REG-Cadogan Petroleum: Annual Financial Report <Origin Href="QuoteRef">CADP.L</Origin> - Part 3
28/04/2017 08:35
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referred to the Board for
approval. The terms of reference of the Remuneration Committee are published
on the Company’s website, www.cadoganpetroleum.com, and are also available
from the Company Secretary at the Registered Office.
The Remuneration Committee consists of Mr Enrico Testa, Mr Zev Furst and Mr
Gilbert Lehmann. At the discretion of the Remuneration Committee, the Chief
Executive Officer is invited to attend meetings when appropriate, but is not
present when his own remuneration is being discussed. None of the directors
are involved in deciding their own remuneration. The Company Secretary attends
the meetings of the Remuneration Committee.
Responsibilities
In summary, the Remuneration Committee’s responsibilities, as set out in its
terms of reference, are as follows:
* To determine and agree with the Board the policy for the remuneration of the
executive Directors, the Company Secretary and other members of executive
management as appropriate.
* To consider the design, award levels, performance measures and targets for
any annual or long-term incentives and approve any payments made and awards
vesting under such schemes.
* Within the terms of the agreed remuneration policy, to determine the total
individual remuneration package of each executive Director and other senior
executives including bonuses, incentive payments and share options or other
share awards. * To ensure that contractual terms on termination, and any
payments made, are fair to the individual and the Company, that failure is not
rewarded and that the duty to mitigate loss is fully recognised.
Overview
As a result of its work during the year, the Remuneration Committee has
concluded that it has acted in accordance with its terms of reference. The
chairman of the Remuneration Committee will be available at the Annual General
Meeting to answer any questions about the work of the Committee. The Chairman
and Executive Directors of the Company have a regular dialogue with analysts
and substantial shareholders, which includes the subject of Directors’
Remuneration. The outcome of these discussions are reported to the Board and
discussed in detail both there and during meetings of the Remuneration
Committee. Mr Lehmann, as the Senior Independent Director, is available to
shareholders who have concerns that they feel would be inappropriate to raise
via the Chairman or Executive Directors.
The Remuneration Committee unanimously recommends that shareholders vote to
approve the Annual Report on Remuneration at the 2017 Annual General Meeting.
Remuneration consultants
The Remuneration Committee did not take any advice from external remuneration
consultants.
Single total figure of remuneration for executive and non-executive directors
(audited)
Salary and fees Taxable benefit (1) Annual bonus Long-term incentives Total
$ $ $ $ $
Executive Directors
2016 2015 2016 2015 2016 2015 (restated) 2016 2015 2016 2015 (restated)
G Michelotti 487,080 242,902 (2) 15,353 15,987 210,504 243,132 (3) - - 712,937 502,021
B des Pallieres 300,152 357,231 2,000 - - - - - 302,152 357,231
A Schenato 277,545 282,014 - - - - - - 277,545 282,014
Non-executive Directors
2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
Z Furst 115,235 129,957 - - - - - - 115,235 129,957
G Lehmann 61,007 68,801 - - - - - - 61,007 68,801
E Testa 47,450 53,512 - - - - - - 47,450 53,512
M Meeùs 47,450 53,512 - - - - - - 47,450 53,512
(1) Taxable benefits include life and medical insurance provided to the
executive. There are no contributions to pension schemes.
(2 ) The number represents salary for six months of Mr Michelotti, as he has
been appointed as a Chief Executive Officer in June 2015.
(3) For details please see page 44.Notes to the table
In 2016, there was no increase in executive and non-executive directors'
salary in base currency. The difference in salary and fees for the directors
(other than Mr Guido Michelotti) represents the change in the exchange rate
between the base currency and USD as a reporting currency. The figures for Mr
Guido Michelotti for 2015 show Mr Michelotti's remuneration for the period
after his appointment on July 1, 2015 through to the end of December 2015 (six
months in total).
Mr Guido Michelotti
Mr Guido Michelotti was Chief Executive Officer through 2016. Mr
Michelotti’s salary is €440,000 ($487,080) per annum.
The Remuneration Committee has determined that it would be appropriate to
award Mr Guido Michelotti a bonus of €200,000 ($210,504), comprising a
performance related element of €181,720 and a discretionary element of
€18,280 for financial year 2016. In assessing the performance related
element, the Committee determined that the Company was within the parameters
of production targets and had exceeded by a considerable margin net cash
targets, while missing the LTI free operations target (1 LTI of a contractor)
and the profit target, this latter because of lower than expected results from
gas trading. The Committee also noted that the geographic diversification
achievements were on the lower end of the expected outcome. Under the
performance scorecard considered by the Remuneration Committee, the production
target and net cash target represent respectively 20% and 30% of the
weightings of the bonus (for target level performance)
with safety, profit and geographic diversification targets representing
respectively 10%, 20% and 20%. With additional points allocated for
exceeding by a considerable margin net cash targets, the Remuneration
Committee determined that some 59% of the performance related element of the
bonus should become payable (see following table).
KPI Weighting % Target (1) Achievement % of KPI related bonus achieved (2)
Average production, boepd 20 Approved budget (stretch target +20%) Target achieved 20
Net profit/(loss), $ million 20 Approved budget (stretch target +20%) Target not met 0
Change in free cash, $ million 30 Approved budget (stretch target +20%) Stretch target achieved 39
HSE, number of LTI 10 Target: zero Target not met 0
Geographic diversification, number of new countries 20 Minimum 1 Maximum 2 Target not met 0 (3)
100 59
(1) The company does not disclose its budget
(2 ) Scores for achieving respectively target and stretch target are set at
100 and 130
(3 ) Low materiality of Exploenergy’s acquisition, formally finalized in
the first days of the new year
Maximum annual cash bonus: 105% base salary
Maximum KPI element: 70%?
Maximum discretionary component: 35%
2015 Bonus. At the time Mr Guido Michelotti was offered the position of CEO,
the Board decided, and Mr Guido Michelotti accepted, to
replace an upfront, sign-on payment (art 4.1 of the Remuneration Policy) with
a bonus linked to a single KPI, which was the delivery of a strategy, and
containing a discretionary element. The Remuneration Committee determined that
the KPI was achieved and considered that a bonus of €231,000, including the
full discretionary element of €77,000, should become payable. Mr Michelotti
suggested to the Remuneration Committee that a cash neutral alternative for
the company should be found. An alternative was found in the form of bonus
payment in cash against a commitment to use the money to subscribe for newly
issued ordinary shares at the prevailing market value (the same solution
implemented in 2016, as described below) and the Remuneration Committee
approved it in June 2016, past the publication of 2015 Annual and Remuneration
Reports (April 2016).
The 2015 and 2016 bonuses have not yet been paid and new shares were not
issued at the date of this report. The CEO has undertaken to use the entire
amount of his 2015 and 2016 bonuses to subscribe for newly issued ordinary
shares in the Company at the prevailing market value of such shares on the
date that bonuses are to be paid. Further, Mr Guido Michelotti has agreed to
fund the income tax due on his bonuses from his own resources (so that there
is no immediate need to sell some of the shares that Mr Guido Michelotti
subscribes for). The agreement by Mr Guido Michelotti to use the entire amount
of his bonuses to subscribe for shares and to use his own resources to pay any
income tax due, so that there will be no cash outflow arising from the award
of the bonuses, except social security contributions. While the approved
Remuneration Policy sets the maximum Annual Bonus at 200% of the base salary,
Mr. Michelotti has agreed in his employment agreement to a ceiling to the
annual bonus equal to 105% of the base salary and this ceiling will be
reflected in his 2017 scorecard.
There are no conditions on Mr Guido Michelotti's holding of shares, save that,
in respect of his bonuses, Mr Guido Michelotti accepted, that the Committee
has the discretion to reduce the bonus before payment or require him to pay
back shares or a cash amount in the event of financial misstatement of the
Company or fraud or other material misconduct on his part. The amount that may
be clawed back from Mr Guido Michelotti on any such event is limited to the
value of an equivalent number of shares that Mr Guido Michelotti subscribed
for using the proceeds of his bonuses, taking the value of the shares at the
time of the clawback, less any income tax that Mr Guido Michelotti paid on his
bonuses.
Mr Bertrand des Pallieres
Mr Bertrand des Pallieres was Chief Trading Officer throughout 2016. Mr des
Pallieres’ salary is £221,400 ($300,152) per annum, comprising £194,400
($263,548) per annum under a consultancy agreement (the terms of which are
reviewed by the Remuneration Committee annually) and £27,000 ($36,604) per
annum under a services agreement.
Mr des Pallieres also serves as a non-executive director of two other
companies. The board is of the opinion that his involvement with these
companies does not affect the time or commitment, which he gives to the
Company.
Adelmo Schenato
Adelmo Schenato was Chief Operating Officer of the Company throughout 2016. Mr
Schenato’s basic salary is $277,545 comprising €225,000 ($249,075) per
annum under a consultancy agreement and £21,000 ($28,470) under a services
agreement.
The Chairman and Non-Executive Directors
In May 2011 the Board agreed that the Chairman’s fee be set at £85,000
($115,235) and that the fee for acting as an independent non-executive
Director be set at £35,000 ($47,450) with an additional £10,000 ($13,557)
for acting as Chairman of the Audit Committee. There has been no increase in
non-executive Directors’ fees since that time.
Benefits
Benefits may be provided to the executive directors, in the form of private
medical insurance and life assurance.
Scheme interests awarded during the financial year (audited)
There were no scheme interests awarded during the year.
Payments to past directors (audited)
In 2016 there were no payments to past directors.
Payments for loss of office (audited)
No payments were made to directors for loss of office in 2016.
Directors’ interests in shares (audited)
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.
Shares as at 31 December 2016 2015
Z Furst G Michelotti - - - -
B des Pallieres 200,000 200,000
G Lehmann - -
M Meeùs 26,000,000 26,000,000
A Schenato - -
E Testa - -
There were no changes in the Directors shareholding as at 31 December 2016
compared to 27 April 2017.
The Company does not currently operate formal shareholding guidelines.
The Company’s performance
The graph below highlights the Company’s total shareholder return
(“TSR”) performance for the last eight years compared to the FTSE All
Share Oil & Gas Producers index. This index has been selected on the basis
that it represents a sector specific group, which is an appropriate group for
the Company to compare itself against. TSR is the return from a share or index
based on share price movements and notional reinvestment of declared
dividends.
Historic Remuneration of Chief Executive
Salary Taxable benefits Annual bonus Long-term incentives Pension Loss of office Total
$ $ $ $ $ $ $
2009 422,533 - 284,552 - - - 707,085
2010 547,067 - - - - - 547,067
2011 669,185 - - - - - 669,185
2012 511,459 - - - 31,966 126,808 670,233
2013 384,941 - - - - - 384,941
2014 405,433 20,734 - - - - 426,167
2015 (2) 432,409 (1) 15,987 243,132 (3) - - - 691,528
2016 487,080 15,353 210,504 (4) - - - 712,9371
(1) 2015 CEO’s salary is the sum of Mr. des Pallieres' salary for the period
January to June and of Mr. Michelotti's salary for the period July to December
(2) Restated
(3) Bonus awarded to CEO for 2015. Details explained on page 44
(4) The CEO has undertaken to use the entire amount of the bonus to buy at
market price newly issued company shares
In 2016 the annual bonus awarded to the CEO was 22% (2015: 50%) of the maximum
bonus as per the approved Remuneration Policy.
Percentage change in the remuneration of the Chief Executive
The following table shows the percentage change in the remuneration of the
Chief Executive in 2016 and 2015 compared to that of all employees within the
Group.
2016 2015 (restated) Average Change
$’000 $’000 %
Base salary CEO 487 432 13%
All employees 2,618 3,121 (3%)
Taxable benefits CEO 15 16 (6%)
All employees 35 43 (6%)
Annual Bonus CEO 211 243 (13%)
All employees 211 264 (7%)
Total CEO 713 691 3%
All employees 2,864 3,428 (3%)
The base salary of CEO has been paid in cash. Mr Guido Michelotti has
undertaken to use the entire amount of his 2015 and 2016 bonuses (which have
not yet been paid) to subscribe for newly issued ordinary shares in the
Company at the prevailing market value of such shares on the date that bonuses
are to be paid. Further, Mr Guido Michelotti has agreed to fund the income
tax due on his bonuses from his own resources (so that there is no immediate
need to sell some of the shares that Mr Guido Michelotti subscribes for) so
that there will be no cash outflow for the Company arising from the award of
the bonuses, except social security contributions.
In 2016 none of the directors participated in long-term incentives.
In 2016 there was no increase in executive and non-executive directors' salary
in base currency. The difference in pay represents the change in exchange rate
between the base currency and USD as a reporting currency.
The $0.5 million decrease in employee remuneration is the combination of a
reduction in the head count from 80 to 69 ($0.3 million decrease) and of the
devaluation of the UAH ($0.2 million decrease).
Relative importance of spend on pay
The table below compares shareholder distributions (i.e. dividends and share
buybacks) and total employee pay expenditure of the Group for the financial
years ended 31 December 2015 and 31 December 2016.
2016 $’000 2015 $’000 Year-on-year change, %
All-employee remuneration 2,864 3,428 (16%)
Distributions to shareholders - - N/A
Shareholder voting at the Annual General Meeting
The Directors’ Remuneration Policy was approved by shareholders at the
Annual General Meeting held on 25 June 2015. The Remuneration Policy can be
found on the Group’s website. The votes cast by proxy were as follows:
Directors’ Remuneration Policy Number of votes % of votes cast
For 58,983,662 99.91
Against 56,000 0.09
Total votes cast 59,039,662 100.00
Number of votes withheld 0
The Directors’ Remuneration Report for the year ended 31 December 2015 was
approved by shareholders at the Annual General Meeting held on 22 June 2016.
The votes cast by proxy were as follows:
Director’s Remuneration Report Number of votes % of votes cast
For 58,301,210 99.66
Against 200,203 0.34
Total votes cast 58,501,413 100.00
Number of votes withheld 0
The Directors Remuneration Policy was approved at the 2015 AGM and did not
change since then. It can be found on the Group’s website.
Implementation of Remuneration Policy in 2017
The Remuneration Committee proposes to continue to implement the Remuneration
Policy approved by the shareholders at the 2015 AGM. The Remuneration
Committee is not intending to make any material changes to the way that the
remuneration policy is implemented in 2017 and envisages that the structure of
the remuneration of directors will remain the same as in 2016.
As was the case in 2016, the performance related elements of Mr Guido
Michelotti will be built around a scorecard with a set of KPI’s aligned with
the Group strategy, preserving cash and operating safely and efficiently while
actively pursuing opportunities to re-load and geographically diversify the
portfolio, with similar to 2016 weightings (as described above on page 43 to
44 in the notes to the single figure table). While Cadogan’s approved
Remuneration Policy sets the maximum Annual Bonus at 200% of the base salary,
Mr. Michelotti has agreed in his employment agreement to a ceiling to the
annual bonus equal to 105% of the base salary and this ceiling will also be
reflected in his 2017 scorecard.
Approval
The Directors’ Remuneration Report was approved by the Board on 27 April
2017 and signed on its behalf by:
Zev Furst
Chairman
27 April 2017
Statement of Directors’ Responsibilities in respect of the Annual Report and
the Financial Statements
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. The Directors are required by law to prepare the Group
financial statements in accordance with International Financial Reporting
Standards (“IFRSs”) as adopted by the European Union and Article 4 of the
International Accounting Standards (“IAS”) regulation and have also
elected to prepare the Parent Company financial statements under IFRSs as
adopted by the European Union. Under Company law, the Directors must not
approve the Financial Statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Company and Group and of the
profit or loss for that period. In preparing the Company and Group’s
financial statements, IAS Regulation requires that Directors:
* properly select and apply accounting policies;
* present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
* provide additional disclosures when compliance with the specific
requirements in IFRSs are insufficient to enable users to understand the
impact of particular transactions, other events and conditions on the
Company’s and Group’s financial position and financial performance; and
* make an assessment of the Company’s and Group’s ability to continue as a
going concern.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company and Group’s transactions and
disclose with reasonable accuracy at any time the financial position of the
Company and Group and enable them to ensure that the financial statements
comply with the Companies Act 2006. They are also responsible for safeguarding
the assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors’ Report, Annual Report on
Remuneration, Directors’ Remuneration Policy and Corporate Governance
Statement that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company’s website,
www.cadoganpetroleum.com. Legislation in the United Kingdom governing the
preparation and dissemination of the financial statements may differ from
legislation in other jurisdictions.
Responsibility Statement of the Directors in respect of the Annual Report
We confirm to the best of our knowledge:
(1) the financial statements, prepared in accordance with International
Financial Reporting Standards as adopted by the European Union, give a true
and fair view of the assets, liabilities, financial position and profit or
loss of the Company and the undertakings included in the consolidation as a
whole; and
(2) the Strategic Report, includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they face; and
(3) the annual report and the financial statements, taken as a whole, are
fair, balanced and understandable and provides the information necessary for
the shareholders to assess the Group’s position, performance, business model
and strategy.
On behalf of the Board
Zev Furst
Chairman
27 April 2017
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CADOGAN PLC
Opinion on financial statements of Cadogan Petroleum plc
In our opinion:
*
the financial statements give a true and fair view of the state of the
group’s and of the parent company’s affairs as at 31 December 2016 and of
the group’s loss for the year then ended;
*
the group financial statements have been properly prepared in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the European
Union;
*
the parent company financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union and as applied in
accordance with the provisions of the Companies Act 2006; and
*
the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006 and, as regards the group financial
statements, Article 4 of the IAS Regulation.
The financial statements that we have audited comprise:
*
the group Income Statement;
*
the group Statement of Comprehensive Income;
*
the group and parent company Balance Sheets;
*
the group and parent company Cash Flow Statements;
*
the group and parent company Statements of Changes in Equity; and the related
notes 1 to 40.
The financial reporting framework that has been applied in their preparation
is applicable law and IFRSs as adopted by the European Union, and as regards
the parent company financial statements, as applied in accordance with the
provisions of the Companies Act 2006
Summary of our audit approach
Key risks The key risks that we identified in the current year were: Recoverability of intangible assets and investments in joint ventures Recoverability of trade receivables Within this report, any new risks are identified with and any risks which are the same as the prior year identified with .
Materiality The materiality that we used in the current year was $977,000 (2015: $2,020,000), which was determined on the basis of 2% of the expected consolidated shareholders’ equity as at 31 December 2016.
An overview of the scope of our audit We have included in the Group audit scope the full audit of all significant entities in Ukraine and in the UK. These businesses account for over 90% (2015: over 90%) of the Group’s net assets, revenue and loss before tax. The Group audit team was led by the Deloitte UK Senior Statutory Auditor and managers and included junior audit members and senior tax specialists from Deloitte Ukraine as all assets are located there
and appropriate knowledge of local legislation and tax regulations is required.
Significant changes in our approach During our audit of 2016 financial statements we have identified a new risk being recoverability of receivables.
Going concern and the directors’ assessment of the principal risks that would threaten the solvency or liquidity of the group
As required by the Listing Rules we have reviewed the directors’ statement regarding the appropriateness of the going concern basis of accounting contained within Note 3 to the financial statements and the directors’ statement on the longer-term viability of the group contained on page 28. We are required to state whether we have anything material to add or draw attention to in relation to: We confirm that we have nothing material to add or draw attention to in respect of these matters. We agreed with the directors’ adoption of the going concern basis of
accounting and we did not identify any such material uncertainties. However, because not all future events or conditions can be predicted, this statement is not a
guarantee as to the group’s ability to continue as a going concern.
Independence
We are required to comply with the Financial Reporting Council’s Ethical Standards for Auditors and confirm that we are independent of the group and we have fulfilled our other ethical responsibilities in accordance with those standards. We confirm that we are independent of the group and we have fulfilled our other ethical responsibilities in accordance with those standards. We also confirm we have not provided any of the prohibited non-audit services referred to in those standards.
Our assessment of risks of material misstatement
The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team.
Recoverability of intangible assets and investments in joint ventures
Risk description The carrying value of the Group’s intangible assets and investments in joint ventures amounted to $4.7 million at 31 December 2016. Assessment of the carrying value of these assets requires significant judgement, including the Group’s intention and
ability to proceed with a future work programme for a prospect or licence, the likelihood of licence renewal or extension, and the expected or actual success of drilling and geological analysis. Recoverability of non-current assets is dependent on macro
-economic assumptions and estimates about future oil and gas prices, inflation, discount and exchange rates as well as forecast assumptions related to future production levels, reserves and operating costs. The outcome of impairment assessments could vary
significantly were different assumptions applied. The continued instability of the political and economic situation in Ukraine and devaluation of the currency to which the Group is significantly exposed and the Group’s reduction in production and
exploration activities are factors which heighten the risk of impairment associated with the Group’s non-current assets. Impairment of intangible exploration and evaluation assets and investments in joint ventures amounting to $1.6 million and $0.8
million, respectively, was recognised in the year ended 31 December 2016. Refer to the significant issues considered by the Audit Committee and discussed on page 33-36, Group’s policies and key estimates and assumptions within note 1 and additional notes
16, 17 and 19.
How the scope of our audit responded to the risk We evaluated management’s assessment of indicators of impairment and recoverability assessment for the Group’s non-current assets, including potential difficulties with the upcoming extension of licences. We analysed the reasonableness of the estimates
such as oil and gas resources and future production levels, future oil and gas prices and future costs and performed benchmarking of inflation and discount rates to estimates used by peer companies and Deloitte developed discount rates. We also considered
actual facts and circumstances of the operating environment of the Group. Our work included discussion of the latest status and future appraisal plans on each licence with operational staff and Group management. We gathered evidence such as budgets, field
development plans, contracts for future drilling and geological and geophysical activities to verify that management’s intention to continue exploration efforts is supported by funding commitments. We have also obtained and reviewed documentary evidence,
such as budgets, field working programmes, contracts for future geological and geophysical activities, and licence documents. We evaluated management’s assessment of whether there were any indicators of impairment for the Group’s interests in joint
ventures under IAS 36, taking into consideration the impairment indicators outlined in IFRS 6 for the purpose of impairment assessment of exploration and evaluation assets within the joint ventures. We held discussions on the latest status and future
appraisal plans on each licence with operational staff and Group management and compared these plans with approved budgets and considered the Group’s future funding responsibilities. We undertook a detailed analysis and challenge of the significant
judgements and estimates used in management’s impairment tests of exploration and evaluation assets held by the joint ventures of the Group. Our analysis included comparison of gas price assumptions to publicly available forecasts, benchmarking the
discount rate applied by management to a Deloitte developed discount rate, and the comparison of future cost estimates against actual historic cost levels and budgets.
Key observations We are satisfied that the level of impairment recorded and the judgements applied by management are appropriate. We concluded that the assumptions applied in the impairment calculations were appropriate, and no additional impairments were identified from
the work performed above.
Recoverability of trade receivables
Risk description The group had trade receivables of $2.2m at 31 December 2016. In January 2016 the Group restructured receivables with certain counterparties within this balances and temporarily ceased trading with them due to uncertainty of recoverability. As the
recognition of recoverable amounts requires judgement the risk around receivable balance recoverability was identified. Refer to the significant issues considered by the Audit Committee and discussed on page 33-36, Group’s policies and key estimates and
assumptions within note 1 and additional notes 16, 17 and 19.
How the scope of our audit responded to the risk We reviewed the terms of restructuring arrangements made with certain counterparties and verified the post year-end bank statements to confirm if the balances had subsequently been paid. In addition, we have evaluated the reasonableness of the methods and
assumptions used by management to estimate the allowances for doubtful accounts. We requested a confirmation from counterparties for the outstanding balances with Cadogan Petroleum plc as of 31 December 2016 to perform an independent reconciliation and
completeness
Key observations We found that management had initially recognised accrued interest of $0.8m on a debt which did not meet the recognition criteria of IAS 18. This was subsequently corrected by management. The results of our testing were satisfactory and we concur that the
receivable balance is appropriate.
Although separate impairment assessments have been undertaken and audited, we have aggregated our explanation of risks and the scope for the recoverability of intangible exploration and evaluation (E&E) assets and recoverability of investments in joint ventures. We have not included the political risk in our report this year as it has not been an area which has had a major impact on our audit strategy. However, we are reporting on the receivables recoverability which was one of the main areas of focus of
our audit this year. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Materiality $977,000 (2015: $2,020,000)
Basis for determining materiality When determining materiality, among other factors we considered the Group’s pre-tax loss in the current period as well as in recent periods; the occurrence of any non-recurring or fluctuating gains and losses (such as exploration and evaluation assets
impairments) and the level of consolidated shareholders’ equity. Materiality was determined to be $977,000, which was 2% of expected consolidated shareholders’ equity (2015: $2,020,000 which was 3.7% of consolidated shareholders’ equity). We have decreased
percentage used in 2016 taking into considering our knowledge of the business and anticipated impairment.
Rationale for the benchmark applied Consistent with the prior year, we used consolidated shareholders’ equity to determine materiality as the entity has a history of operating losses.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit: In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified any material misstatements in the Strategic Report and the Directors’ Report.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records Under the Companies Act 2006 we are required to report to you if, in our opinion: We have nothing to report in respect of these matters.
Directors’ remuneration Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration have not been made or the part of the Directors’ Remuneration Report to be audited is not in agreement with We have nothing to report arising from these matters.
the accounting records and returns.
Corporate Governance Statement Under the Listing Rules we are also required to review part of the Corporate Governance Statement relating to the company’s compliance with certain provisions of the UK Corporate Governance Code. We have nothing to report arising from our review.
Our duty to read other information in the Annual Report Under International Standards on Auditing (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is: In particular, we are required to consider We confirm that we have not identified any such inconsistencies or misleading statements.
whether we have identified any inconsistencies between our knowledge acquired during the audit and the directors’ statement that they consider the annual report is fair, balanced and understandable and whether the annual report appropriately discloses
those matters that we communicated to the audit committee which we consider should have been disclosed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). We also comply with International Standard on Quality Control 1 (UK and Ireland). Our audit methodology and tools aim to ensure
that our quality control procedures are effective, understood and applied. Our quality controls and systems include our dedicated professional standards review team and independent partner reviews. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors;
and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications
for our report.
Timothy Biggs FCA (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
27 April 2017
FINANCIAL STATEMENTS OF CADOGAN PETROLEUM PLC
Consolidated Income Statement
For the year ended 31 December 2016
Notes 2016 $’000 2015 $’000
CONTINUING OPERATIONS
Revenue 6 19,692 75,440
Cost of sales (18,623) (69,562)
Gross profit 1,069 5,878
Administrative expenses 7 (5,603) (6,115)
Impairment of oil and gas assets 14,15 (90) (10,480)
(Impairment)/reversal of impairment of other assets 8 (82) 1,300
Share of losses in joint ventures 17 (143) (12,844)
Net foreign exchange gains 38 2,494
Other operating (loss)/income, net (9) 31
Operating loss (4,820) (19,736)
Gain on acquisition 17 99 -
Finance costs, net 11 (1,087) (2,507)
Loss before tax (5,808) (22,243)
Tax charge 12 (110) (1,040)
Loss for the year (5,918) (23,283)
Attributable to:
Owners of the Company (5,912) (23,261)
Non-controlling interest (6) (22)
(5,918) (23,283)
Loss per Ordinary share cents cents
Basic 13 (2.6) (10.1)
2016 $’000 2015 $’000
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