification depends on the purpose for which the financial
assets were acquired. Management determines the classification of its financial
assets at initial recognition and re-evaluates this designation at every
reporting date.
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They are
included in current assets, except for those with maturities greater than
twelve months after the balance sheet date which will then be classified as
non-current assets. Loans and receivables are classified as "other receivables"
and "cash and cash equivalents" in the balance sheet.
Trade and other receivables
Trade and other receivables are measured at initial recognition at fair value,
and are subsequently measured at amortised cost using the effective interest
rate method.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, on-demand deposits, and other
short-term highly liquid investments that are readily convertible to a known
amount of cash with three months or less remaining to maturity and are subject
to an insignificant risk of changes in value.
Restricted cash balances represent components of cash and cash equivalents that
are not available for use by the Group.
Financial assets at FVTPL
Financial assets at FVTPL are stated at fair value, with any gains or losses
arising on remeasurement recognised in profit or loss which is included
in the 'Other gains and losses' line item in the consolidated income statement.
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of
impairment at each balance sheet date. Appropriate allowances for estimated
irrecoverable amounts are recognised in profit or loss when there is objective
evidence that the asset is impaired. The allowance recognised is measured as
the difference between the asset's carrying amount of the financial asset and
the present value of estimated future cash flows discounted at the effective
interest rate computed at initial recognition.
Evidence of impairment could include:
significant financial difficulty of the issuer or counterparty;
default or delinquency in interest or principal payments; or
it becoming probable that the borrower will enter bankruptcy or financial
re-organisation.
For certain categories of financial assets, such as trade receivables, assets
that are assessed not to be impaired individually are, in addition, assessed
for impairment on a collective basis.
The carrying amount of the financial assets is reduced by the impairment loss
directly for all financial assets with the exception of trade receivables,
where the carrying amount is reduced through the use of an allowance account.
Subsequent recoveries of amounts previously written off are credited against
the allowance account. Changes in the carrying amount of the allowance account
are recognised in profit or loss.
If, in a subsequent period, the amount of the impairment loss decreases and the
decrease can be related objectively to an event occurring after the impairment
was recognised, the previously recognised impairment loss is reversed through
profit or loss to the extent that the carrying amount of the investment at the
date the impairment is reversed does not exceed what the amortised cost would
have been had the impairment not been recognised.
Financial liabilities
Financial liabilities are classified as either financial
liabilities 'at FVTPL' or 'other financial liabilities'
Financial liabilities at FVTPL
Financial liabilities at FVTPL are stated at fair value, with any resultant
gain or loss recognised in profit or loss and is included in the 'Other gains
and losses' line item in the income statement. Fair value is determined in the
manner described in note 28.
Trade payables and short-term borrowings
Trade payables and short-term borrowings are initially measured at fair value,
and are subsequently measured at amortised cost, using the effective interest
rate method.
(o) Provisions
Provisions are recognised when the Group has a present obligation (legal or
constructive) as a result of a past event, it is probable that the Group will
be required to settle that obligation and a reliable estimate can be made of
the amount of the obligation. The amount recognised as a provision is the best
estimate of the consideration required to settle the present obligation at the
balance sheet date, taking into account the risks and uncertainties surrounding
the obligation. When a provision is measured using the cash flows estimated to
settle the present obligation, its carrying amount is the present value of
those cash flows.
(p) Decommissioning
A provision for decommissioning is recognised in full when the related
facilities are installed. The decommissioning provision is calculated as the
net present value of the Group's share of the expenditure expected to be
incurred at the end of the producing life of each field in the removal and
decommissioning of the production, storage and transportation facilities
currently in place. The cost of recognising the decommissioning provision is
included as part of the cost of the relevant asset and is thus charged to the
income statement on a unit of production basis in accordance with the Group's
policy for depletion and depreciation of tangible non-current assets. Period
charges for changes in the net present value of the decommissioning provision
arising from discounting are included within finance costs.
(q) Share-based payments
The Group issued equity-settled share-based payments to certain parties in
return for services or goods. The goods or services received and the
corresponding increase in equity are measured directly at the fair value of the
goods or services received at the grant date. The fair value of the services or
goods received is recognised as an expense except in so far as they relate to
the cost of issuing or acquiring its own equity instruments. The costs of an
equity transaction are accounted for as a deduction from equity to the extent
they are incremental costs directly attributable to the equity transaction that
would otherwise have been avoided.
The Group also issued equity-settled share-based payments to certain Directors
and employees. Equity settled share-based payments are measured at fair value
(excluding the effect of non market-based vesting conditions) at the date of
grant. The fair value determined at the grant date for each tranche of the
equity-settled share-based payments is expensed on a straight-line basis over
the vesting period, based on the Group's estimate of shares that will
eventually vest and adjusted for the effect of non market-based vesting
conditions. At each balance sheet date, the Group revises its estimate of the
number of equity instruments expected to vest as a result of the effect of non
market-based vesting conditions.
The impact of the revision of the original estimates, if any, is recognised in
profit or loss such that the cumulative expense reflects the revised estimate,
with a corresponding adjustment to the equity-settled employee benefits
reserve.
For those equity-settled share-based payments with market-based performance
conditions, fair value is measured by use of the Stochastic model. For those
which are not subject to any market based performance conditions, fair value is
measured by use of the Black-Scholes model. The expected life used in the
models has been adjusted, based on management's best estimate, for the effects
of non-transferability, exercise restrictions, and behavioural considerations.
4. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group's accounting policies, which are described in
note 3, the Directors are required to make judgements, estimates and
assumptions about the carrying amounts of the assets and liabilities that are
not readily apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors that are
considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period or in the period
of the revision and future periods if the revision affects both the current and
future periods.
The following are the critical judgements and estimates that the Directors have
made in the process of applying the Group's accounting policies and that have
the most significant effect on the amounts recognised in the financial
statements:
(a) Impairment of E&E
The outcome of ongoing exploration, and therefore the recoverability of the
carrying value of intangible exploration and evaluation assets, is inherently
uncertain. Management makes the judgements necessary to implement the Group's
policy with respect to exploration and evaluation assets and considers these
assets for impairment at least annually with reference to indicators in IFRS 6.
(b) Impairment of PP&E
IAS 36 Impairment of Assets require that a review for impairment to be carried
out if events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable.
Management assessed whether any impairment triggers were present at 31 December
2014 and concluded that the following impairment indicators existed for the
Pirkovska licence area:
High uncertainty about the impact of political and economic turmoil in Ukraine
on Group operations;
Significant market capitalization discount to the carrying amount of the net
assets of the entity; and
Lack of production at Pirkovska licence area since 2009.
Carrying the analysis on the Pirkovska licence area management identified
assets which have been reclassified to exploration and evaluation and obsolete
assets which as of 31 December 2014 were used in production and development.
Further details are provided in note 17.
(с) Impairment of investments in joint ventures
The Group's investments in joint ventures are accounted for using the equity
method. The carrying value of the Group's investments is reviewed at each
balance sheet date. This review requires estimation of the future cash flows
expected to be received by the Group mainly from the joint ventures'
exploration and evaluation assets. As of 31 December 2014 exploration and
evaluation assets of the joint venture entity LLC Industrial Company
Gazvydobuvannya have been assessed for impairment through calculation of the
recoverable amount as a fair value less cost to sell. As a result, impairment
has been recognised in the accounts of the joint venture and the Group's share
was included in the consolidated financial statements as share of losses in
joint ventures. Further details are provided in note 19.
(d) Reserves
Commercial reserves are proven and probable ('2P') oil and gas reserves, which
are defined as the estimated quantities of crude oil, natural gas and natural
gas liquids which geological, geophysical and engineering data demonstrate with
a specified degree of certainty to be recoverable in future years from known
reservoirs and which are considered commercially producible. There should be a
50 per cent statistical probability that the actual quantity of recoverable
Reserves will be more than the amount estimated as proven and probable Reserves
and a 50 per cent statistical probability that it will be less.
Commercial Reserves used in the calculation of depreciation and for impairment
test purposes are determined using estimates of oil and gas in place, recovery
factors and future oil and gas prices. Management base their estimate of oil
and gas Reserves and Resources upon the Report provided by independent
advisers.
(e) Recoverability of VAT
The Group has significant receivables from the State Budget of Ukraine relating
to reimbursement of VAT arising on purchases of goods and services from
external service and product providers. Due to the budgetary problems of
Ukraine, the recovery of VAT has been an issue for most companies operating in
Ukraine. In the past the Group has taken a conservative view in relation to VAT
and has impaired outstanding balances as appropriate due to the uncertainty of the
recovery of these balances in cash from the State Budget of Ukraine and
uncertainty of future production, VAT on which would be offset against the VAT
recoverable amounts the Group has.
VAT receivable that has been generated through gas purchases in 2014 is
considered by the Group as recoverable through future sales of gas. For all
other VAT the Group will continue to use an approach consistent with prior
years by impairing Ukrainian VAT as appropriate and then recognising the
recovery in the period it has been made. A cumulative provision of $4.4 million
(2013: $9.5 million) against Ukrainian VAT receivable has thus been recognised
as at 31 December 2014, excluding VAT recoverable balances in the JV which are
reported under equity method in these financial statements.
(f) Assessment of political and economic turmoil in Ukraine impact on Group
operations
Since November 2013, Ukraine has been in a political and economic turmoil. The
Ukrainian Hryvnia devalued against major world currencies and significant
external financing is required to maintain stability of the economy. In
February 2014, Ukraine's sovereign rating has been downgraded to CCC with a
negative outlook. This situation continued through 2014 and also in 2015.
However the Government already received in 2015 significant funding from the
international creditors, with International Monetary Fund ("IMF") being the
largest. In March 2015 IMF approved $17.5billion loan to Ukrainian government,
which is part of $40 billion package, including contributions from the U.S. and
European Union and a prospective $15 billion in savings to be negotiated with
Ukraine's bondholders.
In May 2014 Ukraine had its presidential elections and a new government has
been formed. In March 2014, Crimea, an autonomous republic of Ukraine, was
effectively annexed by the Russian Federation. Escalation of conflict continued
through 2014 up until now at the east of the country. Further political
developments are currently unpredictable and may adversely affect the Ukrainian
economy.
Management is monitoring how the political and economic situation is affecting
the Group operations, and has 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 there were no
significant adverse consequences in relation to the Group's operations, cash
flows and assets that impact the 2014 financial statements, apart from
continuous uncertainty related to key assumptions used by management in
assessment of the recoverable amount of production assets as described above.
Management noted that none of the Group’s assets are located in areas of current
conflict. Any further escalations of the political crisis may impact the Group's normal
business activities, and increase the risks relating to its business
operations, financial status and maintenance of its Ukrainian production
licences.
5. Segment information
Segment information is presented on the basis of management's perspective and
relates to the parts of the Group that are defined as operating segments.
Operating segments are identified on the basis of internal reports provided to
the Group's chief operating decision maker ("CODM"). The Group has identified
its top management team as its CODM and the internal reports used by the top
management team to oversee operations and make decisions on allocating
resources serve as the basis of information presented. These internal reports
are prepared on the same basis as these consolidated financial statements.
Segment information is analysed on the basis of the type of activity, products
sold or services provided.
The majority of the Group's operations are located within Ukraine.
Segment information is analysed on the basis of the types of goods supplied by
the Group's operating divisions. The Group's reportable segments under IFRS 8
are therefore as follows:
Exploration and Production
E&P activities on the production licences for natural gas, oil and condensate
Service
Drilling services to exploration and production companies
Construction services to exploration and production companies
Trading
Import of natural gas and diesel from European countries
Local purchase and sales of natural gas operations with physical delivery of
natural gas
The accounting policies of the reportable segments are the same as the Group's
accounting policies described in Note 3. Sales between segments are carried out
at market prices. The segment result represents operating profit under IFRS
before unallocated corporate expenses. Unallocated corporate expenses include
management remuneration, representative expenses, and expenses incurred in
respect of the maintenance of office premises. This is the measure reported to
the CODM for the purposes of resource allocation and assessment of segment
performance.
The Group does not present information on segment assets and liabilities as the
CODM does not review such information for decision-making purposes.
As of 31 December 2014 and for the year then ended the Group's segmental
information was as follows:
Exploration and Service Trading Consolidated
Production
$'000 $'000 $'000 $'000
Sales of hydrocarbons 1,291 - 30,253 31,544
Other revenue - 846 233 1,079
Sales between segments 1,077 - (1,077) -
Total revenue 2,368 846 29,409 32,623
Cost of sales (2,579) (386) (26,848) (29,813)
Other administrative expenses (1,347) - (379) (1,726)
Interest on short-term borrowings (Note 13) - - (420) (420)
Segment results (1,558) 460 1,762 664
Unallocated other (5,276)
administrative expenses
Other income, net 2,228
Impairment(1) (5,134)
Share of losses in joint (54,664)
ventures (1)
Net foreign exchange gains 3,036
Loss before tax (59,146)
(1)Impairment loss recognised in 2014 of $5.1 million related to exploration
and production segment.
As of 31 December 2013 and for the year then ended the Group's segmental
information was as follows:
Exploration and Service Trading Consolidated
Production
$'000 $'000 $'000 $'000
External sales 2,619 - - 2,619
Other revenue - 1,153 - 1,153
Total revenue 2,619 1,153 - 3,772
Cost of sales (2,324) (695) - (3,019)
Other administrative expenses (1,404) - - (1,404)
Segment results (1,109) 458 - (651)
Unallocated other (7,515)
administrative expenses
Other income, net 667
Share of losses in joint (6,630)
ventures
Net foreign exchange losses (271)
Loss before tax (14,400)
6. Revenue
2014 2013
$'000 $'000
Sale of hydrocarbons 31,544 2,619
Other revenues 1,079 1,153
32,623 3,772
Other revenues include revenues from services provided to third parties of
$0.8 million (2013: $1.2 million).
Information about major customers
Included in revenues for the year ended 31 December 2014 are revenues of $25.3
million (2013: $2.0 million) which arose from sales to the Group's two largest
customers. None other single customers contributed 10% or more to the Group
revenue for both 2014 and 2013 years.
7. Other operating income/(expenses), net
2014 2013
$'000 $'000
Transactions with JV partner 510 (60)
Other income 37 65
547 5
8. Impairment
2014 2013
$'000 $'000
Impairment of oil and gas assets (note 17) (5,134) -
Inventories (253) 97
VAT recoverable (note 4(e)) 1,130 137
Reversal of impairment of other assets 877 234
The carrying value of inventory as at 31 December 2014 and 2013 has been
impaired to reduce it to net realisable value (see note 20). During 2014,
the Group gross sales of inventory to third parties comprised $0.1 million
(2013:$0.4 million).
During the year VAT impairment in the amount of $1.1 million (2013: $0.1
million) has been released as a result of receiving VAT bonds by several
subsidiaries and VAT recovery of historical balances through offset of VAT
liabilities arising on sales.
9. Loss for the year
The loss for the year has been arrived at after (charging)/crediting:
2014 2013
$'000 $'000
Depreciation of property, plant and equipment (938) (1,201)
Loss on disposal of property, plant and equipment (211) (227)
Reversal of impairment of other assets (note 8) 877 234
Impairment of oil and gas assets (note 17) (5,134) -
Staff costs (4,039) (4,790)
Net foreign exchange gain/(losses) 3,036 (271)
In addition to the depreciation of PP&E of $0.9 million (2013: $1.2 million) in
the year ended 31 December 2014, depreciation of $0.04 million (2013: $0.2
million) was capitalised to E&E assets being depreciation of tangible assets
used in E&E activities.
10. Auditor's remuneration
The analysis of auditor's remuneration is as follows:
2014 2013
$'000 $'000
Audit fees
Fees payable to the Company's auditor and their associates for the 194 201
audit of the Company's annual accounts
Fees payable to the Company's auditor and their associates for other
services to the Group:
The audit of the Company's subsidiaries 30 13
Total audit fees 224 214
Non-audit fees
Audit-related assurance services 38 20
Taxation compliance services 25 45
Other taxation advisory services - 40
Non-audit fees 63 105
11. Staff costs
The average monthly number of employees (including Executive Directors) was:
2014 2013
Number Number
Executive Directors 2 2
Other employees 98 116
100 118
Total number of employees at 31 December 100 118
$'000 $'000
Their aggregate remuneration comprised:
Wages and salaries 4,012 5,102
Social security costs 455 725
4,467 5,827
Within wages and salaries $0.8 million (2013: $0.7 million) relates to amounts
accrued and paid to executive Directors for services rendered.
Included within wages and salaries is $0.4 million (2013: $0.3 million)
capitalised to intangible E&E assets and $nil million (2013: $0.1 million)
capitalised to development and production assets.
12. Investment income
2014 2013
$'000 $'000
Interest on bank deposits 27 283
Interest on loans issued 825 151
852 434
13. Finance costs
2014 2013
$'000 $'000
Interest on short-term borrowings (420) -
Unwinding of discount on decommissioning provision (note 24) (48) (6)
(468) (6)
Starting October 2014 the Group used short-term borrowings in UAH (note 24) for
the financing of gas trading which resulted in $0.4 million of interest for
2014.
14. Tax
2014 2013
$'000 $'000
Current tax 11 169
Prior year tax 362 -
Deferred tax (benefit)/charge (note 23) (207) 120
166 289
The Group's operations are conducted primarily outside the UK. The most
appropriate tax rate for the Group is therefore considered to be 18 per cent
(2013: 19 per cent), the rate of profit tax in Ukraine which is the primary
source of revenue for the Group. Taxation for other jurisdictions is calculated
at the rates prevailing in the respective jurisdictions.
The taxation charge for the year can
be reconciled to the loss per the 2014 2014 2013 2013
income statement as follows: $'000 % $'000 %
Loss before tax (59,146) 100 (14,400) 100
Tax credit at Ukraine corporation (10,646) 18 (2,736) 19
tax rate of 18% (2013: 19%)
Tax credit related to the
Joint venture losses 9,292 (15.7) 3,004 (21.0)
Foreign exchange on operating 1,543 (2.6) 3.8 (552)
activities
Tax (gains)/losses generated in the (839) 1.4 857 (6.0)
year not yet recognised
Effect of different tax rates 454 (0.8) (284) 2.0
(196) 0.3 289 (2.2)
Adjustments recognised in the
current year in relation
362 - - -
to the current tax of prior years
Income tax expense recognised in 166 - 289 -
profit or loss
15. Loss per Ordinary share
Basic loss per Ordinary share is calculated by dividing the
net loss for the year attributable to owners of the Company by
the weighted average number of Ordinary shares outstanding
during the year. The calculation of the basic loss per share
is based on the following data:
2014 2013
Loss attributable to owners of the Company $'000 $'000
Loss for the purposes of basic loss per share being net loss (59,271) (14,660)
attributable to owners of the Company
2014 2013
Number Number
Number of shares '000 '000
Weighted average number of Ordinary shares for the purposes of 231,092 231,092
basic loss per share
2014 2013
cent cent
Loss per Ordinary share
Basic (25.6) (6.3)
The Group has no potentially dilutive instruments in issue. Therefore no diluted
loss per share is presented above.
16. Intangible exploration and evaluation assets
Cost $'000
At 1 January 2013 33,049
Additions 3,276
Change in estimate of decommissioning assets (note 26) 16
Transfer from property, plant and equipment (note 17) 34
Disposals (118)
Exchange differences (1,362)
At 1 January 2014 34,895
Additions 468
Change in estimate of decommissioning assets (note 26) 95
Transfer from property, plant and equipment (note 17) 18,467
Disposals (1)
Exchange differences (16,743)
At 31 December 2014 37,181
Impairment
At 1 January 2013 30,032
Exchange differences (1,095)
At 1 January 2014 28,937
Transfer from property, plant and equipment (note 17) 3,826
Exchange differences (13,871)
At 31 December 2014 18,892
Carrying amount
At 31 December 2014 18,289
At 31 December 2013 5,958
During the year additions to the exploration and evaluation assets include
$0.1 million (2013: $0.2 million) of capitalised depreciation of development and
production assets used in exploration and evaluation activities.
As of 31 December 2014 the Group has reclassified carrying value of assets of
$14.6 million related to the Pirkovska licence from development and production
to exploration and evaluation (note 17).The 2P reserves of the Pirkovska
licence have been reclassified to contingent resources.
17. Property, plant and equipment
Development
and
production
assets Other Total
Cost $'000 $'000 $'000
At 1 January 2013 53,324 9,603 62,927
Additions 585 217 802
Transfer to intangible exploration and (34) - (34)
evaluation assets
Transfer between property, plant and equipment (80) 80 -
Change in estimate of decommissioning assets 42 - 42
(note 26)
Disposals (416) (138) (554)
Exchange differences (2,479) (112) (2,591)
At 1 January 2014 50,942 9,650 60,592
Additions 1,235 376 1,611
Transfer to intangible exploration and (18,467) - (18,467)
evaluation assets
Transfer between property, plant and equipment (54) 54 -
Change in estimate of decommissioning assets 201 - 201
(note 26)
Disposals (587) (89) (676)
Exchange differences
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