REG-Cadogan Petroleum: Half Yearly Report for the Six Months ended 30 June 2018
21/08/2018 14:05
CADOGAN PETROLEUM PLC
Half Yearly Report for the Six Months ended 30 June 2018
(Unaudited and unreviewed)
Highlights
Cadogan Petroleum plc (“Cadogan” or the “Company”) announces its
unaudited results for the six months ended 30 June 2018.
* The first half of 2018 was LTI and TRI 1 free and normalized emissions were
further reduced to 15.9 tons CO(2),e/boe. Good progress has been made towards
achieving ISO 14001 and ISO 45001 certification for our Ukrainian operations.
* Production continued to grow. The average net production rate over the first
half of the year was 234 boepd which is 64% higher than the average in the
first half of 2017 and 51% higher than the average for last year. The
production increase was driven by the successful work-over campaign on the
three producing wells of the Monastyretska licence, which have reached an
aggregated gross oil production of 225 bpd, at 30 June 2018.
* Traded volumes of gas were slightly lower than in H1 2017, but the segment
result significantly improved as a result of the cost saving initiatives taken
by Management the previous year. Collection of the receivable at the end of
December 2017 was nearly completed through the semester.
* The service business continued to support the Group’s activities, thus
retaining funds within the Group, while tendering for third party services to
be rendered starting from the second part of the year (when the work-over
campaign in Monastyretska is due to be finished); a multi-well work-over
contract was won in a tender launched by one of the largest operators in
Ukraine and the work has commenced in July.
* The active pursuit of opportunities to renew and diversify the portfolio has
continued. More than 10 potential opportunities were scrutinized during the
reporting period.
* The increased production, combined with higher prices and tight control on
all spending, further reduced the Group’s after tax loss which was down to
$0.3 million (H1 2017: loss of $2 million). Gross profit increased to $0.6
million (30 June 2017: $0.5 million, 31 December 2017: $2.1 million).
* Net cash, i.e. cash and cash equivalents less short term borrowings, at the
end of the period was $41.4 million; this is comparable to the level at the
end of the same reporting period of last year ($40.3 million) and represents
a $3.8 million increase over the value at the end of last year. The successful
efforts to manage cash items allowed the Ukrainian operations to return some
money to the UK parent company as a repayment of the loans received in the
past.
Key performance indicators
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 an accident free working environment;
* to reduce its emisisons to the atmosphere; and
* to grow and geographically diversify the portfolio.
The Group’s performance during the first six months of 2018 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 continue with zero incidents and decrease of the emissions.
Unit 30 June 2018 30 June 2017 31 December 2017
Average production (working interest basis) ((a)) Boepd 234 143 155
Administrative expenses ((b)) $million 2.0 2.7 5.0
Basic loss per share ((c)) Cent (0.2) (0.9) (0.7)
Lost time incidents ((d)) Incidents 0 0 0
Emissions to the atmosphere ((e)) t/boe 15.9 23.89 22.31
Geographical diversification New assets - - 1
1. Average production is calculated as the average daily production during the
period/year.
2. $0.3 million of one-off costs related to the streamlining of operating
structure is included in H1 2017 cost
3. 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.
4. Lost time incidents relate to injuries where an employee/contractor is
injured and has time off work (IOGP standard).
5. For E&P activity. Normalised to tons of CO(2) per total wellhead
production, ton/boe.
Enquiries:
Cadogan Petroleum Plc
Guido Michelotti Ben Harber Chief Executive Officer Company Secretary +380 (44) 594 5870 +44 (0) 207 264 4366
Cantor Fitzgerald Europe
David Porter Nicholas Tulloch +44 (0) 207 894 7000
Summary
Introduction
The first half of 2018 witnessed a further recovery of the oil price, with
Brent almost reaching 80 $/bbl, and there were no other events of consequence
that have affected Cadogan in any of the countries where the Company has
activities.
The social, economic and political conditions in Ukraine remained stable.
The Parliament passed in June the Anticorruption Court law, which was one of
the requests of the International Monetary Fund to grant a further tranche
of the Extended Fund Facility program.
Ukraine continued with its efforts to overhaul and modernise its oil & gas
regulatory framework. A new law requiring licence applicants to submit an
Environmental Impact Assessment (EIA) for approval through local councils
which was introduced and took effect on 17 December 2017. The law was passed
without the necessary clarity on how to enforce it and this created delays in
the award processes, which were ongoing at the time it was passed. The issue
was resolved later in the year with the Cabinet of Ministers approving
amendments to avoid delays for application processes started before 31
December 2017.
A new law, which simplifies the licence application process came into force in
June 2018. The new law significantly reduces the time available for the
Ministry of Ecology and Natural Resources to approve applications. It also
confirms that applications are deemed to be approved if the competent
authorities do not send their approval or a motivated rejection within a
defined time period to the State Service of Geology and Subsoil of Ukraine.
Against this somewhat positive context, Cadogan’s gas operations remained
subject to a punitive royalty regime.
In Italy, a new coalition government was formed following the general
elections in March. Elections were also held in Lombardy which confirmed the
Center-right collation which had ruled the region for the last 5 years.
The Company has started the process of engaging with the newly appointed local
authorities, with the objective of setting the licence award process in
motion again.
Operations
The E&P activity has focused on using the assets in Ukraine as a platform for
growth by increasing production from the existing fields within the
Debeslavetska, Cheremkhivska and Monastyretska licences. At the end of the
reporting period, the average gross production rate increased to 242 boepd
(234 boepd net to Cadogan), which is 56% higher than in the six months ended
30 June 2017 (155 boepd gross, 143 boepd net).
The focus of activity was the Monastyretska licence, where the Company
completed in time and on budget a successful workover and stimulation campaign
on the three producing wells. Gross oil production increased to 225 bpd,
which represents a 150% increase over the oil production at the beginning of
the work-over campaign and a fourfold increase over the stable 45 bpd, which
the field had been producing a year and a half ago. With the addition of gas
production from Debeslavetska, Cadogan’s net, oil and gas combined
production at the end of the reporting period was 272 boepd.
In parallel, the reservoir study to better understand the potential of the
producing reservoir has progressed and it is anticipated that it will be
concluded in the third quarter of the year.
The farm-out of the Bitlyanska licence has been actively advertised by the UK
consultant engaged with this mandate and a couple of requests to access the
data room have been received at the time this report has been prepared.
All activities were executed without LTI 2 , with a total of nearly 700,000
manhours since the last incident, which occurred to a contractor, in February
2016. Emissions to the atmosphere were further reduced to 15.94 tons of
CO(2,)e/boe produced, compared to 26.47 tons of CO(2,)e/boe of the same
reporting period of last year.
In Italy, activity has focused on securing the award of the two licences in
the Po Valley. The Company is engaging with the newly elected local
politicians to progress the awards.
Trading
Volumes of gas trading are normally lower in the first half of the year due to
the seasonality of this business and the first six months of 2018 were no
exception. The exception was the abnormal behaviour of the gas price, which
remained close or higher than its winter level in Ukraine as well in the
European hubs. This reduced the room for arbitrage and consequently impacted
the margin.
Cadogan’s gas trading operations continued to take minimum credit risk and
also recovered most of its past receivables.
Financial position
Cash and cash equivalents at 30 June 2018 were $41.4 million; this
represents a $3.8 million increase over the value at 31 December 2017. This
was driven by optimisation of working capital and recovery of VAT credits
and of receivables. Short term borrowing at 30 June, 2018 was nil as Cadogan
was able to use its own financial resources to support its gas trading
operations.
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
The position of Cadogan remains solid, with the resources and competences
necessary to continue monetizing the value of its Ukrainian assets while
pursuing opportunities outside of Ukraine to generate long term value for its
shareholders.
In Ukraine, the Company will strive to further improve the performances of its
oil production operations while looking for solutions to its gas producing
operations which remain subject to an extremely high royalty rate. It will
also start to prepare for the drilling of the two wells, which are required to
fullfil the remaining commitments of the Bitlyanska and Monastyretska
exploration licences and convert them into production licences.
The Company will continue to actively pursue opportunities to leverage the
strength of its balance sheet, competence and low cost structure to create
long term value for shareholders.
The results delivered in the first half of the year provide the management
team with added confidence that Cadogan can be brought to profitability after
many years of losses.
Operations Review
In H1 2018, the Group held working interests in four (2017: four) conventional
gas, condensate and oil exploration and production licences in the West of
Ukraine. All these assets are operated by the Group and are located in the
prolific Carpathian basin, close to the Ukrainian gas distribution
infrastructure. In the East, the Group took all necessary actions to convert
the Pirkovskoe exploration licence which expired in 2015 into a production
licence and is awaiting approval.
The Group’s primary focus during the period continued to be on the cost
optimisation and enhancement of current production.
Summary of the Group’s licences (as of 30 June 2018)
Working interest (%) Licence Expiry Licence type (()(1))
99.8 Bitlyanska December 2019 E&D
99.2 Monastyretska November 2019 E&D
99.2 54.2 Debeslavetska ((2)) Cheremkhivska ((2)) November 2026 May 2018 Production Expired. Pending extension approval
1. E&D = Exploration and Development.
2. The Group has respectively 99.2% and 54.2% of economic benefit in
conventional activities in Debeslavetska and Cheremkhivsko-Strupkivska
licences through Joint Activity Agreements (“JAA”).
In addition to the above licences, the Group has a 15%,
carried-through-exploration interest in the ENI-led WGI 3 , which holds the
Cheremkhivsko-Strupkivska, Debeslavetska Production, Baulinska, Filimonivska,
Kurinna, Sandugeyivska and Yakovlivska licences for unconventional activities.
Cheremkhivsko-Strupkivska licence expired on 14 May 2018. WGI has submitted
application for 10 years extension – pending State Geological Serivce
approval.
Below we provide an update to the full Operations Review contained in 2017
Annual Report published on 25 April 2018.
Bitlyanska licence
Borynya 3 well is routinely monitored as required by existing regulations for
wells which are suspended. Internal assessment and third party evalution
identified drillable oil prospects at the depth below 1000m.
A UK adviser has been engaged to assist in the farm-out of Bitlyanska licence.
Monastyretska licence
The work-over and stimulation campaign of wells Blazhiv-1, Blazhiv-3 and
Blazhiv-Monastyrets-3 was successfully completed. The field produced 164 bpd
gross (H1 2017: 73 bpd) over the reporting period. An upgrade of the oil
storage capacity to fit with the increased production volumes has been
started.
A reservoir simulation study was awarded to an international consultant to
assess the licence upside, as well as to assist in the selection of the
optimal development scheme for the producing field.
Debeslavetska Production licence area
The field produced 60 boepd gross (H1 2017: 56 boepd) over the reporting
period. Rigless activity was regularly conducted to neutralize the natural
production decline.
Cheremkhivska Production licence area
As reported, the licence expired on 14 May 2018 and production had to be
suspended on that day. The licence owner WGI submitted in good time the
application for a 10 years extension which is now pending approval of the
State Service of Geology and Subsoil of Ukraine. Gross production over the
reporting period was 19 boepd (H1 2017: 26 boepd). Assets related to this
licence have been impaired in previous periods.
Unconventional licences
Eni, the majority owner of the operator WGI, is reconsidering its strategy and
there is no certainty at this stage that well drilling and testing will be
conducted. Cadogan, whose 15% interest is carried through exploration, had
prudently impaired the residual value of the assets held as part of its
investment in joint venture at the end of last year.
Service Company
activities
Cadogan’s 100% owned subsidiary, Astro Service LLC, continued to pursue
opportunities to build a larger portfolio of orders, while serving intra-group
operational needs. A multi-well work-over contract was signed with a local
operator and has become effective from July 2018.
Financial Review
Overview
Income statement
Revenues increased to $5.3 million in the first half of 2018 (30 June 2017:
$5.0 million, 31 December 2017: $15.1 million) and represent revenues from
production, which doubled to $2.1 million (30 June 2017: $1.0 million) due to
the increase of both production volumes (57% over H1 2017) and average
realised price (34% over H1 2017), and revenues from gas trading which
decreased to $3.1 million (30 June 2017: $3.9 million, 31 December 2017: $12.7
million).
The service business in the first half of 2018 was focused on internal
projects, in particular, on services to the Monastyretska licence.
The cost of sales consists of $3.1 million of purchases of gas, and $1.5
million of production royalties and operating costs (OPEX), such as
depreciation and depletion of producing wells, direct staff costs for
exploration and development and other operating costs.
Gross profit increased to $0.6 million (30 June 2017: $0.5 million, 31
December 2017: $2.1 million).
Other administrative expenses were further reduced to $2.0 million (30 June
2017: $2.7 million, 31 December 2017: $5.0 million). These comprise other
staff costs, professional fees, Directors’ remuneration and depreciation
charges on non-producing property, plant and equipment.
The reversal of impairment of other assets includes $0.3 million of reversal
of previously impaired VAT provision as offset of VAT recoverable against
margin earned on trading and E&P operations and $0.1 million of reversal of
previously impaired inventories which were sold at above cost.
Balance sheet
The cash position of $41.4 million as at 30 June 2018, including pledged 4
cash of $7 million, increased compared with the $37.6 million at 31 December
2017, mostly due to seasonality of gas trading segment, and remained almost at
same level of H1 2017 of $40.3 million.
Intangible Exploration and Evaluation (“E&E”) assets of $1.7 million (30
June 2017: $2.8 million, 31 December 2017: $1.7 million) represent the
carrying value of the Group’s investment in E&E assets as at 30 June 2018.
The Property, Plant and Equipment (“PP&E”) balance of $2.7 million at 30
June 2018 (30 June 2017: $1.2 million, 31 December 2017: $2.1 million) include
$1.5 million of development and production assets of Monastyretska licence and
other PP&E of the Group.
Trade and other receivables of $1.3 million (30 June 2017: $2.9 million, 31
December 2017: $4.5 million) include $0.1 million trading prepayments and
receivables (30 June 2017: $1.8 million, 31 December 2017: $3.1 million), and
VAT recoverable of $0.6 million (30 June 2017: $0.3 million, 31 December 2017:
$0.9 million) and $0.5 million of other receivables and prepayments (30 June
2017: $0.7 million, 31 December 2017: $0.4 million).
The $1.5 million of trade and other payables as of 30 June 2018 (30 June 2017:
$1.5 million, 31 December 2017: $1.4 million) represents $1.1 million (30 June
2017: $0.8 million, 31 December 2017: $0.9 million) of other creditors and
$0.4 million of accruals (30 June 2017: $0.7 million, 31 December 2017: $0.5
million).
Cash flow statement
The Consolidated Cash Flow Statement shows operating cash outflow before
movements in working capital of $1.1 million (30 June 2017: outflow $2.1
million, 31 December 2017: outflow $2.2 million). Cash inflows from movements
in working capital in first half 2018 of $5.1 million represent a decrease in
trade and other receivables of $3.4 million, decrease in inventories of $1.5
million, and a decrease in trade and other payables of $0.2 million.
The Group had capital expenditure of $0.1 million on intangible Exploration
and Evaluation (“E&E”) assets for the six months ended 30 June 2018 (30
June 2016: $0.4 million, 31 December 2017: $0.6 million). This related to
workovers on the Bitlyanska licence. On Monastyretska licence $0.7 million
capital expenditure (30 June 2017: $nil, 31 December 2017: $0.1 million) on
Property, Plant and Equipment (“PP&E”) related to implementation of the
work-over and stimulation campaign on Blazh wells.
Commitments
There has been no material change in the commitments and contingencies
reported as at 31 December 2017 (refer to page 79 of the Annual Report).
Treasury
The Group continually monitors its exposure to currency risk. It maintains a
portfolio of cash and cash equivalent balances mainly in US dollars
(‘USD’) held primarily in the UK and holds these mostly 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
partially held in Ukraine for further use in operations and partially ($2
million) remitted to the UK. Funds are transferred to the Company’s
subsidiaries in USD to fund operations, at which time the funds are converted
to UAH. Some payments are made on behalf of the affiliates from the UK.
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 detail 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 11 to 13
of the 2017 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
* Drilling and work-over operations
* Production and maintenance
Subsurface risks
Financial risks
* Changes in economic environment risk
* Counterparty risk
* Commodity price risk
Country risk
* Regulatory and licence issues
* Emerging market risk
Other risks
* Risk of losing key staff members
* Risk of entry into new countries
Director’s Responsibility Statement
We confirm that to the best of our knowledge:
(a) the Interim Financial Statements has 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 21 has been approved by the
Board and signed on its behalf by:
Guido Michelotti
Chief Executive Officer
21 August 2018
CADOGAN PETROLEUM PLC
Consolidated Income Statement
Six months ended 30 June 2018
Six months ended 30 June Year ended 31 December
2018 $’000 2017 $ ’000 2017 $ ’000
Notes (Unaudited) (Unaudited) (Audited)
CONTINUING OPERATIONS
Revenue 3 5,313 4,967 15,145
Cost of sales 3 (4,696) (4,496) (13,093)
Gross profit 617 471 2,052
Administrative expenses (2,002) (2,697) (4,981)
Impairment of oil and gas assets - - (162)
Reversal of impairment of other assets 368 503 1,462
Share of losses in joint ventures - (359) (2,323)
Net foreign exchange losses (2) (34) (116)
Other operating income 121 174 480
Operating loss (898) (1,942) (3,588)
Finance income/(costs) 4 476 (51) 672
Loss before tax (422) (1,993) (2,916)
Tax benefit 107 - 1,332
Loss for the period/year (315) (1,993) (1,584)
Attributable to:
Owners of the Company 5 (318) (1,991) (1,585)
Non-controlling interest 3 (2) 1
(315) (1 ,993) (1,584)
Loss per Ordinary share cents cents cents
Basic and diluted 5 (0.1) (0.9) (0.7)
CADOGAN PETROLEUM PLC
Consolidated Statement of Comprehensive Income
Six months ended 30 June 2018
Six months ended 30 June Year ended 31 December
2018 $ ’000 2017 $ ’000 2017 $ ’000
(Unaudited) (Unaudited) (Audited)
Loss for the period/year (315) (1,993) (1,584)
Other comprehensive loss
Items that may be reclassified subsequently to profit or loss
Unrealised currency translation differences 127 423 (671)
Other comprehensive loss 127 423 (671)
Total comprehensive loss for the period/year (1 88 ) (1,570) (2,255)
Attributable to:
Owners of the Company (191) (1,568) (2,256)
Non-controlling interest 3 (2) 1
(1 88 ) (1,570) (2,255)
CADOGAN PETROLEUM PLC
Consolidated Statement of Financial Position
Six months ended 30 June 2018
Six months ended 30 June Year ended 31 December
2018 $ ’000 2017 $ ’000 2017 $ ’000
Notes (Unaudited) (Unaudited) (Audited)
ASSETS
Non-current assets
Intangible exploration and evaluation assets 1,713 2,819 1,715
Property, plant and equipment 6 2,651 1,169 2,095
Investments in joint ventures - 1,964 -
Deferred tax asset 431 - 323
4,795 5,952 4,133
Current assets
Inventories 7 1,067 1,015 2,292
Trade and other receivables 8 1,294 2,861 4,497
Cash and cash equivalents 41,371 40,344 37,640
43,732 44,220 44,429
Total assets 48,527 50,172 48,562
LIABILITIES
Non-current liabilities
Long-term provisions (463) (705) (412)
(463) (705) (412)
Current liabilities
Short-term borrowings 9 - - -
Trade and other payables 10 (1,480) (1,520) (1,406)
Current provisions (386) (1,393) (358)
(1,866) (2,913) (1,764)
Total liabilities (2,329) (3,618) (2,176)
Net assets 46,198 46,554 46,386
EQUITY
Share capital 13,525 13,337 13,525
Share premium 329 - 329
Retained earnings 192,524 192,436 192,842
Cumulative translation reserves (162,043) (161,076) (162,170)
Other reserves 1,589 1,589 1,589
Equity attributable to equity holders of the parent 45,9 24 46,286 46,115
Non-controlling interest 274 268 271
Total equity 46,198 46,554 46,386
CADOGAN PETROLEUM PLC
Consolidated Statement of Cash Flows
Six months ended 30 June 2018
Six months ended 30 June Year ended 31 December
2018 $ ’000 2017 $ ’000 2017 $ ’000
(Unaudited) (Unaudited) (Audited)
Operating loss (898) (1,942) (3,588)
Adjustments for:
Depreciation of property, plant and equipment 96 69 211
Impairment of oil and gas assets - - 162
Share of losses in joint ventures - 359 2,323
Impairment of receivables - 4 51
Reversal of impairment of inventories (102) (152) (77)
Reversal of impairment of VAT recoverable (266) (389) (1,436)
Gain on disposal of property, plant and equipment (33) - (9)
Effect of foreign exchange rate changes 2 (34) 116
Operating cash flows before movements in working capital (1, 201 ) (2,085) (2,247)
Decrease/(Increase) in inventories 1,570 1,125 (564)
Decrease in receivables 3,430 2,077 469
Increase/(Decrease) in payables and provisions 179 (13) 367
Cash from operations 3,978 1,104 (1,975)
Interest paid - (108) (298)
Interest on receivables received - - 561
Income taxes paid - (109) (107)
Net cash inflow/(outflow) from operating activities 3,978 887 (1,819)
Investing activities
Purchases of property, plant and equipment (664) - (68)
Purchases of intangible exploration and evaluation assets (75) (374) (568)
Proceeds from sale of property, plant and equipment 33 - 198
Interest received 476 79 205
Net cash used in investing activities ( 230 ) (295) (233)
Financing activities
Proceeds from short-term borrowings - 699 3,365
Repayment of short-term borrowings - (4,316) (7,075)
Net cash used in financing activities - (3,617) (3,710)
Net increase (decrease) in cash and cash equivalents 3,748 (3,025) (5,762)
Effect of foreign exchange rate changes (17) 69 102
Cash and cash equivalents at beginning of period/year 37,640 43,300 43,300
Cash and cash equivalents at end of period/year 41,371 40,344 37,640
CADOGAN PETROLEUM PLC
Consolidated Statement of Changes in Equity
Six months ended 30 June 2018
Share capital Share premium account Retained earnings Cumulative translation reserves Reorganisation Equity attributable to owners of the Company Non-controlling interest Total
$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
As at 1 January 2017 13,337 - 194,427 ( 161,499 ) 1,589 47,854 270 48,124
Net loss for the period - - (1,585) - - (1,585) 1 (1,584)
Other comprehensive loss - - (671) - (671) - (671)
Total comprehensive loss for the year - - (1,585) (671) - (2,256) 1 (2,255)
Issue of ordinary shares 188 329 - - - 517 - 517
As at 31 December 2017 13,525 329 192,842 (162,170) 1,589 46,115 271 46,386
Net loss for the period - - (318) - - (318) 3 (309)
Other comprehensive gain - - - 127 - 127 - 121
Total comprehensive gain/(loss) for the year - - (318) 127 - (191) 3 (188)
As at 30 June 2018 13,525 329 192,5 26 (162,04 3 ) 1,589 45,924 274 46,198
CADOGAN PETROLEUM PLC
Notes to the Condensed Financial Statements
Six months ended 30 June 2018
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 5 to 6 and the
Financial Review on pages 7 to 8.
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, which were included in the Annual Report
issued on 25 April 2018.
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 2018. The adoption of these
standards and amendments did not have a material effect on the financial
statements of the Group.
The Company adopted IFRS 9 ‘Financial Instruments’ and IFRS 15 ‘Revenue
from Customers’ in the six month period, following the standards becoming
effective for periods commencing on or after 1 January 2018.
IFRS 9 ‘Financial instruments’ addresses the classification and
measurement of financial assets and financial liabilities and replaces the
guidance in IAS 39 that relates to the classification and measurement of
financial instruments. IFRS 9 retains but simplifies the mixed measurement
model and establishes three primary measurement categories for financial
assets: amortised cost, fair value through other comprehensive income (OCI)
and fair value through profit or loss. The basis of classification depends
on the entity’s business model and the contractual cash flow characteristics
of the financial asset. There is now a new expected credit loss model that
replaces the incurred loss impairment model used in IAS 39. The adoption of
IFRS 9 did not result in any material change to the consolidated results of
the Group from the start of the earliest period presented. The Group took the
option available on transition not to restate comparative information.
Following assessment of the consolidated financial assets no changes to
classification of those financial assets was required. The Group has applied
the expected credit loss impairment model to its financial assets and no
material credit loss provisions were considered to exist at the date of
initial application or period end.
IFRS 15 introduced a single framework for revenue recognition and clarify
principles of revenue recognition. This standard modifies the determination of
when to recognise revenue and how much revenue to recognise. The core
principle is that an entity recognises revenue to depict the transfer of
promised goods and services to the customer of an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those
goods or services. The adoption of IFRS 15 did not result in any material
change to the Group’s revenue recognition following analysis of its
contracts.
(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 2018 was $41.4 million (31 December
2017: $37.6 million), including pledged cash of $7 million (2017: $7 million).
The Group’s forecasts and projections, taking into account reasonably
possible changes in operational performance, and the price of hydrocarbons
sold to Ukrainian customers, show that there are reasonable expectations that
the Group will be able to operate on funds currently held and those generated
internally, for the foreseeable future.
The Group continues to pursue its farm-out strategy on Bitlyanska licence with
the objective of managing risks and mitigating capital deployment.
After making enquiries and considering the uncertainties described above, the
Directors have a reasonable expectation that the Company and the Group have
adequate resources to continue in operational existence for the foreseeable
future and consider the going concern basis of accounting to be appropriate
and, thus, they continue to adopt the going concern basis of accounting in
preparing the financial statements. In making its statement the Directors have
considered the recent political and economic uncertainty in Ukraine.
(b) Foreign currencies
The individual financial statements of each Group company are presented in the
currency of the primary economic environment in which it operates (its
functional currency). The functional currency of the Company is US dollar. For
the purpose of the consolidated financial statements, the results and
financial position of each Group company are expressed in US dollars, which is
the presentation currency for the consolidated financial statements.
The relevant exchange rates used were as follows:
1 US$ = £ Six months ended 30 June Year ended 31 Dec 2017
2018 2017
Closing rate 1.3218 1.3004 1.3494
Average rate 1.3763 1.2589 1.2890
1 US$ = UAH Six months ended 30 June Year ended 31 Dec 2017
2018 2017
Closing rate 26.3500 26.1819 28.3865
Average rate 26.9419 26.9720 26.8034
(c) Dividend
The Directors do not recommend the payment of a dividend for the period (30
June 2017: $nil; 31 December 2017: $nil).
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 analysed on the basis of the types of goods supplied by
the Group’s operating divisions.
The Group’s reportable segments under IFRS 8 are therefore as follows:
Exploration and Production
* E&P activities on the 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 2018 and for the six months then ended the Group’s segmental
information was as follows:
Exploration and Production Service ((1)) Trading Consolidated
$’000 $’000 $’000 $’000
Sales of hydrocarbons 2,030 - 3,270 5,300
Other revenue - 13 - 13
Sales between segments 108 - (108) -
Total revenue 2,138 13 3,162 5,313
Other cost of sales (1,534) (4) (3,098) (4,636)
Depreciation (43) (17) - (60)
Other administrative expenses (197) (26) (43) (266)
Segment results 364 (34) 21 351
Unallocated other administrative expenses - - - (1,736)
Net foreign exchange gains - - - (2)
Other income, net - - - 965
Loss before tax - - - (422)
As of 30 June 2017 and for the six months then ended the Group’s segmental
information was as follows:
Exploration and Production Service Trading Consolidated
$’000 $’000 $’000 $’000
Sales of hydrocarbons 832 - 4,135 4,967
Other revenue - - - -
Sales between segments 188 - (188) -
Total revenue 1,020 - 3,947 4,967
Other cost of sales (704) - (3,774) (4,478)
Depreciation (5) (13) - (18)
Other administrative expenses (198) (13) (143) (354)
Finance cost, net ((2)) - - (88) (88)
Segment results 113 (26) (58) 29
Unallocated other administrative expenses - - - (2,360)
Share of losses in joint ventures - - - (359)
Net foreign exchange gain - - - (34)
Other losses, net 731
Loss before tax - - - (1,993)
(1) In first half 2017 and in the first half 2018 the Service
business was focused on internal projects, in particular, providing servises
to Monastyretska licence.
(2) Finance cost includes $108 thousand of interest on short-term
borrowings and $20 thousand of interet on cash deposits used for trading.
4. Finance cost, net
Six months ended 30 June Year ended 31 December
2018 2017 2017
$’000 $’000 $’000
Interest expense on short-term borrowings - (108) (256)
Interest on tax provision - (17) -
Total interest expenses on financial liabilities - (125) (256)
Reversal of interest expense on tax provision - - 189
Interest income on receivables - - 494
Investment revenue 315 59 205
Interest income on cash deposit in Ukraine 180 20 67
Total interest income on finacial assets 495 79 955
Unwinding of discount on decomissioning provision (19) (5) (27)
476 (51) 672
5. Loss per ordinary share
Loss per ordinary share is calculated by dividing the net loss 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 per share is based on the following data:
Six months ended 30 June Year ended 31 December
Loss attributable to owners of the Company 2018 $ ’000 2017 $ ’000 2017 $ ’000
Loss for the purposes of basic loss per share being net loss attributable to owners of the Company (312) (1,991) (1,585)
Number Number Number
Number of shares ‘000 ‘000 ‘000
Weighted average number of Ordinary shares for the purposes of basic loss per share 231,092 231,092 232,251
Cent Cent Cent
Loss per Ordinary share
Basic (0.1) (0 . 9) (0.7)
The diluted loss per share is equal to the basic loss per share owing to the
loss for the period.
6. Proved properties
As of 30 June 2018 the proved properties assets balance which forms part of
PP&E has increased in comparison to 31 December 2017 due to work overs on
Monastyretska licence.
7. Inventories
The Group had volumes of natural gas stored at 31 December 2017 which were
sold during the six months ended 30 June 2018; this resulted in a reduction of
the natural gas balance from $1.3 million to nil. No other substantial changes
in inventories balances occured.
8. Trade and other receivables
Six months ended 30 June Year ended 31 December
2018 $ ’000 2017 $ ’000 2017 $ ’000
VAT recoverable 588 277 896
Prepayments 110 269 -
Trading prepayments 99 445 1,797
Trading receivables 41 1,405 1,338
Receivable from joint venture 29 - 56
Other receivables 427 465 410
1,294 2,861 4,497
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. Short-term borrowings
In 2018 the Group continued to use short-term borrowings as a financing
facility for its trading activities. Borrowings are represented by a credit
line drawn in UAH at a Ukrainian bank, a 100% subsidiary of a European bank.
The credit line is secured by $7 million of cash balance placed at a European
bank in the UK.
The Group did not use the credit line during the six months ended 30 June 2018
as it has managed to finance its trading activities with its own funds.
10. Trade and other payables
The $1.5 million of trade and other payables as of 30 June 2018 (30 June 2017:
$1.5 million, 31 December 2017: $1.4 million) represent $1.1 million (30 June
2017: $0.8 million, 31 December 2017: $0.9 million) of other creditors and
$0.4 million of accruals (30 June 2017: $0.7 million, 31 December 2017: $0.5
million).
11. Commitments and contingencies
There have been no significant changes to the commitments and contingencies
reported on page 79 of the Annual Report.
1 Respectively Lost Time Incident and Total Recordable Incident.
2 Lost Time Incident
3 WestGasInvest LLC is a Ukraine registered company in which Cadogan owns a
15% participating interest; the remaining participating interest is held by
eni ukraine LLC (50.01 %) and Nadra Ukrayny (34.99 %)
4 To guarantee a $7 million credit line secured with the Ukrainian branch of
the UK bank.
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