REG - Enwell Energy PLC - 2024 Audited Results
13/06/2025 07:00
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RNS Number : 6813M Enwell Energy PLC 13 June 2025
13 June 2025
ENWELL ENERGY PLC
2024 AUDITED RESULTS
Enwell Energy plc ("Enwell Energy" or the "Company", and together with its
subsidiaries, the "Group"), the AIM-quoted (AIM: ENW) oil and gas exploration
and production group, today announces its audited results for the year ended
31 December 2024.
2024 Highlights
Operational
· Aggregate average daily production of 2,288 boepd (calculated on the days when
the Group's fields were actually on production) (2023: 2,644 boepd (calculated
on the days when the Group's fields were actually in production))
· Aggregate production volumes for the year of 722,753 boe (2023: 885,610 boe)
· Successful workover of MEX-102 well to access previously productive horizon
producing light oil
Financial
· Revenue of $44.9 million (2023: $62.2 million), down 28%, primarily as a
result of lower production rates and gas prices
· Gross profit of $28.2 million (2023: $39.0 million), down 28%
· Operating profit of $29.1 million (2023: $35.5 million), down 18%,
predominantly as a result of lower production rates and gas prices
· Net profit of $23.7 million (2023: $26.5 million), down 10%
· Cash and cash equivalents of $99.4 million as at 31 December 2024 (2023: $76.5
million), and of $102.1 million as at 2 June 2025
· Average realised gas, condensate, oil and LPG prices in Ukraine were $318/Mm3
(UAH12,767/Mm3), $101/bbl, $69/bbl and $92/boe respectively (2023: $394/Mm3
(UAH14,426/Mm3) gas, $71/bbl condensate and $98/boe LPG)
Outlook
· The Russian invasion of Ukraine in February 2022 has had a significant impact
on all aspects of life in Ukraine, including the Group's business and
operations. The scale and duration of disruption to the Group's business
continues to be difficult to predict, and there remains significant
uncertainty about the outcome of the war in Ukraine
· In November 2024, the Ukrainian authorities issued orders to suspend the
MEX-GOL, SV and VAS production licences, and consequently all work at these
licences is currently suspended. This followed similar regulatory action
against the Group in April and May 2023, when the VAS production licence and
SC exploration licence were suspended from May 2023 until June 2024
· Further work on the MEX-GOL, SV and VAS licences will remain suspended until
there is a resolution of the regulatory issues, including the lifting of the
suspension orders
· The Group is continuing to pursue legal proceedings to challenge the
suspension orders, including investigating the possibility of seeking further
interim measures to allow restoration of its operations at the MEX-GOL, SV and
VAS fields
· At the SC exploration licence area, planning for the development of the
licence area is continuing
· Currently, the Group retains a significant proportion of its cash outside
Ukraine, which enhances the Group's ability to navigate the current risk
environment for the foreseeable future, and provides a material buffer to any
further disruptions to the Group's operations
· The Group's development programme for the remainder of 2025 and 2026 is
expected to be funded from existing cash resources and operational cash flow
Oleksiy Zayets, CEO, commented: "While most of 2024 was a further
solid operational year for Enwell Energy, the ongoing war in Ukraine
continues to have a huge impact on all aspects of life and business in
Ukraine. Until November 2024, we were able to continue production at our
MEX-GOL and SV fields, which is testament to the diligence and fortitude of
our operational team, but the regulatory action taken by the Ukrainian
authorities that month resulting in the ongoing suspension of our MEX-GOL, SV
and VAS production licences is very disappointing."
The Annual Report and Financial Statements for 2024, together with the Notice
of Annual General Meeting, will be posted to shareholders and published on
the Company's website by 27 June 2025.
This announcement contains inside information for the purposes of Article 7 of
EU Regulation No. 596/2014, which forms part of United Kingdom domestic law by
virtue of the European Union (Withdrawal) Act 2018, as amended by virtue of
the Market Abuse (Amendment) (EU Exit) Regulations 2019.
For further information, please contact:
Enwell Energy plc Tel: 020 3427 3550
Chuck Valceschini, Chairman
Oleksiy Zayets, Chief Executive Officer
Bruce Burrows, Finance Director
Strand Hanson Limited Tel: 020 7409 3494
Rory Murphy / Matthew Chandler
Zeus Capital Limited Tel: 020 7614 5900
Alexandra Campbell-Harris (Corporate Finance)
Simon Johnson (Corporate Broking)
Citigate Dewe Rogerson Tel: 020 7638 9571
Luna Habte / Claire de Groot
Dr Gehrig Schultz, BSc Geophysical Engineering, PhD Geophysics, Member of the
European Association of Geophysical Engineers, Member of the Executive
Coordinating Committee of the Continental European Energy Council, and a
Non-Executive Director of the Company, has reviewed and approved the technical
information contained within this announcement in his capacity as a qualified
person, as required under the AIM Rules for Companies.
Glossary
AAPG American Association of Petroleum Geologists
Arkona LLC Arkona Gas-Energy
bbl barrel
bbl/d barrels per day
Bm(3) thousands of millions of cubic metres
boe barrels of oil equivalent
boepd barrels of oil equivalent per day
Bscf thousands of millions of scf
Company Enwell Energy plc
D&M DeGolyer and MacNaughton
€ Euro
Group Enwell Energy plc and its subsidiaries
km kilometre
km(2) square kilometres
LPG liquefied petroleum gas
MEX-GOL Mekhediviska-Golotvshinska
m(3) cubic metres
m³/d cubic metres per day
Mboe thousand barrels of oil equivalent
Mm³ thousand cubic metres
MMbbl million barrels
MMboe million barrels of oil equivalent
MMm(3) million cubic metres
MMscf million scf
MMscf/d million scf per day
Mtonnes thousand tonnes
% per cent.
QCA Code Quoted Companies Alliance Corporate Governance Code 2018
QHSE quality, health, safety and environment
SC Svystunivsko-Chervonolutskyi
scf standard cubic feet measured at 20 degrees Celsius and one atmosphere
SPE Society of Petroleum Engineers
SPEE Society of Petroleum Evaluation Engineers
SV Svyrydivske
Tscf trillion scf
$ United States Dollar
UAH Ukrainian Hryvnia
VAS Vasyschevskoye
VED Vvdenska
WPC World Petroleum Council
Chairman's Statement
I am pleased to present the 2024 Annual Report and Financial Statements,
although the situation in respect of the Group's business in Ukraine is
currently very challenging. The ongoing war in Ukraine presents a very
difficult operating environment and worrying outlook, and I am greatly
saddened by the terrible events occurring there.
The war has had a significant impact on all aspects of life in Ukraine,
including the Group's business and operations. The overall scale and duration
of disruption to the Group's business continues to be difficult to predict,
and there remains significant uncertainty about the outcome of the war.
Notwithstanding the disruption caused by the war, during 2024, the Group
continued with some development activities at the MEX-GOL and SV fields. The
workover of the MEX-102 well to gain access to the previously productive V-19
and V-20 horizons in the Visean formation was completed, and this allowed
access to one interval in the V-19 horizon and three intervals in the V-20
horizon. Testing of the V-19 horizon showed encouraging gas and light oil
flows, and the well was hooked up for longer-term production testing.
Additionally, at the MEX-GOL field, planning continued for the deepening of
the MEX-109 well to explore a deeper horizon and the evaluation of the
potential for sidetracking of the MEX-119 well to access additional reserves.
At the SV field, the potential for hydraulic fracturing of the SV-29
development well was evaluated.
The VAS production licence and SC exploration licence were suspended by
regulatory actions of the Ukrainian authorities in May 2023, and so there were
no activities on these licences in the first half of the year. However, these
suspensions were lifted in late June 2024, allowing the resumption of
production at the VAS field, and the recommencement of development work at the
SC licence area, which includes planning for the installation of gas
processing facilities and other surface infrastructure.
However, in November 2024, the MEX-GOL, SV and VAS production licences were
suspended by the Ukrainian authorities. The Group commenced legal proceedings
to challenge these suspensions, which resulted in interim rulings to
temporarily lift such suspensions, but unfortunately, the interim rulings in
respect of the MEX-GOL and SV licences were overturned in January 2025 and in
respect of the VAS licence in February 2025. Consequently, all operational
activity is currently suspended at these licences.
Aggregate average daily production (calculated for the days when the fields
were actually on production) from the MEX-GOL, SV and VAS fields during the
year was 2,288 boepd, which is lower than the aggregate daily production rate
of 2,644 boepd achieved during 2023 due to the disruption caused by the war,
natural field decline and the various suspensions of the MEX-GOL, SV and VAS
field operations during the year. The aggregate production volumes for the
year were 722,753 boe, which is lower than the aggregate production volumes of
885,610 boe in 2023 for the same reasons.
There was also a significant decline in gas prices during the year further
contributing to the decline in revenues to $44.9 million (2023: $62.2
million). The Group's net profit was lower at $23.7 million (2023: $26.5
million) and operating profit was also lower at $29.1 million (2023: $35.5
million). Cash generated from operations declined to $33.0 million (2023:
$62.9 million) for the same reason.
Whilst the Group's operational activities continued broadly in line with 2023,
development activity was significantly impacted by the increase in risks faced
by the Group in Ukraine.
There is significant disruption to the fiscal and economic environment in
Ukraine due to the ongoing war, and while the economy grew during the year,
the inflation rate increased and the Ukrainian Hryvnia weakened further
against other currencies. It is likely that fiscal and economic uncertainties
will continue until the hostilities cease.
In recent years, the Ukrainian Government implemented a number of reforms in
the oil and gas sector, which include the deregulation of the gas supply
market and simplification of the regulatory procedures applicable to oil and
gas exploration and production activities in Ukraine. The deregulation of the
gas supply market, supported by electronic gas trading platforms, has improved
pricing transparency in Ukraine.
During 2024, Ukrainian gas prices weakened as the Ukrainian gas market adapted
to the prevailing demand and supply conditions. However, condensate prices
were higher, while LPG prices were lower, by comparison to the previous year
for similar reasons.
Restructuring of Smart Holding Group
In January 2023, the Company was notified that there had been a restructuring
of the ownership of the PJSC Smart-Holding Group, a member of which held a
major shareholding in the Company, and which was ultimately controlled by Mr
Vadym Novynskyi ("Mr Novynskyi"). Under this restructuring, which occurred
with effect from 1 December 2022, Mr Novynskyi disposed of his major indirect
shareholding interest in the Company to two trusts registered in Cyprus named
the SMART Trust and the STEP Trust (the "Trusts"). Further information is
contained in the Company's announcement dated 17 January 2023, and the TR-1
Forms published on 26 January 2023, 31 July 2023 and 20 March 2024.
Regulatory Actions by Ukrainian Authorities and Suspensions of Licences
In early December 2022, the Ukrainian Government imposed sanctions on Mr
Novynskyi, as set out in the Company's announcement dated 9 December 2022.
As announced on 4 January 2023, new legislation, Law No. 2805-IX, relating to
the natural resources sector was enacted in Ukraine, which came into force on
28 March 2023. This legislation is a substantial package of new procedures and
reforms designed to improve the regulatory process relating to the exploration
and development of natural resources in Ukraine. However, the legislation
includes provisions that if the ultimate beneficial owner of a mineral or
hydrocarbon licence becomes the subject of sanctions in Ukraine, then the
State Geologic and Subsoil Survey of Ukraine (the "SGSS") may suspend or
revoke that licence.
Following Law No. 2805-IX coming into force on 28 March 2023, the Ukrainian
authorities have taken a number of regulatory actions against a number of the
Group's subsidiary companies in Ukraine.
As announced on 12 April 2023, such regulatory actions included conducting a
search at the Group's Yakhnyky office, from where the MEX-GOL and SV fields
are operated, and placing certain physical assets of the Ukrainian branch
(representative) office of Regal Petroleum Corporation Limited ("RPC") and LLC
Arkona Gas-Energy ("Arkona") (which respectively hold the MEX-GOL and SV
fields and the SC exploration licence) under seizure, thereby restricting any
actions that would change registration of the property rights relating to such
assets, although the use of such assets was not restricted and therefore the
Company was able to continue to operate the fields. In addition, the Ministry
of Justice of Ukraine (the "MoJ") made an order cancelling the registration
entry made on behalf of a subsidiary of the Company named LLC Regal Petroleum
Corporation (Ukraine) Limited in the Unified State Register of Legal Entities,
Individuals-entrepreneurs and Civil Institutions of Ukraine (the "State
Register") relating to the ultimate beneficial owners of such company, which
were stated as being the trustees (the "Trustees") of the Trusts as previously
notified to the Company, thereby restoring the previous entry in the State
Register, Mr Novynskyi.
On 2 May 2023, the MoJ made further orders cancelling the registration entry
made on behalf of three further Ukrainian subsidiaries of the Company named
LLC Prom-Enerho Produkt ("PEP"), Arkona and LLC Well Investum ("Well
Investum") respectively in the State Register relating to the ultimate
beneficial owners of such companies, which again were stated as being the
Trustees of the Trusts, thereby restoring the previous entry, Mr Novynskyi.
PEP holds the VAS production licence, Arkona holds the SC exploration licence
and Well Investum is a dormant company.
Following the issuance of the abovementioned orders by the MoJ, Mr Novynskyi
was registered in the State Register as the ultimate beneficial owner of each
of PEP and Arkona, and was consequently recognised by the SGSS as the ultimate
beneficial owner of each of the VAS production licence and SC exploration
licence. As a result, on 4 May 2023, the SGSS issued orders suspending the VAS
production licence and SC exploration licence for a period of five years
effective from that date.
However, on 26 June 2024, the SGSS issued orders to renew the validity of each
of the VAS production licence and SC exploration licence, thereby cancelling
the suspensions of those licences, and enabling the resumption of operational
activities at those licences. Further information is contained in the
Company's announcement dated 27 June 2024.
In September 2024, new legislation came into force which requires that
branches (or offices) of foreign companies operating in Ukraine register their
ultimate beneficial owners in the State Register. RPC, which holds the MEX-GOL
and SV licences, operates such a branch and therefore registered the Trustees
of the Trusts as its ultimate beneficial owners in the State Register, based
on the notifications made by the Trustees to the Company and published to the
market on 26 January 2023, 31 July 2023 and 20 March 2024.
On 8 October 2024, the Ukrainian Government imposed sanctions on the Trustees,
as set out in the Company's announcement dated 11 October 2024.
On 15 November 2024, the SGSS issued orders to suspend the MEX-GOL, SV and VAS
production licences for a period of ten years effective from 8 October 2024
pursuant to Law No. 2805-IX, based on the sanctions imposed on the Trustees of
the Trusts. Further information is contained in the Company's announcement
dated 18 November 2024.
Following receipt of the suspension orders, the Company issued legal
proceedings in the Poltava District Administrative Court in Ukraine to
challenge such orders, and within such proceedings, the Company obtained
interim rulings (the "Interim Rulings") to lift the suspensions of the
MEX-GOL, SV and VAS production licences pending determination of the
substantive issues in the legal proceedings, as set out in the Company's
announcement dated 26 November 2024.
The SGSS appealed against the Interim Rulings in the Second Appeal
Administrative Court in Ukraine. By a decision dated 22 January 2025, the
appeal against the Interim Ruling relating to the MEX-GOL and SV licences was
allowed, and by a decision dated 27 February 2025, the appeal against the
Interim Ruling relating to the VAS licence was also allowed. As a result, the
respective suspension orders in respect of the MEX-GOL, SV and VAS licences
were reinstated, and the Company ceased all field operations on those licences
immediately following the respective appeal decisions.
The Company is continuing its legal proceedings to challenge the suspension
orders, including investigating the possibility of pursuing further interim
measures to allow restoration of its operations, and continuing to consult
with its external legal and other advisers to seek to mitigate the risks
associated with the regulatory actions of the Ukrainian authorities.
Board and Management Changes
In March 2024, Chris Hopkinson stepped down as Non-Executive Chairman of the
Board, and Sergii Glazunov stepped down as Chief Executive Officer and a
Director, and I joined the Board as Non-Executive Chairman and Igor Basai
joined the Board as a Non-Executive Director. In addition, at that time,
Oleksiy Zayets was appointed as Interim Chief Executive Officer, and, since
then, his role has become permanent.
In October 2024, Yuliia Kirianova stepped down as a Non-Executive Director and
Oleksiy Zayets was appointed as a Director.
In January 2025, Igor Basai stepped down as a Non-Executive Director and
Oleksandr Blyzniuk was appointed as a Non-Executive Director.
On behalf of the Board, I would like to thank Chris, Sergii, Yuliia and Igor
for their valued contributions during their respective tenures with the
Company, and to welcome Oleksiy and Oleksandr to the Board.
Outlook
The ongoing war in Ukraine creates a devastating humanitarian situation in
Ukraine, as well as extreme challenges to the social, fiscal, economic and
business environment. This has been exacerbated in respect of the Group by the
regulatory actions of the Ukrainian authorities, culminating in the suspension
of the MEX-GOL, SV and VAS production licences.
Under these circumstances, it is extremely difficult to plan future investment
and operational activities at the Group's fields. However, subject to
resolution of the current regulatory issues with the Ukrainian authorities,
and it being safe to do so, the Group is planning to undertake further limited
development activities during the remainder of 2025 and beyond in order to
continue the development of its fields. In doing so, the Group is taking and
will take all measures available to protect and safeguard its personnel and
business, with the safety and wellbeing of its personnel and contractors being
paramount. The Group retains a significant proportion of its cash reserves
outside Ukraine, and this provides a material buffer to any further
disruptions to the Group's operations. This has enabled the Board to reach the
opinion that the Group has sufficient resources to navigate the current risk
environment for the foreseeable future.
In conclusion, on behalf of the Board, I would like to thank all of our staff
for their continued dedication and efforts during 2024, especially their
remarkable courage and fortitude during the ongoing war in Ukraine.
Chuck Valceschini
Chairman
Chief Executive's Statement
Introduction
The war in Ukraine, as well as adverse regulatory actions by the Ukrainian
authorities, have materially disrupted the Group's development activity at its
Ukrainian fields during 2024. During the year, such regulatory actions
resulted in the suspensions of (i) the VAS and SC licences between 4 May 2023
and 26 June 2024, and (ii) the MEX-GOL, SV and VAS licences between 15
November 2024 and 25 November 2024, during which periods there was no
production from these respective fields. Subsequently, the suspensions of the
MEX-GOL and SV licences were reinstated on 22 January 2025, and of the VAS
licence on 27 February 2025, and currently there are no production operations
at these fields.
However, during the year, production operations and some development
activities at the MEX-GOL and SV fields were undertaken, and this enabled the
completion of the workover of the MEX-102 well to gain access to the
previously productive V-19 and V-20 horizons in the Visean formation. Testing
of the V-19 horizon showed encouraging gas and light oil flows, and the well
was hooked up to the gas processing facilities to undergo longer-term testing
to establish its optimal operating parameters. During testing, the well was
producing 0.1 MMscf/d of gas and 218 bbl/d of oil.
At the VAS field, intermittent production operations continued during the
periods when the VAS production licence was not suspended, but unfortunately,
all operations at the VAS field have been suspended since late February 2025.
After the suspension of the SC exploration licence was lifted in late June
2024, development work resumed. This work includes planning for the
installation of new gas processing facilities and other surface infrastructure
as well as assessing the feasibility of an alternative option to connect to
existing gas processing facilities.
Overall production in 2024 was lower than in 2023 due to the disruption to
production operations caused by the war in Ukraine, natural field decline and
the suspensions of the MEX-GOL, SV and VAS production licences.
Quality, Health, Safety and Environment ("QHSE")
The Group is committed to maintaining the highest QHSE standards and the
effective management of these areas is an intrinsic element of its overall
business ethos. The Group's QHSE policies and performance are overseen by the
Health, Safety and Environment Committee. Through strict enforcement of the
Group's QHSE policies, together with regular management meetings, training and
the appointment of dedicated safety professionals, the Group strives to ensure
that the impact of its business activities on its staff, contractors and the
environment is as low as is reasonably practicable. The Group reports safety
and environmental performance in accordance with industry practice and
guidelines.
I am pleased to report that no Lost Time Incidents were recorded in 2024, with
a total of 351,694 safe man-hours worked during the year. Cumulatively, the
number of man-hours worked since the last Lost Time Incident is now in excess
of 5.4 million man-hours. No environmental incidents were recorded during the
year.
Production
The average daily production of gas, condensate, oil and LPG for the 356 days
that the MEX-GOL and SV fields were producing (365 days in 2023) and the 143
days that the VAS field was producing (124 days in 2023), over the 2024 year,
is shown below:
Field Gas Condensate* LPG** Aggregate
(MMscf/d) (bbl/d) (boe/d) boepd
2024 2023 2024 2023 2024 2023 2024 2023
8.3 9.5 480 368 194 266 2,146 2,314
MEX-GOL & SV
0.7 1.7 6 18 - - 142 330
VAS
9.0 11.2 486 386 194 266 2,288 2,644
Total
* Condensate includes light oil from well MEX-102 which commenced production
in late October 2024
** There was no LPG production in November and December 2024 due to a delay
in renewal of the LPG production licence
As a result of the continued operational disruptions caused by the war,
regulatory actions and deferment of development work, the Group's average
daily production rate for the 2024 year declined. During the year, regulatory
actions taken by the Ukrainian authorities resulted in the suspension of (i)
the VAS and SC licences between 4 May 2023 and 26 June 2024, and (ii) the
MEX-GOL, SV and VAS licences between 15 November 2024 and 25 November 2024,
during which periods there was no production from the respective fields.
Aggregate production volumes for the year were 722,753 boe, which is lower
than the aggregate production volumes of 885,610 boe in 2023 for the reasons
set out above.
Operations
The war in Ukraine has significantly affected fiscal and economic stability in
Ukraine, and the oil and gas sector in Ukraine has been particularly affected
by interruptions to power supplies, the unavailability of oil field equipment
and services and disruptions to the markets, including weaker demand, for the
sale of gas, condensate, oil and LPG. These disruptions impacted the Group's
realised hydrocarbon prices in Ukraine, in turn impacting the Group's revenues
and profitability during the year.
During 2024, the Group continued to refine its geological subsurface models of
the MEX-GOL, SV and VAS fields, as well as the SC licence area, in order to
enhance its strategy for the further development of such fields and licence
area, including the timing and level of future capital investment required to
exploit the hydrocarbon resources.
At the MEX-GOL and SV fields, the workover of the MEX-102 well to gain access
to the previously productive V-19 and V-20 horizons in the Visean formation
was completed. These horizons had previously been isolated from the producing
V-23 horizon. The workover allowed access to one interval in the V-19 horizon
and three intervals in the V-20 horizon, and these intervals were tested, with
encouraging gas and light oil flows achieved in testing of the V-19 horizon.
The flows of light oil are interesting, as this is the only oil producing
horizon in the field, although the light oil is similar in composition but
slightly denser than the condensate in the field. During testing, the well was
producing 0.1 MMscf/d of gas and 218 bbl/d of oil.
The Group continued to operate each of the SV-2 and SV-12 wells under joint
venture agreements with NJSC Ukrnafta, the majority State-owned oil and gas
producer. Under the agreements, the gas and condensate produced from the
respective wells is sold under an equal net profit sharing arrangement between
the Group and NJSC Ukrnafta, with the Group accounting for the hydrocarbons
produced and sold from the wells as revenue, and the net profit share due to
NJSC Ukrnafta being treated as a lease expense in cost of sales. However,
following the SV-2 well experiencing water ingress, a workover of this well
was undertaken to replace the production string and remove obstructions in the
well, but this work was unsuccessful and the well is now shut in, and further
remedial work is not being considered at the present time.
At the VAS field, during the year production operations resumed after the
lifting of the suspension of the licence in late June 2024, although there was
a further period of suspension in November 2024.
At the SC exploration licence area, after the lifting of the suspension of the
licence in late June 2024, development work resumed, and this included
planning for the installation of new gas processing facilities and other
surface infrastructure as well as assessing the feasibility of an alternative
option to connect to existing gas processing facilities.
Outlook
The ongoing war in Ukraine has caused significant disruption to the country as
a whole and to the Group's business activities, and until there is a
resolution to the war, the disruption and uncertainty are likely to continue.
Subject to resolution of the current regulatory issues with the Ukrainian
authorities and it being safe to do so, during the remainder of 2025 and 2026,
the Group plans to continue the development of its fields to the extent it is
possible to do so.
However, such work at the MEX-GOL, SV and VAS fields, will remain suspended
until there is a resolution of the regulatory issues, including the lifting of
the suspension orders made in respect of those licences.
At the SC licence area, the work on development plans for the licence area
will continue.
Finally, I would like to add my thanks to all of our staff for the continued
hard work and dedication they have shown over the course of 2024, and to
especially recognise their continuing efforts and professionalism in the face
of the extremely challenging current situation in Ukraine.
Oleksiy Zayets
Chief Executive Officer
Overview of Assets
Our assets comprise four fields in the Dnieper-Donets basin in north-eastern
Ukraine. Our fields have high potential for growth and longevity for future
production - a strong foundation for success.
MEX-GOL and SV fields
The MEX-GOL and SV fields are held under two adjacent production licences, but
are operated as one integrated asset, and have significant gas and condensate
reserves and potential resources of unconventional gas.
Production Licences
We hold a 100% working interest in, and are the operator of, the MEX-GOL and
SV fields. The production licences for the fields were granted to the Group in
July 2004 with an initial duration of 20 years, and the duration of these
licences have been extended to 2044 in order to fully develop the remaining
reserves. The economic life of these fields extend to 2038 and 2042
respectively pursuant to the most recent reserves and resources assessment by
DeGolyer and MacNaughton ("D&M") as at 31 December 2017.
The two licences, located in Ukraine's Poltava region, are adjacent and extend
over a combined area of 253 km², approximately 200 km east of Kyiv.
Geology
Geologically, the fields are located towards the middle of the Dnieper-Donets
sedimentary basin which extends across the major part of north-eastern
Ukraine. The vast majority of Ukrainian gas and condensate production comes
from this basin. The reservoirs comprise a series of gently dipping
Carboniferous sandstones of Visean age inter-bedded with shales at around
4,700 metres below the surface, with a gross thickness of between 800 and
1,000 metres.
Analysis suggests that the origin of these deposits ranges from fluvial to
deltaic, and much of the trapping at these fields is stratigraphic. Below
these reservoirs is a thick sequence of shale above deeper, similar,
sandstones at a depth of around 5,800 metres. These sands are of Tournasian
age and offer additional gas potential. Deeper sandstones of Devonian age have
also been penetrated in the fields.
Reserves
The development of the fields began in 1995 by the Ukrainian State company
Chernihivnaftogasgeologiya ("CNGG"), and shortly after this time, the Group
entered a joint venture with CNGG in respect of the exploration and
development of these fields.
The fields have been mapped with 3D seismic, and a geological subsurface model
has been developed and refined using data derived from high-level reprocessing
of such 3D seismic and new wells drilled on the fields.
The assessment undertaken by D&M as at 31 December 2017 estimated proved
plus probable (2P) reserves attributable to the fields of 50.0 MMboe, with 3C
contingent resources of 25.3 MMboe.
VAS field
The VAS field is a smaller field with interesting potential. The field has
assessed proved plus probable reserves in excess of 3 MMboe and substantial
contingent and prospective resources, as well as potential resources of
unconventional gas.
Production Licence
We hold a 100% working interest in, and are the operator of, the VAS field.
The production licence for the field was granted in August 2012 with a
duration of 20 years. The economic life of the field extends to 2032 pursuant
to the most recent reserves and resources assessment by D&M as at 31
December 2018.
The licence extends over an area of 33.2 km² and is located 17 km south-east
of Kharkiv, in the Kharkiv region of Ukraine. The field was discovered in
1981, and the first well on the licence area was drilled in 2004.
Geology
Geologically, the field is located towards the middle of the Dnieper-Donets
sedimentary basin in north-east Ukraine. The field is trapped in an anticlinal
structure broken into several faulted blocks, which are gently dipping to the
north, stretching from the north-east to south-west along a main bounding
fault. The gas is located in Carboniferous sandstones of Bashkirian,
Serpukhovian and Visean age.
The productive reservoirs are at depths between 3,370 and 3,700 metres.
Reserves
The field has been mapped with 3D seismic, and a geological subsurface model
has been developed and refined using data derived from such 3D seismic and new
wells drilled on the field.
The assessment undertaken by D&M as at 31 December 2018 estimated proved
plus probable (2P) reserves of 3.1 MMboe, with 3C contingent resources of 0.6
MMboe, and prospective resources of 7.7 MMboe in the VED area of the field.
The next well planned on the field is designed to explore the VED area of the
field.
SC Licence
The SC licence area is located near to and has similar characteristics to the
SV field, and is prospective for gas and condensate.
Exploration Licence
We hold a 100% working interest in, and are the operator of, the SC licence.
The licence was granted in May 2017 with a duration of 20 years.
The licence extends over an area of 97 km(2), and is located in the Poltava
region in north-eastern Ukraine, approximately 15 km east of the SV field.
Geology
Geologically, the field is located towards the middle of the Dnieper-Donets
sedimentary basin which extends across the major part of north-eastern
Ukraine. The vast majority of Ukrainian gas and condensate production comes
from this basin. The reservoirs comprise a series of gently dipping
Carboniferous sandstones of Visean age inter-bedded with shales at depth
between 4,600 and 6,000 metres.
Resources
The licence is prospective for gas and condensate, and has been the subject of
exploration since the 1980s, with five wells having been drilled on the
licence since then, although none of these wells are currently on
production.
The assessment undertaken by D&M as at 1 January 2021 estimated proved
plus probable (2P) reserves of 12.1 MMboe, with 3C contingent resources of
15.0 MMboe.
Overview of Reserves
1. MEX-GOL and SV fields
The Group's estimates of the remaining Reserves and Resources at the MEX-GOL
and SV fields are derived from an assessment undertaken by D&M, as at 31
December 2017 (the "MEX-GOL-SV Report"), which was announced on 31 July 2018.
During the period from 1 January 2018 to 31 December 2024, the Group has
produced 7.69 MMboe from these fields.
The MEX-GOL-SV Report estimated the remaining Reserves as at 31 December 2017
in the MEX-GOL and SV fields as follows:
Proved Proved + Probable Proved + Probable + Possible (3P)
(1P) (2P)
121.9 Bscf / 3.5 Bm(3) 218.3 Bscf / 6.2 Bm(3) 256.5 Bscf / 7.3 Bm(3)
Gas
4.3 MMbbl / 514 Mtonne 7.9 MMbbl / 943 Mtonne 9.2 MMbbl / 1,098 Mtonne
Condensate
2.8 MMbbl / 233 Mtonne 5.0 MMbbl / 418 Mtonne 5.8 MMbbl / 491 Mtonne
LPG
27.8 MMboe 50.0 MMboe 58.6 MMboe
Total
The MEX-GOL-SV Report estimated the Contingent Resources as at 31 December
2017 in the MEX-GOL and SV fields as follows:
Contingent Resources (1C) Contingent Resources (2C) Contingent Resources (3C)
14.7 Bscf / 0.42 Bm(3) 38.3 Bscf / 1.08 Bm(3) 105.9 Bscf / 3.00 Bm(3)
Gas
1.17 MMbbl / 144 Mtonne 2.8 MMbbl / 343 Mtonne 6.6 MMbbl / 812 Mtonne
Condensate
3.8 MMboe 9.6 MMboe 25.3 MMboe
Total
2. VAS field
The Group's estimates of the remaining Reserves and Resources at the VAS field
and the Prospective Resources at the VED prospect are derived from an
assessment undertaken by D&M as at 31 December 2018 (the "VAS Report"),
which was announced on 21 August 2019. During the period from 1 January 2019
to 31 December 2024, 0.82 MMboe were produced from the field.
The VAS Report estimated the remaining Reserves as at 31 December 2018 in the
VAS field as follows:
Proved Proved + Probable Proved + Probable + Possible (3P)
(1P) (2P)
9,114 MMscf / 258 MMm(3) 15,098 MMscf / 427 MMm(3) 18,816 MMscf / 533 MMm(3)
Gas
205 Mbbl / 25 Mtonne 346 Mbbl / 42 Mtonne 401 Mbbl / 48 Mtonne
Condensate
1.895 MMboe 3.145 MMboe 3.890 MMboe
Total
The VAS Report estimated the Contingent Resources as at 31 December 2018 in
the VAS field as follows:
Contingent Resources (1C) Contingent Resources (2C) Contingent Resources (3C)
- - 2,912 MMscf / 83 MMm(3)
Gas
- - 74 Mbbl / 9 Mtonne
Condensate
The VAS Report estimated the Prospective Resources as at 31 December 2018 in
the VED prospect as follows:
Low (1U) Best (2U) High (3U) Mean
23,721 MMscf / 672 MMm(3) 38,079 MMscf / 1,078 MMm(3) 62,293 MMscf / 1,764 MMm(3) 41,291 MMscf / 1,169 MMm(3)
Gas
3. SC Licence
The Group's estimates of the remaining Reserves and Contingent Resources at
the SC Licence are derived from an assessment undertaken by D&M as at 1
January 2021 (the "SC Report"), which was announced on 2 June 2021.
The SC Report estimated the remaining Reserves as at 1 January 2021 in the SC
licence area as follows:
Proved Proved + Probable Proved + Probable + Possible (3P)
(1P) (2P)
17.20 Bscf / 0.49 Bm(3) 65.16 Bscf / 1.85 Bm(3) 85.03 Bscf / 2.41 Bm(3)
Gas
145 Mbbl / 16 Mtonne 548 Mbbl / 61 Mtonne 716 Mbbl / 80 Mtonne
Condensate
3.2 MMboe 12.1 MMboe 15.7 MMboe
Total
The SC Report estimated the Contingent Resources as at 1 January 2021 in the
SC licence area as follows:
Contingent Resources (1C) Contingent Resources (2C) Contingent Resources (3C)
8.56 Bscf / 0.24 Bm(3) 14.18 Bscf / 0.40 Bm(3) 81.16 Bscf / 2.30 Bm(3)
Gas
72 Mbbl / 8 Mtonne 119 Mbbl / 13 Mtonne 682 Mbbl / 75 Mtonne
Condensate
1.6 MMboe 2.6 MMboe 15.0 MMboe
Total
Finance Review
Despite the continued significant disruption caused by the war in Ukraine and
the periods of suspension of its production licences, the Group was still able
to generate a net profit for the period of $23.7 million, down 10% on last
year (2023: $26.5 million) due to lower production rates and, more materially,
much lower gas prices.
Revenue for the year, derived from the sale of the Group's Ukrainian gas,
condensate, oil and LPG production, was down 28% at $44.9 million (2023: $62.2
million), primarily as a result of the combined effects of lower production
rates and a decrease in gas and LPG prices in the period, slightly mitigated
by an improvement in condensate prices.
Aggregate average daily production for the year was down approximately 14% at
2,288 boepd (2023: 2,644 boepd), in each case calculated on the days when the
Group's fields were actually in production, due to the disruption to
operations as a result of the war in Ukraine, natural field decline and the
suspensions of the VAS licence until June 2024 and the MEX-GOL, SV and VAS
licences in November 2024. Aggregate production volumes for the year were
722,753 boe, which is lower than the aggregate production volumes of 885,610
boe in 2023 for the same reasons.
During the year, while there was less volatility in global, and particularly
European, gas prices, the war in Ukraine continued to disrupt the Ukrainian
gas market, with a resultant decrease in realised gas sales prices, causing a
19% decline in average gas price realisations in the period at $318/Mm(3)
(UAH12,767/Mm(3)). Average sales prices for LPG also declined by 6% at
$92/boe, while average sales prices for condensate improved by 42% at
$101/bbl, and, following the successful workover of the MEX-102 well, oil
production commenced during October 2024 with average realised oil prices of
$69/bbl (2023: $394/Mm(3) (UAH14,426/Mm(3)), $71/bbl and $98/boe
respectively).
During the period from 1 January 2025 to 28 February 2025, the average
realised gas, condensate and oil prices were $377/Mm(3) (UAH15,836/Mm(3)),
$63/bbl and $64/bbl respectively. There were no LPG sales in this period due
to a delay in the renewal of the Group's LPG production licence. Since 1 March
2025, there have been no hydrocarbon sales as a result of the suspension of
the MEX-GOL, SV and VAS production licences.
Gross profit for the year was also lower at $28.2 million (2023: $39.0
million) due to the lower gas prices as well as the lower production rates.
Cash generated from operations was also much lower at $33.0 million (2023:
$62.9 million) for similar reasons.
Cost of sales for the year was also proportionately lower at $16.7 million
(2023: $23.2 million). The decline in production resulted in a decline in
depreciation, and the lower gas prices also reduced the revenue-related costs
of taxes and well rental.
The subsoil tax rates applicable to gas production were stable during the year
as follows:
i) when gas prices are up to $150/Mm(3), the rate for wells drilled prior to 1
January 2018 ("old wells") is 14.5% for gas produced from deposits at depths
shallower than 5,000 metres and 7% for gas produced from deposits deeper than
5,000 metres, and for wells drilled after 1 January 2018 ("new wells") is 6%
for gas produced from deposits at depths shallower than 5,000 metres and 3%
for gas produced from deposits deeper than 5,000 metres;
ii) when gas prices are between $150/Mm(3) and $400/Mm(3), the rate for old wells
is 29% for gas produced from deposits at depths shallower than 5,000 metres
and 14% for gas produced from deposits deeper than 5,000 metres, and for new
wells is 12% for gas produced from deposits at depths shallower than 5,000
metres and 6% for gas produced from deposits deeper than 5,000 metres;
iii) when gas prices are more than $400/Mm(3), for the first $400/Mm(3), the rate
for old wells is 29% for gas produced from deposits at depths shallower than
5,000 metres and 14% for gas produced from deposits deeper than 5,000 metres,
and for new wells is 12% for gas produced from deposits at depths shallower
than 5,000 metres and 6% for gas produced from deposits deeper than 5,000
metres, and for the difference between $400/Mm(3) and the actual price, the
rate for old wells is 65% for gas produced from deposits at depths shallower
than 5,000 metres and 31% for gas produced from deposits deeper than 5,000
metres, and for new wells is 36% for gas produced from deposits at depths
shallower than 5,000 metres and 18% for gas produced from deposits deeper than
5,000 metres.
The subsoil tax rates applicable to condensate and oil production were 31% for
condensate and oil produced from deposits shallower than 5,000 metres and 16%
for condensate and oil produced from deposits deeper than 5,000 metres, for
both old and new wells.
As a direct result of the war in Ukraine, including the significant decline in
domestic consumption disrupting the previous supply, demand and pricing
dynamics, there was a divergence between domestic and European gas pricing,
and accordingly, the methodology (linked to European prices) used to determine
the reference gas price for the subsoil tax rates had a significantly
detrimental effect for domestic gas producers. In order to address this issue,
legislation was implemented in August 2022 which modified such methodology to
ensure that it operates as originally intended (with such reference price
being aligned with domestic prices).
Administrative expenses for the year were lower at $6.2 million (2023: $6.9
million) as a result of cost cutting measures implemented during the year, as
well as the reduced level of activity.
The tax charge for the year was lower at $6.7 million (2023: $8.7 million),
and comprised a current tax charge of $5.5 million (2023: $6.8 million) and a
deferred tax charge of $1.2 million (2023: $1.9 million).
A deferred tax asset relating to the Group's provision for decommissioning as
at 31 December 2024 of $0.6 million (2023: $0.6 million) was recognised on the
tax effect of the temporary differences of the Group's provision for
decommissioning at the MEX-GOL and SV fields, and its tax base. A deferred tax
liability relating to the Group's development and production assets at the
MEX-GOL and SV fields as at 31 December 2024 of $6.4 million (2023: $5.5
million) was recognised on the tax effect of the temporary differences between
the carrying value of the Group's development and production asset at the
MEX-GOL and SV fields, and its tax base.
A deferred tax asset relating to the Group's provision for decommissioning as
at 31 December 2024 of $0.4 million (2023: $0.3 million) was recognised on the
tax effect of the temporary differences on the Group's provision on
decommissioning at the VAS field, and its tax base. A deferred tax asset
relating to the Group's development and production assets at the VAS field as
at 31 December 2024 of $0.1 million (2023: deferred tax liability of $0.1
million) was recognised on the tax effect of the temporary differences between
the carrying value of the Group's development and production asset at the VAS
field, and its tax base.
Capital investment of $3.2 million reflects the investment in the Group's oil
and gas development and production assets during the year (2023: $13.5
million). The low level of capital investment in the year is a function of the
deferral of certain aspects of the Group's development plans necessitated by
the ongoing war in Ukraine and the suspensions of the VAS and SC licences
until June 2024, and of the MEX-GOL, SV and VAS licences since November 2024.
A review of any indicators of impairment of the carrying value of the Group's
assets was undertaken at the year end and this review did conclude that the
war in Ukraine and the suspensions of the MEX-GOL, SV and VAS production
licences had resulted in such an indicator. Impairment reviews were therefore
conducted on the carrying value of the Group's assets but did not result in
the recognition of any further impairment loss (2023: $nil).
Cash and cash equivalents held as at 31 December 2024 were higher at $99.4
million (2023: $76.5 million). The Group's cash and cash equivalents balance
as at 2 June 2025 was $102.1 million, held as to $85.1 million equivalent in
Ukrainian Hryvnia and the balance of $17.0 million equivalent predominantly in
US Dollars, Euros and Pounds Sterling.
During 2024, the Ukrainian Hryvnia weakened against the US Dollar, at
UAH38.0/$1.00 on 31 December 2023 and UAH42.0/$1.00 on 31 December 2024. The
impact of this was $14.5 million of foreign exchange loss (2023: $4.8 million
of foreign exchange loss). Increases and decreases in the value of the
Ukrainian Hryvnia against the US Dollar affect the carrying value of the
Group's assets. The official exchange rate of the Ukrainian Hryvnia to the US
Dollar on 2 June 2025 was UAH41.5/$1.00.
Cash from operations has funded the capital investment during the year, and
the Group's current cash position and positive operating cash flow are the
sources from which the Group plans to fund the development programmes for its
assets over the remainder of 2025 and beyond. This is coupled with the fact
that the Group is currently debt-free, and therefore has no debt covenants
that may otherwise impede its ability to implement contingency plans if
domestic and/or global circumstances dictate. This flexibility and ability to
monitor and manage development plans and liquidity is a cornerstone of our
planning, and underpins our assessments of the future. The annual running
costs of less than $8 million are currently covered by interest income from
the Group's monetary resources at the end of the year of $99.4 million,
meaning that the Group remains in a very strong financial position,
notwithstanding the impact of the current war in Ukraine, as well as any local
or global shocks that may occur to the industry and/or the Group.
Bruce Burrows
Finance Director
Principal Risks and How We Manage Them
The Group has a risk evaluation methodology in place to assist in the review
of the risks across all material aspects of its business. This methodology
highlights external, operational and technical, financial and corporate risks
and assesses the level of risk and potential consequences. It is periodically
presented to the Audit Committee and the Board for review, to bring to their
attention potential risks and, where possible, propose mitigating actions. Key
risks recognised and mitigation factors are detailed below:-
Risk Mitigation
External risks
War in Ukraine
On 24 February 2022, Russia invaded Ukraine and there is currently a serious The Group has assets in the areas of conflict in the east of Ukraine, and the
and ongoing war within Ukraine. This war is having a huge impact on Ukraine war has disrupted its operations in those areas. The Group has been only
and its population, with significant destruction of infrastructure and undertaking limited field and production operations at the MEX-GOL, SV and VAS
buildings in the areas of conflict, as well as damage in other areas of fields, as well as at the SC licence area, until the suspension of the
Ukraine. The war is resulting in significant casualties and has caused a huge MEX-GOL, SV and VAS production licences in November 2024. During production
humanitarian catastrophe and refugee influx into neighbouring countries. The operations at the fields, inventories of hydrocarbons are maintained at
war is also impacting the fiscal and economic environment in Ukraine, as well minimum levels. At the sites where operations are suspended, there are no
as the financial stability and banking system in Ukraine, including staff permanently on site, except for necessary security staff. Where
restrictions on the transfer of funds outside Ukraine. The war is an possible, all other staff work remotely and have been supplied with all
escalation of the previous regional conflict risk faced by the business, a necessary devices and software to facilitate remote working. Additionally, the
dispute that has been going on since 2014 in parts of eastern Ukraine, and Group aims to maintain a significant proportion of its cash resources outside
since that time Russia has continued to occupy Crimea. The current war is also Ukraine. The Group continues to monitor the situation and endeavours to
having a significant adverse effect on the Ukrainian financial markets, protect its assets and safeguard its staff and contractors.
hampering the ability of Ukrainian companies and banks to obtain funding from
the international capital and debt markets. The war has disrupted the Group's
business and operations, causing periods of suspension of field operations,
and has also impacted the supply of materials and equipment and the
availability of contractors to undertake field operations. At present, the war
is ongoing and the scope and duration of the war is uncertain.
Risk relating to Ukraine
Ukraine is an emerging market and as such the Group is exposed to greater The Group minimises this risk by continuously monitoring the market in Ukraine
regulatory, economic and political risks than it would be in other and by maintaining as strong a working relationship as possible with the
jurisdictions. Emerging economies are generally subject to a volatile Ukrainian regulatory authorities. The Group also maintains a significant
political and economic environment, which makes them vulnerable to market proportion of its cash holdings in international banks outside Ukraine.
downturns elsewhere in the world and could adversely impact the Group's
ability to operate in the market. Furthermore, the war in Ukraine is impacting
the social, fiscal and economic environment, the financial and banking system,
and the economic stability of Ukraine. As a result, Ukraine will require
financial assistance and/or aid from international financial agencies to
provide economic support and assist with the reconstruction of infrastructure
and buildings damaged in the war.
Banking system in Ukraine
The banking system in Ukraine has been under great strain in recent years due The creditworthiness and potential risks relating to the banks in Ukraine are
to the weak level of capital, low asset quality caused by the economic regularly reviewed by the Group, but the geopolitical and economic events in
situation, currency depreciation, changing regulations and other economic Ukraine over recent years have significantly weakened the Ukrainian banking
pressures generally, and so the risks associated with the banks in Ukraine sector. This has been exacerbated by the current war in Ukraine. In light of
have been significant, including in relation to the banks with which the Group this, the Group has taken and continues to take steps to diversify its banking
has operated bank accounts. This situation was improving moderately following arrangements between a number of banks in Ukraine. These measures are designed
remedial action by the National Bank of Ukraine, but the current war has to spread the risks associated with each bank's creditworthiness, and the
significantly affected such improvements, and the National Bank of Ukraine has Group endeavours to use banks that have the best available creditworthiness.
imposed a number of restrictive measures designed to protect the banking Nevertheless, and despite the recent improvements, the Ukrainian banking
system, including restrictions on the transfer of funds outside Ukraine sector remains weakly capitalised and so the risks associated with the banks
(albeit that the Group aims to maintain a significant proportion of its cash in Ukraine remain significant, including in relation to the banks with which
resources outside Ukraine). In addition, Ukraine continues to be supported by the Group operates bank accounts. As a consequence, the Group also maintains a
funding from the International Monetary Fund. significant proportion of its cash holdings in international banks outside
Ukraine.
Geopolitical environment in Ukraine
Although there were some improvements in recent years, there has not been a The Group continually monitors the market and business environment in Ukraine
final resolution of the political, fiscal and economic situation in Ukraine, and endeavours to recognise approaching risks and factors that may affect its
and the current war has had a severe detrimental effect on the economic business. However, the war in Ukraine creates material challenges in planning
situation in Ukraine. The ongoing effects of this are difficult to predict and future investment and operations. The Group is limiting its operational
likely to continue to affect the Ukrainian economy and potentially the Group's activities to minimise risk to its staff and contractors, and to limit its
business. This situation is currently affecting the Group's production and financial exposure.
field operations, and the ongoing instability is disrupting the Group's
development and operational planning for its assets.
Climate change
Any near and medium-term continued warming of the planet can have potentially The Group's plans include: assessing, reducing and/or mitigating its emissions
increasing negative social, economic and environmental consequences, from its operations; and identifying climate change-related risks and
generally, globally and regionally, and specifically in relation to the Group. assessing the degree to which they can affect its business, including
The potential impacts include: loss of market; and increased costs of financial implications. The HSE Committee is specifically tasked with
operations through increasing regulatory oversight and controls, including overseeing, measuring, benchmarking and mitigating the Group's environmental
potential effective or actual loss of licences to operate. As a diligent and climate impact, which will be reported on in future periods. At this
operator aware of and responsive to its good stewardship responsibilities, the stage, the Group does not consider climate change to have any material
Group not only needs to monitor and modify its business plans and operations implications on the Group's financial statements, including accounting
to react to changes, but also to ensure its environmental footprint is as estimates.
minimal as it can practicably be in managing the hydrocarbon resources the
Group produces.
Operational and technical risks
Quality, Health, Safety and Environment ("QHSE")
The oil and gas industry, by its nature, conducts activities which can cause The Group maintains QHSE policies and requires that management, staff and
health, safety, environmental and security incidents. Serious incidents can contractors adhere to these policies. The policies ensure that the Group meets
not only have a financial impact but can also damage the Group's reputation Ukrainian legislative standards in full and achieves international standards
and the opportunity to undertake further projects. The war in Ukraine poses to the maximum extent possible. As a consequence of the current war in Ukraine
significant risks to field operations, by way of potential threat to the lives and the periods of suspension of the Group's production licences, only limited
of employees and contractors, and damage to equipment and infrastructure. field and production operations have been undertaken at the Group's fields.
Only essential staff are located at site, and all other staff are working
remotely, either from areas away from the conflict areas or outside Ukraine.
The Group has invested in technology that allows many staff to work just as
effectively from remote locations.
Industry risks
The Group is exposed to risks which are generally associated with the oil and The Group has well qualified and experienced technical management staff to
gas industry. For example, the Group's ability to pursue and develop its plan and supervise operational activities. In addition, the Group engages with
projects and undertake development programmes depends on a number of suitably qualified local and international geological, geophysical and
uncertainties, including the availability of capital, seasonal conditions, engineering experts and contractors to supplement and broaden the pool of
regulatory approvals, gas, condensate, oil and LPG prices, development costs expertise available to the Group. Detailed planning of development activities
and drilling success. As a result of these uncertainties, it is unknown is undertaken with the aim of managing the inherent risks associated with oil
whether potential drilling locations identified on proposed projects will ever and gas exploration and production, as well as ensuring that appropriate
be drilled or whether these or any other potential drilling locations will be equipment and personnel are available for the operations, and that local
able to produce gas, condensate or oil. In addition, drilling activities are contractors are appropriately supervised.
subject to many risks, including the risk that commercially productive
reservoirs will not be discovered. Drilling for hydrocarbons can be
unprofitable, not only due to dry holes, but also as a result of productive
wells that do not produce sufficiently to be economic. In addition, drilling
and production operations are highly technical and complex activities and may
be curtailed, delayed or cancelled as a result of a variety of factors.
Production of hydrocarbons
Producing gas, condensate and oil reservoirs are generally characterised by In recent years, the Group has engaged external technical consultants to
declining production rates which vary depending upon reservoir characteristics undertake a comprehensive review and re-evaluation study of the MEX-GOL and SV
and other factors. Future production of the Group's gas, condensate and oil fields in order to gain an improved understanding of the geological aspects of
reserves, and therefore the Group's cash flow and income, are highly dependent the fields and reservoir engineering, drilling and completion techniques, and
on the Group's success in operating existing producing wells, drilling new the results of this study and further planned technical work are being used by
production wells and efficiently developing and exploiting any reserves, and the Group in the future development of these fields. The Group has established
finding or acquiring additional reserves. The Group may not be able to an ongoing relationship with such external technical consultants to ensure
develop, find or acquire reserves at acceptable costs. The experience gained that technical management and planning is of a high quality in respect of all
from drilling undertaken to date highlights such risks as the Group targets development activities on the Group's fields.
the appraisal and production of these hydrocarbons.
Risks relating to the further development and operation of the Group's gas,
condensate and oil fields in Ukraine
The planned development and operation of the Group's gas, condensate and oil The Group's technical management staff, in consultation with its external
fields in Ukraine is susceptible to appraisal, development and operational technical consultants, carefully plan and supervise development and
risk. This could include, but is not restricted to, delays in the delivery of operational activities with the aim of managing the risks associated with the
equipment in Ukraine, failure of key equipment, lower than expected production further development of the Group's fields in Ukraine. This includes detailed
from wells that are currently producing, or new wells that are brought review and consideration of available subsurface data, utilisation of modern
on-stream, problematic wells and complex geology which is difficult to drill geological software, and utilisation of engineering and completion techniques
or interpret. The generation of significant operational cash is dependent on developed for the fields. With regards to operational activities, the Group
the successful delivery and completion of the development and operation of the ensures that appropriate equipment and personnel are available for the
fields. The war in Ukraine is impacting planning and implementation of operations, and that operational contractors are appropriately supervised. In
development and operations at the Group's fields. addition, the Group performs a review of indicators of impairment of its oil
and gas assets on an annual basis, and considers whether an assessment of its
oil and gas assets by a suitably qualified independent assessor is appropriate
or required.
Drilling and workover operations
Due to the depth and nature of the reservoirs in the Group's fields, the The utilisation of detailed sub-surface analysis, careful well planning and
technical difficulty of drilling or re-entering wells in the Group's fields is engineering design in designing work programmes, along with appropriate
high, and this and the equipment limitations within Ukraine, can result in procurement procedures and competent on-site management, aims to minimise
unsuccessful or lower than expected outcomes for wells. these risks.
Maintenance of facilities
There is a risk that production or transportation facilities can fail due to The Group's facilities are operated and maintained at standards above the
inadequate maintenance, control or poor performance of the Group's Ukrainian minimum requirements. Operations staff are experienced and receive
suppliers. supplemental training to ensure that facilities are properly operated and
maintained. Service providers are rigorously reviewed at the tender stage and
are monitored during the contract period.
Financial risks
Exposure to cash flow and liquidity risk
There is a risk that insufficient funds are available to meet the Group's The Group maintains adequate cash reserves and closely monitors forecasted and
development obligations to commercialise the Group's oil and gas assets. Since actual cash flow, as well as short and longer-term funding requirements. The
a significant proportion of the future capital requirements of the Group is Group aims to maintain a significant proportion of its cash resources outside
expected to be derived from operational cash generated from production, Ukraine. The Group does not currently have any loans outstanding, internal
including from wells yet to be drilled, there is a risk that in the longer financial projections are regularly made based on the latest estimates
term insufficient operational cash is generated, or that additional funding, available, and various scenarios are run to assess the robustness of the
should the need arise, cannot be secured. The war in Ukraine has disrupted Group's liquidity. However, as the risk to future capital funding is inherent
production operations at the Group's fields, and consequently reduced in the oil and gas exploration and development industry and reliant in part on
anticipated cash flows from those fields, and this has increased the risk future development success, it is difficult for the Group to take any other
regarding sufficiency of capital for development. In addition, the war may measures to further mitigate this risk, other than tailoring its development
disrupt the sales market for hydrocarbons that are produced. Currently, activities to its available capital funding from time to time. The Group aims
however, hydrocarbon prices are reasonably strong, which is ameliorating the to maintain as diverse a range of banking relationships as possible to reduce
potential reduction in cash flows, and the Group's sales counterparties are the risks associated with limited accessibility to banking services which may
meeting their financial obligations. In addition to the risk of operational exist from time to time.
cash shortfalls, there is a risk that even with strong cash flows and cash
balances, the Group, from time to time, can suffer from non-Ukrainian
operational banking appetite for businesses such as the Group's business,
which can ultimately manifest itself in having a restricted access to banking
services.
Ensuring appropriate business practices
The Group operates in Ukraine, an emerging market, where certain inappropriate The Group maintains anti-bribery and corruption policies in relation to all
business practices may, from time to time occur, such as corrupt business aspects of its business, and ensures that clear authority levels and robust
practices, bribery, appropriation of property and fraud, all of which can lead approval processes are in place, with stringent controls over cash management
to financial loss. and the tendering and procurement processes. In addition, office and site
protection is maintained to protect the Group's assets.
Hydrocarbon price risk
The Group derives its revenue principally from the sale of its Ukrainian The Group sells a proportion of Its hydrocarbon production through offtake
hydrocarbon production. These revenues are subject to commodity price arrangements, which include pricing formulae so as to ensure that it achieves
volatility and political influence. A prolonged period of low hydrocarbon market prices for its products, as well as utilising the electronic market
prices may impact the Group's ability to maintain its long-term investment platforms in Ukraine to achieve market prices for its remaining products.
programme with a consequent effect on its growth rate, which in turn may However, hydrocarbon prices in Ukraine are, in the longer-term, linked to
impact the Company's share price or any shareholder returns. Lower hydrocarbon world hydrocarbon prices and so the Group is subject to external price trends,
prices may not only decrease the Group's revenues per unit, but may also as well as shorter-term volatility in the Ukrainian hydrocarbon market.
reduce the amount of hydrocarbons which the Group can produce economically, as
would increases in costs associated with hydrocarbon production, such as
subsoil taxes and royalties. The overall economics of the Group's key assets
(being the net present value of the future cash flows from its Ukrainian
projects) are far more sensitive to long term hydrocarbon prices than
short-term price volatility. However, short-term volatility does affect
liquidity risk, as, in the early stage of the projects, income from production
revenues is offset by capital investment. In addition, the war in Ukraine has
disrupted the sales market for hydrocarbons.
Currency risk
Since the beginning of 2014, the Ukrainian Hryvnia significantly devalued The Group's sales proceeds are received in Ukrainian Hryvnia, and the majority
against major world currencies, including the US Dollar, where it has fallen of the capital expenditure costs for the current investment programme will be
from UAH8.3/$1.00 on 1 January 2014 to UAH42.0/$1.00 on 31 December 2024, and incurred in Ukrainian Hryvnia, thus the currency of revenue and costs are
UAH41.5/$1.00 on 2 June 2025. This devaluation has been a significant largely matched. In light of the previous devaluation and volatility of the
contributor to the imposition of banking restrictions by the National Bank of Ukrainian Hryvnia against major world currencies, and since the Ukrainian
Ukraine over recent years. In addition, the geopolitical events in Ukraine Hryvnia does not benefit from the range of currency hedging instruments which
over recent years and the current war in Ukraine are likely to continue to are available in more developed economies, the Group has adopted a policy
impact the valuation of the Ukrainian Hryvnia against major world currencies. that, where possible, funds not required for use in Ukraine be retained on
Further devaluation of the Ukrainian Hryvnia against the US Dollar will affect deposit in the United Kingdom and Europe, principally in US Dollars.
the carrying value of the Group's assets.
Counterparty and credit risk
The challenging political and economic environment in Ukraine and current war The Group monitors the financial position and credit quality of its
means that businesses can be subject to significant financial strain, which contractual counterparties and seeks to manage the risk associated with
can mean that the Group is exposed to increased counterparty risk if counterparties by contracting with creditworthy contractors and customers.
counterparties fail or default in their contractual obligations to the Group, Hydrocarbon production is sold on terms that limit supply credit and/or title
including in relation to the sale of its hydrocarbon production, resulting in transfer until payment is received.
financial loss to the Group.
Financial markets and economic outlook
The performance of the Group is influenced by global economic conditions and, The Group's sales proceeds are received in Ukrainian Hryvnia and a significant
in particular, the conditions prevailing in the United Kingdom and Ukraine. proportion of investment expenditure is made in Ukrainian Hryvnia, which
The economies in these regions have been subject to volatile pressures in minimises risks related to foreign exchange volatility. However, hydrocarbon
recent periods, with the global economy having experienced a long period of prices in Ukraine are implicitly linked to world hydrocarbon prices and so the
difficulty, the COVID pandemic, and more particularly the current war in Group is subject to external price movements. The Group holds a material
Ukraine. This has led to extreme foreign exchange movements in the Ukrainian proportion of its cash reserves in the United Kingdom and Europe, mostly in US
Hryvnia, high inflation and interest rates, and increased credit risk relating Dollars, with reputable financial institutions. The financial status of
to the Group's key counterparties. counterparties is carefully monitored to manage counterparty risks.
Nevertheless, the overall exposure that the Group faces as a result of these
risks cannot be predicted and many of these are outside of the Group's
control.
Corporate risks
Ukrainian production licences
The Group operates in a region where the right to production can be challenged The Group ensures compliance with commitments and regulations relating to its
by State and non-State parties. During 2010, this manifested itself in the production and exploration licences through Group procedures and controls or,
form of a Ministry Order instructing the Group to suspend all operations and where this is not immediately feasible for practical or logistical
production from its MEX-GOL and SV production licences, which was not resolved considerations, seeks to enter into dialogue with the relevant Government
until mid-2011. In 2013, new rules relating to the updating of production bodies with a view to agreeing a reasonable time frame for achieving
licences led to further challenges being raised by the Ukrainian authorities compliance or an alternative, mutually agreeable course of action. Work
to the production licences held by independent oil and gas producers in programmes are designed to ensure that all licence obligations are met and
Ukraine, including the Group. In March 2019, a Ministry Order was issued continual interaction with Government bodies is maintained in relation to
instructing the Group to suspend all operations and production from its VAS licence obligations and commitments.
production licence, which was not resolved until March 2023. In 2020, LLC
Arkona Gas-Energy ("Arkona") faced a challenge from PJSC Ukrnafta concerning
the validity of its SC exploration licence, which was not ultimately resolved
in Arkona's favour until February 2021. During 2023, the Ukrainian authorities
took a number of regulatory actions against the Group, which culminated in
Ministry Orders being made in May 2023 to suspend all operations and
production at the VAS production licence and SC exploration licence, which
suspensions were not lifted until June 2024. In November 2024, a Ministry
Order was issued to suspend all operations and production at the MEX-GOL, SV
and VAS production licences, which suspensions, although temporarily lifted,
currently remain in force. Excepting the current suspension orders made in
respect of the MEX-GOL, SV and VAS production licences, all such challenges
affecting the Group have been successfully defended through the Ukrainian
legal system. The business environment is such that these types of challenges
may arise at any time in relation to the Group's operations, licence history,
compliance with licence commitments and/or local regulations. In addition,
production licences in Ukraine are issued with and/or carry ongoing compliance
obligations, which if not met, may lead to the loss of a licence.
Risks relating to key personnel
The Group's success depends upon skilled management as well as technical The Group periodically reviews the compensation and contractual terms of its
expertise and administrative staff. The loss of service of critical members staff. In addition, the Group has developed relationships with a number of
from the Group's team could have an adverse effect on the business. The technical and other professional experts and advisers, who are used to provide
current war in Ukraine has meant that, as far as possible, the Group's staff specialist services as required. As a result of the war, only essential staff
have needed to move away from areas of conflict and work remotely. are located at site, and all other staff are working remotely, either from
areas away from the conflict areas or outside Ukraine. The Group has invested
in technology that allows many staff to work just as effectively from remote
locations.
Consolidated Income Statement
for the year ended 31 December 2024
2024 2023
Note $000 $000
Revenue 5 44,928 62,194
Cost of sales 6 (16,693) (23,222)
Gross profit 28,235 38,972
Administrative expenses 7 (6,190) (6,953)
Other operating gains/(losses), (net) 10 7,061 3,517
Operating profit 29,106 35,536
Finance income 11 7 2,144
Finance costs 12 (663) (2,705)
Net income from investments 1,176 -
Net impairment/(losses) on financial assets 789 (475)
Other gains/(losses), (net) 13 4 683
Profit before taxation 30,419 35,183
Income tax expense 14 (6,696) (8,697)
Profit for the year 23,723 26,486
Earnings per share (cents)
Basic and diluted 16 7.4с 8.3c
The Notes set out below are an integral part of these consolidated financial
statements.
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2024
2024 2023
$000 $000
Profit for the year 23,723 26,486
Other comprehensive income/(expense):
Items that may be subsequently reclassified to profit or loss:
(14,479) (4,844)
Equity - foreign currency translation
Items that will not be subsequently reclassified to profit or loss:
Re-measurements of post-employment benefit obligations 75 47
Total other comprehensive income/(expense) (14,404) (4,797)
Total comprehensive income for the year 9,319 21,689
Company Statement of Comprehensive Income
for the year ended 31 December 2024
Note 2024 2023
$000 $000
Profit/(loss) for the year 15 (12,940) 7,151
Total comprehensive income/(loss) for the year (12,940) 7,151
The Notes set out below are an integral part of these consolidated financial
statements.
Consolidated Balance Sheet
as at 31 December 2024
2024 2023
Note $000 $000
Assets
Non-current assets
Property, plant and equipment 17 72,083 79,277
Intangible assets 18 7,317 8,372
Right-of-use assets 19 633 192
Deferred tax asset 26 363 352
Prepayments for fixed assets 363 110
Non-current receivables 51 -
80,810 88,303
Current assets
Inventories 21 3,152 2,951
Trade and other receivables 22 7,648 15,585
Cash and cash equivalents 23 99,398 76,493
110,198 95,029
Total assets 191,008 183,332
Liabilities
Current liabilities
Trade and other payables 24 (3,286) (6,012)
Lease liabilities 19 (343) (38)
Corporation tax payable (974) (2,175)
(4,603) (8,225)
Net current assets 105,595 86,804
Non-current liabilities
Provision for decommissioning 25 (8,276) (7,305)
Lease liabilities 19 (492) (245)
Defined benefit liability (323) (372)
Deferred tax liability 26 (5,796) (4,976)
Other non-current liabilities (78) (88)
(14,965) (12,986)
Total liabilities (19,568) (21,211)
Net assets 171,440 162,121
Equity
Called up share capital 27 28,115 28,115
Foreign exchange reserve 28 (161,028) (146,549)
Merger reserve 28 (3,204) (3,204)
Capital contributions reserve 28 7,477 7,477
Retained earnings 300,080 276,282
Total equity 171,440 162,121
The Notes set out below are an integral part of these consolidated financial
statements.
Consolidated Statement of Changes in Equity
for the year ended 31 December 2024
Called Merger Capital Foreign Retained Total equity
up share reserve Contributions Exchange earnings/(Accumulated
capital reserve reserve* losses)
$000 $000 $000 $000 $000 $000
As at 1 January 2023 28,115 (3,204) 7,477 (141,705) 309,976 200,659
Profit for the year - - - - 26,486 26,486
Other comprehensive expense - exchange differences - - - (4,844) - (4,844)
- re-measurements of post-employment benefit obligations - - - - 47 47
Total comprehensive income/(expense) - - - (4,844) 26,533 21,689
Dividends - - - - (60,227) (60,227)
As at 31 December 2023 28,115 (3,204) 7,477 (146,549) 276,282 162,121
Called Merger Capital Foreign Retained Total equity
up share reserve Contribution Exchange earnings/(Accumulate
capital reserve reserve* losses)
$000 $000 $000 $000 $000 $000
As at 1 January 2024 28,115 (3,204) 7,477 (146,549) 276,282 162,121
Profit for the year - - - - 23,723 23,723
Other comprehensive income - exchange differences - - - (14,479) - (14,479)
- re-measurements of post-employment benefit obligations - - - - 75 75
Total comprehensive income/(expense) - - - (14,479) 23,798 9,319
Dividends - - - - - -
As at 31 December 2024 28,115 (3,204) 7,477 (161,028) 300,080 171,440
* Predominantly as a result of exchange differences on non-monetary assets
and liabilities where the subsidiaries' functional currency is not the US
Dollar.
The Notes set out below are an integral part of these consolidated financial
statements.
Consolidated Cash Flow Statement
for the year ended 31 December 2024
2024 2023
Note $000 $000
Operating activities
Cash generated from operations 29 33,039 62,947
Charitable donations 13 (18) (17)
Income tax paid (6,375) (6,990)
Interest received 7,914 4,578
Net cash inflow from operating activities 34,560 60,518
Investing activities
Purchase of oil and gas development, production and other property, plant and (3,324) (10,179)
equipment
Purchase of oil and gas exploration and evaluation assets (336) (335)
Purchase of oil and gas development, production and other intangible assets (277) (320)
Proceeds from sale of property, plant and equipment 35 7
Net cash outflow from investing activities (3,902) (10,827)
Financing activities
Payment of principal portion of lease liabilities (436) (406)
Dividend paid - (59,623)
Net cash outflow from financing activities (436) (60,029)
( ) ( ) ( ) ( )
Net increase in cash and cash equivalents 30,222 (10,338)
Cash and cash equivalents at the beginning of the year 76,493 88,652
ECL* of cash and cash equivalents (522) (494)
Effect of foreign exchange rate changes (6,795) (1,327)
Cash and cash equivalents at the end of the year 23 99,398 76,493
*ECL - Expected credit losses
The Notes set out below are an integral part of these consolidated financial
statements.
Notes forming part of the financial statements
1. Statutory Accounts
The financial information set out above does not constitute the Company's
statutory accounts for the year ended 31 December 2024 or 2023, but is derived
from those accounts. The Auditor has reported on those accounts, and its
reports were unqualified and did not contain statements under sections 498(2)
or (3) of the Companies Act 2006. The auditors' report on the Group financial
statements included a material uncertainty in respect of the Group's ability
to continue as a going concern as explained in the section "Going Concern" in
Note 3 below.
The statutory accounts for 2024 will be delivered to the Registrar of
Companies following publication.
While the financial information included in this preliminary announcement has
been prepared in accordance with UK-adopted International Accounting Standards
("framework"), this announcement does not itself contain sufficient
information to comply with the framework. The Company expects to distribute
the full financial statements that comply with UK-adopted International
Accounting Standards by 27 June 2025.
2. General Information and Operational Environment
Enwell Energy plc (the "Company") and its subsidiaries (the "Group") is a gas,
condensate, oil and LPG production group.
The Company is a public limited company incorporated in England and Wales
under the Companies Act 2006, whose shares are quoted on the AIM Market of
London Stock Exchange plc. The Company's registered office is at 84 Brook
Street, London W1K 5EH, United Kingdom and its registered number is 4462555.
The principal activities of the Group and the nature of the Group's operations
are set out above.
As at 31 December 2023 and 2024, the Company's immediate parent company was
Smart Energy (CY) Limited, which was 100% owned by Smart Holding (Cyprus)
Limited, which was 100% owned by Proteas Trustees Ltd as trustee of the STEP
Trust, and Proteas Trustee Services Ltd, Afroditi Loukaidou, Elena Iona and
Maria Sokratous as trustees of the SMART Trust. Accordingly, the Company was
ultimately controlled by Proteas Trustees Ltd as trustee of the STEP Trust,
and Proteas Trustee Services Ltd, Afroditi Loukaidou, Elena Iona and Maria
Sokratous as trustees of the SMART Trust.
The Group's gas, condensate, oil and LPG extraction and production facilities
are located in Ukraine.
Impact of the ongoing war in Ukraine
On 24 February 2022, Russia commenced a military invasion of Ukraine, and
since then there has been an ongoing war in Ukraine. Shortly after the
invasion, the Ukrainian Government imposed martial law, and the corresponding
introduction of related temporary restrictions that impact, amongst other
areas, the economic environment and business operations in Ukraine. The war
has caused significant economic and social challenges in Ukraine, which has
led to a deterioration of Ukrainian State finances, volatility of financial
markets, illiquidity on capital markets, higher inflation and a depreciation
of the national currency against major foreign currencies.
During 2022, the National Bank of Ukraine ("NBU") took a number of measures to
protect the Ukrainian economy, including significantly increasing its key
policy interest rate, introducing temporary restrictions on foreign currency
trades and limiting cross-border payments for non-critical imports and
repayment of debt to foreign creditors, apart from international institutions.
In addition, the Ukrainian Hryvnia exchange rate with the US Dollar was
effectively fixed on the foreign exchange market to ensure the stable
operation of Ukraine's financial system.
These measures proved effective, and during 2023, the NBU lifted a number of
the currency restrictions and relaxed the measures that related, inter alia,
to foreign currency sale limits for banks and non-banking financial
institutions. Furthermore, during 2023 and 2024, the NBU gradually decreased
its key policy rate, and this now stands at 15.5%. The NBU is now following
an interest rate policy consistent with inflation targets. The inflation rate
in Ukraine for 2024 was 12% (2023: 5%) according to the statistics published
by the State Statistics Service of Ukraine.
In October 2023, the NBU returned to a managed floating exchange rate for the
Ukrainian Hryvnia, and as of 31 December 2024, the Ukrainian Hryvnia exchange
rate with the US Dollar was UAH42.04/$1.00 (UAH37.98/$1.00 as at 31 December
2023).
During 2024, Ukrainian GDP increased by 2.9% compared with a 4.9% increase in
2023.
The nature of the situation in Ukraine and the unpredictability of the outcome
means it is impracticable to assess the full impact of the war on the economic
environment.
Overall, the final resolution and the ongoing effects of the war and political
and economic situation in Ukraine are difficult to predict, but they may have
further severe effects on the Ukrainian economy and the Group's business.
As at 2 June 2025, the official NBU exchange rate of the Ukrainian Hryvnia
against the US Dollar was UAH41.5/$1.00, compared with UAH42.0/$1.00 as at 31
December 2024.
Further details of risks relating to Ukraine can be found within the Principal
Risks section of the Strategic Report.
3. Accounting Policies
The principal accounting policies applied in the preparation of these
consolidated financial statements are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated.
Basis of Preparation
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 and Company transitioned to UK-adopted International Accounting
Standards on 1 January 2021. This change constitutes a change in accounting
framework. However, there is no impact on recognition, measurement or
disclosure in the period reported as a result of the change in framework. The
consolidated financial statements of the Group and the financial statements of
the Company have been prepared in accordance with UK-adopted International
Accounting Standards and with the requirements of the Companies Act 2006 as
applicable to companies reporting under those standards.
These consolidated financial statements have been prepared in accordance with
UK-adopted International Accounting Standards under the historical cost
convention, as modified by the initial recognition of financial instruments
based on fair value, and by the revaluation of financial instruments
categorised at fair value through profit or loss ("FVTPL") and at fair value
through other comprehensive income ("FVOCI"). The principal accounting
policies applied in the preparation of these consolidated financial statements
are set out below. Apart from the accounting policy changes effective from 1
January 2022 these policies have been consistently applied to all the periods
presented, unless otherwise stated.
The preparation of financial statements in conformity with UK-adopted
International Accounting Standards requires the use of certain critical
accounting estimates. It also requires management to exercise its judgement in
the process of applying the Group's accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where assumptions and
estimates are significant to the consolidated financial statements are
disclosed in Note 4. The consolidated financial statements are presented in
thousands of US Dollars.
Going Concern
The Group's business activities, together with the factors likely to affect
its future operations, performance and position are set out in the Chairman's
Statement, Chief Executive's Statement and Finance Review. The financial
position of the Group, its cash flows and liquidity position are set out in
these consolidated financial statements.
On 24 February 2022, Russia commenced a military invasion of Ukraine, and
since then there has been an ongoing war between Russia and Ukraine.
Immediately after the commencement of the war, the Ukrainian Government
imposed martial law and introduced a number of related temporary restrictions
that impacted the economic environment and business operations in Ukraine.
While a number of restrictions remain in place, improvements in the economic
environment have led the Ukrainian Government to relax a number of the
restrictions and stabilise the economic situation in Ukraine.
The production assets of the Group are located in the central and eastern part
of the country (Poltava and Kharkiv regions) which are controlled by the
Ukrainian Government. As of the date of approval of these financial
statements, no assets of the Group have been damaged. However, the licences
relating to the Group's MEX-GOL and SV assets in the Poltava region and VAS
asset in the Kharkiv region are suspended after the State Geologic and Subsoil
Survey of Ukraine issued orders on 15 November 2024 for the suspension of the
MEX-GOL, SV and VAS production licences for a period of ten years effective
from 8 October 2024, and consequently all field and production operations on
these licences has ceased. No military activities have occurred at the Group's
field locations. The Gas Transmission System Operator of Ukraine has
maintained complete operational and technological control over the operations
of the Ukrainian Gas Transmission System. However, as of the date of approval
of these financial statements, the war and the regulatory actions of the
Ukrainian authorities has had, and continues to have, a material impact on the
production and sales levels of the business and execution of the Group's 2025
budget.
The Group has no debt and funds its operations from its own cash resources.
Cash and cash equivalents were $102.1 million as at 2 June 2025. The Directors
maintain a significant level of flexibility to modify the Group's development
plans as may be required to preserve cash resources for liquidity management.
Absent the potential impact of the war in Ukraine, the Directors are satisfied
that the Group and the Company are a going concern and will continue their
operations for the foreseeable future.
In assessing the impact of the war and the regulatory actions of the Ukrainian
authorities on the ability of the Group and the Company to continue as a going
concern, the Directors have analysed a number of possible scenarios of
economic and military developments and the impact on the expected cash flows
of the Group and Company for 2025 and 2026. This includes considering a
possible worst case scenario in which the Group has zero production as a
result of possible future military conflict and regulatory actions dictating
field operations being completely shut-in, and all other non-production
related costs being maintained at current levels with no reduction or
mitigating actions as would otherwise be possible. Even in this worst-case
scenario, the Directors are satisfied that the Group and the Company have
sufficient liquid resources to be able to meet their liabilities as they fall
due and to be able to continue as a going concern for the foreseeable future.
The corporate strategy for the near term is to:
· continue work for the development of the SC exploration licence area, while
preserving existing cash resources, and moderating such development plans to
reduce cash spend exposure whilst the war and regulatory, operational and
political uncertainty continues;
· vigorously pursue legal initiatives to protect the Group's assets, restore all
licences and production, and seek compensation for losses incurred to date and
as may be incurred in the future; and
· tightly manage costs to ensure cash resources are maintained at levels capable
of sustaining the business through the continuing uncertainty.
In respect of the Group's operations, staff and assets in Ukraine, the
potential short and long-term impact of the future development of the war is
inherently uncertain. Accordingly, this creates a material uncertainty related
to events or conditions that may cast significant doubt on the Group's ability
to continue as a going concern because of the potential impact on its ability
to continue its operations for the foreseeable future and realise its assets
in the normal course of business. The financial statements do not include the
adjustments that would result if the Group were unable to continue as a going
concern.
The Company is a UK-based investment holding company. The Company had cash and
cash equivalents of $17.0 million as at 2 June 2025, all of which are held
outside Ukraine, in US Dollars, Pounds Sterling and Euros. The Directors are
satisfied that the Company is a going concern and will be able to continue its
operations for the foreseeable future, and there is no material uncertainty in
respect of its ability to do so.
New and revised standards adopted by the Group
The Group has adopted the following new and revised standards for the first
time, effective for reporting periods beginning on or after 1 January 2024:
Amendments to IAS 1 Liabilities with Covenants
The amendments clarify the requirements for classifying liabilities in
financial statements if the implementation of covenants is related to events
after the reporting date. Now, liabilities related to covenants are classified
as non-current if all contractual terms are met at the reporting date, or if
the creditor provides a grace period to remedy covenant violations that lasts
at least 12 months after the reporting date. This allows entities to avoid
incorrect classification of liabilities that are not actually required to be
repaid immediately.
The amendments require retrospective application for all periods presented, if
practicable.
Since the Group has no liabilities with covenants, the Group's accounting
policies have not changed, no potential impacts on future periods are
expected, the amendments did not affect any items in the financial statements,
and there were no restatements for prior periods.
Amendments to IFRS 16 - Sale and Leaseback Liabilities
The amendments clarify the requirements for measuring lease liabilities in
sale and leaseback cases. In particular, the amendments require lease payments
to be determined in such a way that the amount of profit recognised
corresponds only to those rights that have been transferred to the lessor.
This is aimed to avoid misinterpretation in the event of changes in future
lease payments, especially if they include variable payments that are not
index or rate dependent. The amendments allow entities to increase
transparency in financial reporting and enhance compliance with the economic
substance of transactions.
The transitional provisions require retrospective application to all periods
presented.
Since these amendments relate to transactions that are absent in the Group's
activities, the Group's accounting policies have not changed, no potential
impacts on future periods are expected, the amendments did not affect any
items in the financial statements, and there were no restatements for prior
periods.
Amendments to IAS 7 and IFRS 7 - Supplier Financing Arrangements
The amendments clarify disclosure requirements for supplier financing
arrangements that allow companies to transfer their liabilities to suppliers
to financial institutions. The amendments are aimed at improving the
transparency of cash flow reporting, liability classification, and liquidity
risks. Disclosures are required to include the terms of such arrangements, the
range of payment periods, the amount of the liabilities, and the impact on
financial indicators.
The amendments require retrospective application to all periods presented.
Since these amendments relate the specific transactions that are absent in the
Group's activities, the Group's accounting policies have not changed, no
potential impacts on future periods are expected, the amendments did not
affect any items in the financial statements, and there were no restatements
for the prior periods.
New and revised IFRSs have been issued but have not yet entered into force
In accordance with the requirements of IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors, the Group has considered all new and revised
standards that have been issued but are not yet effective at the date of
preparation of these financial statements. The list of such standards and
amendments includes:
Standards and Interpretations Effective date
Amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates - Lack 1 January 2025
of Exchangeability
Renewable Energy Contracts (Amendments to IFRS 9 and IFRS 7) 1 January 2026
Annual Improvements to IFRS - Volume 11 1 January 2026
Amendments to the classification and measurement of financial instruments 1 January 2026
(amendments to IFRS 9 and IFRS 7)
These new standards and interpretations are not expected to significantly
affect the Group's consolidated financial statements.
Exchange differences on intra-group balances with foreign operations
The Group has certain inter-company monetary balances of which the Company is
the beneficial owner. These monetary balances are payable by a subsidiary that
is a foreign operation and are eliminated on consolidation.
In the consolidated financial statements, exchange differences arising on such
payables because the transaction currency differs from the subsidiary's
functional currency are recognised initially in other comprehensive income if
the settlement of such payables is continuously deferred and is neither
planned nor likely to occur in the foreseeable future.
In such cases, the respective receivables of the Company are regarded as an
extension of the Company's net investment in that foreign operation, and the
cumulative amount of the abovementioned exchange differences recognised in
other comprehensive income is carried forward within the foreign exchange
reserve in equity and is reclassified to profit or loss only upon disposal of
the foreign operation.
When the subsidiary that is a foreign operation settles its quasi-equity
liability due to the Company, but the Company continues to possess the same
percentage of the subsidiary, i.e. there has been no change in its
proportionate ownership interest, such settlement is not regarded as a
disposal or a partial disposal, and therefore cumulative exchange differences
are not reclassified.
The designation of inter-company monetary balances as part of the net
investment in a foreign operation is re-assessed when management's
expectations and intentions on settlement change due to a change in
circumstances.
Where, because of a change in circumstances, a receivable balance, or part
thereof, previously designated as a net investment into a foreign operation is
intended to be settled, the receivable is de-designated and is no longer
regarded as part of the net investment.
In such cases, the exchange differences arising on the subsidiary's payable
following de-designation are recognised within finance costs / income in
profit or loss, similar to foreign exchange differences arising from
financing.
Foreign exchange gains and losses not related to intra-group balances are
recognised on a net basis as other gains or losses.
Basis of Consolidation
The consolidated financial statements incorporate the financial information of
the Company and entities controlled by the Company (and its subsidiaries) made
up to 31 December each year.
Subsidiaries
Subsidiaries are all entities (including structured entities) over which the
Group has control. The Group controls an entity when the Group is exposed to,
or has rights to variable returns from its involvement with the entity and has
the ability to affect those returns through its power over the entity.
Subsidiaries are fully consolidated from the date on which control is
transferred to the Group. They are deconsolidated from the date that control
ceases.
The Group applies the acquisition method to account for business combinations.
The consideration transferred for the acquisition of a subsidiary is the fair
value of the assets transferred, the liabilities incurred to the former owners
of the acquiree and the equity interests issued by the Group. The
consideration transferred includes the fair value of any asset or liability
resulting from a contingent consideration arrangement. Identifiable assets
acquired and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the acquisition
date. The Group recognises any non-controlling interest in the acquiree on an
acquisition-by-acquisition basis at the non-controlling interest's
proportionate share of the recognised amounts of the acquiree's identifiable
net assets.
Acquisition-related costs are expensed as incurred.
If the business combination is achieved in stages, the acquisition date
carrying value of the acquirer's previously held equity interest in the
acquiree is re-measured to fair value at the acquisition date; any gains or
losses arising from such re-measurement are recognised in profit or loss.
Any contingent consideration to be transferred by the Group is recognised at
fair value at the acquisition date. Subsequent changes to the fair value of
the contingent consideration that is deemed to be an asset or liability is
recognised in accordance with IFRS 9 in profit or loss.
Inter-company transactions, balances and unrealised gains on transactions
between Group companies are eliminated. Unrealised losses are also eliminated.
When necessary, amounts reported by subsidiaries have been adjusted to conform
with the Group's accounting policies.
Segment reporting
The Group's only class of business activity is oil and gas exploration,
development and production. The Group's primary operations are located in
Ukraine, with its head office in the United Kingdom. The geographical
segments are the basis on which the Group reports its segment information to
management. Operating segments are reported in a manner consistent with the
internal reporting provided to the Board of Directors.
Commercial Reserves
Proved and probable oil and gas reserves are estimated quantities of
commercially producible hydrocarbons which the existing geological,
geophysical and engineering data show to be recoverable in future years from
known reservoirs. Proved reserves are those quantities of petroleum that, by
analysis of geoscience and engineering data, can be estimated with reasonable
certainty to be commercially recoverable from known reservoirs and under
defined technical and commercial conditions. Probable reserves are those
additional reserves which analysis of geoscience and engineering data indicate
are less likely to be recovered than proved reserves but more certain to be
recovered than possible reserves. The proved and probable reserves conform to
the definition approved by the Petroleum Resources Management System.
Oil and Gas Exploration/Evaluation and Development/Production Assets
The Group applies the successful efforts method of accounting for oil and gas
assets, having regard to the requirements of IFRS 6 Exploration for and
Evaluation of Mineral Resources.
Exploration costs are incurred to discover hydrocarbon resources. Evaluation
costs are incurred to assess the technical feasibility and commercial
viability of the resources found. Exploration, as defined in IFRS 6
Exploration and evaluation of mineral resources, starts when the legal rights
to explore have been obtained. Expenditure incurred before obtaining the legal
right to explore is generally expensed; an exception to this would be
separately acquired intangible assets such as payment for an option to obtain
legal rights.
Expenditures incurred in the exploration activities are expensed unless they
meet the definition of an asset. The Group recognises an asset when it is
probable that economic benefits will flow to the Group as a result of the
expenditure. The economic benefits might be available through commercial
exploitation of hydrocarbon reserves or sales of exploration findings or
further development rights. Exploration and evaluation ("E&E") assets are
recognised as either property, plant and equipment or intangible assets,
according to their nature, in single field cost centres.
The capitalisation point is the earlier of:
(a) the point at which the fair value less costs to sell the property can be
reliably determined as being higher than the total of the expenses incurred
and costs already capitalised (such as licence acquisition costs); and
(b) an assessment of the property demonstrates that commercially viable reserves
are present and hence there are probable future economic benefits from the
continued development and production of the resource.
E&E assets are reclassified from Exploration and Evaluation when
evaluation procedures have been completed. E&E assets that are not
commercially viable are written down. E&E assets for which commercially
viable reserves have been identified are reclassified to Development and
Production assets. E&E assets are tested for impairment immediately prior
to reclassification out of E&E.
Once an E&E asset has been reclassified from E&E, it is subject to the
normal IFRS requirements. This includes impairment testing at the
cash-generating unit ("CGU") level and depreciation.
Abandonment and Retirement of Individual Items of Property, Plant and
Equipment
Normally, no gains or losses shall be recognised if only an individual item of
equipment is abandoned or retired or if only a single lease or other part of a
group of proved properties constituting the amortisation base is abandoned or
retired as long as the remainder of the property or group of properties
constituting the amortisation base continues to produce oil or gas. Instead,
the asset being abandoned or retired shall be deemed to be fully amortised,
and its costs shall be charged to accumulated depreciation, depletion or
amortisation. When the last well on an individual property (if that is the
amortisation base) or group of properties (if amortisation is determined on
the basis of an aggregation of properties with a common geological structure)
ceases to produce and the entire property or group of properties is abandoned,
a gain or loss shall be recognised. Occasionally, the partial abandonment or
retirement of a proved property or group of proved properties or the
abandonment or retirement of wells or related equipment or facilities may
result from a catastrophic event or other major abnormality. In those cases, a
loss shall be recognised at the time of abandonment or retirement.
Intangible Assets other than Oil and Gas Assets
Intangible assets other than oil and gas assets are stated at cost less
accumulated amortisation and any provision for impairment. These assets
represent exploration licences. Amortisation is charged so as to write off the
cost, less estimated residual value on a straight-line basis of 20-25% per
annum.
Depreciation, Depletion and Amortisation
All expenditure carried within each field is amortised from the commencement
of commercial production on a unit of production basis, which is the ratio of
gas production in the period to the estimated quantities of commercial
reserves at the end of the period plus the production in the period, generally
on a field by field basis. In certain circumstances, fields within a single
development area may be combined for depletion purposes. Costs used in the
unit of production calculation comprise the net book value of capitalised
costs plus the estimated future field development costs necessary to bring the
reserves into production.
Impairment
At each balance sheet date, the Group reviews the carrying amount of oil and
gas development and production assets to determine whether there is any
indication that those assets have suffered an impairment loss. This includes
exploration and appraisal costs capitalised which are assessed for impairment
in accordance with IFRS 6. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent of the
impairment loss.
For oil and gas development and production assets, the recoverable amount is
the greater of fair value less costs to dispose and value in use. In assessing
value in use, the estimated future cash flows are discounted to their present
value using an expected weighted average cost of capital. If the recoverable
amount of an asset is estimated to be less than its carrying amount, the
carrying amount of the asset is reduced to its recoverable amount. Impairment
losses are recognised as an expense immediately. The valuation method used for
determination of fair value less cost of disposal is based on unobservable
market data, which is within Level 3 of the fair value hierarchy.
Should an impairment loss subsequently reverse, the carrying amount of the
asset is increased to the revised estimate of its recoverable amount, but so
that the increased carrying amount does not exceed the carrying amount that
would have been determined had no impairment loss been recognised for the
asset in prior years. A reversal of an impairment loss is recognised as income
immediately.
Decommissioning Provision
Where a material liability for the removal of existing production facilities
and site restoration at the end of the productive life of a field exists, a
provision for decommissioning is recognised. The amount recognised is the
present value of estimated future expenditure determined in accordance with
local conditions and requirements. The cost of the relevant property, plant
and equipment is increased with an amount equivalent to the provision and
depreciated on a unit of production basis. Changes in estimates are recognised
prospectively, with corresponding adjustments to the provision and the
associated fixed asset. The unwinding of the discount on the decommissioning
provision is included within finance costs.
Property, Plant and Equipment other than Oil and Gas Assets
Property, plant and equipment other than oil and gas assets (included in Other
fixed assets in Note 17 are stated at cost less accumulated depreciation and
any provision for impairment. Depreciation is charged so as to write off the
cost of assets on a straight-line basis over their useful lives as follows:
Useful lives in years
Buildings and constructions 10 to 20 years
Machinery and equipment 2 to 5 years
Vehicles 5 years
Office and other equipment 4 to 12 years
Spare parts and equipment purchased with the intention to be used in future
capital investment projects are recognised as oil and gas development and
production assets within property, plant and equipment.
Right-of-use assets
The Group leases various offices, equipment, wells and land. Contracts may
contain both lease and non-lease components. The Group allocates the
consideration in the contract to the lease and non-lease components based on
their relative stand-alone prices.
Assets arising from a lease are initially measured on a present value basis.
Right-of-use assets are measured at cost comprising the following:
· the amount of the initial measurement of lease liability,
· any lease payments made at or before the commencement date less any lease
incentives received,
· any initial direct costs, and
· costs to restore the asset to the conditions required by lease agreements.
Right-of-use assets are generally depreciated over the shorter of the asset's
useful life and the lease term on a straight-line basis. If the Group is
reasonably certain to exercise a purchase option, the right-of-use asset is
depreciated over the underlying assets' useful lives. Depreciation on the
items of the right-of-use assets is calculated using the straight-line method
over their estimated useful lives as follows:
Useful lives in years
Land 40 to 50 years
Wells 10 to 20 years
Properties:
Buildings and constructions 10 to 20 years
Machinery and equipment 2 to 5 years
Vehicles 5 years
Office and other equipment 4 to 12 years
Inventories
Inventories typically consist of materials, spare parts and hydrocarbons, and
are stated at the lower of cost and net realisable value. Cost of finished
goods is determined on the weighted average bases. Cost of other than finished
goods inventory is determined on the first in first out basis. Net realisable
value represents the estimated selling price less all estimated costs of
completion and costs to be incurred in marketing, selling and distribution.
Revenue Recognition
Revenue is income arising in the course of the Group's ordinary activities.
Revenue is recognised by the amount of the transaction price. Transaction
price is the amount of consideration to which the Group expects to be entitled
in exchange for transferring control over promised goods or services to a
customer, excluding the amounts collected on behalf of third parties.
Revenue is recognised net of indirect taxes and excise duties.
Sales of gas, condensate, oil and LPG are recognised when control of the good
has transferred, being when the goods are delivered to the customer, the
customer has full discretion over the goods, and there is no unfulfilled
obligation that could affect the customer's acceptance of the goods. Delivery
occurs when the goods have been shipped to the specific location, the risks of
obsolescence and loss have been transferred to the customer, and either the
customer has accepted the goods in accordance with the contract, the
acceptance provisions have lapsed, or the Group has objective evidence that
all criteria for acceptance have been satisfied.
A receivable is recognised when the goods are delivered as this is the point
in time that the consideration is unconditional because only the passage of
time is required before the payment is due.
The Group normally uses standardised contracts for the sale of gas,
condensate, oil and LPG, which define the point of control transfer. The price
and quantity of each sale transaction are indicated in the specifications to
the sales contracts.
The control over gas is transferred to a customer when the respective act of
acceptance is signed by the parties to a contract upon delivery of gas to the
point of sale specified in the contract, normally being a certain point in the
Ukrainian gas transportation system. Acts of acceptance of gas are signed and
the respective revenues are recognised on a monthly basis.
The control over condensate, oil and LPG is transferred to a customer when the
respective waybill is signed by the parties to a contract upon shipment of
goods at the point of sale specified in the contract, which is normally the
Group's production site.
Foreign Currencies
The Group's consolidated financial statements and those of the Company are
presented in US Dollars. The functional currency of the subsidiaries which
operate in Ukraine is Ukrainian Hryvnia. The remaining entities have US
Dollars as their functional currency.
The functional currency of individual companies is determined by the primary
economic environment in which the entity operates, normally the one in which
it primarily generates and expends cash. In preparing the financial statements
of the individual companies, transactions in currencies other than the
entity's functional currency ("foreign currencies") are recorded at the rates
of exchange prevailing on the dates of the transactions. At each balance sheet
date, monetary assets and liabilities that are denominated in foreign
currencies are retranslated at the rates prevailing on the balance sheet date.
Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at year-end exchange rates of monetary
assets and liabilities denominated in foreign currencies are recognised in the
Income Statement. Non-monetary assets and liabilities carried at fair value
that are denominated in foreign currencies are translated at the rates
prevailing at the date when the fair value was determined. Non-monetary items
which are measured in terms of historical cost in a foreign currency are not
retranslated. Gains and losses arising on retranslation are included in net
profit or loss for the period, except for exchange differences arising on
balances which are considered long term investments where the changes in fair
value are recognised directly in other comprehensive income.
On consolidation, the assets and liabilities of the Group's subsidiaries which
do not use US Dollars as their functional currency are translated into US
Dollars as follows:
assets and liabilities for each Balance Sheet presented are translated at the
closing rate at the date of that Balance Sheet;
(a) income and expenses for each Income Statement are translated at average
monthly exchange rates (unless this average is not a reasonable approximation
of the cumulative effect of the rates prevailing on the transaction dates, in
which case income and expenses are translated at the rate on the dates of the
transactions); and
(b) all resulting exchange differences are recognised in other comprehensive
income.
The principal rates of exchange used for translating foreign currency balances
as at 31 December 2024 were $1:UAH42.04 (2023: $1: UAH37.98), $1:£0.798
(2023: $1:£ 0.779), $1:€0.963 (2023: $1:€ 0.886), and the average rates
for the year were $1:UAH40.16 (2023: $1:UAH36.58), $1:£0.783 (2023: $1:£
0.804), $1:€0.925 (2023: $1:€ 0.923).
None of the Group's operations are considered to use the currency of a
hyperinflationary economy, however this is kept under review.
Pensions
The Group contributes to a local government pension scheme in Ukraine and
defined benefit plans. The Group has no further payment obligations towards
the local government pension scheme once the contributions have been paid.
Defined benefit plans define an amount of pension benefit that an employee
will receive on retirement, usually dependent on one or more factors such as
age, years of service and compensation.
The Group companies participate in a mandatory Ukrainian State-defined
retirement benefit plan, which provides for early pension benefits for
employees working in certain workplaces with hazardous and unhealthy working
conditions. The Group also provides lump sum benefits upon retirement subject
to certain conditions. The early pension benefit (in the form of a monthly
annuity) is payable by employers only until the employee has reached the
statutory retirement age. The pension scheme is based on a benefit formula
which depends on each individual member's average salary, his/her total length
of past service and total length of past service at specific types of
workplaces ("list II" category).
The liability recognised in the Balance Sheet in respect of defined benefit
pension plans is the present value of the defined benefit obligation at the
end of the reporting period less the fair value of plan assets. The defined
benefit obligation is calculated annually by independent actuaries using the
projected unit credit method. The present value of the defined benefit
obligation is determined by discounting the estimated future cash outflows
using interest rates of high-quality corporate bonds that are denominated in
the currency in which the benefits will be paid, and that have terms to
maturity approximating to the terms of the related pension obligation. Since
Ukraine has no deep market in such bonds, the market rates on government bonds
are used.
The current service cost of the defined benefit plan, recognised in the Income
Statement within the Cost of Sales in employee benefit expense, except where
included in the cost of an asset, reflects the increase in the defined benefit
obligation resulting from employee service in the current year, benefit
changes curtailments and settlements. Past-service costs are recognised
immediately in the Income Statement.
The net interest cost is calculated by applying the discount rate to the net
balance of the defined benefit obligation and the fair value of plan assets.
This cost is included in employee benefit expense in the Income Statement
within the Cost of Sales.
Actuarial gains and losses arising from experience adjustments and changes in
actuarial assumptions are charged or credited to equity in other comprehensive
income in the period in which they arise.
Taxation
The tax expense represents the sum of the current tax and deferred tax.
Current tax, including UK corporation and overseas tax, is provided at amounts
expected to be paid (or recovered) using the tax rates and laws that have been
enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability method.
Deferred tax liabilities are generally recognised for all taxable temporary
differences and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which deductible
temporary differences can be utilised. Such assets and liabilities are not
recognised if the temporary difference arises from goodwill or from the
initial recognition (other than in a business combination) of other assets and
liabilities in a transaction that affects neither the tax profit nor the
accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries and associates, and interests in joint
ventures, except where the Group is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future.
Deferred tax is calculated at the tax rates which are expected to apply in the
period when the liability is settled or the asset is realised. Deferred tax is
charged or credited in the Income Statement, except when it relates to items
charged or credited directly to equity, in which case the deferred tax is also
dealt with in equity.
Other taxes which include recoverable value added tax, excise tax and custom
duties represent the amounts receivable or payable to local tax authorities in
the countries where the Group operates.
Value added tax
Output value added tax related to sales is payable to tax authorities on the
earlier of (a) collection of receivables from customers or (b) delivery of
goods or services to customers. Input VAT is generally recoverable against
output VAT upon receipt of the VAT invoice. The tax authorities permit the
settlement of VAT on a net basis. VAT related to sales and purchases is
recognised in the consolidated statement of financial position on a gross
basis for different entities of the Group and disclosed separately as an asset
and a liability. Where provision has been made for expected credit losses
("ECL") of receivables, the impairment loss is recorded for the gross amount
of the debtor, including VAT.
Financial Instruments
Financial instruments - key measurement terms. Fair value is the price that
would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The
best evidence of fair value is the price in an active market. An active market
is one in which transactions for the asset or liability take place with
sufficient frequency and volume to provide pricing information on an ongoing
basis.
Fair value of financial instruments traded in an active market is measured as
the product of the quoted price for the individual asset or liability and the
number of instruments held by the entity. This is the case even if a market's
normal daily trading volume is not sufficient to absorb the quantity held and
placing orders to sell the position in a single transaction might affect the
quoted price.
A portfolio of financial derivatives or other financial assets and liabilities
that are not traded in an active market is measured at the fair value of a
group of financial assets and financial liabilities on the basis of the price
that would be received to sell a net long position (i.e. an asset) for a
particular risk exposure or paid to transfer a net short position (i.e. a
liability) for a particular risk exposure in an orderly transaction between
market participants at the measurement date. This is applicable for assets
carried at fair value on a recurring basis if the Group: (a) manages the group
of financial assets and financial liabilities on the basis of the Group's net
exposure to a particular market risk (or risks) or to the credit risk of a
particular counterparty in accordance with the Group's documented risk
management or investment strategy; (b) it provides information on that basis
about the group of assets and liabilities to the Group's key management
personnel; and (c) the market risks, including duration of the Group's
exposure to a particular market risk (or risks) arising from the financial
assets and financial liabilities are substantially the same.
Valuation techniques such as discounted cash flow models or models based on
recent arm's length transactions or consideration of financial data of the
investees are used to measure fair value of certain financial instruments for
which external market pricing information is not available. Fair value
measurements are analysed by level in the fair value hierarchy as follows: (i)
level one are measurements at quoted prices (unadjusted) in active markets for
identical assets or liabilities, (ii) level two measurements are valuations
techniques with all material inputs observable for the asset or liability,
either directly (that is, as prices) or indirectly (that is, derived from
prices), and (iii) level three measurements are valuations not based on solely
observable market data (that is, the measurement requires significant
unobservable inputs).
Transaction costs are incremental costs that are directly attributable to the
acquisition, issue or disposal of a financial instrument. An incremental cost
is one that would not have been incurred if the transaction had not taken
place. Transaction costs include fees and commissions paid to agents
(including employees acting as selling agents), advisers, brokers and dealers,
levies by regulatory agencies and securities exchanges, and transfer taxes and
duties. Transaction costs do not include debt premiums or discounts, financing
costs or internal administrative or holding costs.
Fair value is the amount at which the financial instrument was recognised at
initial recognition, while amortised cost ("AC") is the amount at which the
financial instrument was subsequently measured after the initial recognition
less any principal repayments, plus accrued interest, and for financial assets
less any allowance for ECL. Accrued interest includes amortisation of
transaction costs deferred at initial recognition and of any premium or
discount to the maturity amount using the effective interest method. Accrued
interest income and accrued interest expense, including both accrued coupon
and amortised discount or premium (including fees deferred at origination, if
any), are not presented separately and are included in the carrying values of
the related items in the consolidated statement of financial position.
The effective interest method is a method of allocating interest income or
interest expense over the relevant period, so as to achieve a constant
periodic rate of interest (effective interest rate) on the carrying amount.
The effective interest rate is the rate that exactly discounts estimated
future cash payments or receipts (excluding future credit losses) through the
expected life of the financial instrument or a shorter period, if appropriate,
to the gross carrying amount of the financial instrument. The effective
interest rate discounts cash flows of variable interest instruments to the
next interest repricing date, except for the premium or discount which
reflects the credit spread over the floating rate specified in the instrument,
or other variables that are not reset to market rates. Such premiums or
discounts are amortised over the whole expected life of the instrument. The
present value calculation includes all fees paid or received between parties
to the contract that are an integral part of the effective interest rate. For
assets that are purchased or originated credit impaired ("POCI") at initial
recognition, the effective interest rate is adjusted for credit risk, i.e. it
is calculated based on the expected cash flows on initial recognition instead
of contractual payments.
Financial instruments - initial recognition. Financial instruments at fair
value through profit or loss ("FVTPL") are initially recorded at fair value.
All other financial instruments are initially recorded at fair value adjusted
for transaction costs. Fair value at initial recognition is best evidenced by
the transaction price. A gain or loss on initial recognition is only recorded
if there is a difference between fair value and transaction price which can be
evidenced by other observable current market transactions in the same
instrument or by a valuation technique whose inputs include only data from
observable markets. After the initial recognition, an ECL allowance is
recognised for financial assets measured at AC and investments in debt
instruments measured at fair value through other comprehensive income
("FVOCI"), resulting in an immediate accounting loss.
All purchases and sales of financial assets that require delivery within the
time frame established by regulation or market convention ("regular way"
purchases and sales) are recorded at trade date, which is the date on which
the Group commits to deliver a financial asset. All other purchases are
recognised when the entity becomes a party to the contractual provisions of
the instrument.
Financial assets - classification and subsequent measurement - measurement
categories. The Group classifies financial assets in the following measurement
categories: FVTPL, FVOCI and AC. The classification and subsequent measurement
of debt financial assets depends on: (i) the Group's business model for
managing the related assets portfolio and (ii) the cash flow characteristics
of the asset. The Group's financial assets include cash and cash equivalents,
trade and other receivables, loans to subsidiary undertakings, all of which
are classified as AC in accordance with IFRS 9.
Financial assets - classification and subsequent measurement - business model.
The business model reflects how the Group manages the assets in order to
generate cash flows - whether the Group's objective is: (i) solely to collect
the contractual cash flows from the assets ("hold to collect contractual cash
flows"), or (ii) to collect both the contractual cash flows and the cash flows
arising from the sale of assets ("hold to collect contractual cash flows and
sell") or, if neither of (i) and (ii) is applicable, the financial assets are
classified as part of "other" business model and measured at FVTPL.
Business model is determined for a group of assets (on a portfolio level)
based on all relevant evidence about the activities that the Group undertakes
to achieve the objective set out for the portfolio available at the date of
the assessment. Factors considered by the Group in determining the business
model include past experience on how the cash flows for the respective assets
were collected.
The Group's business model for financial assets is to collect the contractual
cash flows from the assets ("hold to collect contractual cash flows").
Financial assets - classification and subsequent measurement - cash flow
characteristics. Where the business model is to hold assets to collect
contractual cash flows or to hold contractual cash flows and sell, the Group
assesses whether the cash flows represent solely payments of principal and
interest ("SPPI"). Financial assets with embedded derivatives are considered
in their entirety when determining whether their cash flows are consistent
with the SPPI feature. In making this assessment, the Group considers whether
the contractual cash flows are consistent with a basic lending arrangement,
i.e. interest includes only consideration for credit risk, time value of
money, other basic lending risks and profit margin.
Where the contractual terms introduce exposure to risk or volatility that is
inconsistent with a basic lending arrangement, the financial asset is
classified and measured at FVTPL. The SPPI assessment is performed on initial
recognition of an asset and it is not subsequently reassessed.
Financial assets - reclassification. Financial instruments are reclassified
only when the business model for managing the portfolio as a whole changes.
The reclassification has a prospective effect and takes place from the
beginning of the first reporting period that follows after the change in the
business model. The Group did not change its business model during the current
and comparative period and did not make any reclassifications.
Financial assets impairment - credit loss allowance for ECL. The Group
assesses, on a forward-looking basis, the ECL for debt instruments measured at
AC and FVOCI and for the exposures arising for contractual assets. The Group
measures ECL and recognises Net impairment losses on financial and contractual
assets at each reporting date. The measurement of ECL reflects: (i) an
unbiased and probability weighted amount that is determined by evaluating a
range of possible outcomes, (ii) time value of money and (iii) all reasonable
and supportable information that is available without undue cost and effort at
the end of each reporting period about past events, current conditions and
forecasts of future conditions.
Debt instruments measured at AC and contractual assets are presented in the
consolidated statement of financial position net of the allowance for ECL. For
loan commitments and financial guarantees, a separate provision for ECL is
recognised as a liability in the consolidated statement of financial position.
The Group applies a simplified approach for impairment of cash and cash
equivalents, other short-term investments and trade and other receivables, by
recognising lifetime expected credit losses based on past default experience
and credit profiles, adjusted as appropriate for current observable data. For
other financial assets the Group applies a three stage model for impairment,
based on changes in credit quality since initial recognition. A financial
instrument that is not credit-impaired on initial recognition is classified in
Stage 1. Financial assets in Stage 1 have their ECL measured at an amount
equal to the portion of lifetime ECL that results from default events possible
within the next 12 months or until contractual maturity, if shorter ("12
Months ECL"). If the Group identifies a significant increase in credit risk
("SICR") since initial recognition, the asset is transferred to Stage 2 and
its ECL is measured based on ECL on a lifetime basis, that is, up until
contractual maturity but considering expected prepayments, if any ("Lifetime
ECL"). If the Group determines that a financial asset is credit-impaired, the
asset is transferred to Stage 3 and its ECL is measured as a Lifetime ECL. For
financial assets that are purchased or originated credit-impaired ("POCI
Assets"), the ECL is always measured as a Lifetime ECL.
Financial assets - write-off. Financial assets are written-off, in whole or in
part, when the Group has exhausted all practical recovery efforts and has
concluded that there is no reasonable expectation of recovery. The write-off
represents a derecognition event. The Group may write-off financial assets
that are still subject to enforcement activity when the Group seeks to recover
amounts that are contractually due, however, there is no reasonable
expectation of recovery.
Financial assets - derecognition. The Group derecognises financial assets when
(a) the assets are redeemed or the rights to cash flows from the assets
otherwise expire or (b) the Group has transferred the rights to the cash flows
from the financial assets or entered into a qualifying pass-through
arrangement whilst (i) also transferring substantially all the risks and
rewards of ownership of the assets or (ii) neither transferring nor retaining
substantially all the risks and rewards of ownership but not retaining
control.
Financial assets - modification. If the modified terms are substantially
different, the rights to cash flows from the original asset expire and the
Company derecognises the original financial asset and recognises a new asset
at its fair value. The date of renegotiation is considered to be the date of
initial recognition for subsequent impairment calculation purposes, including
determining whether a SICR has occurred. Any difference between the carrying
amount of the original asset derecognised and fair value of the new
substantially modified asset is recognised in profit or loss, unless the
substance of the difference is attributed to a capital transaction with
owners. If the modified asset is not substantially different from the
original asset and the modification does not result in derecognition. The
Group recalculates the gross carrying amount by discounting the modified
contractual cash flows by the original effective interest rate (or
credit-adjusted effective interest rate for POCI financial assets), and
recognises a modification gain or loss in profit or loss.
Financial liabilities - measurement categories. Financial liabilities are
classified as subsequently measured at AC, except for (i) financial
liabilities at FVTPL: this classification is applied to derivatives, financial
liabilities held for trading (e.g. short positions in securities), contingent
consideration recognised by an acquirer in a business combination and other
financial liabilities designated as such at initial recognition and (ii)
financial guarantee contracts and loan commitments. The Group's financial
liabilities include trade and other payables, lease liabilities, all of which
are classified as AC in accordance with IFRS 9.
Financial liabilities - derecognition. Financial liabilities are derecognised
when they are extinguished (i.e. when the obligation specified in the contract
is discharged, cancelled or expires).
Trade Receivables
Trade receivables are amounts due from customers for goods sold in the
ordinary course of business. If collection is expected in one year or less,
they are classified as current assets. If not, they are presented as
non-current assets.
Trade receivables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method, less expected
credit losses.
Prepayments
Prepayments are carried at cost less provision for impairment. A prepayment is
classified as non-current when the goods or services relating to the
prepayment are expected to be obtained after one year, or when the prepayment
relates to an asset which will itself be classified as non-current upon
initial recognition. Prepayments to acquire assets are transferred to the
carrying amount of the asset once the Group has obtained control of the asset
and it is probable that future economic benefits associated with the asset
will flow to the Group. Other prepayments are written off to profit or loss
when the services relating to the prepayments are received. If there is an
indication that the assets, goods or services relating to a prepayment will
not be received, the carrying value of the prepayment is written down
accordingly and a corresponding impairment loss is recognised in profit or
loss for the year.
Investments in subsidiaries
Investments made by the Company in its subsidiaries are stated at cost in the
Company's financial statements and reviewed for impairment if there are
indications that the carrying value may not be recoverable.
Loans issued to subsidiaries
Loans issued by the Company to its subsidiaries are initially recognised in
the Company's financial statements at fair value and are subsequently carried
at amortised cost using the effective interest method, less credit loss
allowance. Net change in credit losses and foreign exchange differences on
loans issued are recognised in the Company's statement of profit or loss in
the period when incurred.
Trade and Other Payables
Trade payables are obligations to pay for goods or services that have been
acquired in the ordinary course of business from suppliers. Accounts payable
are classified as current liabilities if payment is due within one year or
less. If not, they are presented as non-current liabilities.
Trade payables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method.
Lease liabilities
Liabilities arising from a lease are initially measured on a present value
basis. Lease liabilities include the net present value of the following lease
payments:
· fixed payments (including in-substance fixed payments), less any lease
incentives receivable,
· variable lease payments that are based on an index or a rate, initially
measured using the index or rate as at the commencement date,
· the exercise price of a purchase option if the Group is reasonably certain to
exercise that option, and
· payments of penalties for terminating the lease, if the lease term reflects
the Group exercising that option.
Extension and termination options are included in a number of property and
equipment leases across the Group. These terms are used to maximise
operational flexibility in terms of managing contracts. Extension options (or
period after termination options) are only included in the lease term if the
lease is reasonably certain to be extended (or not terminated). Lease payments
to be made under reasonably certain extension options are also included in the
measurement of the liability.
The lease payments are discounted using the interest rate implicit in the
lease. If that rate cannot be readily determined, which is generally the case
for leases of the Group, the Group's incremental borrowing rate is used, being
the rate that the Group would have to pay to borrow the funds necessary to
obtain an asset of similar value in a similar economic environment with
similar terms and conditions.
To determine the incremental borrowing rate, the Group:
· where possible, uses recent third-party financing received by the individual
lessee as a starting point, adjusted to reflect changes in financing
conditions since third party financing was received,
· uses a build-up approach that starts with a risk-free interest rate adjusted
for credit risk, and
· makes adjustments specific to the lease, e.g. term, country, currency and
collateral.
The Group is exposed to potential future increases in variable lease payments
based on an index or rate, which are not included in the lease liability until
they take effect. When adjustments to lease payments based on an index or rate
take effect, the lease liability is reassessed and adjusted against the
right-of-use asset.
Lease payments are allocated between principal and finance costs. The finance
costs are charged to profit or loss over the lease period so as to produce a
constant periodic rate of interest on the remaining balance of the liability
for each period.
Payments associated with short-term leases and all leases of low-value assets
under $5,000 are recognised on a straight-line basis as an expense in profit
or loss. Short-term leases are leases with a lease term of 12 months or less.
Equity Instruments
Ordinary shares are classified as equity. Equity instruments issued by the
Company and the Group are recorded at the proceeds received, net of direct
issue costs. Any excess of the fair value of consideration received over the
par value of shares issued is recorded as share premium in equity.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash on hand and deposits held at call with
banks and other short-term highly liquid investments which are readily
convertible to a known amount of cash with insignificant risk of change in
value. Cash and cash equivalents are carried at amortised cost. Interest
income that relates to cash and cash equivalents on current and deposit
accounts is disclosed within operating cash flow.
Other short-term investments
Other short-term investments include current accounts and deposits held at
banks, which do not meet the cash and cash equivalents definition. Current
accounts and deposits held at banks, which do not meet the cash and cash
equivalents definition are measured initially at fair value and subsequently
carried at amortised cost using the effective interest method. Interest
received on other short-term investments is disclosed within operating cash
flow.
Interest income
Interest income is recognised as it accrues, taking into account the effective
yield on the asset. Interest income on current bank accounts and on demand
deposits or term deposits with a maturity of less than three months recognised
as part of cash and cash equivalents is recognised as other operating income.
Interest income on term deposits other than those classified as cash and cash
equivalents is recognised as finance income.
Certain reclassifications have been made in the comparative numbers for better
clarity and consistency of presentation.
4. Significant Accounting Judgements and Estimates
The Group makes estimates and judgements concerning the future. The resulting
accounting estimates will, by definition, seldom equal the related actual
results. The estimates and judgements which have a risk of causing material
adjustment to the carrying amounts of assets and liabilities within the next
financial year are discussed below.
Depreciation of Oil and Gas Development and Production Assets
Development and production assets held in property, plant and equipment are
depreciated on a unit of production basis at a rate calculated by reference to
proved and probable reserves at the end of the period plus the production in
the period, and incorporating the estimated future cost of developing and
extracting those reserves. Future development costs are estimated using
estimates about the number of wells required to produce those reserves, the
cost of the wells, future production facilities and operating costs, together
with assumptions on oil and gas realisations, and are revised annually. The
reserves estimates used are determined using estimates of gas in place,
recovery factors, future hydrocarbon prices and also take into consideration
the Group's latest development plan for the associated development and
production asset. The latest development plan and therefore the inputs used to
determine the depreciation charge for the MEX-GOL, SV and VAS fields continue
until the end of the economic life of the fields, which is assessed to be
2038, 2042 and 2033 respectively, based on the assessment contained in the
DeGolyer & MacNaughton reserves report for these fields. The licences for
the MEX-GOL and SV fields have recently been extended until 2044. Were the
estimated reserves at the beginning of the year to differ by 10% from previous
assumptions, the impact on depreciation for the year ended 31 December 2024
would be to increase it by $417,000 or decrease it by $504,000 (2023: increase
by $1,066,000 or decrease by $479,000).
Provision for Decommissioning
The Group has decommissioning obligations in respect of its Ukrainian assets.
The full extent to which the provision is required depends on the legal
requirements at the time of decommissioning, the costs and timing of any
decommissioning works and the discount rate applied to such costs.
A detailed assessment of gross decommissioning cost was undertaken on a
well-by-well basis using local data on day rates and equipment costs. The
discount rate applied on the decommissioning cost provision as at 31 December
2024 was 4.67% (31 December 2023: 4.67%). The discount rate is calculated in
real terms based on the yield to maturity of Ukrainian Government bonds
denominated in the currency in which the liability is expected to be settled
and with the settlement date that approximates the timing of settlement of
decommissioning obligations. Increase in the discount rate applied is caused
by the growth of the Ukrainian risk-free rate.
The change in estimate applied to calculate the provision as at 31 December
2024 resulted from the revision of the estimated costs of decommissioning
(increase of $1,036,000 in provision), an increase in the discount rate
applied (increase of $1,000 in provision), revision of the economic life of
the VAS field and SC field (increase of $477,000 in provision). The costs are
expected to be incurred by 2038 on the MEX-GOL field, by 2042 on the SV field,
and by 2033 on the VAS field, which is the end of the estimated economic life
of the respective fields (Note 25).
Net Carrying Amount of Inter-Company Loans Receivable and Investments by the
Company into a Subsidiary
The Company has certain inter-company loans receivable from a subsidiary,
which are eliminated on consolidation. For the purpose of the Company's
financial statements, these receivable balances are carried at amortised cost
using the effective interest method, less credit loss allowance. Measurement
of lifetime expected credit losses on inter-company loans is a significant
judgment that involves models and data inputs including forward-looking
information, current conditions and forecasts of future conditions impacting
the estimated future cash flows that are expected to be recovered, time value
of money, etc. In previous years, significant impairment charges were recorded
against the carrying amount of the loans issued to subsidiaries as the present
value of estimated future cash flows discounted at the original effective
interest rate was less than the carrying amount of the loans, and the
resulting impairment losses were recognised in profit or loss in the Company's
financial statements.
For the purpose of assessment of the credit loss allowance as at 31 December
2024, the Company considered all reasonable and supportable forward-looking
information available as at that date without undue cost and effort, which
includes a range of factors, such as estimated future net cash flows to be
generated by the subsidiaries operating in Ukraine and cash flow management.
All these factors have a significant impact on the amounts subject to
repayment on the loans and investments. The estimated future discounted cash
flows generated by the subsidiaries operating in Ukraine are considered as a
primary source of repayment on the loans and investments. As at 31 December
2024, the present value of future net cash flows to be generated by the
subsidiaries operating in Ukraine during 2025 - 2029, adjusted for the
subsidiaries' working capital as at 31 December 2024 and estimated amounts
reserved by the Group for investment projects in the time horizon was
calculated.
The key assumptions used in the discounted cash flow model are:
· production levels for a period of five years assumed to be: at the level of
0.06 MMboe for the MEX-GOL and SV fields and 0.01 MMboe for the VAS field
during their respective periods of suspension, and 1.87 MMboe for the SC
licence area;
· proved plus probable (2P) reserves at the beginning of 2024 at the MEX-GOL and
SV fields of 43.0 MMboe, at the VAS field of 2.3 MMboe and at the SC licence
area of 12.1 MMboe;
· commodity prices - the model assumes gas prices of $320/Mm(3) in 2025 and in
subsequent years;
· discount rate applied is 18.28% in 2025, 15.04% in 2026, 11.79% in 2027 and
beyond, determined in real terms;
· production taxes applicable to gas production at variable rates under relevant
legislation;
· capital expenditure allowance for maintenance and development of: MEX-GOL and
SV fields at the level of $750,000 per year, VAS field at the level of
$100,000 per year and SC licence area at the level of $250,000 per year;
· future capital expenditures for a period of five years assumed to be: for the
MEX-GOL and SV fields at the level of $0, VAS field at the level of $0 and SC
licence area at the level of $92,500,000;
· life of field for the purpose of the assessment of loans - cash flows were
taken for a period of five years as management believes there is no reasonably
available information to build reliable expectations and demonstrate the
ability to settle the loans over a longer perspective;
· life of field for the purpose of the assessment of investments - cash flows
were taken for a period of the full economic life of the respective CGUs.
The resulting amount, net of the carrying value of the Company's investments
in subsidiaries and loans, was compared to the discounted cash flows and net
financial assets of the subsidiaries as at 31 December 2024. As such, the
Company has recorded $10,034,000 of loss, being the net change in the expected
credit losses for loans issued to and investments in subsidiaries in the
Company's statement of profit or loss for the year ended 31 December 2024.
As with any economic forecast, the projections and likelihoods of occurrence
are subject to a high degree of inherent uncertainty, and therefore the actual
outcomes may be significantly different to those projected. The Company
considers these forecasts to represent its best estimate of the possible
outcomes.
5. Segmental Information
In line with the Group's internal reporting framework and management
structure, the key strategic and operating decisions are made by the Board of
Directors, who review internal monthly management reports, budget and forecast
information as part of this process. Accordingly, the Board of Directors is
deemed to be the Chief Operating Decision Maker within the Group.
The Group's only class of business activity is oil and gas exploration,
development and production. The Group's operations are located in Ukraine,
with its head office in the United Kingdom. These geographical regions are the
basis on which the Group reports its segment information. The segment results
as presented represent operating profit before depreciation, amortisation and
impairment of non-current assets.
Ukraine United Kingdom Total
2024 2024 2024
$000 $000 $000
Revenue
Gas sales 27,830 - 27,830
Condensate sales 11,153 - 11,153
Liquefied Petroleum Gas sales 5,521 - 5,521
Oil 424 - 424
Total revenue 44,928 - 44,928
Segment result 32,337 2,309 34,646
Depreciation and amortisation of non-current assets (5,534) (6) (5,540)
Operating profit 29,106
Segment assets 173,359 17,649 191,008
Capital additions* 3,660 - 3,660
*Comprises additions to property, plant and equipment (Note 17)
There are no inter-segment sales within the Group and all products are sold in
the geographical region in which they are produced. The Group is not
significantly impacted by seasonality. Revenue is recognised at a point in
time.
During 2024, 78% of all revenue generated by the Group was from sales to its
top five customers (2023: 79%).
Until May 2023, the Group was selling all of its gas production to its related
party, LLC Smart Energy. LLC Smart Energy has oil and gas operations in
Ukraine and is part of the PJSC Smart-Holding Group.
Ukraine United Kingdom Total
2023 2023 2023
$000 $000 $000
Revenue
Gas sales 42,270 - 42,270
Condensate sales 10,466 - 10,466
Liquefied Petroleum Gas sales 9,458 - 9,458
Total revenue 62,194 - 62,194
Segment result 43,649 (1,409) 42,240
Depreciation and amortisation of non-current assets (6,704) - (6,704)
Operating profit 35,536
Segment assets 161,232 22,100 183,332
Capital additions* 15,749 - 15,749
*Comprises additions to property, plant and equipment (Note 17)
6. Cost of Sales
2024 2023
$000 $000
Production taxes 4,852 8,610
Depreciation of property, plant and equipment 4,540 5,719
Staff costs (Note 9) 2,393 2,142
Rent expenses (Note 19) 1,330 2,573
Cost of inventories recognised as an expense 1,315 1,587
Amortisation of mineral reserves (Note 18) 327 359
Transmission tariff for Ukrainian gas system 234 322
Cost of purchased gas 184 616
Other expenses 1,518 1,294
16,693 23,222
A transmission tariff for use of the Ukrainian gas transit system of
UAH101.93/Mm(3) of gas was applicable to the Group (2023: UAH101.93/Mm(3)).
7. Administrative Expenses
2024 2023
$000 $000
Staff costs (Note 9) 3,167 3,585
Consultancy fees 1,367 1,567
Depreciation of other fixed assets 290 321
Amortisation of other intangible assets 193 113
Professional services 168 339
Group Auditor's remuneration* 145 146
Rent expenses 118 137
Other expenses 742 745
6,190 6,953
*The Group Auditor did not provide any non-audit services for the 2024 and
2023 audits.
8. Remuneration of Directors
2024 2023
$000 $000
Directors' emoluments 1,632 815
The emoluments of the individual Directors were as follows:
Total Total
Emoluments emoluments
2024 2023
$000 $000
Executive Directors:
Bruce Burrows 470 343
Sergii Glazunov 348 180
Oleksiy Zayets 261 -
Non-executive Directors:
Chris Hopkinson 55 124
Alexey Pertin 72 56
Yuliia Kirianova 76 56
Igor Basai 47 -
Dr Gehrig Schultz 114 56
Valceschini Charles 189 -
1,632 815
The emoluments include base salary, bonuses and fees. According to the
Register of Directors' Interests, no rights to subscribe for shares in or
debentures of any Group companies were granted to any of the Directors or
their immediate families during the financial year, and there were no
outstanding options to Directors.
9. Staff Numbers and Costs
The average monthly number of employees during the year (including Executive
Directors) and the aggregate staff costs of such employees were as follows:
Number of employees
2024 2023
Group
Management / operational 167 169
Administrative support 112 70
279 239
The prior year comparative numbers of employees were amended to conform to the
current year presentation. The number of employees includes full-time and
part-time employees.
2024 2023
$000 $000
Wages and salaries 4,570 5,268
Security costs 1,229 803
5,799 6,071
10. Other Operating Gains/(Losses), (net)
2024 2023
$000 $000
Interest income on cash and cash equivalents 7,914 4,578
Staff costs (Note 9) (239) (344)
Depreciation and amortisation (Note 18) (191) (192)
Foreign exchange gain/(losses) (121) -
Gain on sales of current assets - 5
Write-off of accounts payable debts 63 -
Fines and penalties received/(applied) (68) 1
Other operating (loss)/income, net (297) (531)
7,061 3,517
11. Finance Income
2024 2023
$000 $000
Financial instrument: unwinding of discount 7 2,144
7 2,144
12. Finance Costs
2024 2023
$000 $000
Unwinding of discount on provision for decommissioning (Note 25) 323 331
Unwinding of discount on financial liabilities and other financial costs 260 2,291
Interest expense on lease liabilities (Note 19) 80 83
663 2,705
13. Other Gains/(Losses), (net)
2024 2023
$000 $000
Charitable donations (18) (17)
Foreign exchange gains/(losses) - 731
Other gains/(losses), (net) 22 (31)
4 683
Charitable donations for the year ended 31 December 2024 and 2023 comprise
humanitarian aid for the population and armed forces of Ukraine.
14. Income Tax Expense
a) Income tax expense and (benefit):
2024 2023
$000 $000
Current tax
UK - current year - 131
UK - prior year - -
Overseas - current year 5,459 6,621
Overseas - prior year - 83
Deferred tax (Note 26)
UK - current year - 1,941
UK - prior year - -
Overseas - current year 1,237 (79)
Income tax expense 6,696 8,697
b) Factors affecting tax charge for the year:
The corporation tax rate in the UK was 25.00% in 2024 (in 2023 it was 19.00%
rising to 25.00% from 1 April 2023). The expense for the year can be
reconciled to the profit as per the Income Statement as follows:
2024 2023
$000 $000
Profit before taxation 30,419 35,183
Tax charge at UK tax rate of 25.00% (2023: 19.00%/25.00%) 7,605 7,010
Tax effects of:
Lower foreign corporate tax rates in Ukraine (18.00%) (2023: 18.00%) (2,326) (504)
Disallowed expenses and non-taxable income (1,677) 3,148
Previously unrecognised tax losses used to reduce income tax expense 3,094 (957)
Adjustments in respect of prior periods - -
Total tax expense for the year 6,696 8,697
The tax effect of disallowed expenses and non-taxable income are mainly
represented by foreign exchange differences of LLC Regal Petroleum Corporation
(Ukraine) Limited and the net change in credit loss allowance for loans issued
to subsidiaries and shares in subsidiary undertakings.
The tax effect of losses not recognised as deferred tax assets are mainly
represented by accumulated losses of LLC Regal Petroleum Corporation (Ukraine)
Limited.
15. Profit/(Loss) for the Year
The Company has taken advantage of the exemption allowed under section 408 of
the Companies Act 2006 and has not presented its own Income Statement in these
financial statements. The Parent Company loss after tax was $12,940,000 for
the year ended 31 December 2024 (2023: profit after tax $7,151,000).
16. Earnings per Share
The calculation of basic earnings per ordinary share has been based on the
profit for the year and 320,637,836 (2023: 320,637,836) ordinary shares, being
the weighted average number of shares in issue for the year. There are no
dilutive instruments.
17. Property, Plant and Equipment
2024 2023
Oil and Gas Development and Production assets Oil and Gas Exploration and Evaluation Assets Other fixed Total Oil and Gas Development and Production assets Oil and Gas Exploration and Evaluation Assets Other fixed assets Total
Ukraine assets Ukraine
Group $000 $000 $000 $000 $000 $000 $000 $000
Cost
At the beginning of the year 141,902 13,944 2,181 158,027 135,255 13,093 1,968 150,316
Additions 3,232 336 92 3,660 13,530 1,403 816 15,749
Change in decommissioning 1,392 40 - 1,432 293 (13) - 280
provision
Disposals (114) - (120) (234) (1,389) - (519) (1,908)
Reclass from non-O&G to O&G (33) - 33 - - - - -
Exchange differences (13,705) (1,381) (194) (15,280) (5,787) (539) (84) (6,410)
At the end of the year 132,674 12,939 1,992 147,605 141,902 13,944 2,181 158,027
Accumulated depreciation and impairment
At the beginning of the year 75,619 1,635 1,496 78,750 73,108 1,677 1,275 76,060
Charge for year 4,535 - 218 4,753 5,555 - 304 5,859
Disposals (113) - (63) (176) (95) - (95) (190)
Exchange differences (7,497) (157) (151) (7,805) (2,949) (42) 12 (2,979)
At the end of the year 72,544 1,478 1,500 75,522 75,619 1,635 1,496 78,750
Net book value at the beginning of 66,283 12,309 685 79,277 62,147 11,416 693 74,256
the year
Net book value at the end of 60,130 11,461 492 72,083 66,283 12,309 685 79,277
the year
MEX-GOL, SV, SC and VAS gas and condensate fields
In accordance with the Group's accounting policies, oil and gas development
and producing assets are tested for an impairment loss at each balance sheet
date. As at 31 December 2024, oil and gas development and producing assets
were tested for an impairment loss, however no loss was recognised in the
period (Note 4).
18. Intangible Assets
2024 2023
Mineral reserve rights Exploration and evaluation intangible assets Total Mineral reserve rights Exploration and evaluation intangible assets Other intangible assets Total
Other intangible assets
Group $000 $000 $000 $000 $000 $000 $000 $000
Cost
At the beginning of the year 4,891 6,190 914 11,995 5,080 6,433 860 12,373
Additions - - 277 277 - - 196 196
Disposals - - (74) (74) - - (108) (108)
Exchange differences (472) (605) (92) (1,169) (189) (243) (34) (466)
At the end of the year 4,419 5,585 1,025 11,029 4,891 6,190 914 11,995
Accumulated amortisation
At the beginning of the year 3,162 - 461 3,623 2,925 - 454 3,379
Charge for year 327 - 195 522 359 - 130 489
Disposals - - (74) (74) - - (106) (106)
Exchange differences (320) - (39) (359) (122) - (17) (139)
At the end of the year 3,169 - 543 3,712 3,162 - 461 3,623
Net book value at the 1,729 6,190 453 8,372 2,155 6,433 406 8,994
beginning of the year
Net book value at the 1,250 5,585 482 7,317 1,729 6,190 453 8,372
end of the year
Intangible assets consist mainly of the hydrocarbon production licence
relating to the VAS field which is held by one of the Group's subsidiaries,
LLC Prom-Enerho Produkt, and a hydrocarbon exploration licence relating to the
Svystunivsko-Chervonolutskyi ("SC") area which is held by LLC Arkona
Gas-Energy. The Group amortises the hydrocarbon production licence relating to
the VAS field using the straight-line method over the term of the economic
life of the VAS field until 2028. The hydrocarbon exploration licence relating
to the SC area is not amortised due to it being in an exploration and
evaluation stage.
In accordance with the Group's accounting policies, intangible assets are
tested for impairment at each balance sheet date as part of the impairment
testing of the Group's oil and gas development and production assets if
impairment indicators exist. As at 31 December 2024, intangible assets were
tested for an impairment loss, however no loss was recognised in the period.
19. Right-of-use Assets
This note provides information for right-of-use assets and leases obligations
where the Group is a lessee.
Amount recognised in the balance sheet:
2024 2023
$000 $000
Right-of-use assets
Properties 469 -
Land 132 153
Wells 32 39
633 192
2024 2023
$000 $000
Lease liabilities
Current 343 38
Non-current 492 245
835 283
Additions to the right-of-use assets during the 2024 year were $790,000 (2023:
$115,000 of disposals).
Amounts recognised in the statement of profit or loss:
2024 2023
$000 $000
Depreciation charge
Properties (384) (199)
Land (10) (11)
Wells (4) (5)
(398) (215)
Interest expense (included in finance cost) (Note 12) (80) (331)
Expense relating to short-term leases (included in cost of sales and
administrative expenses)
(118) (132)
Expense relating to variable lease payments not included in lease liabilities
(included in cost of sales) (Note 6)
(1,282) (2,522)
Expense relating to lease payments for land under wells not included in lease
liabilities (included in cost of sales) (Note 6)
(48) (42)
The total cash outflow for leases in 2024 was $2,131,000 (2023: $3,835,000).
20. Investments and Loans to Subsidiary Undertakings
Shares in subsidiary undertakings Loans to subsidiary undertakings Total
$000 $000 $000
Company
As at 1 January 2023 30,704 49,974 80,678
Additions including accrued interest - 2,795 2,795
Repayment of interest and loans - - -
Impairment - (14,979) (14,979)
Exchange differences - 1,416 1,416
As at 31 December 2023 30,704 39,206 69,910
Additions including accrued interest - 2,795 2,795
Repayment of interest and loans - - -
Impairment (1,072) (8,962) (10,034)
Exchange differences - (2,869) (2,869)
As at 31 December 2024 29,632 30,170 59,802
The Company has recorded a loss of $10,034,000, being the net change in
expected credit losses for loans issued to subsidiaries in the Company's
statement of profit or loss for the year ended 31 December 2024 (Note 4)
(2023: $14,979,000).
The Company's discounted cash flow model used for the assessment of the
investments recoverability, flexed for sensitivities, produced the following
results:
31 December 2024 31 December 2023
$000 $000
Discount rate (increase)/decrease by 1% (552)/601 1,355/1,472
Change in gas price increase/(decrease) by 10% 5,047/(5,063) 2,734/(13,698)
The table presented below discloses the changes in the gross carrying amount
and credit loss allowance between the beginning and the end of the reporting
period for loans to subsidiary undertakings carried at amortised cost and
classified within a three-stage model for impairment assessment as at
31 December 2024:
Credit loss allowance Gross carrying amount
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
(12-months ECL) (lifetime ECL for SICR) (lifetime ECL for credit (12-months ECL) (lifetime ECL for SICR) (lifetime ECL for credit impaired)
impaired)
$000 $000 $000 $000 $000 $000 $000 $000
As at 1 January 2024 (5,260) - (27,750) (33,010) 18,194 - 54,022 72,216
Movements with impact on credit loss allowance charge for the year:
Modification of loans - - 3,038 3,038 - - (3,038) (3,038)
Additions including accrued interest
- - - - 960 - 1,835 2,795
Payment of interest - - - - - - - -
Repayment of loans - - - - - - - -
Exchange difference - - - - - - (2,869) (2,869)
Changes to ECL measurement model assumptions
(2,011) - (6,950) (8,962) - - - -
Total movements with impact on credit loss allowance charge for the year
(2,011) - (3,912) (5,923) 960 - (4,072) (3,112)
As at 31 December 2024
(7,272) - (31,662) (38,934) 19,154 - 49,950 69,104
ECL - Expected credit losses
SICR - Significant increase in credit risk
The table presented below discloses the changes in the gross carrying amount
and credit loss allowance between the beginning and the end of the reporting
period for loans to subsidiary undertakings carried at amortised cost and
classified within a three-stage model for impairment assessment as at
31 December 2023:
Credit loss allowance Gross carrying amount
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
(12-months ECL) (lifetime ECL for SICR) (lifetime ECL for credit (12-months ECL) (lifetime ECL for SICR) (lifetime ECL for credit impaired)
impaired)
$000 $000 $000 $000 $000 $000 $000 $000
As at 1 January 2023 (1,722) - (17,831) (19,553) 17,234 - 52,293 69,527
Movements with impact on credit loss allowance charge for the year:
Modification of loans - - 1,522 1,522 - - (1,522) (1,522)
Additions including accrued interest - - - 960 1,835
- - 2,795
Payment of interest - - - - - - - -
Repayment of loans - - - - - - - -
Exchange difference - - - - - - 1,416 1,416
Changes to ECL measurement model assumptions (3,538) - (11,441) (14,979) - -
- -
Total movements with impact on credit loss allowance charge for the year (3,538) - (9,919) (13,457) 960 1,729 2,689
-
As at 31 December 2023 (5,260) - (27,750) (33,010) 18,194 - 54,022 72,216
ECL - Expected credit losses
SICR - Significant increase in credit risk
Subsidiary undertakings
As at 31 December 2024 and 2023, the Company's subsidiary undertakings, all of
which are included in the consolidated financial statements, were:
Registered address Country of Country of operation Principal activity % of shares held
incorporation
31 December 2024 31 December 2023
Regal Petroleum Corporation Limited 3(rd) Floor, Charter Place, 23-27 Seaton Place, St Helier, Jersey, JE4 0WH Jersey Ukraine Oil & Natural Gas Extraction 100% 100%
Regal Petroleum Corporation Limited (Branch Office) 162 Shevchenko Str., Yakhnyky Village, Lokhvytsya District, Poltava Region, Ukraine Oil & Natural Gas Extraction
37212
LLC Arkona Gas-Energy 162 Shevchenko Str., Yakhnyky Village, Lokhvytsya District, Poltava Region, Ukraine Ukraine Exploration and Evaluation for Oil and Natural Gas 100% 100%
37212
LLC Regal 162 Shevchenko Str., Yakhnyky Village, Lokhvytsya District, Poltava Region, Ukraine Ukraine Holding Company 100% 100%
37212
Petroleum Corporation (Ukraine) Limited
LLC Prom-Enerho Produkt 3 Klemanska Str., Kiev, 02081 Ukraine Ukraine Oil & Natural Gas Extraction 100% 100%
Well Investum LLC 58 Yaroslavska str., Kyiv, 04071 Ukraine Ukraine Dormant Company 100% -
*Regal Group Services Limited 16 Old Queen Street, London, SW1H 9HP United Kingdom United Kingdom Service Company 100% 100%
Regal Group Services Limited was dissolved on 21 February 2023.
The Parent Company, Enwell Energy plc, holds direct interests in 100% of the
share capital of Regal Petroleum Corporation Limited, LLC Regal Petroleum
Corporation (Ukraine) Limited, LLC Arkona Gas-Energy and Well Investum LLC,
and a 100% indirect interest in LLC Prom-Enerho Produkt through its 100%
shareholding in LLC Regal Petroleum Corporation (Ukraine) Limited, which owns
all of the share capital of LLC Prom-Enerho Produkt. The Parent Company,
Enwell Energy plc, held a direct interest in 100% of the share capital of
Regal Group Services Limited until it was dissolved on 21 February 2023.
21. Inventories
Group
2024 2023
$000 $000
Current
Materials and spare parts 2,465 2,336
Finished goods 687 615
3,152 2,951
Inventories consist of materials, spare parts and finished goods. Materials
and spare parts are represented by spare parts that were not assigned to any
new wells, production raw materials and fuel at the storage facility. Finished
goods consist of produced gas held in underground gas storage facilities and
condensate and LPG held at the processing facility prior to sale.
As at 31 December 2024, allowances for impairment of materials and spare parts
amounted to $606,000 (31 December 2023: $671,000).
All inventories are measured at the lower of cost or net realisable value.
There was no write down of inventory as at 31 December 2024 or 2023.
22. Trade and Other Receivables
Group Company
2024 2023 2024 2023
$000 $000 $000 $000
Trade receivables 2,951 11,580 - 4
Accounts receivable from accrued income
355 336 - -
Other financial receivables 1,308 533 600 533
Less credit loss allowance (134) (323) - -
Total financial receivables 4,480 12,126 600 537
Prepayments 665 350 253 -
Other receivables 3,057 3,109 946 832
Less credit loss allowance (554) - (551)
Total trade and other receivables 7,648 15,585 1,248 1,369
Due to the short-term nature of the trade and other receivables, their
carrying amount is assumed to be the same as their fair value. All trade and
other financial receivables, except those provided for, are considered to be
of high credit quality.
As at 31 December 2024 and 2023, 100% of the Group's trade receivables were
denominated in Ukrainian Hryvnia. Further description of financial receivables
is disclosed in Note 30.
Analysis by credit quality of financial trade and other receivables and
expected credit loss allowance as at 31 December 2024 is as follows:
Loss rate Gross carrying amount Life-time ECL Carrying amount Basis
$000 $000 $000
Trade receivables - credit impaired 100% 60 (60) - number of days the asset is past due
Trade receivables - other 37.96% 2,891 (74) 2,817 historical credit losses experienced
Prepayments - credit impaired 100% 3 (3) - number of days the asset is past due
Prepayments - other 37.96% 663 - 663 historical credit losses experienced
Other receivables - credit impaired 100% 551 (551) - number of days the asset is past due
Other receivables - other 37.96% 2,504 - 2,504 historical credit losses experienced
Total trade and other receivables for which individual approach for ECL is 6,672 (688) 5,984
used
Analysis by credit quality of financial trade and other receivables and
expected credit loss allowance as at 31 December 2023 is as follows:
Loss rate Gross carrying amount Life-time ECL Carrying amount Basis
$000 $000 $000
Trade receivables from related parties 28.91% - - - financial position of related party
Trade receivables - credit impaired 100% 95 (95) - number of days the asset is past due
Trade receivables - other 28.91% 11,485 (227) 11,258 historical credit losses experienced
Other financial receivables 28.91% 533 (1) 532 individual default rates
Total trade and other receivables for which individual approach for ECL is 12,113 (323) 11,790
used
ECL - Expected credit losses
The following table explains the changes in the credit loss allowance for
trade and other receivables under the simplified ECL model between the
beginning and the end of the year:
2024 2023
$000 $000
Trade and other receivables
Balance as at 1 January 323 433
New originated or purchased 483 151
Financial assets derecognised during the year (249) (460)
Changes in estimates and assumptions 162 210
Foreign exchange movements (31) (12)
Balance as at 31 December 688 323
23. Cash and Cash Equivalents
Group Company
2024 2023 2024 2023
$000 $000 $000 $000
Cash and Cash Equivalents
Cash at bank 66,095 54,873 16,369 20,695
Demand deposits and term deposits with maturity of less than 3 months
33,303 21,620 - -
99,398 76,493 16,369 20,695
Cash at bank earns interest at fluctuating rates based on daily bank deposit
rates. Demand deposits are made for varying periods depending on the immediate
cash requirements of the Group and earn interest at the respective short-term
deposit rates. The terms and conditions upon which the Group's demand deposits
are made allow immediate access to all cash deposits, with no significant loss
of interest.
Group Company
2024 2023 2024 2023
$000 $000 $000 $000
Cash and Cash Equivalents
Ukrainian Hryvnia 83,026 55,787 - -
US Dollars 15,954 20,341 15,951 20,330
Euros 247 249 247 249
British Pounds 171 116 171 116
99,398 76,493 16,369 20,695
The credit quality of cash and cash equivalents balances may be summarised
based on Moody's ratings as follows as at 31 December:
Cash at bank and on hand Short-term deposits Demand deposits and term deposits with maturity less than 3 months Total cash and cash equivalents and other short-term investments
2024 2024 2024
$000 $000 $000
A- to A+ rated 16,372 - - 16,372
B- to B+ rated - - - -
C- to C+ rated 23,114 - - 23,114
Unrated 26,609 33,303 - 59,912
66,095 33,303 - 99,398
Cash at bank and on hand Short-term deposits Demand deposits and term deposits with maturity less than 3 months Total cash and cash equivalents and other short-term investments
2023 2023 2023
$000 $000 $000
A- to A+ rated 20,708 - - 20,708
B- to B+ rated - - - -
C- to C+ rated 4,017 - - 4,017
Unrated 30,148 21,620 - 51,768
54,873 21,620 - 76,493
For cash and cash equivalents, the Group assessed ECL based on the Moody's
rating for rated banks and based on the local national rating agencies as at
31 December 2024 for non-rated banks. Based on this assessment, the Group
concluded that the identified impairment loss was immaterial.
24. Trade and Other Payables
Group Company
2024 2023 2024 2023
$000 $000 $000 $000
Taxation and social security 1,035 1,632 25 32
Trade payables 315 1,293 46 -
Other payables 1,887 2,934 479 2,139
Advances received 49 153 - -
3,286 6,012 550 2,171
The carrying amounts of trade and other payables are assumed to be the same as
their fair values, due to their short-term nature. Financial payables are
disclosed in Note 30.
25. Provision for Decommissioning
2024 2023
$000 $000
Group
At the beginning of the year 7,305 6,964
Unwinding of discount 323 331
Change in estimate 1,432 280
Effect of exchange difference (784) (270)
At the end of the year 8,276 7,305
The provision for decommissioning is based on the net present value of the
Group's estimated liability for the removal of the Ukrainian production
facilities and well site restoration at the end of production life.
The non-current provision of $8,276,000 (31 December 2023: $7,305,000)
represents a provision for the decommissioning of the Group's MEX-GOL, SV, VAS
and SC production and exploration facilities, including site restoration.
The change in estimates applied to calculate the provision as at 31 December
2024 is explained in Note 4.
The principal assumptions used are as follows:
31 December 2024 31 December 2023
Discount rate 4.67% 4.67%
Average cost of restoration per well ($000) 307 339
The sensitivity of the restoration provision to changes in the principal
assumptions to the provision balance and related asset is presented below:
31 December 2024 31 December 2023
$000 $000
Discount rate (increase)/decrease by 1% (961)/1,123 (1,005)/1,187
Change in average cost of well restoration increase/(decrease) by 10% 828/(828) 653/(653)
26. Deferred Tax
2024 2023
$000 $000
Deferred tax (liability)/asset recognised relating to oil and gas development
and production assets at the MEX-GOL-SV fields and provision for
decommissioning
At the beginning of the year (4,976) (3,232)
Charged to Income Statement - UK current year (1,284) (1,941)
Charged to Income Statement - UK prior year - -
Effect of exchange difference 464 197
At the end of the year (5,796) (4,976)
2024 2023
$000 $000
Deferred tax asset/(liability) recognised relating to development and
production assets at the VAS field and provision for decommissioning
At the beginning of the year 352 287
Credited to Income Statement - overseas current year 47 79
Effect of exchange difference (36) (14)
At the end of the year 363 352
There was a further $68,480,085 (31 December 2023: $77,523,000) of
unrecognised UK tax losses carried forward for which no deferred tax asset in
the amount of $17,120,021 has been recognised. These losses can be carried
forward indefinitely, subject to certain rules regarding capital transactions
and changes in the trade of the Company. However, as at the balance sheet
date, there is no evidence that taxable profit will be available against which
the unused tax losses can be realised.
The deferred tax asset relating to the Group's provision for decommissioning
as at 31 December 2024 of $615,000 (31 December 2023: $555,000) was
recognised on the tax effect of the temporary differences of the Group's
provision for decommissioning at the MEX-GOL and SV fields, and its tax base.
The deferred tax liability relating to the Group's development and production
assets at the MEX-GOL and SV fields as at 31 December 2024 of $6,411,000 (31
December 2023: $5,531,000) was recognised on the tax effect of the temporary
differences between the carrying value of the Group's development and
production asset at the MEX-GOL and SV fields, and its tax base. The deferred
tax liability will be settled more than twelve months after the reporting
period.
The deferred tax asset relating to the Group's provision for decommissioning
as at 31 December 2024 of $355,000 (31 December 2023: $280,000) was recognised
on the tax effect of the temporary differences on the Group's provision on
decommissioning at the VAS field, and its tax base. The deferred tax asset
relating to the Group's development and production assets at the VAS field as
at 31 December 2024 of $8,000 (31 December 2022: deferred tax liability of
$72,000) was recognised on the tax effect of the temporary differences between
the carrying value of the Group's development and production asset at the VAS
field, and its tax base. The deferred tax asset is expected to be recovered
more than twelve months after the reporting period.
Losses accumulated in a Ukrainian subsidiary service company of
UAH1,574,676,772 ($37,457,522) as at 31 December 2024 and UAH1,443,349,000
($38,000,000) as at 31 December 2023 mainly originated as foreign exchange
differences on inter-company loans and for which no deferred tax asset was
recognised as this subsidiary is not expected to have taxable profits to
utilise these losses in the future.
As at 31 December 2024 and 2023, the Group has not recorded a deferred tax
liability in respect of taxable temporary differences associated with
investments in subsidiaries as the Group is able to control the timing of the
reversal of those temporary differences and does not intend to reverse them in
the foreseeable future.
Double tax treaty
In accordance with the Double Tax Treaties between Ukraine and the United
Kingdom, the Group accrues and pays withholding tax on current amounts of
interest at the moment when such interest accrues and is paid.
27. Called Up Share Capital
2024 2023
Number $000 Number $000
Allotted, called up and fully paid
Opening balance as at 1 January 320,637,836 28,115 320,637,836 28,115
Issued during the year - - - -
Closing balance as at 31 December 320,637,836 28,115 320,637,836 28,115
There are no restrictions over ordinary shares issued. The Company is a public
company limited by shares.
28. Other Reserves
The holders of ordinary shares are entitled to receive dividends as declared
and are entitled to one vote per share at any general meeting of shareholders.
Other reserves, the movements in which are shown in the statements of changes
in equity, comprise the following:
Capital contributions reserve
The capital contributions reserve is non-distributable and represents the
value of equity invested in subsidiary entities prior to the Company listing.
Merger reserve
The merger reserve represents the difference between the nominal value of
shares acquired by the Company and those issued to acquire subsidiary
undertakings. This balance relates wholly to the acquisition of Regal
Petroleum (Jersey) Limited and that company's acquisition of Regal Petroleum
Corporation Limited during 2002.
Foreign exchange reserve
Exchange reserve movement for the year attributable to currency fluctuations.
This balance predominantly represents the result of exchange differences on
non-monetary assets and liabilities where the subsidiaries' functional
currency is not the US Dollar.
29. Reconciliation of Operating Profit to Operating Cash Flow
2024 2023
$000 $000
Group
Operating profit 29,386 35,536
Depreciation and amortisation 5,674 6,704
Less interest income recorded within operating profit (7,914) (4,578)
Fines and penalties received/(paid) 68 (1)
Gain on sales of current assets, net - (5)
Net (gain)/loss on sale of non-current assets (35) (1)
Change in working capital:
Decrease/(Increase) in provisions 522 (492)
(Increase)/decrease in inventory (501) 1,880
Decrease in receivables 8,500 44,956
(Decrease) in payables (2,661) (21,052)
Cash generated from operations 33,039 62,947
2024 2023
$000 $000
Company
Operating loss (12,829) (16,994)
Interest received (920) (1,661)
Depreciation 6 -
Change in working capital:
Movement in provisions (including impairment of subsidiary loans) 10,021 14,979
Decrease/(increase) in receivables 101 (754)
(Decrease)/increase in payables (1,307) 1,455
Cash used in operations (4,928) (2,975)
30. Financial Instruments
Capital Risk Management
The Group defines its capital as equity. As at 31 December 2024, net assets
were $171,440,000 (31 December 2023: $162,121,000). The primary source of the
Group's liquidity has been cash generated from operations. The Group's
objectives when managing capital are to safeguard the Group's and the
Company's ability to continue as a going concern in order to provide returns
for shareholders and benefits for other stakeholders and to maintain an
optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the
amount of dividends paid to shareholders, return capital to shareholders,
issue new shares or sell assets.
The capital structure of the Group consists of equity attributable to the
equity holders of the parent, comprising issued share capital, share premium,
reserves and retained earnings.
There are no capital requirements imposed on the Group.
Financial Risk Management
The Group's financial instruments comprise cash and cash equivalents and
various items such as debtors and creditors that arise directly from its
operations. The Group has bank accounts denominated in British Pounds, US
Dollars, Euros and Ukrainian Hryvnia. The Group does not have any external
borrowings. The main future risks arising from the Group's financial
instruments are currently currency risk, interest rate risk, liquidity risk
and credit risk.
The Group's financial assets and financial liabilities comprise the following:
Financial Assets
2024 2023
$000 $000
Group
Cash and cash equivalents 99,398 76,493
Trade and other financial receivables 4,125 11,790
Non-current receivables 51 -
103,573 88,283
2024 2023
$000 $000
Company
Cash and cash equivalents 16,369 20,695
Loans to subsidiary undertakings 30,170 39,206
46,539 59,901
Financial Liabilities
2024 2023
$000 $000
Group
Lease liabilities 835 283
Trade and other payables 315 1,293
Other financial liabilities 655 1,248
1,805 2,824
2024 2023
$000 $000
Company
Trade and other payables 245 2,139
245 2,139
Financial assets and financial liabilities are measured at amortised cost,
which approximates their fair value as the instruments are mostly short-term.
Assets and liabilities of the Group where fair value is disclosed are level 2
in the fair value hierarchy and valued using the current cost accounting
technique.
Financial instruments that potentially subject the Group to concentrations of
credit risk consist primarily of cash and cash equivalents and accounts
receivable, and financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents
and loans to subsidiary undertakings.
Currency Risk
The functional currencies of the Group's entities are US Dollars and Ukrainian
Hryvnia. The following analysis of net monetary assets and liabilities shows
the Group's currency exposures. Exposures comprise the monetary assets and
liabilities of the Group that are not denominated in the functional currency
of the relevant entity.
2024 2023
Currency $000 $000
British Pounds 383 182
US Dollars 1,363 -
Euros 242 262
Net monetary assets less liabilities 1,988 444
The sensitivity of the exchange rate of US Dollars is presented below:
31 December 2024 31 December 2023
$000 $000
Increase/(decrease) by 10% 63/(63) 23/(23)
The prior year comparative figures were amended to conform to the current year
presentation.
Interest Rate Risk Management
The Group is not exposed to interest rate risk on financial liabilities as
none of the entities in the Group have any external borrowings. The Group does
not use interest rate forward contracts and interest rate swap contracts as
part of its strategy.
The Group is exposed to interest rate risk on financial assets as entities in
the Group hold money market deposits at floating interest rates. The risk is
managed by fixing interest rates for a period of time when indications exist
that interest rates may move adversely.
The Group's exposure to interest rates on financial assets and financial
liabilities are detailed in the liquidity risk section below.
Interest Rate Sensitivity Analysis
The sensitivity analysis below has been determined based on exposure to
interest rates for non-derivative instruments at the balance sheet date. A
0.5% increase or decrease is used when reporting interest rate risk internally
to key management personnel and represents management's assessment of a
reasonably possible change in interest rates.
If interest rates earned on money market deposits had been 0.5% higher / lower
and all other variables were held constant, the Group's:
· profit for the year ended 31 December 2024 would increase by
$372,385 in the event of 0.5% higher interest rates and decrease by $372,385
in the event of 0.5% lower interest rates (profit for the year ended 31
December 2023 would increase by $141,000 in the event of 0.5% higher interest
rates and decrease by $141,000 in the event of 0.5% lower interest rates).
This is mainly attributable to the Group's exposure to interest rates on its
money market deposits; and
· other equity reserves would not be affected (2023: not
affected).
Interest payable on the Group's liabilities would have an immaterial effect on
the profit or loss for the year.
Liquidity Risk
The Group's objective throughout the year has been to ensure continuity of
funding. Operations have primarily been financed through revenue from
Ukrainian operations.
The table below shows liabilities by their remaining contractual maturity. The
amounts disclosed in the maturity table are the contractual undiscounted cash
flows including future interest. Such undiscounted cash flows differ from the
amount included in the statement of financial position because the statement
of financial position amount is based on discounted cash flows and does not
include the interest that will be accrued in future periods.
When the amount payable is not fixed, the amount disclosed is determined by
reference to the conditions existing at the reporting date. Foreign currency
payments are translated using the spot exchange rate at the end of the
reporting period. The maturity analysis of financial liabilities as at 31
December 2024 is as follows:
As at 31 December 2024 On demand and less than 1 month From 1 to 3 months From 3 to 12 months From 12 months to 5 years More than 5 years Total
$000 $000 $000 $000 $000 $000
Liabilities
Trade payables 315 - - - - 315
Lease liabilities 4 9 37 58 156 264
Other non-current liabilities - 18 - 92 112 222
Total future payments, including future principal and interest payments 319 27 37 150 268 801
The maturity analysis of financial liabilities as at 31 December 2023 is as
follows:
As at 31 December 2023 On demand and less than 1 month From 1 to 3 months From 3 to 12 months From 12 months to 5 years More than 5 years Total
$000 $000 $000 $000 $000 $000
Liabilities
Trade and other payables 2,311 - 307 - - 2,618
Lease liabilities 54 110 515 1,064 383 2,126
Other non-current liabilities - - - 102 143 245
Total future payments, including future principal and interest payments 2,365 110 822 1,166 526 4,989
Details of the Group's cash management policy are explained in Note 23.
Liquidity risk for the Group is further detailed under the Principal Risks
section above.
Credit Risk
Credit risk principally arises in respect of the Group's cash balance. For
balances held outside Ukraine, where $16,368,991 of the overall cash and cash
equivalents is held (31 December 2023: $20,695,000), the Group only deposits
cash surpluses with major banks of high quality credit standing (Note 23). As
at 31 December 2024, the remaining balance of $83,028,813 of cash and cash
equivalents was held in Ukraine (31 December 2023: $55,786,000 of cash and
cash equivalents was held in Ukraine). As at 31 December 2024, Standard &
Poor's affirmed Ukraine's sovereign credit rating of 'CCC', Outlook Negative.
There is no international credit rating information available for the specific
banks in Ukraine where the Group currently holds its cash and cash
equivalents.
The Group has taken steps to diversify its banking arrangements between a
number of banks in Ukraine and increased the quality of cash placed with UK
and European banking institutions. These measures are designed to spread the
risks associated with each bank's creditworthiness. Management considers the
credit risk to be immaterial.
Interest Rate Risk Profile of Financial Assets
The Group had the following cash and cash equivalent balances which are
included in financial assets as at 31 December with an exposure to interest
rate risk:
Currency Total Floating rate financial assets Fixed rate financial assets Total Floating rate financial assets Fixed rate financial assets
2024 2024 2024 2023 2023 2023
$000 $000 $000 $000 $000 $000
Euros 247 247 - 249 249 -
British Pounds 171 171 - 116 116 -
Ukrainian Hryvnia 83,026 - 83,026 55,787 - 55,787
US Dollars 15,954 15,954 - 20,341 20,341 -
99,398 16,372 83,026 76,493 20,706 55,787
Cash deposits included in the above balances comprise term deposits with
maturity less than 3 months of $33,303,000 (2023: term deposits with maturity
less than 3 months of $21,620,000).
As at 31 December 2024, cash and cash equivalents of the Company of
$16,199,000 were held in US Dollars and Euros at a floating rate (2023:
$20,695,000).
Interest Rate Risk Profile of Financial Liabilities
As at 31 December 2024 and 2023, the Group had no interest bearing financial
liabilities.
Borrowing Facilities
As at 31 December 2024 and 2023, the Group did not have any borrowing
facilities available to it.
Fair Value of Financial Assets and Liabilities
The fair value of all financial instruments is not materially different from
their book value.
31. Contingencies and Commitments
Amounts contracted in relation to the Group's 2024 investment programme in the
MEX-GOL, SV, VAS and SC fields in Ukraine, but not provided for in the
financial statements at 31 December 2024, were $0 related to Oil and Gas
Exploration and Evaluation assets and $461,587 related to Oil and Gas
Development and Production assets (2023: $118,000 related to Oil and Gas
Exploration and Evaluation assets and $597,000 related to Oil and Gas
Development and Production assets).
32. Related Party Disclosures
Key management personnel of the Group are considered to comprise only the
Directors. Details of Directors' remuneration are disclosed in Note 8.
During the year, Group companies entered into the following transactions with
related parties who are not members of the Group:
Total LLC Smart Energy Other Total LLC Smart Energy Other
2024 2024 2024 2023 2023 2023
$000 $000 $000 $000 $000 $000
Sale of goods/services 20 13 7 19,409 19,408 1
Purchase of goods/services 824 258 566 689 306 383
Amounts owed by related parties 13 9 4 1 - 1
Amounts owed to related parties 73 3 70 48 10 38
All related party transactions were with subsidiaries of the ultimate Parent
Company, and primarily relate to the sale of gas (see Note 5 for more
details), the rental of office facilities and a vehicle and the sale of
equipment. The amounts outstanding were unsecured and will be settled in cash.
As at the date of this report, none of the Company's controlling parties
prepares consolidated financial statements available for public use.
33. Post Balance Sheet Events
The ongoing war in Ukraine means that the fiscal, economic and humanitarian
situation in Ukraine is unstable and extremely challenging and the final
resolution and consequences of the ongoing war are hard to predict, but they
may have a further serious impact on the Ukrainian economy and business of the
Group. Management continues to identify and mitigate, where possible, the
impact on the Group, but the majority of these factors are beyond their
control, including the duration and severity of war, as well as the further
actions of various governments and diplomacy.
On 15 November 2024, the State Geologic and Subsoil Survey of Ukraine (the
"SGSS") issued orders suspending the MEX-GOL, SV and VAS production licences
for a period of ten years effective from 8 October 2024. Following the
issuance of such orders, the Group commenced legal proceedings in Ukraine to
challenge such orders, and within those proceedings, obtained interim rulings
to lift the suspensions of those production licences, thereby allowing
resumption of production from such licences. However, the SGSS successfully
appealed against the interim rulings, and as a result, the suspension of the
MEX-GOL and SV licences was reinstated on 22 January 2025, and the suspension
of the VAS licence was reinstated on 27 February 2025. Accordingly, there is
currently no operational activity on any of the MEX-GOL, SV or VAS licences.
The Group is consulting with its legal advisers in order to determine
appropriate actions to protect its legal rights in relation to the above
regulatory actions by the Ukrainian authorities.
34. Auditor's Limitation Liability Agreement
It is proposed that an Auditor's Limitation of Liability Agreement in respect
of the financial year ended 31 December 2024 between the Company and Zenith
Audit Ltd will be entered into following shareholders approval being obtained
at the next Annual General Meeting of the Company. The principal terms and
conditions of such Agreement are set out below:
- The Agreement limits the amount of any liability owed to the Company by
the Auditor in respect of any negligence, default, breach of duty or breach of
trust, occurring in the course of the audit of the Company's financial
statements for the year ended 31 December 2024, for which the Auditor may
otherwise be liable to the Company.
- The Agreement also stipulates the maximum aggregated amount payable in
event of any of the circumstances stated above.
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