REG-Cadogan Petroleum: Half-year Report
09/09/2021 07:05
CADOGAN PETROLEUM PLC
Half Yearly Report for the Six Months ended 30 June 2021
(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 2021.
* H1 2021 has been another semester without LTI and TRI with strict
execution of the anti-covid measures implemented by the company at the
beginning of the pandemic in 2020, and which resulted in no fatalities due to
desease.
* Average production was 331 bpd in H1 2021 (230 bpd in H1 2020), a 44%
increase versus H1 2020. This result, the highest net average over the last 10
years, was achieved despite the impact of the covid pandemic with the four
wells producing at Blazhiv oil field.
* The company continued defending its positions for the licenses award
approval, against the Licensing Authority of Ukraine (State Geological
Service), in the Kiev Administrative Court for Bitlyanska and the Supreme
Court for Pirkivska.
* During H1 2021, the Company sold 7,56 million m3 of stored gas for
$1,74 million (H1 2020: no trading operations).
* The services business continued to support the Group’s activities.
* Proger Manager & Partners failed to comply with their duties for the
reimbursement of the Loan with the accumulated interests, which in total
amounted Euro 14,857,350 as at February 25, 2021.
* Production revenues increased by 120% versus the same period in 2020,
due to a 55% increase in the average realized oil price and a 44% increase of
the production volumes. Overall revenues increased by 258% versus the same
period in 2020 due to the absence of sales of gas for the first half 2020.
* As a result of the above initiatives, cash position at the period
end was $14.7 million (30 June 2020: $11.6 million). This level of cash is
sufficient to sustain on-going operations.
Overall, Cadogan continued operating in an unstable environment impacted by
the Covid-19 pandemic, and lock-down periods. The Company continued
improving performances of its oil production operations and controlling
costs, and looking at opportunities to grow.
Key performance indicators
During H1 2021, The Group has monitored its performance in conducting its
business with reference to a number of key performance indicators
(‘KPIs’):
* to increase oil production measured on the barrels of oil produced
per day (‘bpd’);
* 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 2021, 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 2021 30 June 2020 31 December 2020
Average production (working interest basis) ((a)) Boepd 331 230 291
Administrative expenses $million 1.7 1.5 3.8
Basic loss per share ((b)) Cent (0.1) (0.6) (0.4)
Lost time incidents ((c)) Incidents 0 0 0
Geographical diversification New assets - - -
a. Average production is calculated as the average daily production
during the period/year
b. Basic loss per ordinary share is calculated by dividing the net
loss for the year attributable to equity holders of the parent company by the
weighted average number of ordinary shares during the period
c. Lost time incidents relate to injuries where an employee/contractor
is injured and has time off work (IOGP classification)
Enquiries:
Cadogan Petroleum Plc
Fady Khallouf Ben Harber Chief Executive Officer Company Secretary fady.khallouf@cadogan petroleum.com +44 (0) 207 264 4366
Operations Review
Introduction
The business worldwide and in Ukraine has managed to adjust to operating in
new post-Covid-19 volatile reality. However, the turbulence which resulted
from the pandemic of coronavirus has continued to affect Ukraine and
Cadogan’s activities. At the same time first half of the year witnessed
recovery of the Brent oil price reaching $73 per bbl as of June 2021.
The first half of 2021 has been another challenging time for Ukraine. The
government has been repeatedly tightening restriction measures to take under
control and mitigate Covid-19 pandemic distribution in the country as well as
launch vaccination plan for population.
Ukraine pursued efforts to attract new investments, including in its oil and
gas sector, by promoting incentives such as “investment nanny’s”, new
areas under e-auctions and award of PSA. But at the same time, risks of
sanctions have been introduced by National Security and Defence Council of
Ukraine towards oil and gas exploration companies by depriving the asset
rights. Besides, the State Commission of Ukraine on Mineral Resources
announced unscheduled inspections plans to fight against “sleeping
licenses” or subsoil licenses the issuance of which is considered doubtful.
In this 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.
In H1 2021, the Group recorded 10 cases of Covid-19 infection. All of them
have recovered.
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 2021, the average gross production rated at
331 bpd, which is 44% higher than in H1 2020 (230 bpd). The results
improvement was due to uninterrupted production of four Blazhiv wells
(Blazhiv-3 and Blazhiv-Monasterets-3 had been shut-down during H1 2020 waiting
for the renewal by PJSC Ukrnafta of the lease agreements after expiry ) at
optimum operational regimes. For the purposes of the geological construction
precision of Blazhiv oil field and Monastyretska fold and also the
identification of new perspective structures within the license area boundary,
Cadogan has launched analyses for the data reprocessing and reinterpretation
of old 2D seismic data. Upon works completion, presumably by the end of 2021,
it is expected to receive the required data for the field skeleton structural
and tectonic modeling.
The structural tectonic and petrophysical modeling of the area, hydrocarbons
reserves & resources reassessment as well as hydrodynamic model refining is
planned to be conducted after the completion of the seismic reprocessing/
reinterpretation.
Regarding the Bitlyanska 20-year exploration and development license, in May
and August 2020 after a deep and complete analyses performed with external
legal advisors, Usenco Nadra LLC, a Cadogan Group subsidiary, filed two claims
with the Kyiv Administrative Court to challenge the non-granting of the
20-year exploration and production license as acknowledge and unlawful
inaction of State Service of Geology (SGS) . Cadogan expects decision on the
claim during 2021.
All activities were executed without LTI or TRI( 1 ), with a total of
1,340,000 manhours since the last incident, which occurred to a
sub-contractor, in February 2016. Total increase of oil production impacted
the emission of Co2 to the atmosphere which amounted 82.47 tons of Co2,e/boe
produced, compared to 62.37 tons of Co2,e/boe for 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 Company sold at the favourable season all stored gas of 7.56 million m3.
Cadogan continues to monitor the gas markets in Europe and Ukraine, expanding
its coverage of gas markets, logistics routes and gas delivery methods to
analyze and select the timing and terms of low season purchases for high
season sales.
Proger
In February 2021, Cadogan notified Proger Managers & Partners Srl (“PMP”)
that according to the Loan Agreement, the Maturity Date occurred on 25
February 2021. As the Call Option was not exercised, PMP must fulfill the
payment of EUR 14,857,350, being the reimbursement of the Loan in terms of
principal and the accumulated interest. PMP is in default since 25 February
2021. End of March 2021, PMP requested an arbitration to have the Loan
Agreement recognised as an equity investment contract, which is rejected by
Cadogan as the terms of the Agreement are clear and include the right to
repayment at maturity if the Call Option is not exercised. The arbitrators
have been nominated by the Arbitral Court and the arbitration process is in
course. As at 30 June 2021, Proger Ingegneria holds 96.49 % of Proger Spa
after the exit of SIMEST and the purchase by Proger Ingegneria of its stake in
Proger Spa.
Financial position
Cash at 30 June 2021 was $14.7 million ($11.6 million at 30 June 2020). 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.
In H1 2021, the Group held working interests in a conventional gas-condensate
and an oil exploration and production licence 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 2021)
Working interest (%) Licence Expiry Licence type
99.8 Blazhiv November 2039 Production
99.8 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 an
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.
Below we provide an update to the full Operations Review contained in 2020
Annual Report published on 6 May 2021.
Bitlyanska license
The Company filed to the State Geological Service an application for a 20-year
production license 5 months ahead the license expiry date of 23 December 2019.
Cadogan secured approval of the 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. Given the delay to award the new license beyond the regular
timeline provided by legislation, Cadogan filed two claims with the
Administrative Court to challenge the non-granting of the 20-year production
license by the Licensing Authority. Cadogan expects decision on the claim
during 2021.
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 331 bpd vs 230 bpd in H1 2020. Such result was achieved due to the
adjustment and the selection of optimum production regime and an uninterrupted
production of the wells at the field.
In the first half of 2021 the Company has completed hydrodynamic surveys of
Blazhiv-1, Blazh-3, Blazhiv-Monastyrets-3 and Blazhiv-10 wells. .
For the purpose of geological construction precision of Blazhiv oil field and
Monastyretska fold and also identification of new perspective structures
within the license area boundary, Cadogan has launched analyses for data
reprocessing and reinterpretation of old 2D seismic data. Upon works
completion presumably by the end of 2021 it is expected to receive the
required data for the field skeleton structural and tectonic modeling.
The structural tectonic and petrophysical modeling of the area, hydrocarbons
reserves & resources reassessment as well as hydrodynamic model refining is
planned to be conducted after the completion of the seismic reprocessing/
reinterpretation.
East Ukraine
The Pirkivska production license expired in 2015. Astrogaz LLC, a Cadogan
Group subsidiary, applied for a new license. After several years and the end
of the 3-year period allowed for conversion of the previous license, the
Company initiated court proceedings to defend its rights and to challenge the
Licensing Authority’s actions. As the result, the Court of First Instance
has partly satisfied the claim and confirmed inaction of the Licensing
Authority and obliged it to review the application. Astrogaz introduced a
claim with the Court of Appeal proposing license award approval. In its
decision of February 2021, the Court of Appeal rejected the Astrogaz claim. In
March 2021, the Company filed an appeal with the Supreme Court.
Service Company
activities
In H1 2021, Cadogan’s 100% owned subsidiary, Astro Service LLC, focused its
activities on serving intra-group operational needs in wells’ work-over/
re-entry operations, wells’ survey as well as field on-site activities.
Financial Review
Overview
Income statement
In H1 2021, revenues increased to $4.5 million (H1 2020: $1.2 million), due to
$1.7 million gas sales (H1 2020: nil) and the increase in oil sales. Revenues
from production increased to $2.8 million (H1 2020: $1.2 million) due to the
increase of the realized price by 55% and the increase in the produced volumes
of oil by 44%.
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 $1.2 million of
production royalties ($0.5 million), $0.4 million of operating costs ($0.2
million), $0.4 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 increased to $0.6 million
(30 June 2020: $0.2 million), driven by increase in production and higher oil
prices.
The Group recorded a $0.6 million interest on Proger Loan. Refer to note 11
for details.
Other administrative expenses were kept under control at $1.7 million (30 June
2020: $1.5 million). They comprise other staff costs, professional fees and
expenses, Directors’ remuneration and depreciation charges on non-producing
property.
Balance sheet
At 30 June 2021, the cash position of $14.7 million (30 June 2020: $11.6
million) increased compared to the $13.3 million as at 31 December 2020,
because of positive cash flows generated from operating activities.
Intangible Exploration and Evaluation (“E&E”) assets of $2.5 million (30
June 2020: $2.6 million, 31 December 2020: $2.4 million) represent the
carrying value of the Group’s investment in E&E assets as at 30 June 2021.
The Property, Plant and Equipment (“PP&E”) balance of $10 million at 30
June 2021 (30 June 2020: $10.7 million, 31 December 2020: $9.9 million)
includes $9.6 million of development and production assets on the Blazhyvska
licence and other PP&E of the Group.
Trade and other receivables of $0.9 million (30 June 2020: $2.3 million, 31
December 2020: $1.6 million) include recoverable VAT of $0.8 million( 2 ) (30
June 2020: $2 million, 31 December 2020: $1.5 million), $0.1 million of other
receivables and prepayments (30 June 2020: $0.3 million, 31 December 2020:
$0.1 million).
The $1.3 million of trade and other payables as of 30 June 2021 (30 June 2020:
$0.9 million, 31 December 2020: $1.3 million) represent $0.9 million (30 June
2020: $0.2 million, 31 December 2020: $0.8 million) of other creditors and
$0.4 million of accruals (30 June 2020: $0.7 million, 31 December 2020: $0.5
million).
Cash flow statement
The Consolidated Cash Flow Statement shows positive cash-flow from operating
activities of $1.5 million (30 June 2020: outflow $1.2 million, 31 December
2020: inflow $0.1 million). Cashflow, before movements in working capital, was
an outflow of $44 thousand (30 June 2020: outflow $0.9 million, 31 December
2020: outflow $2.5 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 2020 (refer to page 107 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.
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 15 to 18
of the 2020 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
* Default on the Proger loan repayment
* 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 the UK-adopted 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
8 September 2021
Consolidated Income Statement
Six months ended 30 June 2021
Six months ended 30 June Year ended 31 December
2021 $’000 2020 $ ’000 2020 $ ’000
Notes (Unaudited) (Unaudited) (Audited)
CONTINUING OPERATIONS
Revenue 3 4,517 1,266 5,105
Cost of sales 3 (3,222) (1,090) (4,500)
Provision against unsold gas inventory - (614) -
Gross profit 1,295 ( 438 ) 605
Administrative expenses (1,703) (1,495) (3,771)
Reversal of impairment of other assets - 4 644
Impairment of other assets (2) (125) (53)
Interest income on loan provided 11 587 - -
Fair value gain/(loss) on loan and call option 11 - 409 (334)
Net foreign exchange (losses)/gains (276) 129 1,938
Other operating (losses)/income,net (36) (4) (71)
Operating (loss)/profit (135) (1,5 2 0) (1,042)
Finance income 4 5 45 40
(Loss)/profit before tax (130) (1,475) (1,002)
Tax (expense)/benefit - - -
(Loss)/profit for the period/year (130) (1,475) (1,002)
Attributable to:
Owners of the Company 5 (134) (1,470) (996)
Non-controlling interest 4 (5) (6)
(130) (1,475) (1,002)
(Loss)/profit per Ordinary share Cents Cents Cents
Basic and diluted 5 (0.1) (0.6) (0.4)
Consolidated Statement of Comprehensive Income
Six months ended 30 June 2021
Six months ended 30 June Year ended 31 December
2021 $ ’000 2020 $ ’000 2020 $ ’000
(Unaudited) (Unaudited) (Audited)
(Loss)/profit for the period/year (130) (1,475) (1,002)
Other comprehensive (loss)/profit
Items that may be reclassified subsequently to profit or loss
Unrealised currency translation differences 111 (2,466) (3,880)
Other comprehensive (loss)/profit 111 (2,466) (3,880)
Total comprehensive profit/(loss) for the period/year (19) (3,941) (4,882)
Attributable to:
Owners of the Company (23) (3,936) (4,876)
Non-controlling interest 4 (5) 6
(19) (3,941) (4,882)
Consolidated Statement of Financial Position
Six months ended 30 June 2021
Six months ended 30 June Year ended 31 December
2021 $ ’000 2020 $ ’000 2020 $ ’000
Notes (Unaudited) (Unaudited) (Audited)
ASSETS
Non-current assets
Intangible exploration and evaluation assets 2,483 2,642 2,381
Property, plant and equipment 6 10,000 10,715 9,963
Right-of-use assets 246 - 292
Deferred tax asset 432 501 419
13,161 13,858 13,055
Current assets
Inventories 7 1,182 3,079 2,156
Trade and other receivables 8 929 2,273 1,632
Loan classified at fair value through profit and loss 11 - 16,145 16,812
Loan provided 11 16,902 - -
Cash and cash equivalents 14,651 11,601 13,253
33,664 33,098 33,853
Total assets 46,825 46,956 46,908
LIABILITIES
Non-current liabilities
Long-term lease liability (149) - (195)
Provisions (297) (256) (223)
(446) (256) (418)
Current liabilities
Trade and other payables 9 (1,316) (938) (1,387)
Short-term lease liability (76) - (97)
(1,392) (938) (1,484)
Total liabilities (1,838) ( 1,194 ) (1,902)
Net assets 44,987 45,762 45,006
EQUITY
Share capital 12 13,832 13,832 13,832
Share premium 514 329 514
Retained earnings 190,829 190,489 190,963
Cumulative translation reserves (162,044) (160,741) (162,155)
Other reserves 1,589 1,589 1,589
Equity attributable to equity holders of the parent 44,720 45,498 44,743
Non-controlling interest 267 264 263
Total equity 44,987 45,762 45,006
Consolidated Statement of Cash Flows
Six months ended 30 June 2021
Six months ended 30 June Year ended 31 December
2021 $ ’000 2020 $ ’000 2020 $ ’000
(Unaudited) (Unaudited) (Audited)
Operating loss (135) (1,520) (708)
Adjustments for:
Depreciation of property, plant and equipment 398 369 734
Impairment of inventories 2 614 50
Impairment/(Reversal of impairment) of receivables - (5) 3
Impairment/(Reversal of impairment) of VAT recoverable 2 125 (644)
Interest on loan provided (587) -
Net fair value of convertible loan - (409) 334
Effect of foreign exchange rate changes 276 (129) (1,938)
Operating cash flows before movements in working capital (44) (955) (2,503)
Decrease/(Increase) in inventories 1,022 279 1,624
Decrease /(Increase) in receivables 716 (74) 930
(Decrease)/Increase in payables and provisions (154) (514) 34
Cash from operations 1,540 (1,264) 85
Interest received 22 9 25
Net cash inflow/(outflow) from operating activities 1,562 (1,255) 110
Investing activities
Purchases of property, plant and equipment (50) (132) (279)
Purchases of intangible exploration and evaluation assets - (5) (32)
Proceeds from sale of property, plant and equipment - 4 -
Interest received 8 36 38
Net cash used in investing activities (42) ( 97 ) (273)
Financing activities
Net cash from financing activities - - -
Net increase (decrease) in cash and cash equivalents 1,520 (1,352 ) (163)
Effect of foreign exchange rate changes (122) 119 582
Cash and cash equivalents at beginning of period/year 13,253 12,834 12,834
Cash and cash equivalents at end of period/year 14,651 11,601 13,253
Consolidated Statement of Changes in Equity
Six months ended 30 June 2021
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 2020 13,525 329 19 1 , 959 (1 58 , 275 ) 2,081 49,619 2 69 49 , 888
Net loss for the period - - (1,470) - - (1,470) (5) (1,475)
Other comprehensive loss - - - (2,466) - (2,466) - (2,466)
Total comprehensive loss for the year - - (1,470) (2,466) - (3,936) (5) (3,941)
Issue of ordinary shares 307 - - (492) (185) - (185)
As at 30 June 2020 13,832 329 190,489 (160,741) 1,589 45,498 264 45,762
Net profit for the period - - 474 - - 474 (1) 473
Other comprehensive profit - - - (1,414) - 1,414 - 1,414
Total comprehensive profit for the year - - 474 (1,414) - (940) (1) (941)
Shares based award - 185 - - - 185 - 185
As at 31 December 2020 13,832 514 190,963 (162,155) 1,589 44,743 263 45,006
Net loss for the period - - (134) - - (134) 4 (130)
Other comprehensive profit - - - 111 - 111 - 111
Total comprehensive profit for the year - - (134) 111 - (23) 4 (19)
Issue of ordinary shares - - - -
As at 30 June 2021 13,832 514 190,829 (162,044) 1,589 44,720 267 44,987
Notes to the Condensed Financial Statements
Six months ended 30 June 2021
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 accounting standards in conformity with the requirements of the
Companies Act 2006 and in accordance with international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union. On 31 December 2020, IFRS as adopted by the European Union
at that date was brought into UK law and became UK-adopted international
accounting standards, with future changes being subject to endorsement by the
UK Endorsement Board. The Group transitioned to UK-adopted international
accounting standards in its consolidated financial statements on 1 January
2021. There was no impact or changes in accounting policies from the
transition. These Condensed Financial Statements have been prepared in
accordance with the UK-adopted IAS 34 Interim Financial Reporting.
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 6 May 2021.
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.
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 2020 were approved by the Board of
Directors on 5 May 2021 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 $16.8 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 2021 was $14.7 million (31 December
2020: $13.3 million).
The Group’s forecasts and projections, taking into account reasonably
possible changes in trading activities, operational performance, 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’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 their 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 Year ended 31 Dec 2020
2021 2020
Closing rate 1.3837 1.2322 1.3678
Average rate 1.3891 1.2613 1.2843
1 US$ = xUAH Six months ended 30 June Year ended 31 Dec 2020
2021 2020
Closing rate 27.5214 26.7105 28.3700
Average rate 27.9902 26.0227 27.0034
1 Euro = xUS$ Six months ended 30 June Year ended
2021 2020 31 Dec 2020
Closing rate 1.1879 1.1235 1.2217
Average rate 1.2088 1.1024 1.1420
(c) Dividend
The Directors do not recommend the payment of a dividend for the period (30
June 2020: $nil; 31 December 2020: $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 provided
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 held a 75.95% participating
interest in Proger Spa (“Proger”) at 31 December 2020, and a 96.49%
participating interest in Proger Spa at 30 June 2021. 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 Srl, 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, 33% of participating interest in Proger Ingegneria; the
exercise of the option would give Cadogan, through Cadogan Petroleum Holdings
BV (“CPHBV”), an indirect 31.84% interest in Proger at 30 June 2021. The
call option was granted at no additional cost and could 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 as explained further below.
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.
Management considered the extent to which the option and rights to
representation on the Board of Proger Ingegneria and Proger meant significant
influence existed. The requirement to obtain shareholder approval for any
exercise of the option was considered to represent a substantive condition
such that the option was not ‘currently exercisable’ under IFRS at 31
December 2020. In consequence, the potential voting rights associated with any
subsequent exercise of the option were not considered to contribute to
significant influence over Proger Ingegneria and Proger.
Under the Group’s accounting policies, the instrument was held at fair value
through profit and loss and determination of fair value requires assessment of
both key Proger Ingegneria and Proger specific information regarding financial
performance and prospects and market information. At 31 December 2020, the
determination of fair value is made based on facts and circumstances at that
date, notwithstanding that the borrower, PMP, failed to repay the loan at
maturity in 2021.
The Group’s original lending decision involved assessment of Proger Spa
business plans 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.
Cadogan did not exercise its Call Option under the Loan Agreement within the
Maturity Date and the option is expired. Proger Managers & Partners srl failed
to reimburse the Loan amount with the accumulated interests at the Maturity
Date, 25 February 2021. In case of non-reimbursement, the Loan carries an
entitlement to an interest at a rate of 7.5% per year to be accrued on the
principle amount and the interests accumulated at the Maturity Date until the
total amount is paid.
As the Call Option expired, Cadogan treats the Loan provided to PMP at
historical cost plus accrued interests less provision starting from March
2021. The recoverability of the Loan has been assessed in April 2021 for the
purpose of Cadogan Annual Report 2020. Since April 2021 there are no
additional facts which can lead to recognition of change of value for the
period ended 30 June 2021 (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 2021 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 2,777 - 1,738 4,515
Other revenue - 2 - 2
Total revenue 2,777 2 1,738 4,517
Other cost of sales (2,138) - (1,084) (3,222)
Other administrative expenses (492) (35) (25) (552)
Finance income/costs, net - - 22 22
Segment results 147 (33) 651 765
Unallocated other administrative expenses - - - (1,151)
Impairment - - - (2)
Net foreign exchange gains - - - (276)
Other income/loss, net - - - 534
Loss before tax - - - (130)
As of 30 June 2020 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 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, net - - - (89)
Profit before tax - - - 1,475
(1) In first half 2020 and in the first half 2021 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
2021 2020 2020
$’000 $’000 $’000
Interest expense on lease (14) - -
Total interest expenses on financial liabilities (14) - -
Investment revenue 8 36 37
Interest income on cash deposit in Ukraine 22 9 25
Total interest income on financial assets 30 45 62
Unwinding of discount on decommissioning provision (11) - (22)
5 45 40
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 2021 $ ’000 2020 $ ’000 2020 $ ’000
(Loss)/profit for the purposes of basic (loss)/profit per share being net (loss)/profit attributable to owners of the Company (134) (1,475) (996)
Number of shares Number ‘000 Number ‘000 Number ‘000
Weighted average number of Ordinary shares for the purposes of basic (loss)/profit per share 240,628 244,128 240,628
Cent Cent Cent
(Loss)/profit per Ordinary share
Basic (0.1) (0.6) (0.4)
6. Proved properties
As of 30 June 2021 the development and production assets balance which forms
part of PP&E has increased in comparison to 31 December 2020 due to work-overs
at Blazhiv field and Hryvnya exchange rate increase against the US Dollar at
the end of the period.
7. Inventories
The Group had volumes of natural gas stored at 31 December 2020 which were
sold during the period ended 30 June 2021. No other substantial changes in
inventories balances occured.
The impairment provision as at 30 June 2021 of $0.5 million is held to reduce
the carrying value of the inventories to net realizable value. No additional
provision on inventories has been recognised for the first half 2021.
8. Trade and other receivables
Six months ended 30 June Year ended 31 December
2021 $ ’000 2020 $ ’000 2020 $ ’000
VAT recoverable 755 2,067 1,500
Prepayments 92 114 -
Trade receivables 28 14 -
Other receivables 54 78 132
929 2,273 1,632
VAT recoverable asset was realized through natural gas and crude oil sales
during the first half of 2021. 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 $1.3 million of trade and other payables as of 30 June 2021 (30 June 2020:
$0.9 million, 31 December 2020: $1.4 million) represent $0.9 million (30 June
2020: $0.2 million, 31 December 2020: $1.2 million) of payables and $0.4
million of accruals (30 June 2020: $0.7 million, 31 December 2020: $0.2
million).
10. Commitments and contingencies
There have been no significant changes to the commitments and contingencies
reported on page 107 of the Annual Report.
11. Loan provided
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 instrument has to be represented in our balance sheet at fair value.
The Group’s original lending 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.
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 till the Maturity Date
as set out in the note 2.
FVPL Loan provided
$’000 $’000
As at 1 January 2020 15,707 -
Movement in FVPL 409 -
Exchange differences 29 -
As at 30 June 2020 16,145 -
Movement in FVPL (743) -
Exchange differences 1,410 -
As at 1 January 2021 16,812 -
Transfer from FVPL (16,812) -
Transfer to loan provided - 16,812
Interest - 587
Exchange differences - (497)
As at 30 June 2021 - 16,902
To represent the option at fair value, 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, delayed by
the arbitration process requested by PMP (the Borrower), historical financial
information for the periods prior to 2020 and assessment of the security
provided by the pledge over shares together with the impact of the Covid-19 on
the activity of Proger. As a result, $16.8 million was determined as the best
estimate of fair value as at 31 December 2020, being equal to anticipated
receipts and timing thereof discounted at an estimated market rate of interest
of 7.8%.
Cadogan did not exercise its Call Option under the Loan Agreement within the
Maturity Date and the option has expired. Proger Managers & Partners srl has
failed to reimburse the Loan with the accumulated interests in full at the
Maturity Date, 25 February 2021. In case of non-reimbursement, the Loan
carries an entitlement to an interest at a rate of 7.5% per year to be accrued
on principal amount and accumulated interests at the Maturity Date until the
total amount is paid. Starting from March 2021, Cadogan treats the Loan
provided to PMP at historical cost plus accrued interests and less provision.
The recoverability of the Loan has been assessed in April 2021 for the purpose
of Cadogan Annual Report 2020. Since April 2021, there are no additional facts
which can lead to recognition of a change of value for the period ended 30
June 2021.
12. Share capital
Authorized and issued equity share capital
30/06/2021 31/12/2020
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 13,832 244,128 13,832
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 year 8,399,165
At 31 December 2020 244,128,487
Issued during first-half year -
At 30 June 2021 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 and 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) and 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 and
satisfied in full using the entire amount of the welcome bonus due.
13. Events subsequent to the reporting date
No events subsequent to the reporting date have taken place after 30 June
2021.
1 Lost Time Incident, Total Recordable Incident
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
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