REG-Cadogan Petroleum: Annual Financial Report <Origin Href="QuoteRef">CADP.L</Origin> - Part 5
28/04/2017 08:35
- Part 5: For the preceding part double click ID:nPRrS1DE1d
- 2,496 ((1)) - 2,496
Sales between segments 981 (981) -
Total revenue 1,579 2,496 15,617 19,692
Cost of sales (1,182) (1,893) (15,548) (18,623)
Administrative expenses (408) - (886) (1,294)
Finance cost, net (Note 11) ((2)) - - (1,153) (1,153)
Segment results (11) 603 (1,970) (1, 378 )
Unallocated administrative expenses (4,309)
Other losses, net (25)
Impairment of oil and gas assets ((3)) (90)
Gain on acquisition of assets 99
Share of loss in joint ventures ((4)) (143)
Net foreign exchange gains 38
Loss before tax (5, 808 )
((1)) Services provided were primarily related to well abandonment and site
restoration and the turn-over substantially increased over the previous year
as some of the activities which had been put on hold by the clients were
awarded.
((2) ) Finance cost includes $1.4 million of interest on short-term
borrowings, $0.2 million of interest income on receivables and $31 thousand of
interest on cash deposits used for trading.
((3)) Impairment loss recognised in 2016 of $90 thousand related to
exploration and production segment.
((4)) Share of losses in the joint ventures includes $1.7 million of
operating losses, $0.8 million of additional impairment of Westgasinvest LLC
and $2.3 million of income received by one of the Group subsidiaries for
decommissioning services provided to the joint ventures (Note 17).
As of 31 December 2015 and for the year then ended the Group’s segmental
information was as follows:
Exploration and Production Service Trading Consolidated
$’000 $’000 $’000 $’000
Sales of hydrocarbons 521 - 74,565 75,086
Other revenue - 354 - 354
Sales between segments 1,314 - (1,314) -
Total revenue 1,835 354 73,251 75,440
Cost of sales (1,932) (250) (67,380) (69,562)
Administrative expenses (548) - (641) (1,189)
Finance cost (Note 11) - - (2,411) (2,411)
Segment results (645) 104 2,819 2,278
Unallocated administrative expenses (4,926)
Other income, net 1,235
Impairment ((1)) (10,480)
Share of losses in joint ventures (12,844)
Net foreign exchange gains 2,494
Loss before tax (22,243)
((1)) Impairment loss recognised in 2014 of $5.1 million related to
exploration and production segment.
6. Revenue
2016 $’000 2015 $’000
Sale of hydrocarbons 17,196 75,086
Other revenues 2,496 354
19,692 75,440
Information about major customers
Included in revenues for the year ended 31 December 2016 are revenues of $6.3
million (2015: $35.7 million), which arose from sales to the Group’s two
largest customers.
7. Administrative expenses
2016 $’000 2015 $’000
Staff costs (Note 10) 3,082 3,121
Professional fees 1,555 1,354
Business trip 316 591
Office rent 138 212
Insurance 122 228
Other 390 609
5,603 6,115
Professional fees of 2016 includes $0.5 million (2015: nil) of brokerage fees
for services rendered in past years.
8. Impairment of other assets
2016 $’000 2015 $’000
Inventories Receivables (92) (59) (90) -
VAT recoverable 69 1,390
(Impairment)/Reversal of impairment of other assets, net (82) 1,300
The carrying value of inventory as at 31 December 2016 and 2015 has been
impaired to reduce it to net realisable value (see note 18). During 2016, the
Group gross sales of inventory to third parties comprised $52 thousand (2015:
$0.1 million).
9. Auditor’s remuneration
The analysis of auditor’s remuneration is as follows:
2016 $’000 2015 $’000
Audit fees
Fees payable to the Company’s auditor and their associates for the audit of the Company’s annual accounts 146 180
Fees payable to the Company’s auditor and their associates for other services to the Group:
* The audit of the Company’s subsidiaries 43 35
Total audit fees 189 215
Non-audit fees
* Audit-related assurance services 19 66
* Taxation compliance services 36 59
Non-audit fees 55 125
10. Staff costs
The average monthly number of employees (including Executive Directors) was:
2016 Number 2015 Number
Executive Directors 3 3
Other employees 66 77
69 80
Total number of employees at 31 December 69 80
$’000 $’000
Their aggregate remuneration comprised:
Wages and salaries 2,443 2,895
Annual bonus 475 -
Social security costs 164 226
3,082 3,121
Within wages and salaries $1.1 million (2015: $0.9 million) relates to amounts
accrued and paid to executive Directors for services rendered.
Included within wages and salaries is nil (2015: $0.1 million) capitalised to
intangible E&E assets and $nil (2015: $0.1) capitalised to development and
production assets.
11. Finance costs, net
2016 $’000 2015 $’000
Interest expense on short-term borrowings (1,414) (2,411)
Interest expense on tax provision (note 24) (33) (201)
Total interest expense on financial liabilities (1,447) (2,612)
Interest income on receivables 230 -
Interest income on cash deposits in Ukraine 31 -
Investment revenue 125 118
Total interest income on financial assets 386 118
Unwinding of discount on decommissioning provision (note 24) (26) (13)
( 1,087 ) (2,507)
12. Tax
2016 $’000 2015 $’000
Current tax 110 11
Adjustment in relation to the current tax of prior years - 1,317
Deferred tax benefit - (288)
110 1,040
The Group’s operations are conducted primarily outside the UK, namely in
Ukraine. The most appropriate tax rate for the Group is therefore considered
to be 18% (2015: 18%), 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 income
statement as follows:
2016 $’000 2016 % 2015 $’000 2015 %
Loss before tax (5,808) 100 (22,243) 100.0
Tax credit at Ukraine corporation tax rate of 18% (2015: 18%) (1,045) 18 (4,004) 18.0
Permanent differences 1,060 (18.2) 1,511 (6.8)
Unrecognised tax losses generated/(utilised) in the year 378 (6.5) (107) 0.5
Tax credit related to the Joint venture losses 26 (0.4) 2,312 (10.4)
Effect of different tax rates (309) 5.3 11 (0.1)
110 (1.8) (277) 1.3
Adjustments recognised in the current year in relation to the current tax of prior years - - 1,317 -
Income tax expense recognised in profit or loss 110 - 1,040 -
Permanent differences mostly represent differences on profit/(loss) items,
including provisions, accruals, impairments, related to taxation in Ukraine,
where it is probable that such differences will not reverse in the foreseeable
future.
13. 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:
Loss attributable to owners of the Company 2016 $’000 2015 $’000
Loss for the purposes of basic loss per share being net loss attributable to owners of the Company (5,912) (23,261)
Number of shares 2016 Number ‘000 2015 Number ‘000
Weighted average number of Ordinary shares for the purposes of basic loss per share 231,092 231,092
2016 Cent 2015 cent
Loss per Ordinary share
Basic (2.6) (10.1)
The Group has no potentially dilutive instruments in issue. Therefore no
diluted loss per share is presented above.
14. Intangible exploration and evaluation assets
Cost $’000
At 1 January 2015 37,181
Additions 281
Change in estimate of decommissioning assets (note 24) 183
Disposals (2)
Exchange differences (12,310)
At 1 January 2016 25,333
Additions 39
Disposals (27)
Exchange differences (2,997)
At 31 December 2016 22,348
Impairment
At 1 January 2015 18,892
Impairment charge 10,105
Exchange differences (6,364)
At 1 January 2016 22,633
Exchange differences (2,639)
At 31 December 2016 19,994
Carrying amount
At 31 December 20 1 6 2,354
At 31 December 2015 2,700
The carrying amount of E&E assets as at 31 December 2016 of $2.4 million
(2015: $2.7 million) relates to Bitlyanska licence. Management has considered
facts and circumstances that could suggest that the carrying amount of the
Bitlyanska licence can exceed its recoverable amount at 31 December 2016. As
of 31 December 2016 management of the Group carried out the assessment of the
Bitlyanska licences value in use and recognised no impairment as recoverable
amount was higher than the book value of the assets. Key assumptions used in
the impairment assessment were as follows:
* Future gas price was assumed to be flat $210, real per m3; and
* The pre-tax discount rate used was 24%, real.
15. Property, plant and equipment
Cost Development and production assets $’000 Other $’000 Total $’000
At 1 January 2015 8,778 5,190 13,968
Additions 172 89 261
Change in estimate of decommissioning assets (note 24) 79 - 79
Disposals (1) (43) (44)
Exchange differences (2,934) (2,063) (4,997)
At 1 January 2016 6,094 3,173 9,267
Additions 90 29 119
Disposals - (29) (29)
Exchange differences (711) (370) (1,081)
At 31 December 2016 5,473 2,803 8,276
Accumulated depreciation and impairment
At 1 January 2015 8,436 1,686 10,122
Impairment 375 - 375
Charge for the year 82 352 434
Disposals (1) (16) (17)
Exchange differences (2,798) (510) (3,308)
At 1 January 2016 6,094 1,512 7,606
Impairment 90 - 90
Charge for the year - 138 138
Disposals - (14) (14)
Exchange differences (711) (145) (856)
At 31 December 2016 5,473 1,491 6,964
Carrying amount
At 31 December 2016 - 1,312 1,312
At 31 December 2015 - 1,661 1,661
Other property, plant and equipment include fixtures and fittings for the
development and production activities.
16. Subsidiaries
The Company had investments in the following subsidiary undertakings as at 31
December 2016:
Name Country of incorporation and operation Proportion of voting interest % Activity Registered office
Directly held
Cadogan Petroleum Holdings Ltd UK 100 Holding company 6th Floor 60 Gracechurch Street, London, United Kingdom, EC3V 0HR
Ramet Holdings Ltd Cyprus 100 Holding company 48 Inomenon Ethnon, Guricon House, Floor 2 & 3, 6042, Larnaca, Cyprus
Indirectly held
Rentoul Ltd Isle of Man 100 Holding company Commerce House, 1 Bowring Road, Ramsey, Isle of Man IM8 2LQ
Cadogan Petroleum Holdings BV Netherlands 100 Holding company Hoogoorddreef 15, 1101 BA Amsterdam
Cadogan Bitlyanske BV Netherlands 100 Holding company Hoogoorddreef 15, 1101 BA Amsterdam
Cadogan Delta BV Netherlands 100 Holding company Hoogoorddreef 15, 1101 BA Amsterdam
Cadogan Astro Energy BV Netherlands 100 Holding company Hoogoorddreef 15, 1101 BA Amsterdam
Cadogan Pirkovskoe BV Netherlands 100 Holding company Hoogoorddreef 15, 1101 BA Amsterdam
Cadogan Zagoryanske Production BV Netherlands 100 Holding company Hoogoorddreef 15, 1101 BA Amsterdam
Zagoryanska Petroleum BV Netherlands 100 Holding company Hoogoorddreef 15, 1101 BA Amsterdam
Pokrovskoe Petroleum BV Netherlands 100 Holding company Hoogoorddreef 15, 1101 BA Amsterdam
Cadogan Black Sea Holdings B.V. Netherlands 100 Dormant Hoogoorddreef 15, 1101 BA Amsterdam
Cadogan Ukraine Holdings Limited Cyprus 100 Holding company 48 Inomenon Ethnon, Guricon House, Floor 2 & 3, 6042, Larnaca, Cyprus
Momentum Enterprise (Europe) Ltd Cyprus 100 Holding company 48 Inomenon Ethnon, Guricon House, Floor 2 & 3, 6042, Larnaca, Cyprus
Radley Investments Ltd UK 100 Dormant Lynton House 7-12 Tavistock Square London WC1H 9LT
Cadogan Petroleum Trading SAGL Switzerland 100 Dormant Via Clemente Maraini 39, 6900 Lugano, Switzerland
Global Commodities NC SAS France 80 Dormant 23 RUE BALZAC 75008 PARIS
LLC AstroInvest-Ukraine Ukraine 100 Exploration 5a, Pogrebnyak Street, ap. 2, Zinkiv, Poltava region, Ukraine, 38100
LLC Zagvydobuvannya Ukraine 100 Exploration 3, Myru str., Poltava, Ukraine, 36022
LLC Astro Gas Ukraine 100 Exploration 5a, Pogrebnyak Street, ap. 2, Zinkiv, Poltava region, Ukraine, 38100
LLC Astroinvest-Energy Ukraine 100 Exploration 5a, Pogrebnyak Street, ap. 2, Zinkiv, Poltava region, Ukraine, 38100
LLC Industrial Company Gazvydobuvannya Ukraine 100 Exploration 3, Myru str., Poltava, Ukraine, 36022
DP USENCO Ukraine Ukraine 100 Exploration 8, Mitskevycha sq., Lviv, Ukraine, 79000
LLC USENCO Nadra Ukraine 95 Exploration 9a, Karpenka-Karoho str., Sambir, Lviv region, Ukraine
JV Delta Ukraine 100 Exploration 3 Petro Kozlaniuk str, Kolomyia,
Name Country of incorporation and operation Proportion of voting interest % Activity Registered office
LLC WestGasInvest Ukraine 15 Exploration 14, Uhorska str., Lviv, 79034, Ukraine
LLC Astro-Service Ukraine 100 Service Company 3 Petro Kozlaniuk str, Kolomyia,
OJSC AgroNaftoGasTechService Ukraine 79.9 Construction services Ivan Franko str, Hvizdets, Kolomyia district, Ivano-Frankivsk Region, Ukraine
LLC Cadogan Ukraine Ukraine 100 Corporate services 48/50A Zhylyanska Street, BC “Prime”, 8th fl. 01033 Kyiv, Ukraine
During the year ended 31 December 2016, the Group structure continued to be
rationalised both so as to reduce the number of legal entities and also to
replace the structure of multiple jurisdictions with one based on a series of
sub-holding companies incorporated in the Netherlands for each licence area.
Till the date of this report the Group put into liquidation three companies:
Cadogan Black Sea Holdings B.V., Radley Investments Ltd, Cadogan Petroleum
Trading SAGL. This process will continue in 2017 with the likely liquidation
and/or sale of the following companies: Rentoul Ltd, Global Commodities NC SAS
and Cadogan Momentum Holdings Inc.
17. Joint ventures
As at the end of the 2016 reporting periods the details of the Group’s joint
venture is as follows:
Company name Licences held Country of incorporation and operation Ownership share % Activity
LLC Westgasinvest Reklynetska, Zhuzhelianska, Cheremkhivsko-Strupkivska, Baulinska, Filimonivska, Kurinna, Sandugeyivska, Yakovlivska and Debeslavetska Production licence Ukraine 15 Exploration
On 21 December 2016 the Group acquired 30% of the issued share capital of
Pokrovskaya Petroleum B.V. (“Pok”) and 60% of the issued share capital of
Zagoryanskaya Petroleum B.V. (“Zag”) for an immaterial consideration,
resulting in Pokrovskaya Petroleum B.V. and Zagoryanskaya Petroleum B.V.
becoming wholly-owned companies. As a result of the transaction, the Group
acquired $2.0 million of cash and also $5.9 million of VAT credit and $103
million of unused tax losses of both companies, for which the impairment has
been recognised in prior years. The Group consolidated entities and recognised
a gain in the amount of $99 thousand.
In 2016 till the date of acquisition Zag had $1.2 million of profit and Pok
incurred $2.0 million of losses mainly related to the impairment of E&E assets
due to licence expiration in August 2016.
As at 31 December 2016 Westgasinvest LLC is accounted for using the equity
method in these consolidated financial statements. According to the
shareholders’ agreements, which regulate the activities of the jointly
controlled entities, all key decisions require unanimous approval from the
shareholders, therefore these entities are jointly controlled.
Summarised financial information in respect of each of the Group’s material
joint ventures is set out below. The summarised financial information below
represents amounts shown in the joint venture’s financial statements
prepared in accordance with IFRSs.
LLC Westgasinvest
2016 $’000 2015 $’000
Non-current assets 1,460 83
Current assets 60 562
Non-current liabilities - -
Current liabilities (391) (313)
Revenue - -
Loss for the period (3,150) (1,854)
Other comprehensive income (1,686) (322)
Total comprehensive loss (4,836) (2,176)
Net assets of the joint venture 1,129 332
The carrying amounts of the Group’s interest in joint venture recognized in
the financial statements of the Group using the equity method are set out in
the tables below:
LLC Westgasinvest $’000
(Deficit)/ net assets recognised as at 1 January 2015 4,211
Loss for the year (330)
(Deficit)/ net assets recognised as at 1 January 2016 3,881
Profit/(Loss) for the year (1,558)
Carrying amount of Group’s interest as at 31 December 2016 2,323
Share of losses in joint venture of $0.1 million comprised of $0.5 million
profit on Zag, $1.4 million of losses on Pok, $1.5 million of loss on WGI,
which included $0.8 million loss recognized as impairment of Westgasinvest LLC
and of $2.3 million profit received by the Group for decommissioning services
provided to the joint ventures.
18. Inventories
2016 $’000 2015 $’000
Natural gas 987 2,525
Other inventories 1,076 1,186
Impairment provision for obsolete inventory (184) (208)
Carrying amount 1,879 3,503
The impairment provision as at 31 December 2016 and 2015 is made so as to
reduce the carrying value of the obsolete inventories to net realisable value.
During 2016 an impairment charge of $0.2 million (2015: $0.1 million) has been
recognised in respect of other inventories. As at 31 December 2016 and 2015
the Group had no inventories carried at fair value less costs of disposal.
Cost of inventories sold during the year was $29 thousand (2015: $22
thousand).
19. Trade and other receivables
2016 $’000 2015 $’000
Trading receivables 2,163 8,514
VAT recoverable 829 -
Trading prepayments 777 3,206
Receivable from joint venture 58 1,824
Prepayments 1 64
Other receivables 318 803
4,146 14,411
Trading prepayments represent actual payments made by the Group to suppliers
for the January 2017 gas supply.
Trading receivables represent current receivables from customers and are to be
repaid within four months after the year end. The Group considers that the
carrying amount of receivables approximates their fair value.
VAT recoverable is presented net of the cumulative provision of $7.3 million
(2015: $1.1 million) against Ukrainian VAT receivable has been recognised as
at 31 December 2016. VAT recoverable relates to the gas trading operations and
expected to be recovered through the gas sales.
20. Cash and cash equivalents
Cash and cash equivalents as at 31 December 2016 of $43.3 million (2015: $49.4
million) comprise cash held by the Group. The Directors consider that the
carrying amount of these assets approximates to their fair value.
As of 31 December 2016 total amount of restricted cash is $10.9 million (2015:
$20 million). Part of the cash and cash equivalents in amount of $10 million
related to security of borrowings and held at UK bank is considered to be
restricted cash balance (note 22), this has been decreased to $5 million in
March 2017. Also as at 31 December 2016 cash and cash equivalents of $0.9
million were held in the Ukrainian subsidiary of the European bank as a
financial covered guarantee in favor of PJSC Ukrtransgas to fulfill the
requirement of the Ukrainian legislation on gas trading.
21. Deferred tax
The following are the major deferred tax liabilities and assets recognised by
the Group and movements thereon during the current and prior reporting period:
Temporary differences $’000
Liability as at 1 January 2015 288
Deferred tax benefit (287)
Exchange differences (1)
Liability as at 1 January 2016 -
Deferred tax benefit -
Exchange differences -
Liability as at 31 December 2016 -
At 31 December 2016, the Group had the following unused tax losses available
for offset against future taxable profits:
2016 $’000 2015 $’000
UK 10,652 9,054
Ukraine 180,475 78,859
191,127 87,913
Deferred tax assets have not been recognised in respect of these tax losses
owing to the uncertainty that profits will be available in future periods
against which they can be utilised.
The Group’s unused tax losses of $10.7 million (2015: $9.1 million) relating
to losses incurred in the UK are available to shelter future non-trading
profits arising within the Company. These losses are not subject to a time
restriction on expiry.
Unused tax losses incurred by Ukraine subsidiaries amount to $180.5 million
(2015: $78.9 million). The increase is primarily related to acquisition of LLC
Astroinvest-Energy and LLC Industrial company Gazvydo-buvannya on 21 December
2016. Under general provisions, these losses may be carried forward
indefinitely to be offset against any type of taxable income arising from the
same company of origination. Tax losses may not be surrendered from one
Ukraine subsidiary to another. However, in the past, Ukrainian legislation has
been imposed which restricted the carry forward of tax losses. During 2011 a
new tax legislation in Ukraine was implemented which resulted in the
restriction to recognition of accumulated losses at 1 April 2011. Starting at
1 January 2012 only 25% of accumulated losses as at this date are allowed to
be utilised each year for the period from 2012 till 2015 in the calculation of
taxable income of the company. Tax losses accumulated after 1 January 2012
have no restrictions.
22. Short-term borrowings
In October 2014 the Group started to use short-term borrowings as a financing
facility for its trading activities. Borrowings are represented by credit line
drawn in short-term tranches in UAH at Ukrainian bank, 100% subsidiary of UK
bank. The credit line is secured by $10 million of cash balance placed at the
European bank in the UK, which was decreased to $5 million in March 2017.
Outstanding amount as at 31 December 2016 was $3.6 million (2015: $12.9
million) with effective interest rate 15%p.a. (2015: 20%p.a.). Interest is
paid monthly and as at 31 December 2016 accrued interest amounted to $0.04
million (2015: $0.2 million).
23. Trade and other payables
2016 $’000 2015 $’000
Accruals 850 635
VAT payable 335 899
Trading payables 176 907
Other taxes and social security 115 66
Corporate tax payable 113 11
Trade creditors 40 921
Payables to joint ventures - 96
Other payables 11 147
1, 640 3,682
Trade creditors and accruals principally comprise amounts outstanding for
ongoing costs. The average credit period taken for trade purchases is 33 days
(2015: 24 days). The Group has financial risk management policies to ensure
that all payables are paid within the credit timeframe.
The Directors consider that the carrying amount of trade and other payables
approximates to their fair value. No interest is generally charged on
outstanding balances.
24. Provisions
The provisions at 31 December 2016 comprise of $2.0 million of probable tax
obligation and decommissioning provision.
As at 31 December 2016 the Group recognised short-term provision in respect of
possible corporate tax obligation in respect of dispute on classification
taxable income and expenses. The Group appealed to the Tribunal, however given
the uncertainty around the final position the provision of $1.3 million (£1.1
million) and up to $33 thousand (£26 thousand) of interest for 2016 was
recognised as at 31 December 2016.
Decommissioning
$’000
At 1 January 2015 702
Change in estimate (note 14 and 15) 262
Unwinding of discount on decommissioning provision (note 11) 13
Exchange differences (245)
At 1 January 2016 73 2
Unwinding of discount on decommissioning provision (note 11) 26
Exchange differences (80)
At 31 December 2016 678
At 1 January 2015 702
Non-current 726
Current 6
At 1 January 2016 732
Non-current 670
Current 8
At 31 December 2016 678
In accordance with the Group’s environmental policy and applicable legal
requirements, the Group intends to restore the sites it is working on after
completing exploration or development activities.
A short-term provision of $8 thousand (2015: $6 thousand) has been made for
decommissioning costs, which are expected to be incurred within the next year
as a result of the demobilisation of drilling equipment and respective site
restoration.
The long-term provision recognised in respect of decommissioning reflects
management’s estimate of the net present value of the Group’s share of the
expenditure expected to be incurred in this respect. This amount has been
recognised as a provision at its net present value, using a discount rate that
reflects the market assessment of time value of money at that date, and the
unwinding of the discount on the provision has been charged to the income
statement. These expenditures are expected to be incurred at the end of the
producing life of each field in the removal and decommissioning of the
facilities currently in place (currently estimated to be between 1 and 17
years).
25. Share capital
Authorised and issued equity share capital
2016 Number 2015 Number
$’000 $’000 $’000 $’000
Authorised Ordinary shares of £0.03 each 1,000,000 57,713 1,000,000 57,713
Issued Ordinary shares of £0.03 each 231,092 13,337 231,092 13,337
Authorised but unissued share capital of £30 million has been translated into
US dollars at the historic exchange rate of the issued share capital. The
Company has one class of Ordinary shares, which carry no right to fixed
income.
Issued equity share capital
Ordinary shares of £0.03
At 31 December 2015 and 2016 231,091,734
26.Financial instruments
Capital risk management
The Group manages its capital to ensure that entities in the Group will be
able to continue as a going concern, while maximising the return to
shareholders.
The capital resources of the Group consists of cash and cash equivalents
arising from equity attributable to owners of the Company, comprising issued
capital, reserves and retained earnings as disclosed in the Consolidated
Statement of Changes in Equity.
Externally imposed capital requirement
The Group is not subject to externally imposed capital requirements.
Categories of financial instruments
2016 $’000 2015 $’000
Financial assets – loans and receivables (includes cash and cash equivalents)
Cash and cash equivalents 43,300 49,407
Trading receivable 2,163 8,514
Other receivables 318 801
Receivable from joint venture 58 1,824
45,839 60,546
Financial liabilities – measured at amortised cost
Short-term borrowings 3,574 12,903
Accruals 850 635
Trading payables 176 907
Trade creditors 40 921
Other payables 10 141
Payables to joint ventures - 96
4, 650 15,603
Financial risk management objectives
Management co-ordinates access to domestic and international financial markets
and monitors and manages the financial risks relating to the operations of the
Group in Ukraine through internal risks reports, which analyse exposures by
degree and magnitude of risks. These risks include commodity price risks,
foreign currency risk, credit risk, liquidity risk and cash flow interest rate
risk. The Group does not enter into or trade financial instruments, including
derivative financial instruments, for speculative purposes.
The Audit Committee of the Board reviews and monitors risks faced by the Group
through meetings held throughout the year.
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates
will affect the value of the financial instruments. The Group is not exposed
to interest rate risk because entities of the Group borrow funds at fixed
interest rates.
Commodity price risk
The commodity price risk related to Ukrainian gas and condensate prices and,
to a lesser extent, prices for crude oil are the Group’s most significant
market risk exposures. World prices for gas and crude oil are characterised by
significant fluctuations that are determined by the global balance of supply
and demand and worldwide political developments, including actions taken by
the Organisation of Petroleum Exporting Countries.
These fluctuations may have a significant effect on the Group’s revenues and
operating profits going forward. In 2016 the price for Ukrainian gas was
mainly based on the current price of the European gas imports. Management
continues to expect that the Group’s principal market for gas will be the
Ukrainian domestic market.
The Group does not hedge market risk resulting from fluctuations in gas,
condensate and oil prices, and holds no financial instruments, which are
sensitive to commodity price risk.
Foreign exchange risk and foreign currency risk management
The Group undertakes certain transactions denominated in foreign currencies.
Hence, exposures to exchange rate fluctuations arise. The Group to date has
elected not to hedge its exposure to the risk of changes in foreign currency
exchange rates.
The carrying amounts of the Group’s foreign currency denominated monetary
assets and monetary liabilities at the reporting date are as follows:
Liabilities Assets
2016 $’000 2015 $’000 2016 $’000 2015 $’000
Monetary balance denominated in USD where functional currency is GBP nil 157 nil 48,860
Foreign currency sensitivity analysis
The Group is exposed primarily to movements in currencies against the US
dollar as this is the presentation currency of the Group. In order to fund
operations, US dollar funds are converted to UAH just before being contributed
to the Ukrainian subsidiaries. Sensitivity analyses have been performed to
indicate how the profit or loss would have been affected by changes in the
exchange rate between the GBP and US dollar. The analysis is based on a
weakening of the US dollar by 10 per cent against GBP, a functional currency
in the entities of the Group which have significant monetary assets and
liabilities at the end of each respective period. A movement of 10 per cent
reflects a reasonably possible sensitivity when compared to historical
movements over a three to five year timeframe. The sensitivity analysis
includes only outstanding foreign currency denominated monetary items and
adjusts their translation at the period end for a 10 per cent change in
foreign currency rates.
A number below indicates a decrease in profit where US dollar strengthens 10
per cent against the other currencies. For a 10 per cent weakening of the US
dollar against the other currencies, there would be an equal and opposite
impact on the profit or loss, and the balances would be negative.
The Group is not exposed to significant foreign currency risk in other
currencies.
The following table details the Group’s sensitivity to a 10 per cent
decrease in the US dollar against the GBP.
2016 $’000 2015 $’000
Income statement n/a (4,572)
Inflation risk management
Inflation in Ukraine and in the international market for oil and gas may
affect the Group’s cost for equipment and supplies. The Directors will
proceed with the Group’s practices of keeping deposits in US dollar accounts
until funds are needed and selling its production in the spot market to enable
the Group to manage the risk of inflation.
Credit risk management
Credit risk refers to the risk that counterparty will default on its
contractual obligations resulting in financial loss to the Group. The
Group’s credit management process includes the assessment, monitoring and
reporting of counterparty exposure on a regular basis. Credit risk with
respect to receivables and advances is mitigated by active and continuous
monitoring the credit quality of its counterparties through internal reviews
and assessment. Trading receivables as at 31 December 2016 have been paid
within four months after year end.
The Group makes allowances for impairment of receivables where there is an
identified event which, based on previous experience, is evidence of a
reduction in the recoverability of cash flows.
The credit risk on liquid funds (cash) is considered to be limited because the
counterparties are financial institutions with high and good credit ratings,
assigned by international credit-rating agencies in the UK and Ukraine
respectively.
The carrying amount of financial assets recorded in the financial statements
represents the Group’s maximum exposure to credit risk.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board of
Directors, which has built an appropriate liquidity risk management framework
for the management of the Group’s short-, medium- and long-term funding and
liquidity management requirements. The Group manages liquidity risk by
maintaining adequate cash reserves and by continuously monitoring forecast and
actual cash flows.
The following tables sets out details of the expected contractual maturity of
financial liabilities.
Within 3 months 3 months to 1 year More than 1 year Total
$’000 $’000 $’000 $’000
At 31 December 2016
Short-term borrowings 3,574 - - 3,574
Trade and other payables 1,640 - - 1,640
At 31 December 2015
Short-term borrowings 12,903 - - 12,903
Trade and other payables 3,019 657 - 3,676
27. Commitments and contingencies
The Group has working interests in four licences to conduct its exploration
and development activities in Ukraine. Each licence is held with the
obligation to fulfil a minimum set of exploration activities within its term
and is summarised on an annual basis, including the agreed minimum amount
forecasted expenditure to fulfil those obligations. The activities and
proposed expenditure levels are agreed with the government licencing
authority.
The required future financing of exploration and development work on fields
under the licence obligations are as follows:
2016 $’000 2015 $’000
Within one year 79 234
Between two and five years 1,635 1,135
1,714 1,369
The Group has revised its minimum working programmes and resubmitted the
required documentation to the government authorities; updated commitments have
slightly increased for all licences from $1.4 million to $1.7 million.
Tax contingent liabilities
The Group assesses its liabilities and contingencies for all tax years open
for audit by UK and Ukraine tax authorities based upon the latest information
available. For those matters where it is probable that an adjustment will be
made, the Group records its best estimate of these tax liabilities, including
related interest charges. Inherent uncertainties exist in estimates of tax
contingencies due to complexities of interpretation and changes in tax laws.
Whilst the Group believes it has adequately provided for the outcome of these
matters, certain periods are under audit by the UK and Ukraine tax
authorities, and therefore future results may include favourable or
unfavourable adjustments to these estimated tax liabilities in the period the
assessments are made, or resolved. The final outcome of tax examinations may
result in a materially different outcome than assumed in the tax liabilities.
28. Related party transactions
All transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note. The application of IFRS 11 has resulted in the existing joint ventures
LLC Astroinvest-Energy, LLC Gazvydobuvannya and LLC Westgasinvest being
accounted for under the equity method and disclosed as related parties. LLC
Astroinvest-Energy and LLC Gazvydobuvannya continued to be related parties
until the acquisition on 21 December 2016 of 100% of these companies by the
Group.
During the period, Group companies entered into the following transactions
with joint ventures who are considered as related parties of the Group:
2016 $’000 2015 $’000
Revenues from services provided and sales of goods 2,496 508
Purchases of goods - 9
Amounts owed by related parties 58 1,824
Amounts owed to related parties - 96
Directors’ remuneration
The remuneration of the Directors, who are the key management personnel of the
Group, is set out below in aggregate for each of the categories specified in
IAS 24 Related Party Disclosures. Further information about the remuneration
of individual Directors is provided in the audited part of the Annual Report
on Remuneration 2016 on pages 42 and 48.
Purchase of services Amounts owing
2016 $’000 2015 $’000 2016 $’000 2015 $’000
Directors’ remuneration 1,807 1,282 479 169
The total remuneration of the highest paid Director was $1.0 million in the
year (2015: $0.4 million).
The amounts outstanding are unsecured and will be settled in cash. No
guarantees have been given or received and no provisions have been made for
doubtful debts in respect of the amounts owed by related parties.
29. Events after the balance sheet date
On 31 January 2017 the Group completed 90% acquisition of Exploenergy s.r.l.,
Italian oil and gas company, that filed application for two licences in the
prolific area of Po Valley (North of Italy). The sellers will be carried for
their 10% until first gas in each licence and will receive a deferred cash
consideration of €50,000 for each licence payable upon award of the licence.
Political and economic situation in Ukraine
We are monitoring the current political situation in Ukraine carefully and
there have been no disruptions to the Company’s operations in either of our
operating locations.
We have reassessed the key judgements and critical accounting estimates as at
the date of this report and, based on the current status of operations, no
adjustments have been made.
Company Balance Sheet
As at 31 December 2016
Notes 2016 $’000 2015 $’000
ASSETS
Non-current assets
Investments 30 - -
Receivables from subsidiaries 33 39,277 26,905
39,277 26,905
Current assets
Trade and other receivables 33 17 778
Cash and cash equivalents 33 28,380 44,882
28,397 45,660
Total assets
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