REG - Petroneft Resources - Petroneft Resources PLC Interim Results
26 September 2018
2018 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 2018.
Highlights
• Gross production from Licence 61 in H1 2018 was 2,135 bopd (1,068 bopd net to PetroNeft).
• Testing of C-4 well continuing
o Testing will continue for several weeks
David Golder, Chairman of PetroNeft Resources plc, commented:
"2018 to date has yielded very positive results from the C-4 well at Cheremshanskoye and good improvement in oil price. We look forward to updating shareholders with the final results of the C-4 well and with the progress on other value optimisation initiatives over the coming months."
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
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 2018 and provide an update on recent progress. 2018 has seen the drilling of the C-4 delineation well at the Cheremshanskoye oil field, with results to date exceeding pre-drill expectations.
As mentioned in the June we had anticipated being in a position to announce a material transaction in the third quarter of 2018. Negotiations have slowed but remain ongoing, however the successful C-4 well has also broadened the options available to the Company.
Production and Sales for the period
Gross production at Licence 61 in the six months to 30 June 2018 averaged 2,135 bopd, a small decrease compared to the same period in 2017 (2,347 bopd) with the production decline continuing to be slower than expected. We sold 382,656 (gross) barrels of oil in the six months to 30 June 2018 (H1 2017: 430,421 bbls) and achieved an average Russian Domestic oil price of $44.39 (H1 2017: $32.07), a 38% increase. This welcome price rise was partly offset by higher taxes but did lead to enhanced operating cashflows for the Licence 61 joint venture.
Licence 61 Gross Production
H1-2018
Q2-2018
Q1-2018
H1-2017
FY-2017
Total gross production
386,482
183,368
203,114
424,812
816,476
Gross bopd
2,135
2,015
2,257
2,347
2,237
PetroNeft 50% share bopd
1,068
1,008
1,128
1,174
1,118
Licence 67 - Cheremshanskoye
The C-4 well, which spudded on 2 August is located on the northern half of the Cheremshanskoye field in Licence 67. The aim of the well was to prove up the northern extent of the field based on the 3D seismic data acquired in 2014. The well is being drilled under the joint venture agreement with our partner for Licence 67, Arawak Energy on a 50:50 basis and operations have progressed smoothly.
Based on core and log data the base of the Bazhenov Formation was penetrated at -2,545.5 m TVDSS which is about 9.5 m high to pre-drill estimates.
The tertiary objective Upper Jurassic J1-1 sandstone interval encountered 1.6 m of net oil pay from -2,546 to -2,547.6 m TVDSS and coring recovered oil saturated sandstone with very good visual reservoir properties. A short duration open-hole test was run over the interval and the prorated flow was 228 bfpd consisting of 84% good quality light oil ( 35° API) and 16% mud/filtrate. This is a very good initial flow test, without any reservoir stimulation, which exceeds our expectations for the J1-1 interval.
The primary J1-3 interval was also cored, tested and logged. Calculations from the log data show net oil pay of 8.8 m from -2,559.4 to -2,569.2 m TVDSS. A short duration open-hole test was run over the interval and the prorated flow was 171 bfpd consisting of 70% oil and 30% mud/filtrate. This is a good flow test which exceeds our expectations for the J1-3 interval, even though the short flow test indicates some formation damage that restricted the flow rate.
The combined open-hole tests achieved a prorated test rate of 399 bfpd; this rate is expected to increase in a longer test once drilling fluids are cleared out from the well.
The two open-hole tests combined with the log and core data in the Upper Jurassic are very encouraging. There are currently no reserves booked for the Upper Jurassic at Cheremshanskoye and it is estimated that there could be about 40 million bbls of proven and probable reserves, adjacent to nearby infrastructure, at these horizons based on these results (20 mmbbls net to PetroNeft).
Following this, drilling continued in order to target the J-13 and J-14 objectives in the Lower Jurassic. At the J-13 we encountered 7.6m of net oil pay (according to log data), however the reservoir was of low quality.
Now we have run casing in the well and have commenced a cased-hole test at the J1-3 interval which we expect to complete in the coming weeks.
Review of PetroNeft loss for the period
The loss for the period narrowed to US$1.2m (H1 2017: US$1.6m). The loss includes PetroNeft's share of the losses on the joint ventures relating to Licences 61 and 67 of US$1.9m and US$0.2m respectively (H1 2017: US$2.2m and US$0.2m). The loss relating to the Licence 61 joint venture is discussed in more detail below. Finance revenue of US$2.0m (H1 2017: US$1.7m) relates primarily to interest receivable on loans to the joint ventures.
PetroNeft Key Financial Metrics
Unaudited
Audited
6 months ended 30 June 2018
6 months ended 30 June 2017
Year ended 31 December 2017
US$ '000
US$ '000
US$ '000
Continuing operations
Revenue
1,093
1,008
1,713
Cost of sales
(881)
(938)
(1,550)
Gross profit
212
70
163
Administrative expenses
(612)
(580)
(1,403)
Exchange (loss)/gain on intra-Group loans
(57)
32
52
Operating loss
(457)
(478)
(1,188)
Share of joint venture's net loss - WorldAce Investments Limited
(1,920)
(2,219)
(4,286)
Share of joint venture's net loss - Russian BD Holdings B.V.
(231)
(184)
(382)
Finance revenue
1,973
1,710
3,511
Finance costs
(48)
-
-
Loss for the period for continuing operations before taxation
(683)
(1,171)
(2,345)
Income tax expense
(510)
(437)
(894)
Loss for the period
(1,193)
(1,608)
(3,239)
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:
Unaudited
Audited
WorldAce Group
WorldAce Group
WorldAce Group
6 months ended 30 June 2018
6 months ended 30 June 2017
Year ended 31 December 2017
US$'000
US$'000
US$'000
Continuing operations
Revenue
17,090
13,807
27,637
Cost of sales
(15,078)
(12,746)
(25,273)
Gross profit
2,012
1,061
2,364
Administrative expenses
(1,432)
(1,695)
(3,093)
Operating profit/(loss)
580
(634)
(729)
Write-off of exploration and evaluation assets
-
(26)
(26)
Finance revenue
48
22
66
Finance costs
(4,467)
(3,800)
(7,883)
Loss for the period for continuing operations before taxation
(3,839)
(4,438)
(8,572)
Income tax
-
-
-
Loss for the period for continuing operations after taxation
(3,839)
(4,438)
(8,572)
PetroNeft's 50% share
(1,920)
(2,219)
(4,286)
WorldAce Analysis
Unaudited
Audited
WorldAce Group
WorldAce Group
WorldAce Group
6 months ended 30 June 2018
6 months ended 30 June 2017
Year ended 31 December 2017
US$'000
US$'000
US$'000
Revenue
Oil sales
16,987
13,795
27,590
Other sales
103
12
47
Total revenue
17,090
13,807
27,637
PetroNeft's 50% share
8,545
6,903
13,819
Cost of Sales
Mineral Extraction Tax
9,491
6,666
13,747
Pipeline tariff
1,602
1,744
3,390
Staff costs
1,014
988
1,994
Depreciation and amortisation
1,451
1,544
2,916
Other cost of sales
1,520
1,803
3,226
Total cost of sales
15,078
12,745
25,273
PetroNeft's 50% share
7,539
6,373
12,637
The detailed Income Statement and Balance Sheet of WorldAce Investments Limited is disclosed at note 9 to these condensed financial statements. Improved oil prices and cost-cutting in H1 2018 have strengthened the margin in 2018 as compared to the same period last year. This led to an operating profit in the L-61 joint venture of US$580k compared to an operating loss in the same period last year of US$634k.
Achieving value for Shareholders
The geo-political and investment climate for Russia, along with other emerging markets, remains challenging and this, combined with the current shareholding structure, has resulted in a significant difference between the market capitalization of the company and the true long-term value of its assets and reserves. The Company noted on 12 July 2018 that it was examining a number of options in relation to maximising shareholder value.
The Company, in conjunction with its 50/50 joint venture partner, Oil India has engaged financial advisers to evaluate the disposal of Licence 61. While we are only in the early stages of this process and there is no certainty that any transaction will be completed, we have seen an encouraging level of interest from a range of well-financed industry players. Furthermore, once the testing of the C-4 well at Licence 67 is complete we will consider a similar process for Licence 67, working with Arawak.
We had previously indicated a potential announcement of a material transaction during the third quarter, however commercial discussions are ongoing. While there can be no certainty that a deal will ultimately be concluded, the C-4 well result has broadened the options available to the Company. Further announcements will be made in due course.
Finance
As detailed in the 2017 Annual Report the Company's finances continue to require close attention. The US$2m Petrogrand loan agreed in January 2018 matures on 31 December 2018. This loan has allowed us to drill the C-4 well at Cheremshanskoye the results of which have broadened the funding options open to the Company. The Company has to date drawn down US$1m and is in negotiations to re-finance this loan in advance of its current maturity date.
Outlook
2018 to date has yielded very positive results from the C-4 well at Cheremshanskoye and good improvement in oil price. We look forward to updating shareholders with the final results of the C-4 well and with the progress on other value optimisation initiatives over the coming months.
David Golder
Non-Executive Chairman
Interim Condensed Consolidated Income Statement
For the 6 months ended 30 June 2018
Unaudited
Audited
6 months ended 30 June 2018
6 months ended 30 June 2017
Year ended 31 December 2017
Note
US$
US$
US$
Continuing operations
Revenue
1,092,673
1,007,929
1,712,574
Cost of sales
(880,771)
(937,686)
1,550,119
Gross profit
211,902
70,243
162,455
Administrative expenses
(612,369)
(579,892)
(1,402,867)
Exchange (loss)/gain on intra-Group loans
(56,726)
31,901
52,093
Operating loss
(457,193)
(477,748)
(1,188,319)
Share of joint venture's net loss - WorldAce Investments Limited
9
(1,919,878)
(2,218,754)
(4,285,833)
Share of joint venture's net loss - Russian BD Holdings B.V.
10
(230,178)
(184,674)
(381,654)
Finance revenue
5
1,972,866
1,710,060
3,510,435
Finance costs
6
(48,256)
-
-
Loss for the period for continuing operations before taxation
(682,639)
(1,171,116)
(2,345,371)
Income tax expense
(510,381)
(436,788)
(893,670)
Loss for the period attributable to equity holders of the Parent
(1,193,020)
(1,607,904)
(3,239,041)
Loss per share attributable to ordinary equity holders of the Parent
Basic and diluted - US dollar cent
(0.17)
(0.23)
(0.46)
Interim Condensed Consolidated Statement of Comprehensive Income
For the 6 months ended 30 June 2018
Unaudited
Audited
6 months ended 30 June 2018
6 months ended 30 June 2017
Year ended 31 December 2017
US$
US$
US$
Loss for the period attributable to equity holders of the Parent
(1,193,020)
(1,607,904)
(3,239,041)
Other comprehensive income to be reclassified to profit or loss in subsequent periods:
Currency translation adjustments - subsidiaries
46,256
(19,620)
(37,190)
Share of joint ventures' other comprehensive income - foreign exchange translation differences
(4,030,342)
1,405,547
2,551,042
Total comprehensive loss for the period attributable to equity holders of the Parent
(5,177,106)
(221,977)
(725,189)
Interim Condensed Consolidated Balance Sheet
As at 30 June 2018
Unaudited
Audited
30 June 2018
31 December 2017
Note
US$
US$
Assets
Non-current Assets
Property, plant and equipment
8
56,845
88,202
Equity-accounted investment in joint ventures - WorldAce Investments Limited
9
-
-
Equity-accounted investment in joint ventures - Russian BD Holdings B.V.
10
-
-
Financial assets - loans and receivables
11
45,623,285
49,439,502
45,680,130
49,527,704
Current Assets
Inventories
12
100,112
21,908
Trade and other receivables
13
479,911
587,601
Cash and cash equivalents
14
40,378
9,389
620,401
618,898
Total Assets
46,300,531
50,146,602
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
(84,634,511)
(83,441,491)
Currency translation reserve
(32,588,644)
(28,604,558)
Other reserves
336,000
336,000
Equity attributable to equity holders of the Parent
40,251,465
45,428,571
Non-current Liabilities
Deferred tax liability
3,484,128
3,001,617
3,484,128
3,001,617
Current Liabilities
Interest-bearing loans and borrowings
15
1,048,256
-
Trade and other payables
16
1,516,682
1,716,414
2,564,938
1,716,414
Total Liabilities
6,049,066
4,718,031
Total Equity and Liabilities
46,300,531
50,146,602
Interim Condensed Consolidated Statement of Changes in Equity
For the 6 months ended 30 June 2018
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 2017
9,429,182
140,912,898
7,132,540
(31,118,410)
(80,202,450)
46,153,760
Loss for the year
-
-
-
-
(3,239,041)
(3,239,041)
Currency translation adjustments - subsidiaries
-
-
-
(37,190)
-
(37,190)
Share of joint ventures' other comprehensive income - foreign exchange translation differences
-
-
-
2,551,042
-
2,551,042
Total comprehensive loss for the year
-
-
-
2,513,852
(3,239,041)
(725,189)
At 31 December 2017
9,429,182
140,912,898
7,132,540
(28,604,558)
(83,441,491)
45,428,571
At 1 January 2018
9,429,182
140,912,898
7,132,540
(28,604,558)
(83,441,491)
45,428,571
Loss for the period
-
-
-
-
(1,193,020)
(1,193,020)
Currency translation adjustments - subsidiaries
-
-
-
46,256
-
46,256
Share of joint ventures' other comprehensive income - foreign exchange translation differences
-
-
-
(4,030,342)
-
(4,030,342)
Total comprehensive loss for the period
-
-
-
(3,984,086)
(1,193,020)
(5,177,106)
At 30 June 2018
9,429,182
140,912,898
7,132,540
(32,588,644)
(84,634,511)
40,251,465
Interim Condensed Consolidated Cash Flow Statement
For the 6 months ended 30 June 2018
Unaudited
Audited
6 months ended 30 June 2018
6 months ended 30 June 2017
Year ended 31 December 2017
US$
US$
US$
Operating activities
Loss before taxation
(682,639)
(1,171,116)
(2,345,371)
Adjustment to reconcile loss before tax to net cash flows
Non-cash
Depreciation
25,745
31,899
62,748
Share of loss in joint ventures
2,150,056
2,403,428
4,667,487
Finance revenue
5
(1,972,866)
(1,710,060)
(3,510,435)
Finance costs
6
48,256
-
-
Working capital adjustments
Decrease in trade and other receivables
103,454
352,199
294,434
(Increase)/decrease in inventories
(78,204)
9,295
7,066
(Decrease)/increase in trade and other payables
(140,482)
(83,173)
555,937
Income tax paid
(29,953)
(6,980)
(9,783)
Net cash flows used in operating activities
(576,633)
(174,508)
(277,917)
Investing activities
Loan facilities advanced to joint venture undertakings
(392,000)
-
(40,000)
Interest received
685
532
823
Net cash (used in)/received from investing activities
(391,315)
532
(39,177)
Financing activities
Proceeds from loan facilities
1,000,000
-
-
Net cash received from financing activities
1,000,000
-
-
Net increase/(decrease) in cash and cash equivalents
32,052
(173,976)
(317,094)
Translation adjustment
(1,063)
6,488
6,865
Cash and cash equivalents at the beginning of the period
9,389
319,618
319,618
Cash and cash equivalents at the end of the period
14
40,378
152,130
9,389
Notes to the Interim Condensed Consolidated Financial Statements
For the 6 months ended 30 June 2018
1. Corporate Information
The interim condensed consolidated financial statements of the Group for the six months ended 30 June 2018 were authorised for issue in accordance with a resolution of the Directors on 25 September 2018.
PetroNeft Resources plc ('PetroNeft, 'the Company', or together with its subsidiaries and joint ventures, 'the Group') is a public limited company incorporated in the Republic of Ireland with a company registration number 408101. 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. Going Concern
As described in the 2017 Annual Report PetroNeft agreed a US$2 million loan facility with Swedish Company Petrogrand AB. To date the Company has drawn down US$1 million. The loan is repayable on 31 December 2018 and the Company is currently in negotiations to re-finance this loan in advance of its current maturity date. The successful C-4 well has broadened the options available to the Company in this regard.
The Group has analysed its cash flow requirements through to 31 December 2019 in detail. The cash flow includes estimates for a number of key variables including the timing and availability of any further drawdowns under the Petrogrand Loan, the timing of cash flows of expenditure and management of working capital, including significant deferral and reduction in remuneration of Directors and key management which has been in place since October 2017. The Directors believe that the Group's cash flow forecasts represent the best estimate of the actual cash flows over the forecast period at the date of approval of the financial statements. The cash flow is stress tested to assess the adverse effect arising from reasonable changes in circumstance. The cash flow projections for the period to 31 December 2019 indicate that, provided the Petrogrand loan is re-financed or extended before the maturity date and the deferral and reduction of remuneration of Directors and key management continues the Company will have sufficient cash resources to meet its obligations as they fall due.
The Company's obligation to amend, extend or otherwise re-finance the Petrogrand loan prior to the maturity date on 31 December 2018 represents a material uncertainty that may cast significant doubt upon the Group and the Company's ability to continue as a going concern. Nevertheless, after making enquiries, and considering the uncertainty described above, the Directors are confident that the Group and the Company will have adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing these accounts.
Accordingly, these financial statements do not include any adjustments to the carrying amount or classification of assets and liabilities that would result if the Group or Company was unable to continue as a going concern.
3. Accounting Policies
3.1 Basis of Preparation
The interim condensed consolidated financial statements for the six months ended 30 June 2018 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 2017 which are available on the Group's website - www.petroneft.com.
The interim condensed consolidated financial statements are presented in US dollars ("US$").
3.2 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 2017.
4. 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 2018
31 December 2017
Non-current assets
US$
US$
Russia
45,679,324
49,526,318
Ireland
806
1,386
45,680,130
49,527,704
5.
Finance revenue
Unaudited
Audited
6 months ended 30 June 2018
6 months ended 30 June 2017
Year ended 31 December 2017
US$
US$
US$
Bank interest receivable
685
532
823
Interest receivable on loans to Joint Ventures
1,972,181
1,709,528
3,509,612
1,972,866
1,710,060
3,510,435
6.
Finance costs
Unaudited
Audited
6 months ended 30 June 2018
6 months ended 30 June 2017
Year ended 31 December 2017
US$
US$
US$
Interest on loans
48,256
-
-
48,256
-
-
7.
Income tax
Unaudited
Audited
6 months ended 30 June 2018
6 months ended 30 June 2017
Year ended 31 December 2017
US$
US$
US$
Current income tax
Current income tax charge
15,425
5,398
9,182
Total current income tax
15,425
5,398
9,182
Deferred tax
Relating to origination and reversal of temporary differences
494,956
431,390
884,488
Total deferred tax
494,956
431,390
884,488
Income tax expense reported in the Consolidated Income Statement
510,381
436,788
893,670
8.
Property, Plant and Equipment
Group
Plant and machinery
US$
Cost
At 1 January 2017
945,868
Translation adjustment
47,060
At 1 January 2018
992,928
Translation adjustment
(71,297)
At 30 June 2018
921,631
Depreciation
At 1 January 2017
802,402
Charge for the year
62,748
Translation adjustment
39,576
At 1 January 2018
904,726
Charge for the period
25,745
Translation adjustment
(65,685)
At 30 June 2018
864,786
Net book values
At 30 June 2018
56,845
At 31 December 2017
88,202
9. 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 2017
-
Elimination of unrealised profit on intra-Group transactions
(27,336)
Retained loss
(4,285,833)
Translation adjustment
2,356,702
Credited against loans receivable from WorldAce Investments Limited (Note 17)
1,956,467
At 1 January 2018
-
Retained loss
(1,919,878)
Translation adjustment
(3,706,547)
Credited against loans receivable from WorldAce Investments Limited (Note 17)
5,626,425
At 30 June 2018
-
9. Equity-accounted Investment in Joint Venture - WorldAce Investments Limited (continued)
The balance sheet position of WorldAce Investments Limited shows net liabilities of US$41,026,114 following a loss in the period of US$3,839,756 together with a negative currency translation adjustment of US$7,413,094. PetroNeft's 50% share is included above and results in a negative carrying value of US$15,829,478. 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$15,829,478 is deducted from other assets associated with the joint venture on the Balance Sheet which are the loans receivable from WorldAce Investments (see Note 11).
Additional financial information in respect of PetroNeft's 50% interest in the equity-accounted joint venture entity is disclosed below:
50% Share of WorldAce Group
Unaudited
Audited
6 months ended 30 June 2018
6 months ended 30 June 2017
Year ended 31 December 2017
US$
US$
US$
Continuing operations
Revenue
8,545,032
6,903,472
13,818,415
Cost of sales
(7,539,017)
(6,373,066)
(12,636,469)
Gross profit
1,006,015
530,406
1,181,946
Administrative expenses
(716,069)
(847,477)
(1,546,643)
Operating loss
289,946
(317,071)
(364,697)
Write-off of exploration and evaluation assets
-
(13,051)
(13,051)
Finance revenue
23,921
11,142
33,176
Finance costs
(2,233,745)
(1,899,774)
(3,941,261)
Loss for the period for continuing operations before taxation
(1,919,878)
(2,218,754)
(4,285,833)
Income tax expense
-
-
-
Loss for the period
(1,919,878)
(2,218,754)
(4,285,833)
Loss for the period
(1,919,878)
(2,218,754)
(4,285,833)
Other comprehensive income to be reclassified to profit or loss in subsequent periods:
Currency translation adjustments
(3,706,547)
1,296,301
2,356,702
Total comprehensive loss for the period
(5,626,425)
(922,453)
(1,929,131)
Finance costs mainly relate to interest on shareholder loans from Oil India International B.V. and PetroNeft. The details of gross interest accrued on loans to PetroNeft are disclosed in Note 17 Related party disclosures.
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 depreciated against the US Dollar during the period from RUB57.7:US$1 at 31 December 2017 to RUB62.754:US$1 at 30 June 2018.
9. Equity-accounted Investment in Joint Venture - WorldAce Investments Limited (continued)
50% Share of WorldAce Group
Unaudited
Audited
30 June 2018
31 December 2017
US$
US$
Non-current Assets
Oil and gas properties
35,647,329
39,312,150
Property, plant and equipment
155,165
184,027
Exploration and evaluation assets
8,651,388
9,321,748
Assets under construction
830,555
824,992
45,284,437
49,642,917
Current Assets
Inventories
715,751
605,240
Trade and other receivables
270,285
282,925
Cash and cash equivalents
469,247
68,613
1,455,283
956,778
Total Assets
46,739,720
50,599,695
Non-current Liabilities
Provisions
(649,681)
(658,513)
Interest-bearing loans and borrowings
(63,474,495)
(61,435,277)
(64,124,176)
(62,093,790)
Current Liabilities
Interest-bearing loans and borrowings
(864,962)
(715,405)
Trade and other payables
(2,263,639)
(2,677,132)
(3,128,601)
(3,392,537)
Total Liabilities
(67,252,777)
(65,486,327)
Net Liabilities
(20,513,057)
(14,886,632)
Interest-bearing loans and borrowings are shareholder loans from Oil India International B.V. and PetroNeft. The details of loans due to PetroNeft are disclosed in Note 17 Related party disclosures.
10. 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, through LLC Lineynoye, in Russia.
Share of net assets
US$
At 1 January 2017
-
Retained loss
(381,654)
Translation adjustment
194,339
Credited against loans receivable from Russian BD Holdings BV (Note 17)
187,315
At 1 January 2018
-
Retained loss
(230,178)
Translation adjustment
(323,795)
Credited against loans receivable from Russian BD Holdings BV (Note 17)
553,973
At 30 June 2018
-
The balance sheet position of Russian BD Holdings B.V. shows net liabilities of US$2,547,952 following a loss in the period of US$460,356 together with a negative currency translation adjustment of US$647,590. PetroNeft's 50% share is included above and results in a negative carrying value of US$1,273,976. 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$1,273,976 is deducted from other assets associated with the joint venture on the Balance Sheet which are the loans receivable from Russian BD Holdings B.V. (Note 11).
10. Equity-accounted Investment in Joint Venture - Russian BD Holdings B.V. (continued)
Additional financial information in respect of PetroNeft's 50% interest in the equity-accounted joint venture entity is disclosed below:
50% Share of Russian BD Holdings B.V.
Unaudited
Audited
6 months ended 30 June 2018
6 months ended 30 June 2017
Year ended 31 December 2017
US$
US$
US$
Revenue
-
-
-
Cost of sales
-
-
-
Gross profit
-
-
-
Administrative expenses
(42,993)
(45,987)
(94,626)
Operating loss
(42,993)
(45,987)
(94,626)
Finance revenue
360
228
259
Finance costs
(187,545)
(138,915)
(287,287)
Loss for the period for continuing operations before taxation
(230,178)
(184,674)
(381,654)
Taxation
-
-
-
Loss for the period
(230,178)
(184,674)
(381,654)
Loss for the period
(230,178)
(184,674)
(381,654)
Other comprehensive income to be reclassified to profit or loss in subsequent periods:
Currency translation adjustments
(323,795)
109,246
194,339
Total comprehensive loss for the period
(553,973)
(75,428)
(187,315)
Finance costs comprise of interest on shareholder loans from Belgrave Naftogas B.V. and PetroNeft. The details of gross interest accrued on loans to PetroNeft are disclosed in Note 17 Related party disclosures.
50% Share of Russian BD Holdings B.V.
Unaudited
Audited
30 June 2018
31 December 2017
US$
US$
Non-current assets
4,499,340
4,370,482
Current assets
100,837
12,048
Total assets
4,600,177
4,382,530
Non-current liabilities
(5,539,618)
(4,981,608)
Current liabilities
(334,535)
(120,925)
Total liabilities
(5,874,153)
(5,102,533)
Net Liabilities
(1,273,976)
(720,003)
11.
Financial assets - loans and receivables
Unaudited
Audited
Group
30 June 2018
31 December 2017
US$
US$
Loans to WorldAce Investments Limited (Note 17)
57,262,240
55,474,668
Less: share of WorldAce Investments Limited loss (Note 9)
(15,829,478)
(10,203,053)
41,432,762
45,271,615
Loans to Russian BD Holdings B.V. (Note 17)
5,464,499
4,887,890
Less: share of Russian BD Holdings B.V. loss (Note 10)
(1,273,976)
(720,003)
4,190,523
4,167,887
45,623,285
49,439,502
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 2019 at the earliest. The loan is set to mature on 31 December 2025. As at 30 June 2018 the loan was fully drawn down. The loan from the Company to Russian BD Holdings is repayable on demand. Interest currently accrues on the loan at LIBOR plus 5.0% per annum.
12.
Inventories
Unaudited
Audited
30 June 2018
31 December 2017
US$
US$
Materials
100,112
21,908
100,112
21,908
13.
Trade and other receivables
Unaudited
Audited
30 June 2018
31 December 2017
US$
US$
Other receivables
50,664
21,039
Receivable from jointly controlled entity (Note 17)
387,302
503,527
Advances to contractors
2,218
1,676
Prepayments
39,727
61,359
479,911
587,601
Other receivables are non-interest-bearing and are normally settled on 60-day terms.
14.
Cash and Cash Equivalents
Unaudited
Audited
Group
30 June 2018
31 December 2017
US$
US$
Cash at bank and in hand
40,378
9,389
40,378
9,389
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.
15.
Loans and Borrowings
Unaudited
Audited
Group and Company
Effective interest rate
Contractual maturity date
30 June 2018
31 December 2017
%
US$
US$
Interest-bearing
Current liabilities
Petrogrand AB
11.34%
31-Dec-18
1,048,256
-
Total current liabilities
1,048,256
-
Total loans and borrowings
1,048,256
-
Contractual undiscounted liability
1,048,256
-
Changes in financial liabilities arising from financing activities:
Unaudited
6 months ended 30 June 2018
US$
At 1 January 2018
-
Cash flows - loan drawdowns
1,000,000
Interest accrued but not yet paid
48,256
At 30 June 2018
1,048,256
16.
Trade and other payables
Unaudited
Audited
30 June 2018
31 December 2017
US$
US$
Trade payables
324,851
570,476
Trade payables to jointly controlled entity (Note 17)
30,466
212,442
Trade payables to related parties (Note 17)
88,847
-
Corporation tax
54,993
54,898
Other taxes and social welfare costs
94,230
83,305
Accruals and other payables
923,295
795,293
1,516,682
1,716,414
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.
17. 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 2018 and year ended 31 December 2017:
Group
Russian BD Holdings BV Group
WorldAce Investments Limited Group
US$
US$
Receivable by PetroNeft Group at 1 January 2017
4,080,882
44,444,591
Advanced during the year
360,251
-
Transactions during the year
142,086
1,798,417
Interest accrued in the year
270,773
3,238,839
Payments for services made during the year
(480,723)
(2,019,374)
Share of joint venture's translation adjustment
(187,315)
(1,956,467)
Translation adjustment
32,962
5,665
At 1 January 2018
4,218,916
45,511,671
Advanced during the period
392,000
-
Transactions during the period
158,368
986,837
Interest accrued in the period
184,609
1,787,572
Payment for services made during the period
(1,229)
(1,058,051)
Share of joint venture's translation adjustment
(553,973)
(5,626,425)
Translation adjustment
(7,661)
(12,513)
At 30 June 2018
4,391,030
41,589,091
Balance at 31 December 2017 comprised of:
Loans receivable
4,167,887
45,271,615
Trade and other receivables
51,029
452,498
Trade Payables
-
(212,442)
4,218,916
45,511,671
Balance at 30 June 2018 comprised of:
Loans receivable
4,190,523
41,432,762
Trade and other receivables
200,507
186,795
Trade and other payables
-
(30,466)
4,391,030
41,589,091
17. Related party disclosures (continued)
Remuneration of key management
Key management comprise the Directors, the Vice Presidents of Business Development and Operations of the Company and the consulting fees paid to HGR Consulting Limited for the services of the CFO. Their remuneration and fees during the year were as follows:
Remuneration of key management
Unaudited
Audited
6 months ended 30 June 2018
Year ended 31 December 2017
US$
US$
Compensation of key management
484,183
1,103,224
Contributions to defined contribution pension plan
26,346
52,693
Consulting fees (HGR Consulting - see below)
163,171
304,556
673,700
1,460,473
The following amounts were owed to key management at 30 June 2018 and 31 December 2017
Unaudited
Audited
30 June 2018
31 December 2017
US$
US$
Remuneration, fees and expenses due to Directors
533,235
424,564
Remuneration due to other key management
226,996
122,946
Amounts due to HGR Consulting (see below)
158,437
276,570
918,668
824,080
Details of transactions between the Group and other related parties are disclosed below.
Transactions with HGR Consulting Limited
Paul Dowling, Secretary and Chief Financial Officer of PetroNeft, provides his services through HGR Consulting Limited ("HGR").
17. Related party disclosures (continued)
Transactions with Petrogrand AB
Pavel Tetyakov, VP of Business Development of PetroNeft, is CEO of Petrogrand AB, Swedish company. In addition, Maxim Korobov, a significant shareholder and Non-Executive Director of Petroneft is also a major shareholder of Petrogrand AB. PetroNeft received a loan from Petrogrand AB in 2018. PetroNeft Group has also purchased construction materials from Petrogrand AB.
The following is a summary of the transactions:
Petrogrand AB
US$
Payable by PetroNeft Group at 1 January 2018
-
Advanced during the period
1,000,000
Transactions during the period (purchase of materials)
97,458
Interest accrued in the period
48,256
Payments for goods made during the period
-
Translation adjustment
(8,611)
Payable by PetroNeft Group at 30 June 2018
1,137,103
Balance at 30 June 2018 comprised of:
Loans payable
1,048,256
Trade and other payables
88,847
1,137,103
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