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 €13.385 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 €4.21 million
($4.8 million) increase in the fair
value of the €13.385 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 2019 |
30
June 2018 |
31
December 2018 |
|
|
|
|
|
Average production
(working interest basis) (a) |
boepd |
297 |
234 |
250 |
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) |
- Average production is calculated as the average daily
production during the period/year
- 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
- Lost time incidents relate to injuries where an
employee/contractor is injured and has time off work (IOGP
classification)
- 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
Ben Harber |
Chief
Executive Officer
Company Secretary |
+380 (44) 594 5870
+44 (0) 207 264 4366 |
Cantor Fitzgerald
Europe |
Broker to Cadogan
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
interest (%) |
Licence |
Expiry |
Licence type(1) |
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
$’000 |
2018
$’000 |
2018
$’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
$’000 |
2018
$’000 |
2018
$’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
differences |
|
1,367 |
127 |
354 |
Other comprehensive
profit |
|
1,367 |
127 |
354 |
Total comprehensive profit/(loss)
for the period/year |
|
3,922 |
(188) |
1,571 |
|
|
|
|
|
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
$’000 |
2018
$’000 |
2018
$’000 |
|
|
Notes |
(Unaudited) |
(Unaudited) |
(Audited) |
|
|
ASSETS |
|
|
|
|
|
Non-current
assets |
|
|
|
|
|
Intangible exploration
and evaluation assets |
|
2,514 |
1,713 |
2,386 |
|
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 the parent |
|
51,685 |
45,924 |
47,768 |
|
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
$’000 |
2018
$’000 |
2018
$’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 capital |
(1,263) |
(1,201) |
(1,889) |
|
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 activities |
1,176 |
3,978 |
(154) |
|
|
|
|
|
|
|
|
Investing
activities |
|
|
|
|
|
|
Proceeds from
termination fee on exit from WGI |
|
- |
- |
1,700 |
|
|
Purchases of property,
plant and equipment |
|
(7,021) |
(664) |
(3,944) |
|
|
Purchases of intangible
exploration and evaluation assets |
|
(11) |
(75) |
(857) |
|
|
Convertible loan
advanced |
|
(15,609) |
- |
- |
|
|
Proceeds from sale of
property, plant and equipment |
|
- |
33 |
58 |
|
|
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 equivalents |
|
(21,384) |
3,748 |
(2,566) |
|
|
Effect of foreign
exchange rate changes |
|
(28) |
(17) |
102 |
|
|
Cash and cash
equivalents held for sale at end of year |
|
- |
- |
(40) |
|
|
Cash and cash
equivalents at beginning of period/year |
|
35,136 |
37,640 |
37,640 |
|
|
Cash and cash
equivalents at end of period/year |
|
13,724 |
41,371 |
35,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
CADOGAN PETROLEUM PLC
Consolidated
Statement of Changes in Equity
Six months ended
30 June 2019
|
Share capital |
Share premium account |
Retained earnings |
Cumulative translation reserves |
Reor-gani-sation |
Equity attributable to owners of the Company |
Non-controlling interest |
Total |
|
$’000 |
$’000 |
$’000 |
$’000 |
$’000 |
$’000 |
$’000 |
$’000 |
As at 1 January
2018 |
13,525 |
329 |
192,842 |
(162,170) |
1,589 |
46,115 |
271 |
46,386 |
Net profit for the
period |
- |
- |
1,220 |
- |
- |
1,220 |
(3) |
1,217 |
Other comprehensive
profit |
- |
- |
- |
354 |
- |
354 |
- |
354 |
Total comprehensive
profit for the year |
- |
- |
1,220 |
354 |
- |
1,574 |
(3) |
1,571 |
Issue of ordinary
shares |
- |
- |
- |
- |
79 |
79 |
- |
79 |
As at 31 December
2018 |
13,525 |
329 |
194,062 |
(161,816) |
1,668 |
47,768 |
268 |
48,036 |
Net profit for the
period |
- |
- |
2,550 |
- |
- |
2,550 |
5 |
2,555 |
Other comprehensive
profit |
- |
- |
- |
1,367 |
- |
1,367 |
- |
1,367 |
Total comprehensive
profit for the year |
- |
- |
2,550 |
1,367 |
- |
3,917 |
5 |
3,922 |
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: $35.1 million).
The Group’s forecasts and projections, taking into account
reasonably possible changes in operational performance, and the
price of hydrocarbons sold to Ukrainian customers, show that there
are reasonable expectations that the Group will be able to operate
on funds currently held and those generated internally, for the
foreseeable future.
The Group continues to pursue its farm-out strategy on
Bitlyanska licence with the objective of managing risks and
mitigating capital deployment.
After making enquiries and considering the uncertainties
described above, the Directors have a reasonable expectation that
the Company and the Group have adequate resources to continue in
operational existence for the foreseeable future and consider the
going concern basis of accounting to be appropriate and, thus, they
continue to adopt the going concern basis of accounting in
preparing the financial statements. In making its statement the
Directors have considered the recent political and economic
uncertainty in Ukraine.
(b) Foreign currencies
The individual financial statements of each Group company are
presented in the currency of the primary economic environment in
which it operates (its functional currency). The functional
currency of the Company is US dollar. For the purpose of the
consolidated financial statements, the results and financial
position of each Group company are expressed in US dollars, which
is the presentation currency for the consolidated financial
statements.
The relevant exchange rates used were as follows:
1 US$ =
£ |
Six
months ended 30 June |
Year
ended
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 June |
Year
ended
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 and
Production |
Service(1) |
Trading |
Consolidated |
|
$’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
expenses |
- |
- |
- |
(1,679) |
Depreciation |
- |
- |
- |
(42) |
Net fair value gain on convertible
loan |
- |
- |
- |
4,421 |
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 and
Production |
Service(1) |
Trading |
Consolidated |
|
$’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
expenses |
- |
- |
- |
(1,736) |
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 liabilities |
(9) |
- |
(135) |
|
|
|
|
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 provision |
- |
(19) |
(12) |
|
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 Company |
2019
$’000 |
2018
$’000 |
2018
$’000 |
|
|
|
|
(Loss)/profit for the
purposes of basic (loss)/profit per share being net profit/(loss)
attributable to owners of the Company |
2,550 |
(318) |
1,220 |
|
|
|
|
|
Number |
Number |
Number |
Number of shares |
‘000 |
‘000 |
‘000 |
Weighted average number of Ordinary
shares for the purposes of basic profit/(loss) per share |
235,729
|
231,092 |
235,729 |
|
|
|
|
|
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 June |
Year ended
31 December |
|
|
|
2019
$’000 |
2018
$’000 |
2018
$’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