REG-Cadogan Petroleum: Half-year Report
10/09/2020 07:05
CADOGAN PETROLEUM PLC
Half Yearly Report for the Six Months ended 30 June 2020
(Unaudited and unreviewed)
Highlights
Cadogan Petroleum plc (“Cadogan” or the “Company”), an independent,
diversified oil & gas company listed on the main market of the London Stock
Exchange, is pleased to announce its unaudited results for the six months
ended 30 June 2020.
* H1 2020 has been another semester without LTI and TRI with no cases of
covid-19 infection among our employees
* Average production was 230bpd in H1 2020 (297 boepd in H1 2019), a 23%
decrease versus H1 2019. This was mainly due to the shut-down during this
period of the Blazhiv-3 and Blazhiv-Monastyrets-3 wells for 5,5 months.
* License authority of Ukraine (State Geological Service) rejected in May 2020
the Biltyanska 20-year exploration and production license application
notwithstanding full compliance and timely submission. The Company introduced
a claim before the Kiev District Administrative Court to challenge the
decision of non granting the license.
* In Ukraine from January to July 2020, hydrocarbon prices decreased
significantly compared to the same period in 2019, the price of natural gas
decreased by more than 45% and more than 30% for oil and gas condensate.
* Cadogan decided not to sell its stored gas acquired during 2019 waiting for
appropriate market prices.
* The services business continued to support the Group’activities, thus
retaining funds within the Group.
* Production revenues decreased by 46 % versus the same period in 2019, due to
a 33% reduction in the average realized oil price and a 23% decrease of the
production volumes. Overall revenues were down by 62% versus the same period
in 2019 due to the absence of sales of gas . Cost saving initiatives have been
taken to mitigate the negative effects.
* As a result of the above initiatives, cash position at the period end was
$11.6 million (30 June 2019: $13.7 million). This level of cash is sufficient
to sustain on-going operations.
Overall, the first half of 2020 was impacted by the global impact of covid-19
pandemic, extreme price volatility in oil market, a severe drop down of gas
prices, and the shut-down for 5,5 months of the production of Blazhiv-3 and
Blazhiv-Monastyrets-3 wells. This affected Cadogan’s strategy in 2020 and
constrained the Group to review and partly postpone its investment strategy
(incl. new drilling). Looking ahead, the Company is confident that strong
management and competent staff will ensure a positive outcome for the company
in such uncertain and challenging environment.
Key performance indicators
During H1 2020, The Group has monitored its performance in conducting its
business with reference to a number of key performance indicators
(‘KPIs’):
* to increase oil, gas and condensate production measured on the 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 during the first six months of 2020, measured
against these targets, is set out in the table below, together with the prior
year performance data. No changes have been made to the sources of data or
calculations used in the period/year. The positive trend in the HSE
performances continues with zero incidents.
Unit 30 June 2020 30 June 2019 31 December 2019
Average production (working interest basis) ((a)) Boepd 230 297 288
Administrative expenses $million 1.5 2.0 5.7
Basic (loss)/profit per share ((b)) Cent (0.6) 1.1 (0.9)
Lost time incidents ((c)) Incidents 0 0 0
Geographical diversification New assets - - 1 ((d))
1. Average production is calculated as the average daily production during the
period/year
2. Basic (loss)/profit per ordinary share is calculated by dividing the net
(loss)/profit for the year attributable to equity holders of the parent
company by the weighted average number of ordinary shares during the period
3. Lost time incidents relate to 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
An update of the KPI’s table will be proposed to the Board in order to
better reflect the current status of the Company and its medium-term
objectives. The new KPI’s will become effective from 2021 if approved by the
Board.
Enquiries:
Cadogan Petroleum Plc
Fady Khallouf Ben Harber Chief Executive Officer Company Secretary fady.khallouf@cadogan petroleum.com +44 (0) 207 264 4366
Summary
Introduction
The world economic crisis which resulted from the pandemic of corona virus and
the oil & gas market turbulence has severely affected Ukraine and Cadogan’s
activities. The first half of the year witnessed a substantial drop of the
Brent oil price, from more than 65 $/bbl in January 2020 to 20 $/bbl in
April and slight recovery to 35 $/bbl in June 2020.
The first semester of 2020 has been another challenging time for Ukraine.
After last year’s presidential and parliament elections, the new empowered
officials have not yet been successful in resolving the military confrontation
with Russia at the East of Ukraine as well as in improving the economic
situation in the Country. The Cabinet of Ministers headed by the Prime
Minister Olkesiy Goncharuk has been replaced, in March 2020, after 6 months of
work, by the one of Denys Shmygal.
The continued efforts of Ukraine to attract new investments in its oil and gas
sector, with the modernization of oil and gas regulatory framework, have been
countered by the shut down period and the economic turmoil of this market. An
amendment to the license award procedure was introduced and took effect on 25
February 2020. The new regulatory framework introduced changes in the
necessary criteria for the awarding of licenses out of the auction procedure
without taking into account the prior licenses’ applications already engaged
before that date. This created retroactiveness effects of the new law and led
to automatic rejections in the award process on this basis. As for several
other companies, this has also affected the Biltyanska 20-year operation
license application engaged by Cadogan in 2019.
In this challenging context the Group has continued to focus on safely and
efficiently operating the existing wells, on controlling its costs in order to
preserve cash while continuing to look at opportunities to grow and diversify
its portfolio.
Operations
E&P activity remained focused on maintaining and securing its licenses for the
new term and safely and efficiently producing from the existing wells within
the Blazhiv oil field. During H1 2020,the average gross production rated at
230 bpd, which is 23% lower than in H1 2019 (297 boepd). The production
decrease in the reported period was caused by the shut-down of the Blazhiv-3
and Blazhiv-Monasterets-3 wells due to the expiry of the lease agreements with
Ukrnafta and the necessary needed time for their renewal. Production in these
wells has been resumed on June 19(th). In order to mitigate oil price
volatility and in preparation of the future strategy for the increase of the
production, the Company installed on the Blazhiv field additional 350 m3 oil
storage tanks .
Regarding the Bitlyanska 20-year exploration and development license, given
the delay to award the license by the State Geological Service (SGS) beyond
the regular timeline provided by legislation and the further rejection of the
application on the basis of the new regulatory framework that took effect on
25 February 2020, Cadogan launched a claim before the Administrative Court to
challenge the non-granting of the license by the Licensing Authority.
All activities were executed without LTI or TRI 1 , with a total of nearly
1,200,000 manhours since the last incident, which occurred to a
sub-contractor, in February 2016. Emission to the atmosphere were reduced to
62.37 tons of Co2,e/boe produced, compared to 89.4 tons of Co2,e/boe of the
same reporting period of last year.
In Italy, given the on-going moratorium for the approval of new licenses,
activity was focused on maintaining liaisons with the local authorities and
fulfilling the mandatory license requirements.
Trading
The signing of an agreement on gas transportation between Russia and Ukraine,
an abnormally warm winter in Europe and Asia, and the economic impact of the
pandemic Covid 19 ended in a further extraordinary decrease of the gas prices.
Cadogan continues to monitor the gas markets in Europe and Ukraine, in
particular the unbundling of gas transmission system operator, with the
final stage of the process of separating the gas transmission system of
Ukraine from Naftogaz. The unsold gas during last year was kept in storage
with the expectation of higher prices during the following heating season.
Proger
During the first half of 2020, Cadogan has been monitoring the protection of
its interests in Proger through the Loan Agreement and the Option to convert
it, subject to Cadogan’s shareholders approval, into a 33% direct equity
position in Proger Ingegneria. This led at the end of July 2020 in the
effective nomination of a new representative of the Group as Board Director of
Proger Ingegneria and Proger, and the effective nomination of another
Group’s representative as member of the Board of Statutory Auditors of
Proger Ingegneria. Prior to this date, the Company has had no representation
on the Board of Proger Ingegneria and Proger since the resignation of Guido
Michelloti as a Director of the Company in November 2019 and had been unable
to effectively exercise its right to Board representation under the loan
agreement. Cadogan has recently received legal and financial information
communicated by Proger and related to Proger’s activities for 2019 which the
Company is presently analyzing. However, the Company is still to receive
information regarding H1 2020 trading and critical information regarding
forecasts and the new business plan of Proger for the next years.
1 Lost Time Incident, Total Recordable Incident
Financial position
Cash at 30 June 2020 was $11.6 million ($13.7 million). The Group continually
monitors its exposure to currency risk. It maintains a portfolio of cash
mainly in US Dollars (“USD”) and EURO held primarily in the UK.
The Directors believe that the capital available at the date of this report is
sufficient for the Group to continue its operations for the foreseeable
future.
Outlook
Cadogan remains with a solid balance sheet with no debts and a good cash
position, with the resources and competences necessary to continue its
activities and pursue its development.
In Ukraine, gas trading, which had become unprofitable, cannot be a major
activity for Cadogan. The company is focusing on its oil operations and a more
value accretive and comprehensive diversification of its activities.
Additionally, while our assets are robust and cash generative, the situation
regarding Covid-19 and its potential impact on the global economy and our
operations remains uncertain and is rapidly changing. We continue to monitor
the impact of these developments on our industry, our operations and - most
importantly - our staff and contractors.
The Company will continue to actively pursue opportunities outside of Ukraine,
to leverage its competence and low-cost structure in order to create long term
value for its shareholders. In parallel, the Company will work with Proger
to develop all necessary actions to ensure the proper fulfilment of the
counterparts’ obligations under this agreement.
Operations Review
In H1 2020, the Group held working interests in two (2019: two) conventional
gas-condensate and oil exploration and production licences in the West of
Ukraine. These assets are operated by the Group and are located in the
prolific Carpathian basin, close to the Ukrainian oil & gas distribution
infrastructure.
The Group’s primary focus during the period continued to be on cost
optimisation and enhancement of current production, through the existing well
stock and new drilling.
Summary of the Group’s licences (as of 30 June 2020)
Working interest (%) Licence Expiry Licence type
99.8 Blazhiv November 2039 Production
99.2 Bitlyanska ((1)) December 2019 Exploration and Development
(1) The Bitlyanska license expired on 23 December 2019 and its renewal was
not granted within the due legal period. The Company is involved in ongoing
court proceeding to defend its rights and challenge the Licensing Authority
actions after the rejection by the State Geological Service of its Bitlyanska
20-year production license application and its Pirkivska exploration and
development license application.
Below we provide an update to the full Operations Review contained in 2019
Annual Report published on 4 May 2020.
Bitlyanska license
Cadogan has filed to the State Geological Service an application for a 20-year
production license 5 months ahead the license expiry date of the 23(rd)
December 2019 and secured all intermediary approvals including Environmental
Impact Assessment study by the Ministry of Ecology, the approval of the
Reserves Report by the State Commission of Reserves and the approval of the
license award by the Lviv Regional Council. Due to the delay to award the new
license beyond the regular timeline provided by legislation to the State
Geological Service and further rejection of the application on the basis of
the new regulatory requirements that were enforced six months after the fully
compliance of Cadogan’s application which was submitted according to the
previous law, Cadogan launched a claim before the Kiev Administrative Court to
challenge the non-granting of the license by the Licensing Authority.
All operational activities as well as area farm-out have been put on-hold
waiting for the license award.
Blazhiv licence
Through the reporting period the Company has been working to safely and
efficiently producing from the existing wells located in the Blazhiv license
area. At the end of the reporting period, the average gross production rated
at 230 bpd vs 297 bpd in H1 2019. The production decrease was caused by the
shut-down of the Blazhiv-3 and Blazhiv-Monastyrets-3 wells, due to the expiry
of the lease agreements with Ukrnafta. These agreements have been extended on
June 19(th) for a new 3-year term with minor adjustments.
The Company has performed successful work-over on the Blazhiv-10 well with the
replacement of the sucker rod pump. Currently, all the four wells are
producing with an average rate over 390 bpd as of 30 June 2020.
The company has also commissioned additional crude oil storage facilities on
the Blazhiv field by increasing the cumulative volume up to 800m3. This should
allow to manage favorably short term oil price volatility.
Service Company
activities
In H1 2020, Cadogan’s 100% owned subsidiary, Astro Service LLC, focused its
activities on serving intra-group operational needs in wells’ work-over/
re-entry operations as well as field on-site activities.
Financial Review
Overview
Income statement
In H1 2020, revenues decreased to $1.2 million (30 June 2019: $3.3 million),
due to the absence of gas trading sales (30 June 2019: $0.9 million) and the
reduced production . Revenues from production decreased to $1.2 million (30
June 2019: $2.3 million) due to a lower realized price (decrease of 33%) and a
decrease in the production volumes by 23%. This latter is mainly due to the
delay in obtaining the renewal of the lease agreements for Blazhiv 3 and
Blazhiv-Monastyrets 3.
Due to the covid 19 shut-down, the services business concentrated its
activities on intra-group services, in particular, for the Blazhivska license.
The cost of sales of the production segment consists of $0.5 million of
production royalties ($1.1 million), $0.2 million of operating costs ($0.2
million), $0.3 million of depreciation and depletion of producing wells ($0.3
million), and $0.1 million of direct staff costs for production ($0.1
million).
Half year gross profit from production activities decreased marginally to $0.2
million (30 June 2019: $0.5 million), driven by decrease in production and
lower oil prices.
Provision against gas inventory of $0.6 million (30 June 2019: $0.7 million)
represents the impairment loss on the value of its natural gas in storage due
to revaluation to market price at the end of the reporting period.
Impairment of other assets of $0.1 million (30 June 2019: reversal of
impairment $0.3 million) represents movement in provision for recoverable VAT.
The Group recorded a $0.4 million increase in the fair value of the Proger
Loan, which is held at fair value through profit and loss under IFRS. Refer to
note 11 for details.
Other administrative expenses were kept under control at $1.5 million (30 June
2019: $2.0 million). They comprise other staff costs, professional fees,
Directors’ remuneration and depreciation charges on non-producing property,
plant and equipment.
Balance sheet
At 30 June 2020, the cash position of $11.6 million (30 June 2019: $13.7
million) decreased compared with the $12.8 million at 31 December 2019,
because of negative cash flows generated from operating activities.
Intangible Exploration and Evaluation (“E&E”) assets of $2.6 million (30
June 2019: $2.5 million, 31 December 2019: $2.97 million) represent the
carrying value of the Group’s investment in E&E assets as at 30 June 2020.
The Property, Plant and Equipment (“PP&E”) balance of $10.7 million at 30
June 2020 (30 June 2019: $11.4 million, 31 December 2019: $12.3 million)
includes $10.3 million of development and production assets on the Blazhyvska
licence and other PP&E of the Group.
Trade and other receivables of $2.3 million (30 June 2019: $3.0 million, 31
December 2019: $2.6 million) include recoverable VAT of $2 million 2 (30 June
2019: $2.1 million, 31 December 2019: $2.4 million), $0.3 million of other
receivables and prepayments (30 June 2019: $0.8 million, 31 December 2019:
$0.2 million).
The $0.9 million of trade and other payables as of 30 June 2020 (30 June 2019:
$2.4 million, 31 December 2019: $1.3 million) represent $0.2 million (30 June
2019: $1.7 million, 31 December 2019: $0.7 million) of other creditors and
$0.7 million of accruals (30 June 2019: $0.7 million, 31 December 2019: $0.6
million).
Cash flow statement
The Consolidated Cash Flow Statement shows negative cash-flow from operating
activities of $1.2 million (30 June 2019: inflow $1.2 million, 31 December
2019: outflow $4.2 million). Cashflow, before movements in working capital,
was an outflow of $0.9 million (30 June 2019: outflow $1.3 million, 31
December 2019: outflow $4.5 million).
Group capital expenditure was $0.1 million on Property, Plant and Equipment
which related to the Blazhyvska license.
Commitments
There has been no material change in the commitments and contingencies
reported as at 31 December 2019 (refer to page 78 of the Annual Report).
Treasury
The Group monitors continuously its exposure to currency risk. It maintains a
portfolio of cash , mainly in both US dollars (‘USD’) and EURO held
primarily in the UK, and holds these in call deposits. Production revenues
from the sale of hydrocarbons are received in the local currency in Ukraine
(‘UAH’) and to date funds from such revenues have been held in Ukraine for
further use in operations. When funds are needed for operations, they are
transferred to the Company’s subsidiaries in USD, and then converted to UAH.
Going concern
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 Interim Financial Statements. For further details refer
to the detailed discussion of the assumptions outlined in note 2(a) to the
Interim Financial Statements.
Cautionary Statement
The business review and certain other sections of this Half Yearly Report
contain forward looking statements that have been made by the Directors in
good faith based on the information available to them up to the time of their
approval of this report. However they should be treated with caution due to
inherent uncertainties, including both economic and business risk factors,
underlying any such forward-looking information and no statement should be
construed as a profit forecast.
2 Most of the recoverable VAT is VAT paid on drilling services which will be
off-set by VAT due on crude sales in future periods under local legislation
Risks and uncertainties
There are a number of potential risks and uncertainties inherent in the oil
and gas sector which could have a material impact on the long-term performance
of the Group and which could cause the actual results to differ materially
from expected and historical results. The Company has taken reasonable steps
to mitigate these where possible. Full details are disclosed on pages 11 to 13
of the 2019 Annual Financial Report. There have been no changes to the risk
profile during the first half of the year. The risks and uncertainties are
summarised below.
Operational risks
* Health, safety, and environment
* COVID-19
* Climate change
* Drilling and work-over operations
* Production and maintenance
Subsurface risks
Financial risks
* Changes in economic environment
* Counterparty
* Commodity price
Country risk
* Regulatory and licence issues
* Emerging market
Other risks
* Risk of losing key staff members
* Risk of entry into new countries
* Risk of delays in projects related to local communities dialogue
Director’s Responsibility Statement
We confirm that to the best of our knowledge:
(a) the Interim Financial Statements have been prepared in
accordance with IAS 34 ‘Interim Financial Reporting’;
(b) the interim management report includes a fair review of
the information required by DTR 4.2.7R (indication of important events during
the first six months and description of principal risks and uncertainties for
the remaining six months of the year);
(c) the interim management report includes a fair review of
the information required by DTR 4.2.8R (disclosure of related parties’
transactions and changes therein); and
(d) the condensed set of financial statements, which has been
prepared in accordance with the applicable set of accounting standards, gives
a true and fair view of the assets, liabilities, financial position and profit
or loss of the issuer, or the undertakings included in the consolidation as a
whole as required by DTR 4.2.4R.
This Half Yearly Report consisting of pages 1 to 24 has been approved by the
Board and signed on its behalf by:
Fady Khallouf
Chief Executive Officer
09 September 2020
CADOGAN PETROLEUM PLC
Consolidated Income Statement
Six months ended 30 June 2020
Six months ended 30 June Year ended 31 December
2020 $’000 2019 $ ’000 2019 $ ’000
Notes (Unaudited) (Unaudited) (Audited)
CONTINUING OPERATIONS
Revenue 3 1,266 3,319 5,876
Cost of sales 3 (1,090) (2,866) (4,872)
Provision against unsold gas inventory (614) (650)* (1,946)
Gross profit (438) (197) (942)
Administrative expenses (1,495) (2,051) (5,652)
Reversal of impairment of other assets 4 330 345
Impairment of other assets (125) - (162)
Net foreign exchange gains/(losses) 129 (16) (385)
Other operating (losses)/income,net (4) 41 3,972
Operating (loss)/profit (1, 929 ) (1,893) (2,824)
Net fair value gain on convertible loan** 11 409 4,421 697
Finance income 4 45 124 25
(Loss)/profit before tax (1, 475 ) 2,652 (2,102)
Tax (expense)/benefit - (97) -
(Loss)/profit for the period/year (1, 475 ) 2,555 (2,102)
Attributable to:
Owners of the Company 5 (1,470) 2,550 (2,103)
Non-controlling interest (5) 5 1
(1, 475 ) 2,556 (2,102)
(Loss)/profit per Ordinary share Cents cents cents
Basic and diluted 5 (0.6) 1.1 (0.9)
*Provision against unsold inventory in H1 2019 was previously classified as an
impairment of other assets below gross profit. The provision movement of
$650,000 has been reclassified above gross profit to reflect its nature and
provide comparability with the presentation at H1 2020 and FY 2019.
**The net fair value gains on convertible loan for H1 2019 and FY 2019 was
previously classified as part of operating profit/(loss) and have been
reclassified as a non-operating item in these results for consistency with the
H1 2020 presentation. Classification as non-operating is considered
applicable as the Company anticipates, at present, repayment of the loan at
maturity and the instrument is not considered a core operating activity of the
Group.
CADOGAN PETROLEUM PLC
Consolidated Statement of Comprehensive Income
Six months ended 30 June 2020
Six months ended 30 June Year ended 31 December
2020 $ ’000 2019 $ ’000 2019 $ ’000
(Unaudited) (Unaudited) (Audited)
(Loss)/profit for the period/year (1, 475 ) 2,55 5 (2,102)
Other comprehensive (loss)/profit
Items that may be reclassified subsequently to profit or loss
Unrealised currency translation differences (2,466) 1,367 3,541
Other comprehensive (loss)/profit (2,4 66 ) 1,367 3,541
Total comprehensive profit/(loss) for the period/year (3,941) 3,92 2 1,439
Attributable to:
Owners of the Company (3,936) 3,917 1,438
Non-controlling interest (5) 5 1
(3,941) 3,92 2 1,439
CADOGAN PETROLEUM PLC
Consolidated Statement of Financial Position
Six months ended 30 June 2020
Six months ended 30 June Year ended 31 December
2020 $ ’000 2019 $ ’000 2019 $ ’000
Notes (Unaudited) (Unaudited) (Audited)
ASSETS
Non-current assets
Intangible exploration and evaluation assets 2,642 2,514 2,971
Property, plant and equipment 6 10,715 11,442 12,338
Loan classified at fair value through profit and loss 11 - 20,030 15,707
Deferred tax asset 501 405 501
13,858 34,391 31,517
Current assets
Inventories 7 3,079 3,322 4,453
Trade and other receivables 8 2,273 2,950 2,639
Loan classified at fair value through profit and loss 11 16,145 - -
Cash and cash equivalents 11,601 13,724 12,834
33,098 19,996 19,926
Total assets 46,956 54,387 51,443
LIABILITIES
Non-current liabilities
Provisions (256) (41) (289)
(256) (41) (289)
Current liabilities
Trade and other payables 9 (938) (2,388) (1,266)
(938) (2,388) (1,266)
Total liabilities (1,194) (2,42 9 ) (1,555)
Net assets 45,762 51,95 8 49,888
EQUITY
Share capital 12 13,832 13,525 13,525
Share premium 329 329 329
Retained earnings 190,489 196,612 191,959
Cumulative translation reserves (160,741) (160,449) (158,275)
Other reserves 1,589 1,668 2,081
Equity attributable to equity holders of the parent 45,498 51,68 5 49,619
Non-controlling interest 264 273 269
Total equity 45,762 51,95 8 49,888
CADOGAN PETROLEUM PLC
Consolidated Statement of Cash Flows
Six months ended 30 June 2020
Six months ended 30 June Year ended 31 December
2020 $ ’000 2019 $ ’000 2019 $ ’000
(Unaudited) (Unaudited) (Audited)
Operating loss (1, 929 ) (1,893) (2,824)
Adjustments for:
Depreciation of property, plant and equipment 369 355 653
Reversal of impairment of inventories 614 650 1,946
Impairment of other assets 125 - 162
Reversal of impairment of other assets - (287) (345)
Interest received - - (431)
Gain on disposal of property, plant and equipment - - (4,000)
Effect of foreign exchange rate changes (129) (88) 385
Operating cash flows before movements in working capital (955) ( 1 , 263 ) (4,454)
Decrease/(Increase) in inventories 279 597 (971)
(Increase)/Decrease in receivables (74) 717 664
Increase/(Decrease) in payables and provisions (514) 1,081 78
Cash from operations (1,2 64 ) 1 , 132 (4,683)
Interest received 9 44 480
Net cash inflow/(outflow) from operating activities (1,2 55 ) 1 , 176 (4,203)
Investing activities
Proceeds from disposal of subsidiaries - - 4,000
Purchases of property, plant and equipment (132) (7,021) (6,952)
Purchases of intangible exploration and evaluation assets (5) (11) (241)
Loan provided - (15,609) (15,246)
Proceeds from sale of property, plant and equipment 4 - 345
Interest received 36 81 140
Net cash used in investing activities ( 97 ) (2 2 , 560 ) (17,954)
Financing activities
Net cash from financing activities - - -
Net increase (decrease) in cash and cash equivalents (1,352) (21,384) (22,157)
Effect of foreign exchange rate changes 119 (28) (145)
Cash and cash equivalents at beginning of period/year 12,834 35,136 35,136
Cash and cash equivalents at end of period/year 11,601 13,724 12,834
CADOGAN PETROLEUM PLC
Consolidated Statement of Changes in Equity
Six months ended 30 June 2020
Share capital Share premium account Retained earnings Cumulative translation reserves Other reserves Equity attributable to owners of the Company Non-controlling interest Total
$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
As at 1 January 2019 13,525 329 19 4 , 062 (16 1 , 816 ) 1,668 47 , 7 68 2 68 48 , 036
Net profit for the period - - 2,550 - - 2,550 5 2,555
Other comprehensive profit - - - 1,367 - 1,367 - 1,367
Total comprehensive profit for the year - - 2,550 1,367 - 3,917 5 3,922
As at 30 June 2019 13,525 329 196,612 (160,7 41 ) 1,668 45,498 264 51,958
Net profit for the period - - (4,653) - - (4,653) (4) (4,657)
Other comprehensive profit - - - 2,174 - 2,174 - 2,174
Total comprehensive profit for the year - - (4,653) 2,174 - (2,479) (4) (2,483)
Shares based award - - - - 413 413 - 413
As at 31 December 2019 13,525 329 191,959 (158,275) 2,081 49,619 269 49,888
Net loss for the period - - (1,470) - - (1,470) (5) (1,475)
Other comprehensive profit - - - (2,466) - (2,466) - (2,466)
Total comprehensive profit for the year - - (1, 470 ) (2,4 66 ) - (3,936) (5) (3,941)
Issue of ordinary shares 307 (492) (185) (185)
As at 30 June 2020 13,832 329 190,4 89 (160,7 41 ) 1,589 45,498 264 45,762
CADOGAN PETROLEUM PLC
Notes to the Condensed Financial Statements
Six months ended 30 June 2020
1. General information
Cadogan Petroleum plc (the ‘Company’, together with its subsidiaries the
‘Group’), is incorporated in England and Wales under the Companies Act.
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 3 to 5 and the
Financial Review on pages 6 to 7.
This Half Yearly Report has not been audited or reviewed in accordance with
the Auditing Practices Board guidance on ‘Review of Interim Financial
Information’.
A copy of this Half Yearly Report has been published and may be found on the
Company’s website at www.cadoganpetroleum.com.
2. Basis of preparation
The annual financial statements of the Group are 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’). These Condensed Financial Statements have been
prepared in accordance with IAS 34 Interim Financial Reporting, as issued by
the IASB.
The same accounting policies and methods of computation are followed in the
condensed financial statements as were followed in the most recent annual
financial statements of the Group except as noted, which were included in the
Annual Report issued on 1 May 2020.
The Group has not early adopted any amendment, standard or interpretation that
has been issued but is not yet effective. It is expected that where
applicable, these standards and amendments will be adopted on each respective
effective date.
The Group has adopted the standards, amendments and interpretations effective
for annual periods beginning on or after 1 January 2020. The adoption of these
standards and amendments did not have a material effect on the financial
statements of the Group, including a specific assessment of the impact of IFRS
16 ‘Leases’.
This consolidated interim financial information does not constitute accounts
within the meaning of section 434 and of the Companies Act 2006. Statutory
accounts for the year ended 31 December 2019 were approved by the Board of
Directors on 1 May 2020 and delivered to the Registrar of Companies. The
report of the auditors on those accounts was qualified as the auditors were
unable to obtain sufficient and appropriate evidence to conclude as to whether
the fair value of the Proger loan instrument of $15.7 million was materially
accurate.
(a) Going concern
The Directors have continued to use the going concern basis in preparing these
condensed financial statements. The Group's business activities, together with
the factors likely to affect future development, performance and position are
set out in the Operations Review. The financial position of the Group, its
cash flow and liquidity position are described in the Financial Review.
The Group’s cash balance at 30 June 2020 was $11.6 million (31 December
2019: $12.8 million).
The Group’s forecasts and projections, taking into account reasonably
possible changes in operational performance, 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’s farm-out strategy on Bitlyanska license is on-hold waiting for
the outcome of the claim introduced against the Licensing Authority for non
granting the 20-year production license.
Having considered the Company’s financial position and its principal risks
and uncertainties, including the assessment of potential risks associated with
Covid-19 including a) restrictions applied by governments, illness amongst our
workforce and disruption to supply chain and sales channels; and b) market
volatility in respect of commodity prices associated with Covid-19 in addition
to geopolitical factors, the Directors have a reasonable expectation that the
Group have adequate resources to continue in operational existence for the
foreseeable future.
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 financial statements. In making its statement the Directors have
considered the recent political and economic uncertainty in Ukraine.
(b) Foreign currencies
The individual financial statements of each Group company are presented in the
currency of the primary economic environment in which it operates (its
functional currency). The functional currency of the Company is US dollar. For
the purpose of the consolidated financial statements, the results and
financial position of each Group company are expressed in US dollars, which is
the presentation currency for the consolidated financial statements.
The relevant exchange rates used were as follows:
1 £ = xUS$ Six months ended 30 June
2020 2019 Year ended 31 Dec 2019
Closing rate 1.2322 1.2719 1.3263
Average rate 1.2613 1.2943 1.2773
1 US$ = xUAH Six months ended 30 June
2020 2019 Year ended 31 Dec 2019
Closing rate 26.7105 26.4487 23.7100
Average rate 26.0227 27.0363 25.9003
(c) Dividend
The Directors do not recommend the payment of a dividend for the period (30
June 2019: $nil; 31 December 2019: $nil).
(d) Critical accounting judgments and estimates
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, and perform an impairment test
if indicators of impairment are identified . In assessing potential
indicators of impairment, management considered factors such as the
remaining term of the license, plans for renewal of the license, conversion to
a production license, reports on reserves, 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 license which remains outstanding and overdue management considered the
status of license commitments, the status of submissions necessary for the
renewal, trends in the relevant region of the Ukraine with respect to license
application approval together with legal advice in respect of the standing of
the license in the event of delays by the authorities.
Impairment of PP&E
Management assess its development and production assets for impairment
indicators and performs an impairment test if indicators of impairment are
identified. Management performed an impairment assessment using a value in use
discounted cash flow model which required estimates including forecast oil
prices, reserves and production, costs and discount rates.
Recoverability and measurement of VAT
Judgment is 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 consider the nature and age of the VAT,
the likelihood of eligible future supplies to VAT, the pattern of recoveries
and risks and uncertainties associated with the operating environment.
Loan classified at fair value through profit and loss
In February 2019, the Group advanced a Euro 13,385,000 loan to Proger Managers
& Partners Srl (“PMP”), a privately owned Italian company whose only
interest is a 72.92% participation in Proger Ingegneria Srl (“Proger
Ingegneria”), a privately owned company which has a 75.95% participating
interest in Proger Spa (“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 (February 2019) and assuming that the call option
described below is not exercised). The principal of the loan is secured by a
pledge over PMP’s current participating interest in Proger Ingegneria, up to
a maximum guaranteed amount of Euro 13,385,000.
As part of the instrument, the Group was granted a call option to acquire, at
its sole discretion, a direct 33% equity interest in Proger Ingegneria; the
exercise of the option would give Cadogan, through CPHBV, an equivalent
indirect 25 interest in Proger. The call option was 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 Cadogan shareholders having approved the exercise of the call
option. The Board note that the Group has no current equity interest and the
option is not considered to be currently exercisable at 30 June 2020 given the
substantive requirement for shareholder approval. Should CPHBV 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 CPHBV, 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.
Under the Group’s accounting policies the instrument is held at fair value
through profit and loss and determination of fair value requires assessment of
both key investee specific information regarding financial performance and
prospects and market information.
The Group’s original investment decision involved assessment of Proger’s
business plan and analysis with professional advisers including valuations
performed using the income method (discounted cash flows) and market approach
using both the precedent transactions and trading multiples methods.
Whilst Proger has provided Cadogan information regarding its 2019 financial
performance, no information in respect of 2020 or updated forecasts have been
provided which are considered necessary to undertake a detailed fair value
assessment using the income method or market approach at 30 June 2020. As a
consequence, management assessed the fair value of the instrument based on the
terms of the agreement, including the pledge over shares, together with
financial information in respect of prior periods and determined that $16.1
million represented the best estimate of fair value, being equal to
anticipated receipts discounted at a market rate of interest of 5.5%. However,
the absence of information regarding Proger’s 2020 financial performance and
prospects represents a significant limitation on the fair value exercise and,
as a result, once received, the fair value could be materially higher or lower
than this value. (Note 11).
3. 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 assessment provided
to the Group’s chief operating decision maker (“CODM”). The Group has
identified its executive management team as its CODM and the internal
assessment used by the top management team to oversee operations and make
decisions on allocating resources serve as the basis of information presented.
Segment information is analysed on the basis of the type of activity, products
sold or services provided. The majority of the Group’s operations are
located within Ukraine. Segment information is analyzed on the basis of the
types of goods supplied by the Group’s operating divisions.
The Group’s reportable segments under IFRS 8 are therefore as follows:
Exploration and Production
· E&P activities on the production licences for natural gas, oil and
condensate
Service
· Drilling services to exploration and production companies
· Construction services to exploration and production companies
Trading
· Import of natural gas from European countries
· Local purchase and sales of natural gas operations with physical
delivery of natural gas
The accounting policies of the reportable segments are the same as the
Group’s accounting policies. Sales between segments are carried out at
market prices. The segment result represents profit under IFRS before
unallocated corporate expenses. Unallocated corporate expenses include
management and Board remuneration and expenses incurred in respect of the
maintenance of Kiev 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 30 June 2020 and for the six months then ended the Group’s segmental
information was as follows:
Exploration and Production Services Trading Consolidated
$’000 $’000 $’000 $’000
Sales of hydrocarbons 1,263 - - 1,263
Other revenue - 3 - 3
Total revenue 1,263 3 - 1,266
Other cost of sales (1,087) (3) - (1,090)
Other administrative expenses (281) (20) (27) (328)
Impairment - - (614) (614)
Finance income/costs, net - - 9 9
Segment results (105) (20) (634) (757)
Unallocated other administrative expenses - - - (1,167)
Net fair value gain on convertible loan - - - 409
Net foreign exchange gains - - - 129
Other income/loss, net - - - (89)
Loss before tax - - - (1, 475 )
As of 30 June 2019 and for the six months then ended the Group’s segmental
information was as follows:
Exploration and Production Services ((1)) Trading Consolidated
$’000 $’000 $’000 $’000
Sales of hydrocarbons 2,349 - 916 3,265
Other revenue - 54 - 54
Total revenue 2,349 54 916 3,319
Other cost of sales (1,842) (48) (976) (2,866)
Other administrative expenses (234) (34) (62) (330)
Finance income/costs, net - - 27 27
Segment results 27 3 (28) (9 5 ) 15 0
Unallocated other administrative expenses - - - (1,721)
Net fair value gain on convertible loan - - - 4,421
Net foreign exchange gains - - - (16)
Other income, net - - - (182)
Profit before tax - - - 2 , 652
(1) In first half 2019 and in the first half 2020 the Service business
was focused on internal projects, in particular, providing services to
Blazhyvska licence.
4. Finance income/(costs), net
Six months ended 30 June Year ended 31 December
2020 2019 2019
$’000 $’000 $’000
Interest expense on short-term borrowings - (9) -
Total interest expenses on financial liabilities - (9) -
Interest income on receivables,net - 27 36
Investment revenue 36 62 104
Interest income on cash deposit in Ukraine 9 44 49
Total interest income on financial assets 45 133 189
Unwinding of discount on decommissioning provision - - (164)
45 124 25
5. (Loss)/profit per ordinary share
(Loss)/profit per ordinary share is calculated by dividing the net
(loss)/profit for the period/year attributable to Ordinary equity holders of
the parent by the weighted average number of Ordinary shares outstanding
during the period/year. The calculation of the basic (loss)/profit per share
is based on the following data:
Six months ended 30 June Year ended 31 December
(Loss)/profit attributable to owners of the Company 2020 $ ’000 2019 $ ’000 2019 $ ’000
(Loss)/profit for the purposes of basic (loss)/profit per share being net (loss)/profit attributable to owners of the Company (1,475) 2,550 (2,103)
Number Number Number
Number of shares ‘000 ‘000 ‘000
Weighted average number of Ordinary shares for the purposes of basic (loss)/profit per share 244,128 235,729 235,729
Cent Cent Cent
(Loss)/profit per Ordinary share
Basic (0.6) 1.1 (0.9)
6. Proved properties
As of 30 June 2020 the development and production assets balance which forms
part of PP&E has increased in comparison to 31 December 2019 due to the
installation of additional 350m3 oil storage tanks at Blazhiv field and
decreased due to the exchange rate between UAH and US Dollar, depreciation and
depreciation charges for the reporting period.
7. Inventories
The Group had volumes of natural gas stored at 31 December 2019 which were not
sold during the six months ended 30 June 2020. The Group plan to realise it in
the second half of the year, as this represents the start of the heating
season which typically sees higher prices. No other substantial changes in
inventories balances occured.
The impairment provision as at 30 June 2020 is made so as to reduce the
carrying value of the inventories to net realizable value.
8. Trade and other receivables
Six months ended 30 June Year ended 31 December
2020 $ ’000 2019 $ ’000 2019 $ ’000
VAT recoverable 2,067 2,115 2,402
Prepayments 114 285 -
Trading prepayments - 31 -
Trade receivables 14 404 -
Other receivables 78 115 237
2,273 2,950 2,639
The Directors consider that the carrying amount of the other receivables
approximates their fair value. Management expects to realise VAT recoverable
through the activities of the business segments.
9. Trade and other payables
The $0.9 million of trade and other payables as of 30 June 2020 (30 June 2019:
$2.4 million, 31 December 2019: $1.3 million) represent $0.2 million (30 June
2019: $1.7 million, 31 December 2019: $0.7 million) of payables and $0.7
million of accruals (30 June 2019: $0.7 million, 31 December 2019: $0.6
million).
10. Commitments and contingencies
There have been no significant changes to the commitments and contingencies
reported on page 78 of the Annual Report.
11. Loan classified at fair value through profit and loss
In February 2019, Cadogan used part of its cash (Euro 13.385 million) to enter
into a 2-year loan agreement with Proger Managers & Partners, with an option
to convert it into a direct 33% equity interest in Proger Ingegneria,
equivalent to an indirect 25 % equity interest in Proger. According to IFRS,
the option has to be represented in our balance sheet at fair value.
The Group’s original investment decision involved assessment of Proger Spa
business plan and analysis with professional advisers including valuations
performed using the income method (discounted cash flows) and market approach
using both the precedent transactions and trading multiples methods.
Financial assets at fair value through profit and loss
Refer to note 2 for details of the terms of the Proger loan recorded as a
financial asset at fair value through profit and loss. The instrument is
recorded at management’s best estimate of fair value as set out in note 2
although management have not been able to undertake a valuation exercise under
the income method or market based method which would incorporate relevant
recent financial information on the investee or its prospects.
$’000
As at 1 January 2019 -
Loan provided 15,246
Movement in FVPL 4,421
Exchange differences * 364
As at 30 June 2019 20,030
Movement in FVPL (3,724)
Exchange differences (599)
As at 1 January 2020 15,707
Movement in FVPL 409
Exchange differences 29
As at 30 June 2020 16,145
* Exchange differences are calculaded based on USD/EURO currency exchange
rates on the date of transaction which is 26 February 2019 and end of the
period 30 June 2019.
The Group has applied a level 3 valuation under IFRS as inputs to the
valuation have included assessment of the cash repayments anticipated under
the loan terms at maturity, historical financial information for the periods
prior to H1 2020 and assessment of the security provided by the pledge over
shares.
The Group is still lacking sufficient and reliable information in respect of
Proger’s H1 2020 financial performance, forecasts and business plan, post
covid-19, taking into account all the effects of the important changes that
have occurred in its markets and its customers’ decisions regarding future
investments. If the Group had been provided with information to complete a
valuation under the income method or market method the key assumptions would
have included: a) In terms of the income method: forecast revenues, EBITDA and
unlevered free cash flows of the investee including assessment of performance
against its original business plan at the time the loan was advanced,
revisions to the business plan, growth rates and terminal values,
determination of an appropriate discount rate, adjustments to the enterprise
value for debt and working capital adjustments; b) In terms of the market
method: first semester 2020 EBITDA and information to assess the quality of
such earnings, enterprise value multiples based on a basket of comparable
transactions and companies, adjustments to the enterprise value for debt and
working capital adjustments and other risk adjustment factors.
As a consequence, management assessed the fair value of the instrument based
on the terms of the agreement, including the pledge over shares, together with
financial information in respect of prior periods and determined that $16.1
million represented the best estimate of fair value, being equal to
anticipated receipts discounted at a market rate of interest of 5.5%.
The Group considers that the carrying amount of financial instruments
approximates their fair value.
12. Share capital
Authorized and issued equity share capital
30/06/2020 31/12/2019
Number $’000 Number $’000
Authorized Ordinary shares of £0.03 each 1,000,000 57,713 1,000,000 57,713
Issued Ordinary shares of £0.03 each 244,128 13,832 235,729 13,525
Authorized 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 2017 235,729,322
Issued during year -
At 31 December 2018 235,729,322
Issued during year -
At 31 December 2019 235,729,322
Issued during first-half year 8,399,165
At 30 June 2020 244,128,487
On 26 May 2020 the Company issued 8,399,165 ordinary shares of £0.03 each in
the capital of the Company for cash on the basis of £0.03 per share:
- 2,270,549 ordinary shares were issued to the previous CEO, Mr Guido
Michelotti, to be satisfied in full using the entire amount of the 2018 and
2019 bonuses due (but which had not yet been paid), totalling €75,900,
- 628,616 ordinary shares were issued to Mr Andriy Bilyy (General Director
of Cadogan Ukraine), to be satisfied in full using the entire amount of the
2019 bonus due (but which had not yet been paid), totalling $23,040,
- 5,500,000 ordinary shares were issued to the CEO, Mr Fady Khallouf, to be
satisfied in full using the entire amount of the welcome bonus due.
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