REG-Cadogan Petroleum: Annual Financial Report
24/04/2019 07:05
Cadogan Petroleum plc
Annual Results for year ended 31 December 2018
The Board of Cadogan Petroleum plc, (“Cadogan” or “the Company”), is
pleased to announce the Company’s annual results for the year ended 31
December 2018.
Key Financial Highlights of 2018:
* Profit for the year: $1.2 million (2017: loss of $1.6 million)
* Average realised price: 51.3$/boe (2017: 41.6$/boe)
* Gross revenues 1 : $14.7 million (2017: $15.1 million)
* Gross profit: $1.9 million (2017: $2.1 million)
* G&A 2 : $4.8 million (2017: $5.0 million)
* Profit per share: 0.5 cents (2017: loss of 0.7 cents)
* Net cash 3 at year end: $35.2 million (2017: $37.6 million)
Key Operational Highlights of 2018:
* Production: 91,085 boe (2017: 56,516 boe), a 61% increase year-on-year
* 130% increase in production from the key Monastyretska licence, located in
Western Ukraine
* Gas trading profit of $0.7 million (2017: $1.3 million, which included $0.4
million of interest on receivables)
* Service business profit of $0.06 million (2017: loss of $0.03 million), net
of services provided to the group 4
* No LTI/TRIs’ 5 (,) 6
* Secured ISO 14001 and 45001 certifications.
Post Period Events:
* €13.4 million loan provided to Proger, with an option to convert into an
effective 22% equity interest, offers growth exposure as well as
diversification
* Blazh-10 well has encountered 207 meters of the Yamna target formation, at a
depth 50 meters higher than prognosis and in the predicted sub vertical
setting. Cores taken from the upper part of the Yamna and a preliminary
interpretation of the open hole logs suggested that the entire Yamna section
could potentially be oil bearing. The well was being prepared for testing at
the time this report was finalized.
Cadogan has successfully delivered in making Ukraine its platform for growth
by monetising the value of its legacy assets, both core and non-core. In doing
so Cadogan has achieved profitability, which is a testimony to the degree of
transformation the company has gone through over the last few years. Further
testimonies to Cadogan’s transformational journey are the drilling of well
Blazh-10, which took a fraction of the time normally required to drill these
wells by other operators, and the loan agreement with Proger S.p.a.
Group Overview
The Group has continued to maintain exploration and production assets, to
conduct gas trading operations and to operate an oil service business in
Ukraine. Cadogan’s assets are concentrated in the West of the country, far
away from the zone of military confrontation with Russia. Gas trading includes
the importing of gas from Slovakia, Hungary and Poland and local purchasing
and sales with physical delivery of natural gas. The oil services business
focuses on work-over operations, civil works services and other services
provided to Exploration and Production (“E&P”) companies in Ukraine.
Our business model
We aim to increase value through:
* Maintaining a robust balance sheet, monetising the remaining value of our
Ukrainian assets and supplementing E&P cash flow with revenues from gas
trading and oil services
* Pursuing farm-outs to progress investments in Ukrainian licences
* Sourcing additional assets to diversify Cadogan’s portfolio, both
geographically and operationally
The Group has continued to actively pursue its strategy of portfolio
re-loading and geographical diversification and while looking for the right
opportunity to invest has committed part of its cash into a 2-years, high
yield loan with Proger S.p.a. which has an option to convert (and in that case
interest will not be paid).
Both gas trading and the service business optimise the use of existing
available resources, such as cash as working capital for trading and equipment
and competences for the service business and continue to contribute to the
Group’s goal of being cash neutral, while actively searching for value
accretive opportunities.
Ukraine
West Ukraine
The Group continued to produce oil and gas from its licences in the West
Ukraine. Average net production in 2018 was 250 boepd, a 61% increase over the
production of the previous year. While gas production remained stable until
the Cheremkhivsko-Strupkivska licence suspension (May 2018), oil production
from the Monastyretska licence increased by 130%, driven by a successful
work-over and stimulation campaign on the three producing wells. All three
wells are rented from the companies which drilled them in the past and are
currently producing with sucker rod pumps.
The Group continued to produce gas from the Debeslavetske and Cheremkhivske
gas fields through the year, while preparing for an exit from gas operations
as they had become marginally, if at all, profitable, given the punitive tax
regime (subsoil-use tax set at 70%). The exit was finalized at the end of the
year with the assignment of the Group interest in the Debeslavetske and the
Cheremkhivske fields to WestGasInvest LLC and the assignment of the Group’s
interest in WestGasInvest LLC to PJSC Nadra Ukrayny.
2018 also witnessed the exit from the shale gas project, following Eni’s
decision to abandon the initiative.
The Group has retained the Bitlyanska licence, where it drilled the Vovche-2
well. The well was drilled on time and budget and produced water with
not-commercial quantities of oil when tested. The well is being monitored and
periodically lifted as part of a pilot production scheme, which represents the
remaining commitment to be fulfilled. In parallel the Company continues to
actively pursue a farm-in to complete the appraisal of the already discovered
gas condensate resources.
East Ukraine
The conversion of the Pirkovska licence from exploration into production has
not been awarded. The application was initially impacted by a dispute between
central and regional authorities on the distribution of gas royalties, which
brought the award process in the region to a halt. The Company has
subsequently replied in a timely fashion to the comments related to the filed
documents, which were returned for different reasons a number of times. As a
result of the initial stall and of the subsequent iterations the Pirkovska
licence has not been awarded within the three years’ time that the law
assigns to the incumbent holder to convert it. The asset had been impaired in
the past, nevertheless the Group is assessing all of its options in the
broader context of its business in Ukraine.
Subsidiary businesses
Gas trading operations continued, with sales in Ukraine of both imported and
locally produced gas. Despite lower volumes, margins remained healthy.
Finally, the Group continued providing oil services through its wholly-owned
subsidiary Astroservice LLC. Upon completion of the work-over campaign on the
Monastyretska wells, Astroservice LLC was able to secure a multi-well contract
for its rig, which is deployed in a field operated by one of the largest
Ukrainian oil and gas companies.
Italy
The Group owns 90% interest in Exploenergy s.r.l., an Italian company, which
has filed applications for two exploration licences (Reno Centese and
Corzano), located in the Po Valley region (Northern Italy). The leads
identified on these licences have combined un-risked prospective resources
estimated to be in excess of 60 bcf of gas.
Activity through the year focused on maintaining the liaison with the central
and regional authorities and on updating the Environmental Impact Studies by
implementing the suggestions received from the authorities. Attempts to meet
the relevant Minister, in order to understand what else, if anything, is
required to move forward the application, were unsuccessful.
In February 2019, the Italian Parliament approved a moratorium of 18 months in
the award of new licences and a 25-fold increase of licence fees. Exploenergy
has subsequently reduced its activity to the minimum required to fulfil its
statutory obligations. It has also identified areas which can be voluntarily
released in order to mitigate the impact of higher fees, when licences are
awarded, with a minimum impact on their exploration potential.
Strategic Report
The Strategic Report has been prepared in accordance with Section 414A of the
Companies Act 2006 (the “Act”) and presented hereunder. Its purpose is to
inform stakeholders and help them assess how the Directors have performed
their legal duty under Section 172 of the Act to promote the success of the
Company.
Principal activity and status of the Company
The Company is registered as a public limited company (registration number
05718406) in England and Wales. Its principal activity is oil and gas
exploration, development and production; the company also conducts gas trading
and provides services to other E&P operators.
The Company’s shares have a standard listing on the Official List of the UK
Listing Authority and are traded on the main market of the London Stock
Exchange.
Key performance indicators
The Group monitors its performance through five key performance indicators
(“KPIs”):
- to increase oil, gas and condensate production measured on the
number of barrels of oil equivalent produced per day (“boepd”);
- to decrease administrative expenses;
- to increase the Group’s basic earnings per share;
- to maintain no lost time incident; and
- to grow and geographically diversify the portfolio.
The Group’s performance in 2018 against these KPI’s is set out in the
table below, together with the prior year performance data.
Group Review
Unit 2018 2017 2018 vs 2017
Average production (working interest basis) (1) boepd 250 155 + 95
Overhead (G&A) $ million 4.8 5.0 (0.2)
Basic profit/(loss) per share (2) cents 0.5 (0.7) +1.45
Lost time incidents (3) incidents 0 0
Geographic diversification new assets 1 (4) 1
1. Average production is calculated as the average daily production
during the year
2. Basic profit/(loss) per ordinary share is calculated by dividing
the net profit/(loss) for the year attributable to equity holders of the
parent company by the weighted average number of ordinary shares during the
year
3. Lost time incidents relate to the number of injuries where an
employee/contractor is injured and has time off work (IOGP classification)
4. Loan agreement with Proger Management & Partners with its option
to convert. The loan was signed in February 2019
Chairman’s Statement
Unlike the past, I want to open my statement by recognizing the excellent work
done by Cadogan in 2018. Oil production has been further increased to levels
not seen since 2011, the marginal gas operations have been disposed of for an
interesting consideration and in doing so the company has achieved
profitability. Profitability was last achieved in 2011 and at that time it was
the result of the capital injected by Eni in order to farm-in into the
Zagoryanska and Pokrovskoe exploration licences. My own and the whole
Board’s commendation goes to the Management and staff of Cadogan for
delivering this result.
Unlike Cadogan, Ukraine cannot consider 2018 a good year. The efforts to
reform the country made limited progress and the key issues of reforms and
transparency continued to remain on many tables, including those opened with
international financial institutions. The political and economic outlook
remains uncertain and the run out to the presidential election, scheduled at
the end of Q1 2019, did little to reduce this uncertain future.
Though further steps were made towards improving the transparency in the way
licences are managed, such as the launch of tenders, the unpredictability in
the outcome of the approval processes continued to characterize the E&P
industry, with the award of new licences and/or the conversion of existing
ones often denied or unreasonably delayed, particularly in the East of the
Country This has created unnecessary distractions to the local operators and
has done little to improve the country image and risk perception with foreign
investors. Cadogan ‘s licences in the East of Ukraine were not an exception:
Pirkovska’s application was shuffled back and forth multiple times and
eventually no answer, either positive or negative, was given within the three
years of exclusive right. Pirkovska licence has now become open and actually
included in one of the PSA, which are being offered for public tenders. The
company is assessing all its options to safeguard its rights. The situation in
the West of the country, and in particular in Lviv region, is substantially
better with fourteen applications approved out of the 17 submitted in the last
three years.
In this contest of lingering uncertainty, Cadogan achieved an important result
in its strategy of diversifying its portfolio. The loan agreement with Proger,
negotiated in 2018 and announced at the beginning of 2019, diversifies both
the geographic and the industry risk of its portfolio, while creating for its
shareholders an exposure to a Company with material growth potential at a
balanced level of risk; it also offers both companies the benefit of potential
operational synergies for the development of their respective businesses.
Cadogan’s cash position after this transaction remains strong with enough
funds to make other investments when the right opportunity arises.
Cadogan throughout 2018 has continued to consistently deliver on its strategy
of monetizing the value of its legacy assets while pursuing diversification of
its portfolio. In a context that has remained challenging the company has
shown that it can operate at high industry standards, meet and exceed
operational targets and, as a result, has substantially increased revenue from
production. Higher production combined with strict spending discipline and a
lean, efficient organization represent a solid foundation on which the company
can build a future as a profitable entity with a realizable growth at a
manageable level of risk.
Zev Furst
Non-Executive Chairman
23 April 2019
Chief Executive’s Review
2018 was a good year for Cadogan. The Company returned to profitability after
7 years recording a $1.2 million profit driven by the positive contributions
of the three businesses, by $1.7 million of gains associated with recovery of
impaired receivables and supplemented by a $1.715 million gross 7 income
associated with the exit from the WGI JV. This achievement is the result of
multiple efforts, including:
· E&P operations brought firmly into profitability, with
revenue growth driven by a 61% increase in production;
· a strict discipline in controlling costs and pursuing
efficiency;
· another good year for gas trading, with a healthy margin;
· the work-over campaign on Monastyretska wells completed
using the resources of the Group service company, and
· effective efforts to recover past receivables, some of
which were previously impaired as they were deemed of no value.
2018 also witnessed two important events for Cadogan, namely:
· the resumption of drilling operations after some three and
a half years in order to fulfil the remaining licence commitments; one well
was drilled in Bitlyanska, on time and budget, and contracts were negotiated
and awarded to drill the other, deeper well in Monastyretska. Cadogan
strengthened its operational team in order to meet these challenges with the
right level of expertise.
· the end of Cadogan’s producing gas operations, which
were assigned to Westgasinvest LLC (WGI) for a nominal consideration. These
operations had become unprofitable, given the 70% royalty, and the shut-down
of the Cheremkhivske field, while waiting for the renewal of its production
licence. This assignment was part of an agreement with Eni and Nadra Ukrayny
on the terms and conditions of Eni’s exit from WGI. In this agreement
Cadogan agreed (ii) to transfer its own shares in WGI to Nadra Ukrayny for a
nominal consideration and (iii) to transfer its shares in the company
operating the Debeslavetska and Cheremkhivsko-Strupkivska gas licences to WGI,
also for a nominal consideration, and received a termination fee of $1.715
million from Eni as part of the overall agreement.
For Ukraine 2018 was another difficult year, as the Country remained embroiled
in its confrontation with Russia and continued to be economically challenged.
The country has made some progress towards modernisation of its oil & gas
legislative framework but has been unable to create an environment conducive
to the significant investments, which the country needs to increase its
domestic production. In this uncertain context, Cadogan has remained one of
the few, if not the only, truly foreign investor operating in Ukraine’s E&P
sector.
Cadogan’s application to convert the Pirkovska exploration licence reached
the end of the three-year period granted to secure its conversion into a
production licence without receiving the approval for its conversion. This is
a reflection of the uncertainties that still impact the E&P industry in
Ukraine. The application was returned six times, initially rejected by the
Poltava Regional Council due to its dispute with the Central Government over
the split of royalties and then returned by the Licencing Authority for
reasons whose legal ground is doubtful. Cadogan has fulfilled all the
obligations, submitted the documents in due time, answered the requests from
the Authority in a timely way and is now considering its options.
Against this challenging background, Cadogan has performed well in 2018. In
particular:
* the average production rate through the year increased up to 250 boepd, the
highest level in the last seven years, and this increase was achieved with
minimal capital deployment; and
* the profit of E&P business segment in 2018 was 58% higher than the prior
year, out-performing the 23% increase in the average realized price over the
same period of time.
Other highlights of 2018 and the period since year end are:
* a 61% increase in production, from 56,516 boe in 2017 to 91,085 boe this
year;
* a 4% reduction of overhead (G&A), from $5.0 million in 2017 to $4.8 million
this year; this is in addition to the 11% reduction achieved in 2017 and the
15% reduction in 2016;
* a good year for trading which generated a healthy margin whilst leveraging a
limited amount of Cadogan’s financial resources;
* a multi-well external contract won by Astroservice LLC which started
generating revenue in late 2018;
* a robust balance sheet, with $35.2 million of net cash, kept mostly in UK
banks;
* another year without LTIs’; and
* a €13.385 million convertible loan to Proger Managers & Partners which was
negotiated in the latter part of the year and completed in February 2019 and
which gives the Company potential exposure to growth while diversifying its
portfolio.
In summary, Cadogan has successfully delivered on both pillars of its
strategy, which is to make Ukraine its platform for growth by monetising the
value of its legacy assets while using its strong balance sheet to diversify
its portfolio.
Core operations
Cadogan has continued to safely and efficiently produce from its fields in the
West of Ukraine. Oil production has increased by 130% over the previous year,
while gas production has remained constant.
The performances of wells located on the Monastyretska licence have been
monitored and the gathered data used to calibrate an integrated study for the
producing reservoir. The study highlighted significant upside potential from
infill drilling and the implementation of a water injection scheme, thus
confirming management’s opinion that the field potential had been
underestimated in the past. The study predicts that infill drilling can add
up to 2.3 million barrels (MBbl) to the cumulative production of a
“do-nothing” scenario with a further 2.1 MBbl coming from the
implementation of water injection. Future cumulative production of a
“do-nothing” scenario, i.e. from the three existing wells only, is
predicted to be 1.2 MBbl and is in line with the current estimation of 2P
reserves.
On the Bitlyanska licence, Cadogan drilled Vovche-2 well. The well did not
deliver commercial quantities of oil when tested and was then put under
monitoring under a pilot production scheme. In parallel the company has
continued its effort to identify a farminee available to fund the activity
necessary to confirm the upside of the high-pressure gas condensate deep
target.
The activity in Italy has been limited to routine housekeeping as the
uncertainty before the general election and then the program of the current
government coalition has left no room to progress the applications at present.
Non E&P operation
Trading had a positive year notwithstanding a difficult start, with changes in
the trading team personnel and a continuation of increased competition.
Additionally, the market witnessed unusual trends in gas prices with prices in
summer exceeding those in winter, which created challenging trading
conditions. Against this backdrop, results were encouraging, with $0.7 million
of profit which supplemented E&P revenues.
Oil services conversely contributed a limited amount of cash, as they were
used primarily to serve the Group’s well’s operations. The company
competed for and won a tender for a multi-well program and was able to
contract its rig for the later part of the year to one of the largest
Ukrainian operators.
Outlook
The Company intends to build on the results of 2018 to continue delivering
solid operational and financial performance.
Gas operations, which had become unprofitable, have been relinquished and the
company will concentrate on the conversion of its two licences and on its oil
operations, which is where the value is focused within the current portfolio.
The Blazh-10 well encountered 207 meters of Yamna, the reservoir formation,
reached its final depth at 3,394 m, was logged and is now being prepared for
testing. The Company expect to put it on production if well test confirms that
oil can be produced in commercial quantities, thus contributing to another
step change in the oil production.
The Company will also continue to maintain strong cost discipline, to trade
gas, to offer service to other E&P operators and to seek to recover cash from
previously impaired items. As part of its cost discipline the Company will
continue to streamline its complex corporate architecture by liquidating
companies which represent a legacy of its past and serve little purpose.
The loan agreement with Proger with its option to convert, offers growth
exposure as well as diversification. With a cash position that remains
strong, the Company has the funds to make investments when the right assets or
opportunity arises. Nearly 90 investment opportunities were assessed in the
past years and management will continue to actively pursue additional
opportunities for diversification that adds shareholder value whilst remaining
disciplined in its approach.
Lastly, I wish to express my own and the entire Board’s appreciation to the
men and women of Cadogan who with their dedication, ingenuity and loyalty to
the Company have contributed to the positive results in 2018, and more
generally, to the successful and continuing transformation of the Company.
Guido Michelotti
Chief Executive Officer
23 April 2019
Operation Review
Overview
At 31 December 2018, the Group held working interests in three conventional
gas, condensate and oil exploration and production licences in the west of
Ukraine. All these assets are operated by the Group and are located in the
Carpathian basin in close proximity to the Ukrainian gas distribution
infrastructures.
Summary of the Group’s licences (as at 31 December 2018)
Working interest (%) Licence Expiry Licence type (()(1))
99.2 Monastyretska November 2019 E&D
99.8 Bitlyanska December 2019 E&D
99.2 Debeslavetska ((2)) November 2026 Production
54.2 Cheremkhivska ((2)) expired on May 2018 Production
1. E&D = Exploration and Development
2. The Cheremkhivska licence expired on May 2018 and its renewal had not been
granted by year end. Cadogan’s interest in the Debeslavetska and
Cheremkhivska licences were assigned to WGI in January 2019.
East Ukraine
The company continued pursuing its right to obtain the Pirkivska production
licence in the three-year time frame allowed for conversion from the previous
exploration licence. The applications for the award of 20-year production
licence was repeatedly submitted for approval, but the approval was not
granted within the three years’ time limit to secure conversion which lapsed
in the year.
West Ukraine
The Bitlyanska licence covers an area of 390 square kilometres. Bitlyanska,
Borynya and Vovchenska are three hydrocarbon discoveries in this licence area.
The Borynya and Bitlya fields holds 3P reserves, contingent recoverable
resources and prospective resources. Vovchenska field holds contingent
recoverable resources.
Borynya 3 well, was kept on hold, monitored and routinely bled-off for an
eventual re-entry and stimulation.
The Vovche 2 well was successfully drilled and produced water with
uncommercial quantities of oil when tested. The well is being monitored and
periodically lifted as a part of pilot production scheme. The company has
fully met its licence commitments.
The Monastyretska licence continued to produce oil at an average production
rate of 187 bpd (2017: 81 bpd) from three wells. Such a substantial increase
was achieved by a campaign of successful work-over and stimulation of the
three producing wells. Overall, the work-over campaign increased oil
production from Monastyretska licence by 130% over 2017.
The Blazhiv-10 commitment was prepared for spudding, relevant permitting
obtained and drilling rig & ancillary equipment mobilization and rig up were
completed in December 2018. The well reached its final depth at 3,394m and was
logged in April 2019. The Yamna formation, the formation producing from the
three existing wells, was found 50m higher than prognosis and 207 m thick; the
preliminary interpretation of the logs and the results of the cores taken in
the upper part suggests the Yamna to be oil bearing. Full log interpretation
and results of the well test will determine net pay and well deliverability.
The Debeslavetska licence continued producing a stable gas production rate of
58 boepd (2017: 59 boepd) and the Cheremkhivska field produced at an average
rate of 14 boepd (2017: 15 boepd) until 15 May 2018 when production operations
were halted due to the renewal of the production licence not having been
received. The fields were transferred to WGI in January 2019 as part of the
trilateral agreement with Eni and Nadra Ukrayny stipulating terms and
conditions of Eni’s exit from WGI and the shale gas project.
Gas trading
The Group continued to import gas from Europe via the Slovakian, Hungarian and
Polish borders and to sell it in Ukraine along with some locally purchased
quantities. In 2018, the market continued to develop towards a better
alignment with the European market and prices for gas showed some anomalies,
with the price in summer being higher than in winter. Larger international
trading houses increased their presence in Ukraine and many large consumers
started to import gas directly from the European suppliers. This reduced the
Company’s market share, but despite the lower volumes sold through the year,
the Company was able to maintain healthy margins. Credit risk continued to be
kept at low level by selling gas on prepayment basis.
Service
The Group continued providing services through its wholly-owned subsidiary
Astroservice LLC. Services provided were primarily related to the work-over
and stimulation campaign of Monastyretska wells. A multi-well contract was
secured in the second half of the year and the rig has remained contracted
ever since.
Financial Review
Overview
In 2018, the Group increased production and E&P revenues further, while
continuing gas trading activity. The performance of the Group’s operating
divisions delivered a contribution of $1.2 million (2017: $1.6 million) (Note
5) and the Group recorded a profit of $1.2 million including the impact of
monetization of non-core and historically impaired receivables. The Group also
resumed drilling operations on its licences after long pause.
The E&P business positively contributed to the financial results of the Group,
due to a combination of increased production and higher prices. The service
business focused on providing drilling and work-over services to the
subsidiaries of the Group and the trading business earned a healthy margin
despite reduced volumes. These results have been supplemented by further
monetising of the Group’s assets as noted above, tight control on costs and
optimisation of the working capital cycle.
Net cash decreased to $35.2 million at 31 December 2018 compared to $37.6
million at 31 December 2017. This was mostly due to prepayments made at the
end of 2018 for services related to the drilling of Blazh-10 well, together
with an increased inventory of gas at the end of the year.
Income statement
Revenues from production almost doubled – increased from $2.4 million in
2017 to $4.7 million in 2018, mainly due to production volume increases from
56,516 boe in 2017 to 91,085 boe in 2018 and an improved pricing environment.
E&P cost of sales increased from $1.7 million in 2017 to $3.7 million in 2018.
These include production royalties and taxes, fees paid for the rented wells,
depreciation and depletion of producing wells and direct staff and other costs
for exploration and development. Overall, in 2018, E&P made a positive
contribution of $1.0 million (2017: $0.7 million) to gross profit,
representing a positive 8 $0.4 million (2017: profit of $0.3 million)
business segment profit.
The oil services business in 2018 focused on internal activities providing its
services, including drilling and work-overs, to the subsidiaries of the Group.
In addition, one external tender was secured and started delivery during late
2018, which brought a positive service segment profit for 2018 of $63 thousand
(2017: loss of $26 thousand). The contract continues in 2019.
The gas trading business showed positive results in 2018. Although revenues
decreased from $12.7 million in 2017 to $9.9 million in 2018, cost of sales
also decreased, from $11.4 million in 2017 to $9.1 million in 2018, resulting
in an overall contribution to profit of $0.7 million (2017: $1.3 million,
which included $0.4 million of interest on receivables). In addition, staff
costs (G&A) were reduced, and trading receivables recovered together with
interest.
Administrative expenses (“G&A”) continued to be strictly controlled.
Ukrainian G&A remained flat and the overall G&A was further reduced from $5.0
million in 2017 to $4.8 million in 2018.
The reversal of impairment of other assets of $1.8 million (2017: reversal of
impairment of $1.5 million) primarily included: i) VAT of $1.7 million (2017:
$1.4 million), which was previously impaired, as a result of the Group
receiving a VAT refund in cash of $1.0 million (2017: $1.4 million) and also
offsets of VAT recoverable against trading margin earned; and ii) inventories
of $0.1 million (2017: $0.1 million) due to the successful sale of obsolete
production stock that had previously been impaired.
Impairments of other assets totalled $0.7 million (2017: $0.05 million)
reflecting $0.3 million on infrastructure for the Pirkovska licence; and ii)
$0.4 million on gas plant which has been sold in 2019 for $0.15 million, which
had a previous book value of $0.55 million and would otherwise have needed to
be abandoned as the right for the associated licence application had
expired 9 .
In 2018, the Group finalised the deal on exit from the Westgasinvest LLC and
received consideration of $1.715 million as a termination fee of the project.
The investment in the Westgasinvest LLC joint venture was fully impaired in
2017, given Eni’s communication of their intention to exit the project.
Net finance income of $0.6 million (2017: net finance income of $0.7 million)
reflects interest expense to BNP Paribas (“BNPP”) on a credit line used
for gas trading of $0.1 million (2017: $0.3 million), net of i) interest
income on cash deposits used for trading of $0.3 million (2017: $0.1 million);
ii) investment revenue of $0.4 million (2017: $0.2 million); iii) interest
income on receivables nil (2017: $0.5 million).
Balance sheet
Intangible Exploration and Evaluation (“E&E”) assets of $2.4 million
(2017: $1.7 million) represent the carrying value of the Bitlyanska licence.
The Property Plant & Equipment (PP&E) balance was $3.3 million at 31 December
2018 (2017: $2.1 million), increased primarily due to the start of drilling of
Blazh-10 well at Monastyretska licence. Additionally, $1.3 million of
prepayments for non-current assets (2017: $nil) have been incurred associated
with the forthcoming drilling activity.
Trade and other receivables of $2.5 million (2017: $4.5 million), include $0.1
million (2017: $1.3 million) of trading receivables, $0.2 million of
prepayments for natural gas (2017: $1.8 million), $1.9 million of VAT
recoverable (2017: $0.9 million), which is expected to be recovered through
production, trading and services activities, and $0.3 million (2017: $0.5
million) of other receivables. .
The $1.2 million of trade and other payables as of 31 December 2018 (2017:
$1.4 million) represent $0.1 million (2017: $0.5 million) of trading payables,
$0.6 million (2017: $0.5 million) of accrued expenses and $0.5 million (2017:
$0.4 million) of other creditors.
At 31 December 2018 the Group recognised assets held for sale of $0.2 million
(2017: $nil) and liabilities held for sale of $0.1 million (2017: $nil)
related to the exit from gas operations.
Provisions include $0.3 million (2017: $0.4 million) of short-term provision
for decommissioning cost which are expected to be incurred in 2019 with
regards to Pirkovska licence assets and $0.04 million (2017: $0.4 million) of
long-term provision for decommissioning costs, which represents the present
value of costs that are expected to be incurred in 2039 for producing assets,
when the licences will expire following their anticipated conversion to
production licences in 2019. The reduction in long term provisions primarily
reflects changes in estimates associated with the timing of the
decommissioning works and associated discounting.
The cash position of $35.2 million at 31 December 2018, including $7 million
used as a pledge for the credit line, has decreased from $37.6 million at 31
December 2017. This was mostly due to prepayments made at the end of 2018 for
services related to the drilling of the Blazh-10 well as well as to an
increased stock of gas at the end of the year.
Cash flow statement
The Consolidated Cash Flow Statement on page 72 shows operating cash outflow
before movements in working capital of $1.9 million (2017: outflow of $2.3
million), which represents mostly cash used by the E&P and Trading business
segment net of corporate expenses. Working capital has been further improved,
which resulted in a $1.4 million cash inflow (2017: $0.4 million) with the
impact of increased inventory offset by recovery of receivables.
The Group, during 2018, started its drilling campaign by drilling a shallow
well at Bitlyanska licence at a cost of $0.8 million and by preparing to drill
the Blazh-10 well at Monastyretska licence, for which a number of prepayments
were made close to the end of the year; this resulted in an aggregate
investment in PP&E of $3.9 million.
As a result of the agreement signed by ENI, Nadra and Cadogan on the terms of
Eni’s exist from WGI, the Group received a termination fee of $1.7 million.
In 2018, the Group financed its trading operations with short-term borrowings
(Note 23) with proceeds of $4.0 million and repayments of $3.9 million (2017:
proceeds of $3.3million and repayments of $7.0 million).
Related party transactions
Related party transactions are set out in note 29 to the Consolidated
Financial Statements.
Treasury
The Group continually monitors its exposure to currency risk. It maintains a
portfolio of cash and cash equivalent balances mainly in US dollars
(“USD”) held primarily in the UK. Production revenues from the sale of
hydrocarbons are received in the local currency in Ukraine, however, the
hydrocarbon prices are linked to the USD denominated gas and oil prices. To
date, funds from such revenues have been used in Ukraine in operations rather
than being remitted to the UK.
Risks and uncertainties
There are a number of potential risks and uncertainties that could have a
material impact on the Group’s long-term performance and could cause the
results to differ materially from expected and historical results. Executive
management review the potential risks and then classify them as having a high
impact, above $5 million, medium impact, above $1 million but below $5
million, and low impact, below $1 million. They also assess the likelihood of
these risks occurring. Risk mitigation factors are reviewed and documented
based on the level and likelihood of occurrence. The Audit Committee reviews
the risk register and monitors the implementation of risk mitigation
procedures via Executive management, who are carrying out a robust assessment
of the principal risks facing the Group, including those potentially
threatening its business model, future performance, solvency and liquidity.
The Group has analysed the following categories as key risks:
Risk Mitigation
Operational risks
Health, Safety and Environment (“HSE”)
The oil and gas industry by its nature conducts activities, which can cause health, safety and environmental incidents. Serious incidents can have not only a financial impact but can also damage the Group’s reputation and the opportunity to undertake further projects. The Group maintains a HSE management system in place and demands that management, staff and contractors adhere to it. The system ensures that the Group meets Ukrainian legislative standards in full and achieves international standards to the maximum extent
possible. Management systems and processes have been certified as ISO 14001 and 45001 compliant.
Climate change
Countries may impose moratorium on E&P activities or enact tight limits to emissions level, which may curtail production. Shareholders may also request that the Company adopt stringent targets in terms of emissions reduction. A moratorium on domestic production is deemed highly unlikely in Ukraine given the country’s need for affordable energy. Such risks exist in Italy, but the Company’s exposure there is limited. Management strives to reduce the emission in everything the
Company does and has started implementing alternatives to offset emissions. Lastly, the Company has created an opportunity to diversify into the renewable segment with the convertible loan to Proger.
Drilling and Work-Over operations
The technical difficulty of drilling or re-entering wells in the Group’s locations and equipment limitations can result in the unsuccessful completion of the well. The incorporation of detailed sub-surface analysis into a robustly engineered well design and work programme, with appropriate procurement procedures and competent on-site management, aims to minimise risk. Only certified personnel are hired to operate on
the rig floor.
Production and maintenance
There is a risk that production or transportation facilities could fail due to non-adequate maintenance, control or poor performance of the Group’s suppliers. All plants are operated and maintained at standards above the Ukrainian minimum legal requirements. Operative staff are experienced and receive supplemental training to ensure that facilities are properly operated and maintained. When not in use the
facilities are properly kept under conservation and routinely monitored. Service providers are rigorously reviewed at the tender stage and are monitored during the contract period.
Sub-surface risks
The success of the business relies on accurate and detailed analysis of the sub-surface. This can be impacted by poor quality data, either historic or recently gathered, and limited coverage. Certain information provided by external sources may not be accurate. All externally provided and historic data is rigorously examined and discarded when appropriate. New data acquisition is considered and appropriate programmes implemented, but historic data can be reviewed and reprocessed to improve the overall knowledge
base. Agreements with qualified local and international contractors have been entered into to supplement and broaden the pool of expertise available to the Company.
Data can be misinterpreted leading to the construction of inaccurate models and subsequent plans. All analytical outcomes are challenged internally and peer reviewed. Analysis is performed using modern geological software.
The area available for drilling operations is limited due to logistics, infrastructures and moratorium. This increases the risk for setting optimum well coordinates. Bottom hole locations are always checked for their operational feasibility, well trajectory, rig type, and verified on updated sub-surface models. They are rejected if deemed to be too risky.
The Group may not be successful in proving commercial production from its Bitlyanska licence and consequently the carrying values of the Group’s oil and gas assets may have to be impaired. The Group performs a review of its oil and gas assets for impairment on an annual basis and considers whether to commission a review from a third or a Competent Person’s Report (“CPR”) from an independent qualified contractor depending on the
circumstances.
Financial risks
The Group is at risk from changes in the economic environment both in Ukraine and globally, which can cause foreign exchange movements, changes in the rate of inflation and interest rates and lead to credit risk in relation to the Group’s key counterparties. Revenues in Ukraine are received in UAH and expenditure is made in UAH, however the prices for hydrocarbons are implicitly linked to USD prices. The Group continues to hold most of its cash reserves in the UK mostly in USD. Cash reserves are placed with
leading financial institutions, which are approved by the Audit Committee. The Group is predominantly a USD denominated business. Foreign exchange risk is considered a normal and acceptable business exposure and the Group does not hedge against this risk
for its E&P operations. For trading operations, the Group matches the revenues and the source of financing. Refer to note 27 to the Consolidated Financial Statements for detail on financial risks.
The Group is at risk that counterparties will default on their contractual obligations resulting in a financial loss to the Group. Procedures are in place to scrutinise new counterparties via a Know Your Customer (“KYC”) process, which covers their solvency. In addition, when trading gas, the Group seek to reduce the risk of customer non-performance by limiting the title transfer to
product until the payment is received, prepaying only to known credible suppliers.
The Group is at risk that fluctuations in gas prices will have a negative result for the trading operations resulting in a financial loss to the Group. The Group mostly enters into back-to-back transactions where the price is known at the time of committing to purchase and sell the product. Sometimes the Group takes exposure to open inventory positions when justified by the market conditions in Ukraine,
which is supported by analysis of the specific transactions, market trends and models of the gas prices and foreign exchange rate trends.
Country risks
Legislative changes may bring unexpected risk and create delays in securing licences or ultimately prevent licences and licence renewals / conversions being secured. Compliance procedures, monitoring and appropriate dialogue with the relevant authorities are maintained to minimise the risk. In all cases, deployment of capital in Ukraine is limited and investments are kept at the level required to fulfil licence
obligations.
Ukraine has not progressed as far as expected towards integration with Europe, the economic challenges in the country are not yet over and the confrontation with Russia has remained open. This can impact the political agenda, negatively impacts the creation of a transparent market and introduces an element of unpredictability in the development of the legislative framework. The Group minimises this risk by maintaining funds in international banks outside Ukraine, by limiting the deployment or capital in country and by continuously maintaining a working dialogue with the regulatory authorities. Commitments are fulfilled and
routinely verified the relevant Authorities, supported by competent and qualified legal contractors. The assets of the Group are located far from the area of confrontation with Russia.
Other risks
The Group's success depends upon skilled management as well as technical and administrative staff. The loss of service of critical members from the Group's team could have an adverse effect on the business. The Group periodically reviews the compensation and contract terms of its staff in order to remain a competitive employer in the markets where it operates.
The Group is at risk of underestimating the risk and complexity associated with the entry into new countries. The Group applies rigorous screening criteria in order to evaluate potential investment opportunities. It also seeks input from independent and qualified experts when deemed necessary. Additionally, the required rate of return is adjusted to the perceived
level of risk.
Local communities and stakeholders may cause delays to the project execution and postpone activities. The Group maintains a transparent and open dialogue with authorities and stakeholders (i) to identify their needs and propose solutions which address them as well as (ii) to illustrate the activities which it intends to conduct and the measures to mitigate
their impact. Local needs and protection of the environment are always taken into consideration when designing mitigation measures, which may go beyond the legislative minimum requirement. The Group devotes the highest level of attention and engage
qualified consultants to prepare the Environmental Impact assessment studies and to attend public hearings, both of them introduced in Ukraine in the course of 2018.
Statement of Reserves and Resources
During the year 2018 the company successfully re-entered the Blazh 3 and
Blazh-Mon 3 existing wells and conducted a number of rig-less activities in
Blazh 1 and in the two gas fields to maintain a sustainable production.
Summary of Reserves(1)
at 31 December 2018
Mmboe
Proved, Probable and Possible Reserves at 1 January 2018 7.82
Production (0.09)
Revisions (sale of Debeslavetska and Cheremkhivsko-Strupkhivska licences) (0.14)
Proved, Probable and Possible Reserves at 31 December 2018 7.59
(1 The study was conducted in 2016 by third-party Brend Vik and since then
Cadogan has entered into a Technical Service Agreement with them.)
Reserves are assigned to the Bitlyanska and Monastyretska fields.
In addition to the tabled reserves, Cadogan has 15.4 million boe of contingent
resources associated with the Bitlyanska and Monastyretska licences.
Corporate Responsibility
Under Section 414C of the Companies Act 2006 (the “Act”), the Board is
required to disclose information about environmental matters, employees, human
rights and community issues, including information about any policies it has
in relation to these matters and the effectiveness of these policies.
Being sustainable in our activities means conducting our business with respect
for the environment and for the communities hosting us, with the aim of
increasing the benefit and value to our stakeholders. We recognize that this
is a key element to be competitive and to maintain our licence to operate.
The Board recognises that the protection of the health and safety of its
employees, communities and the environment in which it operates is not just an
obligation but is part of the personal ethics and beliefs of management and
staff. These are the key drivers for the sustainable development of the
Company’s activity. Cadogan Petroleum, its management and employees are
committed to continuously improve Health, Safety and Environment (HSE)
performance; follow our Code of Ethics and apply internationally recognised
best practices and standards, in conducting our operations.
Our activities are carried out in accordance with a policy manual, endorsed by
the Board, which has been disseminated to all staff. The manual includes a
Working with Integrity policy and policies on business conduct and ethics,
anti-bribery, the acceptance of gifts and hospitality and whistleblowing.
In August 2018, Cadogan Ukraine LLC obtained ISO 14001 and ISO 45001
certification for the following scope: “Supervision, coordination,
management support, control in the field of oil and gas on-shore exploration
and production.” This provides formal recognition of the process embedded in
the Company and demonstrates the commitment and efforts delivered by our
employees and management. It is considered a baseline to continue with the
efforts to improve the way we conduct the business.
The Board believes that health and safety procedures and training across the
Group should be in line with best practice in the oil and gas sector.
Accordingly, it has set up a Committee to review and agree on the health and
safety initiatives for the Company and to report back to the Board on the
progress of these initiatives. Management regularly reports to the Board on
HSE and key safety and environmental issues, which are discussed at the
Executive Management level. The report of the Health, Safety and Environment
Committee can be found on page 35 to 36.
The former Chief Operating Officer is the Chairman of the HSE Committee and is
supported in his role by Cadogan Ukraine’s HSE Manager. In accordance with
the ISO 14001 and 45001, his role is to ensure that the Group continuously
develops suitable procedures, that operational management and their teams
incorporate them into daily operations and that the HSE management has the
necessary level of autonomy and authority to discharge their duties
effectively and efficiently.
Health, safety and environment
The Group has implemented an integrated HSE management system in accordance
with the ISO requirements. The system aims to ensure that a safe and
environmentally friendly/protection culture is embedded in the organisation
with a particular focus on the local community involvement. The HSE management
system ensures that both Ukrainian and international standards are met, with
the Ukrainian HSE legislation requirements taken as an absolute minimum. All
the Group’s local operating companies actively participate in the process.
A proactive approach based on a detailed induction process and near-miss
reporting has been in place throughout 2018 to prevent incidents. Staff
training on HSE matters and discussions on near miss reporting are recognised
as the key factors to continuously improve. In-house training is provided to
help staff meet international standards and follow best practice. The process
enacted by the certification, enhances attention to training on risk
assessments, emergency response, incident prevention, reporting and
investigation, as well as emergency drills regularly run on operations’
sites and offices. This process is essential to ensure that international best
practices and standards are maintained to comply with, or exceed, those
required by Ukrainian legislation, and to promote continuous improvement.
The Board monitors the main Key Performance Indicators (lost time incidents,
mileage driven, training received, CO2 emissions) as business parameters. The
Board has benchmarked safety performance against the HSE performance index
measured and published annually by the International Association of Oil and
Gas Producers. In 2018, the Group recorded over 270,000 man-hours worked with
no incidents and close to 820,000 hours have been worked since the last injury
in February 2016.
During 2018 the Group continued to monitor its greenhouse gas emissions and
collect statistical data relating to the consumption of electricity,
industrial water and fuel consumption by cars, plants and other work sites,
recording a continuous improvement in the efficient use of resources.
Employees
Wellness and professional development are part of the Company’s sustainable
development policy and wherever possible, local staff are recruited. The
Group’s activity in Ukraine is entirely managed by local staff. Qualified
local contractors are engaged to supplement the required expertise when and to
the extent it is necessary.
Procedures are in place to ensure that all recruitment is undertaken on an
open, transparent and fair basis with no discrimination against applicants.
Each operating company has its own Human Resources function to ensure that the
Group’s employment policies are properly implemented and followed. The
Group’s Human Resources policy covers key areas such as equal opportunities,
wages, overtime and non-discrimination. As required by Ukrainian legislation,
Collective Agreements are in place with the Group’s Ukrainian subsidiary
companies, which outline agreed level of staff benefits and other safeguards
for employees.
All staff are aware of the Group’s grievance procedures. All employees have
access to health insurance provided by the Group to ensure that all employees
have access to adequate medical facilities.
Each employee’s training needs are assessed on an individual basis to ensure
that their skills are adequate to support the Group’s operations, and to
help them to develop.
Diversity
The Board recognises the benefits and importance of diversity (gender, ethnic,
age, sex, disability, educational and professional backgrounds, etc.) and
strives to apply diversity values across the business. We endeavour to
employ a skilled workforce that reflects the demographic of the jurisdictions
in which we operate. The board will review the existing policies and intends
to develop a diversity.
Gender diversity
The Board of Directors of the Company comprised six Directors throughout the
year to 31 December 2018. The appointment of any new Director is made on the
basis of merit. See pages 21 and 22 for more information on the composition of
the Board.
As at 31 December 2018, the Company comprised a total of 82 persons, as
follows:
Male Female
Non-executive directors 5 -
Executive directors 1 -
Management, other than Executive directors 7 2
Other employees 48 19
Total 61 21
Human rights
Cadogan’s commitment to the fundamental principles of human rights is
embedded in our HSE polices and throughout our business processes. We promote
the core principles of human rights pronounced in the UN Universal Declaration
of Human Rights and our support for these principles is embedded throughout
our Code of Conduct, our employment practices and our relationships with
suppliers and partners wherever we do business.
Community
The Group’s activities are carried out in rural areas of Ukraine and the
Board is aware of its responsibilities to the local communities in which it
operates and from which some of the employees are recruited. In our
operational sites, management works with the local councils to ensure that the
impact of operations is as low as practicable by putting in place measures to
mitigate their effect. Projects undertaken include improvement of the road
infrastructure in the area, which provides easier access to the operational
sites while at the same time minimising inconvenience for the local population
and allowing improved road communications in the local communities, especially
during winter season or harsh weather conditions. Specific community
activities are undertaken for the direct benefit of local communities. All
activities are followed and supervised by managers who are given specific
responsibility for such tasks.
The Group’s companies in the Ukraine see themselves as part of the community
and are involved and offer practical help and support. All these activities
are run in accordance with our Working with Integrity policy and procedures.
The recruitment of local staff generates additional income for areas that
otherwise are predominantly dependent on the agricultural sector.
The enactment in 2018 of new legislation which introduces Environmental Impact
Assessment studies and public hearings as part of the licence’s
award/renewal processes was anticipated effectively by the Group. The Group is
complying with these requirements, building on the recognized competence of
its people and advisors as well as on the good communication and relations
established with local communities.
Approval
The Strategic Report was approved by the Board of Directors on 23 April 2019
and signed by order of the Board by:
Ben Harber
Company Secretary
23 April 2019
Board of Directors
Zev Furst, 71, American
Non-Executive Chairman
Appointed to the Board on 2 August 2011, Mr Furst is a leading global business
and communications strategist who has advised political leaders, foreign
principals and corporate executives of Fortune 100 companies. He is the
Chairman and CEO of First International Resources, an international corporate
and political consulting firm he founded in 1992. Mr Furst specialises in
providing strategic counsel on crisis management, market entry, corporate
positioning and personal reputational issues. In recent years, he has also
advised and consulted with candidates running for national office in Israel,
Japan, Mexico and Ukraine.
In 1986, Mr Furst was a founding partner of Meridian Resources and Development
Ltd, an international commodities trading company specialising in chemicals
and petroleum products.
Mr Furst formerly served as Chairman of the Peres Center for Peace and is
currently a member of its International Board in addition to being a member of
the Advisory Board of the Kennan Institute in Washington, DC. He has written
and lectured extensively on international affairs, business and political
strategy and the role of media in politics and diplomacy.
Mr Furst is Chairman of the Company’s Nomination Committee and a member of
the Remuneration Committee.
Guido Michelotti, 65, Swiss
Chief Executive Officer
Mr Michelotti was appointed to the Board of Directors as Chief Executive
Officer on 25 June 2015. An Oil & Gas executive with over 30 years of
international experience across the entire E&P cycle, he spent more than 10
years in senior executive roles with eni, leading E&P companies as well as
managing major capital projects. Prior to joining Cadogan he was CEO of a
Luxembourg based Private Equity fund investing in E&P.
Mr Michelotti is a non-executive Director of Proger s.p.a., Exploenergy s.r.l.
and Heritage Oil Ltd, and a Director of the Swiss section of the Society of
Petroleum Engineers (SPE). He has been a former Senior Advisor to the Energy
Practice of the Boston Consulting Group and a former member of SPE’s
Industry Advisory Council.
Adelmo Schenato, 67, Italian
Non-Executive Director
Mr Schenato was appointed to the Board as Chief Operating Officer on 25
January 2012. He joined the Company after a 35 years career at eni, the
Italian integrated energy business, where he served in senior global and
regional positions. His global roles at eni included Well Operations Research
and Development and Technical Management, and Vice President HSE &
Sustainability. His regional roles include General Manager of Tunisia, Gabon
and Angola as well as CEO of eni’s Italian gas storage company.
In January 2017, Mr Schenato stepped down as Chief Operating Officer to take
up the role of Advisor to the CEO and Chairman and CEO of Exploenergy s.r.l.,
the Italian company which is 90% owned by the Group.
Mr Schenato is the Chairman of the Health, Safety and Environment Committee.
Gilbert Lehmann, 73, French
Senior Independent Non-Executive Director
Mr Lehmann was appointed to the Board on 18 November 2011. He was an adviser
to the Executive Board of Areva, the French nuclear energy business, having
previously been its Deputy Chief Executive Officer responsible for finance. He
is also a former Chief Financial Officer and deputy CEO of Framatone, the
predecessor to Areva, and was CFO of Sogee, part of the Rothschild Group. Mr
Lehmann is also Deputy Chairman and Chairman of the Audit Committee of Eramet,
the French minerals and alloy business. He is Deputy Chairman and Audit
Committee Chairman of Assystem SA, the French engineering and innovation
consultancy. He was Chairman of ST Microelectronics NV, one of the world’s
largest semiconductor companies, from 2007 to 2009, and stepped down as Vice
Chairman in 2011.
Mr Lehmann is currently Chairman of the Company’s Audit Committee and a
member of the Remuneration and Nomination Committees.
Michel Meeùs, 66, Belgian
Non-Executive Director
Mr Meeùs was appointed as a Non-executive Director on 23 June 2014. Since
2007, he has been a director within the Alcogroup SA Company (which gathers
the ethanol production units of the homonymous group), as well as within some
of its subsidiaries. Before joining Alcogroup, Mr Meeùs spent most of his
career in the financial sector, at Chase Manhattan Bank in Brussels and
London, then at Security Pacific Bank in London, then finally at Electra
Kingsway Private Equity in London.
Enrico Testa, 67, Italian
Independent Non-Executive Director
Appointed to the Board on 1 October 2011, Mr Testa has a long and varied
background in the energy market. He was Chairman of the Board of ACEA (the
Rome electricity and water utility company) from 1996 to 2002. He was Chairman
of the Board of Enel S.p.A, the major Italian electricity supplier, during its
privatisation. From 2005 to 2009 he was Chairman of Roma Metropolitane, the
Rome council-owned company constructing new underground lines. He was also
Chairman of the Organising Committee for the 20th World Energy Congress held
in Rome in November 2007, Senior Partner at the Franco Bernabè Group which
owns several investments in the IT sector from 2002 to 2005 he was member of
the Advisory Board of Carlyle Europe and has been Chairman of the Italian
Nuclear Forum since 2010. In addition, between 2004 and August 2012 Mr Testa
was Managing Director of Rothschild S.p.A.
He is currently Chairman of the AIM listed telecommunications company Telit
Communications Plc, Chairman of Sorgenia S.p.A (Rome Electricity and Gas
company) and Chairman of E.VA – Energie Valsabbia S.p.A. – a company
developing hydropower and solar generating plants.
Mr Testa is Chairman of the Company’s Remuneration Committee and a member of
the Audit and Nomination Committees.
Report of the Directors
Directors
The Directors in office during the year and at the date of this report are as
shown below:
Non-Executive Directors
Executive Director
Zev Furst
(Chairman)
Guido Michelotti
Gilbert
Lehmann
Michel
Meeùs
Enrico Testa
Adelmo Schenato
Directors’ re-election
The Board has decided previously that all Directors are subject to annual
election by shareholders, in accordance with industry best practice and as
such, all of the Directors will be seeking re-election at the Annual General
Meeting to be held on 19 June 2019.
The biographies of the Directors in office at the date of this report are
shown on pages 21 and 22.
Appointment and replacement of Directors
The Company’s Articles of Association allow the Board to appoint any
individual willing to act as a Director either to fill a vacancy or act as an
additional Director. The appointee may hold office only until the next annual
general meeting of the Company whereupon his or her election will be proposed
to the shareholders.
The Company’s Articles of Association prescribe that there shall be no fewer
than three Directors and no more than fifteen.
Directors’ interests in shares
The beneficial interests of the Directors in office as at 31 December 2018 and
their connected persons in the Ordinary shares of the Company at 31 December
2018 are set out below.
Director Number of Shares
Z Furst -
G Michelotti 4,637,588
G Lehmann -
M Meeùs 26,000,000
A Schenato -
E Testa -
Conflicts of Interest
The Company has procedures in place for managing conflicts of interest. Should
a director become aware that they, or any of their connected parties, have an
interest in an existing or proposed transaction with the Company, its
subsidiaries or any matters to be discussed at meetings, they are required to
formally notify the Board in writing or at the next Board meeting. In
accordance with the Companies Act 2006 and the Company’s Articles of
Association, the Board may authorise any potential or actual conflict of
interest that may otherwise involve any of the directors breaching his or her
duty to avoid conflicts of interest. All potential and actual conflicts
approved by the Board are recorded in register of conflicts, which is reviewed
by the Board at each Board meeting.
Directors’ indemnities and insurance
The Company’s Articles of Association provide that, subject to the
provisions of the Companies Act 2006, all Directors of the Company are
indemnified by the Company in respect of any liability incurred in connection
with their duties, powers or office. Save for such indemnity provisions, there
are no qualifying third-party indemnity provisions. In addition, the Company
continues to maintain Directors’ and Officers’ Liability Insurance for all
Directors who served during the year.
Powers of Directors
The Directors are responsible for the management of the business and may
exercise all powers of the Company subject to UK legislation and the
Company’s Articles of Association, which includes powers to issue or buy
back the Company’s shares given by special resolution. The authorities to
issue and buy back shares, granted at the 2018 Annual General Meeting, remains
unused.
Dividends
The Directors do not recommend payment of a dividend for the year ended 31
December 2018 (2017: nil).
Principal activity and status
The Company is registered as a public limited company (registration number
05718406) in England and Wales. The principal activity and business of the
Company is oil and gas exploration, development and production.
Structure of share capital
The authorised share capital of the Company is currently £30,000,000 divided
into 1,000,000,000 Ordinary shares of 3 pence each. The number of shares in
issue as at 31 December 2018 was 235,729,322 Ordinary shares (each with one
vote) with a nominal value of £7,071,880. The total number of voting rights
in the Company is 235,729,256. The Companies (Acquisition of Own Shares)
(Treasury Shares) Regulations 2003 allow companies to hold shares in treasury
rather than cancel them. Following the consolidation of the issued capital of
the Company on 10 June 2008, there were 66 residual Ordinary shares, which
were transferred to treasury. No dividends may be paid on shares whilst held
in treasury and no voting rights attach to shares held in treasury.
Rights and obligations of Ordinary shares
In accordance with applicable laws and the Company’s Articles of
Association, holders of Ordinary shares are entitled to:
* receive shareholder documentation including the notice of any general
meeting;
* attend, speak and exercise voting rights at general meetings, either in
person or by proxy; and
* a dividend where declared and paid out of profits available for such
purposes. On a return of capital on a winding up, holders of Ordinary shares
are entitled to participate in such a return.
Exercise of rights of shares in employee share schemes
None of the share awards under the Company’s incentive arrangements are held
in trust on behalf of the beneficiaries.
Agreements between shareholders
The Board is unaware of any agreements between shareholders, which may
restrict the transfer of securities or voting rights.
Restrictions on voting deadlines
The notice of any general meeting of the Company shall specify the deadline
for exercising voting rights and appointing a proxy or proxies to vote at a
general meeting. In order to accurately reflect the views of shareholders, it
is the Company’s policy at present to take all resolutions at any general
meeting on a poll.
Following the meeting, the results of the poll released to the market via a
regulatory news service and be published on the Company’s website.
Substantial shareholdings
As at 31 December 2018 and 17 April 2019, being the last practicable date, the
Company had been notified of the following interests in voting rights attached
to the Company’s shares:
31 December 2018 17 April 2019
Major shareholder Number of shares held % of total voting rights Number of shares held % of total voting rights
SPQR Capital Holdings SA 67,298,498 28.55 67,298,498 28.55
Mr Michel Meeùs 26,000,000 11.03 26,000,000 11.03
Ms Veronique Salik 17,959,000 7.62 17,959,000 7.62
Ms Brigitte Salik 17,409,000 7.39 17,409,000 7.39
Kellet Overseas Inc. 14,002,696 5.94 14,002,696 5.94
Julius Baer 9,940,410 4.22 9,940,410 4.22
Credit Agricole Luxembourg 9,176,336 3.89 9,176,336 3.89
Mr Pierre Salik 7,950,000 3.37 7,950,000 3.37
Cynderella Trust 7,657,886 3.25 7,657,886 3.25
Amendment of the Company’s Articles of Association
The Company’s Articles of Association may only be amended by way of a
special resolution of shareholders.
Disclosure of information to auditor
As required by section 418 of the Companies Act 2006, each of the Directors as
at 23 April 2019 confirms that:
(a) so far as the Director is aware, there is no relevant audit information of
which the Company’s auditor is unaware; and
(b) the Director has taken all the steps that he ought to have taken as a
Director in order to make himself aware of any relevant audit information and
to establish that the Company’s auditor is aware of that information.
Going concern
The Group’s business activities, together with the factors likely to affect
its future development, performance and position, are set out on pages 14 to
16.
Having considered the Company’s financial position and its principal risks
and uncertainties, the Directors have a reasonable expectation that the
Company and the Group have adequate resources to continue in operational
existence for the foreseeable future. Accordingly, they continue to adopt the
going concern basis in preparing the Consolidated and Company Financial
Statements. For further detail please refer to the detailed discussion of the
assumptions outlined in note 3 (b) to the Consolidated Financial Statements.
Reporting year
The reporting year coincides with the Company's fiscal year, which is 1
January 2018 to 31 December 2018.
Financial risk management objectives and policies
The Company’s financial risk management objectives and policies including
its policy for managing its exposure of the Company to price risk, credit
risk, liquidity risk and cash flow risk are described on page 97 to 99 in note
27 to the Consolidated Financial Statements.
Outlook
Future developments in the business of the Company are presented on page 6 to
8.
Change of control – significant agreements
The Company has no significant agreements containing provisions, which allow a
counterparty to alter and amend the terms of the agreement following a change
of control of the Company.
Should a change in control occur then certain Executive directors are entitled
to a payment of salary and benefits for a period of six months.
Global greenhouse gas emissions
This section contains information on greenhouse gas (“GHG”) emissions
required by the Companies Act 2006 (Strategic Report and Directors' Report)
Regulations 2013 (the “Regulations”).
Methodology
The principal methodology used to calculate the emissions is drawn from the
‘Environmental Reporting Guidelines: including mandatory greenhouse gas
emissions reporting guidance (June 2013)’, issued by the Department for
Environment, Food and Rural Affairs (“DEFRA”) and DEFRA GHG conversion
factors for company reporting were utilised to calculate the CO2 equivalent of
emissions from various sources (2018 update).
The Company has reported on all of the emission sources required under the
Regulations.
The Company does not have responsibility for any emission sources that are not
included in its consolidated statement.
In assessing the method used to calculate and report emissions, a mistake has
been discovered in Cadogan’s previously reported emissions data. The
mistake was discovered in April 2019 while assessing alternatives to contain
emissions in a scenario of higher production levels as a result of a tie-back
of a positive well (Blazh-10) and of further development activity. This data,
which had been calculated using a process audited in Ukraine by an independent
third party, has now been calculated using a different process for the year
2018 and restated in respect of the year 2017. Going forwards,
Cadogan intends to install a second gas metering system, in order to reduce
the degree of intra wells extrapolations of data, and to assess the level of
gas fugitive emissions. The Company also intends to have its entire
data calculation process re-validated by a different independent third party
upon completion of the above activities. Reported emissions data may change as
a result of the implementation of the above actions. Management will also
thoroughly evaluate potential solutions for reducing the Company’s
emissions in future periods.
Consolidation approach and organisation boundary
An operational control approach was used to define the Company's
organisational boundary and responsibility for GHG emissions. All material
emission sources within this boundary have been reported upon, in line with
the requirements of the Regulations.
Scope of reported emissions
Emissions data from the sources within Scope 1 and Scope 2 of the Company's
operational boundaries is detailed below. This includes direct emissions from
assets that fall within the Company’s organisational boundaries (Scope 1
emissions), as well as indirect emissions from energy consumption, such as
purchased electricity and heating (Scope 2 emissions).
Scope 1 emissions in 2018 increased compared to the previous year (4,810 tons
in 2018 vs 2,026 tons in 2017) driven by the resumption of drilling and
workover activity in Bitlyanska commitment and the substantial increase of
production in Monastyretska licences.
Conversely, Scope 2 emissions decreased in 2018 (504 tons in 2018 vs 592 tons
in 2017), as a result of the processes started in 2016 to improve the
efficiency of the structure, logistic and facilities. This reduction
contributed to mitigate the increase in the Scope 1 and, consequently, total
emissions in 2018 were 5,314 t ons versus the 2,618 tons of 2017.
Intensity ratio
In order to express the GHG emissions in relation to a quantifiable factor
associated with the Company's activities, wellhead production of crude oil,
condensates and natural gas has been chosen as the normalisation factor for
calculating the intensity ratio. This will allow comparison of the Company’s
performance over time, as well as with other companies in the Company’s peer
group.
The intensity ratio for E&P operations (same reporting perimeter) increased by
26%, from 46.3 tons CO(2)e/Kboe in 2017 to 58.3 tons CO(2)e/Kboe in 2018.
Total greenhouse gas emissions data for the year from 1 January to 31 December
Greenhouse gas emissions source E&P
2018 2017
Scope 1
Direct emissions, including combustion of fuel and operation of facilities (tonnes of CO (2)equivalent) 4,809 2,026
Scope 2
Indirect emissions from energy consumption, such as electricity and heating purchased for own use (tonnes of CO (2)equivalent) 504 592
Total (Scope 1 & 2) 5,314 2,618
Normalisation factor
Barrels of oil equivalent, net 91,080 56,516
Intensity ratio
Emissions reported above normalised to tonnes of CO (2)e per total wellhead production of crude oil, condensates and natural gas, in thousands of Barrel of Oil Equivalent, net 58.3 46.3
2019 Annual General Meeting
The 2019 Annual General Meeting (“AGM”) of the Company provides an
opportunity to communicate with shareholders and the Board welcomes their
participation. Board members constantly strive to engage with shareholders on
strategy, governance and a number of other issues.
The Board looks forward to welcoming shareholders to the AGM. The AGM notice
will be issued to shareholders well in advance of the meeting with notes to
provide an explanation of all resolutions to be put to the AGM. In addition,
shareholder information will be enclosed as usual with the AGM notice to
facilitate voting and feedback in the usual way.
The Chairman of the Board and the members of its committees will be available
to answer shareholder questions at the AGM. All relevant shareholder
information including the annual report for 2018 and any other announcements
will be published on our website – www.cadoganpetroleum.com
This Report of Directors comprising pages 23 to 28 has been approved by the
Board and signed by the order of the Board by:
Ben Harber
Company Secretary
23 April 2019
Corporate Governance Statement
The Board of the Company is committed to the highest standards of corporate
governance.
Board
The Board provides leadership and oversight. The Board comprises a
Non-Executive Chairman, Chief Executive Officer, two Independent Non-Executive
Directors and two Non-Executive Directors who are not deemed independent. The
Board has appointed Mr Lehmann as the Senior Independent Director.
The biographical details for each of the Directors and their membership of
Committees are incorporated into this report by reference and appear on page
21 and 22.
As at the date of this report, the Chairman had no significant commitments
that would affect his ability to allocate sufficient time to the Company to
discharge his responsibilities effectively.
Under the Company’s Articles of Association, all Directors must seek
re-election by members at least once every three years. However, the Board has
agreed that all Directors will be subject to annual election by shareholders
in line with Corporate Governance best practice. Accordingly, all members of
the Board will be standing for re-election at the 2019 Annual General Meeting
due to be held on 19 June 2019.
The Board has a formal schedule of matters specifically reserved for its
decision, including approval of acquisitions and disposals, major capital
projects, financial results, Board appointments, dividend recommendations,
material contracts and Group strategy. Other responsibilities are delegated to
its Committees.
The Chairman, in conjunction with the Company Secretary, plans the programme
for the Board during the year. The agenda for Board and Committee meetings is
considered by the relevant Chairman and issued with supporting papers during
the week preceding the meeting. For each Board meeting, the Directors receive
a Board pack including management accounts, briefing papers on commercial and
operational matters and major capital projects including acquisitions. The
Board also receives briefings from key management on specific issues. Seven
Board meetings took place during 2018. The attendance of those Directors in
place at the year end at Board and Committee meetings during the year was as
follows:
Board Audit Committee Nomination Committee Remuneration Committee
No. Held 7 3 1 2
No. Attended:
Z Furst 6 N/A - 2
G Michelotti 7 N/A N/A N/A
G Lehmann 7 3 1 2
M Meeùs 7 N/A N/A N/A
A Schenato 7 N/A N/A N/A
E Testa 5 3 1 2
A procedure exists for the Directors, in the furtherance of their duties, to
take independent professional advice if necessary, under the guidance of the
Company Secretary and at the Company’s expense. All Directors have access to
the advice and services of the Company Secretary, who is responsible to the
Chairman for ensuring that Board procedures are complied with and that
applicable rules and regulations are followed.
Board independence
The roles and responsibilities of the Chairman and Chief Executive Officer are
separate with a clear and formal division of each individual’s
responsibilities, which has been agreed and documented by the Board.
The Non-Executive Directors bring an independent view to the Board’s
discussions and the development of its strategy. Their range of experience
ensures that management’s performance in achieving the business goals is
challenged appropriately. Two Non-Executive Directors, Messrs Lehmann and
Testa are considered by the Board to be independent. Michel Meeùs, who is a
significant shareholder, is not considered to be independent. Adelmo Schenato,
who is CEO of Exploenergy s.r.l. and an Advisor to the CEO of the Group and
until 31 December 2016 was Chief Operating Officer of the Group is not
considered to be independent 10 . The Board is of the view that all Directors
continue to be effective and have sufficient time available to perform their
duties. The letters of appointment for the Non-Executive Directors are
available for review at the Registered Office and prior to the Annual General
Meeting.
Responsibilities and membership of Board Committees
The Board has agreed written terms of reference for the Nomination Committee,
Remuneration Committee, Audit Committee and HSE committee. The terms of
reference for the Board Committees are published on the Company’s website,
www.cadoganpetroleum.com, and are also available from the Company Secretary at
the Registered Office. A review of the Committees including their membership
and activities of all Board Committees is provided on pages 32 to 39.
Internal control
The Directors are responsible for the Group’s system of internal control and
for maintaining and reviewing its effectiveness. The Group’s systems and
controls are designed to safeguard the Group’s assets and to ensure the
reliability of information used both within the business and for publication.
The Board has delegated responsibility for the monitoring and review of the
Group’s internal controls to the Audit Committee.
Systems are designed to manage, rather than eliminate the risk of failure to
achieve business objectives and can provide only reasonable, and not absolute
assurance against material misstatement or loss.
The key features of the Group’s internal control and risk management systems
that ensure the accuracy and reliability of financial reporting include
clearly defined lines of accountability and delegation of authority, policies
and procedures that cover financial planning and reporting, preparing
consolidated financial statements, capital expenditure, project governance and
information security.
The key features of the internal control systems, which operated during 2018
and up to the date of signing the Financial Statements are documented in the
Group’s Corporate Governance Policy Manual and Finance Manual. These manuals
and policies have been circulated and adopted throughout the Group throughout
the period, except the joint venture Westgasinvest LLC (“WGI”), where
Eni’s policies are adopted.
Day-to-day responsibility for the management and operations of the business
has been delegated to the Chief Executive Officer and senior management.
Certain specific administrative functions are controlled centrally. Taxation
and treasury functions report to the Group Director of Finance who reports
directly to the Chief Executive Officer.
The legal function for Ukraine’s related assets and activities is managed by
the General Counsel, who reports to the General Director of Cadogan Ukraine.
The Health, Safety and Environment functions report to the Chairman of the HSE
Committee. The Group does not have an internal audit function. Due to the
small scale of the Group’s operations at present, the Board does not feel
that it is appropriate or economically viable to have an internal audit
function in place, however this will be kept under review by the Audit
Committee on an annual basis. Management though has appointed a Compliance
Officer for its Ukrainian subsidiaries.
The Board has reviewed internal controls and risk management processes, in
place from the start of the year to the date of approval of this report.
During the course of its review the Board did not identify nor were advised of
any failings or weaknesses which it has deemed to be significant.
Relations with shareholders
The Chairman and Executive Directors of the Company have a regular dialogue
with analysts and substantial shareholders. The outcome of these discussions
is reported to the Board at quarterly meetings and discussed in detail. Mr
Lehmann, as the Senior Independent Director, is available to meet with
shareholders who have questions that they feel would be inappropriate to raise
via the Chairman or Executive Directors.
The Annual General Meeting is used as an opportunity to communicate with all
shareholders. In addition, financial results are posted on the Company’s
website, www.cadoganpetroleum.com, as soon as they are announced. The Notice
of the Annual General Meeting is also contained on the Company’s website,
www.cadoganpetroleum.com. It is intended that the Chairmen of the Nomination,
Audit and Remuneration Committees will be present at the Annual General
Meeting. The results of all resolutions will be published on the Company’s
website, www.cadoganpetroleum.com.
Board Committee Reports
Audit Committee Report
The Audit Committee is appointed by the Board, on the recommendation of the
Nomination Committee, from the Non-Executive Directors of the Group. The Audit
Committee’s terms of reference are reviewed annually by the Audit Committee
and any changes are then referred to the Board for approval. The terms of
reference of the Committee are published on the Company’s website,
www.cadoganpetroleum.com, and are also available from the Company Secretary at
the Registered Office. Two members constitute a quorum.
Responsibilities
* To monitor the integrity of the annual and interim financial statements, the
accompanying reports to shareholders, and announcements regarding the
Group’s results;
* To review and monitor the effectiveness and integrity of the Group’s
financial reporting and internal financial controls;
* To review the effectiveness of the process for identifying, assessing and
reporting all significant business risks and the management of those risks by
the Group;
* To oversee the Group’s relations with the external auditor and to make
recommendations to the Board, for approval by shareholders, on the appointment
and removal of the external auditor;
* To consider whether an internal audit function is appropriate to enable the
Audit Committee to meet its objectives; and
* To review the Group’s arrangements by which staff of the Group may, in
confidence, raise concerns about possible improprieties in matters of
financial reporting or other matters.
Governance
Mr Testa and Mr Lehmann, who are both independent Non-Executive Directors are
the members of the Audit Committee. The Audit Committee is chaired by Mr
Lehmann who has recent and relevant financial experience as a former finance
director of a major European company as well as holding several non-executive
roles in major international entities.
At the invitation of the Audit Committee, the Group Director of Finance and
external auditor regularly attend meetings. The Company Secretary attends all
meetings of the Audit Committee.
The Audit Committee also meets the external auditor without management being
present.
Activities of the Audit Committee
During the year, the Audit Committee discharged its responsibilities as
follows:
Assessment of the effectiveness of the external auditor
The Committee has assessed the effectiveness of the external audit process.
They did this by:
* Reviewing the 2018 external audit plan;
* Discussing the results of the audit including the auditor’s views on
material accounting issues and key judgements and estimates, and their audit
report;
* Considering the robustness of the audit process;
* Reviewing the quality of the service and people provided to undertake the
audit; and
* Considering their independence and objectivity.
Financial statements
The Audit Committee examined the Group’s consolidated and Company’s
financial statements and, prior to recommending them to the Board, considered:
* the appropriateness of the accounting policies adopted;
* reviewed critical judgements, estimates and underlying assumptions; and
* assessed whether the financial statements are fair, balanced and
understandable.
Going concern
After making enquiries and considering the uncertainties described on pages 14
to 16, the Committee has a reasonable expectation that the Company and the
Group has adequate resources to continue in operational existence for the
foreseeable future and consider the going concern basis of accounting to be
appropriate. For further detail, please refer to the detailed discussion of
the assumptions outlined in note 3 (b) to the Consolidated Financial
Statements.
Internal controls and risk management
The Audit Committee reviews and monitors financial and control issues
throughout the Group including the Group’s key risks and the approach for
dealing with them. Further information on the risks and uncertainties facing
the Group are detailed on pages 97 to 99 and in Note 27 to the financial
statements.
External auditor
The Audit Committee is responsible for recommending to the Board, for approval
by the shareholders, the appointment of the external auditor.
The Audit Committee considers the scope and materiality for the audit work,
approves the audit fee, and reviews the results of the external auditor’s
work. Following the conclusion of each year’s audit, it considers the
effectiveness of the external auditor during the process. An assessment of the
effectiveness of the audit process was made, giving consideration to reports
from the auditor on its internal quality procedures. The Committee reviewed
and approved the terms and scope of the audit engagement, the audit plan and
the results of the audit with the external auditor, including the scope of
services associated with audit-related regulatory reporting services.
Additionally, auditor independence and objectivity were assessed, giving
consideration to the auditor’s confirmation that its independence is not
impaired, the overall extent of non-audit services provided by the external
auditor and the past service of the auditor.
There is an agreed policy on the engagement of the external auditor for
non-audit services to ensure that its independence and objectivity are
safeguarded. Audit related services can be awarded to the external auditor by
the executive Directors provided the work does not exceed £50,000 in fees per
item. Work exceeding £50,000 requires approval by the Audit Committee. All
other non-audit work either requires Audit Committee approval or forms part of
a list of prohibited services, where it is felt the external auditor’s
independence or objectivity may be compromised.
A breakdown of the non-audit fees is disclosed in Note 10 to the Consolidated
Financial Statements. The Audit Committee has reviewed the nature, level and
timing of these services in the course of the year and is confident that the
objectivity and independence of the auditor are not impaired by the reason of
such non-audit work.
Internal audit
The Audit Committee considers annually the need for an internal audit function
and believes that, due to the size of the Group and its current stage of
development, an internal audit function will be of little benefit to the
Group.
Whistleblowing
The Group’s whistleblowing policy encourages employees to report suspected
wrongdoing and sets out the procedures employees must follow when raising
concerns. The policy, which was implemented during 2008, was updated in 2013
and recirculated to staff as part of a manual that includes the Group’s
policies on anti-bribery, the acceptance of gifts and hospitality, and
business conduct and ethics.
Overview
As a result of its work during the year, the Audit Committee has concluded
that it has acted in accordance with its terms of reference and has ensured
the independence and objectivity of the external auditor. A formal review of
the Audit Committee’s performance was undertaken after the year end and
concluded that the Committee is effective in its scrutiny of the accounts and
financial reporting process, its oversight of risk management systems and its
monitoring of internal control testing.
The Chairman of the Audit Committee will be available at the Annual General
Meeting to answer any questions about the work of the Audit Committee.
Gilbert Lehmann
Chairman of the Audit Committee
23 April 2019
Health, Safety and Environment Committee Report
The Health, Safety and Environment Committee (the ”HSE Committee”) is
appointed by the Board, on the recommendation of the Nomination Committee. The
HSE Committee’s terms of reference are reviewed annually by the Committee
and any changes are then referred to the Board for approval. The terms of
reference of the Committee are published on the Company’s website,
www.cadoganpetroleum.com, and are also available from the Company Secretary at
the Registered Office. Two members constitute a quorum, one of whom must be a
Director.
Governance
The Committee is chaired by Mr Adelmo Schenato and its other members are Ms
Snizhana Buryak (HSE Manager) and Mr Andriy Bilyi (Cadogan Ukraine General
Director). The CEO attends meetings of the HSE Committee as required. During
2018, the HSE Committee held five meetings to monitor the HSE risks and
activities across the business, following which actions were identified for
the continuous improvement of the various processes and the mitigation of
risk.
Responsibilities
* To develop a framework of the policies and guidelines for the management of
health, safety and environment issues within the Group;
* Evaluate the effectiveness of the Group’s policies and systems for
identifying and managing health, safety and environmental risks within the
Group’s operation;
* Assess the policies and systems within the Group for ensuring compliance
with health, safety and environmental regulatory requirements;
* Assess the performance of the Group with regard to the impact of health,
safety, environmental and community relations decisions and actions upon
employees, communities and other third parties and also assess the impact of
such decisions and actions on the reputation of the Group and make
recommendations to the Board on areas for improvement;
* On behalf of the Board, receive reports from management concerning any
fatalities and serious accidents within the Group and actions taken by
management as a result of such fatalities or serious accidents;
* Evaluate and oversee, on behalf of the Board, the quality and integrity of
any reporting to external stakeholders concerning health, safety,
environmental and community relations issues; and
* Where it deems it appropriate to do so, appoint an independent auditor to
review performance with regard to health, safety, environmental and community
relations matters and review any strategies and action plans developed by
management in response to issues raised and, where appropriate, make
recommendations to the Board concerning the same.
Activities of the Health, Safety and Environment Committee
The HSE Committee in discharging its duties reviewed and considered the
following:
* Existing HSE policies and procedures in place in relation to the current
activities were assessed to evaluate the need for updates or integrations;
* Monthly statistics and reports on the activity were regularly distributed to
the CEO, Management and to the members of the committee;
* Ensured that the implementation of new legislation and requirements were
punctually followed-up and promptly updated;
* Compliance with HSE regulatory requirements was ensured through discussion
of the results of inspections, both internal inspections and those carried out
by the Authorities. The results of the inspections and drills were analysed
and commented to assess the need for corrective actions and/or training
initiatives;
* The new process for obtaining licences in the Ukraine licences and their
impact on the Bitlyanska and Monastyretska were reviewed;
* A standing item was included on the agenda at every meeting to monitor
monthly HSE performance, key indicators and statistics allowing the HSE
Committee to assess the Company’s performance by analysing any lost-time
incidents, near misses, HSE training and other indicators;
* Interaction with contractors, Authorities, local communities and other
stakeholders were discussed among other HSE activities;
* The ISO 14001 and 45001 certifications were obtained, a new HSE Integrated
Management System was developed and successfully deployed; and
* Ensuring all the Observation and Actions requested by the Certification Body
have been implemented
Overview
The Company’s HSE Management System and the Guidelines and Procedures have
been modified to fit with the ISO requirements and are adequate for the proper
execution of the Company’s operations.
As a result of its work during the year, the HSE Committee has concluded that
it has acted in accordance with its terms of reference.
Adelmo Schenato
HSE Committee Chairman
23 April 2019
Nomination Committee Report
The Board delegates some of its duties to the Nomination Committee and
appoints the members of the Nomination Committee which are non-executive
Directors of the Group. The membership of the Committee is reviewed annually
and any changes to its composition are referred to the Board for approval. The
terms of reference of the Nomination Committee are published on the
Company’s website, www.cadoganpetroleum.com, and are available from the
Company Secretary at the Registered Office. Two members constitute a quorum.
Governance
Mr Zev Furst (Board and Nomination Committee Chairman) and Messrs Gilbert
Lehmann and Enrico Testa (Independent Non-Executive Directors) are the members
of the Nomination Committee. The Company Secretary attends all meetings of the
Nomination Committee.
Responsibilities
* To regularly review the structure, size and composition (including the
skills, knowledge and experience) required of the Board compared to its
current position and make recommendations to the Board with regard to any
changes;
* Be responsible for identifying and nominating candidates to fill Board
vacancies as and when they arise, for the Board’s approval;
* Before appointments are made by the Board, evaluate the balance of skills,
knowledge, experience and diversity (gender, ethnic, age, sex, disability,
educational and professional backgrounds, etc.) on the Board and, in the light
of this evaluation, prepare a description of the role and capabilities
required for a particular appointment; and
* In identifying suitable candidates, the Nomination Committee shall use open
advertising or the services of external advisers to facilitate the search and
consider candidates from a wide range of backgrounds on merit, ensuring that
appointees have enough time available to devote to the position.
The Nomination Committee shall also make recommendations to the Board
concerning:
* Formulating plans for succession for both executive and non-executive
Directors and in particular for the key roles of Chairman and Chief Executive
Officer;
* Membership of the Audit and Remuneration Committees, in consultation with
the Chairmen of those committees;
* The reappointment of any non-executive Director at the conclusion of their
specified term of office, having given due regard to their performance and
ability to continue to contribute to the Board in the light of the knowledge,
skills and experience required; and
* The re-election by shareholders of any Director having due regard to their
performance and ability to continue to contribute to the Board in the light of
the knowledge, skills and experience required.
Any matters relating to the continuation in office of any Director at any time
including the suspension or termination of service of an executive Director as
an employee of the Company subject to the provisions of the law and their
service contract.
Activities of the Nomination Committee
During the financial year under review, the Committee reviewed and considered
the following:
* The size, structure and composition of the Board in the light of the current
business environment, the Company's anticipated future activities and
particularly the independence of the Non-Executive Directors;
* Its internal governance documents and the Policy;
* The letters of appointment of the Board.
The Committee recommends the re-election of the six incumbent Directors at the
AGM.
Overview
As a result of its work during the year, the Committee has concluded that it
has acted in accordance with its terms of reference. The Chairman of the
Nomination Committee will be available at the Annual General Meeting to answer
any questions about the work of the Committee.
Zev Furst
Nomination Committee Chairman
23 April 2019
Remuneration Committee
Statement from the Chairman
I am pleased to present the Annual Report on Remuneration for the year ended
31 December 2018.
As I anticipated in last year’s Annual Report, the Company has reviewed and
amended its Remuneration Policy, which was presented to our shareholders for
their approval at last year Annual General Meeting. The key elements of the
new Remuneration Policy are:
* A better long-term alignment of the executives’ remuneration with the
interests of shareholders;
* A material reduction in the maximum remuneration level for the Executive
Directors, both in terms of annual bonus and of long-term incentive
(performance share plan);
* The payment of at least 50% of the Annual Bonus in shares with the remaining
50% to be paid in cash or shares at the discretion of the Remuneration
Committee. Shares will be priced for this award based on their market value at
closing on the Business Day prior to the Subscription Date;
* The introduction of claw-back and malus provisions on both bonuses and share
awards; and
* The expectation that the Executive Directors build a substantial
shareholding position in the company through their mandate.
The new Remuneration Policy was approved as proposed by the shareholders at
the Annual General Meeting of June 19, 2018 and is attached at the end of the
Annual Report on Remuneration. During 2018 there were no further changes
made to the composition of directors' remuneration, and there was no increase
to executive and non-executive directors' salary and fees in base currency.
In 2018 the Remuneration Committee enrolled again the CEO in a
performance-related, bonus scheme built around a scorecard with a set of
challenging KPI’s aligned with the company strategy of preserving cash and
operating safely and efficiently while actively pursuing opportunities to
re-load and geographically diversify the portfolio. Based on the results
achieved, the Remuneration Committee has determined to award the CEO a bonus
of €176,000 ($201,872), or 32% of the maximum allowable bonus under the
current Remuneration Policy, and to split the post-tax amount in 50 % cash and
50% shares.
The performance related bonus scheme, which had been rolled down to two key
managers of Cadogan Ukraine in 2017, was extended in 2018 to a larger group of
managers in Ukraine.
Enrico Testa
Chairman of the Remuneration Committee
23 April 2019
ANNUAL REPORT ON REMUNERATION 2018
Remuneration Committee Report
The Remuneration Committee is committed to principles of accountability and
transparency to ensure that remuneration arrangements demonstrate a clear link
between reward and performance.
Governance
The Remuneration Committee is appointed by the Board from the non-executive
Directors of the Company. The Remuneration Committee’s terms of reference
are reviewed annually by the Remuneration Committee and any changes are then
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; and
* 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
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 is reported to the
Board and discussed in detail both there and during meetings of the
Remuneration Committee.
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.
Alternatively, 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.
Remuneration consultants
The Remuneration Committee did not take any advice from external remuneration
consultants, except engaging Baker & McKenzie LLP to assist in the drafting
and implementation of the new Remuneration Policy and in the review of the
Remuneration Report.
Single total figure of remuneration for executive and non-executive directors
(audited)
Salary and fees Taxable benefit 11 Annual bonus Total
$ $ $ $
Executive Director
2018 2017 2018 2017 2018 2017 2018 2017
G Michelotti 521,664 497,288 39,838 27,273 201,872 126,992 12 763,374 651,553
Non-executive Directors
Z Furst 114,028 109,565 - - - - 114,028 109,565
G Lehmann 60,368 58,005 - - - - 60,368 58,005
E Testa 46,953 45,115 - - - - 46,953 45,115
M Meeùs 46,953 45,115 - - - - 46,953 45,115
A Schenato 13 147,428 140,749 - - - - 147,428 140,749
Notes to the table
Long-term incentives were not paid in 2017 and 2018.
In 2018, there were no increases in executive and non-executive directors'
salary in base currency. Any difference in salary and fees for the directors
reflects a change in the exchange rate between the base currency and the USD,
which is the reporting currency.
Mr Guido Michelotti
Mr Guido Michelotti was Chief Executive Officer through 2018. Mr
Michelotti’s salary is €440,000 ($521,664) per annum.
Following shareholders’ approval of the new Remuneration Policy, Mr Guido
Michelotti received in 2018 the Performance Bonus awarded to him based on the
achievement vis a vis his 2017 scorecard and without a discretionary element.
The Remuneration Committee decided to award in shares 72.5% of the awarded
bonus less taxes and social contribution and therefore the €106,000 bonus
was split in €64,000 cash (inclusive of income tax and social contributions
to be paid by Mr Michelotti on the entire awarded amount) and €42,000 in
shares priced at their market value at closing on the Business Day prior to
the Subscription Date. While the cash element was paid in October 2018, the
shares have not yet been awarded as the company has been in closed periods
since the decision was made. Based on the new Remuneration Policy the shares,
when awarded, will be subject to a holding period and to malus and claw back
provisions. The amount that may be clawed back from Mr Guido Michelotti 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.
The Remuneration Committee has determined that it would be appropriate to
award Mr Guido Michelotti in relation to the year 2018 a bonus of €176,000
($201,872), based on the achievement vis a vis his scorecard and without any
additional discretionary element. In assessing the performance related
element, the Remuneration Committee determined that the Company’s stretch
targets for production, net profit/(loss) and change in net cash had been met
or exceeded, and that the minimum target for the loading of the portfolio had
been achieved. The Remuneration Committee also decided that the leadership
target had also been achieved. Under the performance scorecard considered by
the Remuneration Committee, the production and profit/(loss) targets each
represent 20% of the weightings of the bonus (for target level performance)
with change in net cash contributing 30% and reloading of portfolio 20% (see
following table). Based on the above, the Remuneration Committee determined
that some 32% of the maximum performance related bonus should become payable.
KPI Weighting % Target (1) Achievement % of KPI related bonus achieved (2)
Average production, boepd 20 Approved budget (stretch target +20%) Budget target exceeded 20
Net profit/(loss), $ million 20 Approved budget (stretch target +20%) Stretch target achieved 26
Change in net cash, $ million 30 Approved budget (stretch target +20%) Stretch target achieved 39
Reloading of portfolio, n. of assets outside UA 20 Min - max 1/2 Minimum target achieved (3) 14
Leadership (4) 10 13
100 112
(1) The company does not disclose its budget
(2 ) Scores for achieving respectively minimum target, target and stretch
target are set at 70, 100 and 130
3 The loan agreement with Proger was considered as achieved in the year,
though formally finalized in 2018
(4) Evaluated by the Remuneration Committee on (i) management on change and
(ii) communication with shareholders
Based on the above the Remuneration Committee decided to:
- Award Mr. Michelotti a performance related bonus of €176,000 ($201,872 )
for 2018;
- Award 50% of the bonus, less taxes and social contribution, in shares and
the remaining in cash.
Shares awarded will be subject to malus and claw-back. Mr Michelotti undertook
to respect 3 years holding period.
Benefits
Benefits may be provided to the executive directors, in the form of private
medical insurance and life assurance.
The Chairman and Non-Executive Directors
Fees for non-Executive Directors have remained at the level of the previous
year, namely: the Chairman’s fee at £85,000 ($114,028) and the fee for
acting as a non-executive Director at £35,000 ($46,953) with an additional
£10,000 ($13,415) for acting as Chairman of the Audit Committee. Also, Adelmo
Schenato received the same fees as in 2017, namely £20,600 ($27,635) as a
non-executive Director and €101,040 ($119,793) per annum under a consultancy
agreement as Advisor to the CEO of the Company and Chairman and CEO of
Exploenergy.
Scheme interests awarded during the financial year (audited)
There were no scheme interests awarded during the year.
Payments to past directors (audited)
In 2018 there were no payments to past directors.
Payments for loss of office (audited)
In 2018 there were no payments to past directors. No notice period was either
worked or paid.
Directors’ interests in shares (audited)
The beneficial interests of the Directors in office as at 31 December 2018 and
their connected persons in the Ordinary shares of the Company at 31 December
2018 are set out below.
Shares as at 31 December 2018 2017
Z Furst G Michelotti - 4,637,588 - 4,637,588
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 2018
compared to 23 April 2019.
The Company does not currently operate formal shareholding guidelines. Whilst
there is no specified level, the Company expects that under the new
Remuneration Policy, the Executive Directors will build up a significant
shareholding position in the Company during their mandate.
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, and has been retained ever since,
primarily for continuity purposes 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 432,409 14 15,987 243,132 - - - 691,528
201 6 487,080 15,353 210,504 15 - - - 712,937
201 7 497,288 27,273 126,992 - - - 651,553
2018 521,664 39,838 201,872 - - - 763,374
In 2018 the annual bonus awarded to the CEO was 32% (2017: 12%) of the maximum
bonus as per the approved Remuneration Policy 16 .
The annual bonus received by the CEO as a percentage of the maximum
opportunity is presented in the following table.
Year CEO CEO single figure of total remuneration $ Annual bonus pay-out against maximum opportunity %
2018 Mr. Michelotti 763,374 32
2017 Mr. Michelotti 651,553 12
2016 Mr. Michelotti 712,937 22 17
2015 Mr. Michelotti 502,021 27 (,) 18
Mr. des Pallieres 189,507 -
2014 Mr. des Pallieres 426,167 -
2013 Mr. des Pallieres 384,941 -
2012 Mr. des Pallieres 389,935 -
Mr. Barron 280,298 19 -
2011 Mr. des Pallieres 20 273,201 -
Mr. Barron 395,984 -
2010 Mr. Barron 547,067 -
2009 Mr. Barron 21 707,085 67
Percentage change in the remuneration of the Chief Executive
The following table shows the percentage change in the remuneration of the
Chief Executive in 2018 and 2017 compared to that of all employees within the
Group.
2018 2017 Average
$’000 $’000 change, %
Base salary CEO 22 522 497 5%
All employees 23 2,004 2,406 (17)%
Taxable benefits CEO 40 27 148%
All employees 60 34 176%
Annual Bonus CEO 202 127 59%
All employees 381 179 213%
Total CEO 764 639 20%
All employees 2,445 2,619 (7)%
In 2018 none of the directors participated in long-term incentives.
In 2018 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.
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 2017 and 31 December 2018.
2018 $’000 2017 $’000 Year-on-year change, %
All-employee remuneration 2,445 2,619 (7)%
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 20 June 2018. The Remuneration Policy can be
found on the Group’s website and at pages 41 to 60 of this Annual Report on
Remuneration. The votes cast by proxy were as follows:
Directors’ Remuneration Policy Number of votes % of votes cast
For 62,011,302 99.74
Against 164,370 0.26
Total votes cast 62,175,672 100.00
Number of votes withheld 17,071
The Directors’ Annual Report on Remuneration for the year ended 31 December
2017 was approved by shareholders at the Annual General Meeting held on 20
June 2018. The votes cast by proxy were as follows:
Director’s Annual Report on Remuneration Number of votes % of votes cast
For 62, 192,743 100.00
Against 0 0.00
Total votes cast 62,192,743 100.00
Number of votes withheld 0
The Directors Remuneration Policy was approved at the 2018 AGM and did not
change since then. It can be found on the Group’s website and at pages 47 to
60 of this Annual Report on Remuneration.
Implementation of Remuneration Policy in 2019
The June 2018 Annual General Meeting approved the new Remuneration Policy
which aligns Cadogan to the recent developments in terms of remuneration and
reduces the maximum remuneration level for executives, thus making general a
principle originally accepted by Mr Michelotti on a personal basis.
As was the case in 2018, the performance related elements of Mr Guido
Michelotti’s 2019 bonus will be built around a scorecard with a set of
KPI’s aligned with the Group strategy, i.e. profit/loss, change in cash and
portfolio management. His scorecard is as described at page 42 of the
Remuneration Policy with production and geographic diversification as
operational KPIs, with a 20% each weigh factor, and net profit/loss and change
in free cash as financial KPIs, each with a 25 % weigh factor. The HSE KPI has
been declined as a target related to a reduction in the level of emissions to
the atmosphere. His scorecard has been rolled down to key managers of the
Ukrainian subsidiary.
Approval
The Directors’ Annual Report on Remuneration was approved by the Board on 23
April 2019 and signed on its behalf by:
Zev Furst
Chairman
23 April 2019
Directors’ Remuneration Policy
· Introduction
This Directors’ Remuneration Policy (the “Policy”) contains the
information required to be set out as the directors’ remuneration policy for
the purposes of The Large and Medium-sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013.
The Policy was approved by shareholders at the 2018 AGM of the Company. The
effective date of this Policy is the date on which the Policy is approved by
shareholders.
The Policy applies in respect of all executive officers appointed to the Board
of Directors (“executive directors”) and non-executive directors. Other
senior executives may be subject to the Policy, including in relation to
annual bonus and shares incentive arrangements in particular, if and to the
extent that the Remuneration Committee determines it is appropriate.
The Remuneration Committee will keep the Policy under review to ensure that it
continues to promote the long-term success of the Company by giving the
Company its best opportunity of delivering on the business strategy. It is the
Remuneration Committee’s intention that the Policy be put to shareholders
for approval every three years, unless there is a need for the Policy to be
approved at an earlier date.
The Company aims to provide sufficient flexibility in the Policy for
unanticipated changes in compensation practices and business conditions to
ensure the Remuneration Committee has appropriate discretion to retain its top
executives who perform. The Remuneration Committee reserves the right to
approve any payments that may be outside the terms of this Policy, where the
terms of that payment were agreed before the Policy came into effect, or
before the individual became a director of the Company.
Maximum caps are provided to comply with the required legislation and should
not be taken to indicate an intent to make payments at that level. The maximum
caps are valid at the time that the relevant employment agreement or
appointment letter is entered into and the caps may be adjusted to take into
account fluctuations in exchange rates.
· Remuneration policy table: executive directors
Component Purpose and link to strategy Maximum opportunity Operation and performance measures
Salary and Fees To provide fixed remuneration at an appropriate level, to attract and retain directors as part of the overall compensation package. The maximum annual base combined salary and fees for executive directors is €450,000 24 . The Remuneration Committee will consider the factors set out under the "Operation" column when determining the appropriate level of base salary within the formal Policy maximum. Salary is paid on a monthly basis. The Remuneration Committee takes into account a number of factors when setting salaries
including: ·scope and difficulty of the role; · skills and experience of the individual; · salary levels for similar roles
within the international industry; and · pay and conditions elsewhere in the Group. Salaries are reviewed on an annual basis,
but are not necessarily increased at each review. No performance measures.
Annual Bonus To incentivise and reward the achievement of individual and business objectives which are key to the delivery of the Company's business strategy. The maximum award is 125% of combined base salary and fees. The payment of any bonus is at the discretion of the Board with reference to the performance year. · The Remuneration Committee
sets, in advance, a scorecard with a set of Key Performance Indicators ("KPIs") aligned with the Company's strategy. The
measures and the relative weightings are substantiated by the Remuneration Committee and aim to be stretching and to support the
Company's business strategy. Measures are related to Company financial performance, operational performance and the Company’s
health and safety record. In general relative weightings of each KPI are expected not to exceed 50% and not to be less than 10%.
· The Remuneration Committee retains the flexibility to determine and, if it considers appropriate, change the KPIs and
weightings of the KPIs based on the outcome of its annual review. The Remuneration Committee may also adjust KPIs during the
year to take account of material events, such as (without limitation) material corporate events, changes in responsibilities of
an individual and/ or currency exchange rates. Any such changes will be within the overall target and maximum payouts approved
in the policy. · The KPI targets and specific weightings in the scorecard are defined annually early in the year, once the
budget has been approved. A summary of the KPI targets, weightings for the KPIs and how far the KPIs are met will be included
retrospectively each year in the Implementation Report for the year. · All bonuses that may become payable are subject to malus
and clawback provisions in the event of material financial misstatement of the Company or fraud or material misconduct on the
part of the executive, as explained further below. · 50% of the bonuses that may become payable must be applied to subscribe for
or acquire shares in the Company (after the deduction of any income tax and/ or employee social security contributions payable).
The Company is proposing to adopt and operate a Deferred Bonus Plan as a framework plan for the delivery of shares to
executives, which may be satisfied by the issue of new shares or transfer of existing or treasury shares. · The Remuneration
Committee will determine whether the remainder of the bonus shall be paid in cash or must be applied to subscribe for or acquire
shares (after the deduction of any income tax and/ or employee social security contributions payable). In making its
determination as to how the remainder of the bonus shall be paid, the Remuneration Committee may take into account:
profitability of the Company; the executive's shareholding as measured against any Company shareholding guidelines; potential
liabilities of the recipients to income tax and social security contributions, among other things. Additional shares
representing the value of dividends payable on the deferred shares may be paid. · The Remuneration Committee may impose holding
periods of up to three years on any of the shares delivered pursuant to the annual bonus plan. · There are no prescribed minimum
levels of performance in the annual bonus structure and so it is possible that no bonus award would be made. ·
Share Incentive Arrangements To incentivise, retain and reward eligible employees and align their interests with those of the shareholders of the Company. Awards can be made under the PSP with a value of up to a maximum of 200% of base salary and fees or 300% in exceptional circumstances. The Company is proposing to adopt and operate the 2018 Performance Share Plan ("PSP") to replace the 2008 Performance Share
Plan. The PSP offers the opportunity to earn shares in the Company subject to the achievement of stretching but realistic
performance conditions. Performance conditions will be a main feature of the PSP. The PSP will be administered by the
Remuneration Committee. · Awards can be made under the PSP at the direction of the Remuneration Committee within the policy
maximum in the form of contingent share awards. · PSP awards will have a minimum vesting period of 3 years and, for directors,
the PSP awards have a further holding period of 2 years following the end of the vesting period (subject to any number of shares
that may need to be sold to meet any income tax and employee social security contributions due on vesting). · The Remuneration
Committee will develop clear KPIs that aim to align directors with Company strategy over time periods in excess of one financial
year. Any performance measures and targets used for share incentive awards during 2018 will be relevant and stretching in line
with the overall strategy of the Company. · The Remuneration Committee may adjust or change the PSP measures, targets and
weightings for new awards under the PSP to ensure continued alignment with Company strategy. · PSP awards are subject to malus
and clawback in the event of material financial misstatement of the Company or fraud or material misconduct on the part of the
executive. · Upon vesting of an award, the award holder must pay the nominal value in respect of each share that vests. · PSP
Awards will normally lapse where the award holder ceases employment with the Company before vesting. PSP Awards will not lapse
and will vest immediately if the award holder is considered to be a Good Leaver (leaves due to death or disability) subject to
the Remuneration Committee being satisfied that performance conditions have been satisfied or are likely to be satisfied as at
the end of the relevant performance period. In other circumstances, the Remuneration Committee may determine that awards will
not lapse and will continue to vest at their normal vesting date, subject to pro-ration to reflect the period of service during
the performance period and performance conditions. The Remuneration Committee has residuary discretions to disapply pro ration
and bring forward the date of vesting. · In the event of a change of control of the Company, if the acquiring company agrees,
awards will be exchanged for equivalent awards over shares in the acquiring company and continue to vest according to the
original vesting schedule. If the acquiring company does not agree to exchange the awards, the awards will vest at the
Committee's absolute discretion. Awards that vest will be subject to time pro-ration and performance conditions. · Benefits
under the PSP will not be pensionable. · The PSP Plan Limits are set out at Note 2.4 below.
Pension To provide a retirement benefit that will foster loyalty and retain experienced executive directors. Any pension benefits will be set at an appropriate level in line with market practice, and in no event will the contributions paid by the Company exceed 15% of combined base salary and fees. No pension benefits are currently provided to executives. However, the Remuneration Committee may in the future decide to
provide pension benefits commensurate with the market. No performance measures.
Benefits To provide a market competitive level of benefits to executive directors. Any benefits will be set at an appropriate level in line with market practice, and in no event will the value of the benefits exceed 15% of combined base salary and fees. · The executive directors are entitled to private medical insurance and life assurance cover (of four times the combined salary
and fee) and directors' and officers' liability insurance. · The Remuneration Committee may decide to provide other benefits
commensurate with the market. Such benefits may include (for instance) company car or allowance, physical examinations and
medical support, professional advice, assistance with filling out tax returns and occasional minor benefits. A tax equalisation
payment may be paid to an executive director if any part of the remuneration of the executive director becomes subject to double
taxation. Tax gross ups may be paid, where appropriate. The Company does not, at present, provide other taxable benefits to the
executive directors. · Executive directors are reimbursed for reasonable business expenses incurred in the course of carrying
out their duties. · No performance measures.
Notes to the executive directors' remuneration policy table
The Remuneration Committee's philosophy is that remuneration arrangements
should be appropriately positioned to support the Group's business strategy
over the longer term and the creation of value for shareholders. In this
context the following key principles are considered to be important:
- remuneration arrangements should align executive and employee
interests with those of shareholders;
- remuneration arrangements should help retain key executives
and employees; and
- remuneration arrangements should incentivise executives to
achieve short, medium and long-term business targets which represent value
creation for shareholders. Targets should relate to the Group's performance in
terms of overall revenue and profit and the executive's own performance.
Exceptional rewards should only be delivered if there are exceptional returns.
The Remuneration Committee reserves the right to make any remuneration
payments (including satisfying awards of variable remuneration) and payments
for loss of office notwithstanding that they are not in line with the Policy
set out above, where the terms of that payment were agreed before the Policy
came into effect, or before the individual became a director of the Company
(provided the payment was not in consideration for the individual becoming a
director).
· Performance measures and targets
(a) Annual Bonus
The performance measures for executive directors comprise of financial
measures and business goals linked to the Company's strategy, which could
include financial and non-financial measures. The business goals are tailored
to reflect each executive director's role and responsibilities during the
year. The performance measures are chosen to enable the Remuneration Committee
to review the Company's and the individual's performance against the Company's
business strategy and appropriately incentivise and reward the executive
directors.
Annual bonus targets are set by the Remuneration Committee each year. They are
stretching but realistic targets which reflect the most important areas of
strategic focus for the Company. The factors taken into consideration when
setting targets include the Company's Key Performance Indicators (which are
determined annually by the Remuneration Committee), and the extent to which
they are under the control or influence of the executive whose remuneration is
being determined.
Performance is measured over the financial year against the measures and
targets set according to the scorecard. The Remuneration Committee retains the
right to exercise its judgement to adjust the bonus outcome for an individual
to ensure the outcome reflects any other aspects of the Company's performance
that become relevant during the financial year.
The Remuneration Committee intends to use Company operational and financial
performances and safety as performance measures for the 2019 scorecard. For
years following 2019, the structure of the annual bonus scorecard will be
reviewed by the Remuneration Committee.
2019 Annual bonus scorecard measures for executive directors
40% weighting 50% weighting
Operational performance, such as production, sales, geographical diversification, and starting new projects. Company financial performance, including cash targets and profit targets.
10% weighting
Indicators of health and safety to promote the effective risk management of the Company.
(b) Share Plans
The Remuneration Committee will make the vesting of a Plan award conditional
upon the satisfaction of stretching but realistic performance conditions.
These conditions are meant to achieve a long-term alignment of the
executives’ remuneration with the interest of the shareholders.
EBITDA growth increase of P1 reserves (in millions boe), and changes to the
free cash-flow are the key KPIs to be used by the Remuneration Committee and
will be measured over time periods of three financial years. The performance
measures are chosen to align the performance of participants with the
attainment of financial performance targets over the vesting period of the
award. The targets are set by the Remuneration Committee by reference to the
Company's strategy and business plan and the results achieved at the time of
the vest are determined by the Remuneration Committee.
Under the PSP plan rules, the Board may vary a performance target where it
considers that any performance target to which an award is subject is no
longer a true or fair measure of the participant's performance, provided that
the Board must act fairly and reasonably and that the new performance target
is materially no more difficult and no less difficult to satisfy than the
original performance target.
· Malus and clawback (applicable to bonuses and share awards)
The Remuneration Committee has the discretion to reduce the bonus before
payment or require the executive director to pay back shares or a cash amount
in the event of material financial misstatement of the Company or fraud or
material misconduct on the part of the executive. The amount that may be
clawed back on any such event is limited to the value of the bonus, taking
into account the cash paid and the shares delivered to the executive, taking
the value of the shares at the time of the clawback, less any income tax or
employee social security contributions paid on the bonuses.
· Share ownership guidelines for executives
The Remuneration Committee is planning to implement share ownership guidelines
for executive directors to further align the interests of the executive
directors with those of shareholders. The share ownership guidelines will
include an expectation that executive directors build up their shareholding to
200% of base salary over a period of five years from the later of: the date of
adoption of this policy and the date of appointment. Once the shareholding
guideline is reached, executive directors would be expected to maintain it.
The intention would be for the shareholding guideline to be reached through
the retention of vested shares from share plans (e.g. the deferred share
element of the annual bonus and shares vested under the PSP). As such, the
Remuneration Committee's discretion may be used to increase the proportion of
an annual bonus to be delivered in shares to assist the executive director in
meeting this guideline. The deferred share mechanism in the annual bonus and
the design of the PSP will assist executive directors in reaching the
guidelines. Executive directors will not be expected to top up their
shareholding with personal acquisitions of Company shares outside the usual
share plans described in the Policy. The Remuneration Committee will monitor
the executive directors' shareholdings and may adjust the guideline in special
individual and Company circumstances, for example in the case of a share price
fall.
· PSP Plan Limits
The PSP may operate over new issue shares, treasury shares or shares purchased
in the market. In any ten calendar year period, the Company may not issue (or
grant rights to issue) more than:
(a) 10% of the issued ordinary share capital of the Company
under the Plan and any other employee share plan adopted by the Company; and
(b) 5% of the issued ordinary share capital of the Company
under the Plan and any other executive share plan adopted by the Company.
Treasury shares will count as new issue shares for the purposes of these
limits unless institutional investors decide that they need not count. These
limits do not include rights to shares which have been renounced, released,
lapsed or otherwise become incapable of vesting, awards that the Remuneration
Committee determines after grant to be satisfied by the transfer of existing
shares and shares allocated to satisfy bonuses (including pursuant to the
Deferred Bonus Plan).
· Remuneration throughout the Group
Differences in the Company's pay policy for executive directors from that
applying to employees within the Group generally reflect the appropriate
market rate for the individual executive roles.
· Remuneration policy table: non-executive directors
Component Purpose and link to strategy Maximum opportunity Operation and performance measures
Fees To provide an appropriate reward to attract and retain high-calibre individuals with the relevant skills, knowledge and experience to progress the Company strategy. · The maximum annual fees paid to non-executive directors is £50,000 for a non-executive director role, and £100,000 for the role of Chairman. An additional £10,000 will be paid to the individual acting as Chairman of the Audit Committee. Non-executive directors receive a standard annual fee, which is paid on a quarterly basis in arrears. Additional fees may also
be paid to recognise the additional work performed by members of any committees set up by the Board, and for the role of chair
of a committee. Fees are reviewed on an annual basis, but are not necessarily increased at each review. Fees are set at a rate
that takes into account: · market practice for comparative roles; · the financial results of the Company; · the time commitment
and duties involved; and · the requirement to attract and retain the quality of individuals required by the Company. The
remuneration of the non-executive directors is a matter for the Board to consider and decide upon. There are no performance
measures related to non-executive directors' fees.
Notes to the Policy Table
The payment policy for non-executive directors is to pay a rate which will
secure persons of a suitable calibre. The remuneration of the non-executive
directors is determined by the Board. External benchmarking data and
specialist advisers are used when setting fees, which will be reviewed at
appropriate intervals. The maximum caps are valid at the time that the
relevant appointment letter is entered into and the caps may be adjusted to
take into account fluctuations in exchange rates.
Expenses reasonably and wholly incurred in the performance of the role of
non-executive director of the Company may be reimbursed or paid for directly
by the Company, as appropriate, and may include any tax due on the expense.
The non-executive directors' fees are non-pensionable. The non-executive
directors have not to date been eligible to participate in any incentive plans
(such as bonuses or share plans); however, the Board considers that it may be
appropriate in the future to enable such participation, subject to suitably
stretching performance thresholds.
Non-executive directors may receive professional advice in respect of their
duties with the Company which will be paid for by the Company. They will also
may be covered by the Company's insurance policy for directors.
· Recruitment
The Company's policy on the recruitment of directors is to pay a fair
remuneration package for the role being undertaken and the experience of the
individual being recruited. The Remuneration Committee will consider all
relevant factors, which include the abilities of the individual, their
existing remuneration package, market practice, and the existing arrangements
for the Company's current directors.
The Remuneration Committee will determine that any arrangements offered are in
the best interests of the Company and shareholders and will endeavour to pay
no more than is necessary.
The Remuneration Committee intends that the components of remuneration set out
in the policy tables, and the approach to the components as set out in the
policy tables, will be equally applicable to new recruits, i.e. salary, annual
bonus, share plan awards, pension and benefits for executive directors, and
fees for non-executive directors. However, the Company acknowledges that
additional flexibility may be required to ensure the Company is in the best
position to recruit the best candidate for any vacant roles and, as such, a
buy-out arrangement may be required.
· Flexibility
The salary and compensation package designed for a new recruit may be higher
or lower than that applying for existing directors. The Remuneration Committee
may decide to appoint a new executive director to the Board at a lower than
typical salary, such that larger and more frequent salary increases may then
be awarded over a period of time to reflect the individual's growth in
experience within the role.
Remuneration will normally not exceed those set out in the policy table above.
However, to ensure that the Company can sufficiently compete with its
competitors, the Remuneration Committee considers it important that the
recruitment policy has sufficient flexibility in order to attract and
appropriately remunerate the high-performing individuals that the Company
requires to achieve its strategy. As such, the Remuneration Committee reserves
discretion to provide a buy-out arrangement and benefits (such as a sign-on
bonus and additional share awards) in addition to those set out in the policy
table (or mentioned in this section) where the Remuneration Committee
considers it reasonable and necessary to do so in order to secure an external
appointment (see below for more detail in relation to buy-out arrangements).
· Buy-out arrangements
The Remuneration Committee retains the discretion to enter into buy-out
arrangements to compensate new hires for incentive awards forfeited in joining
the Company. The Remuneration Committee will use its discretion in awarding
and setting any such compensation, which will be decided on a case-by-case
basis and likely on an estimated like-for-like basis. In deciding the
appropriate type and quantum of compensation to replace existing awards, the
Remuneration Committee will take into account all relevant factors, including
the type of award being forfeited, the likelihood of any performance measures
attached to the forfeited award being met, and the proportion of the vesting
period remaining. The Remuneration Committee will appropriately discount the
compensation payable to take account of any uncertainties over the likely
vesting of the forfeited award to ensure that the Company does not, in the
view of the Remuneration Committee, pay in excess of what is reasonable or
necessary.
Compensation for awards forfeited may take the form of a bonus payment or a
share award. For the avoidance of doubt, the maximum amounts of compensation
contained in the policy table will not apply to such buy-out arrangements. The
Company has not placed a maximum value on the compensation that can be paid
under this section, as it does not believe it would be in shareholders'
interests to set any expectations for prospective candidates regarding such
awards.
· Payments for loss of office
Any compensation payable in the event that the employment of an executive
director is terminated will be determined in accordance the terms of the
employment contract between the Company and the executive, as well as the
relevant rules of any share plan and this Policy, and in accordance with the
prevailing best practice.
The Remuneration Committee will consider a variety of factors when considering
leaving arrangements for an executive director and exercising any discretions
it has in this regard, including (but not limited to) individual and business
performance during office, the reason for leaving, and any other relevant
circumstances (for example, ill health).
In addition to any payment that the Remuneration Committee may decide to make,
the Remuneration Committee reserves discretion as it considers appropriate to:
(a) pay an annual bonus for the year of departure;
(b) continue providing any benefits for a period of time;
and
(c) provide outplacement services.
Non-executive directors are subject to one month notice periods prior to
termination of service and are not entitled to any compensation on termination
save for accrued fees as at the date of termination and reimbursement of any
expenses properly incurred prior to that date.
· Share plan awards
The treatment of any share award on termination will be governed by the PSP
rules.
Under the PSP, outstanding share awards held by an individual who ceases to be
a director or employee of the Company will lapse, unless the cessation is due
to death, illness, injury or disability, redundancy, retirement, the Company
ceasing to be a member of the Group or the transfer of an undertaking or part
of an undertaking to a person who is not a member of the Group, or the Board
exercises its discretion otherwise.
Under the PSP, the Board has discretion to decide the period of time for which
the award will continue, and whether any unvested award shall be treated as
vesting on the date of cessation of employment or in accordance with the
original vesting schedule, in both cases have regard to the extent to which
the performance targets have been satisfied prior to the date of cessation.
For executive directors, the vesting period will be set by the Remuneration
Committee with a minimum three-year period. The Remuneration Committee will
(unless the vesting period is set as a period equal to or longer than five
years) impose a holding period on shares (or awards) so that the executive is
not able to sell the shares that the executive director acquires through the
PSP until the fifth anniversary of the date of the award. The holding
period will not apply to the number of shares equivalent in value to the
amount required by the Company or the executive director to fund any income
tax and employee social security contributions due on the vesting of the
awards or otherwise in connection with the awards.
· Executive director employment agreements
This section contains the key employment terms and conditions of the executive
directors that could impact on their remuneration or loss of office payments.
The Company's policy on employment agreements is that executive directors'
agreements should be terminable by either the Company or the director on not
more than six months' notice. The employment agreements contain provision for
early termination, among other things, in the event of a breach by the
executive but make no provision for any termination benefits except in the
event of a change of control of the Company, where the executive becomes
entitled to a lump sum equal to 24 months' base salary plus benefits plus (if
any), bonus received. on termination by the Company. The employment agreements
contain restrictive covenants for a period of 12 months following termination
of the agreement. Details of employment agreements in place as at the date of
this report are set out below:
Director Current agreement start date Notice period
G Michelotti 1 July 2015 Six months
Directors' employment agreements are available for inspection at the Company's
registered office and at Zhylyanska street 48/50, 01033 Kyiv, Ukraine.
· Non-executive directors' letters of appointment
This section contains the key terms of the appointments of non-executive
directors that could impact on their remuneration.
Typically, the non-executive directors are appointed by letter of appointment
for an initial term of three years which may be extended. All non-executive
directors are subject to annual re-election by the Company's shareholders and
their appointments may be terminated earlier with one month's prior written
notice (or with immediate effect, in the case of specific serious
circumstances such as fraud or dishonesty). On termination of appointment,
non-executive directors are usually only entitled to accrued fees as at the
date of termination together with reimbursement of any expenses properly
incurred prior to that date and the company has no obligation to pay further
compensation when the appointment terminates 25 . Non-executive directors'
letters of appointment are available for inspection at the Company's
registered office and at Zhylyanska street 48/50, 01033 Kyiv, Ukraine.
No pension entitlements were provided in 2018. However, the Remuneration
Committee may in the future decide to provide pension benefits commensurate
with the market.
· Consideration of shareholder views
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 is reported to the
Board and discussed in detail both there and during meetings of the
Remuneration Committee.
The Remuneration Committee will take into account the results of the
shareholder vote on remuneration matters when making future remuneration
decisions. The Remuneration Committee remains mindful of shareholder views
when evaluating and setting ongoing remuneration strategy.
· Consideration of employment conditions within the Group
When determining remuneration levels for its executive directors, the Board
considers the pay and employment conditions of employees across the Group. The
Remuneration Committee will be mindful of average salary increases awarded
across the Group when reviewing the remuneration packages of the executive
directors.
· Minor changes
The Remuneration Committee may make, without the need for shareholder
approval, minor amendments to the Policy for regulatory, exchange control, tax
or administrative purposes or to take account of changes in legislation.
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;
* make judgements and accounting estimates that are reasonable and prudent;
* present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
* state whether they have been prepared in accordance with IFRSs as adopted by
the European Union, subject to any material departures disclosed and explained
in the financial statements;
* 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, prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company and Group will continue
in business.
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, as regards the Group financial statements,
Article 4 of the IAS Regulation. 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 and
statements 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. The directors' responsibility also extends to the ongoing
integrity of the financial statements contained therein.
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 and Article 4
of the IAS Regulation, 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 Annual 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
23 April 2019
Independent auditor’s report to the members of Cadogan Petroleum Plc
Opinion
We have audited the financial statements of Cadogan Petroleum Plc (the
‘Parent Company’) and its subsidiaries (the ‘Group’) for the year
ended 31 December 2018 which comprise the consolidated income statement, the
consolidated statement of comprehensive income, the consolidated balance
sheet, the consolidated cash flow statement, the consolidated statement of
changes in equity, the parent company balance sheet, the parent company cash
flow statement, the parent company statement of changes in equity and notes to
the financial statements, including a summary of significant accounting
policies. The financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting Standards
(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.
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 2018 and of the Group’s profit for the
year then ended;
* the Group financial statements have been properly prepared in accordance
with 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.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor’s responsibilities for the
audit of the financial statements section of our report. We are independent of
the Group and the Parent Company in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the UK,
including the FRC’s Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to
which the ISAs (UK) require us to report to you where:
* the Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is not appropriate; or
* the Directors have not disclosed in the financial statements any identified
material uncertainties that may cast significant doubt about the Group’s or
the Parent Company’s ability to continue to adopt the going concern basis of
accounting for a period of at least twelve months from the date when the
financial statements are authorised for issue.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were
of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified, including those
which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement team.
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.
Key Audit Matter How the matter was addressed in our audit
Carrying value of oil and gas exploration and production assets as detailed in note 3 and 4 At 31 December 2018 the group held exploration and evaluation assets of $2.4m and $2.8m of development and production assets as detailed in note 15 and 16. Management is required to assess these assets for indicators of impairment at each reporting date. Management has performed an impairment review which included assessment of the Bitlyanska and Monastyretska licences’ value in use based on the underlying discounted cash flow forecasts and concluded that no impairment is necessary. The impairment reviews require judgment and estimate in determining whether indicators of impairment exist and, in respect of the discounted cash flow models significant estimates in selecting inputs, together with significant judgment regarding the likelihood of licences being renewed / converted to production licences prior to their expiry in November and December 2019. As a result of these factors this represented a key focus area for our audit and a key audit matter. We reviewed the licence agreements and confirmed that group holds valid licences and gained an understanding of the licence conditions and remaining term. We evaluated management’s impairment indicator review paper, together with the underlying discounted
cash flow forecasts which formed part of their impairment review. We critically challenged the key judgments and assumptions made by management, including forecast oil and gas prices, production levels, royalties and costs. This included assessment
compared to empirical data, the independent Competent Person’s Report on the oil and gas reserves and external evidence where available. We benchmarked the discount rates against peer companies in the Ukraine. We performed sensitivity analysis on the
impairment models to establish the impact of reasonably possible changes in key variables such as pricing, production, expenditure and the discount rates. We reviewed budgets, forecasts and strategic plans to consider the extent to which management’s
judgment regarding future planned exploration activity is supported by those plans. We met with operational management and considered the appropriateness of management’s judgment that the Bitlyanska and Monastyretska licences would be extended or
converted to production licences upon expiry in December and November 2019 respectively. In doing so we obtained documents demonstrating the advanced status of submissions for the licence conversions, confirmations from the relevant authorities that the
group is in compliance with licence obligations and considered factors such as the exploration results to date. We specifically considered the extent to which the delays and failure to secure equivalent licence conversions in the East of Ukraine may occur
on these licences located in the Western region. In assessing management’s judgment that the licences applications are reasonably expected to be approved, we assessed public data on the pattern of extension and conversion of such licences in the West of
Ukraine.
Key observations We found management’s conclusion that no indication of impairment exists on the exploration and production assets at Bitlyanska and Monastyretska to be appropriate. The disclosures in the notes are sufficient and in line with accounting standards.
Key Audit Matter How the matter was addressed in our audit
Accounting treatment of the exit from the WGI JV As detailed in note 18 the group exited the WGI joint venture during 2018 and received $1.715m from Eni as part of the agreement which included the transfer of the group’s interests in the historically We assessed the accounting treatment for the amounts received from Eni as part of the exit from the WGI JV and shale gas projects, against the requirements of the relevant accounting standards. We made inquiries of management and the Audit Committee regarding the structure of the transaction, reviewed the accounting entries and relevant agreements and verified the receipt to bank.
impaired WGI JV and the group’s shale gas projects to PJSC Nadra Ukrayny for nominal consideration. Given the material nature of this transaction to the group’s results the accounting treatment of the transaction was a focus for our audit.
Key observations We found the accounting treatment and presentation of the amounts received from Eni in the WGI JV and shale gas projects to be appropriate based on relevant accounting standards.
Key Audit Matter How the matter was addressed in our audit
Appropriateness of revenue recognition policies and the appropriateness of cut off for gas trading revenue The group generated revenues of $14.7m comprising $9.9m from gas trading activity, $4.7m from oil and gas production and $0.1m from services. We considered it appropriate, noting that this was the first year of application of IFRS 15 as detailed in note 2, to assess the appropriateness of the group’s revenue recognition policies and their application for compliance with IFRS. In addition, there is inherent risk of material misstatement associated with the recognition of revenue around the year end, which is focused on gas trading contracts due to the volume of activity and increased potential for revenue being recorded in the incorrect period. We reviewed the terms of significant sales agreements and assessed the impact of such terms of revenue recognition. We assessed the group’s revenue recognition policies for compliance with IFRS 15 and consistency with the contractual arrangements with its
customers. We reviewed the terms of the contracts to satisfy ourselves that the group appropriately accounts for gas trading revenues as the principal rather than as an agent. In respect of oil production, we recalculated expected revenues using verified
production data and externally sourced average price and compared this information to actual revenue. We verified a sample of oil production revenues to supporting evidence. We verified a sample of gas trading revenues by customer to third party
confirmations. We obtained confirmation from the body responsible for regulating gas delivery in the Ukraine to confirm the existence, accuracy and completeness of gas inventory. We performed cut off procedures on revenue around the year end for gas
trading revenues which included verification of source documents such as acceptance notices. In respect of service revenues we obtained the contract, assessed the terms and recalculated the revenue for the period.
Key observations We found the revenue recognition policies to be compliant with IFRS and the presentation in the financial statements to be acceptable. Based on our work we did not identify any issues with the recording of revenue in the appropriate period.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit,
and in evaluating the effect of misstatements. We consider materiality to be
the magnitude by which misstatements, including omissions, could influence the
economic decisions of reasonable users that are taken on the basis of the
financial statements. Importantly, misstatements below these levels will not
necessarily be evaluated as immaterial as we also take account of the nature
of identified misstatements, and the particular circumstances of their
occurrence, when evaluating their effect on the financial statements as a
whole.
Group Parent company
Materiality $730,000 $550,000
Basis for determining materiality 1.5% of total assets 1.5% of total assets, capped at 75% of group materiality
We determined that an asset based measure is appropriate as the Group holds
significant cash balances and its principal activity is the exploration &
development of oil and gas assets, such that the asset base is considered to
be a key financial metric for users of the financial statements.
Whilst materiality for the financial statements as a whole was $730,000 (FY
2017: $750,000), each significant component of the Group was audited to a
lower performance materiality ranging from $97,500 to $412,500 (FY 2017:
$90,000 to $420,000).
Performance materiality for the Parent Company was set at $412,500 (FY 2017:
$420,000).
Performance materiality is used to determine the financial statement areas
that are included within the scope of our audit and the extent of sample sizes
during the audit. Performance materiality is applied at the individual account
or balance level set at an amount to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements
exceeds materiality for the financial statements as a whole.
We agreed with the Audit Committee that we would report to them all individual
audit differences identified during the course of our audit in excess of
$36,000 (FY 2017: $40,000). We also agreed to report differences below that
threshold that, in our view, warranted reporting on qualitative grounds.
An overview of the scope of our audit
Our group audit was scoped by obtaining an understanding of the group and its
environment and assessing the risks of material misstatement in the financial
statements at the group level.
Whilst Cadogan Petroleum Plc is a company listed on the Standard Segment of
the London Stock Exchange, the Group’s operations principally comprise an
exploration & development of oil and gas assets located in Ukraine, together
with gas trading and oil services activities. We assessed there to be seven
significant components within the Ukrainian sub-group, comprising components
holding exploration & development assets, gas trading activities which were
subject to a full scope audit. Together with the parent company, Cadogan
Petroleum Holdings Ltd and the group consolidation, which was also subject to
a full scope audit, these represent the significant components of the group.
These locations represent the principal business units and account for 100% of
the group’s revenue and 99% of the group’s total assets.
The audits of each of the Ukrainian components were principally performed in
the Ukraine. The audits of the parent company, Cadogan Petroleum Holdings
Ltd and the group consolidation were performed in the United Kingdom by BDO
LLP.
A BDO member firm performed a full scope audit of the components in Ukraine,
under our direction and supervision as group auditors.
In setting the audit strategy we considered our approach in respect of the
ability of the audit to detect irregularities, including fraud. We designed
audit procedures to respond to the risk, recognising that the risk of not
detecting a material misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as a fraud may involve deliberate
concealment by, for example, forgery or intentional misrepresentations or
through collusion.
We considered the laws and regulations of the Ukraine and the UK to be of
significance in the context of the Group audit. As part of our Group audit
strategy direction was provided to the auditor of the significant components
to ensure an assessment was performed on the extent of the components
compliance with the relevant local and regulatory framework. As part of our
Group audit work we reviewed this work and held meetings with relevant
internal Management to form our own opinion on the extent of Group wide
compliance. In addition our tests included, but were not limited to agreement
of the Financial Statement disclosures to underlying supporting documentation,
performing substantive testing on accounts balances which were considered to
be at a greater risk of susceptibility to fraud and reviewed correspondence
with regulators in so far as the correspondence related to the Financial
Statements.
As part of our audit strategy, as group auditors:
* Detailed group reporting instructions were sent to the component auditor,
which included the significant areas to be covered by the audit (including
areas that were considered to be key audit matters as detailed above), and set
out the information required to be reported to the group audit team.
* The group audit partner and senior members of the group audit team visited
the Ukraine to meet with component management during the audit.
* We performed a review of the component audit files in the Ukraine and held
calls and meetings with the component audit team during the planning and
completion phases of their audit.
* The group audit team was actively involved in the direction of the audits
performed by the component auditors for group reporting purposes, along with
the consideration of findings and determination of conclusions drawn. We
performed our own additional procedures in respect of certain of the
significant risk areas that represented Key Audit Matters in addition to the
procedures performed by the component auditor.
The remaining components of the group were considered non-significant and
these components were principally subject to analytical review procedures.
Other information
The directors are responsible for the other information. The other information
comprises the information included in the annual financial report, other than
the financial statements and our auditor’s report thereon. Our opinion on
the financial statements does not cover the other information and, except to
the extent otherwise explicitly stated in our report, we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility
is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the
other information. If, based on the work we have performed, we conclude that
there is a material misstatement of the other information, we are required to
report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the directors’ remuneration report to be audited
has been properly prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
* the information given in the strategic report and the directors’ report
for the financial year for which the financial statements are prepared is
consistent with the financial statements; and
* the strategic report and the directors’ report have been prepared in
accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and Parent
Company and its environment obtained in the course of the audit, we have not
identified material misstatements in the strategic report or the directors’
report.
We have nothing to report in respect of the following matters in relation to
which the
Companies Act 2006 requires us to report to you if, in our opinion:
* adequate accounting records have not been kept by the Parent Company, or
returns adequate for our audit have not been received from branches not
visited by us; or
* the Parent Company financial statements and the part of the directors’
remuneration report to be audited are not in agreement with the accounting
records and returns; or
* certain disclosures of directors’ remuneration specified by law are not
made; or
* we have not received all the information and explanations we require for our
audit.
Responsibilities of directors
As explained more fully in the Statement of directors’ responsibilities set
out on page 61, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair
view, and for such internal control as the directors determine is necessary to
enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the Group’s and the Parent Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the directors either intend
to liquidate the Group or the Parent Company or to cease operations, or have
no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our
auditor’s report.
Other matters which we are required to address
Following the recommendation of the audit committee, we were appointed by the
Board of directors on 27 April 2017 to audit the financial statements for the
year ending 31 December 2017 and subsequent years. This is the second year of
our engagement as auditor.
The non-audit services prohibited by the FRC’s Ethical Standard were not
provided to the company and we remain independent of the company and the group
in conducting our audit.
Our audit opinion is consistent with the additional report to the audit
committee.
Use of our report
This report is made solely to the Parent 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 Parent 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 Parent Company
and the Parent Company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
Ryan Ferguson (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London,
United Kingdom
23 April 2019
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
Consolidated Income Statement for the year ended 31 December 2018 Notes 2018 $’000 2017 $’000
CONTINUING OPERATIONS
Revenue 6 14,730 15,145
Cost of sales (12,849) (13,093)
Gross profit 1,881 2,052
Administrative expenses 7 (4,762) (4,981)
Reversal of impairment/(impairment) of oil and gas assets (56) (162)
Reversal of impairment of other assets 8 1,730 1,513
Impairment of other assets 8 (751) (51)
Share of losses in joint venture 18 - (2,323)
Net foreign exchange losses (58) (116)
Other operating income, net 9 2,419 480
Operating profit/(loss) 403 (3,588)
Finance income, net 12 636 672
Profit/(Loss) before tax 1,039 (2,916)
Tax benefit 13 178 1,332
Profit/(Loss) for the year 1,217 (1,584)
Attributable to:
Owners of the Company 1,220 (1,585)
Non-controlling interest (3) 1
1,217 (1,584)
Profit/(Loss) per Ordinary share Cents cents
Basic 14 0.5 (0.7)
Consolidated Statement of Comprehensive Income for the year ended 31 December
2018
2018 $’000 2017 $’000
Profit/(loss) for the year 1,217 (1,584)
Other comprehensive profit/(loss)
Items that may be reclassified subsequently to profit or loss:
Unrealised currency translation differences 354 (671)
Other comprehensive profit/(loss) 354 (671)
Total comprehensive profit/(loss) for the year 1,571 (2,255)
Attributable to:
Owners of the Company 1,574 (2,256)
Non-controlling interest (3) 1
1,571 (2,255)
Consolidated Balance Sheet as at 31 (st)December 2018 Notes 2018 $’000 2017 $’000
ASSETS
Non-current assets
Intangible exploration and evaluation assets 15 2,386 1,715
Property, plant and equipment 16 3,297 2,095
Prepayments for non-current assets 1,318 -
Deferred tax asset 22 501 323
7,502 4,133
Current assets
Inventories 19 4,487 2,292
Trade and other receivables 20 2,472 4,497
Assets held for sale 165 -
Cash and cash equivalents 21 35,136 37,640
42,260 44,429
Total assets 49,762 48,562
LIABILITIES
Non-current liabilities
Provisions 25 (39) (412)
(39) (412)
Current liabilities
Trade and other payables 24 (1,271) (1,406)
Liabilities held for sale (140) -
Provisions 25 (276) (358)
(1,687) (1,764)
Total liabilities (1,726) (2,176)
NET ASSETS 48,036 46,386
EQUITY
Share capital 26 13,525 13,525
Share premium 329 329
Retained earnings 194,062 192,842
Cumulative translation reserves (161,816) (162,170)
Other reserves 1,668 1,589
Equity attributable to owners of the Company 47,768 46,115
Non-controlling interest 268 271
TOTAL EQUITY 48,036 46,386
The consolidated financial statements of Cadogan Petroleum plc, registered in
England and Wales no. 05718406, were approved by the Board of Directors and
authorised for issue on 23 April 2019. They were signed on its behalf by:
Guido Michelotti
Chief Executive Officer
23 April 2019
The notes on pages 74 to 102 form an integral part of these financial
statements.
Consolidated Cash Flow Statement for the year 31 (st)December 2018
Note 2018 $’000 2017 $’000
Operating profit / (loss) 403 (3,588)
Adjustments for:
Depreciation of property, plant and equipment 16 425 211
Impairment of oil and gas assets 56 162
Impairment of property, plant and equipment 8 751 -
Termination fee on exit from WGI 18 (1,700) -
Share of losses in joint ventures 18 - 2,323
Impairment of receivables 8 - 51
Reversal of impairment of inventories 8 (107) (77)
Reversal of impairment of VAT recoverable 8 (1,730) (1,436)
Gain on disposal of property, plant and equipment (45) (9)
Effect of foreign exchange rate changes 58 116
Operating cash flows before movements in working capital (1,889) (2,247)
Increase in inventories (2,100) (564)
Decrease in receivables 3,651 469
Increase in payables and provisions 84 367
Cash used in operations (254) (1,975)
Interest paid (130) (298)
Interest on receivables received - 500
Interest received 230 61
Income taxes paid - (107)
Net cash outflow from operating activities (154) (1,819)
Investing activities
Proceeds from termination fee on exit from WGI 1,700 -
Purchases of property, plant and equipment (3,944) (68)
Purchases of intangible exploration and evaluation assets (857) (568)
Proceeds from sale of property, plant and equipment 58 198
Interest received 553 205
Net cash used in investing activities (2,490) (233)
Financing activities
Proceeds from short-term borrowings 3,965 3,365
Repayments of short-term borrowings (3,887) (7,075)
Net cash from/(used in) financing activities 78 (3,710)
Net decrease in cash and cash equivalents (2,566) (5,762)
Effect of foreign exchange rate changes 102 102
Cash and cash equivalents held for sale at end of year (40) -
Cash and cash equivalents at beginning of year 37,640 43,300
Cash and cash equivalents at end of year 35,136 37,640
Consolidated Statement of Changes in Equity for the year ended 31 December 2018
Share capital $’000 Retained earnings $’000 Cumulative translation reserves $’000 Non-controlling interest $’000 Total $’000
Share premium account $’000 Other reserves $’000 Equity attributable to owners of the Company
As at 1 January 2017 13,337 - 194 , 427 (16 1 , 499 ) 1,589 47 , 854 27 0 48 , 124
Net loss for the year - - (1,585) - - (1,585) 1 (1,584)
Other comprehensive loss - - - (671) - (671) - (671)
Total comprehensive loss for the year - - (1,585) (671) - (2,256) 1 (2,255)
Issue of ordinary shares 188 329 - - - 517 - 517
As at 1 January 2018 13,525 329 192,842 (162,170) 1,589 46,115 271 46,386
Net profit for the year - - 1,220 - - 1,220 (3) 1,217
Other comprehensive profit - - - 354 - 354 - 354
Total comprehensive profit for the year - - 1,220 354 - 1,575 (3) 1,572
Issue of ordinary shares - - - - 79 79 - 79
As at 31 December 2018 13,525 329 194,062 (161,816) 1,668 47,768 268 48,036
Notes to the Consolidated Financial Statements for the year ended 31(st)
December 2018
1. General information
Cadogan Petroleum plc (the “Company”, together with its subsidiaries the
“Group”), is registered in England and Wales under the Companies Act 2006.
The address of the registered office is 6th Floor, 60 Gracechurch Street,
London EC3V 0HR. The nature of the Group’s operations and its principal
activities are set out in the Operations Review on pages 9 to 10 and the
Financial Review on pages 11 to 13.
2. Adoption of new and revised Standards
New IFRS accounting standards, amendments and interpretations not yet adopted
Impact of initial application of IFRS 9 Financial Instruments
In the current year, the Group has applied IFRS 9 Financial Instruments (as
revised in July 2014) and the related consequential amendments to other IFRS
Standards that are effective for an annual period that begins on or after 1
January 2018. The transition provisions of IFRS 9 allow an entity not to
restate comparatives.
IFRS 9 introduced new requirements for:
1) The classification and measurement of financial assets and financial
liabilities,
2) Impairment of financial assets, and
3) General hedge accounting.
Details of these new requirements as well as their impact on the Group’s
consolidated financial statements are described below. The Group has applied
IFRS 9 in accordance with the transition provisions set out in IFRS 9.
(a) Classification and measurement of financial assets
The date of initial application (i.e. the date on which the Group has assessed
its existing financial assets and financial liabilities in terms of the
requirements of IFRS 9) is 1 January 2018. Accordingly, the Group has applied
the requirements of IFRS 9 to instruments that continue to be recognised as at
1 January 2018 and has not applied the requirements to instruments that have
already been derecognised as at 1 January 2018. All recognised financial
assets that are within the scope of IFRS 9 are required to be measured
subsequently at amortised cost or fair value on the basis of the entity’s
business model for managing the financial assets and the contractual cash flow
characteristics of the financial assets.
The Group reviewed and assessed the Group’s existing financial assets as at
1 January 2018 based on the facts and circumstances that existed at that date
and concluded that the initial application of IFRS 9 has not had significant
impact on the Group’s financial assets as regards their classification and
measurement and have not had any impact on the Group’s financial position,
profit or loss, other comprehensive income or total comprehensive income in
either year. The Group’s financial assets are held at amortised cost.
(b) Impairment of financial assets
In relation to the impairment of financial assets, IFRS 9 requires an expected
credit loss model as opposed to an incurred credit loss model under IAS 39.
The expected credit loss model requires the Group to account for expected
credit losses and changes in those expected credit losses at each reporting
date to reflect changes in credit risk since initial recognition of the
financial assets. In other words, it is no longer necessary for a credit event
to have occurred before credit losses are recognised. Specifically, IFRS 9
requires the Group and the Company to recognise a loss allowance for expected
credit losses on trade receivables and receivables from subsidiaries to which
the impairment requirements of IFRS 9 apply.
In particular, IFRS 9 requires the Group to measure the loss allowance for a
financial instrument at an amount equal to the lifetime expected credit losses
(ECL) if the credit risk on that financial instrument has increased
significantly since initial recognition, or if the financial instrument is a
purchased or originated credit-impaired financial asset. However, if the
credit risk on a financial instrument has not increased significantly since
initial recognition (except for a purchased or originated credit-impaired
financial asset), the Group is required to measure the loss allowance for that
financial instrument at an amount equal to 12-months ECL. IFRS 9 also requires
a simplified approach for measuring the loss allowance at an amount equal to
lifetime ECL for trade receivables, contract assets and lease receivables in
certain circumstances. The impact of ECL provisions on the Group was
insignificant.
(c) Classification and measurement of financial liabilities
A significant change introduced by IFRS 9 in the classification and
measurement of financial liabilities relates to the accounting for changes in
the fair value of a financial liability designated as at FVTPL attributable to
changes in the credit risk of the issuer. Specifically, IFRS 9 requires that
the changes in the fair value of the financial liability that is attributable
to changes in the credit risk of that liability be presented in other
comprehensive income, unless the recognition of the effects of changes in the
liability’s credit risk in other comprehensive income would create or
enlarge an accounting mismatch in profit or loss. Changes in fair value
attributable to a financial liability’s credit risk are not subsequently
reclassified to profit or loss, but are instead transferred to retained
earnings when the financial liability is derecognised.
Previously, under IAS 39, the entire amount of the change in the fair value of
the financial liability designated as at FVTPL was presented in profit or
loss.
The change to classification and measurement of financial liabilities had no
impact on the Group.
(e) Disclosures in relation to the initial application of IFRS 9
There were no financial assets or financial liabilities which the Group had
previously designated as at FVTPL under IAS 39 that were subject to
reclassification or which the Group has elected to reclassify upon the
application of IFRS 9. There were no financial assets or financial liabilities
which the Group has elected to designate as at FVTPL at the date of initial
application of IFRS 9.
The application of IFRS 9 has had no impact on the consolidated financial
position, financial result and cash flows of the Group but led to changes to
disclosures and accounting policies
Impact of application of IFRS 15 Revenue from Contracts with Customers
In the current year, the Group has applied IFRS 15 Revenue from Contracts with
Customers (as amended in April 2016) which is effective for an annual period
that begins on or after 1 January 2018. IFRS 15 introduced a 5-step approach
to revenue recognition. IFRS 15 introduced a single framework for revenue
recognition and clarified principles of revenue recognition. This standard
modifies the determination of when to recognise revenue and how much revenue
to recognise. The core principle is that an entity recognises revenue to
depict the transfer of promised goods and services to the customer of an
amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. The adoption of IFRS 15
did not result in any material change to the Group’s revenue recognition
following analysis of its contracts.
IFRS 15 uses the terms ‘contract asset’ and ‘contract liability’ to
describe what might more commonly be known as ‘accrued revenue’ and
‘deferred revenue’, however the Standard does not prohibit an entity from
using alternative descriptions in the statement of financial position. The
Group has adopted the terminology used in IFRS 15 to describe such balances.
The Group’s accounting policies for its revenue are disclosed in detail in
note 3 below. Apart from providing more extensive disclosures for the
Group’s revenue transactions, the application of IFRS 15 has not had a
significant impact on the financial position and/or financial performance of
the Group.
In the current year, the Group has applied a number of amendments to IFRS
Standards and Interpretations issued by the International Accounting Standards
Board (IASB) that are effective for an annual period that begins on or after 1
January 2018. Their adoption has not had any material impact on the
disclosures or on the amounts reported in these financial statements.
* IFRS 2 (amendments) Classification and Measurement of Share-based Payment
Transactions
* Annual Improvements to IFRS Standards 2014 – 2016 Cycle
* Amendments to IAS 28 Investments in Associates and Joint Ventures
* IFRIC 22 Foreign Currency Transactions and Advance Consideration
New and revised IFRS Standards in issue but not yet effective
At the date of authorisation of these financial statements, The Group has not
applied the following new and revised IFRS Standards that have been issued but
are not yet effective:
* IFRS 16 Leases
* Annual Improvements to IFRS Standards 2015–2017 Cycle
* Amendments to IFRS 3 Business Combinations, IFRS 11 Joint Arrangements,
* IAS 12 Income Taxes and IAS 23 Borrowing Costs
* IFRS 10 Consolidated Financial Statements and IAS 28 (amendments)Sale or
Contribution of Assets between an Investor and its Associate or Joint Venture
* IFRIC 23 Uncertainty over Income Tax Treatments
IFRS 16 specifies how to recognize, measure, present and disclose leases. The
standard provides a single lessee accounting model, requiring lessees to
recognize right-of-use assets and lease liabilities for all material leases.
It will result in almost all leases being recognised on the balance sheet by
lessees, as the distinction between operating and finance leases is removed.
Under the new standard, an asset (the right to use the leased item) and a
financial liability to pay rentals are recognised. The only exceptions are
short-term and low-value leases. The Group’s well service and rental
arrangements in Ukraine for oil and gas extraction activities are outside of
the scope of IFRS 16.
As for other IFRS Standards the directors do not expect that the adoption of
the Standards listed above will have a material impact on the financial
statements of the Group in future periods.
3. Significant accounting policies
(a) Basis of accounting
The financial statements have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”) and as adopted by the European Union
(“EU”), and therefore the Group financial statements comply with Article 4
of the EU IAS Regulation.
The financial statements have been prepared on the historical cost convention
basis.
The principal accounting policies adopted are set out below:
(b) Going concern
The Group's business activities, together with the factors likely to affect
future development, performance and position are set out in the Strategic
Report on pages 4 to 13. The financial position of the Group, its cash flow
and liquidity position are described in the Financial Review on pages 11 to
13.
The Group’s cash balance at 31 December 2018 was $35.2 million (2017: $37.6
million) prior to the loan to Proger detailed in Note 30 of €13.4 million
($15.2 million). It includes pledged cash of $7.0 million (2017: $7.0 million)
(Note 20). The Directors believe that the funds available at the date of the
issue of these financial statements are sufficient for the Group to manage its
business risks and planned investments successfully.
The directors’ confirmation that they have carried out a robust assessment
of the principal risks facing the Group, including those that could
potentially threaten its business model, future performance, solvency or
liquidity is on page 14.
The Group’s forecasts and projections, taking into account reasonably
possible changes in trading activities, operational performance, start dates
and flow rates for commercial production and the price of hydrocarbons sold to
Ukrainian customers, show that there are reasonable expectations that the
Group will be able to operate on funds currently held and those generated
internally, for the foreseeable future.
The Group continues to pursue its farm-out campaign, which, if successful,
will enable it to farm-out a portion of its interests in its oil and gas
licences to spread the risks associated with further exploration and
development.
After making enquiries and considering the uncertainties described above, the
Directors have a reasonable expectation that the Company and the Group have
adequate resources to continue in operational existence for the foreseeable
future and consider the going concern basis of accounting to be appropriate
and, thus, they continue to adopt the going concern basis of accounting in
preparing the annual financial statements.
(c) Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and entities controlled by the Company (its subsidiaries) made up
to 31 December each year. IFRS 10 defines control to be investor control over
an investee when it is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to control those returns
through its power over the investee.
The results of subsidiaries acquired or disposed of during the year are
included in the consolidated income statement from the effective date of
acquisition or up to the effective date of disposal, as appropriate. Where
necessary, adjustments are made to the financial statements of subsidiaries to
bring accounting policies used into line with those used by the Group. All
intra-group transactions, balances, income and expenses are eliminated on
consolidation.
Non-controlling interests in subsidiaries are identified separately from the
Group’s equity therein. Those interests of non-controlling shareholders that
are present ownership interests entitling their holders to a proportionate
share of net assets upon liquidation may be initially measured at fair value
or at the non-controlling interests’ proportionate share of the fair value
of the acquiree’s identifiable net assets. The choice of measurement is made
on an acquisition-by-acquisition basis. Other non-controlling interests are
initially measured at fair value.
Subsequent to acquisition, the carrying amount of non-controlling interests is
the amount of those interests at initial recognition plus the non-controlling
interests’ share of subsequent changes in equity. Total comprehensive income
is attributed to non-controlling interests even if this results in the
non-controlling interests having a deficit balance.
Changes in the Group’s interests in subsidiaries that do not result in a
loss of control are accounted for as equity transactions. The carrying amount
of the Group’s interests and the non-controlling interests are adjusted to
reflect the changes in their relative interests in the subsidiaries. Any
difference between the amount by which the non-controlling interests are
adjusted and the fair value of the consideration paid or received is
recognised directly in equity and attributed to the owners of the Company.
(d) Business combinations
The acquisition of subsidiaries is accounted for using the acquisition method.
The cost of the acquisition is measured at the aggregate of the fair values,
at the date of exchange, of assets given, liabilities incurred or assumed, and
equity instruments issued in exchange for control of the acquiree.
Acquisition-related costs are recognised in profit or loss as incurred. The
acquiree’s identifiable assets, liabilities and contingent liabilities that
meet the conditions for recognition under IFRS 3 Business Combinations are
recognised at their fair value at the acquisition date, except for non-current
assets (or disposal groups) that are classified as held for resale in
accordance with IFRS 5 Non-Current Assets held for sale and Discontinued
Operations. These are recognised and measured at fair value less costs to
sell.
(e) Investments in joint ventures
A joint venture is a joint arrangement whereby the parties that have joint
control of the arrangement have rights to the net assets of the arrangement. A
joint venture firm recognises its interest in a joint venture as an investment
and shall account for that investment using the equity method in accordance
with IAS 28 (http://www.iasplus.com/en/standards/ias/ias28-2011) Investments
in Associates and Joint Ventures.
Under the equity method, the investment is carried on the balance sheet at
cost plus changes in the Group’s share of net assets of the entity, less
distributions received and less any impairment in value of the investment. The
Group Consolidated Income Statement reflects the Group’s share of the
results after tax of the equity-accounted entity, adjusted to account for
depreciation, amortisation and any impairment of the equity accounted
entity’s assets. The Group Statement of Comprehensive Income includes the
Group’s share of the equity-accounted entity’s other comprehensive income.
Financial statements of equity-accounted entities are prepared for the same
reporting year as the Group. The Group assesses investments in
equity-accounted entities for impairment whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. In
doing so, the Group applies the criteria of IFRS 6 ‘Exploration for and
evaluation of mineral resources’ as the joint venture holds exploration
phase assets. If any such indication of impairment exists, the carrying amount
of the investment is compared with its recoverable amount, being the higher of
its fair value less costs of disposal and value in use. If the carrying amount
exceeds the recoverable amount, the investment is written down to its
recoverable amount.
The Group ceases to use the equity method of accounting from the date on which
it no longer has joint control over the joint venture or significant influence
over the associate, or when the interest becomes classified as an asset held
for sale.
(f) Revenue recognition
Revenue from contracts with customers is recognized when or as the Group
satisfies a performance obligation by transferring a promised good or service
to a customer. A good or service is transferred when the customer obtains
control of that good or service. Revenue is measured at the fair value of the
consideration received or receivable and represents amounts receivable for
hydrocarbon products and services provided in the normal course of business,
net of value added tax (‘VAT’) and other sales-related taxes, excluding
royalties on production. Royalties on production are recorded within cost of
sales.
E&P and Trading business segments
The transfer of control of hydrocarbons usually coincides with title passing
to the customer and the customer taking physical possession as the product
passes a physical point such as a designated point in the pipeline for the
sale of gas or loading point in the case of oil. The Group principally
satisfies its performance obligations at a point in time.
To the extent that revenue arises from test production during an evaluation
programme, an amount is credited to evaluation costs and charged to cost of
sales, so as to reflect a zero net margin.
Service business segment
Revenue from services is recognised in the accounting period in which services
are rendered. The main types of services provided by the Group are drilling
and civil works services. Revenue is recorded as the service is provided
over time such as through day rates for supply of drill rigs, civil works and
manpower.
Interest income is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the expected
life of the financial asset to that asset’s net carrying amount on initial
recognition.
(g) Foreign currencies
The functional currency of the Group’s Ukrainian operations is Ukrainian
Hryvnia. The functional currency of the Group’s UK subsidiaries and the
parent company is US Dollar.
In preparing the financial statements of the individual companies,
transactions in currencies other than the functional currency of each Group
company (‘foreign currencies’) are recorded in the functional currency at
the rates of exchange prevailing on the dates of the transactions. At each
balance sheet date, monetary assets and liabilities that are denominated in
foreign currencies are retranslated into the functional currency at the rates
prevailing on the balance sheet date. Non-monetary assets and liabilities
carried at fair value that are denominated in foreign currencies are
translated at the rates prevailing at the date when the fair value was
determined. Non-monetary items that are measured in terms of historical cost
in a foreign currency are not retranslated. Foreign exchange differences on
cash and cash equivalents are recognised in operating profit or loss in the
period in which they arise.
Exchange differences are recognised in the profit or loss in the period in
which they arise except for exchange differences on monetary items receivable
from or payable to a foreign operation for which settlement is neither planned
nor likely to occur. This forms part of the net investment in a foreign
operation, which is recognised in the foreign currency translation reserve and
in profit or loss on disposal of the net investment.
For the purpose of presenting consolidated financial statements, the results
and financial position of each entity of the Group, where the functional
currency is not the US dollar, are translated into US dollars as follows:
i. assets and liabilities of the Group’s foreign
operations are translated at the closing rate on the balance sheet date;
ii. income and expenses are translated at the average
exchange rates for the period, where it approximates to actual rates. In other
cases, if exchange rates fluctuate significantly during that period, the
exchange rates at the date of the transactions are used; and
iii. all resulting exchange differences arising, if any,
are recognised in other comprehensive income and accumulated equity
(attributed to non-controlling interests as appropriate), transferred to the
Group’s translation reserve. Such translation differences are recognised as
income or as expenses in the period in which the operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
The relevant exchange rates used were as follows:
Year ended 31 December 2018 Year ended 31 December 2017
GBP/USD USD/UAH GBP/USD USD/UAH
Closing rate 1.2768 27.7477 1.3494 28.3865
Average rate 1.3415 27.2324 1.2890 26.8034
(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.
In case of the uncertainty of the tax treatment, the Group assess, whether it
is probable or not, that the tax treatment will be accepted, and to determine
the value, the Group use the most likely amount or the expected value in
determining taxable profit (tax loss), tax bases, unused tax losses, unused
tax credits and tax rates.
(i) Other 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:
Other
PP&E
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) 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
requirements 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, which are assessed
at the level of individual licences.
E&E assets comprise costs of (i) E&E activities which are in progress at the
balance sheet date, but where the 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 such as, a) licence
expiry during year or in the near future and will not likely to be renewed; b)
expenditure on E&E activity neither budgeted nor planned; c) commercial
quantities of mineral resources have been discovered; and d) sufficient data
exist to indicate that carrying amount of E&E asset is unlikely to be
recovered in full from successful development or sale.
Where there are indications of impairment, the E&E assets concerned are tested
for impairment. Where the E&E assets concerned fall within the scope of an
established full cost pool, which are not larger than an operating segment,
they are tested for impairment together with all development and production
assets associated with that cost pool, as a single cash generating unit.
The aggregate carrying value of the relevant assets is compared against the
expected recoverable amount of the pool, 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.
(k) 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.
(l) Impairment of development and production assets and other 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.
(m) Inventories
Oil and gas stock and spare parts 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
Financial assets and financial liabilities are recognised in the consolidated
statement of financial position when the Group becomes party to the
contractual provisions of the instrument.
Trade and other payables
Payables are initially measured at fair value, net of transaction costs and
are subsequently measured at amortised cost using the effective interest
method.
Trade and other receivables
Trade and other receivables are recognised initially at their transaction
price in accordance with IFRS 9 and are subsequently measured at amortised
cost. The Group applies the simplified approach to providing for expected
credit losses (ECL) prescribed by IFRS 9, which permits the use of the
lifetime expected loss provision for all trade receivables. Expected credit
losses are assessed on a forward looking basis. The loss allowance is measured
at initial recognition and throughout its life at an amount equal to lifetime
ECL. Any impairment is recognised in the income statement.
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.
(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.
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.
Critical judgements and estimates
(a) Impairment indicator assessment for E&E assets
The outcome of ongoing exploration, and therefore the recoverability of the
carrying value of intangible exploration and evaluation assets, is inherently
uncertain. Management assesses its E&E assets for impairment indicators and if
indicators of impairment are identified performs an impairment test. In
assessing potential indicators of impairment judgment was required and
management considered factors such as the remaining term of the licence and
plans for renewal and conversion to a production licence, reserves reports and
the net present value of economic models, the results of drilling and
exploration in the year and the future plans including farm out proposals. In
respect of the renewal and conversion of the licence management considered the
status of licence commitments, the status of submissions necessary for the
renewal and trends in the relevant region of the Ukraine with respect to
licence application approval (Note 15).
(b) Impairment of PP&E
Management assess its development and production assets for impairment
indicators and if indicators of impairment are identified performs an
impairment test. In assessing potential indicators of impairment judgment
was required and management considered factors such as the remaining term of
the licence and plans for renewal and conversion to a production licence,
reserves reports and the net present value of economic models and planned
drilling. In respect of the renewal and conversion of the licence management
considered the status of licence commitments, the status of submissions
necessary for the renewal and trends in the relevant region of the Ukraine
with respect to licence application approval (Note 16). No impairment was
determined to be appropriate.
In respect of other assets an impairment of $0.7 million was considered
appropriate at 31 December 2018 in respect of gas plant and infrastructure
assets associated with the Pirkovska licence which earlier expired, reflecting
the sale value achieved subsequent to year end on the gas plant and the risk
that ancillary infrastructure may be abandoned. The licence costs were
impaired historically (Note 17).
(c) Recoverability and measurement of VAT
Judgment and estimation are required in assessing the recoverability of VAT
assets and the extent to which historical impairment provisions remain
appropriate, particularly noting the recent recoveries against historically
impaired VAT. In forming this assessment, the Group considers the nature and
age of the VAT, future vatable supplies, the pattern of recoveries and risks
and uncertainties associated with the operating environment.
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 senior management team as its CODM and the internal reports
used by the senior 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 and all
Group’s revenues 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 exploration and production licences for natural gas,
oil and condensate.
Service
* Drilling services to exploration and production companies; and
* Civil works services to exploration and production companies.
Trading
* Import of natural gas from European countries; and
* 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 rates considered to approximate 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 2018 and for the year then ended the Group’s segmental
information was as follows:
Exploration and Production Service (()(2)()) Trading Consolidated
$’000 $’000 $’000 $’000
Sales of hydrocarbons 4,570 - 10,037 14,607
Other revenue - 123 - 123
Sales between segments 129 - (129) -
Total revenue 4,699 123 9,908 14,730
Cost of sales (3,739) (24) (9,086) (12,849)
Administrative expenses (535) (36) (74) (645)
Finance income, net (Note 11) ((1)) - - (57) (57)
Segment results 425 63 691 1,179
Unallocated administrative expenses (4,117)
Other income, net 4,091
Reversal of impairment of oil and gas assets (56)
Net foreign exchange loss (58)
Profit before tax 1,039
1. Net finance income includes $135 thousand of interest on short-term
borrowings and $78 thousand of interest on cash deposits used for trading.
The services business segment in 2018 primarily provided well work-overs and
other works to other Group companies as tenders secured with third parties had
been deferred by customers.
As of 31 December 2017 and for the year then ended the Group’s segmental
information was as follows:
Exploration and Production Service (()(1)()) Trading Consolidated
$’000 $’000 $’000 $’000
Sales of hydrocarbons 1,779 - 13,366 15,145
Sales between segments 630 - (630) -
Total revenue 2,409 - 12,736 15,145
Cost of sales (1,687) - (11,406) (13,093)
Administrative expenses (454) (26) (265) (745)
Finance income, net (Note 11) ((2)) - - 305 305
Segment results 268 (26) 1,370 1,612
Unallocated administrative expenses (4,236)
Other income, net 2,309
Impairment of oil and gas assets (162)
Share of loss in joint ventures (2,323)
Net foreign exchange loss (116)
(Loss) before tax (2,916)
(1) The services business segment in 2017 primarily provided well work-overs
and other works to other Group companies as tenders secured with third parties
had been deferred by customers.
(2) Net finance income includes $0.26 million of interest
on short-term borrowings, $0.49 million of interest income on receivables and
$67 thousand of interest on cash deposits used for
rading.
(3) Trading result excluding interest received on receivables was $0.9
million.
6. Revenue
2018 $’000 2017 $’000
Sale of hydrocarbons (trading) – point in time 9,908 12,736
Sale of hydrocarbons (exploration and production) – point in time 4,699 2,409
Service revenues – over time 123 -
14,730 15,145
Revenue is generated in the Ukraine. Refer to note 3(f) for details of the
performance obligations. Service revenue and associated contract assets and
liabilities are immaterial.
Information about major customers
Included in revenues arising from the Trading segment for the year ended 31
December 2018 are revenues of $6.9 million (2017: $7.4 million), which arose
from sales to the Group’s three largest customers. No other single customers
contributed 10 per cent or more to the Group’s revenue in either 2018 or
2017.
7. Administrative expenses
2018 $’000 2017 $’000
Staff 2,570 2,531
Professional fees 1,247 1,206
Office rent 181 161
Travel 176 238
IT and communication 133 142
Insurance 88 177
Bank charges 63 58
Other 304 468
4,762 4,981
8. Reversal of impairment/(impairment) of other assets
2018 $’000 2017 $’000
VAT recoverable 1,730 1,436
Inventories - 77
Reversal of impairment of other assets 1,730 1,513
$1.7 million (2017: $1.4 million) of provision against VAT has been released
following receipts in cash and offsets against output VAT of VAT refund
balances that has been impaired in previous years due to collectability
issues. $5.0 million of VAT refunds still remains impaired. Refer to Note 3.
At 31 December 2018, $107 thousand (2017: $77 thousand) of impairment has been
released following the sale of previously impaired inventory.
2018 $’000 2017 $’000
Receivables - (51)
Other Property, Plant and Equipment (751) -
Impairment of other assets (751) (51)
Impairment of other PPE includes $0.43 million of impairment reflecting the
recoverable value of the gas plant on the Pirkivska licence to reduce the
asset value down to the sale consideration received in February 2019 on its
disposal; and $0.32 million of impairment of other ancillary infrastructure
assets at Pirkivska which are likely to require abandonment.
9. Other operating income, net
2018 $’000 2017 $’000
Termination fee on exit from WGI 1,715 -
Other 704 480
2,419 480
For the details on Termination fee on exit from WGI please refer to Note 18.
10. Auditor’s remuneration
The analysis of auditor’s remuneration is as follows:
2018 $’000 2017 $’000
Audit fees
Fees payable to the Company’s auditor and their associates for the audit of the Company’s annual accounts 114 229
Fees payable to the Company’s auditor and their associates for other services to the Group:
- The audit of the Company’s subsidiaries - 13
Total audit fees 114 242
Non-audit fees
- Audit-related assurance services 43 5
- Taxation compliance services - 33
Non-audit fees 43 38
Audit fees for 2018 refer to BDO LLP of $114 thousand for the audit of group
accounts as of and for the year ended 31 December 2018. Audit fees for 2017
refer to BDO LLP of $121 thousand for the audit of group accounts as of and
for the year ended 31 December 2017 and to Deloitte LLP, the Group’s
previous auditor, of $108 thousand, for the audit as of and for the year ended
31 December 2016.
11. Staff costs
The average monthly number of employees (including Executive Directors) was:
2018 Number 2017 Number
Executive Director 1 1
Other employees 64 68
65 69
Total number of employees at 31 December 82 69
$’000 $’000
Their aggregate remuneration comprised:
Wages and salaries 2,038 2,150
Annual bonus 380 179
Social security costs 399 290
2,817 2,619
Within wages and salaries $0.8 million (2017: $0.8 million) relates to amounts
accrued and paid to the Executive Director for services rendered.
12. Finance income/(costs), net
2018 $’000 2017 $’000
Interest expense on short-term borrowings (135) (256)
Total interest expense on financial liabilities (135) (256)
Interest benefit on tax provision - 189
Interest income on receivables - 494
Interest income on cash deposits in Ukraine 230 67
Investment revenue 553 205
Total interest income on financial assets 7 83 955
Unwinding of discount on decommissioning provision (note 25) (12) (27)
636 672
13. Tax
2018 $’000 2017 $’000
Current tax - -
Adjustment in relation to the current tax of prior years - (1,009)
Deferred tax - -
Recognition of previously unrecognised deferred tax assets (178) (323)
(178) (1,332)
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% (2017: 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 profit/(loss) per
the income statement as follows:
2018 $’000 2018 % 2017 $’000 2017 %
Profit/(loss) before tax 1,039 100 (2,916) 100
Tax credit at Ukraine corporation tax rate of 18% (2017: 18%) 187 18 (525) 18
Permanent differences (1,652) (159) (923) 32
Unrecognised tax losses generated in the year 972 94 1,174 (40)
Recognition of previously unrecognised deferred tax assets (178) (17) (323) 11
Tax credit related to the Joint venture losses - - 418 (14)
Effect of different tax rates 493 47 (144) 5
(178) (17) (323) 12
Adjustments recognised in the current year in relation to the current tax of prior years - - (1,009) -
Income tax (benefit)/expense recognised in profit or loss (178) - (1,332) -
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.
14. Profit/(Loss) per Ordinary share
Basic profit/(loss) per Ordinary share is calculated by dividing the net
profit/(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 profit/(loss) per share is based on the following
data:
Profit/(Loss) attributable to owners of the Company 2018 $’000 2017 $’000
Profit/(Loss) for the purposes of basic profit/(loss) per share being net profit/(loss) attributable to owners of the Company 1,220 (1,585)
Number of shares Number ‘000 Number ‘000
Weighted average number of Ordinary shares for the purposes of basic profit/(loss) per share 235,729 232,251
Cent cent
Profit/(Loss) per Ordinary share
Basic 0.5 (0.7)
The Group has no potentially dilutive instruments in issue. Therefore, no
diluted profit/(loss) per share is presented above.
15. Intangible exploration and evaluation assets
Cost $’000
At 1 January 2017 22,348
Additions 461
Disposals (78)
Change in estimate of decommissioning assets (note 24) 27
Transfer to property, plant and equipment (937)
Exchange differences (753)
At 1 January 2018 21,068
Additions 857
Disposals -
Change in estimate of decommissioning assets (note 24) (274)
Exchange differences 533
At 31 December 2018 22,184
Impairment
At 1 January 2017 19,994
Exchange differences (641)
At 1 January 2018 19,353
Exchange differences 445
At 31 December 2018 19,798
Carrying amount
At 31 December 2018 2,386
At 31 December 2017 1,715
The carrying amount of E&E assets as at 31 December 2018 of $2.4 million
(2017: $1.7 million) relates to Bitlyanska licence. Management has performed
an impairment indicator review. Refer to note 4 (a). As part of the
information considered management assessed the Bitlyanska licence’s value in
use based on the underlying discounted cash flow forecasts which demonstrated
significant headroom over carrying value. The impairment review supported
the conclusion that no impairment was applicable.
16. Property, plant and equipment
Cost Development and production assets $’000 Other $’000 Total $’000
At 1 January 2017 5,473 2,803 8,276
Additions 133 148 281
Change in estimate of decommissioning assets (note 25) 73 - 73
Transfer from E&E 937 - 937
Disposals (51) (324) (375)
Exchange differences (193) (90) (283)
At 1 January 2018 6,372 2,537 8,909
Additions 2,150 447 2,597
Change in estimate of decommissioning assets (note 25) (94) - (94)
Disposals (25) (192) (217)
Transferred to Assets held for sale - (125) (125)
Exchange differences 129 54 183
At 31 December 2018 8,532 2,721 11,253
Accumulated depreciation and impairment
At 1 January 2017 5,473 1,491 6,964
Impairment 162 - 162
Charge for the year 44 167 211
Disposals (107) (199) (306)
Exchange differences (171) (46) (217)
At 1 January 2018 5,401 1,413 6,814
Impairment 56 751 807
Charge for the year 236 189 425
Disposals (4) (200) (204)
Exchange differences 83 32 115
At 31 December 2018 5,772 2,185 7,956
Carrying amount
At 31 December 2018 2,760 536 3,297
At 31 December 2017 971 1,124 2,095
Other property, plant and equipment include fixtures and fittings for the
development and production activities.
The carrying amount of development and production assets as at 31 December
2018 of $1.9 million relates to the Monastyretska licence. Depreciation
includes $0.2 million for the Monastyretska licence.
Management has performed an impairment indicator review of Development and
production assets. As part of the information considered management carried
out the assessment of the Monastyretska licence’s value in use based on the
underlying discounted cash flow forecasts. The impairment review supported
the conclusion that no impairment indicator existed and impairment was not
applicable. Key assumptions used in the impairment assessment were: future oil
prices which were assumed at a constant $370, real per tonne; 1P reserves and
a pre-tax discount rate of 20%, real.
Refer to note 4 for details of the impairment of other assets.
17. Subsidiaries
The Company had investments in the following subsidiary undertakings as at 31
December 2018:
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
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 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
Rentoul Ltd Isle of Man 100 Dormant Commerce House, 1 Bowring Road, Ramsey, Isle of Man IM8 2LQ
LLC AstroInvest-Ukraine Ukraine 100 Exploration 5a, Pogrebnyak Street, ap. 2, Zinkiv, Poltava region, Ukraine, 38100
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 Production 8, Mitskevycha sq.,Lviv, Ukraine,79000
LLC USENCO Nadra Ukraine 95 Production 9a, Karpenka-Karoho str., Sambir, Lviv region, Ukraine
JV Delta Ukraine 100 Exploration 3 Petro Kozlaniuk str, Kolomyia, Ukraine
LLC Cadogan Ukraine Ukraine 100 Corporate services 48/50A Zhylyanska Street, BC “Prime”, 8th fl. 01033 Kyiv, Ukraine
LLC Astro-Service Ukraine 100 Service Company 3 Petro Kozlaniuk str, Kolomyia, Ukraine
OJSC AgroNaftoGasTechService Ukraine 79.9 Construction services Ivan Franko str, Hvizdets, Kolomyia district, Ivano-Frankivsk Region, Ukraine
Exploenergy s.r.l. Italy 90 Exploration Via Triulziana 16c, San Donato Milanese Milano, CAP 20097, Italy
18. Joint venture
In 2017, Eni informed its partners, NJSC “Nadra Ukrayny” and Cadogan
Ukraine, of its intention to exit the parties WGI joint venture. In 2017, as a
result of the uncertainty as to the future exploration of the licences
following the proposed exit by Eni which provided a carried interest to the
Group, management impaired its 15% participating interest in the project as at
31 December 2017. The share of joint venture loss for the 2017 year of $2.3
million comprised the Group’s 15% share in WGI’s loss for the period of
$0.7 million and $1.6 million related to impairment of the investment in joint
venture.
During 2018 discussions were on-going on the terms of Eni’s exit and,
generally, on the future of the project. As a result, Eni and Cadogan exited
from WestGasInvest LLC. Under the terms of the agreements for which Cadogan
received from Eni at the end of the year project termination fee of $1.7
million from Eni. Cadogan agreed to (i) to transfer its own shares in WGI to
Nadra Ukrayny for a nominal consideration which took place in late 2018 and
(ii) to transfer its shares in the company operating the Debeslavetska and
Cheremkhivsko-Strupkivska gas licences to WGI. The gas producing assets, were
subject to punitive tax regime of 70% and to Cadogan were sub-economic and
carried no value. The transfer of gas producing assets have occurred in
January 2019.
The termination fee has been treated as other operating income rather than as
a gain on disposal as the fee was received from Eni which is not the recipient
of the transfer of equity in the gas assets, being NJSC Nadra Ukrayny.
19. Inventories
2018 $’000 2017 $’000
Natural gas 3,584 1,312
Other inventories 1,080 1,143
Impairment provision for obsolete inventory (177) (163)
Carrying amount 4,487 2,292
The impairment provision as at 31 December 2018 and 2017 is made so as to
reduce the carrying value of the obsolete inventories to net realisable value.
20. Trade and other receivables
2018 $’000 2017 $’000
VAT recoverable 1,874 896
Trading prepayments 258 1,797
Trading receivables 39 1,338
Receivable from joint venture 62 56
Other receivables 239 410
2,472 4,497
Trading prepayments represent actual payments made by the Group to suppliers
for the January 2019 gas supply.
Trading receivables represent current receivables from customers and were
repaid within four month 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 $5.0 million
(2017: $6.4 million) against Ukrainian VAT receivable that has been recognised
as at 31 December 2018. VAT recoverable relates to the oil production and gas
trading operations and has been recovered since year end or is expected to be
recovered through the gas and oil sales VAT.
21. Notes supporting statement of cash flows
Cash and cash equivalents as at 31 December 2018 of $35.2 million (2017: $37.6
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 2018 total amount of pledged cash is $7 million (2017: $7 million),
which related to security of borrowings and held at UK bank (note 23).
Non-cash transactions from financing activities are shown in the
reconciliation of liabilities from financing transactions:
Short term borrowings $’000
At 1 January 2017 3,574
Cash flows (3,710)
Effects of foreign exchange 136
At 1 January 2018 -
Cash flows 78
Effects of foreign exchange (78)
At 31 December 2018 -
22. 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 2017 -
Deferred tax benefit 323
Exchange differences -
Asset as at 1 January 2018 323
Deferred tax benefit 178
Exchange differences -
Asset as at 31 December 2018 501
At 31 December 2018, the Group had the following unused tax losses available
for offset against future taxable profits:
2018 $’000 2017 $’000
UK 12,634 15,028
Ukraine 180,982 182,469
193,615 197,497
Deferred tax assets have been recognised in respect of those tax losses where
there is sufficient certainty that profit will be available in future periods
against which they can be utilised. The Group’s unused tax losses of $12.4
million (2017: $15.0 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. No deferred tax
asset is recorded.
Unused tax losses incurred by Ukraine subsidiaries amount to $181.0 million
(2017: $182.5 million). Under general tax law provisions, these losses may be
carried forward indefinitely to be offset against any type of taxable income
arising from the same company. Tax losses may not be surrendered from one
Ukraine subsidiary to another. The deferred tax asset recorded is expected to
be utilised based on forecasts and relates to oil production subsidiaries
which are generating taxable profits.
23. 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 a Ukrainian bank which is a 100%
subsidiary of a UK bank. The credit line is secured by $7 million of cash
placed at the European bank in the UK.
The outstanding amount as at 31 December 2018 and 2017 was $nil. Interest is
paid monthly and as at 31 December 2018 and 2017 accrued interest amounted to
$nil.
24. Trade and other payables
2018 $’000 2017 $’000
Accruals 660 480
Trade creditors 437 264
Trading payables 51 477
VAT payable - 17
Other payables 123 168
1,271 1,406
Trade creditors and accruals principally comprise amounts outstanding for
ongoing costs. The average credit period taken for trade purchases is 28 days
(2017: 35 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.
25. Provisions
The provisions at 31 December 2018 comprise of $0.3 million (2017: $0.8
million) of decommissioning provision.
Decommissioning
$’000
At 1 January 2017 678
Change in estimate (note 15 and 16) 100
Unwinding of discount on decommissioning provision (note 12) 27
Exchange differences (35)
At 1 January 2018 770
Change in estimate (note 15 and 16) (368)
Utilisation of provision on impaired oil and gas assets (131)
Transferred to liability held for sale ( 16)
Unwinding of discount on decommissioning provision (note 12) 12
Exchange differences 48
At 31 December 2018 315
$’000
At 1 January 2017 678
Non-current 412
Current 358
At 1 January 2018 770
Non-current 39
Current 276
At 31 December 2018 315
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 $0.3 million (2017: $0.3 million) 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.
26. Share capital
Authorised and issued equity share capital
2018 2017
Number $’000 Number $’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 235,729 13,525 235,729 13,525
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 2016 231,091,734
Issued during year 4,637,588
At 31 December 2017 235,729,322
Issued during year -
At 31 December 2018 235,729,322
On 22 September 2017 the Company issued 4,637,588 ordinary shares of £0.03
each in the capital of the Company for cash on the basis of £0.0825 per share
to the CEO, Mr Guido Michelotti.
27. 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 consist 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
2018 $’000 2017 $’000
Financial assets – loans and receivables (includes cash and cash equivalents)
Cash and cash equivalents 35,136 37,640
Trading receivable 39 1,338
Other receivables 239 410
Receivable from joint venture 62 56
35,476 39,444
Financial liabilities – measured at amortised cost
Accruals 660 480
Trade creditors 437 264
Trading payables 51 477
Other payables 123 168
1,271 1,389
The Group considers that the carrying amount of financial instruments
approximates their fair value.
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
at 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
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 2018 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 considers
exposure to be minimal. The Group to date has elected not to hedge its
exposure to the risk of changes in foreign currency exchange rates.
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 2018 have been paid
within four months after year end, there were no material past due receivables
as at year end.
The Group makes allowances for expected credit losses on receivables in
accordance with its accounting policy.
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 2017
Trade and other payables 1,406 - - 1,406
At 31 December 2018
Trade and other payables 1,271 - - 1,271
28. 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:
2018 $’000 2017 $’000
Within one year 1,583 931
Between two and five years - 829
1,583 1,760
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.
29. 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 resulted in the joint venture LLC
Westgasinvest being accounted for under the equity method and disclosed as a
related party.
During the period, Group companies entered into the following transactions
with joint ventures who are considered as related parties of the Group:
2018 $’000 2017 $’000
Revenues from services provided and sales of goods - 84
Amounts owed by related parties 62 56
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 2018 on pages 40 to 60.
Purchase of services Amounts owing
2018 $’000 2017 $’000 2018 $’000 2017 $’000
Directors’ remuneration 1,182 1,392 230 204
The total remuneration of the highest paid Director was $0.8 million in the
year (2017: $0.7 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.
30. Events after the balance sheet date
On 26 February 2019 the Group has entered into a Euro 13,385,000 loan
agreement with Proger Managers & Partners s.r.l. (“PMP”), a privately
owned Italian company whose only interest is a 59.6% participation in Proger
Ingegneria s.r.l. (“Proger Ingegneria”), a privately owned company which
has a 67.9% participating interest in Proger s.p.a. (“Proger”).
The loan carries an entitlement to interest at a rate of 5.5% per year,
payable at maturity (which is 24 months after the execution date and assuming
that the call option described below is not exercised). The principal of the
loan is secured by a pledge on PMP’s current participating interest in
Proger Ingegneria s.r.l., up to a maximum guaranteed amount of Euro
13,385,000.
Proger is a privately-owned international contractor, providing some of the
world’s largest companies with comprehensive engineering, project management
and security solutions. Its second largest shareholder, with a 27.4%
participating interest, is SIMEST, the Italian government agency which
supports local companies to achieve export driven growth. Proger is based in
Italy, with offices in the Middle East, Africa and Europe, and is involved in
major projects around the world, including significant oil and gas, energy and
infrastructure installations, and has more than 60 years’ experience.
The loan will be used to finance Proger business plan which targets a material
increase of EBITDA over the next 5 years, driven by the expansion of energy
projects in the Middle East as well as by the development of its integrated
services business. In exchange for providing the loan, and besides the pledge
on PMP’s current participating interest in Proger Ingegneria, the Group has
secured:
i. The right to designate two out of the seven directors in each of
Proger and Proger Ingegneria’s Boards of Directors. One of the two directors
designated by the Group will be appointed as Proger’s Chairman of the Board,
with a supervisory role on financial affairs.
ii. The right to designate one of the three members of Statutory
Auditors in each of Proger and Proger Ingegneria Boards.
iii. A call option to acquire, at its sole discretion, 33% of the
participating interest that PMP will be holding in Proger Ingegneria as a
result of its forthcoming subscription; the exercise of the option would give
the Group, an indirect 22% interest in Proger. The call option is granted at
no additional cost and can be exercised at any time between the 6th (sixth)
and 24th (twenty-fourth) months following the execution date of the loan
agreement and subject to the Group’s shareholders having approved the
exercise of the call option as explained further below. Should the Group
exercise the call option, the price for the purchase of the 33% participating
interest in Proger Ingegneria shall be paid by setting off the corresponding
amount due by PMP to the Group, by way of reimbursement of the principal,
pursuant to the loan agreement. If the call option is exercised, then the
obligation on PMP to pay interest is extinguished.
This exercise of the call option (or the enforcement of the pledge referred to
above) would be likely to constitute a reverse takeover for the Group under
the Listing Rules.
In that instance, the exercise of the call option would be subject to and
require publication of: (i) a shareholder circular and notice to convene a
general meeting seeking the Group shareholder approval of the proposed
exercise of the call option by the Group; and (ii) a prospectus in connection
with the proposed re-admission of the Group’s shares to the Standard segment
of the Official List and to trading on the London Stock Exchange (as the
Group’s listing would be cancelled following the consummation of a reverse
takeover).
The Group is currently analysing the accounting treatment of the loan
instrument and option in the financial statements for 2019.
Company Balance Sheet as at 31 December 2018
Notes 2018 $’000 2017 $’000
ASSETS
Non-current assets
Investments 33 - -
Receivables from subsidiaries 34 28,457 19,576
28,457 19,576
Current assets
Trade and other receivables 34 - 78
Cash and cash equivalents 34 17,477 27,406
17,477 27,484
Total assets 45,934 47,060
LIABILITIES
Current liabilities
Trade and other payables 35 (614) (671)
(614) (671)
Total liabilities (614) (671)
Net assets 45,320 46,389
EQUITY
Share capital 36 13,525 13,525
Share premium 329 329
Retained earnings (1) 140,106 141,254
Other reserve 79 -
Cumulative translation reserves 37 (108,719) (108,719)
Total equity 45,320 46,389
The financial statements of Cadogan Petroleum plc, registered in England and
Wales no. 05718406, were approved by the Board of Directors and authorised for
issue on 23 April 2019.
They were signed on its behalf by:
Guido Michelotti
Chief Executive Officer
23 April 2019
The notes on pages 106 to 109 form part of these financial statements.
(1 Included in retained earnings, loss for the financial year ended 31
December 2018 was $1.6 million (2017: $20.9 million).)
Company Cashflow Statement for the year ended 31 December 2018
2018 $’000 2017 $’000
Operating activities Loss for the year (1,148) (20,868)
Adjustments for: Interest received Effect of foreign exchange rate changes Impairment of receivables from subsidiaries (468) (74) (78) (185) (74) 19,376
Operating cash flows before movements in working capital (1,768) (1,751)
(Increase)/decrease in receivables 78 (61)
Increase in payables 22 255
Cash used in operations (1,668) (1,557)
Income taxes paid - -
Net cash outflow from operating activities (1,668) (1,557)
Investing activities
Interest received 468 185
Loans to subsidiary companies (8,803) 325
Net cash from/(used in) investing activities (8,335) 510
Net decrease in cash and cash equivalents (10,003) (1,047)
Effect of foreign exchange rate changes 74 73
Cash and cash equivalents at beginning of year 27,406 28,380
Cash and cash equivalents at end of year 17,477 27,406
Company Statement of Changes in Equity for the year ended 31 December
2018
Share capital $’000 Share premium account $’000 Retained earnings $’000 Other Reserve $’000 Cumulative translation reserves $’000 Total $’000
As at 1 January 2017 13,337 - 162,122 - (108,719) 66,740
Net loss for the year - - (20,868) - - (20,868)
Total comprehensive loss for the year - - (20,868) - - (20,868)
Issue of ordinary shares 188 329 - - - 517
As at 1 January 2018 13,525 329 141,254 - (108,719) 46,389
Net loss for the year - - (1,148) - - (1,148)
Total comprehensive loss for the year - - (1,148) - - (1,148)
Issue of ordinary shares - - - 79 - 79
As at 31 December 2018 13,525 329 140,106 79 (108,719) 45,320
31. Significant accounting policies
The separate financial statements of the Company are presented as required by
the Companies Act 2006 (the “Act”). As permitted by the Act, the separate
financial statements have been prepared in accordance with International
Financial Reporting Standards, as adopted in the EU.
The financial statements have been prepared on the historical cost basis. The
principal accounting policies adopted are the same as those set out in note 3
to the Consolidated Financial Statements except as noted below.
As permitted by section 408 of the Act, the Company has elected not to present
its profit and loss account for the year. Cadogan Petroleum plc reports a loss
for the financial year ended 31 December 2018 of $1.1 million (2017: $20.9
million).
Investments
Investments in subsidiaries are stated at cost less, where appropriate,
provisions for impairment.
Receivables from subsidiaries
Loans to subsidiary undertakings are subject to IFRS 9’s new expected credit
loss model. As all intercompany loans are repayable on demand, the loan is
considered to be in stage 3 of the IFRS 9 ECL model on the basis the
subsidiary does not have enough liquid assets in order to repay the loans if
demanded. Lifetime ECLs are determined using all relevant, reasonable and
supportable historical, current and forward-looking information that provides
evidence about the risk that the subsidiaries will default on the loan and the
amount of losses that would arise as a result of that default. All recovery
strategies indicated that the Company will fully recover the full balances of
the loans so no ECL has been recognised in the current period.
Critical accounting judgements and key sources of estimation uncertainty
The Company’s financial statements, and in particular its investments in and
receivables from subsidiaries, are affected by certain of the critical
accounting judgements and key sources of estimation uncertainty.
The critical estimates and judgments referred to application of the expected
credit loss model to intercompany receivables (note 33). Management
determined that the interest free on demand loans were required to be assessed
on the lifetime expected credit loss approach and assessed scenarios
considering risks of loss events and the amounts which could be realised on
the loans. In doing so, consideration was given to factors such as the cash
held by subsidiaries and the underlying forecasts of the Group’s divisions
and their incorporation of prospective risks and uncertainties.
32. Auditor’s remuneration
The auditor’s remuneration for audit and other services is disclosed in note
10 to the Consolidated Financial Statements.
33. Investments
The Company’s subsidiaries are disclosed in note 17 to the Consolidated
Financial Statements. The investments in subsidiaries are all stated at cost
less any provision for impairment.
34. Financial assets
The Company’s principal financial assets are bank balances and cash and cash
equivalents and receivables from related parties none of which are past due.
The Directors consider that the carrying amount of receivables from related
parties approximates to their fair value.
Receivables from subsidiaries
At the balance sheet date gross amounts receivable from the fellow Group
companies were $341.0 million (2017: $331.9 million). The Company recognised
no additional expected credit loss provisions in relation to receivables from
subsidiaries in 2018 (2017: $19.4 million). The accumulated provision on
receivables as at 31 December 2018 was $312.5 million (2017: $312.5 million).
The carrying value of the receivables from the fellow Group companies as at 31
December 2018 was $28.5 million (2017: $19.6 million). Receivables from
subsidiaries are interest free and repayable on demand. There are no past due
receivables. The receivables are classified as non-current based on the
expected timing of receipt notwithstanding their terms.
Trade and other receivables
2018 $’000 2017 $’000
Prepayments - -
Other receivables - 78
- 78
Cash and cash equivalents
Cash and cash equivalents comprise cash held by the Company and short-term
bank deposits with an original maturity of three months or less. The carrying
value of these assets approximates to their fair value. As of 31 December 2018
cash and cash equivalents in the amount of $7 million, related to security of
the loan provided to the Ukrainian subsidiary and held at European bank in the
UK, was pledged (note 21).
35. Financial liabilities
Trade and other payables
2018 $’000 2017 $’000
Accruals 157 214
Trade creditors 75 58
Other creditors and payables 382 399
614 671
Trade payables principally comprise amounts outstanding for trade purchases
and ongoing costs. The average credit period taken for trade purchases is 35
days (2017: 39 days).
The Directors consider that the carrying amount of trade and other payables
approximates to their fair value. No interest is charged on balances
outstanding.
36. Share capital
The Company’s share capital is disclosed in note 26 to the Consolidated
Financial Statements.
37. Cumulative translation reserve
The directors decided to change the functional currency of the Company from
sterling to US dollars with effect from 1 January 2016. The effect of a change
in functional currency is accounted for prospectively. In other words, the
Company translates all items into the US dollar using the exchange rate at the
date of the change. The resulting translated amounts for non-monetary items
are treated as their historical cost. Exchange differences arising from the
translation of an operation previously recognised in other comprehensive
income in accordance with paragraphs 32 and 39(c) IAS 21 “Foreign
Currency” are not reclassified from equity to profit or loss until the
disposal of the operation.
38. Financial instruments
The Company manages its capital to ensure that it is able to continue as a
going concern while maximising the return to shareholders. Refer to note 27
for the Group’s overall strategy and financial risk management objectives.
The capital resources of the Company consist of cash and cash equivalents
arising from equity, comprising issued capital, reserves and retained
earnings.
Categories of financial instruments
2018 $’000 2017 $’000
Financial assets – loans and receivables (includes cash and cash equivalents)
Cash and cash equivalents 17,477 27,406
Amounts due from subsidiaries 19,476 19,576
36,953 46,982
Financial liabilities – measured at amortised cost
Trade creditors (75) (58)
(75) (58)
Interest rate risk
All financial liabilities held by the Company are non-interest bearing. As the
Company has no committed borrowings, the Company is not exposed to any
significant risks associated with fluctuations in interest rates.
Credit risk
Credit risk refers to the risk that counterparty will default on its
contractual obligations resulting in financial loss to the Company. For cash
and cash equivalents, the Company only transacts with entities that are rated
equivalent to investment grade and above. Other financial assets consist of
amounts receivable from related parties.
The Company’s credit risk on liquid funds is limited because the
counterparties are banks with high credit ratings assigned by international
credit-rating agencies.
The carrying amount of financial assets recorded in the Company financial
statements, which is net of any impairment losses, represents the Company’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 Company’s short, medium and long-term funding and
liquidity management requirements. The Company maintains adequate reserves, by
continuously monitoring forecast and actual cash flows.
The Company’s financial liabilities are not significant and therefore no
maturity analysis has been presented.
Foreign exchange risk and foreign currency risk management
The Company undertakes certain transactions denominated in foreign currencies.
Hence, exposures to exchange rate fluctuations arise, the Company considers
exposure to be minimal. The Company holds a large portion of its monetary
assets and monetary liabilities in US dollars. More information on the foreign
exchange risk and foreign currency risk management is disclosed in note 27 to
the Consolidated Financial Statements.
38. Related parties
Amounts due from subsidiaries
The Company has entered into a number of unsecured related party transactions
with its subsidiary undertakings. The most significant transactions carried
out between the Company and its subsidiary undertakings are mainly for short
and long-term financing. Amounts owed from these entities are detailed below:
2018 $’000 2017 $’000
Cadogan Petroleum Holdings Limited 28,457 19,576
28,457 19,576
Refer to note 33 for details on the Company’s receivables due from
subsidiaries.
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. In 2018 there were no other employees in the
Company. Further information about the remuneration of individual Directors is
provided in the audited part of the Annual Report on Remuneration 2018 on
pages 40 to 60.
Remuneration Amounts owing
2018 $’000 2017 $’000 2018 $’000 2017 $’000
Directors’ remuneration 1,182 989 - -
The total remuneration of the highest paid Director was $0.8 million in the
year (2017: $0.7 million).
39. Events after the balance sheet date
Events after the balance sheet date are disclosed in note 30 to the
Consolidated Financial Statements.
Glossary
IFRSs International Financial Reporting Standards
JAA Joint activity agreement
UAH Ukrainian hryvnia
GBP Great Britain pounds
$ United States dollars
bbl Barrel
boe Barrel of oil equivalent
mmboe Million barrels of oil equivalent
mboe Thousand barrels of oil equivalent
mboepd Thousand barrels of oil equivalent per day
boepd Barrels of oil equivalent per day
bcf Billion cubic feet
mmcm Million cubic metres
mcm Thousand cubic metres
Reserves Those quantities of petroleum anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions. Reserves include proved, probable and possible reserve categories.
Proved Reserves Those additional Reserves which analysis of geoscience and engineering data can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from reservoirs and under defined economic conditions, operating methods and government regulations.
Probable Reserves Those additional Reserves which analysis of geoscience and engineering data indicate are less likely to be recovered than proved Resources but more certain to be recovered than possible Reserves.
Possible Reserves Those additional Reserves which analysis of geoscience and engineering data indicate are less likely to be recoverable than probable Reserves.
Contingent Resources Those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations by application of development projects, but which are not currently considered to be commercially recoverable due to one or more contingencies.
Prospective Resources Those quantities of petroleum which are estimated as of a given date to be potentially recoverable from undiscovered accumulations.
P1 Proved Reserves
P2 Probable Reserves
P3 Possible Reserves
1P Proved Reserves
2P Proved plus Probable Reserves
3P Proved plus Probable plus Possible Reserves
Workover The process of performing major maintenance or remedial treatment of an existing oil or gas well
E&E / E&P Exploration and Evaluation / Exploration and Production
LTI Lost time incidents
Shareholder Information
Enquiries relating to the following administrative matters should be addressed
to the Company’s registrars: Link Asset Services, The Registry, 34 Beckenham
Road, Beckenham, Kent BR3 4TU.
Telephone number:
UK: 0871 664 0300 (calls cost 12p per minute plus network extras).
International: +44 (0) 371 664 0300
Lines are open 9am – 5.30pm, Monday – Friday, excluding public holidays.
* Loss of share certificates.
* Notification of change of address.
* Transfers of shares to another person.
* Amalgamation of accounts: if you receive more than one copy of the Annual
Financial Report, you may wish to amalgamate your accounts on the share
register.
You can access your shareholding details and a range of other services at the
Shareholder Portal www.signalshares.com.
Information concerning the day-to-day movement of the share price of the
Company can be found on the Group’s website www.cadoganpetroleum.com or that
of the London Stock exchange www.prices.londonstockexchange.com.
Unsolicited mail
As the Company’s share register is, by law, open to public inspection,
shareholders may receive unsolicited mail from organisations that use it as a
mailing list. To reduce the amount of unsolicited mail you receive, contact:
The Mailing Preference Service, FREEPOST 22, London W1E 7EZ. Telephone: 0845
703 4599. Website: www.mpsonline.org.uk.
Financial calendar 2018/2019
Annual General Meeting 19 June
2019
Half Yearly results announced August 2018
Annual results announced April 2019
Investor relations
Enquiries to: info@cadoganpetroleum.com
Registered office
Shakespeare Martineau LLP,
6th Floor, 60 Gracechurch Street, London EC3V 0HR
Registered in England and Wales no. 05718406
Ukraine
48/50A Zhylyanska Street
Business center “Prime”, 8th floor
01033 Kyiv
Ukraine
Email: info@cadoganpetroleum.com
Tel: +38 044 594 58 70
Fax: +38 044 594 58 71
www.cadoganpetroleum.com
______________
1 Gross revenues of $14.7 million (2017: $15.1 million) included $9.9
million (2017: $12.7 million) from trading of natural gas, $4.7 million (2017:
$2.4 million) from exploration and production and $0.1 million from services
(2017: $nil)
2 Administrative expenses (“G&A”)
3 Net cash includes cash and cash equivalents less short-term borrowings
4 Astroservice LLC used its rig for the work-over campaign on the
Monastyretska licence
5 LTI: Lost Time Incidents; TRI: Total Recordable Incidents
6 Emissions have been restated because of past mistakes in their calculation
see page
27
7 Income net of transaction cost was $ 1.70 million
8 Segment result being the gross profit net of administrative expenses of
the segment
9 The sale of the plant allowed an estimated saving of $0.3 million of
dismantling and site restoration costs
10 Adelmo Schenato, who has become a Non-Executive Director in the first
quarter January 2017 is also non-Independent as he retains a role of Advisor
to the CEO, besides being Chairman and CEO of Exploenergy
11 Taxable benefits include life and medical insurance provided to the
executive and leased car. There are no contributions to pension schemes.
12 In 2015 and 2016 the CEO undertook to use the entire amount of the bonus
to buy at market price newly issued company shares.
13 In January 2017, Mr Schenato stepped down as Chief Operating Officer,
became a non-executive director of the Company and took up the roles of
Advisor to the CEO and Chairman and CEO of Exploenergy. His remuneration
comprises a fee of £20,600 ($27,635) as a non-executive Director and
€101,040 ($119,793) per annum under a consultancy agreement.
14 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
15 In relation to performance in 2016 and 2015, the CEO used the entire
amount of the bonus to buy at market price newly issued company shares on 22
September 2017
16 The new Remuneration Policy approved in June 2018, reduces the maximum
allowable bonus from 200% to 125% of the base salary
17 Mr Michelotti undertook to use the entire bonus to buy company’s share
at market price in order to leave the Company cash neutral
18 Year-end performance-based bonus was an alternative to an up-front
sign-on bonus. Mr Michelotti use the entire bonus to buy company’s share at
market price on 22 September 2017
19 $280,298 paid as fees, pension and loss of office
20 From 1 August, 2011
21 From 19 March 2009
22 CEO’s base salary has not changed since he was hired and a lower bonus
has been paid in 2018 vs 2017. Changes reflect the variation in the exchange
rate versus the US dollar, which is the reporting currency.
23 All employees mean all employees of the Group, including CEO and other
Directors (note 11, page 89).
24 Please note that the salary of the CEO for 2019 will remain at
€440,000. The CEO's salary has not changed since his appointment on 1 July
2015.
25 Mr A. Schenato had an initial one-year term that expired on December
31st, 2017 under his appointment letter because he performed different roles
in the Company for the previous years (COO and Director).
References to page numbers throughout this announcement relates to the page
numbers within the Annual Report of the Company for the year ended 31st
December 2018.
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