REG - Petroneft Resources - 2016 Interim Results <Origin Href="QuoteRef">PTR.I</Origin> - Part 1

Petroneft ResourcesAnnouncement

28/09/2016 07:06

RNS Number : 0036L
Petroneft Resources PLC
28 September 2016
28 September 2016
2016 Interim Results
PetroNeft (AIM: PTR) an oil & gas exploration and production company operating in the Tomsk Oblast, Russian Federation, and 50% owner and operator of Licences 61 and 67 is pleased to report its results for the 6 months ended 30 June 2016.
Highlights
 Current gross production from Licence 61 is about 3,200 bopd.
 Represents a 39% increase in production in 2016.
 New wells drilled at South Arbuzovskoye during period drove production growth.
David Golder, Chairman of PetroNeft Resources plc, commented:
"We have had a busy year so far,with good success in growing production by almost 40% and in enhancing our understanding of Licence 61.
Given that market conditions remain challenging with little sign of improvement in oil prices in the near term, our focus continues to be on growing production, managing costs and positioning the Company for any improvement in market conditions, while we are also investigating opportunities to benefit from current conditions by growing the company through acquisitions or business combinations focussed on producing assets in Russia.We look forward to updating shareholders of our results over the coming year."
For further information, contact:
Dennis Francis, CEO, PetroNeft Resources plc
+1 713 988 2500
Paul Dowling, CFO, PetroNeft Resources plc
+353 1 647 0280
John Frain/Brian Garrahy, Davy (NOMAD and Joint Broker)
+353 1 679 6363
Henry Fitzgerald-O'Connor, Canaccord Genuity Limited (Joint Broker)
+44 207 523 8000
Martin Jackson/Shabnam Bashir, Citigate Dewe Rogerson
+44 207 638 9571
Joe Heron / Douglas Keatinge, Murray Consultants
+353 1 498 0300
The information contained in this announcement has been reviewed and verified by Mr. Dennis Francis, Director and Chief Executive Officer of PetroNeft, for the purposes of the Guidance Note for Mining and Oil & Gas Companies issued by the London Stock Exchange in June 2009. Mr. Francis holds a B.S. Degree in Geophysical Engineering and a M.S. Degree in Geology from the Colorado School of Mines. He has also graduated from the Harvard University Program for Management Development. He is a member of the American Association of Petroleum Geologists and the Society of Exploration Geophysicists. He has over 40 years' experience in oil and gas exploration and development.


Chairman's Statement 
Dear Shareholder,
I am pleased to report on the activities of the Group for the six months to 30 June 2016 and provide an update on recent progress. 2016 has been a busy year with a significant work programme undertaken at Licence 61, together with our 50% partner Oil India. The 2016 campaign delivered considerable production growth from new wells at South Arbuzovskoye but some disappointment with the result of a delineation well at the Sibkrayevskoye oil field. 
Production and Sales
Gross production at Licence 61 in the six months to 30 June 2016 averaged 2,366 bopd, a 36% increase compared to the same period in 2015 (1,744 bopd). We sold 421,714 (gross) barrels of oil in the six months to 30 June 2016 (H1 2015: 329,733 bbls) and achieved an average Russian Domestic oil price of $20.56 (H1 2015: $29.87). The fall in price is reflective of the continuing challenges being faced across the oil and gas industry.
Licence 61 Gross Production
H1 2016
Q2-2016
Q1-2016
H1 2015
Total gross production
430,693
223,877
206,816
315,664
Gross bopd
2,366
2,460
2,272
1,744
PetroNeft 50% share bopd
1,183
1,230
1,136
872
Gross production at Licence 61 has grown by 39% in the year to date and is currently approximately 3,200 bopd. This growth came from the new wells at South Arbuzovskoye which came online in June and July 2016. Production is shown quarterly above and we intend to publish quarterly production statements from October 2016 onwards. The actual production for Q3-2016 will be announced in October 2016.
South Arbuzovskoye
The main drilling programme in 2016 was focussed on the southern lobe of Arbuzovskoye. In 2015 we had drilled the A-103 well from Pad 1 in the northern end and acquired some additional 2D seismic on the southern end. Both the well and the seismic gave us confidence in the potential of the southern lobe. The lessons learned from the horizontal drilling at Tungolskoye in 2015 also proved valuable in setting out the drilling programme in South Arbuzovskoye. 
We drilled two vertical and two horizontal wells. Our pre-drill estimates were to achieve initial production of 125 bopd from the vertical wells and 600 bopd from the horizontal wells. The results far exceeded these estimates with the vertical wells (A213 & A-216) coming in at over 350 bopd and 175 bopd respectively and the horizontal wells (A-214 & A-215) coming in at over 800 bopd and 650 bopd respectively. With the exception of the A-216 well, the new wells at South Arbuzovskoye continue to perform ahead of expectations. The water cut at A-216 has risen higher than expected and we are examining ways to solve this issue. 
Sibkrayevskoye
In 2015 we drilled the S-373 delineation well and carried out a major 2D seismic programme across the northern portion of Licence 61 including Sibkrayevskoye. Between late January and April 2016 the S-373 well was put on production and averaged 200 bopd during the period. This well, along with the previous wells, S-372 and S-370, forms the basis for the initial development of Sibkrayevskoye at Pad 1which is planned for 2017. We are currently arranging the necessary studies, permits and approvals to sanction Pad 1 development of Sibkrayevskoye later this year.
In 2016 we sought to ascertain the full potential of Sibkrayevskoye through the drilling of a 10 km step out well, S-374. The well was drilled in July and August 2016 but unfortunately did not encounter commercial oil and was plugged and abandoned. The result, while disappointing, should not affect the current 2P reserve significantly or impact our decision regarding the development of Pad 1 at Sibkrayevskoye which is 10 km to the north.

Review of PetroNeft loss for the period
The loss for the period was US$2.3m (2014: US$1.4m). The loss includes PetroNeft's share of the losses on the joint ventures relating to Licences 61 and 67 of US$2.4m and US$0.2m respectively (H1 2015: US$1.8m and US$0.2m). The loss relating to the Licence 61 joint venture is discussed in more detail below. Finance revenue of US$1.6m (H1 2015: US$1.5m) relates primarily to interest receivable on loans to the joint ventures.
PetroNeft Key Financial Metrics

Unaudited

Audited


6 months ended 30 June 2016

6 months ended 30 June 2015

Year ended 31 December 2015


US$

US$

US$
Continuing operations






Revenue

1,362 

1,220 

19,165 
Cost of sales

(1,235)

(1,206)

(15,233)
Gross profit 

127 

14 

3,932 
Administrative expenses 

(1,073)

(572)

(3,678)
Exchange gain/(loss) on intra-Group loans

(23)

17 

(2,402)
Operating loss

(923)

(541)

(2,148)
Share of joint venture's net loss - WorldAce Investments Limited

(2,408)

(1,829)

(304)
Share of joint venture's net loss - Russian BD Holdings B.V.

(173)

(157)

(294)
Finance revenue

1,596 

1,504 

1,551 
Loss for the period for continuing operations before taxation

(1,908)

(1,023)

(8,376)
Income tax expense

(410)

(393)

(408)
Loss for the period for continuing operations before taxation

(2,318)

(1,416)

(8,784)


Licence 61 joint venture - WorldAce Group
The metrics below are an extraction from the financial statements of the WorldAce Group which demonstrate the performance of Licence 61:


PetroNeft's

PetroNeft's

PetroNeft's


50% share 6 months ended 30 June 2016

50% share 6 months ended 30 June 2015

50% share year ended 31 December 2015


US$'000

US$'000

US$'000
Continuing operations






Revenue

4,339 

4,925 

10,300 
Cost of sales

(4,259)

(4,767)

(10,436)
Gross profit 

80 

158 

(136)
Administrative expenses 

(917)

(831)

(1,519)
Impairment of oil and gas properties

- 

- 

(4,550)
Operating loss

(837)

(673)

(6,205)
Finance revenue

4 

6 

12 
Finance costs

(1,575)

(1,162)

(2,572)
Loss for the period for continuing operations before taxation

(2,408)

(1,829)

(8,765)
Income tax credit

- 

- 

- 
Loss for the period for continuing operations before taxation

(2,408)

(1,829)

(8,765)
WorldAce Analysis

50% of WorldAce


6 months ended 30 June 2016

6 months ended 30 June 2015

12 months ended 31 December 2015


US$'000

US$'000









Revenue






Oil sales

4,335 

4,908 

10,276 
Other sales

4 

16 

24 
Total revenue

4,339 

4,924 

10,300 







Cost of Sales






Mineral Extraction Tax

2,047 

2,495 

4,922 
Pipeline tariff

820 

635 

1,493 
Staff costs

402 

458 

840 
Depreciation and amortisation

600 

517 

1,472 
Other cost of sales

390 

662 

1,708 
Total cost of sales

4,259 

4,767 

10,435 
The detailed Income Statement and Balance Sheet of WorldAce Investments Limited is disclosed at note 7 to these condensed financial statements.Very low oil prices in late 2015 and the first quarter of 2016 have significantly reduced the margin. With the higher production and improved pricing being achieved in the second half of 2016 we should be able to improve the margin as many of our production costs are fixed. 
In March 2016 Oil India agreed to provide 100% of the funding required to carry out the agreed work programmes at Licence 61 in 2016 and 2017. This work programme is expected to require gross funding of at least US$35 million, US$10m in 2016 and US$25m in 2017. The funding is to be provided by way of unsecured loans to the joint venture company WorldAce Investments Limited. The loan agreement for the 2016 requirement of US$10m was executed in March 2016 and the funding fully drawn by July 2016. It is expected that the loan agreement for the 2017 requirement will be executed on substantially similar terms in late 2016.
Licence 67
During 2015, we agreed an exploration programme for Licence 67 for the five years to 2020 with the Russian authorities; based on this, the first significant expenditure required will be in 2017 but we expect to be able to defer this expenditure to at least 2018. We view Licence 67 as having considerable long term potential and we are discussing forward plans with our joint venture partner Belgrave Naftogas (Arawak Energy).
Board Changes
As discussed in the Annual Report, in April 2016 Maxim Korobov, Anthony Sacca and David Sturt joined the Board as non-executive Directors. David Sanders, Gerry Fagan and Paul Dowling left the Board, however Mr. Dowling remains as CFO of the Company and is Company Secretary. 
Business development
In May 2016 Pavel Tetyakov joined the Company as Vice President of Business Development to help bring a renewed focus on Business Development and we are actively pursuing a number of exciting options in this regard.
Outlook
We have had a busy year so far, with good success in growing production and our longer term development and exploration plans for our portfolio, however market conditions remain challenging and there are few signs of sustained improvement in oil prices in the near term. We are now focussed on commencing the development of our largest field, Sibkrayevskoye in 2017 which, with the expected Oil India loan agreement to be signed, the Company is fully financed for. Our focus continues to be on growing production, managing costs and positioning the Company for any improvement in market conditions, while we are also investigating opportunities to benefit from current conditions by growing the company through acquisitions or business combinations focussed on producing assets in Russia. We look forward to updating shareholders of our results over the remainder of 2016.
David Golder
Non-Executive Chairman

Interim Condensed Consolidated Income Statement
For the 6 months ended 30 June 2016



Unaudited

Audited



6 months ended 30 June 2016

6 months ended 30 June 2015

Year ended 31 December 2015

Note

US$

US$

US$
Continuing operations







Revenue


1,362,158 

1,220,323 

2,398,314 
Cost of sales


(1,234,712)

(1,205,656)

(2,370,949)
Gross profit 


127,446 

14,667 

27,365 








Administrative expenses 


(1,073,237)

(572,017)

(1,379,506)
Exchange loss on intra-Group loans


22,522

16,401

(284,449)
Operating loss


(923,268)

(540,949)

(1,636,590)








Share of joint venture's net loss - WorldAce Investments Limited
7

(2,407,781)

(1,828,719)

(8,765,055)
Share of joint venture's net loss - Russian BD Holdings B.V.
8

(172,677)

(157,470)

(314,859)
Finance revenue
4

1,595,944 

1,504,174 

3,041,587 
Loss for the period for continuing operations before taxation


(1,907,782)

(1,022,964)

(7,674,917)








Income tax expense
5

(409,925)

(392,701)

(799,466)








Loss for the period attributable to equity holders of the Parent


(2,317,707)

(1,415,665)

(8,474,383)








Loss per share attributable to ordinary equity holders of the Parent







Basic and diluted - US dollar cent


(0.33)

(0.20)

(1.20)
Interim Condensed Consolidated Statement of Comprehensive Income
For the 6 months ended 30 June 2016



Unaudited

Audited



6 months ended 30 June 2016

6 months ended 30 June 2015

Year ended 31 December 2015



US$

US$

US$
Loss for the period attributable to equity holders of the Parent


(2,246,207)

(1,415,665)

(8,474,383)
Other comprehensive income to be reclassified to profit or loss in subsequent periods:







Currency translation adjustments - subsidiaries

61,935

19,683 

265,640 
Share of joint ventures' other comprehensive income - foreign exchange translation differences


5,467,539 

909,754 

(12,474,502)
Total comprehensive profit/(loss) for the period attributable to equity holders of the Parent


3,211,767 

(486,228)

(20,683,245)
Interim Condensed Consolidated Balance Sheet
As at 30 June 2016



Unaudited

Audited



30 June 2016

31 December 2015

Note

US$

US$
Assets





Non-current Assets





Property, plant and equipment
6

167,922 

181,703 
Equity-accounted investment in joint ventures - WorldAce Investments Limited
7

- 

- 
Equity-accounted investment in joint ventures - Russian BD Holdings B.V.
8

- 

- 
Financial assets - loans and receivables
9

47,214,376 

42,883,861 



47,382,298 

43,065,564 
Current Assets





Inventories
10

29,676 

54,302 
Trade and other receivables
11

2,314,336 

1,842,128 
Cash and cash equivalents
12

382,546 

1,284,212 



2,726,558 

3,180,642 
Total Assets


50,108,856 

46,246,206 






Equity and Liabilities





Capital and Reserves





Called up share capital


9,429,182 

9,429,182 
Share premium account


140,912,898 

140,912,898 
Share-based payments reserve


6,796,540 

6,796,540 
Retained loss


(77,092,497)

(74,774,790)
Currency translation reserve


(33,355,674)

(38,885,148)
Other reserves


336,000 

336,000 
Equity attributable to equity holders of the Parent

47,026,449

43,814,682 






Non-current Liabilities





Deferred tax liability


1,693,335 

1,286,378 



1,693,335 

1,286,378 
Current Liabilities





Trade and other payables
13

1,389,072 

1,145,146 



1,389,072

1,145,146 
Total Liabilities


3,082,407 

2,431,524 
Total Equity and Liabilities


50,108,856 

46,246,206 

Interim Condensed Consolidated Statement of Changes in Equity
For the 6 months ended 30 June 2016

Called up share capital

Share premium account

Share-based payment and other reserves

Currency translation reserve

Retained loss

Total

US$

US$

US$

US$

US$

US$












At 1 January 2015
9,429,182 

140,912,898 

7,099,745 

(26,676,286)

(66,300,407)

64,465,132 
Loss for the year
- 

- 

- 

- 

(8,474,383)

(8,474,383)
Currency translation adjustments - subsidiaries
- 

- 

- 

265,640 

- 

265,640 
Share of joint ventures' other comprehensive income - foreign exchange translation differences
- 

- 

- 

(12,474,502)

- 

(12,474,502)
Total comprehensive loss for the year
- 

- 

- 

(12,208,862)

(8,474,383)

(20,683,245)
Share-based payment expense
- 

- 

32,795 

- 

- 

32,795 
At 31 December 2015
9,429,182 

140,912,898 

7,132,540 

(38,885,148)

(74,774,790)

43,814,682 












At 1 January 2016
9,429,182 

140,912,898 

7,132,540 

(38,885,148)

(74,774,790)

43,814,682 
Loss for the period
- 

- 

- 

- 

(2,317,707)

(2,317,707)
Currency translation adjustments - subsidiaries
- 

- 

- 

(61,935)

- 

(61,935)
Share of joint ventures' other comprehensive income - foreign exchange translation differences
- 

- 

- 

5,467,539 

- 

5,467,539 
Total comprehensive profit for the period
- 

- 

- 

5,529,474 

(2,317,707)

3,211,767 
At 30 June 2016
9,429,182 

140,912,898 

7,132,540 

(33,355,674)

(77,092,497)

47,026,449 

Interim Condensed Consolidated Cash Flow Statement
For the 6 months ended 30 June 2016


Unaudited

Audited


6 months ended 30 June 2016

6 months ended 30 June 2015

Year ended 31 December 2015


US$

US$

US$
Operating activities






Loss before taxation

(1,907,782)

(1,022,964)

(7,674,917)
Adjustment to reconcile loss before tax to net cash flows






Non-cash






Depreciation 

36,970 

54,575 

97,673 
Share of loss in joint ventures

2,580,458 

1,986,189 

9,079,914 
Share-based payment expense

- 

16,246 

32,795 
Finance revenue
4
(1,595,944)

(1,504,174)

(3,041,587)
Working capital adjustments






(Increase)/decrease in trade and other receivables
(322,891)

156,081 

(548,351)
Decrease/(increase) in inventories

24,626 

(36,465)

(39,122)
Increase/(decrease) in trade and other payables
292,234 

(458,992)

31,428 
Income tax paid

(12,771)

(9,861)

(25,832)
Net cash flows used in operating activities 

(905,100)

(819,365)

(2,087,999)
Investing activities






Purchase of property, plant and equipment
- 

(13,312)

(19,059)
Interest received

1,480 

5,984 

10,095 
Net cash received from/(used in) investing activities 

1,480 

(7,328)

(8,964)
Net decrease in cash and cash equivalents 

(903,620)

(826,693)

(2,096,963)
Translation adjustment 

1,954 

(8,481)

(11,594)
Cash and cash equivalents at the beginning of the period 

1,284,212 

3,392,769 

3,392,769 
Cash and cash equivalents at the end of the period 
12
382,546 

2,557,595 

1,284,212 



Notes to the Interim Condensed Consolidated Financial Statements
For the 6 months ended 30 June 2016
1. Corporate Information
The interim condensed consolidated financial statements of the Group for the six months ended 30 June 2016 were authorised for issue in accordance with a resolution of the Directors on 27 September 2016. 
PetroNeft Resources plc ('the Company', or together with its subsidiaries, 'the Group') is a Company incorporated in Ireland. The Company is listed on the Alternative Investment Market ('AIM') of the London Stock Exchange and the Enterprise Securities Market ('ESM') of the Irish Stock Exchange. The address of the registered office and the business address in Ireland is 20 Holles Street, Dublin 2. The Company is domiciled in the Republic of Ireland. 
The principal activities of the Group are oil and gas exploration, development and production. 
2. Accounting Policies
2.1 Basis of Preparation
The interim condensed consolidated financial statements for the six months ended 30 June 2016 have been prepared in accordance with IAS 34 Interim Financial Reporting. 
The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2015 which are available on the Group's website - www.petroneft.com. 
The interim condensed consolidated financial statements are presented in US dollars ("US$").
2.2 Significant Accounting Policies
The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2015.

3. Segment information
At present the Group has one reportable operating segment, which is oil exploration and production through its joint venture undertakings. As a result, there are no further disclosures required in respect of the Group's reporting segment.
The risk and returns of the Group's operations are primarily determined by the nature of the activities that the Group engages in, rather than the geographical location of these operations. This is reflected by the Group's organisational structure and the Group's internal financial reporting systems. 
Management monitors and evaluates the operating results for the purpose of making decisions consistently with how it determines operating profit or loss in the consolidated financial statements.
Geographical segments
Although the joint venture undertakings WorldAce Investments Limited and Russian BD Holdings B.V. are domiciled in Cyprus and the Netherlands, the underlying businesses and assets are in Russia. Substantially all of the Group's sales and capital expenditures are in Russia.
Assets are allocated based on where the assets are located:





Unaudited

Audited





30 June 2016

31 December 2015

Non-current assets



US$

US$

Russia



 47,379,517 

 43,062,084 

Ireland



2,781 

3,480 





 47,382,298 

 43,065,564 
 
4.
Finance revenue

Unaudited

Audited



6 months ended 30 June 2016

6 months ended 30 June 2015

Year ended 31 December 2015



US$

US$

US$

Bank interest receivable

1,480 

5,984 

10,095 

Interest receivable on loans to Joint Ventures

1,594,464 

1,498,190 

3,031,492 



1,595,944 

1,504,174 

3,041,587 
5.
Income tax









Unaudited

Audited



6 months ended 30 June 2016

6 months ended 30 June 2015

Year ended 31 December 2015



US$

US$

US$

Current income tax 







Current income tax charge

2,968

9,047 

24,863 

Total current income tax

2,968

9,047 

24,863 









Deferred tax







Relating to origination and reversal of temporary differences
406,957

383,654

774,603

Total deferred tax

406,957

383,654

774,603

Income tax expense reported in the Interim Consolidated Income Statement
409,925

392,701

799,466
6.
Property, Plant and Equipment












Plant and




machinery




US$

Cost




At 1 January 2015


996,588 

Additions


19,059 

Translation adjustment


(215,247)

At 1 January 2016


800,400 

Translation adjustment


104,224 

At 30 June 2016


904,624 






Depreciation




At 1 January 2015


674,786

Charge for the year


97,673

Translation adjustment


(153,762)

At 1 January 2016


618,697

Charge for the period


36,970

Translation adjustment


81,035

At 30 June 2016


736,702






Net book values




At 30 June 2016


167,922 

At 31 December 2015


181,703 
7.  Equity-accounted Investment in Joint Venture - WorldAce Investments Limited
PetroNeft Resources plc has a 50% interest in WorldAce Investments Limited, a jointly controlled entity which holds 100% of LLC Stimul-T, an entity involved in oil and gas exploration and the registered holder of Licence 61. The interest in this joint venture is accounted for using the equity accounting method. WorldAce Investments Limited is incorporated in Cyprus and carries out its activities, through LLC Stimul-T, in Russia. 




Share of net assets




US$






At 1 January 2015


10,865,156 

Elimination of unrealised profit on intra-Group transactions


(29,326)

Retained loss


(8,765,055)

Translation adjustment


(11,587,393)

Credited against loans receivable from WorldAce Investments Limited (Note 9)


9,516,618 

At 1 January 2016


- 

Elimination of unrealised loss on intra-Group transactions


(151,029)

Retained loss


(2,407,781)

Translation adjustment


5,042,837 

Reversal of credit to loans receivable from WorldAce Investments Limited (Note 9)


(2,484,027)

At 30 June 2016


- 
The balance sheet position of WorldAce Investments Limited shows net liabilities of US$23,500,706 following a loss in the period of US$4,815,562 together with a positive currency translation adjustment of US$10,085,675. PetroNeft's 50% share is included above and results in a negative carrying value of US$7,032,591. Therefore, the share of net assets is reduced to Nil and, in accordance with IAS 28 Investments in Associates and Joint Ventures, the amount of US$7,032,591 is deducted from other assets associated with the joint venture on the Balance Sheet which are the loans receivable from WorldAce Investments (see Note 9).


7.  Equity-accounted Investment in Joint Venture - WorldAce Investments Limited (continued)
Additional financial information in respect of PetroNeft's 50% interest in the equity-accounted joint venture entity is disclosed below:


Unaudited

Audited


6 months ended 30 June 2016

6 months ended 30 June 2015

Year ended 31 December 2015


US$

US$

US$








Continuing operations






Revenue
4,339,111 

4,924,336 

10,300,094 

Cost of sales
(4,259,206)

(4,766,524)

(10,435,521)

Gross profit 
79,905 

157,812 

(135,427)

Administrative expenses 
(916,886)

(830,570)

(1,519,005)

Impairment of oil and gas properties
- 

- 

(4,550,000)

Operating loss
(836,981)

(672,758)

(6,204,432)

Finance revenue
3,475 

5,834 

11,694 

Finance costs
(1,574,275)

(1,161,795)

(2,572,317)

Loss for the period for continuing operations before taxation
(2,407,781)

(1,828,719)

(8,765,055)

Income tax expense
- 

- 

- 

Loss for the period
(2,407,781)

(1,828,719)

(8,765,055)








Loss for the period
(2,407,781)

(1,828,719)

(8,765,055)

Other comprehensive income to be reclassified to profit or loss in subsequent periods:






Currency translation adjustments
5,042,837 

837,749 

(11,587,393)

Total comprehensive profit/(loss) for the period
2,635,056 

(990,970)

(20,352,448)
The currency translation adjustment results from the revaluation of the Russian Rouble during the period. All Russian Rouble carrying values in Stimul-T, the 100% subsidiary of WorldAce are converted to US Dollars at each period end. The resulting gain or loss is recognised through other comprehensive income and transferred to the currency translation reserve. The Russian Rouble appreciated significantly against the US Dollar during the period from RUB73.30:US$1 at 31 December 2015 to RUB64.05:US$1 at 30 June 2016.
7.  Equity-accounted Investment in Joint Venture - WorldAce Investments Limited (continued)




Unaudited

Audited




30 June 2016

31 December 2015




US$

US$

Non-current Assets






Oil and gas properties


35,421,820 

27,646,307 

Property, plant and equipment


206,001 

197,826 

Exploration and evaluation assets


7,048,832 

6,044,036 

Assets under construction


2,665,129 

2,345,358 




45,341,782 

36,233,527 








Current Assets






Inventories


479,906 

257,857 

Trade and other receivables


308,786 

259,142 

Cash and cash equivalents


38,018 

153,198 




826,710 

670,197 








Total Assets


46,168,492

36,903,724 















Non-current Liabilities






Provisions


(353,646)

(273,278)

Interest-bearing loans and borrowings


(52,416,272)

(48,366,752)




(52,769,918)

(48,640,030)

Current Liabilities






Trade and other payables


(5,148,927)

(2,649,103)




(5,148,927)

(2,649,103)

Total Liabilities


(57,918,845)

(51,289,133)








Net Liabilities


(11,750,353)

(14,385,409)


8.  Equity-accounted Investment in Joint Venture - Russian BD Holdings B.V.
PetroNeft Resources plc has a 50% interest in Russian BD Holdings B.V., a jointly controlled entity which holds 100% of LLC Lineynoye, an entity involved in oil and gas exploration and the registered holder of Licence 67. The interest in this joint venture is accounted for using the equity accounting method. Russian BD Holdings B.V. is incorporated in the Netherlands and carries out its activities in Russia. 




Share of net assets




US$






At 1 January 2015


365,178 

Retained loss


(314,859)

Translation adjustment


(887,109)

Credited against loans receivable from Russian BD Holdings BV (Note 9)


836,790 

At 1 January 2016


- 

Retained loss


(172,677)

Translation adjustment


424,702 

Reversal of credit to loans receivable from Russian BD Holdings BV (Note 9)


(252,025)

At 30 June 2016


- 

The balance sheet position of Russian BD Holdings B.V. shows net liabilities of US$1,169,530 following a loss in the year of US$345,354 together with a currency translation adjustment (gain) of US$849,404. PetroNeft's 50% share is included above and results in a negative carrying value of US$584,765. Therefore, the share of net assets is reduced to Nil and, in accordance with IAS 28 Investments in Associates and Joint Ventures, the amount of US$584,765 is deducted from other assets associated with the joint venture on the Balance Sheet which are the loans receivable from Russian BD Holdings B.V. (Note 9).


8.  Equity-accounted Investment in Joint Venture - Russian BD Holdings B.V. (continued)
Additional financial information in respect of PetroNeft's 50% interest in the equity-accounted joint venture entity is disclosed below:


Unaudited

Audited


6 months ended 30 June 2016

6 months ended 30 June 2015

Year ended 31 December 2015


US$

US$

US$








Revenue
- 

- 

- 

Cost of sales
- 

- 

- 

Gross profit
- 

- 

- 

Administrative expenses
(56,435)

(58,858)

(106,224)

Operating loss
(56,435)

(58,858)

(106,224)

Finance revenue
204 

274 

434 

Finance costs 
(116,446)

(98,886)

(209,069)

Loss for the period for continuing operations before taxation
(172,677)

(157,470)

(314,859)








Taxation
- 

- 

- 








Loss for the period
(172,677)

(157,470)

(314,859)








Loss for the period
(172,677)

(157,470)

(314,859)

Other comprehensive income to be reclassified to profit or loss in subsequent periods:






Currency translation adjustments
424,702 

72,005 

(887,109)

Total comprehensive profit/(loss) for the period
252,025 

(85,465)

(1,201,968)


Unaudited


Audited


30 June 2016


31 December 2015


US$


US$

Non-current assets
3,787,327 


3,327,327 

Current assets
45,227 


71,104 

Total assets
3,832,554 


3,398,431 







Non-current liabilities
(4,214,659)


(4,034,780)

Current liabilities
(202,660)


(200,441)

Total liabilities
(4,417,319)


(4,235,221)







Net Liabilities
(584,765)


(836,790)


9.
Financial assets - loans and receivables









Unaudited

Audited




30 June 2016

31 December 2015




US$

US$








Loans to WorldAce Investments Limited (Note 14)

50,704,823 

 49,224,805 

Less: share of WorldAce Investments Limited loss 
(7,032,591)

(9,516,618)




43,672,232 

39,708,187 

Loans to Russian BD Holdings B.V. (Note 14)

4,126,909 

 4,012,464 

Less: share of Russian BD Holdings B.V. loss 
(584,765)

(836,790)




3,542,144 

3,175,674 




47,214,376 

42,883,861 
The Company has granted a loan facility to its joint venture undertaking WorldAce Investments Limited of up to US$45 million. This loan facility is US$ denominated and unsecured. Interest currently accrues on the loan at USD LIBOR plus 6.0% but the Company has agreed not to seek payment of interest until H2 2017 at the earliest. The loan is set to mature on 31 December 2022. The loan from the Company to Russian BD Holdings is repayable on demand. Interest currently accrues on the loan at LIBOR plus 6.0% per annum.
10.
Inventories


Unaudited

Audited




30 June 2016

31 December 2015




US$

US$








Materials


 29,676 

 54,302 




29,676 

54,302 
11.
Trade and other receivables


Unaudited

Audited




30 June 2016

31 December 2015




US$

US$








Other receivables


 224,724 

 147,641 

Receivable from jointly controlled entity (Note 14)


 1,852,613 

 1,628,667 

Advances to contractors


 1,992 

 3,708 

Prepayments


 235,007 

 62,112 




2,314,336 

5,069,944 
 Other receivables are non-interest-bearing and are normally settled on 60-day terms. 
12.
Cash and Cash Equivalents









Unaudited

Audited

Group


30 June 2016

31 December 2015




US$

US$








Cash at bank and in hand


 382,546 

 1,284,212 




 382,546 

1,284,212 
 Bank deposits earn interest at floating rates based on daily deposit rates. Short-term deposits are made for varying periods of between one day and one month depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. 
13.
Trade and other payables









Unaudited

Audited




30 June 2016

31 December 2015




US$

US$








Trade payables


 334,135 

 238,570 

Trade payables to jointly controlled entity (Note 14)


 388,254 

 239,228 

Corporation tax


 59,439 

 59,087 

Oil taxes, VAT and employee taxes


 44,874 

 78,293 

Other payables


 348,544 

 212,141 

Accruals 


 213,826 

 317,827 




 1,389,072 

 1,145,146 
 
 The Directors consider that the carrying amount of trade and other payables approximates their fair value. 
 Trade and other payables are non-interest-bearing and are normally settled on 60-day terms.
 Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs.


14. Related party disclosures
Transactions with subsidiaries
Transactions between the Group and its subsidiaries, Granite and Dolomite, have been eliminated on consolidation.
Transactions with joint ventures
PetroNeft Resources plc had the following transactions with its joint ventures during the six months ended 30 June 2016 and year ended 31 December 2015:

Group

Russian BD Holdings BV Group

WorldAce Investments Limited Group



US$

US$







Receivable by PetroNeft Group at 1 January 2015

3,882,578 

47,341,766 

Transactions during the year

183,333 

2,670,250 

Interest accrued in the year

205,189 

2,826,303 

Payments for services made during the year

(29,781)

(2,483,727)

Share of joint venture's translation adjustment

(836,790)

(9,516,618)

Translation adjustment

(14,821)

45,618 

At 1 January 2016

3,389,708 

40,883,592 

Transactions during the period

78,222 

1,686,332 

Interest accrued in the period

114,445 

1,480,019 

Payment for services made during the period

(2,743)

(1,771,387)

Share of joint venture's translation adjustment

252,025 

2,484,027 

Translation adjustment

7,941 

76,554 

At 30 June 2016

 3,839,598 

 44,839,137







Balance at 31 December 2015 comprised of:





Loan facility advanced

3,175,674 

39,708,187 

Trade and other receivables

214,034 

1,414,633 

Trade Payables

- 

(239,228)



3,389,708 

40,883,592 

Balance at 30 June 2016 comprised of:





Loans receivable

3,542,144 

43,672,232 

Trade and other receivables

297,454 

1,555,159 

Trade and other payables

- 

(388,254)



3,839,598 

44,839,137

This information is provided by RNS
The company news service from the London Stock Exchange
  END
IR EAKNXALNKEFF