REG - Caspian Sunrise plc - Interim Results

Caspian SunriseAnnouncement

17/09/2019 07:05

RNS Number : 5117M
Caspian Sunrise plc
17 September 2019
 


Caspian Sunrise PLC
 
("Caspian Sunrise" or the "Company")
 
Interim Results for the period ended 30 June 2019
 
 
Caspian Sunrise, the Central Asian oil and gas company with a focus on Kazakhstan, announces its unaudited results for the six-month period ended 30 June 2019.
 
 
Enquiries:
 



Caspian Sunrise PLC
Clive Carver, Chairman 
 


+7 727 375 0202 




WH Ireland Limited
James Joyce / James Sinclair-Ford
 


+44 (0) 207 220 1666 



 
Qualified Person
 
Mr. Nurlybek Ospanov, Caspian Sunrise PLC's Chief Geologist / Technical Director who is a member of the Society of Petroleum Engineers ("SPE"), has reviewed and approved the technical disclosures in this announcement.
 
The information contained within this announcement is deemed by the Company to constitute inside information under Market Abuse Regulation (EU) No 596/2014
 
 
CHAIRMAN'S STATEMENT
 
Introduction
 
This interim report, covering the six-month period ended 30 June 2019 and subsequently, comprises a review of the key developments in the period under review and subsequently.
 
We started the period under review with two immediate objectives:
 
1.   To move the MJF structure to a full production licence
2.   To get one of our BNG deep wells on a 90-day flow test
 
MJF licence upgrade
 
On 11 July 2019, we announced that final regulatory consent had been received and that from September 2019, the majority of the oil produced from the MJF structure may be sold by reference to world rather than domestic prices.
 
This is a big deal.  To date all the oil produced at BNG, most of which comes from the MJF structure, has been sold at domestic prices of approximately $19-$20 per barrel, before production, storage and transportation costs as is required under an appraisal licence, and approximately $15-$16 per barrel after such costs.
 
From September 2019, under a full production licence, approximately 70% of the oil produced from the MJF structure may be sold by reference to world prices. For example, at world prices of $60 per barrel we would expect to achieve around $30 per barrel before production, storage and transportation costs and around $26per barrel after these costs.
 
The award of the MJF licence upgrade may appear a routine event, however, it demonstrates the vital importance of being present in country, with the negotiations being led by a team of Kazakh nationals who both understand the intricacies of the new rules and have the skillset and diplomacy to deal with unavoidable bureaucracy.
 
The award itself was delayed several times, including by presidential elections, expected ministerial reshuffles and the introduction of a new licensing system. These delays probably added, in aggregate, six months to the process. While in the short term this is clearly painful, viewed over the 25-year period covered by the licence upgrade it is unlikely to be financially significant.
 
Maximising income while waiting on the MJF licence upgrade required the five existing MJF producing wells to be run harder and for longer than was ideal. The impact being a sharper rate of decline than would otherwise have been necessary, with monthly production falling to some 1,200 bopd in the period under review and subsequently even lower, with aggregate production in August 2019 being 36,530 barrels or 1,178bopd.
 
On the positive side, as we workover these five wells we expect to restore their capacity to the levels we would have expected had the existing wells been run with an eye to the longer term. We have already started the process, initially by removing build ups of wax from the oil pipes, which produced increases of in excess of 50% at the two wells treated to date. We therefore expect to report a steady rise in the oil produced from existing wells from September onwards.
 
Now we have the licence upgrade we can start the infill drilling programme to drill up to 18 new wells, within the boundaries already established by the existing producing wells on the MJF structure.
 
Initially, we planned to drill 10 infill wells to bring the total number of MJF wells to 16,  however after a further analysis of the payback from wells drilled on the MJF structure we have decided to move directly to a programme of 18 new infill wells, which we are targeting to complete by the end of 2020. This will bring the total to 24.
 
On 2 September 2019, we announced the purchase of equipment for the newly formed services division, including two G40 rigs, one of which had been used to drill Deep Well 6 (see below for further details).  We will use both these G40 rigs to drill the planned 18 new wells and believe now we have control of the drilling equipment we should be able to drill the shallow wells at the rate of four per quarter.
 
Six new well sites are currently being prepared for drilling. The first of the new wells, Well 150 is targeted to spud in early October 2019 and well 151 in early November 2019.
 
Following the completion of the infill drilling programme we expect the production capacity of the MJF structure, with 24 producing wells, to increase to approximately 8,000 bopd.
 
BNG Deep Wells
 
Potential
 
Pleased as we are with the MJF structure, the impact of any of our deep wells getting into production would be far more transformational. Our hopes for both daily production and reserves from the already identified deep structures are many times greater than from the MJF structure.
 
So far, we have drilled four deep wells.  These are A5, A6 and A8 on the Airshagyl structure and 801 on the Yelemes structure.
 
We believe, over time, each of these wells is capable of producing commercial quantities of oil.  However, for a range of operational issues mostly stemming from the extreme pressures in the wells we had only been able to get Deep Well A5 to flow for more than 10 days at a time, although it is worth noting this was at the rate of 3,800 bopd.
 
It was therefore pleasing on 12 September, to be able to announce at Deep Well A8 the successful perforation of, in aggregate, intervals of 47 meters and that oil mixed with drilling mud flowed.
 
We believe that the presence of strong gas shows now being flared is also a positive indicator of what may be to come.
 
Further information on Deep Well A8 is set out below.
 
A summary of the pressure related operational issues encountered
 
Over the past few years much has been said about the high pressures and high temperatures encountered blow the salt layer. Illustrating the point with specifics, for the deep pre salt wells the calculated bottom-hole pressures are as high as 930 ATM, with wellhead pressures of up to 450 ATM. Downhole temperatures are in the range 120-130 degrees Celsius.
 
This compares with typical wellhead pressures with wells at the MJF structure of 240-260 ATM and pressure of less than 20 ATM at the surface.  Bottom-hole temperatures at wells on the MJF structure are around 80 degrees.
 
By any assessment the pressures encountered below the salt layer are extreme and have resulted in recurring issues which may be categorised as:
 
·      Managing the density of the drilling mud used to control the well while drilling.
·      Drilling through the salt layer
·      Perforating the well
 
What has become clear over the past few years that there is no great pool of high-pressure deep drilling expertise into which we can tap.  While initially we generally deferred to the recommendations of the leading international consultancies in respect of the high-pressure issues, we now believe we often have as much relevant experience as the international consultancies seeking to advise us.
 
While drilling any high-pressure deep well is always challenge, it is one we believe with the experience gain over the past decade we are now much better placed to meet.
 
Current position
 
A5
 
On 12 July 2019, we announced success in milling away the 2.6-meter metallic obstruction at a depth of 3,887 meters, following which an 85-meter section of lining was been removed. While this provided enough space for the side-track, we spent a further few weeks seeking to remove another 18 meters of lining to give extra working space however without success.
 
On 2 August 2019, we were pleased to announce the commencement of  a side-track from a depth of 3,976 meters. Of the 500 meters to be drilled more than 200  meters had been completed at the date of this interim report, without incident.
 
Baker Hughes have been scheduled to undertake the final cementing at the end of September, following we would seek to perforate the well over an initial 50-meter single interval.
 
A6
 
At Deep Well A6, we have been seeking to successfully perforate the well.  On 12 July 2019,  we announced we will seek to use acid technology new to us to accomplish this task in conjunction with a leading international consultancy.
 
Contracts have now been signed to perforate approximately, in aggregate, 45 meters of the higher prospects previously identified. This work is scheduled to take place by the end of September, following which, if successful, we would seek to commence a 90-day flow test.
 
A8
 
Deep Well A8, is the third deep well drilled on the Airshagyl structure.  Previous announcements referred to the existence of a 159-meter carbonate interval, of which 52.5 meters is of porous oil-bearing rock from a depth of 4,342 meters.
 
Casing was set to a depth of 4,520 meters and the associated cementing completed. Together with our drilling partner, Sinopec, work paused at this level to consider the merits of drilling on to the planned Total Depth of 5,300 meters or whether it made greater commercial sense to seek to perforate the highly promising intervals already identified.
 
The decision was taken to perforate the intervals already identified and based on early indicators noted above the results seem to suggest the correct choice was taken.
 
On 12 September 2019, we announced that oil together with drilling mud was flowing at the rate of 400 litres per hour.  However, it will not be until the drilling mud is completely removed that we are able to publish reliable production estimates.
 
We fully intend to explore the lower depths of the Airshagyl structure with future wells.
 
801
 
The issues with Deep Well 801, the only well to date drilled on the Yelemes structure, concern  blockages, first in the main well and then in the side-track already drilled to get around the pipes stuck towards the bottom of the main well.  The blockages result from the use of heavy density drilling mud to contain the extreme pressures in the well.
 
 
On 12 July 2019, we announced that in conjunction with Deep Well A6, we would be using acid technology to clear out the well and then for the perforation work.
 
As with Deep Well A6, contracts have now been signed to perforate approximately in aggregate 45 meters previously identified. This work is scheduled to take place by the end of September, immediately after similar work at A6, following which, if successful, we would also seek to commence a 90-day flow test.
 
Deep well expectations summarised
 
Our objective remains to get as many of our deep wells as possible on to a 90-day flow test by the end of the current financial year.
 
As set out above it is possible that all four of the deep wells drilled may be on 90-day flow tests within the next calendar month.
 
Caspian Services
 
A new division, Caspian Sunrise Services, has been formed to take the lead in the development of the Group's assets.  The division will have a core skilled workforce, initially of 15, to which additional workers will be added as circumstances dictate.  The new division will lease the purchased equipment on an arms-length basis from Eragon Petroleum UAE, the group company which will own the equipment referred to below.
 
Equipment purchase
 
On 2 September 2019, we announced the purchase of drilling equipment for an aggregate consideration of $7 million, to be satisfied by the issue of 58,333,333 new ordinary shares ("Consideration Shares") at an issue price of 10p per share. Much of the equipment has already been used on a rental basis and is well known to the Company.
  
The relative lack of drilling activity in Kazakhstan has resulted on occasion in unnecessary delays in sourcing basic equipment to develop our oil fields. The cumulative impact of which has been to set back the pace of development and to increase costs.
 
Now we have embarked on an extensive 18-well infill programme on the MJF structure it makes commercial sense to have direct access the rigs and other routine equipment required. This is expected to reduce operational delays, speeding up the development of our oil fields and reducing drilling costs. In particular, we now expect to complete the expanded 18-well drilling programme at the time originally planned for the 10-well campaign.
 
For specialist equipment, such as rigs capable of drilling below 4,500 meters, we will continue to use equipment owned by others.
  
The equipment acquired comprises principally four drilling rigs, two cranes, pumps, generators, a blow-out preventor and 12 vehicles, including trucks, crew buses and pickup trucks.
 
The largest of the rigs to be acquired is a 350-tonne rig, with the capacity to drill to a depth of up to 5,000, meters. The two further drilling rigs are 225 tonne rigs, each being able to drill to depths of up to 4,000 meters. These will be used exclusively at the MJF structure until all the planned 18 infill wells are drilled. The fourth is a workover rig of 80 tonnes, with a capacity to drill up to 1,500 meters and perform general workover tasks to a depth of 2,500 meters.
 
One of the cranes is able to lift 50 tonnes and the other 25 tonnes and are used principally in the assembly and dis-assembly of the rigs.
 
The seller of the equipment has agreed not to sell or otherwise dispose of the Consideration Shares for a period of six months.
 
3A Best
 
Introduction
 
On 22 January 2019, we announced the acquisition of 100% of 3A Best JSC, a company owning licence for the 3A Best Contract Area for a consideration payable by the issue of 149,253,732 new Ordinary Caspian Sunrise shares ("Consideration Shares"). The number of Consideration Shares was calculated using an estimation of the relative values of Caspian Sunrise and 3A Best. At the date of formal completion of the acquisition the prevailing shares price was 6.15p, which together with the prevailing £:$ exchange rate produced a formal valuation of approximately $11.8 million. Further details are set out in note 8 to the accounts.
 
Background
 
3A Best owns a Contract Area of 1,347 sq. km located close to the Caspian port city of Aktau in the Mangystau Province of Kazakhstan. The Contract Area is adjacent to and runs under the commercially successful Dunga field, which was discovered in 1966 and developed by Maersk Oil. It is now owned by Total. We understand Dunga is currently producing 15,000 bopd.
 
Based on an assessment of the geology, Caspian Sunrise's technical team believe some of the geological characteristics of the Dunga Contract Area are also present at 3A Best. Additionally, they believe the area 2,500 meters and below the Dunga Contract area, which forms part of the 3A Best Contract Area, also indicates the likely presence of oil.
 
490 sq. km of 3D seismic has been shot. 1,327 linear km of 2D has been digitised and reprocessed. C2 reserves, using the Soviet system of classification, of 3.67 million tonnes (approximately 26.8 mbbls) have been assigned to the 3A Best Contract Area.
 
Two wells have been drilled on the Contract Area in recent years, both encountering water and signs of oil & gas, although neither was commercially successful.
 
Caspian Sunrise has, by completing the acquisition of 3A Best, became responsible for the outstanding work programme commitment represented by the drilling of two wells to a depth of 3,000 meters, each with an estimated cost of up to $2 million.
 
Recent developments
 
Total has extended the Dunga licence to 2039, and seemingly intends to increase the pace of development at the already successful asset.
 
As the 3A Best Contract Area licence not only surrounds Dunga but extends for depths below 2,500 meters under the Dunga field, we view the Dunga licence extension as a positive development for the valuation of our interest in 3A Best.
 
Financial results
 
Introduction
 
The improvement in the Company's operational position, as set out above, has occurred following the financial period reported in this announcement.  Accordingly, the financial results in this interim report do not reflect any improvement made in the period since the end of June 2019.
 
Revenue
 
Revenue in the period under review fell 14% to $4.37 million compared to the corresponding period in 2018.  This reflects a steady price for the oil sold but declining production volumes. As previously announced and referred to elsewhere in this report, our need to maximise cashflow while developing both the MJF structure and the 4 deep well prospects, together with the impact of the much delayed upgrade to export status at the MJF structure, meant we had to run the five producing MJF wells harder than would otherwise be the case. The result being a sharp fall of in production, particular in Q2 and subsequently in Q3 2019.
 
Recently we have started to correct this with routine maintenance, focused on cleaning the wax build ups in the oil pipes.  The two wells to be so treated have both increased daily production by more than 50%. We therefore  do not believe these low daily production numbers will continue much beyond the end of Q3 2019.
 
Administrative expenses
 
In the period under review Administrative Expenses rose by approximately 6% to $1.44 million. This reflects a higher level of both operational and corporate activity.
 
Loss before taxation
 
The impact of the decrease in revenues and increase in Administrative expenses was to increase the loss before taxation by 6.8% at $1.48 million compared to the corresponding period.
 
Taxation
 
In the period under review the group tax charge was $0.78 million compared to a rebate in the corresponding period of $1.0 million. The charge for 2019, relates principally to provisions made for Kazakh withholding tax and the credit for 2018, relates to a refund from the UK HMRC.
 
Funding
 
As previously stated in these reports our approach to funding continues to be based on medium and longer-term objectives rather than considerations of the short term.
 
This is possible, in part, from the income flowing from the existing shallow production from the BNG Contract Area and, in part, from the continued financial support from our largest shareholder group, the Oraziman family.
 
We have since the announcement of the $40 million equity facility in January 2013, of which some $29 million was actually drawn at a price of 7.4p per share, avoided any issues of equity to fund purely day to day operations.  The only equity issues since that time have been in respect of the Baverstock Merger in May 2017, for the acquisition of the 3A Best Contract Area in January 2019, the purchase of $7 million equipment in September 2019, and for a limited number of option exercises.
 
We plan to continue to use advances form oil traders and the ad hoc support of the Oraziman family under the terms of the existing framework agreement, to fund the Group in the short-term, reserving any material future issues of equity principally for acquisitions designed to strengthen or widen the group's activities.
 
Our AIM status
 
From time to time the Company's commitment to maintaining its AIM status is questioned, often accompanied by false rumours that we might either de-list or that the largest shareholders may seek to take the company private.
 
While it is the case that we have not sought to use AIM to raise development funding since 2007, and that the costs of complying with the increasing regulatory burden are significant, we continue to believe the benefits of having our shares traded on the London Stock Exchange far outweigh the drawbacks and we have no plans to change the position for the foreseeable future.
 
Our shareholder base
 
We have a shareholder base comprising a small number of large shareholders, who very rarely trade their shares, and a larger number of small investors, from which almost all the trading in the Company's shares take place.
 
The average daily trading volumes in the Company's shares  over the past six months has been 1.76 million shares or approximately $160,000 per day, which includes both buys and sell, or put another way only half of one per cent of the total shares in issue. This coupled with market makers only typically offering lots of approximately $6,000 can lead to significant price movements on the back of very little actual trading.
 
We believe it will not be until we are able to be valued by reference to either production, reserves or dividends that an objective valuation can be placed on the Company's shares, high or low.
 
Outlook
 
Of the two objectives we set for ourselves at the start of the year the first, the move of the MJF structure on the BNG Contract Area, has certainly been achieved and we seem close with A8 to meeting the second.
 
As noted above we are working towards having each of the four deep wells drilled on a 90-day flow test within a calendar month of the date of this report. However, while the management team remains quietly confident, as long-term investors will know, there can be no guarantee these plans will come to fruition on the timelines indicated.
 
Additionally, we are working on ambitious plans to move the business forward to take advantage of other opportunities we have open to us.
 
We look forward to updating the market with operational and strategic updates in due course.
 
 
Clive Carver
Executive Chairman
16 September 2019 




 
 
 
 
UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENT
 











Six months ended
30 June 2019
Unaudited






Six months ended
30 June 2018
Unaudited


 












US$000s






US$000s


 
























 




Revenue






4,368






5,036


 




Cost of sales






(4,368)






(5,036)


 




Gross Profit






-






-


 
























 




Share-based payments






(6)






(23)


 




Administrative expenses






(1,443)






(1,360)


 




Operating Loss






(1,449)






(1,383)


 
























 




Finance cost






(35)






(6)


 
























 




Loss before taxation






(1,484)






(1,389)


 
























 




Taxation






(785)






1,013


 
























 
























 




Loss after taxation






(2,269)






(376)


 
























 




Loss attributable to owners of the parent






(2,164)






(276)


 




Loss attributable to non-controlling interest






(105)






(100)


 
























 




Loss for the year






(2,269)






(376)


 
























 
























 




Earnings per share


3














 
























 




Basic loss per ordinary share (US cents)


 
 


(0.13)






(0.02)


 




























 











































































 




 
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
 











Six months ended
30 June 2019
Unaudited


Six months ended
30 June 2018
Unaudited












US$000s


US$000s






















Loss after taxation






(2,269)


(376)




Other comprehensive loss:
















Items to be reclassified to profit or loss in subsequent periods




















Exchange differences on translating foreign operations






419


(1,275)




Total comprehensive loss for the period






(1,850)


(1,651)






















Total comprehensive loss attributable to:
















Owners of the parent






(1,745)


(1,370)




Non-controlling interest






(105)


(281)










 
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
 
For the six months ended 30 June 2019
 
 







Share capital


Share premium


Deferred shares


Cumulative translation reserve


Shares to be issued


 Other reserve


Retained  deficit


Total


Non-controlling interests


Total equity




Unaudited


US$'000


US$'000


US$'000


US$'000


US$'000


US$'000


US$'000


US$'000


US$'000


US$'000




At 1 January 2019


25,416


229,020


64,702


(55,911)


-


(2,362)


(219,230)


41,635


(5,605)


36,030




Loss after taxation


-


-


-


-


-


-


(2,164)


(2,164)


(105)


(2,269)




Exchange differences on translating foreign operations


-


-


-


419


-


-


-


419


-


419




Total comprehensive income for the period


-


-


-


419


-


-


(2,164)


(1,745)


(105)


(1,850)




Purchase of subsidiary


-


-


-


-


11,795


-


-


11,795


-


11,795




Stock options exercised


56


164


-


-


-


-


-


220


-


220




Arising on employee share options


-


-


-


-


-


-


-


-


-


-




Arising on employee share options


-


-


-


-


-


-


6


6


-


6




At 30 June 2019


25,472


229,184


64,702


(55,492)


11,795


(2,362)


(221,388)


51,911


(5,710)


46,201



 
 
 
For the six months ended 30 June 2018







Share capital


Share premium


Deferred shares


Cumulative translation reserve


 Other reserve


Retained  deficit


Total


Non-controlling interests


Total equity




Unaudited


US$'000


US$'000


US$'000


US$'000


US$'000


US$'000


US$'000


US$'000


US$'000




At 1 January 2018


25,401


228,974


64,702


(55,000)


(2,362)


(210,877)


50,838


(4,654)


46,184




Loss after taxation


-


-


-


-


-


(276)


(276)


(100)


(376)




Exchange differences on translating foreign operations


-


-


-


(1,094)


-


-


(1,094)


(181)


(1,275)




Total comprehensive income for the period


-


-


-


(1,094)


-


(276)


(1,370)


(281)


(1,651)




Arising on employee share options


-


-


-


-


-


23


23


-


23




At 30 June 2018


25,401


228,974


64,702


(56,094)


(2,362)


(211,130)


49,491


(4,935)


44,556



 
 
 
 
 
 



Reserve






Description and purpose




Share capital






The nominal value of shares issued




Share premium






Amount subscribed for share capital in excess of nominal value




Deferred shares






The nominal value of deferred shares issued




Cumulative translation reserve






Losses arising on retranslating the net assets of overseas operations into US Dollars




Shares to be issued






Amount received in respect of shares which are yet to be issued




Other reserves






Fair value of warrants issued and gain/losses from the purchase of NCI




Retained deficit






Cumulative losses recognised in the profit or loss




Non-controlling interest






The interest of non-controlling parties in the net assets of the subsidiaries
 
 



 
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
 











As at
30 June
2019


As at
31 December
2018








Note


US$000s


US$000s




Assets






Unaudited


Audited




Non-current assets
















Unproven oil and gas assets


4


65,814


55,685




Property, plant and equipment






85


87




Inventories






100


132




Other receivables


5


14,563


8,445




Restricted use cash






250


250




Total non-current assets






80,812


64,599






















Current assets
















Other receivables






242


364




Cash and cash equivalents






1,536


557




Total current assets






1,778


921






















Total assets






82,590


65,520




Equity and liabilities
















Equity
















Share capital


6


25,472


25,416




Share premium






229,184


229,020




Deferred shares


6


64,702


64,702




Shares to be issued


6,8


11,795


-




Other reserves






(2,362)


(2,362)




Retained earnings






(221,388)


(219,230)




Cumulative translation reserve






(55,492)


(55,911)




Shareholders' equity






51,911


41,635






















Non-controlling interests






(5,710)


(5,605)




Total equity






46,201


36,030






















Current liabilities
















Trade and other payables


8


8,576


6,259




Short-term borrowings


7


2,802


2,572




Current provisions


8


6,180


3,515




Total current liabilities






17,558


12,346
























 




Non-current liabilities
















Borrowings


7


512


-




Deferred tax liabilities






7,085


6,733




Non-current provisions






126


125




Other payables






11,108


10,286




Total non-current liabilities






18,831


17,144




Total liabilities






36,389


29,490




Total equity and liabilities






82,590


65,520



 
 
This financial information was approved and authorised for issue by the Board of Directors on 16 September 2019 and was signed on its behalf by:



 
Clive Carver
Chairman
 


 
 
 
 



 

 
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS











Six months ended
30 June 2019






Six months ended
30 June 2018






 












Unaudited






Unaudited




















US$000s






US$000s






 




























 




Cash flow provided by operating activities






















 




Cash received from customers






5,959






4,282






 




Payments made to suppliers and employees






(1,316)






(995)






 




Net cash provided by operating activities






4,643






3,287






 




























 




Cash flow used in investing activities






















 




Additions to unproven oil and gas assets






(4,364)






(3,875)






 




Cash flow used in investing activities






(4,364)






(3,875)






 




























 




Cash flow used by financing activities






















 




Loans provided






700






-






 




Repayment of borrowings






-






(395)






 




Net cash used by financing activities






700






(395)






 




























 




Net decrease in cash and cash equivalents






979






(983)






 




Cash and cash equivalents at the start of the period






557






1,479






 




Cash and cash equivalents at the end of the period






1,536






496






 



 
 
 




NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
 
1.      STATUTORY ACCOUNTS
 
The interim financial results for the period ended 30 June 2019 are unaudited. The financial information contained within this report does not constitute statutory accounts as defined by Section 434(3) of the Companies Act 2006.
 
2.      BASIS OF PREPARATION
 
Caspian Sunrise plc is registered and domiciled in England and Wales.
 
This interim financial information of the Company and its subsidiaries ("the Group") for the six months ended 30 June 2019 has been prepared on a basis consistent with the accounting policies set out in the Group's consolidated annual financial statements for the year ended 31 December 2018. It has not been audited or reviewed, does not include all of the information required for full annual financial statements, and should be read in conjunction with the Group's consolidated annual financial statements for the year ended 31 December 2018. The 2018 annual report and accounts, which received an unqualified opinion from the auditors, did not draw attention to any matters by way of emphasis, and did not contain a statement under section 498 (2) or 498 (3) of the Companies Act 2006, have been filed with the Registrar of Companies. As permitted, the Group has chosen not to adopt IAS 34 'Interim Financial Reporting'.
 
The financial information is presented in US Dollars and has been prepared under the historical cost convention.
 
The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2018 except for the effect of new standards effective from 1 January 2019 as explained below. These are expected to be consistent with the financial statements of the Group as at 31 December 2019 that are/will be prepared in accordance with IFRS and their interpretations issued by the International Accounting Standards Board ("IASB") as adopted by the European Union ("EU"). 
 
During the period, several new and revised Standards and Interpretations issued by the IASB became effective.
 
IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for most leases under a single on-balance sheet model.
 
The Group does not have material lease contracts therefore the adoption of IFRS 16 has no effect on its financials.
 
Several other amendments and interpretations apply for the first time in 2019, but do not have an impact on the interim consolidated financial statements of the Group as well.
 
Going Concern
 
The financial information has been prepared on a going concern basis based upon projected future cash flows and planned work programmes.
 
Additional funding would in the opinion of the Directors be available if required from the sale of oil produced during testing and exported oil under the production contract, note 9.
 
The Directors are confident, on the above basis, that the Group will have sufficient resources for its operational needs over the relevant period, being until September 2020. Accordingly, the Directors continue to adopt the going concern basis.



 
3.         LOSS PER SHARE
 
Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year including shares to be issued.
 
There is no difference between the basic and diluted loss per share as the Group made a loss for the current and prior year. Dilutive potential ordinary shares include share options granted to employees and directors where the exercise price (adjusted according to IAS33) is less than the average market price of the Company's ordinary shares during the period.
 
The calculation of loss per share is based on:
 







Six months
ended
30 June 2019 Unaudited


Six months
ended
30 June 2018 Unaudited


 




The basic weighted average number of ordinary shares in issue during the period*


1,692,987,515


1,669,673,820








The loss for the year attributable to owners of the parent (US$'000)


(2,158)


(276)







 
* Basic weighted average number of ordinary shares includes shares to be issued in relation to 3ABest deal (note 8)
There were 3,000,000 potentially dilutive instruments in the period (2018: 8,400,000).
 
4.         UNPROVEN  OIL AND GAS ASSETS
During the six months period ended June 30 2019 the Company's oil and gas assets increased by US$ 10.1 million mainly due to purchase of 3A Best and its related unproven oil and gas assets in the amount of US$ 12.1 million (note 8). The residual decrease is combination of contributions against capitalized costs for the margin generated on oil sold under the pilot production stage and additions in the amount of US$ 1.5 million (2018: US$1.8 million additions were made).
 
5.         OTHER NON-CURRENT RECEIVABLES
During the six months period ended June 30 2018 the Company has provided advances related to its drilling operations in the amount of US$2.7 million (2018: US$2 million). Also, the Company has recorded a receivable from Sellers of 3ABest in the amount of US$ 3.8 million related to their obligations to cover contractual liabilities of 3ABest up to the date of SPA (note 8).
 
 
6.         CALLED UP SHARE CAPITAL
 







Number
of ordinary
shares


 
 
 


$'000


Number of
shared to
be issued


$'000


Number
of deferred
shares


$'000




 




Balance at  31 December 2018


1,670,873,820


25,416


-


-


373,317,105


64,702




 
































 


Share options exercised


4,200,000


56










-


-




 


Acquisition of subsidiary (note 8)


-






149,253,732


11,795


-


-




 


Balance at  31 June 2019


1,675,073,820


25,472


149,253,732


11,795


373,317,105


64,702



















 
The Company has subsequently issued 149,253,732 of its shares in relation to 3ABest SPA (note 8). The formalities in relation to shares issuance were finalized in July 2019.
 
7.         BORROWINGS







Six months ended 30 June 2019


Year ended 31 December 2018




US$'000
Unaudited


US$'000
Audited




Amounts payable within one year












Prosperity/Mr Oraziman (a)


945


913




Fosco BV (b)


656


650




Other borrowings (c) 


1,201


1,009








2,802


2,572



 







Six months ended
30 June 2019


Year ended 31 December 2018




US$'000
Unaudited


US$'000
Audited




Amounts payable after one year












Loan from Vertom N.V. (d)


512


-








512


-



 
a) During December 2017 Eragon Petroleum FZE (a subsidiary of the Company) received a US $1.2 million loan from KC Caspian Explorer (KCCE), a 100% subsidiary of Prosperity Petroleum Ltd ("PPL") under a loan provided by PPL. PPL is a company controlled by Mr Kuat Oraziman and therefore a related party of the Group. The loan is interest free and matured in December 2018. On 21 December 2018 the loan was extended till 31 December 2019. On 23 December 2018 Eragon Petroleum FZE assigned the loan to Mr Oraziman making it interest bearing with the rate of 7%. The loan extension represents a substantial modification of the terms of the existing financial liability and has been accounted for as an extinguishment of the original financial liability and recognition of a new financial liability.
b) During July 2016 Fosco BV, a company controlled by Mr Oraziman, therefore a related party of the Group, provided an on demand loan to BNG LLP in the amount of US$ 0.63 million. The loan is interest bearing with the rate of Libor+ 1%.
c) The total amount borrowed by the Group at 30 June 2019 US$1,201,000 (December 2018: US$1,009,000) was payable to Kuat Oraziman and legal entities controlled by Mr Oraziman, KC Caspian Explorer and Kernhem International BV. US$ 587,000 loans are interest free and repayable on demand, US$ 614,000 loans are short term and interest bearing with the rate of 7%.
d) During February 2019 the Company entered into the loan facility with Vertom International NV, the Company controlled by Mr Oraziman, whereby Vertom agreed to lend US$0.5 million to the Company with an associated interest of 12% per annum. The loan matures in December 2020.
 
8.         PURCHASE OF SUBSIDIARY
On 21 January 2019, the Company acquired 100% of the shares of 3ABest Group JSC, a company that owns a 1,347 sq km Contract Area located close to the Caspian port city of Aktau in the Mangystau Province of Kazakhstan.
 
The purchase price is satisfied by the issue of 149,253,732 new Companies shares at the price of 6.15 p per share, that represents closing price of Company's shares at the date the SPA was signed and the substantive conditions had been met such that control passed to the Company, notwithstanding delays in the shares of 3A Best being legally transferred to the Company and associated issuance of the Company's shares in consideration owing to procedural delays. Management have analyzed the structure of the transaction and the underlying activities and concluded that the transaction represents an asset purchase.
 
The fair value of the identifiable assets and liabilities of 3ABest as at the date of acquisition were:
 





















US$'000




Exploration assets






6,404




Receivable from sellers recognized in other non-current receivables*






3,826




Other non-current receivables






502




Total assets






10,732


















Current contractual provisions






2,906




Other payables related to contractual obligations






920




Trade payables






838




Total liabilities






4,664


















Total identifiable net assets at fair value






6,068


















Total value of shares issued as consideration






11,795


















Additional fair value recorded to unproven oil and gas assets






5,727

















 
* Based on the terms of SPA previous owners of 3ABest must compensate the Group for all contractual obligations of 3ABest incurred in the period up to SPA sign off date. Therefore, the Group has recognized the receivable equal to the contractual provisions and other payables related to the contractual obligations in the completion date balance sheet.
 
9.         SUBSEQUENT EVENTS
On 11 July 2019 the Group's subsidiary BNG LLP has signed the production contract with the Government for its MJF structure. This contract allows BNG LLP export the oil and receive the net selling price significantly higher than the net price in the local market of Kazakhstan.
 
On 28 August 2019 the Group has signed the agreement with the individual Mr Kalmyrzayev to purchase drilling equipment from him by issuing 58,333,333 new ordinary shares of the Company. The finalization of the agreement is subject to review of the equipment' quality by the Group's representative.
 
 




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END
 
 
IR LLFIRASIRLIA