TIDMCAD
CADOGAN PETROLEUM PLC
Half Yearly Report for the Six Months ended 30 June 2019
(Unaudited and unreviewed)
Highlights
Cadogan Petroleum plc ("Cadogan" or the "Company"), an independent, diversified
oil and gas company listed on the main market of the London Stock Exchange, is
pleased to announce its unaudited results for the six months ended 30 June
2019.
* Average oil production increased to 297 boepd in H1 2019, a 27% increase on
the corresponding period in 2018 and a 19% increase over 2018 average
production; this result makes the first half of 2019 the sixth consecutive
semester of production growth. Average daily oil production in June 2019
was 387 bpd[1].
* Cadogan's operational excellence was confirmed by another accident-free
period and by the drilling of the successful Blazh-10 well. This well set a
regional benchmark for drilling and delivered one of the highest initial
production rates ever recorded from the Yamna reservoir in the Carpathian
basin, at 385 bpd during clean-up.
* Approvals required to file the application for a 20-years production
licence for the Monastyretska licence were received and the application was
filed on 2 July 2019.
* The pilot production scheme on the Vovche-2 well was approved by the
authorities and thus all commitments have been fulfilled on the Bitlyanska
licence.
* Trading of gas was limited. Gas prices witnessed an unprecedented nosedive,
with prices in January and February dipping below the level seen the
previous summer; in this scenario, Cadogan sold in January some of its
stored gas with a small loss and kept the remaining balance in storage; on
this latter volume Cadogan, prudently, booked a $0.65 million loss on the
expectation that prices will recover in the second half of the year when
the gas is expected to be sold, though not to the levels seen in 2018.
* Production revenues increased by 15.7% over the the same period in 2018,
notwithstanding a 15.6% reduction in the average realised oil price.
Overall revenues were down by 37.5% over the the same period in 2018 due to
lower volume of gas traded.
* The Company leveraged its cash position during the period, in line with its
strategy. The Blazh-10 well was drilled and put on production and a EUR13.385
million convertible loan agreement was signed with one of the shareholders
of the parent company of Proger S.p.A. ("Proger"), an Italian-based
international engineering company. The loan, whose principal is secured,
carries an entitlement to interest at a rate of 5.5% per year or has an
option to convert into an indirect participating interest in Proger S.p.A.
of c.25%.
* The Company booked a $2.56 million profit; this was driven by a EUR4.21
million ($4.8 million) increase in the fair value of the EUR13.385 million
convertible loan since its signature in February 2019, as a result of a
competitive conversion price and of Proger's growth of EBITDA over the last
year. This confirms that the loan agreement offers Cadogan shareholders
exposure to realizable growth.
* As a result of the above initiatives, net cash[2] at the period-end was
$13.7 million (30 June 2018: $41.4 million, 31 December 2018: $35.1
million). This level of cash is more than sufficient to sustain on-going
operations. Cash-flow from operating activities, though, was positive, at
$1.2 million.
Overall, the first half of 2019 saw a robust operational performance and
confirmed the positive profitability trend started in 2018, albeit the 2019
performance was partially masked by one-off negative effects, such as the loss
in value of the gas inventory. The Company looks with confidence to the second
part of the year, which has started on the tail of higher production, should
benefit from the seasonality of gas trading and will see renewed efforts to
successfully monetize the legacy assets.
Key performance indicators
The Group has monitored its performance in conducting its business with
reference to a number of key performance indicators ('KPIs'):
* to increase oil, gas and condensate production measured on the barrels of
oil equivalent produced per day ('boepd');
* to decrease administrative expenses;
* to increase the Group's basic earnings per share;
* to maintain no lost time incident; and
* to grow and geographically diversify the portfolio.
The Group's performance during the first six months of 2019, measured against
these targets, is set out in the table below, together with the prior year
performance data. No changes have been made to the sources of data or
calculations used in the period/year. The positive trend in the HSE
performances continues with zero incidents.
Unit 30 June 30 June 31 December
2019 2018 2018
Average production (working boepd 297 234 250
interest basis) (a)
Administrative expenses $million 2.0 2.0 4.8
Basic profit/(loss) per share (b) cent 1.1 (0.2) 0.5
Lost time incidents (c) incidents 0 0 0
Geographical diversification new assets - - 1(d)
a. Average production is calculated as the average daily production during the
period/year
b. Basic profit/(loss) per ordinary share is calculated by dividing the net
profit/(loss) for the year attributable to equity holders of the parent
company by the weighted average number of ordinary shares during the period
c. Lost time incidents relate to injuries where an employee/contractor is
injured and has time off work (IOGP classification)
d. Loan agreement with Proger Management & Partners with its option to
convert. The loan was signed in February 2019
An update of the KPI's table will be proposed to the Board in order to better
reflect the current status of the Company and its medium-term objectives. The
new KPI's will become effective from 2020 if approved by the Board.
Enquiries:
Cadogan Petroleum
Plc
Guido Michelotti Chief Executive +380 (44) 594
Ben Harber Officer 5870
Company Secretary +44 (0) 207 264
4366
Cantor Fitzgerald Broker to Cadogan
Europe Petroleum plc
David Porter +44 (0) 207 894
7000
Summary
Introduction
The first half of the year witnessed a recovery of the Brent oil price, which
peaked at more than 70 $/bbl in April from a low of 50 $/bbl towards Christmas
2018. Since then, the Brent price has lost its momentum and declined to 60 $/
bbl. Ukraine increased subsoil use tax (i.e. royalties) for oil by 2% on 1
January 2019 from 29% to 31%. Gas prices in Ukraine, which had started
decreasing in October from a peak of 369 $/thousand m3, continued their decline
through the first part of the year and reached 168$/thousand m3 at the end of
the reporting period, a trend which had no precedent. There were no other
events of consequence that have affected Cadogan in any of the countries where
the Company is active.
The presidential vote in Ukraine resulted in the election of Volodymyr
Zelenskyy as the new President of Ukraine, with 73% of the valid votes. The
newly-elected President dissolved the Verkhovna Rada shortly after being sworn
in and called for a snap parliamentary elections to be held on 21 July 2019.
Ukraine continued with its efforts to attract new investment in its oil and gas
sector. In particular, 19 special permits for subsoil use of oil and gas were
offered during three licencing rounds by the State Geological Service of
Ukraine. The rounds saw limited participation by foreign investors[3]. In
parallel, the Minister of Energy via the Cabinet of Ministers announced PSA
tenders for 11 areas, covering a total area of approximately 15,000 sq. km.
In Italy, the election for the European Parliament saw a reversal of the
balance of power between the League and the 5 Stars parties, with the former
doubling its consensus. This may lead to a less negative Government attitude
towards oil and gas operations, given the League's different, more open
position.
Operations
E&P activity remained focused on using the assets in Ukraine as a platform for
growth by increasing production from the existing field within the
Monastyretska licence. At the end of the reporting period, the average gross
production rate increased to 297 boepd, which is 27% higher than in the six
months ended 30 June 2018 (234 boepd net, 242 boepd gross).
The Company successfully drilled and completed the Blazh-10 well, on the
Monastyretska licence. The well was drilled on time but at 10% over budget, due
to severe hole instability issues, which were experienced while drilling. The
well was put on production at 275 bpd in natural flow. This additional oil
production more than off-sets the loss of gas production from Debeslavetska and
Cheremkhivska fields, which Cadogan successfully exited in January 2019.
All regulatory approvals required to file the application for a 20-year
production licence, for the Monastyretska licence, were received and the
application was filed on 2 July 2019, well ahead of the licence expiry date of
18 November 2019.
The Bitlyanska licence has been actively advertised for a farm-out and requests
to access the data room have been received at this time. The pilot production
scheme for the Vovche's well was approved, thus confirming that the Company has
fulfilled all its licence obligations. The preparation of the documents
required to apply for a 20-year exploration licence, with further development,
has subsequently started.
Lastly, a third party was engaged to prepare an independent Competent Person's
Report (CPR) on the Company's reserves and resources, which is expected to be
delivered in the second half of the year.
All activities were executed without LTI or TRI[4], with a total of nearly
1,000,000 manhours since the last incident, which occurred to a contractor, in
February 2016.
Emissions to the atmosphere went temporarily up to 89.4 tons of CO2 equivalent/
boe, due to the Blazh-10 well coming on stream with a production rate higher
than the three other wells combined. Actions are on-going to reduce the
intensity ratio and bring it back close to the average value for 2018 (i.e.
58.3 tons of CO2 equivalent/boe). Good progress has already been made and the
intensity ratio in July was some 20% lower than in June. In parallel, the
anticipated third party's audit of the entire measurement and reporting process
will be conducted.
In Italy, activity was focused on maintaining liaisons with the local
authorities and fulfilling the mandatory licence requirements, given the
on-going moratorium in the approval of new licences.
Trading
Volumes of gas trading are normally lower in the first half of the year due to
the seasonality of this business and the first six months of 2019 were even
lower than normal. The Company only sold a limited volume of gas in January,
given the collapse in the gas price, which through the heating season had
dipped below the level of the previous summer. Gas unsold at the beginning of
February was kept in storage for the following heating season.
Cadogan's gas trading operations continued to take minimum credit risk and also
recovered its past receivables.
Financial position
Cash and cash equivalents at 30 June 2019 were $13.7 million; this represents a
$21.4 million decrease over the value at 31 December 2018. This was driven
primarily by the convertible loan granted to Proger in February 2019 and by the
drilling of the Blazh-10 well on Monastyretska licence.
The Directors believe that the capital available at the date of this report is
sufficient for the Group to continue its operations for the foreseeable future.
Outlook
Cadogan remains in a solid position, with the resources and competences
necessary to continue monetizing the value of its Ukrainian assets.
In Ukraine, the Company will seek to further improve the performance of its oil
producing assets and to actively pursue the farm-out of the Bitlyanska licence.
It will also look to protect the long term sustainability of its operations by
securing the 20-year production licences for Monastyretska and Bitlyanska.
Renewed efforts will also go towards continuing to monetize the residual value
of the legacy assets.
The Company will continue to actively pursue opportunities outside of Ukraine,
to leverage its competence and low-cost structure in order to create long term
value for its shareholders. In parallel, the Company will work with Proger to
exploit potential operational synergies and will use their international
footprint to further expand the sourcing of potential investment opportunities.
Operations Review
In H1 2019, the Group held working interests in two (2018: four) conventional
gas-condensate and oil exploration licences in the West of Ukraine. These
assets are operated by the Group and are located in the prolific Carpathian
basin, close to the Ukrainian oil & gas distribution infrastructure. In the
East, the Group took all necessary actions to convert the Pirkovska exploration
licence, which had expired in 2015. The application was neither accepted nor
rejected by the State Geological Service (SGS) of Ukraine within the three-year
exclusivity period, with the last communication from SGS being dated 16 January
2019. The company is currently assessing the available options to safeguard its
rights and the interest of its shareholders in this regard.
The Group's primary focus during the period continued to be on cost
optimisation and enhancement of current production, through the existing well
stock and new drilling.
Summary of the Group's licences (as of 30 June 2019)
Working Licence Expiry Licence type(1)
interest (%)
99.8 Bitlyanska December 2019 Exploration and
Development
99.2 Monastyretska November 2019 Exploration and
Development
In January 2019, the Group finalised the transfer of its participatory interest
in Debeslavetske JAA and Cheremkhivsko-Strupkivske JAA to NJSC Nadra as part of
the 2018 trilateral agreement with Eni and NJSC Nadra on the exit of Eni from
the shale gas project.
Below we provide an update to the full Operations Review contained in 2018
Annual Report published on 24 April 2019.
Bitlyanska licence
The Borynya-3 well is routinely monitored, as required by existing regulations
for wells which are suspended. The pilot development scheme for the Vovche-2
well was approved by the state authorities and thus fulfilled the only remaing
exploration commitment.
The Company has started preparing the document package required to file the
application for a new 20-year exploration licence with further development. The
Control Department of the State Geological Services of Ukraine confirmed that
there were no breaches throughout the exploration period.
In parallel, efforts to farm-out the licence have continued.
Monastyretska licence
The remaining licence commitment was successfully fulfilled by the Blazh-10
well. The well reached TD, at 3394m, with a benchmark drilling time,
nonwithstanding severe hole instability issues which were experienced while
drilling. The perforated interval covered the entire Yamna formation, which
proved to be all oil bearing with a net pay of 156 meters. The well was put on
production at 275 bpd in natural flow. The Company plans to install a sucker
rod pump to improve production and mitigate paraffin deposition problems.
Oil production for the reported period increased by 76% to 289 bpd vs 164 bpd
in H1 2018.
Through the reporting period, the Company worked to finalize the documents
required to apply for a 20-year production licence. The Company secured
approval of the Environmental Impact Assessment study by the Ministry of
Ecology and the approval of the Reserves Report by the State Commission of
Reserves; it also received a report from the Control Department of the State
Geological Services of Ukraine stating that there were no breaches throughout
the exploration period.
Service Company
activities
Cadogan's 100% owned subsidiary, Astroservice LLC, continued to pursue
opportunities to build a larger portfolio of orders, while serving intra-group
operational needs. The multi-well work-over contract awarded by a third party
in 2018 remained in force through the first six months of the year and
Astroservice was requested to execute two work-overs.
Financial Review
Overview
Income statement
Revenues decreased to $3.3 million in the first half of 2019 (30 June 2018:
$5.3 million), due to the decrease in gas trading revenues, which were down to
$0.9 million (30 June 2018: $3.1 million). Revenues from production conversely
increased to $2.3 million (30 June 2018: $2.1 million) notwithstanding a
reduction of the realized price.
The service business was engaged in a multi-well contract with a third party
and also offered intra-group services, in particular, for the Monastyretska
licence.
The cost of sales consists of $1.0 million of purchases of gas, and $1.8
million of production royalties, operating costs (OPEX), depreciation and
depletion of producing wells, and direct staff costs for production.
Half-year gross profit decreased marginally to $0.5 million (30 June 2018: $0.6
million), driven by higher depreciation charges and lower oil prices.
Impairment of other assets of $0.57 million (30 June 2018: nil) included $0.65
million of provision for the gas in storage and $0.08 million of reversal of
provision for inventory that have been sold. Reversal of impairment of other
assets of $0.25 million (30 June 2018: $0.37 million) represents reversal of
provision for VAT for the gas that have been sold during reporting period.
The increase of fair value of the convertible loan of $4.4 million has been
presented net of transaction costs of $0.4 million, which included due
diligence on the debtor prior to lending, assessment of the company value and
other costs associated with the execution of the transaction.
Other administrative expenses were kept under control at $2.0 million (30 June
2018: $2.0 million). They comprise other staff costs, professional fees,
Directors' remuneration and depreciation charges on non-producing property,
plant and equipment.
Balance sheet
The cash position of $13.7 million at 30 June 2019 decreased compared with the
$35.1 million at 31 December 2018, because of the convertible loan to Proger
provided in February 2019 and the drilling of the successful Blazh-10 well on
the Monastyretska licence.
Intangible Exploration and Evaluation ("E&E") assets of $2.5 million (30 June
2018: $1.7 million, 31 December 2018: $2.4 million) represent the carrying
value of the Group's investment in E&E assets as at 30 June 2019. The Property,
Plant and Equipment ("PP&E") balance of $11.4 million, at 30 June 2019 (30 June
2018: $2.7 million, 31 December 2018: $3.3 million) includes $10.8 million of
development and production assets on the Monastyretska licence and other PP&E
of the Group.
Trade and other receivables of $3.0 million (30 June 2018: $1.3 million, 31
December 2018: $2.5 million) include VAT recoverable of $2.1 million[5] (30
June 2018: $0.6 million, 31 December 2018: $1.9 million), $0.8 million of trade
receivables and prepayments (30 June 2018: $0.5 million, 31 December 2018: $0.3
million) and $0.1 million trading prepayments and receivables (30 June 2018:
$0.1 million, 31 December 2018: $0.3 million).
The $2.4 million of trade and other payables, as of 30 June 2019 (30 June 2018:
$1.5 million, 31 December 2018: $1.3 million) represents $1.7 million (30 June
2018: $1.1 million, 31 December 2018: $0.7 million) of trade payables and $0.7
million of accruals (30 June 2018: $0.4 million, 31 December 2018: $0.6
million).
Cash flow statement
The Consolidated Cash Flow Statement shows positive cash-flow from operating
activities of $1.2 million (30 June 2018: inflow $4.0 million, 31 December
2018: outflow $0.2 million), notwithstanding the limited contribution from gas
trading. Cashflow, before movements in working capital, was an outflow of $1.3
million (30 June 2018: outflow $1.2 million, 31 December 2018: outflow $1.9
million).
Group capital expenditure was $0.01 million on Intangible Exploration and
Evaluation ("E&E") assets during the six months ended 30 June 2019 (30 June
2018: $0.1 million) and $7.0 million (30 June 2018: $0.7 million) on Property,
Plant and Equipment, out of which $6.9 million related to the Monastyretska
licence drilling of the Blazh-10 well.
Commitments
There has been no material change in the commitments and contingencies reported
as at 31 December 2018 (refer to page 79 of the Annual Report).
Treasury
The Group continually monitors its exposure to currency risk. It maintains a
portfolio of cash and cash equivalent balances, mainly in US dollars ('USD')
held primarily in the UK, and holds these mostly in call deposits. Production
revenues from the sale of hydrocarbons are received in the local currency in
Ukraine ('UAH') and to date funds from such revenues have been held in Ukraine
for further use in operations. Funds are transferred to the Company's
subsidiaries in USD to fund operations, at which time the funds are converted
to UAH.
Going concern
The Directors have a reasonable expectation that the Company and the Group have
adequate resources to continue in operational existence for the foreseeable
future. Accordingly, they continue to adopt the going concern basis in
preparing the Interim Financial Statements. For further detail refer to the
detailed discussion of the assumptions outlined in note 2(a) to the Interim
Financial Statements.
Cautionary Statement
The business review and certain other sections of this Half Yearly Report
contain forward looking statements that have been made by the Directors in good
faith based on the information available to them up to the time of their
approval of this report. However they should be treated with caution due to
inherent uncertainties, including both economic and business risk factors,
underlying any such forward-looking information and no statement should be
construed as a profit forecast.
Risks and uncertainties
There are a number of potential risks and uncertainties inherent in the oil and
gas sector which could have a material impact on the long-term performance of
the Group and which could cause the actual results to differ materially from
expected and historical results. The Company has taken reasonable steps to
mitigate these where possible. Full details are disclosed on pages 12 to 14 of
the 2018 Annual Financial Report. There have been no changes to the risk
profile during the first half of the year. The risks and uncertainties are
summarised below.
Operational risks
* Health, safety, and environment
* Climate change
* Drilling and work-over operations
* Production and maintenance
Subsurface risks
Financial risks
* Changes in economic environment
* Counterparty
* Commodity price
Country risk
* Regulatory and licence issues
* Emerging market
Other risks
* Risk of losing key staff members
* Risk of entry into new countries
* Risk of delays in projects related to local communities dialogue
Director's Responsibility Statement
We confirm that to the best of our knowledge:
(a) the Interim Financial Statements has been prepared in accordance
with IAS 34 'Interim Financial Reporting';
(b) the interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events during the
first six months and description of principal risks and uncertainties for the
remaining six months of the year);
(c) the interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein); and
(d) the condensed set of financial statements, which has been prepared
in accordance with the applicable set of accounting standards, gives a true and
fair view of the assets, liabilities, financial position and profit or loss of
the issuer, or the undertakings included in the consolidation as a whole as
required by DTR 4.2.4R.
This Half Yearly Report consisting of pages 1 to 22 has been approved by the
Board and signed on its behalf by:
Guido Michelotti
Chief Executive Officer
23 August 2019
CADOGAN PETROLEUM PLC
Consolidated Income Statement
Six months ended 30 June 2019
Six months ended 30 June Year ended
31
December
2019 2018 2018
$'000 $'000 $'000
Notes (Unaudited) (Unaudited) (Audited)
CONTINUING OPERATIONS
Revenue 3 3,319 5,313 14,730
Cost of sales 3 (2,866) (4,696) (12,849)
Gross profit 453 617 1,881
Administrative expenses (2,051) (2,002) (4,762)
Net fair value gain on convertible loan 12 4,421 - -
Impairment of oil and gas assets - - (56)
Reversal of impairment of other assets 248 368 1,730
Impairment of other assets (568) - (751)
Net foreign exchange losses (16) (2) (58)
Other operating income,net 41 121 2,419
Operating profit/(loss) 2,528 (898) 403
Finance income, net 4 124 476 636
Profit/(loss) before tax 2,652 (422) 1,039
Tax (expense)/benefit (97) 107 178
Profit/(loss) for the period/year 2,555 (315) 1,217
Attributable to:
Owners of the Company 5 2,550 (318) 1,220
Non-controlling interest 5 3 (3)
2,555 (315) 1,217
Profit/(loss) per Ordinary share cents cents Cents
Basic and diluted 5 1.1 (0.1) 0.5
CADOGAN PETROLEUM PLC
Consolidated Statement of Comprehensive Income
Six months ended 30 June 2019
Six months ended 30 June Year ended
31
December
2019 2018 2018
$'000 $'000 $'000
(Unaudited) (Unaudited) (Audited)
Profit/(loss) for the period/year 2,555 (315) 1,217
Other comprehensive profit
Items that may be reclassified
subsequently to profit or loss
Unrealised currency translation 1,367 127 354
differences
Other comprehensive profit 1,367 127 354
Total comprehensive profit/(loss) for the 3,922 (188) 1,571
period/year
Attributable to:
Owners of the Company 3,917 (191) 1,574
Non-controlling interest 5 3 (3)
3,922 (188) 1,571
CADOGAN PETROLEUM PLC
Consolidated Statement of Financial Position
Six months ended 30 June 2019
Six months ended 30 June Year ended
31
December
2019 2018 2018
$'000 $'000 $'000
Notes (Unaudited) (Unaudited) (Audited)
ASSETS
Non-current assets
Intangible exploration and evaluation 2,514 1,713 2,386
assets
Property, plant and equipment 6 11,442 2,651 3,297
Convertible loan note 12 20,030 - -
Prepayments for non-current assets - - 1,318
Deferred tax asset 405 431 501
34,391 4,795 7,502
Current assets
Inventories 7 3,322 1,067 4,487
Trade and other receivables 8 2,950 1,294 2,472
Assets held for sale - - 165
Cash and cash equivalents 13,724 41,371 35,136
19,996 43,732 42,260
Total assets 54,387 48,527 49,762
LIABILITIES
Non-current liabilities
Provisions (41) (463) (39)
(41) (463) (39)
Current liabilities
Short-term borrowings 9 - - -
Trade and other payables 10 (2,388) (1,480) (1,271)
Liabilities held for sale - - (140)
Provisions - (386) (276)
(2,388) (1,866) (1,687)
Total liabilities (2,429) (2,329) (1,726)
Net assets 51,958 46,198 48,036
EQUITY
Share capital 13,525 13,525 13,525
Share premium 329 329 329
Retained earnings 196,612 192,524 194,062
Cumulative translation reserves (160,449) (162,043) (161,816)
Other reserves 1,668 1,589 1,668
Equity attributable to equity holders of 51,685 45,924 47,768
the parent
Non-controlling interest 273 274 268
Total equity 51,958 46,198 48,036
CADOGAN PETROLEUM PLC
Consolidated Statement of Cash Flows
Six months ended 30 June 2019
Six months ended 30 June Year ended
31 December
2019 2018 2018
$'000 $'000 $'000
(Unaudited) (Unaudited) (Audited)
Operating loss 2,528 (898) 403
Adjustments for:
Depreciation of property, plant and equipment 355 96 425
Net fair value gain on convertible loan (4,421) - -
Impairment of oil and gas assets - - 56
Impairment of property, plant and equipment - - 751
Termination fee on exit from WGI - - (1,700)
Reversal of impairment of inventories 568 (102) (107)
Reversal of impairment of VAT recoverable (205) (266) (1,730)
Gain on disposal of property, plant and equipment - (33) (45)
Effect of foreign exchange rate changes (88) 2 58
Operating cash flows before movements in working (1,263) (1,201) (1,889)
capital
Decrease/(Increase) in inventories 597 1,570 (2,100)
Decrease in receivables 717 3,430 3,651
Increase in payables and provisions 1,081 179 84
Cash from operations 1,132 3,978 (254)
Interest paid - - (130)
Interest received 44 - 230
Income taxes paid - - -
Net cash inflow/(outflow) from operating 1,176 3,978 (154)
activities
Investing activities
Proceeds from termination fee on exit - - 1,700
from WGI
Purchases of property, plant and (7,021) (664) (3,944)
equipment
Purchases of intangible exploration and (11) (75) (857)
evaluation assets
Convertible loan advanced (15,609) - -
Proceeds from sale of property, plant and - 33 58
equipment
Interest received 81 476 553
Net cash used in investing activities (22,560) (230) (2,490)
Financing activities
Proceeds from short-term borrowings - - 3,965
Repayment of short-term borrowings - - (3,887)
Net cash from financing activities - - 78
Net (decrease)/increase in cash and cash (21,384) 3,748 (2,566)
equivalents
Effect of foreign exchange rate changes (28) (17) 102
Cash and cash equivalents held for sale - - (40)
at end of year
Cash and cash equivalents at beginning of 35,136 37,640 37,640
period/year
Cash and cash equivalents at end of 13,724 41,371 35,136
period/year
CADOGAN PETROLEUM PLC
Consolidated Statement of Changes in Equity
Six months ended 30 June 2019
Share Share Retained Cumulative Reor-gani-sation Equity Non-controlling Total
capital premium earnings translation attributable interest
account reserves to owners of
the Company
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
As at 1 January 13,525 329 192,842 (162,170) 1,589 46,115 271 46,386
2018
Net profit for the - - 1,220 - - 1,220 (3) 1,217
period
Other - - - 354 - 354 - 354
comprehensive
profit
Total - - 1,220 354 - 1,574 (3) 1,571
comprehensive
profit for the
year
Issue of ordinary - - - - 79 79 - 79
shares
As at 31 December 13,525 329 194,062 (161,816) 1,668 47,768 268 48,036
2018
Net profit for the - - 2,550 - - 2,550 5 2,555
period
Other - - - 1,367 - 1,367 - 1,367
comprehensive
profit
Total - - 2,550 1,367 - 3,917 5 3,922
comprehensive
profit for the
year
As at 30 June 2019 13,525 329 196,612 (160,449) 1,668 51,685 273 51,958
CADOGAN PETROLEUM PLC
Notes to the Condensed Financial Statements
Six months ended 30 June 2019
1. General information
Cadogan Petroleum plc (the 'Company', together with its subsidiaries the
'Group'), is incorporated in England and Wales under the Companies Act. The
address of the registered office is 6th Floor, 60 Gracechurch Street, London
EC3V 0HR. The nature of the Group's operations and its principal activities are
set out in the Operations Review on pages 5 to 6 and the Financial Review on
pages 7 to 8.
This Half Yearly Report has not been audited or reviewed in accordance with the
Auditing Practices Board guidance on 'Review of Interim Financial Information'.
A copy of this Half Yearly Report has been published and may be found on the
Company's website at www.cadoganpetroleum.com.
2. Basis of preparation
The annual financial statements of the Group are prepared in accordance with
International Financial Reporting Standards ('IFRS') as issued by the
International Accounting Standards Board ('IASB') and as adopted by the
European Union ('EU'). These Condensed Financial Statements have been prepared
in accordance with IAS 34 Interim Financial Reporting, as issued by the IASB.
The same accounting policies and methods of computation are followed in the
condensed financial statements as were followed in the most recent annual
financial statements of the Group except as noted, which were included in the
Annual Report issued on 24 April 2019.
The Group has not early adopted any amendment, standard or interpretation that
has been issued but is not yet effective. It is expected that where applicable,
these standards and amendments will be adopted on each respective effective
date.
The Group has adopted the standards, amendments and interpretations effective
for annual periods beginning on or after 1 January 2019. The adoption of these
standards and amendments did not have a material effect on the financial
statements of the Group, including a specific assessment of the impact of IFRS
16 'Leases'.
(a) Going concern
The Directors have continued to use the going concern basis in preparing these
condensed financial statements. The Group's business activities, together with
the factors likely to affect future development, performance and position are
set out in the Operations Review. The financial position of the Group, its cash
flow and liquidity position are described in the Financial Review.
The Group's cash balance at 30 June 2019 was $13.7 million (31 December 2018:
$35.1 million).
The Group's forecasts and projections, taking into account reasonably possible
changes in operational performance, and the price of hydrocarbons sold to
Ukrainian customers, show that there are reasonable expectations that the Group
will be able to operate on funds currently held and those generated internally,
for the foreseeable future.
The Group continues to pursue its farm-out strategy on Bitlyanska licence with
the objective of managing risks and mitigating capital deployment.
After making enquiries and considering the uncertainties described above, the
Directors have a reasonable expectation that the Company and the Group have
adequate resources to continue in operational existence for the foreseeable
future and consider the going concern basis of accounting to be appropriate
and, thus, they continue to adopt the going concern basis of accounting in
preparing the financial statements. In making its statement the Directors have
considered the recent political and economic uncertainty in Ukraine.
(b) Foreign currencies
The individual financial statements of each Group company are presented in the
currency of the primary economic environment in which it operates (its
functional currency). The functional currency of the Company is US dollar. For
the purpose of the consolidated financial statements, the results and financial
position of each Group company are expressed in US dollars, which is the
presentation currency for the consolidated financial statements.
The relevant exchange rates used were as follows:
1 US$ = GBP Six months ended 30 Year ended
June 31 Dec
2018
2019 2018
Closing rate 1.2719 1.3218 1.2768
Average rate 1.2943 1.3763 1.3415
1 US$ = UAH Six months ended 30 Year ended
June 31 Dec
2018
2019 2018
Closing rate 26.4487 26.3500 27.7477
Average rate 27.0363 26.9419 27.2324
(c) Dividend
The Directors do not recommend the payment of a dividend for the period (30
June 2018: $nil; 31 December 2018: $nil).
(d) Fair value hierarchy
The level in the fair value hierarchy within which the financial asset or
financial liability is categorised is determined on the basis of the lowest
level input that is significant to the fair value measurement. Financial assets
and financial liabilities are classified in their entirety into only one of the
three levels. The fair value hierarchy has the following levels:
- Level 1 - quoted prices (unadjusted) in active markets for identical
assets or liabilities
- Level 2 - inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices)
- Level 3 - inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
3. Segment information
Segment information is presented on the basis of management's perspective and
relates to the parts of the Group that are defined as operating segments.
Operating segments are identified on the basis of internal assessment provided
to the Group's chief operating decision maker ("CODM"). The Group has
identified its executive management team as its CODM and the internal
assessment used by the top management team to oversee operations and make
decisions on allocating resources serve as the basis of information presented.
Segment information is analysed on the basis of the type of activity, products
sold or services provided. The majority of the Group's operations are located
within Ukraine. Segment information is analysed on the basis of the types of
goods supplied by the Group's operating divisions.
The Group's reportable segments under IFRS 8 are therefore as follows:
Exploration and Production
· E&P activities on the production licences for natural gas, oil and
condensate
Service
· Drilling services to exploration and production companies
· Construction services to exploration and production companies
Trading
· Import of natural gas from European countries
· Local purchase and sales of natural gas operations with physical delivery
of natural gas
The accounting policies of the reportable segments are the same as the Group's
accounting policies. Sales between segments are carried out at market prices.
The segment result represents profit under IFRS before unallocated corporate
expenses. Unallocated corporate expenses include management and Board
remuneration and expenses incurred in respect of the maintenance of Kyiv office
premises. This is the measure reported to the CODM for the purposes of resource
allocation and assessment of segment performance.
The Group does not present information on segment assets and liabilities as the
CODM does not review such information for decision-making purposes.
As of 30 June 2019 and for the six months then ended the Group's segmental
information was as follows:
Exploration Service(1) Trading Consolidated
and
Production
$'000 $'000 $'000 $'000
Sales of hydrocarbons 2,349 - 916 3,265
Other revenue - 54 - 54
Total revenue 2,349 54 916 3,319
Other cost of sales (1,554) (23) (976) (2,553)
Depreciation (288) (25) - (313)
Other administrative expenses (234) (34) (62) (330)
Finance income, net - - 27 27
Segment results 273 (28) (95) 150
Unallocated other administrative - - - (1,679)
expenses
Depreciation - - - (42)
Net fair value gain on - - - 4,421
convertible loan
Net foreign exchange loss - - - (16)
Other income, net - - - (183)
Profit before tax - - - 2,651
As of 30 June 2018 and for the six months then ended the Group's segmental
information was as follows:
Exploration Service(1) Trading Consolidated
and
Production
$'000 $'000 $'000 $'000
Sales of hydrocarbons 2,030 - 3,270 5,300
Other revenue - 13 - 13
Sales between segments 108 - (108) -
Total revenue 2,138 13 3,162 5,313
Other cost of sales (1,534) (4) (3,098) (4,636)
Depreciation (43) (17) - (60)
Other administrative expenses (197) (26) (43) (266)
Segment results 364 (34) 21 351
Unallocated other administrative - - - (1,736)
expenses
Net foreign exchange loss - - - (2)
Other income, net - - - 965
Loss before tax - - - (422)
(1) In the first half 2018 and in the first half 2019 the Service business was
focused on internal projects, in particular, providing services to
Monastyretska licence.
4. Finance income/(costs), net
Six months ended 30 June Year ended
31 December
2019 2018 2018
$'000 $'000 $'000
Interest expense on short-term borrowings (9) - (135)
Total interest expenses on financial (9) - (135)
liabilities
Interest income on receivables,net 27 - -
Investment revenue 62 315 553
Interest income on cash deposit in Ukraine 44 180 230
Total interest income on finacial assets 133 495 783
Unwinding of discount on decomissioning - (19) (12)
provision
124 476 636
5. Profit/(loss) per ordinary share
Profit/(loss) per ordinary share is calculated by dividing the net profit/
(loss) for the period/year attributable to Ordinary equity holders of the
parent by the weighted average number of Ordinary shares outstanding during the
period/year. The calculation of the basic profit/(loss) per share is based on
the following data:
Six months ended 30 June Year ended
31 December
Profit/(loss) attributable to owners of the 2019 2018 2018
Company $'000 $'000 $'000
(Loss)/profit for the purposes of basic (loss)/ 2,550 (318) 1,220
profit per share being net profit/(loss)
attributable to owners of the Company
Number Number Number
Number of shares '000 '000 '000
Weighted average number of Ordinary shares for the 235,729 231,092 235,729
purposes of basic profit/(loss) per share
Cent Cent Cent
Profit/(loss) per Ordinary share
Basic 1.1 (0.1) 0.5
The diluted profit/(loss) per share is equal to the basic profit/(loss) per
share owing to the (loss)/profit for the period.
6. Proved properties
As of 30 June 2019 the development and production assets balance which forms
part of PP&E has increased in comparison to 31 December 2018 due to the
drilling of Blazh-10 well on Monastyretska licence.
7. Inventories
The Group had volumes of natural gas stored at 31 December 2018 which were only
partially sold during the six months ended 30 June 2019; however most of the
volume remains unsold and the Group plan to realise it in the second half of
the year, as this represents the start of the heating season which typically
sees higher prices. No other substantial changes in inventories balances
occured.
8. Trade and other receivables
Six months ended 30 Year ended
June 31 December
2019 2018 2018
$'000 $'000 $'000
VAT recoverable 2,115 588 1,874
Prepayments 285 110 -
Trading prepayments 31 99 258
Trading receivables - 41 39
Receivable from joint venture - 29 62
Trade receivables 404 - -
Other receivables 115 427 239
2,950 1,294 2,472
The Directors consider that the carrying amount of the other receivables
approximates their fair value.
Management expects to realise VAT recoverable through the activities of the
business segments.
9. Short-term borrowings
In 2019 the Group continued to have a revolving credit line drawn in UAH at a
Ukrainian bank, a 100% subsidiary of a European bank for its trading
activities. The credit line is secured by $5 million of cash balance placed at
a European bank in the UK. The process to renew the credit line was on-going at
the date of reporting.
The Group did not use the credit line during the six months ended 30 June 2019
as it has managed to finance its trading activities with its own funds.
10. Trade and other payables
The $2.4 million of trade and other payables as of 30 June 2018 (30 June 2018:
$1.5 million, 31 December 2018: $1.3 million) represent $1.7 million (30 June
2018: $1.1 million, 31 December 2018: $0.8 million) of payables and $0.7
million of accruals (30 June 2018: $0.4 million, 31 December 2018: $0.7
million).
11. Commitments and contingencies
There have been no significant changes to the commitments and contingencies
reported on page 79 of the Annual Report.
12. Loan issued - Proger
Background and terms
On 26 February 2019 the Group entered into a Euro 13,385,000[6] loan agreement
with Proger Managers & Partners s.r.l. ("PMP"), a privately owned Italian
company whose only interest is a 59.6% participation in Proger Ingegneria
s.r.l. ("Proger Ingegneria"), a privately owned company which has a 67.9%
participating interest in Proger S.p.A. ("Proger").
The loan carries an entitlement to interest at a rate of 5.5% per year, payable
at maturity (which is 24 months after the execution date and assuming that the
call option described below is not exercised). The principal of the loan is
secured by a pledge on PMP's current participating interest in Proger
Ingegneria s.r.l., up to a maximum guaranteed amount of Euro 13,385,000.
In exchange for providing the loan, and besides the pledge on PMP's current
participating interest in Proger Ingegneria, the Group has secured:
I. The right to designate two out of the seven directors in each of Proger
and Proger Ingegneria's Boards of Directors. One of the two directors
designated by the Group will be appointed as Proger's Chairman of the Board,
with a supervisory role on financial affairs.
II. The right to designate one of the three members of Statutory Auditors in
each of Proger and Proger Ingegneria Boards.
III. A call option to acquire, at its sole discretion, 33% of the
participating interest that PMP will be holding in Proger Ingegneria as a
result of its forthcoming subscription; the exercise of the option would give
the Group an indirect 25 interest in Proger. The call option is granted at no
additional cost and can be exercised at any time between the 6th (sixth) and
24th (twenty-fourth) months following the execution date of the loan agreement
and subject to the Group's shareholders having approved the exercise of the
call option as explained further below. Should the Group exercise the call
option, the price for the purchase of the 33% participating interest in Proger
Ingegneria shall be paid by setting off the corresponding amount due by PMP to
the Group, by way of reimbursement of the principal, pursuant to the loan
agreement. If the call option is exercised, then the obligation on PMP to pay
interest is extinguished.
This exercise of the call option (or the enforcement of the pledge referred to
above) would be likely to constitute a reverse takeover for the Group under the
Listing Rules.
In that instance, the exercise of the call option would be subject to and
require publication of: (i) a shareholder circular and notice to convene a
general meeting seeking the Group shareholder approval of the proposed exercise
of the call option by the Group; and (ii) a prospectus in connection with the
proposed re-admission of the Group's shares to the Standard segment of the
Official List and to trading on the London Stock Exchange (as the Group's
listing would be cancelled following the consummation of a reverse takeover).
Accounting treatment
Under IFRS 9 'Financial Instruments' the instrument has been classified as a
financial asset at fair value through profit and loss as a result of the call
option. As such, the loan was initially recorded at fair value and revalued as
at 30 June 2019. If the loan is converted to equity under the call option, it
is anticipated that the investment would then be held as an equity accounted
investment in associate.
At 30 June 2019 carrying amount of the loan approximates to its fair value.
Fair value of this financial asset is categorized at Level 3 (note 2 (d).
During H1 there were no transfers between levels of fair value hierarchy.
Valuation of the loan was performed with the assistance of independent
valuation experts which used an EV/EBITDA peer multiples valuation model, which
included both precedent transaction multiples and trading multiples valuation
methods and then averaged the results. The basis of the evaluation were Proger
S.p.A.'s EBITDA of 2018 (based on 2018 audited income statement) and the
expert's database of multiples for comparable companies and transactions.
In July 2019 Proger released it financial statements for 2018, which showed
improved results for the period and in particular a 24% y-o-y increase of the
EBITDA. The Board have assessed the fair value of the loan instrument at 30
June 2019, which included consideration of the underlying performance and used
the original investment case valuation methodology. The improved performance
resulted in a higher implied valuation of Proger and consequently an increase
in the fair value of the instrument given the Group's call option. In addition,
the Company's indirect participating interest if the call option is exercised
increased to some 25% as not all Proger's shareholders subscribed the increase
of capital. Based on the fair value assessment the Group has recognised an
increase in the fair value of the instrument of $4.4 million recorded in profit
and loss and Directors believe that the $20 million (EUR 17.6 million)
represents the fair value of the loan at 30 June 2019.
Reconciliation: Level 3 fair value measurement
$'000
Opening balance as at 26 February 2019 15,246
Fair value gain on convertible loan 4,421
Transaction costs 372
Exchange difference (9)
Closing balance as at 30 June 2019 20,030
12. Events subsequent to the reporting date
On 2 July the application for a 20-year production licence for Monastyretska,
renamed Blazhiv oil field, was filed.
[1] Gas production was discontinued in January 2019 when the Group finalised
the transfer of its participatory interest in Debeslavetske JAA and
Cheremkhivsko-Strupkivske JAA to NJSC Nadra. Since then production is only oil
and is measured in barrels per day (bpd)
[2] Cash and cash equivalents less short-term borrowings
[3] 15 out of the 19 licenses were awarded to the state company
Ukrgasvydobuvannya and the remaining four to local, privately owned companies
[4] Lost Time Incident, Total Recordable Incident
[5] Most of the recoverable VAT is VAT paid on drilling services which will be
off-set by VAT due on crude sales in future periods under local legislation
[6] Equivalent to $15,246,000 at the date of issuance and to $15,237,000
million at the exchange rate of 30 June 2019
END
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