Cadogan Petroleum
plc
Annual Results for
year ended 31 December 2020
The Board of Cadogan Petroleum plc, (“Cadogan” or “the
Company”), is pleased to announce the Company’s annual results for
the year ended 31 December 2020.
Key Financial Highlights of 2020:
- Loss for the year: $1.0 million
(2019: loss of $2.1 million)
- Average realized price: $32.9/boe
(2019: $47.2/boe)
- Gross revenues[1]: $5.1 million (2019: $5.9
million)
- G&A[2]: $3.8
million (2019: $5.7
million)
- Loss per share: 0.4 cents (2019:
loss of 0.9 cents)
- Cash at year end: $13.3 million
(2019: $12.8 million)
Key Operational Highlights of 2020:
- Production: 106,398 bbl (2019: 104,816 boe), a 1.5% increase
year-on-year
- Gas trading profit of $0.6
million (2019: loss of $2.0
million)
- Services business loss of $0.05
million (2019: loss of $0.01
million), net of services provided to the
group[3]
- No LTI/TRIs’[4]
- ISO 14001 and ISO 45001 certifications validated by annual
audit
- Extension of the Blazhiv-3 and Blazhiv-Monastyrets-3 wells
lease agreements for a new 3-year term
- Introduction of a claim before the Kyiv Administrative Court
against the State Service of Geology and Subsoil of Ukraine due to the non-granting of the
Bitlyanska license
Other
During 2020, Cadogan managed a difficult relationship with
Proger Managers & Partners Srl (“PMP”)_ a privately owned
Italian company whose only interest is a 72.92% participation in
Proger Ingegneria Srl (“Proger Ingegneria”), a privately owned
company which has a 75.95% participating interest in Proger Spa
(“Proger”)_ to get recognized and implemented its rights for
nomination of representatives and access to information deriving
from the 2-year Loan Agreement and the Call Option Agreement. The
Call Option was not exercised and the Company notified PMP for the
Loan reimbursement at the Maturity Date, 25
February 2021. According to the Loan Agreement, PMP is in
default for the non-reimbursement of EUR
14,857,350 being the principal and the accumulated interest.
End of March 2021, PMP requested an
arbitration to have the Loan Agreement recognised as an equity
investment contract, which is rejected by Cadogan as the terms of
the agreement are clear and include the right to repayment at
maturity if the Call Option is not exercised.
Group Overview
The Group has continued to maintain exploration and production
assets, to conduct gas trading operations and to operate an oil
services business in Ukraine.
Cadogan’s assets are concentrated in the West of the country, far
away from the zone of military confrontation with Russia. Gas trading includes the import of gas
from Slovakia, Hungary and Poland and local purchase and sales with
physical delivery of natural gas. The oil services business focuses
on workover operations, civil works services and other services
provided to Exploration and Production (“E&P”) companies in
Ukraine.
Our business model
We aim to increase value through:
- Maintaining a robust balance sheet, monetizing the remaining
value of our Ukrainian assets and supplementing E&P cash flow
with revenues from gas trading and oil services
- Pursuing farm-out to progress investments in Ukrainian
licenses
- Sourcing additional assets to diversify Cadogan’s portfolio,
both geographically and operationally
The gas trading and the services business optimize the use of
existing available resources, such as cash as working capital for
trading and equipment and competences for the services business and
continue to contribute to the Group’s goal of being cash neutral,
while actively searching for value accretive opportunities.
Ukraine
West Ukraine
The Group continued to produce oil from its 20-year production
Blazhiv license located in the West
Ukraine. The average net production in 2020 was 291 bbl, a
1.5% increase over the production of the previous year. This
production result was achieved despite the heavy impact of covid-19
pandemic and 5.5 months shut-down of Blazhiv-3 and
Blazhiv-Monasterets-3 wells due to the expiry of the lease
contracts with PJSC Ukrnafta. Production from the wells was resumed
after the agreements have been extended for a 3-year term on
19 June 2020.
In March 2020, after a deep and
complete analysis performed with external legal advisors, Usenco
Nadra filed a claim with the Kyiv Administrative Court to
acknowledge inaction of the State Service of Geology (SGS) as
unlawful, particularly their refusal to issue the Bitlyanska
20-year exploration and development license. In May 2020, the Company was informed by SGS of the
rejection of its application on the basis of the new regulatory
framework that took effect on 25 February
2020. This decision was taken by the subsoil controlling
authority notwithstanding that Cadogan has fulfilled all license
obligations, obtained all regulatory approvals and timely submitted
on 19 August 2019 well ahead the
license expiry date of 23 December
2019 and the new regulatory framework.
In August 2020, the Company filed
a second claim to expand the scope of the first claim and requested
the Court to grant the right to carry out commercial activities on
Bitlyanska field effective from 20 December
2019.
East Ukraine
The Pirkovska exploration license expired in October 2015. Astrogaz filed in due time an
application for a new exploration and production license, but the
Licensing Authority returned it 6 times for different reasons, the
legal ground of which appeared to be doubtful. Despite the efforts
of the Company and its reply in due time to each of the comments,
the license was not awarded, and the 3-year period for conversion,
given to the applicant by law, expired in October 2018. In 2019, Astrogaz launched a
litigation before the Administrative Court against the Licensing
Authority for non-granting of the license. The Court of First
Instance, in its decision of October
2020, has partly satisfied the claim and confirmed inaction
of the Licensing Authority and obliged it to review the
application. Astrogaz introduced a claim before the Court of Appeal
proposing license award approval. In February 2021, the Court of Appeal rejected
Astrogaz claim. In March 2021, the
Company filed an appeal with the Supreme Court. In April 2021, the Supreme Court opened cassation
proceeding. The Company has not received details of the date of the
hearing as yet.
In 2020, LLC AstroInvest-Energy, a fully owned subsidiary of
Cadogan, introduced a claim against the State fiscal authority
regarding additional tax assessment and penalties. The Company won
in the Court of First Instance and in the Court of Appeal. The
State fiscal authority filed an appeal with the Supreme Court.
Subsidiary businesses
Notwithstanding extreme volatility in the gas market caused by the
impact of Covid-19 pandemic, consequent reduced gas consumption and
excess of gas storage in EU and Ukraine at historical levels as well as an
extraordinary drop of prices, Cadogan has successfully sold 9.575
million m3 of gas during the price peaking in 2020. The remaining
7.5 million m3 of gas was kept and sold in the beginning of
2021.
Finally, the Group continued providing oil services through its
wholly owned subsidiary Astroservice LLC. Substantial resources of
the company have been engaged to support Blazhiv license wells’
operations.
Italy
The Group owns a 90% interest in Exploenergy s.r.l., an Italian
company, which has filed applications for two exploration licenses
(Reno Centese and Corzano), located in the Po Valley region
(Northern Italy). The leads
identified on these licenses have combined unrisked prospective
resources estimated to be in excess of 60 bcf of gas.
Activity through the year was focused on maintaining the liaison
with the central and regional authorities and on updating the
Environmental Impact studies by implementing the suggestions
received from the authorities.
In February 2019, the Italian
Parliament approved a moratorium of 18 months in the award of new
licenses and a 25-fold increase of license fees. Exploenergy has
subsequently reduced its activity to the minimum required to fulfil
its statutory obligations. It has also identified areas which can
be voluntarily released in order to mitigate the impact of higher
fees, when licenses are awarded, with a minimum impact on their
exploration potential.
In 2020, the moratorium has been extended. In 2021, no changes
are expected in the government’s position regarding the possible
resumption of exploration and production activities on land and at
sea. No exploration and evaluation assets are held on the Group
balance sheet in respect of the licences.
In February 2019, the Group
entered in a 2-year loan agreement with Proger Management &
Partners Srl with an option to convert it into a 33% equity
interest in Proger Ingegneria Srl which in turn held at
31 December 2020 a 75.95% equity
interest in Proger Spa. Proger is an Italian engineering company
providing services in Italy and in
different international areas.
In February 2021, Cadogan notified
PMP that according to the Loan Agreement, the Maturity Date
occurred on 25 February 2021. As the
Call Option was not exercised, PMP must fulfill the payment of
EUR 14,857,350, being the
reimbursement of the Loan in terms of principal and the accumulated
interest. PMP is in default since 25
February 2021. End of March
2021, PMP requested an arbitration to have the Loan
Agreement recognised as an equity investment contract, which is
rejected by Cadogan as the terms of the agreement are clear and
include the right to repayment at maturity if the Call Option is
not exercised.
Strategic Report
The Strategic Report has been prepared in accordance with
Section 414A of the Companies Act 2006 (the “Act”) and presented
hereunder. Its purpose is to inform stakeholders and help them
assess how the Directors have performed their legal duty under
Section 172 of the Act to promote the success of the Company.
Section 172 Statement
The Company’s section 172 statement is presented on page 33 and
34 and forms part of this strategic report.
Principal activity and status of the
Company
The Company is registered as a public limited company
(registration number 05718406) in England and Wales. Its principal activity is oil and gas
exploration, development and production; the Company also conducts
gas trading and provides services to other E&P operators.
The Company’s shares have a standard listing on the Official
List of the UK Listing Authority and are traded on the Main Market
of the London Stock Exchange.
Key performance indicators
The Group monitors its performance through five key performance
indicators (“KPIs”):
- to increase oil, gas and condensate production measured on the
number of 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 incidents; and
- to grow geographically and operationally diversify the
portfolio.
The Group’s performance in 2020 against these KPI’s is set out
in the table below, together with the prior year performance
data.
|
Unit |
2020 |
2019 |
2020 vs 2019 |
|
|
|
|
|
Average production
(working interest basis) 1 |
boepd |
291 |
288 |
3 |
Overhead
(G&A) |
$ million |
3.8 |
5.7 |
(1.9) |
Basic loss per share
2 |
cents |
(0.4) |
(0.9) |
0.5 |
Lost time incidents
3 |
incidents |
- |
- |
- |
Geographic
diversification 4 |
new assets |
- |
1 |
(1) |
- Average production is calculated as the average daily
production during the year
- Basic (loss)/profit per ordinary share is calculated by
dividing the net (loss)/profit for the year attributable to equity
holders of the parent company by the weighted average number of
ordinary shares during the year
- Lost time incidents relate to the number of injuries where an
employee/contractor is injured and has time off work (IOGP
classification)
- Loan to Proger Managers & Partners with an option to
convert it into a 33 % equity interest in Proger Ingegneria.
Chairman’s Statement
2020 will remain as a high challenging year above any
expectation. The pandemic Covid-19, that has been affecting all,
has led to uncertain times. The measures that were quickly
implemented have allowed to protect our staff and keep the
Company’s activities on-going. The effectiveness of these measures
and the dedication of everyone have been essential to achieve this
result.
Cadogan continue to be committed to the territory and the
communities where we operate. The Company provided sanitary
material to local medical institution to sustain the local efforts
and medical responses to the pandemic Covid-19.
During 2020, the oil and gas markets volatility had a severe
impact on our activities. The quick response of the Company and the
measures that were put in place have allowed the Company to
mitigate the operational and the economic challenges. The negative
impacts were contained and improvements were brought to our
activities despite the year loss.
For Ukraine, 2020 was a
difficult year beyond the Covid-19 pandemic. The Country remains
embroiled in its military confrontation with Russia and this situation will have a
continuous effect, in 2021, on the investments in the Country.
2020 witnessed also the continued difficult relationship with
Proger and confirmed that it could not be a successful strategy for
Cadogan. The inability to obtain access to appropriate and complete
information on time relating to financial performance, financial
forecasts, the business model and the governance in Proger, led to
the conclusion that there was no interest for Cadogan to exercise
the Call Option. Thus, the Company asked for the reimbursement of
the loan at the maturity date.
Despite all these challenges, the Company was able to improve
its fundamentals. This was possible thanks to the commitment of all
with a competent and strong management. The Board remain focused on
maximizing value from our assets.
Michel Meeùs
Non-Independent non-executive Chairman
5 May 2021
Chief Executive’s Review
2020 was highly impacted by the global Covid-19 pandemic,
extreme price volatility in oil and gas markets, with a severe drop
down of prices in general. In this context, 2020 has been a
very challenging year.
With the Covid-19 pandemic, Ukraine, as with other countries, has been
facing a severe impact on its economy as well as to the oil &
gas markets.
To keep safe its personnel, the Company has put in place special
measures such as administrative personnel remote working, strict
sanitary and hygienic procedures and personal protection, rotation
of field personnel by company cars, constant medical supervision
during the work shift, regular sanitation of cars, offices and
facilities.
In March 2020, Cadogan has also
provided medical materials to the District hospital of Blazhiv area
to support the local efforts to face the Covid-19 pandemic. Up to
now, 20 employees of the company have been infected by Covid-19.
All of them have fully recovered.
This turmoil affected Cadogan’s strategy in 2020 and constrained
the Group causing management to review and postpone its investment
strategy.
Therefore, the Company had to overcome the negative
environment to achieve the recorded results:
- gas prices volatility and its impact on Cadogan trading
business results;
- oil average realized price decreasing by 30% in 2020, in line
with international markets decrease;
- Blazhiv-3 and Blazhiv-Monastyrets-3 wells’ shut down for 5.5
months due to the expiry of the lease contracts.
2020 also witnessed two important events for Cadogan,
namely:
- Extension of Blazhiv-3 and Blazhiv-Monastyrets-3 wells lease
contracts for a new 3-year period;
- Winning, in the Court of First Instance and in the Court of
Appeal, of the litigation against the State fiscal authority
regarding additional tax assessment and penalties. The final issue
remains subject to the decision of the Supreme Court.
For Ukraine, 2020 was another
difficult year. The Country has also been severely impacted by the
Covid-19 pandemic and further sanitary and economic crisis.
Besides, after the last presidential and parliament elections, the
new empowered officials have not yet been successful in resolving
the military confrontation with Russia in the East of Ukraine as well as in improving the
economic situation in the Country. In March
2020, and just after 6 months of work, the Cabinet of
Ministers headed by the Prime Minister Oleksiy Goncharuk has been replaced by the one
of Denys Shmygal.
The new government continued making some progress towards
modernization of its oil & gas legislative framework as well as
anti-corruption. However, this has not yet been sufficient to
create a favourable environment for the significant investments
needed to increase the Country’s domestic production especially in
the time of instability all over the world. In this uncertain
context, Cadogan remained one of the few truly foreign investors
operating in Ukraine’s E&P sector.
Against this challenging background, Cadogan’s operational
activities performed as following:
- a 1.5% increase in production, from 104,816 boe in 2019 to
106,398 bbl in 2020;
- a 33.3 % decrease of overhead (G&A), from $5.7 million in 2019 to $3.8 million in 2020;
- a challenging year for trading which generated a positive
result;
- a robust balance sheet, with $13.3
million of net cash, kept mostly in the UK banks;
- another year without LTIs’ and reduction of emissions level to
the atmosphere by 12%.
Core operations
Cadogan has continued to safely produce from its Blazhiv field
in the West of Ukraine. Oil
production has increased by 1.5% over the previous year.
Regarding the Bitlyanska 20-year exploration and development
license, given the delay to award the license by the State
Geological Service (SGS) beyond the regular timeline provided by
legislation and the further rejection of the application on the
basis of the new regulatory framework that took effect on
25 February 2020, Cadogan filed two
claims with the Administrative Court to acknowledge inaction of SGS
as unlawful and to grant the right to carry out commercial
activities on the Bitlyanska field.
The rental agreements with Ukrnafta for the Blazhiv-3 and
Blazhiv-Monasterets-3 wells ended in November 2019 and the operations were stopped.
Cadogan fulfilled all its duties for the renewal of the contracts
but due to internal process within Ukrnafta and the Covid-19 lock
down, these contracts were only signed in June 2020.
In the Pirke litigation introduced by Astrogaz in 2019, the
Court of First Instance, in October
2020, partly satisfied the claim and confirmed inaction of
the Licensing Authority. In February
2021, the Court of Appeal rejected the Company’s claim. In
March 2021, Astrogaz filed an appeal
with the Supreme Court.
The activity in Italy has been
limited to routine housekeeping as no changes have yet occurred in
the government’s position regarding the resumption of exploration
and production activities.
Non E&P operations
Trading had a complicated year due to extreme price volatilities
and extraordinary drop in prices on the EU and Ukrainian markets
driven by a mild winter, covid-19 pandemic, subsequent low demand,
and excess of gas in storage. Cadogan was able to catch the price
peaks in 2020 and sold 9.6 million m3 of stored gas.
The oil services activities were used primarily to serve the
Group’s wells’ operations.
Proger
In February 2019, Cadogan used
part of its cash (euros 13.385
million) to enter into a 2-year Loan Agreement with Proger
Managers & Partners, with a Call Option to convert it, subject
to shareholders’ approval into a 33 % equity interest in Proger
Ingegneria which in turn held, as at 31
December 2020, a 75.95% equity interest in Proger. According
to IFRS standards, the instrument must be represented in our
accounts at fair value.
The Group’s original investment decision involved assessment of
Proger business plan and analysis with professional advisers
including valuations performed using the income method (discounted
cash flows of Proger) and market approach using both the precedent
transactions and trading multiples methods.
During the first half of 2020, Cadogan monitored the protection
of its interests in Proger through the Loan Agreement and the Call
Option. Proger has been refusing for several months to give access
to the necessary information, to negate and then delay the right to
nominate Group’s representatives. This led at the end of
July 2020 to the effective nomination
of a new representative of the Group as Director of the Boards of
Proger Ingegneria and Proger, and the effective nomination of
another Group’s representative as member of the Statutory Board of
Proger Ingegneria. Prior to this date, the Company has had no
representation on the Board of Proger Ingegneria and Proger since
November 2019.
The legal and financial information communicated by Proger in
July 2020, related to 2019 and no
subsequent management information on performance during 2020 or
sufficient information on effective future business plans and
prospects have been obtained. Additionally, there has been an
absence of responses to the specific questions we have raised for
clarification on different issues related to the Proger accounts
and balance sheet for 2019, and more over a lack of
information.
As at 25 February 2021, being the
Maturity Date, the Call Option was not exercised and accordingly to
its previous notification Cadogan demanded repayment of the Loan
together with the accumulated interest which in total amounted
Euro 14,857,350 ($18,102,195). After five business days, PMP was
in default and asked for an additional term that ended on
19 March 2021. The terms of the Loan
Agreement provide for an additional default interest of 2%. End of
March 2021, PMP contested the default
situation and the obligation to reimburse and asked for an
Arbitration according to the said Loan Agreement to get the Loan
Agreement recognised as an equity investment contract. Cadogan
consider PMP’s arguments as groundless and consider that they are
intended to delay PMP reimbursement obligations.
These circumstances, together with the Covid-19 pandemic impact
on the engineering business, have led us to assess the fair value
of the instrument based on the terms of the agreement, including
the pledge over shares, together with financial information in
respect of prior periods and determined that $16.8 million represented the best estimate of
fair value based on estimates of future receipts discounted at an
estimated market rate of interest of 7.8% with no value attributed
to the Call Option. However, the absence of information regarding
Proger’s financial performance in 2020 and prospects represent a
significant limitation on the fair value exercise and, had such
information been available, the fair value of the instrument as a
whole may be materially higher or lower at 31 December 2020.
Outlook
Looking forward, we still have a lot of challenges ahead, but I
am confident Cadogan can meet them. Due to the Covid-19
pandemic and the difficult relationship with Proger, the Company
delayed its development strategy but Cadogan is determined to
develop a more value accretive and comprehensive diversification of
its activities. In this respect, the Company intends to invest in
new activities with a lower impact on environment, to continue to
monitor and contain the environmental impact of its existing oil
and gas activities, and to diversify geographically its
presence.
The Company will continue to carefully monitor the reimbursement
of the Proger (PMP) Loan amount with the corresponding accrued
interest.
It will also continue to streamline its complex corporate
architecture by liquidating companies which represent a legacy of
its past with no benefit.
With the other Board directors, I would like to thank all
Cadogan’s women and men for their efforts and their continuous
commitment to the Company.
Fady Khallouf
Chief Executive Officer
5 May 2021
Operations Review
Overview
At 31 December 2020, in the west
of Ukraine, the Group held working
interests in one conventional gas, condensate and oil exploration
and production license and was expecting the award through Court
decision of the new license for another one. All these assets are
operated by the Group and are located in the Carpathian basin in
close proximity to the Ukrainian gas distribution
infrastructures.
Summary of the Group’s licenses (as at 31 December
2020) |
Working
interest (%) |
License |
Expiry |
License type(1) |
99.8 |
Blazhiv |
November 2039 |
Production |
99.8 |
Bitlyanska(2) |
December 2019 |
E&D |
- E&D = Exploration and Development
- The Bitlyanska license expired on December 23, 2019 and its renewal is in the
process of litigation.
East
Ukraine
The Pirkivska production license expired in 2015. Astrogaz
applied for a new license. After several years and the end of the
3-year period allowed for conversion of the previous license, the
Company initiated court proceedings to defend its rights and to
challenge the Licensing Authority’s actions. As the result, the
Court of First Instance has partly satisfied the claim and
confirmed inaction of the Licensing Authority and obliged it to
review the application. Astrogaz introduced a claim with the Court
of Appeal proposing license award approval. In its decision of
February 2021, the Court of Appeal
rejected the Astrogaz claim. In March
2021, the Company filed an appeal with the Supreme
Court.
West
Ukraine
The Bitlyanska license covers an area of 390 square kilometers.
Bitlyanska, Borynya and Vovchenska are three hydrocarbon
discoveries in this license area. The Borynya and Bitlya fields
hold 3P reserves, contingent recoverable resources and prospective
resources. Vovchenska field holds contingent recoverable
resources.
Borynya 3 and Vovche-2 wells are suspended and routinely
monitored. All activities in the area are temporarily on hold until
the license award is granted. However, the State Geological Service
failed to meet the timeline for responding to the application
provided for under legislation and, subsequently rejected the
application.
The company filed to the State Geological Service an application
for a 20-year production license 5 months ahead the license expiry
date of 23 December 2019. The Company
secured approval of the Environmental Impact Assessment study by
the Ministry of Ecology, the approval of the Reserves Report by the
State Commission of Reserves and the approval of the license award
by the Lviv Regional Council. Given the delay to award the new
license beyond the regular timeline provided by legislation,
Cadogan filed two claims with the Administrative Court to challenge
the non-granting of the 20-year production license by the Licensing
Authority. Cadogan expects decision on the claim during 2021.
At Blazhiv license area the Company has been working to safely
produce from four existing wells. The production of the Blazhiv-3
and Blazhiv- Monastyrets-3 wells was suspended till 19 June 2020 due to rental agreements expiry. New
lease agreements have been signed with Ukrnafta for a 3-year term.
The average production rate of 291 bpd (2019: 284 bpd) was achieved
notwithstanding the 5.5 months shut down of the rented wells.
The company has also commissioned additional crude oil storage
facilities on the Blazhiv field by increasing the cumulative volume
up to 800m3. This should allow to manage favourably the short-term
oil price volatility.
Gas trading
Cadogan thoroughly monitored EU and Ukraine gas markets evolution to define best
momentum for trading in the challenging environment of 2020. In
2020, the Company sold 9.57 million m3 at the most favorable market
conditions, notwithstanding extreme market volatility. The
remaining 7.5 million m3 of gas was kept in storage and was sold in
the beginning of 2021.
Service
The Group continued to provide services through its wholly owned
subsidiary Astroservice LLC. The provided services were primarily
focused on serving intra-group operational needs in wells’
work-over/ re-entry operations as well as field on-site
activities.
Other events
After an inspection conducted by Ukraine’s tax authorities in
September 2019, Astroinvest Energy
LLC was notified of a tax claim related to the historic costs for
the liquidation of wells on the Zagoryanska license. The tax
authorities notified Astroinvest Energy LLC that they consider
recoverable VAT totalling $3.6
million, that has subsequently been used to offset output
VAT, to be non-deductible. They additionally consider that the
subsidiary’s tax losses carry forward of $15.3 million should be reduced (note 21).
Astroinvest Energy LLC has launched a claim against the tax
authority’s decision based on the current tax legislation and
related court decisions. The Company has won litigation in the
Court of First Instance and in the Court of Appeal. The Court’s
decision has come into legal force. The tax authorities filed an
appeal with the Supreme Court.
Financial Review
Overview
In 2020, the Group slightly increased production despite the 5.5
months shutdown of two wells due to the negotiation process with
UkrNafta for the rental agreements’ extension. The severe drop of
the oil prices in 2020 led to a significant decrease of the E&E
revenue for the year. The Group’s operating divisions delivered a
profit of $0.5 million (2019: loss of
$1.7 million) (note 5) and the Group
recorded a loss of $1 million (2019:
loss of $2.1 million).
The E&P business negatively contributed to the financial
results of the Group, due to the decrease in oil price. The average
realized oil price decreased by 30% from $47.2 to $32.9 per
barrel. The services business focused on providing workover
services to the subsidiaries of the Group. The trading business
recovered its activities after the rapid decline of gas prices in
the first half and made a positive contribution to the Group’s
performance.
Net cash increased to $13.3
million as at 31 December 2020
compared to $12.8 million as at
31 December 2019. This was mostly due
to the sales of 9.5 mcm of natural gas which was held in inventory
at the beginning of the year and the significant reduction of
general and administrative expenses.
Income statement
Revenues from production decreased from $4.9 million in 2019 to $3.5 million in 2020, reflecting a combination of
an increase of the production volume from 104,816 boe in 2019 to
106,398 boe in 2020 offset by a decrease in average realized prices
by 30 %. E&P costs of sales decreased from $3.8 million in 2019 to $3.0 million in 2020. These include production
royalties and taxes, fees paid for the rented wells, depreciations,
depletion of producing wells, direct staff costs and other costs
for exploration and development. Overall, in 2020, E&P made a
positive contribution of $0.4 million
(2019: $1.1 million) to gross profit,
representing a negative[5] $0.1 million (2019: profit of $0.4 million) business segment result.
The oil services business in 2020 focused on internal activities
providing its services, including drilling and workover, to the
Group’s subsidiaries.
The gas trading business revenues increased from $0.9 million in 2019 to $1.6 million in 2020, cost of sales also
increased, from $1.0 million in 2019
to $1.4 million in 2020, resulting in
an overall gross margin of $0.2
million (2019: loss $0.1
million). Release of VAT provision of $0.6 million supported the gas trading business
in providing a positive result of $0.6
million for the year 2020 (2019: loss $2.0 million).
Administrative expenses (“G&A”) were significantly decreased
due to a significant reduction in professional costs. Ukrainian
G&A remained flat and the overall G&A decreased by 33.3 %
from $5.7 million in 2019 to
$3.8 million in 2020 as shown in note
7.
The reversal of impairment of other assets of $0.7 million primarily includes offsets of VAT
recoverable against trading margin earned. In 2019, the reversal of
impairment of other assets of $0.3
million primarily includes the reversal of impairment of two
gas treatment plants to the level of consideration received on the
sale of these assets.
Impairment of other assets totalled $53
thousand which primarily includes impairment of other
inventories (2019: $2.1 million
includes $1.9 million of natural gas
impairment) and impairment of other receivables.
The Group recorded a decrease in the fair value of the Proger
loan of $0.3 million, which is held
at fair value through profit and loss under IFRS. Refer to note
4(d) and 26 for details.
Other costs of $0.07 million
represent other operating costs. In 2019, the other income included
$4.0 million realized from the exit
of the WGI joint venture.
Net finance income of $40 thousand
(2019: net finance income of $25
thousand includes interest income on receivables
$45 thousand and other finance cost
$9 thousand) reflects interest income
on cash deposits used for trading of $25
thousand (2019: $49 thousand);
ii) investment revenue of $37
thousand (2019: $104
thousand); less iii)) Unwinding of discount on
decommissioning provision of $22
thousand (2019: $164
thousand).
Balance sheet
Intangible Exploration and Evaluation (“E&E”) assets of
$2.4 million (2019: $2.9 million) represent the carrying value of the
Bitlyanska license. The Property Plant & Equipment (PP&E)
balance was $9.9 million at
31 December 2020 (2019: $12.3 million). It primarily represents the
carrying value of the assets invested and engaged in Blazhiv
license. The E&E and PP&E are held by Ukrainian
subsidiaries with functional currency Ukrainian Hryvna. Ukrainian
Hryvna significantly depreciated as at 31
December 2020 compared to 31 December
2019 generating a significant movement in the E&E and
PP&E value presented in the US Dollar.
Trade and other receivables of $1.6
million (2019: $2.6 million)
include $1.5 million of recoverable
VAT (2019: $2.4 million), which is
expected to be recovered through production, trading and services
activities, and $0.1 million (2019:
$0.2 million) of other
receivables.
Inventories reduced from $4.5
million to $2.2 million
principally due to the sale of gas volumes held in storage at 2019
due to unfavourable pricing conditions.
The Proger loan instrument is held at fair value through profit
and loss at $16.8 million (2019:
$15.7 million) with the movements
reflecting a reduction in fair value of $0.3
million and foreign exchange translation differences.
The loan has been reclassified as current based on the maturity in
2021 and anticipated receipt. Refer to the Chief Executives Report
for further details together with note 4(d) and 26.
The $1.3 million of trade and
other payables as of 31 December 2020
(2019: $1.3 million) consist of
$0.5 million (2019: $0.6 million) of accrued expenses and
$0.8 million (2019: $0.7 million) of other creditors.
Provisions include $0.2 million
(2019: $0.3 million) of long-term
provision for decommissioning costs which represents the present
value of costs that are expected to be incurred in 2039 for
producing assets, when the licenses will expire.
Net cash increased to $13.3
million at 31 December 2020
compared to $12.8 million at
31 December 2019. This was mostly due
to the sale of 9.5 mcm of natural gas which has been at stock at
the beginning of the year and a significant decrease of the general
and administrative expenses.
Cash flow statement
The Consolidated Cash Flow Statement on page 79 shows operating
cash outflow before movements in working capital of $2.5 million (2019: outflow of $4.4 million), which represents mostly cash used
by the E&P and Trading business segment net of corporate
expenses.
Positive operating cash flow from movements in working capital
is represented mostly by movements in inventory and VAT recoverable
positions due to natural gas sales during 2020.
Cash outflows from investing activities represents investments
in Blazhiv field during the year 2020.
Related party transactions
Related party transactions are set out in note 28 to the
Consolidated Financial Statements.
Treasury
The Group continually monitors its exposure to currency risk. It
maintains a portfolio of cash mainly in US dollars (“USD”) and Euro
held primarily in the UK. Production revenues from the sale of
hydrocarbons are received in the local currency in Ukraine, however, the hydrocarbon prices are
linked to the USD denominated gas and oil prices. To date, funds
from such revenues have been used in Ukraine in operations rather than being
remitted to the UK.
Risks and uncertainties
There are several potential risks and uncertainties that could
have a material impact on the Group’s long-term performance and
could cause the results to differ materially from expected and
historical results. Executive management review the potential risks
and then classify them as having a high impact, above $5 million, medium impact, above $1 million but below $5
million, and low impact, below $1
million. They also assess the likelihood of these risks
occurring. Risk mitigation factors are reviewed and documented
based on the level and likelihood of occurrence. The Audit
Committee reviews the risk register and monitors the implementation
of risk mitigation procedures via Executive management, who are
carrying out a robust assessment of the principal risks facing the
Group, including those potentially threatening its business model,
future performance, solvency and liquidity.
The Group has analysed the following categories as key
risks:
Risk |
Mitigation |
Operational risks |
|
Health, Safety and Environment
(“HSE”) |
|
The oil and gas industry by its
nature conducts activities, which can cause health, safety and
environmental incidents. Serious incidents can have not only a
financial impact but can also damage the Group’s reputation and the
opportunity to undertake further projects. |
The Group maintains a
HSE management system in place and demands that management, staff
and contractors adhere to it. The system ensures that the Group
meets Ukrainian legislative standards and for the CO2 emissions the
British standards and achieves international standards to the
maximum extent possible.
Management systems and processes have been certified as ISO 14001
and ISO 45001 compliant. |
Covid-19 |
|
The Group’s operations are in
Ukraine with a Parent Company located in the United Kingdom. These
locations are suffering from increasing levels of Covid-19
infection and in due course there may be increasing
disruption. This may include potential impacts through
illness amongst our workforce, supply chain and sales channel
disruption and the wider impact of economic disruption on commodity
prices. The national and local governments in each of our operating
locations are recommending or implementing increasingly severe
restrictions in order to manage the situation. |
To manage and where
possible mitigate the risk of personnel infection with the virus
for our employees, special measures have been applied. These
include administrative personnel remote working, strict sanitary
and hygienic procedures and personal protection, rotation of field
personnel by company cars, constant medical supervision during the
work shift, regular sanitation of cars, offices and facilities. The
covid-19 treatment package has been included into the staff medical
insurance coverage. We continue to monitor the situation closely
and will respond accordingly as the position develops. |
Climate
change |
|
After the
Paris Agreement (COP 21) the international community is committed
to reduce greenhouse gas emissions to slow down the climate change
and contain its effects. Countries may impose moratorium on E&P
activities or enact tight limits to emissions level, which may
curtail production. Shareholders may also request that the Company
adopt stringent targets in terms of emissions reduction.
|
A
moratorium on domestic production is deemed highly unlikely in
Ukraine given the country’s need for affordable energy. Such risks
exist in Italy, but the Company’s exposure there is limited.
Management strives to reduce emissions in everything the Company
does and has started implementing alternatives to offset and/or
mitigate emissions. In 2021, the Company will review its
administrative and operational process to identify the areas of
further improvement in the limitation of its environmental impact.
For the future, Cadogan is going to diversify its activities by
investing in new activities with a lower impact on
environment. |
Drilling and
Work-Over operations |
|
The technical difficulty of drilling
or re-entering wells in the Group’s locations and equipment
limitations can result in the unsuccessful completion of the
well. |
The incorporation of detailed
sub-surface analysis into a robustly engineered well design and
work programme, with appropriate procurement procedures and
competent on-site management, aims to minimise risk. Only certified
personnel are hired to operate on the rig floor. |
Production and
maintenance |
|
There is a risk that production or
transportation facilities could fail due to non-adequate
maintenance, control or poor performance of the Group’s
suppliers. |
All plants are operated
and maintained at standards above the Ukrainian minimum legal
requirements. Operative staff are experienced and receive
supplemental training to ensure that facilities are properly
operated and maintained. When not in use the facilities are
properly kept under conservation and routinely monitored.
Service providers are rigorously reviewed at the tender stage and
are monitored during the contract period. |
Sub-surface
risks |
|
The success of the business relies
on accurate and detailed analysis of the sub-surface. This can be
impacted by poor quality data, either historic or recently
gathered, and limited coverage. Certain information provided by
external sources may not be accurate. |
All externally provided and historic
data is rigorously examined and discarded when appropriate. New
data acquisition is considered, and appropriate programmes
implemented, but historic data can be reviewed and reprocessed to
improve the overall knowledge base. Agreements with qualified local
and international contractors have been entered into to supplement
and broaden the pool of expertise available to the Company. |
Data can be misinterpreted leading
to the construction of inaccurate models and subsequent plans. |
All analytical outcomes are
challenged internally and peer reviewed. Analysis is
performed using modern geological software. |
The area available for
drilling operations is limited due to logistics, infrastructures
and moratorium. This increases the risk for setting optimum well
coordinates. |
Bottom hole locations are always
checked for their operational feasibility, well trajectory, rig
type, and verified on updated sub-surface models. They are rejected
if deemed to be too risky. |
The Group may not be successful in
proving commercial production from its Bitlyanska licence and
consequently the carrying values of the Group’s oil and gas assets
may have to be impaired. |
The Group performs, on
an annual basis, a review of its oil and gas assets, impairs if
necessary, and considers whether to commission a review from a
third party or a Competent Person’s Report (“CPR”) from an
independent qualified contractor depending on the
circumstances. |
Financial risks |
|
The Group is at risk
from changes in the economic environment both in Ukraine and
globally, which can cause foreign exchange movements, changes in
the rate of inflation and interest rates and lead to credit risk in
relation to the Group’s key counterparties.
Cadogan entered into a 2-year loan agreement (Euros 13.385 million)
with Proger Management & Partners with a call option to convert
it into a 33 % equity interest in Proger Ingegneria which
represented a key transaction and element of the Group balance
sheet. As at 25 February 2021, being the Maturity Date, Cadogan did
not exercise its Call Option and PMP must reimburse EUR 14,857,350.
End of March 2021, PMP did not reimburse and asked for an
arbitration to get the Loan Agreement recognized as an equity
investment contract. |
Revenues in Ukraine are
received in UAH and expenditure is made in UAH, however the prices
for hydrocarbons are implicitly linked to USD prices.
The Group continues to hold most of its cash reserves in the UK
mostly in USD and Euro. Cash reserves are placed with leading
financial institutions, which are approved by the Audit Committee.
Foreign exchange risk is considered a normal and acceptable
business exposure and the Group does not hedge against this risk
for its E&P operations.
For trading operations, the Group matches the revenues and the
source of financing.
The terms of the agreement are clear and include the right to
repayment at maturity if the Call Option is not exercised. As
security for the reimbursement of the loan, Cadogan benefits from a
pledge over the shares held by Proger Managers & Partners in
Proger Ingegneria. In addition to that, Cadogan is engaging all the
necessary actions in the Arbitration process and more generally the
adequate legal actions to protect the interests of the Company and
all of its stakeholders.
Refer to note 26 to the Consolidated Financial Statements for
detail on financial risks. |
The Group is at risk that
counterparties will default on their contractual obligations
resulting in a financial loss to the Group. |
Procedures are in place to
scrutinize new counterparties via a Know Your Customer (“KYC”)
process, which covers their solvency. In addition, when trading
gas, the Group seeks to reduce the risk of customer non-performance
by limiting the title transfer to product until the payment is
received, prepaying only to known credible suppliers. |
The Group is at risk that
fluctuations in gas prices will have a negative result for the
trading operations resulting in a financial loss to the Group. |
The Group mostly enters back-to-back
transactions where the price is known at the time of committing to
purchase and sell the product. Sometimes the Group takes exposure
to open inventory positions when justified by the market conditions
in Ukraine, which is supported by analysis of the specific
transactions, market trends and models of the gas prices and
foreign exchange rate trends. |
Country risks |
|
Legislative changes may
bring unexpected risk and create delays in securing licenses or
ultimately prevent licenses and license renewals /conversions from
being secured. |
Compliance procedures, monitoring
and appropriate dialogue with the relevant authorities are
maintained to minimize the risk. In all cases, deployment of
capital in Ukraine is limited and investments are kept at the level
required to fulfil license obligations. |
Ukraine has not
progressed as far as expected towards integration with Europe, the
economic challenges in the country are not yet over and the
confrontation with Russia has remained open. This can impact the
political agenda, negatively impacts the creation of a transparent
market and introduces an element of unpredictability in the
development of the legislative framework. |
The Group minimizes
this risk by maintaining funds in international banks outside
Ukraine, by limiting the deployment of capital in the Country and
by continuously maintaining a working dialogue with the regulatory
authorities.
Commitments are fulfilled and routinely verified by the relevant
Authorities, supported by competent and qualified legal
contractors.
The assets of the Group are located far from the area of
confrontation with Russia. |
Other risks |
|
The Group's success
depends upon skilled management as well as technical and
administrative staff. The loss of service of critical members from
the Group's team could have an adverse effect on the business. |
The Group periodically reviews the
compensation and contract terms of its staff in order to remain a
competitive employer in the markets where it operates. |
The Group is at risk of
underestimating the risk and complexity associated with the entry
into new countries. |
The Group applies rigorous screening
criteria in order to evaluate potential investment opportunities.
It also seeks input from independent and qualified experts when
deemed necessary. Additionally, the required rate of return is
adjusted to the perceived level of risk. |
Local
communities and stakeholders may cause delays to the project
execution and postpone activities. |
The
Group maintains a transparent and open dialogue with authorities
and stakeholders (i) to identify their needs and propose solutions
which address them as well as (ii) to illustrate the activities
which it intends to conduct and the measures to mitigate their
impact. Local needs and protection of the environment are always
taken into consideration when designing mitigation measures, which
may go beyond the legislative minimum requirement.
The Group devotes the highest level of attention and engage
qualified consultants to prepare the Environmental Impact
Assessment studies and to attend public hearings, both introduced
in Ukraine in the course of 2019. |
Statement of Reserves and Resources
In 2019, the company successfully drilled Blazhiv-10 well and
conducted routine rig-less production support activities at the
Blazhiv-1, Blazhiv-3 and Blazhiv-Monastyrets-3 to maintain
sustainable production.
Summary of Reserves1
at 31 December
2020
|
|
|
Mmboe |
Proved, Probable and Possible
Reserves at 1 January 2020 |
|
|
7.49 |
Production |
|
|
0.11 |
Proved, Probable
and Possible Reserves at 31 December 2020 |
|
|
7.38 |
1 The study was conducted in 2016 by Brend Vik.
Reserves are assigned to the Bitlyanska and Blazhiv fields as
following:
- Blazhiv: 4.18 Mmboe;
- Bitlyanska: 3.2 Mmboe.
In addition to the tabled reserves, Cadogan has 15.4 million boe
of contingent resources associated with the Bitlyanska and Blazhiv
licences.
Corporate Responsibility
Under Section 414C of the Companies Act 2006 (the “Act”), the
Board is required to disclose information about environmental
matters, employees, human rights and community issues, including
information about any policies it has in relation to these matters
and the effectiveness of these policies.
Being sustainable in our activities means conducting our
business with respect for the environment and for the communities
hosting us, with the aim of increasing the benefit and value to our
stakeholders. We recognize that this is a key element to be
competitive and to maintain our license to operate.
The Board recognizes that the protection of the health and
safety of its employees, communities and the environment in which
it operates is not just an obligation but is part of the personal
ethics and beliefs of management and staff. These are the key
drivers for a sustainable development of the Company’s activity.
Cadogan Petroleum, its management and employees are committed to
continuously improve Health, Safety and Environment (HSE)
performance; follow our Code of Ethics and apply, in conducting our
operations, internationally recognized best practices and
standards.
Our activities are carried out in accordance with a policy
manual, endorsed by the Board, which has been disseminated to all
staff. The manual includes a Working with Integrity policy and
policies on business conduct and ethics, anti-bribery, the
acceptance of gifts and hospitality and whistleblowing. Such
policies are subject to regular review.
In August 2018, Cadogan Ukraine
LLC obtained ISO 14001 and ISO 45001 certifications for the
following scope: “Supervision, coordination, management support,
control in the field of oil and gas on-shore exploration and
production.” This provides formal recognition of the process
embedded in the Company and demonstrates the commitment and efforts
delivered by our employees and management. It is considered a
baseline to continue with the efforts to improve the way we conduct
the business.
The Board believes that health and safety procedures and
training across the Group should be in line with best practice in
the oil and gas sector. Accordingly, it has set up a Committee to
review and agree on the health and safety initiatives for the
Company and to report back to the Board on the progress of these
initiatives. Management regularly reports to the Board on HSE and
key safety and environmental issues, which are discussed at the
Executive Management level. The report of the Health, Safety and
Environment Committee can be found on page 37 to 38.
The General Director of Cadogan Ukraine is the acting Chairman
of the HSE Committee and is supported in his role by Cadogan
Ukraine’s HSE Manager. In accordance with the ISO 14001 and ISO
45001, his role is to ensure that the Group continuously develops
suitable procedures, that operational management and their teams
incorporate them into daily operations and that the HSE management
has the necessary level of autonomy and authority to discharge
their duties effectively and efficiently.
Health, safety and environment
2020 was challenging with COVID-19 pandemic. Cadogan applied
special measures to mitigate the risk of personnel infection with
the virus. All personnel have been instructed on the situation,
remote access to the working environment has been settled for all
office personnel to restrict contacts to minimum, field personnel
are provided with transfer to the oil field, all personnel are
provided with respirators and antiseptics, temperature control is
performed before the start of each working day for all personnel
who does not work remotely.
The HSE management monitors health status of the personnel
daily. Up to now, 20 employees of the company have been infected by
Covid-19. All of them have fully recovered.
The Group has implemented an integrated HSE management system in
accordance with the ISO requirements. The system aims to ensure
that a safe and environmentally friendly/protection culture is
embedded in the organization with a focus on the local community
involvement. The HSE management system ensures that both Ukrainian
and international standards are met, with the Ukrainian HSE
legislation requirements taken as an absolute minimum. All the
Group’s local operating companies actively participate in the
process. ISO 14001 and ISO 45001 certification were re-validated by
the respective authority in July
2020.
A proactive approach based on a detailed induction process and
near miss reporting has been in place throughout 2020 to prevent
incidents. Staff training on HSE matters and discussions on near
miss reporting are recognized as the key factors to continuously
improve. In-house training is provided to help staff meet
international standards and follow best practice. The process
enacted by the certification, enhances attention to training on
risk assessments, emergency response, incident prevention,
reporting and investigation, as well as emergency drills regularly
run-on operations’ sites and offices. This process is essential to
ensure that international best practices and standards are
maintained to comply with, or exceed, those required by Ukrainian
legislation, and to promote continuous improvement.
The Board monitors the main Key Performance Indicators (lost
time incidents, mileage driven, training received, CO2 emissions)
as business parameters. The Board has benchmarked safety
performance against the HSE performance index measured and
published annually by the International Association of Oil and Gas
Producers. In 2020, the Group recorded over 163,000 man-hours
worked with no incidents and around 1,260,000 hours have been
worked since the last injury in February
2016.
During 2020 the Group continued to monitor its greenhouse gas
emissions and collect statistical data relating to the consumption
of electricity, industrial water and fuel consumption by cars,
plants and other work sites, recording a continuous improvement in
the efficient use of resources.
Employees
Wellness and professional development are part of the Company’s
sustainable development policy and wherever possible, local staff
are recruited. The Group’s activity in Ukraine is entirely managed by local staff.
Qualified local contractors are engaged to supplement the required
expertise when and to the extent it is necessary.
Procedures are in place to ensure that recruitment is undertaken
on an open, transparent and fair basis with no discrimination
against applicants. Each operating company has its own Human
Resources function to ensure that the Group’s employment policies
are properly implemented and followed. The Group’s Human Resources
policy covers key areas such as equal opportunities, wages,
overtime and non-discrimination. As required by Ukrainian
legislation, Collective Agreements are in place with the Group’s
Ukrainian subsidiary companies, which outline agreed level of staff
benefits and other safeguards for employees.
All staff are aware of the Group’s grievance procedures. All
employees have access to health insurance provided by the Group to
ensure that all employees have access to adequate medical
facilities.
Each employee’s training needs are assessed on an individual
basis to ensure that their skills are adequate to support the
Group’s operations, and to help them to develop.
Diversity
The Board recognizes the benefits and importance of diversity
(gender, ethnic, age, sex, disability, educational and professional
backgrounds, etc.) and strives to apply diversity values across the
business. We endeavour to employ a skilled workforce that
reflects the demographic of the jurisdictions in which we
operate. The board will review the existing policies and
intends to develop a diversity policy.
Gender diversity
The Board of Directors of the Company comprised of five
Directors as of 31 December 2020. The
appointment of any new Director is made based on merit. See pages
23 and 24 for more information on the composition of the Board.
As at 31 December 2020, the
Company comprised a total of 80 persons, as follows:
|
Male |
Female |
Non-executive directors |
3 |
1 |
Executive directors |
1 |
- |
Management, other than Executive
directors |
7 |
2 |
Other employees |
45 |
21 |
Total |
56 |
24 |
Human rights
Cadogan’s commitment to the fundamental principles of human
rights is embedded in our HSE policies and throughout our business
processes. We promote the core principles of human rights
pronounced in the UN Universal Declaration of Human Rights and our
support for these principles is embedded throughout our Code of
Conduct, our employment practices and our relationships with
suppliers and partners wherever we do business.
Community
The Group’s activities are carried out in rural areas of
Ukraine and the Board is aware of
its responsibilities to the local communities in which it operates
and from which some of the employees are recruited. In our
operational sites, management work with the local councils to
ensure that the impact of operations is as low as practicable by
putting in place measures to mitigate their effect. Projects
undertaken include improvement of the road infrastructure in the
area, which provides easier access to the operational sites while
at the same time minimizing inconvenience for the local population
and allowing improved road communications in the local communities,
especially during winter season or harsh weather conditions.
Specific community activities are undertaken for the direct benefit
of local communities. All activities are followed and supervised by
managers who are given specific responsibility for such tasks.
The Group’s companies in the Ukraine see themselves as part of the
community and are involved and offer practical help and support.
All these activities are run in accordance with our “Working with
Integrity” policy and procedures. The recruitment of local staff
generates additional income for areas that otherwise are
predominantly dependent on the agricultural sector.
The enactment in 2018 of new legislation which introduces
Environmental Impact Assessment studies and public hearings as part
of the license’s award/renewal processes was anticipated
effectively by the Group. The Group is complying with these
requirements, building on the recognized competence of its people
and advisors as well as on the good communication and relations
established with local communities.
In 2020, the Group’s operating locations were suffering from
levels of COVID-19 infection and normal working patterns have been
disrupted. The national and local governments in all regions are
recommending and implementing restrictions to manage the situation.
The Group is following all the recommendations and provides
comprehensive measures inside the Group to restrict COVID-19
infection and spread.
As part of its commitment to the local communities in which it
operates, the Group provided sanitary material to local medical
institution to sustain the efforts to contain the Covid-19 pandemic
on the territorry.
Approval
The Strategic Report was approved by the Board of Directors on
4 May 2021 and signed by order of the
Board by:
Ben Harber
Company Secretary
5 May 2021
Board of Directors
Michel Meeùs, 68, Belgian
Non-Independent non-executive Chairman
Mr Meeùs was appointed as a Non-executive Director on
23 June 2014. Mr. Meeùs was former
Chairman of the Board of Directors of Theolia, an independent
international developer and operator of wind energy projects. Since
2007, he has been a director within the Alcogroup SA Company (which
gathers the ethanol production units of the Group), as well as
within some of its subsidiaries. Before joining Alcogroup, Mr Meeùs
carved out a career in the financial sector, at Chase Manhattan
Bank in Brussels and London, then at Security Pacific Bank in
London, then finally at Electra
Kingsway Private Equity in London.
Mr Meeus is currently Chairman of the Remuneration and
Nomination Committees.
Fady Khallouf, 60, French
Chief Executive Officer
Fady Khallouf was appointed as Director and CEO on 15 November 2019. He has a 35-year experience in
the energy, the environment, the engineering and the infrastructure
sectors. He has previously held the position of CEO and CFO of
FUTUREN (Renewable Energy, listed on Euronext Paris) where he
achieved the restructuring and the turnaround of the group. Prior
to that, he was the CEO of Tecnimont group (Petrochemicals and Oil
& Gas), the Vice-President Strategy and Development of EDISON
group (Electricity and Gas, E&P), the Head of M&A of EDF
group (Energy). Fady Khallouf had beforehand held various
management positions at ENGIE (Energy), Suez (Environmental
Services), and DUMEZ (Construction and Infrastructures).
Lilia
Jolibois, 56, American
Independent non-Executive Director
Lilia Jolibois was appointed as
Director on 15 November 2019. She is
currently a member of three Boards: Cadogan Petroleum Plc, INSEAD
Foundation, and CARA (UK and Wales). She is also a Venture and CEO Advisor
at Loyal Venture Capital, a global VC fund. Her career spans
Merrill Lynch Investment Banking, Sara
Lee, and Lafarge in the USA
and Europe. At Lafarge Group, Ms.
Jolibois served in numerous positions in finance, strategy,
business development, CEO and Chair of the Board for Lafarge Cement
and Gypsum in Ukraine, and SVP and
Chief Marketing-Sales-Supply Chain Officer for Lafarge Aggregates,
Asphalt & Paving.
Lilia is currently Chairman of the Company’s Audit Committee and
a member of the Remuneration and Nomination Committees.
Jacques
Mahaux, 69, Belgian
Non-Executive Director
Jacques Mahaux was appointed as
Director on 15 November 2019. He has
held various executive and directorship positions in Group Crédit
Agricole in Luxembourg, CA
Indosuez, Indosuez Bank and various Luxembourg and Swiss Holding companies active
in industrial sectors. Previously he acted as an Attorney at Law at
the Brussels Bar. He is currently a Supervisory Board member of
ETAM SCA.
Mr Mahaux is currently a member of the Audit, Remuneration and
Nomination Committees.
Gilbert
Lehmann, 75, French
Senior Independent Non-Executive Director
Mr Lehmann was appointed to the Board on 18 November 2011. He was an adviser to the
Executive Board of Areva, the French nuclear energy business,
having previously been its Deputy Chief Executive Officer
responsible for finance. He is also a former Chief Financial
Officer and deputy CEO of Framatone, the predecessor to Areva, and
was CFO of Sogee, part of the Rothschild Group. Mr Lehmann was also
Deputy Chairman and Chairman of the Audit Committee of Eramet, the
French minerals and alloy business. He is Deputy Chairman and Audit
Committee Chairman of Assystem SA, the French engineering and
innovation consultancy. He was Chairman of ST Microelectronics NV,
one of the world’s largest semiconductor companies, from 2007 to
2009, and stepped down as Vice Chairman in 2011.
Mr Lehmann is currently a member of the Remuneration and
Nomination Committees.
Report of the Directors
Directors
The Directors in office during the year and to the date of this
report are as shown below:
Non-Executive
Directors
Michel Meeùs (Chairman)
Gilbert Lehmann
Lilia Jolibois
Jacques Mahaux |
Executive
Director
Fady Khallouf
|
Directors’ re-election
The Board has decided previously that all Directors are subject
to annual election by shareholders, in accordance with industry
best practice and as such, all Directors will be seeking
re-election at the Annual General Meeting to be held on
25 June 2021.
The biographies of the Directors in office at the date of this
report are shown on pages 23 and 24.
Appointment and replacement of
Directors
The Company’s Articles of Association allow the Board to appoint
any individual willing to act as a Director either to fill a
vacancy or act as an additional Director. The appointee may hold
office only until the next annual general meeting of the Company
whereupon his or her election will be proposed to the
shareholders.
The Company’s Articles of Association prescribe that there shall
be no fewer than three Directors and no more than fifteen.
Directors’ interests in shares
The beneficial interests of the Directors in office at
31 December 2020 and their connected
persons in the Ordinary shares of the Company at 31 December 2020 are set out below.
Director |
|
|
Number of
Shares |
Michel Meeùs |
|
|
26,000,000 |
Fady Khallouf |
|
|
8,337,031 |
Gilbert Lehmann |
|
|
- |
Lilia Jolibois |
|
|
- |
Jacques Mahaux |
|
|
- |
Conflicts of Interest
The Company has procedures in place for managing conflicts of
interest. Should a director become aware that they, or any of their
connected parties, have an interest in an existing or proposed
transaction with the Company, its subsidiaries or any matters to be
discussed at meetings, they are required to formally notify the
Board in writing or at the next Board meeting. In accordance with
the Companies Act 2006 and the Company’s Articles of Association,
the Board may authorize any potential or actual conflict of
interest that may otherwise involve any of the directors breaching
his or her duty to avoid conflicts of interest. All potential and
actual conflicts approved by the Board are recorded in register of
conflicts, which is reviewed by the Board at each Board
meeting.
Directors’ indemnities and
insurance
The Company’s Articles of Association provide that, subject to
the provisions of the Companies Act 2006, all Directors of the
Company are indemnified by the Company in respect of any liability
incurred in connection with their duties, powers or office. Save
for such indemnity provisions, there are no qualifying third-party
indemnity provisions. In addition, the Company continues to
maintain Directors’ and Officers’ Liability Insurance for all
Directors who served during the year.
Powers of Directors
The Directors are responsible for the management of the business
and may exercise all powers of the Company subject to UK
legislation and the Company’s Articles of Association, which
includes powers to issue or buy back the Company’s shares given by
special resolution. The authorities to issue and buy back shares,
granted at the 2020 Annual General Meeting, remains unused.
Dividends
The Directors do not recommend payment of a dividend for the
year ended 31 December 2020 (2019:
nil).
Principal activity and status
The Company is registered as a public limited company
(registration number 05718406) in England and Wales. The principal activity and business of
the Company is oil and gas exploration, development and
production.
Subsequent events
Refer to note 29 in the financial statements.
Structure of share capital
The authorized share capital of the Company is currently
£30,000,000 divided into 1,000,000,000 Ordinary shares of
3 pence each. The number of shares in
issue as at 31 December 2020 was
244,128,487 Ordinary shares (each with one vote) with a nominal
value of £7,323,853. The total number of voting rights in the
Company is 244,128,421. The Companies (Acquisition of Own Shares)
(Treasury Shares) Regulations 2003 allow companies to hold shares
in treasury rather than cancel them. Following the consolidation of
the issued capital of the Company on 10 June
2008, there were 66 residual Ordinary shares, which were
transferred to treasury. No dividends may be paid on shares whilst
held in treasury and no voting rights attached to shares held in
treasury.
Rights and obligations of Ordinary
shares
In accordance with applicable laws and the Company’s Articles of
Association, holders of Ordinary shares are entitled to:
- receive shareholder documentation including the notice of any
general meeting;
- attend, speak and exercise voting rights at general meetings,
either in person or by proxy; and
- a dividend where declared and paid out of profits available for
such purposes. On a return of capital on a winding up, holders of
Ordinary shares are entitled to participate in such a return.
Exercise of rights of shares in
employee share schemes
None of the share awards under the Company’s incentive
arrangements are held in trust on behalf of the beneficiaries.
Agreements between shareholders
The Board is unaware of any agreements between shareholders,
which may restrict the transfer of securities or voting rights.
Restrictions on voting deadlines
The notice of any general meeting of the Company shall specify
the deadline for exercising voting rights and appointing a proxy or
proxies to vote at a general meeting. To accurately reflect the
views of shareholders, where applicable it is the Company’s policy
at present to take all resolutions at any general meeting on a
poll. Following the meeting, the results of the poll are released
to the market via a regulatory news service and published on the
Company’s website.
Substantial shareholdings
As at 31 December 2020 and
12 April 2021, being the last
practicable date, the Company had been notified of the following
interests in voting rights attached to the Company’s shares:
|
31
December 2020 |
12
April 2021 |
Major shareholder |
Number of shares
held |
% of total voting
rights |
Number of shares
held |
% of total voting
rights |
SPQR Capital Holdings SA |
67,298,498 |
27.57 |
67,298,498 |
27.57 |
Mr Michel Meeùs |
26,000,000 |
10.65 |
26,000,000 |
10.65 |
Ms Veronique Salik |
17,959,000 |
7.36 |
17,959,000 |
7.36 |
Ms Jessica Friedender |
17,409,000 |
7.13 |
17,409,000 |
7.13 |
Kellet Overseas Inc. |
14,002,696 |
5.74 |
14,002,696 |
5.74 |
CA Indosuez Wealth Management |
9,789,305 |
4.01 |
10,094,620 |
4.13 |
Mr Fady Khallouf |
8,337,031 |
3.42 |
8,337,031 |
3.42 |
Mr Pierre Salik |
7,950,000 |
3.26 |
7,950,000 |
3.26 |
Cynderella International SA |
7,657,886 |
3.14 |
7,657,886 |
3.14 |
Bank Julius Baer |
7,270,000 |
2.98 |
7,270,000 |
2.98 |
Amendment of the Company’s Articles of
Association
The Company’s Articles of Association may only be amended by way
of a special resolution of shareholders.
Disclosure of information to
auditor
As required by section 418 of the Companies Act 2006, each of
the Directors as at 4 May 2021
confirms that:
(a) so far as the Director is aware, there is no relevant audit
information of which the Company’s auditor is unaware; and
(b) the Director has taken all the steps that he ought to have
taken as a Director in order to make himself aware of any relevant
audit information and to establish that the Company’s auditor is
aware of that information.
Going concern
The Group’s business activities, together with the factors
likely to affect its future development, performance and position,
are set out on pages 15 to 18.
Having considered the Company’s financial position and its
principal risks and uncertainties, including the assessment of
potential risks associated with Covid-19 including a) restrictions
applied by governments, illness amongst our workforce and
disruption to supply chain and sales channels; and b) market
volatility in respect of commodity prices associated with Covid-19
in addition to geopolitical factors, 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 Consolidated and Company Financial Statements. For
further detail please refer to the detailed discussion of the
assumptions outlined in note 3(b) to the Consolidated Financial
Statements.
Reporting year
The reporting year coincides with the Company's fiscal year,
which is 1 January 2020 to
31 December 2020.
Financial risk management objectives
and policies
The Company’s financial risk management objectives and policies
including its policy for managing its exposure of the Company to
price risk, credit risk, liquidity risk and cash flow risk are
described on page 105 to 107 in note 26 to the Consolidated
Financial Statements.
Outlook
Future developments in the business of the Company are presented
on page 7 to 12.
Change of control – significant
agreements
The Company has no significant agreements containing provisions,
which allow a counterparty to alter and amend the terms of the
agreement following a change of control of the Company.
Should a change in control occur then certain Executive
directors are entitled to a payment of salary and benefits for a
period of six months.
Streamlined energy and carbon
reporting
This section contains information on greenhouse gas (“GHG”)
emissions required by the Companies Act 2006 (Strategic Report and
Directors' Report).
Methodology
The principal methodology used to calculate the emissions is
drawn from the ‘Environmental Reporting Guidelines: including
mandatory greenhouse gas emissions reporting guidance (June 2013)’,
issued by the Department for Environment, Food and Rural Affairs
(“DEFRA”) and DEFRA GHG conversion factors for company reporting
were utilised to calculate the CO2 equivalent of emissions from
various sources (2018 update). Also, the used methodology was also
updated based on methods proposed by DNV GL and in of GHG emissions
Inventory referring to the following guidelines and international
standards.
The Company has reported on all the emission sources required
under the Regulations.
The Company does not have responsibility for any emission
sources that are not included in its consolidated statement.
Consolidation approach and
organisation boundary
An operational control approach was used to define the Company's
organisational boundary and responsibility for GHG emissions. All
material emission sources within this boundary have been reported
upon, in line with the requirements of the Regulations.
Scope of reported emissions
Emissions data from the sources within Scope 1 and Scope 2 of
the Company's operational boundaries is detailed below. This
includes direct emissions from assets that fall within the
Company’s organisational boundaries (Scope 1 emissions), as well as
indirect emissions from energy consumption, such as purchased
electricity and heating (Scope 2 emissions).
Scope 1 emissions in 2020 decreased compared to the previous
year (7,720 tons in 2020 vs 8,799 tons in 2019).
Conversely, Scope 2 emissions also decreased in 2020 (143t tons
in 2020 vs 184 tons in 2019), as a result of the processes started
in 2016 to improve the efficiency of the structure, logistic and
facilities. Total emissions in 2020 were 7,863 tons versus the
8,983 tons of 2019.
Intensity ratio
In order to express the GHG emissions in relation to a
quantifiable factor associated with the Company's activities,
wellhead production of crude oil and natural gas has been chosen as
the normalisation factor for calculating the intensity ratio. This
will allow comparison of the Company’s performance over time, as
well as with other companies in the Company’s peer group.
The intensity ratio for E&P operations (same reporting
perimeter) decreased by 14%, from 85,7 tons CO2e/Kboe in
2019 to 73,9 tons CO2e/Kboe in 2020.
Total greenhouse gas emissions data for the year from 1 January
to 31 December
Greenhouse gas emissions source |
E&P |
2020 |
2019 |
Scope 1 |
|
|
Direct
emissions, including combustion of fuel and operation of
facilities
(tonnes of CO2 equivalent) |
7,720 |
8,799 |
Scope 2 |
|
|
Indirect emissions
from energy consumption, such as electricity and heating purchased
for own use (tonnes of CO2 equivalent) |
143 |
184 |
Total (Scope 1
& 2) |
7,863 |
8,983 |
Normalisation
factor |
|
|
Barrels of oil
equivalent, net |
106,398 |
104,816 |
Intensity
ratio |
|
|
Emissions reported above normalised
to tonnes of CO2e per total wellhead production of crude
oil, condensates and natural gas, in thousands of Barrels of Oil
Equivalent, net |
73,9 |
85.7 |
Energy consumption
The Company started in 2020 to monitor energy consumption in
KwH. This is a new indicator which will be continuously monitored
in the future.
|
2020 |
2019 |
%
change |
KwH |
KwH |
2020
- 2019 |
Ukraine |
547,545 |
570,898 |
-4% |
Energy consumption in the UK is immaterial.
2021 Annual General Meeting
The 2021 Annual General Meeting (“AGM”) of the Company provides
an opportunity to communicate with shareholders and the Board
welcomes their participation. Board members constantly strive to
engage with shareholders on strategy, governance and a number of
other issues.
The Board looks forward to welcoming shareholders to the
AGM. The AGM notice will be issued to shareholders well in
advance of the meeting with notes to provide an explanation of all
resolutions to be put to the AGM. In addition, shareholder
information will be enclosed as usual with the AGM notice to
facilitate voting and feedback in the usual way.
The Chairman of the Board and the members of its committees will
be available to answer shareholder questions at the AGM. All
relevant shareholder information including the annual report for
2020 and any other announcements will be published on our website –
www.cadoganpetroleum.com.
This Report of Directors comprising pages 25 to 30 has been
approved by the Board and signed by the order of the Board by:
Ben Harber
Company Secretary
5 May 2021
Board Committee Reports
As a Company listed on the standard segment of the London Stock
Exchange it is not required to apply a specific corporate
governance code and, given its size, has elected not to do so.
However, the Board of the Company is committed to the highest
standards of corporate governance.
Board
The Board provides leadership and oversight. The Board comprises
a Non-Independent non-executive Chairman, Chief Executive Officer,
two Independent Non-Executive Directors and a non-executive
Director. The Board has appointed Mr Lehmann as the Senior
Independent Director.
The biographical details for each of the Directors and their
membership of Committees are incorporated into this report by
reference and appear on page 23 and 24.
As at the date of this report, the Chairman had no significant
commitments that would affect his ability to allocate sufficient
time to the Company to discharge his responsibilities
effectively.
Board independence
The roles and responsibilities of the Chairman and Chief
Executive Officer are separate with a clear and formal division of
each individual’s responsibilities, which has been agreed and
documented by the Board.
The Non-Executive Directors bring an independent view to the
Board’s discussions and the development of its strategy. Their
range of experience ensures that management’s performance in
achieving the business goals are challenged appropriately. Two
Non-Executive Directors, Ms Lilia
Jolibois, and Mr Gilbert
Lehmann are considered by the Board to be independent. Mr
Michel Meeùs, who is a significant
shareholder and Mr Jacques Mahaux
are not considered independent as defined within the UK Corporate
Governance Code 2018, however the Board believes they are
independent in character and judgement and free from relationships
or circumstances that could affect their judgement. All Directors
continue to be effective and have sufficient time available to
perform their duties. The letters of appointment for the
Non-Executive Directors are available for review at the Registered
Office and prior to the Annual General Meeting. Each of the
Non-Executive Directors independently ensures that they update
their skills and knowledge suf?ciently to enable them to ful?l
their duties appropriately.
As at the date of this report, the Chairman had no significant
commitments that would affect his ability to allocate sufficient
time to the Company to discharge his responsibilities
effectively.
Under the Company’s Articles of Association, all Directors must
seek re-election by members at least once every three years.
However, the Board has agreed that all Directors will be subject to
annual election by shareholders in line with Corporate Governance
best practice. Accordingly, all members of the Board will be
standing for re-election at the 2021 Annual General Meeting due to
be held on 25 June 2021.
The Board has a formal schedule of matters specifically reserved
for its decision, including approval of acquisitions and disposals,
major capital projects, financial results, Board appointments,
dividend recommendations, material contracts and Group strategy.
Other responsibilities are delegated to its Committees.
The Chairman, in conjunction with the Company Secretary, plans
the programme for the Board during the year. While no formal
structured continuing professional development program has been
established for the non-executive Directors, every effort is made
to ensure that they are fully briefed before Board meetings on the
Company’s business. The agenda for Board and Committee meetings are
considered by the relevant Chairman and issued with supporting
papers during the week preceding the meeting. For each Board
meeting, the Directors receive a Board pack including management
accounts, briefing papers on commercial and operational matters and
major capital projects including acquisitions. The Board also
receives briefings from key management on specific issues.
Five Board meetings took place during 2020. The attendance of
those Directors in place at the year end at Board and Committee
meetings during the year was as follows:
|
Board |
Audit
Committee |
Nomination
Committee |
Remuneration
Committee |
No. Held |
5 |
2 |
- |
1 |
No. Attended: |
5 |
|
|
1 |
M Meeùs |
5 |
n/a |
- |
1 |
F Khallouf |
5 |
n/a |
- |
1 |
L Jolibois |
5 |
2 |
- |
1 |
G Lehmann |
5 |
n/a |
- |
1 |
J Mahaux |
5 |
2 |
- |
1 |
Given the size and composition of the Board there was no
requirement to hold a nomination committee during the year.
A procedure exists for the Directors, in the furtherance of
their duties, to take independent professional advice if necessary,
under the guidance of the Company Secretary and at the Company’s
expense. All Directors have access to the advice and services of
the Company Secretary, who is responsible to the Chairman for
ensuring that Board procedures are complied with and that
applicable rules and regulations are followed.
Responsibilities and membership of
Board Committees
The Board has agreed written terms of reference for the
Nomination Committee, Remuneration Committee, Audit Committee and
HSE committee. The terms of reference for the Board Committees are
published on the Company’s website, www.cadoganpetroleum.com, and
are also available from the Company Secretary at the Registered
Office. A review of the Committees including their membership and
activities of all Board Committees is provided on pages 31 to
41.
Internal control
The Directors are responsible for the Group’s system of internal
control and for maintaining and reviewing its effectiveness. The
Group’s systems and controls are designed to safeguard the Group’s
assets and to ensure the reliability of information used both
within the business and for publication. The Board has delegated
responsibility for the monitoring and review of the Group’s
internal controls to the Audit Committee.
Systems are designed to manage, rather than eliminate the risk
of failure to achieve business objectives and can provide only
reasonable, and not absolute assurance against material
misstatement or loss.
The key features of the Group’s internal control and risk
management systems that ensure the accuracy and reliability of
financial reporting include clearly defined lines of accountability
and delegation of authority, policies and procedures that cover
financial planning and reporting, preparing consolidated financial
statements, capital expenditure, project governance and information
security.
The key features of the internal control systems, which operated
during 2020 and up to the date of signing the Financial Statements
are documented in the Group’s Corporate Governance Policy Manual
and Finance Manual. These manuals and policies have been circulated
and adopted throughout the Group throughout the period.
Day-to-day responsibility for the management and operations of
the business has been delegated to the Chief Executive Officer and
senior management. Certain specific administrative functions are
controlled centrally. Taxation and treasury functions report to the
Group Director of Finance who reports directly to the Chief
Executive Officer.
The legal function for Ukraine’s related assets and activities
is managed by the General Counsel, who reports to the General
Director of Cadogan Ukraine. The Health, Safety and Environment
functions report to the Chairman of the HSE Committee. The Group
does not have an internal audit function. Due to the small scale of
the Group’s operations at present, the Board does not feel that it
is appropriate or economically viable to have an internal audit
function in place, however this will be kept under review by the
Audit Committee on an annual basis.
The Board has reviewed internal controls and risk management
processes, in place from the start of the year to the date of
approval of this report. During the course of its review the Board
did not identify nor were advised of any failings or weaknesses
which it has deemed to be significant.
Relations with shareholders
The Chairman and Executive Directors of the Company have a
regular dialogue with analysts and substantial shareholders. The
outcome of these discussions is reported to the Board at quarterly
meetings and discussed in detail. Mr Lehmann, as the Senior
Independent Director, is available to meet with shareholders who
have questions that they feel would be inappropriate to raise via
the Chairman or Executive Directors.
The Annual General Meeting is used as an opportunity to
communicate with all shareholders. In addition, financial results
are posted on the Company’s website, www.cadoganpetroleum.com, as
soon as they are announced. The Notice of the Annual General
Meeting is also contained on the Company’s website,
www.cadoganpetroleum.com. It is intended that the Chairmen of the
Nomination, Audit and Remuneration Committees will be present at
the Annual General Meeting. The results of all resolutions will be
published on the Company’s website, www.cadoganpetroleum.com.
Directors’ section 172 statement
The disclosure describes how the Directors have regard to the
matters set out in section 172(1)(a) to (f) and forms the
Directors’ statement required under section 414CZA of The Companies
Act 2006. This new reporting requirement is made in accordance with
the new corporate governance requirements identified in The
Companies (Miscellaneous Reporting) Regulations 2018.
The matters set out in section 172(1) (a) to (f) are that a
Director must act in the way they consider, in good faith, would be
most likely to promote the success of the Company for the benefit
of its members as a whole, and in doing so have regard (amongst
other matters) to:
(a) the likely consequences of any decision in the long
term;
(b) the interests of the Company’s employees;
(c) the need to foster the Company’s business relationships with
suppliers, customers and others;
(d) the impact of the Company’s operations on the community and
the environment;
(e) the desirability of the Company maintaining a reputation for
high standards of business conduct; and
(f) the need to act fairly between members of the Company.
Being sustainable in our activities means conducting our
business with respect for the environment and for the communities
hosting us, with the aim of increasing the benefit and value to our
stakeholders. We recognize that this is a key element to be
competitive and to maintain our licence to operate.
Directors’ section 172 statement
(continued)
Further details of how the Directors have regard to the issues,
factors and stakeholders considered relevant in complying with S
172 (1) (a)-(f), the methods used to engage with stakeholders and
the effect on the Group’s decision making can be found throughout
the annual report and in particular pages 21 (which outlines how
the Company engages with its stakeholders), pages 20 to 22 (which
contains Cadogan’s corporate responsibility statement) pages 28 to
29 (which contains the Company’s report on greenhouse gas
emissions) and page 33 (which outlines the ways in which the
Company engages with its shareholders).
In particular, during 2020 the Directors reviewed the impact of
Covid-19 pandemic on the processes of the Company and specifically
its employees and the communities in which it operates. Specific
decisions and measures have been taken to ensure the health and
security and to provide assistance where needed (pages 27 to
28).
Also, as a consequence of the continuous Covid-19 and the
volatility of the oil and gas prices, and their potential impact on
the operational activities and financial situation of the Group,
the Directors carefully analysed the going concern and any
consequence on the future activities (pages 13 to 18).
The Group has implemented an integrated HSE management system
aiming to ensure a safe and environmentally friendly culture in the
organization (pages 20 to 21). However, regarding the environmental
sustainability of the Group’s activities, the Directors are fully
aware of the need to direct future development in new activities
with a lower impact on environment (CEO outlook page 10, pages 28
to 29).
When assessing the Proger instrument (Loan and Call Option), the
Directors carefully considered the issues and decisions with their
impact on the Group and all of its stakeholders (pages 8, 9, 17,
91, 92).
The Board has a formal schedule of matters specifically reserved
for its decision, including approval of acquisitions and disposals,
major capital projects, financial results, Board appointments,
dividend recommendations, material contracts and Group strategy.
For each Board meeting, the Directors receive a Board pack
including management accounts, briefing papers on commercial and
operational matters and major capital projects including
acquisitions. The Board also receives briefings from key management
on specific issues.
Audit Committee Report
The Audit Committee is appointed by the Board, on the
recommendation of the Nomination Committee, from the Non-Executive
Directors of the Group. The Audit Committee’s terms of reference
are reviewed annually by the Audit Committee and any changes are
then referred to the Board for approval. The terms of reference of
the Committee are published on the Company’s website,
www.cadoganpetroleum.com, and are also available from the Company
Secretary at the Registered Office. Two members constitute a
quorum.
Responsibilities
- To monitor the integrity of the annual and interim financial
statements, the accompanying reports to shareholders, and
announcements regarding the Group’s results;
- To review and monitor the effectiveness and integrity of the
Group’s financial reporting and internal financial controls;
- To review the effectiveness of the process for identifying,
assessing and reporting all significant business risks and the
management of those risks by the Group;
- To oversee the Group’s relations with the external auditor and
to make recommendations to the Board, for approval by shareholders,
on the appointment and removal of the external auditor;
- To consider whether an internal audit function is appropriate
to enable the Audit Committee to meet its objectives; and
- To review the Group’s arrangements by which staff of the Group
may, in confidence, raise concerns about possible improprieties in
matters of financial reporting or other matters.
Governance
Ms Jolibois and Mr Mahaux are both members of the Audit
Committee. The Audit Committee is chaired by Ms Jolibois who had
relevant financial experience within a major European company as
well as holding several non-executive roles in major international
entities.
At the invitation of the Audit Committee, the Group Director of
Finance and external auditor regularly attend meetings. The Company
Secretary attends all meetings of the Audit Committee.
The Audit Committee also meets the external auditor without
management being present.
Activities of the Audit Committee
During the year, the Audit Committee discharged its
responsibilities as follows:
Assessment of the effectiveness of the
external auditor
The Committee has assessed the effectiveness of the external
audit process. They did this by:
- Reviewing the 2020 external audit plan;
- Discussing the results of the audit including the auditor’s
views on material accounting issues and key judgements and
estimates, and their audit report;
- Considering the robustness of the audit process;
- Reviewing the quality of the service and people provided to
undertake the audit; and
- Considering their independence and objectivity.
Financial statements
The Audit Committee examined the Group’s consolidated and
Company’s financial statements and, prior to recommending them to
the Board, considered:
- the appropriateness of the accounting policies adopted;
- reviewed critical judgements, estimates and underlying
assumptions; and
- assessed whether the financial statements are fair, balanced
and understandable.
Going concern
After making enquiries and considering the uncertainties
described on pages 15 to 19, the Committee has a reasonable
expectation that the Company and the Group has adequate resources
to continue in operational existence for the foreseeable future and
consider the going concern basis of accounting to be appropriate.
For further detail including the assessment of the impact of
Covid-19 and the basis for the conclusion, please refer to the
detailed discussion of the assumptions outlined in note 3 (b) to
the Consolidated Financial Statements.
Internal controls and risk
management
The Audit Committee reviews and monitors financial and control
issues throughout the Group including the Group’s key risks and the
approach for dealing with them. Further information on the risks
and uncertainties facing the Group are detailed on pages 105 to 107
and in note 26 to the financial statements.
External auditor
The Audit Committee is responsible for recommending to the
Board, for approval by the shareholders, the appointment of the
external auditor.
The Audit Committee considers the scope and materiality for the
audit work, approves the audit fee, and reviews the results of the
external auditor’s work. Following the conclusion of each year’s
audit, it considers the effectiveness of the external auditor
during the process. An assessment of the effectiveness of the audit
process was made, considering reports from the auditor on its
internal quality procedures. The Committee reviewed and approved
the terms and scope of the audit engagement, the audit plan and the
results of the audit with the external auditor, including the scope
of services associated with audit-related regulatory reporting
services. Additionally, auditor independence and objectivity were
assessed, considering the auditor’s confirmation that its
independence is not impaired, the overall extent of non-audit
services provided by the external auditor and the past service of
the auditor.
There is an agreed policy on the engagement of the external
auditor for non-audit services to ensure that its independence and
objectivity are safeguarded. Audit related services can be awarded
to the external auditor by the executive Directors provided the
work does not exceed £50,000 in fees per item. Work exceeding
£50,000 requires approval by the Audit Committee. All other
non-audit work either requires Audit Committee approval or forms
part of a list of prohibited services, where it is felt the
external auditor’s independence or objectivity may be
compromised.
A breakdown of the non-audit fees is disclosed in note 10 to the
Consolidated Financial Statements. The Audit Committee has reviewed
the nature, level and timing of these services in the course of the
year and is confident that the objectivity and independence of the
auditor are not impaired by the reason of such non-audit work.
Internal audit
The Audit Committee considers annually the need for an internal
audit function and believes that, due to the size of the Group and
its current stage of development, an internal audit function will
be of little benefit to the Group.
Whistleblowing
The Group’s whistleblowing policy encourages employees to report
suspected wrongdoing and sets out the procedures employees must
follow when raising concerns. The policy, which was implemented
during 2008 is reviewed periodically. The Group’s policies on
anti-bribery, the acceptance of gifts and hospitality, and business
conduct and ethics are circulated to staff as part of a combined
manual on induction with changes regularly communicated.
Overview
As a result of its work during the year, the Audit Committee has
concluded that it has acted in accordance with its terms of
reference and has ensured the independence and objectivity of the
external auditor.
The Chairman of the Audit Committee will be available at the
Annual General Meeting to answer any questions about the work of
the Audit Committee.
Lilia Jolibois
Chairman of the Audit Committee
5 May 2021
Health, Safety and Environment Committee Report
The Health, Safety and Environment Committee (the ”HSE
Committee”) is appointed by the Board, on the recommendation of the
Nomination Committee. The HSE Committee’s terms of reference are
reviewed annually by the Committee and any changes are then
referred to the Board for approval. The terms of reference of the
Committee are published on the Company’s website,
www.cadoganpetroleum.com, and are also available from the Company
Secretary at the Registered Office. Two members constitute a
quorum, one of whom must be a Director.
Governance
The Committee is chaired by Mr Andrey Bilyi (Cadogan
Ukraine General Director) as acting Head of the HSE Committee and
its other member is Ms Snizhana Buryak (HSE Manager). The CEO
attends meetings of the HSE Committee as necessary. During 2020,
the HSE Committee held six meetings to monitor the HSE risks and
activities across the business, following which actions were
identified for the continuous improvement of the various processes
and the mitigation of risk.
Responsibilities
- To regularly maintain and implement the continuous improvement
of the HSE Management System with the aim of improving the
Company’s performances;
- Assessments of the risks to employees, contractors, customers,
partners, and any other people who could be affected by the
Company’s activities with the aim of reducing the global risk of
the Company and increasing its level of acceptability;
- Evaluate the effectiveness of the Group’s policies and systems
for identifying and managing health, safety and environmental risks
within the Group’s operation;
- Assess the policies and systems within the Group for ensuring
compliance with health, safety and environmental regulatory
requirements;
- Assess the performance of the Group with regard to the impact
of health, safety, environmental and community relations decisions
and actions upon employees, communities and other third parties and
also assess the impact of such decisions and actions on the
reputation of the Group and make recommendations to the Board on
areas for improvement;
- On behalf of the Board, receive reports from management
concerning any fatalities and serious accidents within the Group
and actions taken by management as a result of such fatalities or
serious accidents;
- Evaluate and oversee, on behalf of the Board, the quality and
integrity of any reporting to external stakeholders concerning
health, safety, environmental and community relations issues;
and
- Where it deems it appropriate to do so, appoint an independent
auditor to review performance with regard to health, safety,
environmental and community relations matters and review any
strategies and action plans developed by management in response to
issues raised and, where appropriate, make recommendations to the
Board concerning the same.
Activities of the Health, Safety and
Environment Committee
The HSE Committee in discharging its duties reviewed and
considered the following:
- Company activities execution and control over contractors
services execution in line with company policies and HSE
procedures
- Monthly statistics and reports on the activity were regularly
distributed to the CEO, Management and to the members of the
committee;
- Ensured that the implementation of new legislation and
requirements were punctually followed-up and promptly updated;
- Compliance with HSE regulatory requirements was ensured through
discussion of the results of inspections, both internal inspections
and those carried out by the Authorities. The results of the
inspections and drills were analysed and commented to assess the
need for corrective actions and/or training initiatives;
- A standing item was included on the agenda at every meeting to
monitor monthly HSE performance, key indicators and statistics
allowing the HSE Committee to assess the Company’s performance by
analysing any lost-time incidents, near misses, HSE training and
other indicators;
- Interaction with contractors, Authorities, local communities
and other stakeholders were discussed among other HSE
activities;
- Compliance to ISO 14001 and ISO 45001 has been proved by the
authorized third party auditor. Also the Company had its entire
data calculation process as well as emissions measurement
system re-validated by a different independent third
party.
- Ensuring all the Observation and Actions requested by the
Certification Body have been implemented
Overview
The Company’s HSE Management System and the Guidelines and
Procedures have been updated to fit with the ISO requirements and
are adequate for the proper execution of the Company’s
operations.
As a result of its work during the year, the HSE Committee has
concluded that it has acted in accordance with its terms of
reference.
Nomination Committee Report
The Board delegates some of its duties to the Nomination
Committee and appoints the members of the Nomination Committee
which are non-executive Directors of the Group. The membership of
the Committee is reviewed annually and any changes to its
composition are referred to the Board for approval. The terms of
reference of the Nomination Committee are published on the
Company’s website, www.cadoganpetroleum.com, and are available from
the Company Secretary at the Registered Office. Two members
constitute a quorum.
Governance
Mr. Michel Meeùs (Remuneration and Nomination Committee
Chairman), Ms. Lilia Jolibois, Mr.
Jacques Mahaux and Mr. Gilbert Lehmann (Non-Executive Directors) are
the members of the Nomination Committee. The Company Secretary
attends all meetings of the Nomination Committee.
Responsibilities
- To regularly review the structure, size and composition
(including the skills, knowledge and experience) required of the
Board compared to its current position and make recommendations to
the Board with regard to any changes;
- Be responsible for identifying and nominating candidates to
fill Board vacancies as and when they arise, for the Board’s
approval;
- Before appointments are made by the Board, evaluate the balance
of skills, knowledge, experience and diversity (gender, ethnic,
age, sex, disability, educational and professional backgrounds,
etc.) on the Board and, in the light of this evaluation, prepare a
description of the role and capabilities required for a particular
appointment; and
- In identifying suitable candidates, the Nomination Committee
shall use open advertising or the services of external advisers to
facilitate the search and consider candidates from a wide range of
backgrounds on merit, ensuring that appointees have enough time
available to devote to the position.
The Nomination Committee shall also make recommendations to the
Board concerning:
- Formulating plans for succession for both executive and
non-executive Directors and in particular for the key roles of
Chairman and Chief Executive Officer;
- Membership of the Audit and Remuneration Committees, in
consultation with the Chairmen of those committees;
- The reappointment of any non-executive Director at the
conclusion of their specified term of office, having given due
regard to their performance and ability to continue to contribute
to the Board in the light of the knowledge, skills and experience
required; and
- The re-election by shareholders of any Director having due
regard to their performance and ability to continue to contribute
to the Board in the light of the knowledge, skills and experience
required.
Any matters relating to the continuation in office of any
Director at any time including the suspension or termination of
service of an executive Director as an employee of the Company
subject to the provisions of the law and their service
contract.
Activities of the Nomination
Committee
During the financial year under review, the Committee reviewed
and considered the following:
- The size, structure and composition of the Board in the light
of the current business environment, the Company's anticipated
future activities and particularly the independence of the
Non-Executive Directors;
- Its internal governance documents and the Policy;
The Committee recommends the re-election of the five incumbent
Directors at the AGM.
Overview
As a result of its work during the year, the Committee has
concluded that it has acted in accordance with its terms of
reference. The Chairman of the Nomination Committee will be
available at the Annual General Meeting to answer any questions
about the work of the Committee.
Michel Meeùs
Nomination Committee Chairman
5 May 2021
Remuneration Committee
Statement from the Chairman
I am pleased to present the Annual Report on Remuneration for
the year ended 31 December 2020.
Cadogan’s Remuneration Policy was approved as proposed by the
shareholders at the Annual General Meeting of June 19, 2018 and is attached at the end of the
Annual Report on Remuneration. The Remuneration Committee is not
proposing to make any changes to the existing Policy however in
line with industry best practice and the three-year Policy cycle
the Company will be seeking shareholder approval at this year’s
AGM.
The key elements of the Remuneration Policy are:
- A better long-term alignment of the executives’ remuneration
with the interests of the shareholders;
- A material reduction in the maximum remuneration level for the
Executive Directors, both in terms of annual bonus and of long-term
incentive (performance share plan);
- The payment of at least 50% of the Annual Bonus in shares with
the remaining 50% to be paid in cash or shares at the discretion of
the Remuneration Committee. Shares will be priced for this award
based on their market value at closing on the Business Day prior to
the Subscription Date;
- The introduction of claw-back and malus
provisions on both bonuses and share awards; and
- The expectation that the Executive Directors build a
substantial shareholding position in the company through their
mandate.
In 2020 the Remuneration Committee enrolled again the CEO in a
performance-related, bonus scheme built around a scorecard with a
set of challenging KPI’s aligned with the company strategy.
However, given the impact of Covid-19 and the volatility in oil and
gas prices the Remuneration Committee, along with agreement from
the CEO, have decided to postpone a variable performance related
bonus for year-ended 2020.
Michel Meeùs
Chairman of the Remuneration Committee
5 May 2021
ANNUAL REPORT ON REMUNERATION 2020
Remuneration Committee Report
The Remuneration Committee is committed to principles of
accountability and transparency to ensure that remuneration
arrangements demonstrate a clear link between reward and
performance.
Governance
The Remuneration Committee is appointed by the Board from the
non-executive Directors of the Company. The Remuneration
Committee’s terms of reference are reviewed annually by the
Remuneration Committee and any changes are then referred to the
Board for approval. The terms of reference of the Remuneration
Committee are published on the Company’s website,
www.cadoganpetroleum.com, and are also available from the Company
Secretary at the Registered Office.
The Remuneration Committee consists of Mr. Michel Meeùs, Ms.
Lilia Jolibois, Mr. Jacques Mahaux and Mr. Gilbert Lehmann. At the discretion of the
Remuneration Committee, the Chief Executive Officer is invited to
attend meetings when appropriate but is not present when his own
remuneration is being discussed. None of the directors are involved
in deciding their own remuneration. The Company Secretary attends
the meetings of the Remuneration Committee.
Responsibilities
In summary, the Remuneration Committee’s responsibilities, as
set out in its terms of reference, are as follows:
- To determine and agree with the Board the policy for the
remuneration of the executive Directors, the Company Secretary and
other members of executive management as appropriate;
- To consider the design, award levels, performance measures and
targets for any annual or long-term incentives and approve any
payments made and awards vesting under such schemes;
- Within the terms of the agreed remuneration policy, to
determine the total individual remuneration package of each
executive Director and other senior executives including bonuses,
incentive payments and share options or other share awards;
and
- To ensure that contractual terms on termination, and any
payments made, are fair to the individual and the Company, that
failure is not rewarded and that the duty to mitigate loss is fully
recognised.
Overview
The Chairman and Executive Directors of the Company have a
regular dialogue with analysts and substantial shareholders, which
includes the subject of Directors’ Remuneration. The outcome of
these discussions is reported to the Board and discussed in detail
both there and during meetings of the Remuneration Committee.
As a result of its work during the year, the Remuneration
Committee has concluded that it has acted in accordance with its
terms of reference. The chairman of the Remuneration Committee will
be available at the Annual General Meeting to answer any questions
about the work of the Committee. Alternatively, Mr. Lehmann, as the
Senior Independent Director, is available to shareholders who have
concerns that they feel would be inappropriate to raise via the
Chairman or Executive Directors.
Remuneration consultants
The Remuneration Committee did not take any advice from external
remuneration consultants, with the exception of the review
undertaken of the Remuneration Report.
Single total figure of remuneration
for executive and non-executive directors (audited)
|
Salary
and fees |
Taxable benefit[6] |
Contributions to pension schemes |
Annual
bonus |
Total |
|
$ |
$ |
$ |
$ |
$ |
Executive Director |
|
|
|
|
|
|
|
|
|
2020 |
2019 |
2020 |
2019 |
2020 |
2019 |
2020 |
2019 |
2020 |
2019 |
F Khallouf |
517,389 |
61,496 |
59,294[7] |
- |
58,300 |
- |
- |
382,969[8] |
634,983 |
444,465 |
G Michelotti |
- |
431,085[9] |
- |
45,453 |
- |
- |
- |
112,140 |
- |
588,678 |
Non-executive
Directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M Meeùs |
89,000 |
49,608 |
- |
- |
- |
- |
- |
- |
89,000 |
49,608 |
L Jolibois |
48,000 |
5,918 |
- |
- |
- |
- |
- |
- |
48,000 |
5,918 |
J Mahaux |
43,000 |
5,301 |
- |
- |
- |
- |
- |
- |
43,000 |
5,301 |
G Lehmann |
38,000 |
54,707 |
- |
- |
- |
- |
- |
- |
38,000 |
54,707 |
Z Furst |
- |
103,699 |
- |
- |
- |
- |
- |
- |
- |
103,699 |
E Testa |
- |
39,146 |
- |
- |
- |
- |
- |
- |
- |
39,146 |
A Schenato |
- |
138,351 |
- |
- |
- |
- |
- |
- |
- |
138,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Fixed Remuneration |
Total
Variable Remuneration |
|
$ |
$ |
|
2020 |
2019 |
2020 |
2019 |
Executive Director |
634,983 |
538,034[10] |
- |
495,1093 |
Non-executive Directors |
218,000 |
396,730 |
- |
- |
|
|
|
|
|
|
Notes to the table
Mr Fady Khallouf
Mr Khallouf was appointed as Chief Executive Officer on
15 November 2019. Mr Khallouf’s
salary is €440,000 per annum. As part of Mr Khallouf’s employment
agreement, a welcome bonus equivalent in value to 5,500,000
ordinary shares (using the market value of the shares on the
business day prior to the date of issue) is payable to Mr Khallouf
and a holding period of two years is applicable to the shares
acquired. Pursuant to the terms of the bonus, the amount must be
subscribed for ordinary shares in the Company at such time as the
executive agrees. The welcome bonus was provided to Mr Khallouf in
May 2020.
Mr Guido Michelotti
Mr Michelotti was Chief Executive Officer until his resignation on
15 November 2019. Mr Michelotti’s
salary was €440,000 per annum. In 2019, Mr Michelotti received the
Performance Bonus of €100,000 awarded to him by Remuneration
Committee.
KPIs
In 2020 the CEO was subject to a performance-related, bonus scheme
built around a scorecard with a set of challenging KPI’s aligned
with the company strategy. The Remuneration Committee, after
consultation with the CEO, have decided to postpone any variable
performance related bonus for year ended 2020 given the impact of
Covid-19 and volatility in oil and gas prices.
Benefits
Benefits may be provided to the executive directors, in the form of
private medical insurance and life assurance.
The Chairman and Non-Executive
Directors
As mentioned above, fees for non-Executive Directors were
reduced by 20 percent on 15th January 2020 with effect from 15th
November 2019. The fees are as
follows: the Chairman’s fee at $89,000 and the fee for acting as a non-executive
Director at $38,000 with an
additional $10,000 for acting as
Chairman of the Audit Committee and an additional $5,000 for a committee membership.
Scheme interests awarded during the
financial year (audited)
There were no scheme interests awarded during the year.
Payments to past directors
(audited)
In 2020 there were no payments to past directors.
In 2020, the Company provided the previous CEO, Mr Guido Michelotti with newly issued 2,270,549
Ordinary shares of £0.03 each in the capital of the Company. The
payment for the issued shares in the Company was satisfied in full,
by using the entire amount of the 2018 and 2019 bonuses due to Mr
Guido Michelotti totalling €75,900
($83,125).
Payments for loss of office
(audited)
No notice period was either worked or paid.
Directors’ interests in shares
(audited)
The beneficial interests of the Directors in office as at
31 December 2020 and their connected
persons in the Ordinary shares of the Company at 31 December 2020 are set out below.
Shares as at 31 December |
|
2020 |
2019 |
Michel Meeùs |
|
26,000,000 |
26,000,000 |
Fady Khallouf |
|
8,337,031 |
- |
Gilbert Lehmann |
|
- |
- |
Lilia Jolibois |
|
- |
- |
Jacques Mahaux |
|
- |
- |
There were changes in the Directors shareholding at 31 December 2020 compared to 31 December 2019 (Fady Khallouf).
The Company does not currently operate formal shareholding
guidelines. Whilst there is no specified level, the Company expects
that under the new Remuneration Policy, the Executive Director will
continue to build up a significant shareholding position in the
Company during his mandate.
The Company’s performance
The graph below highlights the Company’s total shareholder
return (“TSR”) performance for the last twelve years compared to
the FTSE All Share Oil & Gas Producers index. This index has
been selected on the basis that it represents a sector specific
group, which is an appropriate group for the Company to compare
itself against, and has been retained ever since, primarily for
continuity purposes TSR is the return from a share or index based
on share price movements and notional reinvestment of declared
dividends.
Historic Remuneration of Chief
Executive
|
Salary |
Taxable
benefits |
Annual
bonus |
Long-term
incentives |
Pension |
Loss of
office |
Total |
|
$ |
$ |
$ |
$ |
$ |
$ |
$ |
2009 |
422,533 |
- |
284,552 |
- |
- |
- |
707,085 |
2010 |
547,067 |
- |
- |
- |
- |
- |
547,067 |
2011 |
669,185 |
- |
- |
- |
- |
- |
669,185 |
2012 |
511,459 |
- |
- |
- |
31,966 |
126,808 |
670,233 |
2013 |
384,941 |
- |
- |
- |
- |
- |
384,941 |
2014 |
405,433 |
20,734 |
- |
- |
- |
- |
426,167 |
2015 |
432,409[11] |
15,987 |
243,132 |
- |
- |
- |
691,528 |
2016 |
487,080 |
15,353 |
210,504[12] |
- |
- |
- |
712,937 |
2017 |
497,288 |
27,273 |
126,992 |
- |
- |
- |
651,553 |
2018 |
521,664 |
39,838 |
201,872 |
- |
- |
- |
763,374 |
2019 |
492,581 |
45,453 |
495,109[13] |
- |
- |
- |
1,033,143 |
2020 |
517,389 |
59,294 |
- |
- |
58,300 |
- |
634,983 |
In 2020, the Remuneration Committee, after consultation with the
CEO, have decided to postpone any variable performance related
bonus for year ended 2020 given the impact of Covid-19 and
volatility in oil and gas prices.
(2019: 10% of the maximum bonus as per the approved Remuneration
Policy[14]).
The annual bonus received by the CEO as a percentage of the
maximum opportunity is presented in the following table.
Year |
CEO |
CEO single figure of total
remuneration $ |
Annual bonus pay-out against
maximum opportunity % |
2020 |
Mr. Khallouf |
634,983 |
- |
2019 |
Mr.
Khallouf[15] |
444,465 |
- |
|
Mr. Michelotti |
588,678 |
10 |
2018 |
Mr. Michelotti |
763,374 |
32 |
2017 |
Mr. Michelotti |
651,553 |
12 |
2016 |
Mr. Michelotti |
712,937 |
22[16] |
2015 |
Mr. Michelotti |
502,021 |
273,
[17] |
Mr. des Pallieres |
189,507 |
- |
2014 |
Mr. des Pallieres |
426,167 |
- |
2013 |
Mr. des Pallieres |
384,941 |
- |
2012 |
Mr. des Pallieres |
389,935 |
- |
Mr. Barron |
280,298[18] |
- |
2011 |
Mr. des
Pallieres[19] |
273,201 |
- |
Mr. Barron |
395,984 |
- |
2010 |
Mr. Barron |
547,067 |
- |
2009 |
Mr.
Barron[20] |
707,085 |
67 |
Percentage change in the remuneration
of the Chief Executive
The following table shows the percentage change in the
remuneration of the Chief Executive in 2020 and 2019 compared to
that of all employees within the Group.
|
|
|
|
|
2020 |
2019 |
Average |
|
|
|
|
|
$’000 |
$’000 |
change, % |
Base
salary |
CEO[21] |
|
517 |
493 |
5% |
|
|
|
All
employees[22] |
1,906 |
2,237 |
-15% |
|
|
|
|
|
|
|
|
Taxable
benefits |
CEO |
|
118[23] |
45 |
162% |
|
|
|
All
employees |
139 |
60 |
114% |
|
|
|
|
|
|
|
|
Annual
Bonus |
CEO[24] |
|
- |
495 |
-100% |
|
|
|
All
employees |
131 |
495 |
-74% |
|
|
|
|
|
|
|
|
Total |
|
|
CEO |
635 |
1,033 |
-39% |
|
|
|
All
employees |
2,176 |
2,797 |
-22% |
|
|
|
|
|
|
|
In 2020 none of the directors participated in long-term
incentives.
In 2020 there was no increase in executive and non-executive
directors' salary in base currency. The difference in pay
represents the change in exchange rate between the base currency
and USD as a reporting currency.
Percentage change in Non-Executive
director remuneration
|
Michel Meeùs |
All
employees |
|
2020
$’000 |
2019
$’000 |
%
change
2020 - 2019 |
%
change
2020 - 2019 |
Base salary/fees |
89,000 |
49,608 |
79% |
-15% |
Taxable benefits (including
pensions) |
- |
- |
- |
114% |
Annual bonus |
- |
- |
- |
-74% |
Total |
89,000 |
49,608 |
79% |
-22% |
The 79% increase is due to the fact that Michel Meeus stepped-in into the position of
Chairman in 15 November 2019.
|
Lilia
Jolibois |
All
employees |
|
2020
$’000 |
2019
$’000 |
%
change
2020 - 2019 |
%
change
2020 - 2019 |
Base salary/fees |
48,000 |
5,918 |
711% |
-15% |
Taxable benefits (including
pensions) |
- |
- |
- |
114% |
Annual bonus |
- |
- |
- |
-74% |
Total |
48,000 |
5,918 |
711% |
-22% |
|
Jacques Mahaux |
All
employees |
|
2020
$’000 |
2019
$’000 |
%
change
2020 - 2019 |
%
change
2020 - 2019 |
Base salary/fees |
43,000 |
5,301 |
711% |
-15% |
Taxable benefits (including
pensions) |
- |
- |
- |
114% |
Annual bonus |
- |
- |
- |
-74% |
Total |
43,000 |
5,301 |
711% |
-22% |
Lilia Jolibois and Jacques Mahaux were appointed as non-executive
directors in 15 November 2019.
|
Gilbert Lehmann |
All
employees |
|
2020
$’000 |
2019
$’000 |
%
change
2020 - 2019 |
%
change
2020 - 2019 |
Base salary/fees |
38,000 |
54,707 |
-31% |
-15% |
Taxable benefits (including
pensions) |
- |
- |
- |
114% |
Annual bonus |
- |
- |
- |
-74% |
Total |
38,000 |
54,707 |
31% |
-22% |
Remuneration of Gilbert Lehman
has been revised starting from 15 November
2019.
Relative importance of spend on
pay
The table below compares shareholder distributions (i.e.
dividends and share buybacks) and total employee pay expenditure of
the Group for the financial years ended 31
December 2019 and 31 December
2020.
|
2020
$’000 |
2019
$’000 |
Year-on-year change,
% |
All-employee remuneration |
2,176 |
2,797 |
-22% |
Distributions to shareholders |
- |
- |
- |
Shareholder voting at the Annual General Meeting
The Directors’ Remuneration Policy was approved by shareholders
at the Annual General Meeting held on 20
June 2018 and remains unchanged. The Remuneration Policy can
be found on the Group’s website and at pages 50 to 63 of this
Annual Report on Remuneration. The votes cast by proxy were as
follows:
Directors’ Remuneration
Policy |
Number of
votes |
|
% of
votes cast |
For |
62,011,302 |
|
99.74 |
Against |
164,370 |
|
0.26 |
Total votes cast |
62,175,672 |
|
100.00 |
Number of votes withheld |
17,071 |
|
|
The Directors’ Annual Report on Remuneration is approved by
shareholders at each Annual General Meeting. A summary of the votes
cast by proxy in 2019 and 2020 were as follows:
|
2020 |
2019 |
Director’s
Annual Report on Remuneration |
Number of votes |
% of
votes cast |
Number of votes |
|
% of
votes cast |
For |
92,185,286 |
99.78 |
61,111,463 |
|
99.99 |
Against |
202,370 |
0.22 |
14,370 |
|
0.01 |
Total votes
cast |
92,387,656 |
|
61,125,833 |
|
100.00 |
Number of votes
withheld |
80,071 |
|
0 |
|
|
Implementation of Remuneration Policy
in 2020
The performance related elements of remuneration remain
unchanged and will be built around a scorecard with a set of KPI’s
aligned with the Group strategy. The Remuneration Policy can be
found on the Group’s website and at pages 50 to 63 of this Annual
Report on Remuneration.
Approval
The Directors’ Annual Report on Remuneration was approved by the
Board on 4 May 2021 and signed on its
behalf by:
Michel Meeùs
Chairman
5 May 2021
Directors’ Remuneration Policy
This Directors’ Remuneration Policy (the “Policy”) contains the
information required to be set out as the directors’ remuneration
policy for the purposes of The Large and Medium-sized Companies and
Groups (Accounts and Reports) (Amendment) Regulations 2013.
The Policy was initially approved by shareholders at the 2018
AGM of the Company. The Remuneration Committee is not proposing to
make any changes to the existing Policy however in line with
industry best practice and the three-year Policy cycle the Company
will be seeking shareholder approval at this year’s AGM. The
effective date of this Policy is the date on which the Policy is
approved by shareholders.
The Policy applies in respect of all executive officers
appointed to the Board of Directors (“executive directors”) and
non-executive directors. Other senior executives may be subject to
the Policy, including in relation to annual bonus and shares
incentive arrangements in particular if and to the extent that the
Remuneration Committee determines it is appropriate.
The Remuneration Committee will keep the Policy under review to
ensure that it continues to promote the long-term success of the
Company by giving the Company its best opportunity of delivering on
the business strategy. It is the Remuneration Committee’s intention
that the Policy be put to shareholders for approval every three
years unless there is a need for the Policy to be approved at an
earlier date.
The Company aims to provide sufficient flexibility in the Policy
for unanticipated changes in compensation practices and business
conditions to ensure the Remuneration Committee has appropriate
discretion to retain its top executives who perform. The
Remuneration Committee reserves the right to approve any payments
that may be outside the terms of this Policy, where the terms of
that payment were agreed before the Policy came into effect, or
before the individual became a director of the Company.
Maximum caps are provided to comply with the required
legislation and should not be taken to indicate an intent to make
payments at that level. The maximum caps are valid at the time that
the relevant employment agreement or appointment letter is entered
into and the caps may be adjusted to take into account fluctuations
in exchange rates.
- Remuneration policy table: executive directors
Component |
Purpose and link to strategy |
Maximum opportunity |
Operation and performance measures |
Salary and Fees |
To provide fixed remuneration at an
appropriate level, to attract and retain directors as part of the
overall compensation package. |
The maximum annual base
combined salary and fees for executive directors is
€440,000[25].
The Remuneration Committee will consider the factors set out under
the "Operation" column when determining the appropriate level of
base salary within the formal Policy maximum. |
Salary is paid on a
monthly basis.
The Remuneration Committee takes into account a number of factors
when setting salaries including:
- scope
and difficulty of the role;
-
skills and experience of the individual;
-
salary levels for similar roles within the international industry;
and
- pay
and conditions elsewhere in the Group.Salaries are reviewed on an
annual basis, but are not necessarily increased at each review.
No performance measures. |
Annual Bonus |
To incentivise and reward the
achievement of individual and business objectives which are key to
the delivery of the Company's business strategy. |
The maximum award is 125% of
combined base salary and fees. |
The payment of any
bonus is at the discretion of the Board with reference to the
performance year.
- The
Remuneration Committee sets, in advance, a scorecard with a set of
Key Performance Indicators ("KPIs") aligned with the Company's
strategy. The measures and the relative weightings are
substantiated by the Remuneration Committee and aim to be
stretching and to support the Company's business strategy.
Measures are related to Company financial performance, operational
performance and the Company’s health and safety record. In general
relative weightings of each KPI are expected not to exceed 50% and
not to be less than 10%.
- The
Remuneration Committee retains the flexibility to determine and, if
it considers appropriate, change the KPIs and weightings of the
KPIs based on the outcome of its annual review. The Remuneration
Committee may also adjust KPIs during the year to take account of
material events, such as (without limitation) material corporate
events, changes in responsibilities of an individual and/ or
currency exchange rates. Any such changes will be within the
overall target and maximum payouts approved in the policy.
- The
KPI targets and specific weightings in the scorecard are defined
annually early in the year, once the budget has been approved. A
summary of the KPI targets, weightings for the KPIs and how far the
KPIs are met will be included retrospectively each year in the
Implementation Report for the year.
- All
bonuses that may become payable are subject to malus and clawback
provisions in the event of material financial misstatement of the
Company or fraud or material misconduct on the part of the
executive, as explained further below.
- 50%
of the bonuses that may become payable must be applied to subscribe
for or acquire shares in the Company (after the deduction of any
income tax and/ or employee social security contributions payable).
The Company is proposing to adopt and operate a Deferred Bonus Plan
as a framework plan for the delivery of shares to executives, which
may be satisfied by the issue of new shares or transfer of existing
or treasury shares.
- The
Remuneration Committee will determine whether the remainder of the
bonus shall be paid in cash or must be applied to subscribe for or
acquire shares (after the deduction of any income tax and/ or
employee social security contributions payable). In making
its determination as to how the remainder of the bonus shall be
paid, the Remuneration Committee may take into account:
profitability of the Company; the executive's shareholding as
measured against any Company shareholding guidelines; potential
liabilities of the recipients to income tax and social security
contributions, among other things. Additional shares representing
the value of dividends payable on the deferred shares may be
paid.
- The
Remuneration Committee may impose holding periods of up to three
years on any of the shares delivered pursuant to the annual bonus
plan.
- There
are no prescribed minimum levels of performance in the annual bonus
structure and so it is possible that no bonus award would be
made. |
Share Incentive Arrangements |
To incentivise, retain and reward
eligible employees and align their interests with those of the
shareholders of the Company. |
Awards can be made under the PSP
with a value of up to a maximum of 200% of base salary and fees or
300% in exceptional circumstances. |
The Company has adopted
and operates the 2018 Performance Share Plan ("PSP") to replace the
2008 Performance Share Plan. The PSP offers the opportunity to earn
shares in the Company subject to the achievement of stretching but
realistic performance conditions. Performance conditions will be a
main feature of the PSP.
The PSP will be administered by the Remuneration Committee.
-
Awards can be made under the PSP at the direction of the
Remuneration Committee within the policy maximum in the form of
contingent share awards.
- PSP
awards will have a minimum vesting period of 3 years and, for
directors, the PSP awards have a further holding period of 2 years
following the end of the vesting period (subject to any number of
shares that may need to be sold to meet any income tax and employee
social security contributions due on vesting).
- The
Remuneration Committee will develop clear KPIs that aim to align
directors with Company strategy over time periods in excess of one
financial year. Any performance measures and targets used for share
incentive awards during 2019 will be relevant and stretching in
line with the overall strategy of the Company.
- The
Remuneration Committee may adjust or change the PSP measures,
targets and weightings for new awards under the PSP to ensure
continued alignment with Company strategy.
- PSP
awards are subject to malus and clawback in the event of material
financial misstatement of the Company or fraud or material
misconduct on the part of the executive.
- Upon
vesting of an award, the award holder must pay the nominal value in
respect of each share that vests.
- PSP
Awards will normally lapse where the award holder ceases employment
with the Company before vesting. PSP Awards will not lapse
and will vest immediately if the award holder is considered to be a
Good Leaver (leaves due to death or disability) subject to the
Remuneration Committee being satisfied that performance conditions
have been satisfied or are likely to be satisfied as at the end of
the relevant performance period. In other circumstances, the
Remuneration Committee may determine that awards will not lapse and
will continue to vest at their normal vesting date, subject to
pro-ration to reflect the period of service during the performance
period and performance conditions. The Remuneration Committee has
residuary discretions to disapply pro ration and bring forward the
date of vesting.
- In
the event of a change of control of the Company, if the acquiring
company agrees, awards will be exchanged for equivalent awards over
shares in the acquiring company and continue to vest according to
the original vesting schedule. If the acquiring company does not
agree to exchange the awards, the awards will vest at the
Committee's absolute discretion. Awards that vest will be subject
to time pro-ration and performance conditions.
-
Benefits under the PSP will not be pensionable.
- The
PSP Plan Limits are set out at Note 2.4 below.
|
Pension |
To provide a retirement benefit that
will foster loyalty and retain experienced executive
directors. |
Any pension benefits will be set at
an appropriate level in line with market practice, and in no event
will the contributions paid by the Company exceed 15% of combined
base salary and fees. |
No performance measures. |
Benefits |
To provide a market competitive
level of benefits to executive directors. |
Any benefits will be set at an
appropriate level in line with market practice, and in no event
will the value of the benefits exceed 15% of combined base salary
and fees. |
- The
executive directors are entitled to private medical insurance and
life assurance cover (of four times the combined salary and fee)
and directors' and officers' liability insurance.
- The
Remuneration Committee may decide to provide other benefits
commensurate with the market. Such benefits may include (for
instance) company car or allowance, physical examinations and
medical support, professional advice, assistance with filling out
tax returns and occasional minor benefits. A tax equalisation
payment may be paid to an executive director if any part of the
remuneration of the executive director becomes subject to double
taxation. Tax gross ups may be paid, where appropriate. The Company
does not, at present, provide other taxable benefits to the
executive directors.
-
Executive directors are reimbursed for reasonable business expenses
incurred in the course of carrying out their duties.
- No
performance measures. |
Notes to the executive directors' remuneration policy
table
The Remuneration Committee's philosophy is that remuneration
arrangements should be appropriately positioned to support the
Group's business strategy over the longer term and the creation of
value for shareholders. In this context the following key
principles are considered to be important:
-
remuneration arrangements should align executive and employee
interests with those of shareholders;
-
remuneration arrangements should help retain key executives and
employees; and
-
remuneration arrangements should incentivise executives to achieve
short, medium and long-term business targets which represent value
creation for shareholders. Targets should relate to the Group's
performance in terms of overall revenue and profit and the
executive's own performance. Exceptional rewards should only be
delivered if there are exceptional returns.
The Remuneration Committee reserves the right to make any
remuneration payments (including satisfying awards of variable
remuneration) and payments for loss of office notwithstanding that
they are not in line with the Policy set out above, where the terms
of that payment were agreed before the Policy came into effect, or
before the individual became a director of the Company (provided
the payment was not in consideration for the individual becoming a
director).
- Performance measures and targets
(a) Annual
Bonus
The performance measures for executive directors comprise of
financial measures and business goals linked to the Company's
strategy, which could include financial and non-financial measures.
The business goals are tailored to reflect each executive
director's role and responsibilities during the year. The
performance measures are chosen to enable the Remuneration
Committee to review the Company's and the individual's performance
against the Company's business strategy and appropriately
incentivise and reward the executive directors.
Annual bonus targets are set by the Remuneration Committee each
year. They are stretching but realistic targets which reflect the
most important areas of strategic focus for the Company. The
factors taken into consideration when setting targets include the
Company's Key Performance Indicators (which are determined annually
by the Remuneration Committee), and the extent to which they are
under the control or influence of the executive whose remuneration
is being determined.
Performance is measured over the financial year against the
measures and targets set according to the scorecard. The
Remuneration Committee retains the right to exercise its judgement
to adjust the bonus outcome for an individual to ensure the outcome
reflects any other aspects of the Company's performance that become
relevant during the financial year.
The Remuneration Committee used Company operational and
financial performances and safety as performance measures for the
2020 scorecard. For years following 2020, the structure of the
annual bonus scorecard will be reviewed by the Remuneration
Committee.
2020 Annual bonus scorecard measures for
executive directors
40% weighting |
50% weighting |
Operational performance, such as production, sales, geographical
diversification, and starting new projects. |
Company
financial performance, including cash targets and profit
targets. |
10% weighting |
Indicators of health
and safety to promote the effective risk management of the
Company. |
(b) Share
Plans
The Remuneration Committee will make the vesting of a Plan award
conditional upon the satisfaction of stretching but realistic
performance conditions. These conditions are meant to achieve a
long-term alignment of the executives’ remuneration with the
interest of the shareholders.
EBITDA growth, increase of P1 reserves (in millions boe), and
changes to the free cash-flow are the key KPIs to be used by the
Remuneration Committee and will be measured over time periods of
three financial years. The performance measures are chosen to align
the performance of participants with the attainment of financial
performance targets over the vesting period of the award. The
targets are set by the Remuneration Committee by reference to the
Company's strategy and business plan and the results achieved at
the time of the vest are determined by the Remuneration
Committee.
Under the PSP plan rules, the Board may vary a performance
target where it considers that any performance target to which an
award is subject is no longer a true or fair measure of the
participant's performance, provided that the Board must act fairly
and reasonably and that the new performance target is materially no
more difficult and no less difficult to satisfy than the original
performance target.
- Malus and clawback (applicable to bonuses and share
awards)
The Remuneration Committee has the discretion to reduce the
bonus before payment or require the executive director to pay back
shares or a cash amount in the event of material financial
misstatement of the Company or fraud or material misconduct on the
part of the executive. The amount that may be clawed back on any
such event is limited to the value of the bonus, taking into
account the cash paid and the shares delivered to the executive,
taking the value of the shares at the time of the clawback, less
any income tax or employee social security contributions paid on
the bonuses.
- Share ownership guidelines for executives
The Remuneration Committee is planning to implement share
ownership guidelines for executive directors to further align the
interests of the executive directors with those of shareholders.
The share ownership guidelines will include an expectation that
executive directors build up their shareholding to 200% of base
salary over a period of five years from the later of: the date of
adoption of this policy and the date of appointment. Once the
shareholding guideline is reached, executive directors would be
expected to maintain it. The intention would be for the
shareholding guideline to be reached through the retention of
vested shares from share plans (e.g. the deferred share element of
the annual bonus and shares vested under the PSP). As such, the
Remuneration Committee's discretion may be used to increase the
proportion of an annual bonus to be delivered in shares to assist
the executive director in meeting this guideline. The deferred
share mechanism in the annual bonus and the design of the PSP will
assist executive directors in reaching the guidelines. Executive
directors will not be expected to top up their shareholding with
personal acquisitions of Company shares outside the usual share
plans described in the Policy. The Remuneration Committee will
monitor the executive directors' shareholdings and may adjust the
guideline in special individual and Company circumstances, for
example in the case of a share price fall.
The PSP may operate over new issue shares, treasury shares or
shares purchased in the market. In any ten-calendar year period,
the Company may not issue (or grant rights to issue) more than:
(a) 10% of
the issued ordinary share capital of the Company under the Plan and
any other employee share plan adopted by the Company; and
(b) 5% of
the issued ordinary share capital of the Company under the Plan and
any other executive share plan adopted by the Company.
Treasury shares will count as new issue shares for the purposes
of these limits unless institutional investors decide that they
need not count. These limits do not include rights to shares which
have been renounced, released, lapsed or otherwise become incapable
of vesting, awards that the Remuneration Committee determines after
grant to be satisfied by the transfer of existing shares and shares
allocated to satisfy bonuses (including pursuant to the Deferred
Bonus Plan).
- Remuneration throughout the Group
Differences in the Company's pay policy for executive directors
from that applying to employees within the Group generally reflect
the appropriate market rate for the individual executive roles.
- Remuneration policy table: non-executive directors
Component |
Purpose and link to strategy |
Maximum opportunity |
Operation and performance measures |
Fees |
To provide an
appropriate reward to attract and retain high-calibre individuals
with the relevant
skills, knowledge and experience to progress the Company
strategy. |
- The
maximum annual fees paid to non-executive directors is £50,000 for
a non-executive director role, and £100,000 for the role of
Chairman. An additional £10,000 will be paid to the individual
acting as Chairman of the Audit Committee. |
Non-executive directors
receive a standard annual fee, which is paid on a quarterly basis
in arrears.
Additional fees may also be paid to recognise the additional work
performed by members of any committees set up by the Board, and for
the role of chair of a committee.
Fees are reviewed on an annual basis, but are not necessarily
increased at each review. Fees are set at a rate that takes into
account:
-
market practice for comparative roles;
- the
financial results of the Company;
- the
time commitment and duties involved; and
- the
requirement to attract and retain the quality of individuals
required by the Company.
The remuneration of the non-executive directors is a matter for the
Board to consider and decide upon.
There are no performance measures related to non-executive
directors' fees. |
Notes to the Policy Table
The payment policy for non-executive directors is to pay a rate
which will secure persons of a suitable calibre. The remuneration
of the non-executive directors is determined by the Board. External
benchmarking data and specialist advisers are used when setting
fees, which will be reviewed at appropriate intervals. The maximum
caps are valid at the time that the relevant appointment letter is
entered into and the caps may be adjusted to take into account
fluctuations in exchange rates.
Expenses reasonably and wholly incurred in the performance of
the role of non-executive director of the Company may be reimbursed
or paid for directly by the Company, as appropriate, and may
include any tax due on the expense.
The non-executive directors' fees are non-pensionable. The
non-executive directors have not to date been eligible to
participate in any incentive plans (such as bonuses or share
plans); however, the Board considers that it may be appropriate in
the future to enable such participation, subject to suitably
stretching performance thresholds.
Non-executive directors may receive professional advice in
respect of their duties with the Company which will be paid for by
the Company. They will be covered by the Company's insurance policy
for directors.
The Company's policy on the recruitment of directors is to pay a
fair remuneration package for the role being undertaken and the
experience of the individual being recruited. The Remuneration
Committee will consider all relevant factors, which include the
abilities of the individual, their existing remuneration package,
market practice, and the existing arrangements for the Company's
current directors.
The Remuneration Committee will determine that any arrangements
offered are in the best interests of the Company and shareholders
and will endeavour to pay no more than is necessary.
The Remuneration Committee intends that the components of
remuneration set out in the policy tables, and the approach to the
components as set out in the policy tables, will be equally
applicable to new recruits, i.e. salary, annual bonus, share plan
awards, pension and benefits for executive directors, and fees for
non-executive directors. However, the Company acknowledges that
additional flexibility may be required to ensure the Company is in
the best position to recruit the best candidate for any vacant
roles and, as such, a buy-out arrangement may be required.
The salary and compensation package designed for a new recruit
may be higher or lower than that applying for existing directors.
The Remuneration Committee may decide to appoint a new executive
director to the Board at a lower than typical salary, such that
larger and more frequent salary increases may then be awarded over
a period of time to reflect the individual's growth in experience
within the role.
Remuneration will normally not exceed those set out in the
policy table above. However, to ensure that the Company can
sufficiently compete with its competitors, the Remuneration
Committee considers it important that the recruitment policy has
sufficient flexibility in order to attract and appropriately
remunerate the high-performing individuals that the Company
requires to achieve its strategy. As such, the Remuneration
Committee reserves discretion to provide a buy-out arrangement and
benefits (such as a sign-on bonus and additional share awards) in
addition to those set out in the policy table (or mentioned in this
section) where the Remuneration Committee considers it reasonable
and necessary to do so in order to secure an external appointment
(see below for more detail in relation to buy-out
arrangements).
The Remuneration Committee retains the discretion to enter into
buy-out arrangements to compensate new hires for incentive awards
forfeited in joining the Company. The Remuneration Committee will
use its discretion in awarding and setting any such compensation,
which will be decided on a case-by-case basis and likely on an
estimated like-for-like basis. In deciding the appropriate type and
quantum of compensation to replace existing awards, the
Remuneration Committee will take into account all relevant factors,
including the type of award being forfeited, the likelihood of any
performance measures attached to the forfeited award being met, and
the proportion of the vesting period remaining. The Remuneration
Committee will appropriately discount the compensation payable to
take account of any uncertainties over the likely vesting of the
forfeited award to ensure that the Company does not, in the view of
the Remuneration Committee, pay in excess of what is reasonable or
necessary.
Compensation for awards forfeited may take the form of a bonus
payment or a share award. For the avoidance of doubt, the maximum
amounts of compensation contained in the policy table will not
apply to such buy-out arrangements. The Company has not placed a
maximum value on the compensation that can be paid under this
section, as it does not believe it would be in shareholders'
interests to set any expectations for prospective candidates
regarding such awards.
- Payments for loss of office
Any compensation payable in the event that the employment of an
executive director is terminated will be determined in accordance
the terms of the employment contract between the Company and the
executive, as well as the relevant rules of any share plan and this
Policy, and in accordance with the prevailing best practice.
The Remuneration Committee will consider a variety of factors
when considering leaving arrangements for an executive director and
exercising any discretions it has in this regard, including (but
not limited to) individual and business performance during office,
the reason for leaving, and any other relevant circumstances (for
example, ill health).
In addition to any payment that the Remuneration Committee may
decide to make, the Remuneration Committee reserves discretion as
it considers appropriate to:
(a) pay an
annual bonus for the year of departure;
(b)
continue providing any benefits for a period of time; and
(c)
provide outplacement services.
Non-executive directors are subject to one month notice periods
prior to termination of service and are not entitled to any
compensation on termination save for accrued fees as at the date of
termination and reimbursement of any expenses properly incurred
prior to that date.
The treatment of any share award on termination will be governed
by the PSP rules.
Under the PSP, outstanding share awards held by an individual
who ceases to be a director or employee of the Company will lapse,
unless the cessation is due to death, illness, injury or
disability, redundancy, retirement, the Company ceasing to be a
member of the Group or the transfer of an undertaking or part of an
undertaking to a person who is not a member of the Group, or the
Board exercises its discretion otherwise.
Under the PSP, the Board has discretion to decide the period of
time for which the award will continue, and whether any unvested
award shall be treated as vesting on the date of cessation of
employment or in accordance with the original vesting schedule, in
both cases have regard to the extent to which the performance
targets have been satisfied prior to the date of cessation.
For executive directors, the vesting period will be set by the
Remuneration Committee with a minimum three-year period. The
Remuneration Committee will (unless the vesting period is set as a
period equal to or longer than five years) impose a holding period
on shares (or awards) so that the executive is not able to sell the
shares that the executive director acquires through the PSP until
the fifth anniversary of the date of the award. The
holding period will not apply to the number of shares equivalent in
value to the amount required by the Company or the executive
director to fund any income tax and employee social security
contributions due on the vesting of the awards or otherwise in
connection with the awards.
- Executive director employment agreements
This section contains the key employment terms and conditions of
the executive directors that could impact on their remuneration or
loss of office payments.
The Company's policy on employment agreements is that executive
directors' agreements should be terminable by either the Company or
the director on not more than six months' notice. The employment
agreements contain provision for early termination, among other
things, in the event of a breach by the executive but make no
provision for any termination benefits except in the event of a
change of control of the Company, where the executive becomes
entitled to a lump sum equal to 24 months' base salary plus
benefits plus (if any), bonus received on termination by the
Company. The employment agreements contain restrictive covenants
for a period of 12 months following termination of the agreement.
Details of employment agreements in place as at the date of this
report are set out below:
Director |
Current agreement start date |
Notice period |
F Khallouf |
15 November 2019 |
Six months |
Directors' employment agreements are available for inspection at
the Company's registered office in London.
- Non-executive directors' letters of appointment
This section contains the key terms of the appointments of
non-executive directors that could impact on their
remuneration.
Typically, the non-executive directors are appointed by letter
of appointment for an initial term of three years which may be
extended. All non-executive directors are subject to annual
re-election by the Company's shareholders and their appointments
may be terminated earlier with one month's prior written notice (or
with immediate effect, in the case of specific serious
circumstances such as fraud or dishonesty). On termination of
appointment, non-executive directors are usually only entitled to
accrued fees as at the date of termination together with
reimbursement of any expenses properly incurred prior to that date
and the company has no obligation to pay further compensation when
the appointment terminates. Non-executive directors' letters of
appointment are available for inspection at the Company's
registered office in London and at
Zhylyanska street 48/50, 01033 Kyiv,
Ukraine.
Non-executive Director |
Current agreement start date |
Term |
Michel Meeùs |
31 July 2018 |
Three years |
Lilia Jolibois |
15 November 2019 |
Three years |
Jacques Mahaux |
15 November 2019 |
Three years |
Gilbert Lehmann |
31 July 2018 |
Three years |
- Illustration of the Remuneration Policy
The bar charts below show the levels of remuneration that the
CEO could earn over the coming year under the Policy.
CEO: minimum and maximum
remuneration
The bar chart shows future possible maximum remuneration.
Pension entitlements were provided in 2020.
- Consideration of shareholder views
The Chairman and executive directors of the Company have a
regular dialogue with analysts and substantial shareholders, which
includes the subject of directors' remuneration. The outcome of
these discussions is reported to the Board and discussed in detail
both there and during meetings of the Remuneration Committee.
The Remuneration Committee will take into account the results of
the shareholder vote on remuneration matters when making future
remuneration decisions. The Remuneration Committee remains mindful
of shareholder views when evaluating and setting ongoing
remuneration strategy.
- Consideration of employment conditions within the
Group
When determining remuneration levels for its executive
directors, the Board considers the pay and employment conditions of
employees across the Group. The Remuneration Committee will be
mindful of average salary increases awarded across the Group when
reviewing the remuneration packages of the executive directors.
The Remuneration Committee may make, without the need for
shareholder approval, minor amendments to the Policy for
regulatory, exchange control, tax or administrative purposes or to
take account of changes in legislation.
Statement of Directors’
Responsibilities in respect of the Annual Report and the Financial
Statements
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulations. Company law requires the Directors to prepare
financial statements for each financial year. The Directors are
required by law to prepare the Group financial statements in
accordance with International Financial Reporting Standards
(“IFRSs”) adopted pursuant to Regulation (EC) No 1606/2002 as it
applies in the European Union and International Accounting
Standards in conformity with the requirements of the Companies Act
2006 and Article 4 of the International Accounting Standards
(“IAS”) regulation and have also elected to prepare the Parent
Company financial statements under IFRSs in conformity with the
requirements of the Companies Act 2006 and as applied in
accordance with the provisions of the Companies Act 2006. Under
Company law, the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and Group and of the
profit or loss for that period. In preparing the Company and
Group’s financial statements, IAS Regulation requires that
Directors:
- properly select and apply accounting policies;
- make judgements and accounting estimates that are reasonable
and prudent;
- present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information;
- state whether they have been prepared in accordance with IFRSs
in conformity with the requirements of the Companies Act 2006,
subject to any material departures disclosed and explained in the
financial statements;
- provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the Company’s and Group’s financial position and
financial performance; and
- make an assessment of the Company’s and Group’s ability to
continue as a going concern, prepare the financial statements on
the going concern basis unless it is inappropriate to presume that
the Company and Group will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company and
Group’s transactions and disclose with reasonable accuracy at any
time the financial position of the Company and Group and enable
them to ensure that the financial statements comply with the
Companies Act 2006 They are also responsible for safeguarding the
assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities. Under
applicable law and regulations, the Directors are also responsible
for preparing a Strategic Report, Directors’ Report, Annual Report
on Remuneration, Directors’ Remuneration Policy and Corporate
Governance Statement that comply with that law and those
regulations. The Directors are responsible for the maintenance and
integrity of the corporate and financial information and statements
included on the Company’s website, www.cadoganpetroleum.com.
Legislation in the United Kingdom
governing the preparation and dissemination of the financial
statements may differ from legislation in other jurisdictions. The
directors' responsibility also extends to the ongoing integrity of
the financial statements contained therein.
Responsibility Statement of the
Directors in respect of the Annual Report
We confirm to the best of our knowledge:
(1) the financial statements, prepared in accordance with
International Accounting Standards in conformity with the
requirements of the Companies Act 2006, and in accordance with
International Financial Reporting Standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union
give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company and the undertakings
included in the consolidation as a whole; and
(2) the Annual Report, includes a fair review of the development
and performance of the business and the position of the Company and
the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and
uncertainties that they face; and
(3) the annual report and the financial statements, taken as a
whole, are fair, balanced and understandable, and provide the
information necessary for the shareholders to assess the Group’s
position, performance, business model and strategy.
On behalf of the Board
Michel Meeùs
Chairman
5 May 2021
Independent auditor’s report to the members of Cadogan Petroleum
plc
Qualified Opinion on the financial
statements
In our opinion, except for the effects of the matter described
in the Basis for qualified opinion paragraph below:
- the financial statements give a true and fair view of the state
of the Group’s and of the Parent Company’s affairs as at
31 December 2020 and of the Group’s
loss for the year then ended;
- the Group financial statements have been properly prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006;
- the Group financial statements have been properly prepared in
accordance with international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union;
- the Parent Company financial statements have been properly
prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006
and as applied in accordance with the provisions of the Companies
Act 2006; and
- the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006; and, as regards the
Group financial statements, Article 4 of the IAS Regulation.
We have audited the financial statements of Cadogan Petroleum
Plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for
the year ended 31 December 2020 which
comprise the consolidated income statement, the consolidated
statement of comprehensive income, the consolidated balance sheet,
the consolidated cash flow statement, the consolidated statement of
changes in equity, the company balance sheet, the company cash flow
statement, the company statement of changes in equity and
notes to the financial statements, including a summary of
significant accounting policies. The financial reporting framework
that has been applied in their preparation is applicable law and
international accounting standards in conformity with the
requirements of the Companies Act 2006 and international financial
reporting standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union, and as regards the
Parent Company financial statements, as applied in accordance with
the provisions of the Companies Act 2006.
Basis for qualified opinion
The Group advanced a loan through a subsidiary which is recorded
at fair value through profit and loss in accordance with the
Group’s accounting policy set out in note 3(n), with the fair value
at 31 December 2020 determined to be
$16.8 million and a fair value loss
recorded in the period of $0.3
million. As discussed in note 4(d) and note 26 to the
financial statements, management has been unable to obtain relevant
information in respect of the investee which the Directors consider
is necessary to enable the fair value to be assessed applying
recognised valuation methods for an instrument of this nature. As
discussed in note 4(d) and 26, if and when such information is made
available the Directors consider that the fair value may be
materially higher or lower than these values. We were unable to
satisfy ourselves by alternative means concerning the fair value of
this loan by using other audit procedures. Consequently we
were unable to determine whether any adjustment to this amount was
necessary.
We considered the valuation of the loan note instrument to be a
key audit matter, and in respect of this matter we:
- made inquiries of management and the Audit Committee regarding
the structure of the transaction and reviewed the accounting
entries.
- reviewed the valuation analysis performed on origination of the
loan by third party advisors. We met with management to
obtain an understanding of the requests made to Proger for the
provision of information to support an assessment of fair value at
31 December 2020 and obtained
confirmation from management that relevant information was
unavailable. We considered, in conjunction with our internal
specialists, whether recognised valuation methods could reasonably
be applied by management that had not been considered. We
considered whether sufficient and appropriate audit evidence could
be obtained in respect of the fair value of the instrument given
the information available.
- considered the accounting treatment and valuation adopted by
management, given the absence of information considered necessary
to perform a valuation using a recognised valuation method.
- reviewed the disclosures in relation to financial instruments
including the accounting policy, critical judgments and estimates
and financial instrument disclosures.
As noted above we have not been able to obtain sufficient,
appropriate audit evidence, and accordingly are not able to
conclude whether the fair value of the loan note instrument is
materially accurate.
In 2019 we were similarly not able to obtain sufficient,
appropriate audit evidence to conclude whether the fair value of
the loan note instrument was materially accurate. As a result, our
audit opinion for the year ended 31 December
2019 was also qualified in respect of this limitation on the
scope of the audit.
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor’s responsibilities for the audit of the financial
statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our qualified opinion. Our audit opinion is consistent
with the additional report to the audit committee.
Independence
Following the recommendation of the audit committee, we were
appointed by the Board of directors on 27
April 2017 to audit the financial statements for the year
ending 31 December 2017 and
subsequent financial periods. The period of total uninterrupted
engagement including retenders and reappointments is 4 years,
covering the years ending 31 December
2017 to 31 December 2020. We
remain independent of the Group and the Parent Company in
accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the FRC’s
Ethical Standard as applied to listed public interest entities, and
we have fulfilled our other ethical responsibilities in accordance
with these requirements. The non-audit services prohibited by that
standard were not provided to the Group or the Parent Company.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our
evaluation of the Directors’ assessment of the Group and the Parent
Company’s ability to continue to adopt the going concern basis of
accounting included:
- Reviewing management’s cash flow forecasts for the period to
June 2022 and evaluating the level of
headroom available and the assumptions including oil production,
oil prices, operating expenditure and capital expenditure. In doing
so we compared production forecasts to historical trends and
considered the oil price assumptions against consensus market
prices and historical discount levels between Brent oil prices and
the local market. We compared forecast costs with historical
expenditure.
- Reviewing licences for commitments to check these have been
reflected in the cash flow forecasts.
- Considering the impact on liquidity should the outcome of
contingent liabilities related to taxation disputes disclosed in
note 27 result in payments being required in the forecast period;
and assessing management’s has conclusion that such a scenario is
less than probable by inspecting the favourable court rulings in
the period and obtaining written assessment of the claims from
internal counsel, albeit the claim remains subject to ongoing
appeal.
- Reviewing the disclosures in the financial statements in
respect of going concern against the requirements of the
standards.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Group’s and Parent Company’s ability to continue as a going concern
for a period of at least twelve months from when the financial
statements are authorised for issue.
Our responsibilities and the responsibilities of the Directors
with respect to going concern are described in the relevant
sections of this report.
Overview
Coverage |
98% (2019: 92%) of Group loss before tax
100% (2019: 98%) of Group revenue
95% (2019: 95%) of Group total assets |
Key audit matters |
|
2020 |
2019 |
Carrying value of oil
and gas exploration and production assets
Valuation of Proger loan note instrument |
X
X |
X
X |
|
Materiality |
Group
financial statements as a whole
$0.7m (2019: $0.8m) based on 1.5% (2019: 1.5%) of total assets |
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the
Group and its environment, including the Group’s system of internal
control, and assessing the risks of material misstatement in the
financial statements. We also addressed the risk of
management override of internal controls, including assessing
whether there was evidence of bias by the Directors that may have
represented a risk of material misstatement.
Whilst Cadogan Petroleum Plc is a company listed on the Standard
Segment of the London Stock Exchange, the Group’s operations
principally comprise an exploration & development of oil and
gas assets located in Ukraine,
together with gas trading and oil services activities. We assessed
there to be five significant components within the Ukrainian
sub-group, comprising components holding exploration &
development assets and gas trading activities which were subject to
a full scope audit. Together with the Parent Company, Cadogan
Petroleum Holdings Ltd, Cadogan Petroleum Holdings B.V. and the
Group consolidation, which was also subject to a full scope audit,
these represent the significant components of the Group. The audits
of each of the Ukrainian components were principally performed in
the Ukraine by a BDO member firm
under the supervision and direction of the Group audit team. The
audits of the parent company, Cadogan Petroleum Holdings Ltd,
Cadogan Petroleum Holdings B.V. and the Group consolidation were
performed in the United Kingdom by
the Group audit team. The remaining components of the Group were
considered non-significant and these components were principally
subject to analytical review procedures by the Group audit team or
BDO member firm in Ukraine.
Our involvement with component auditors
For the work performed by component auditors, we determined the
level of involvement needed in order to be able to conclude whether
sufficient appropriate audit evidence has been obtained as a basis
for our opinion on the Group financial statements as a whole. Our
involvement with component auditors included the following:
•
Detailed Group reporting instructions were sent to the component
auditor, which included the significant areas to be covered by the
audit (including areas that were considered to be key audit matters
as detailed below), and set out the information required to be
reported to the Group audit team.
•
As a result of travel restrictions resulting from the Covid-19
pandemic, the Group audit partner and senior members of the Group
audit team were unable to visit the Ukraine to meet with component management and
the component auditors during the audit as we have done
historically. Accordingly, we performed a remote review of the
component audit files in the Ukraine using our online audit software
platform, held regular calls and videoconferences with the
component audit team during the audit.
•
The Group audit team was actively involved in the direction of the
audits performed by the component auditors for Group reporting
purposes, along with the consideration of findings and
determination of conclusions drawn. We performed our own additional
procedures in respect of the significant risk areas that
represented Key Audit Matters in addition to the procedures
performed by the component auditor.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified, including those which had the greatest
effect on: the overall audit strategy, the allocation of resources
in the audit, and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
In addition to the matter described in the basis for qualified
opinion section, we have determined the matters described below to
be the key audit matters to be communicated in our report:
Key audit matter |
How the scope of our audit
addressed the key audit matter |
Carrying value of
oil and gas exploration and production assets
At 31 December 2020 the Group held exploration and evaluation
assets of $2.4m and $10.0m of development and production assets as
detailed in note 4(a), 4(b),15 and 16.
Management is required to assess these assets for indicators of
impairment at each reporting date and perform an impairment test
when indicators of impairment are identified.
Management has performed an impairment review which included
assessment of the Bitlyanska and Blazhivska licences’ recoverable
value based on the underlying discounted cash flow forecasts and
concluded that no impairment is necessary.
The impairment reviews require judgment and estimate in determining
whether indicators of impairment exist and, in respect of the
discounted cash flow models significant estimates in selecting
inputs.
In addition, as detailed in note 4 and 15 significant judgment was
required regarding the likelihood of the Bitlyanska licence being
renewed / converted to a production licence following its expiry in
December 2019 and delays in the licence being awarded and the
subsequent rejection of the application in 2020 which is being
contested through the courts. Management’s conclusion that no
impairment is applicable on the Bitlyanska licence is critically
dependent on the ultimate renewal of the licence.
As a result of these factors this represented a key focus area for
our audit and a key audit matter. |
We evaluated
management’s impairment indicator review paper, together with the
underlying discounted cash flow forecasts which formed part of
their impairment review. We critically challenged the key judgments
and assumptions made by management, including forecast oil and gas
prices, production levels, royalties and costs. This included
assessment compared to empirical data, the independent Competent
Person’s Report on the oil and gas reserves and resources and
external evidence where available. We recalculated the discount
rates in conjunction with our valuation specialists and compared
the rate to management’s discount rate.
We performed sensitivity analysis on the impairment models to
establish the impact of reasonably possible changes in key
variables such as pricing, production and the discount
rates.
We met with operational management to evaluate the basis for
forecast increases in production associated with well stimulation
activities, considered the historical impact of such activities and
evaluated the extent to which appropriate costs were included in
the forecasts.
We reviewed budgets, forecasts and strategic plans to consider the
extent to which management’s judgment regarding future planned
exploration activity is supported by those plans.
We reviewed the licence agreements and confirmed that the Group
holds a valid licence for Blazhivska which was renewed / converted
to a production licence in December 2019. We gained an
understanding of the licence conditions and remaining term. In
respect of the rental well agreements, we obtained and reviewed the
renewed agreements for key terms and conditions.
In respect of the Bitlyanska licence, we considered the
appropriateness of management’s judgment that the Bitlyanska
licence would be extended or converted to production licences
following its expiry in December 2019, particularly noting the
delays and the subsequent rejection of the application in 2020. In
doing so we obtained documents demonstrating the submissions for
the licence conversions, confirmations from the relevant
authorities that the Group is in compliance with licence
obligations and considered factors such as the exploration results
to date. Additionally, we inspected claims submitted to the
Ukrainian Courts to challenge the delay in granting a renewal and
its further rejection, together with associated legal advice
regarding the Group’s right of renewal. We met with internal and
external counsel to discuss their assessment of the merits of the
Group’s legal position.
Key observations:
We consider the judgements made by management in respect of the
carrying value of the exploration and production assets at
Bitlyanska and Blazhivska to be reasonable. The disclosures
in the notes, including the critical judgments regarding renewal of
the Bitlyanska licence are in line with accounting
standards. |
Our application of materiality
We apply the concept of materiality both in planning and
performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by
which misstatements, including omissions, could influence the
economic decisions of reasonable users that are taken on the basis
of the financial statements.
In order to reduce to an appropriately low level the probability
that any misstatements exceed materiality, we use a lower
materiality level, performance materiality, to determine the extent
of testing needed. Importantly, misstatements below these levels
will not necessarily be evaluated as immaterial as we also take
account of the nature of identified misstatements, and the
particular circumstances of their occurrence, when evaluating their
effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality
for the financial statements as a whole and performance materiality
as follows:
|
Group
financial statements |
Parent
company financial statements |
|
2020 |
2019 |
2020 |
2019 |
Materiality |
$700,000 |
$800,000 |
$500,000 |
$600,000 |
Basis for determining
materiality |
1.5% of total
assets |
75% of Group
materiality |
Rationale for the benchmark
applied |
We determined that an
asset based measure is appropriate as the Group holds significant
cash and loan balances and its principal activity is the
exploration & development of oil and gas assets, such that the
asset base is considered to be a key financial metric for users of
the financial statements. |
Calculated as a
percentage of group materiality for group reporting purposes. |
Performance materiality |
$460,000 |
$520,000 |
$320,000 |
$390,000 |
Basis for determining performance
materiality |
65% of materiality
considering the nature of activities and historical audit
adjustments |
Component materiality
We set materiality for each component of the Group based on a
percentage of between 25% and 75% of Group materiality dependent on
the size and our assessment of the risk of material misstatement of
that component. Component materiality ranged from
$175,000 to $500,000 (2019: ranging from $160,000 to $600,000). In the audit of each component, we
further applied performance materiality levels of 65% of the
component materiality to our testing to ensure that the risk of
errors exceeding component materiality was appropriately
mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them
all individual audit differences in excess of $35,000 (2019: $40,000). We also agreed to report differences
below this threshold that, in our view, warranted reporting on
qualitative grounds.
Other information
The directors are responsible for the other information. The
other information comprises the information included in the annual
financial report other than the financial statements and our
auditor’s report thereon. Our opinion on the financial statements
does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any
form of assurance conclusion thereon. Our responsibility is to read
the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial
statements or our knowledge obtained in the course of the audit, or
otherwise appears to be materially misstated. If we identify such
material inconsistencies or apparent material misstatements, we are
required to determine whether this gives rise to a material
misstatement in the financial statements themselves. If, based on
the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report
that fact.
As described in the basis for qualified opinion section of our
report, we were unable to satisfy ourselves concerning the fair
value of the loan receivable shown at $16.8
million as at 31 December
2020. We have concluded that where the other information
refers to the loan balance or related balances such as the fair
value loss, it may be materially misstated for the same reason.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work
performed during the course of the audit, we are required by the
Companies Act 2006 and ISAs (UK) to report on certain opinions and
matters as described below.
Strategic report and
Directors’ report |
Except for the possible
effect of the matter described in the basis for qualified opinion
section of our report, in our opinion, based on the work undertaken
in the course of the audit:
- the
information given in the Strategic report and the Directors’ report
for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
- the
Strategic report and the Directors’ report have been prepared in
accordance with applicable legal requirements.
Except for any amendments that we may have considered necessary had
we been able to obtain sufficient appropriate audit evidence in
relation to the fair value of the loan receivable as described in
the basis for qualified opinion section of our report, in the light
of the knowledge and understanding of the Group and Parent Company
and its environment obtained in the course of the audit, we have
not identified material misstatements in the strategic report or
the Directors’ report. |
Directors’
remuneration |
In our opinion, the
part of the Directors’ remuneration report to be audited has been
properly prepared in accordance with the Companies Act 2006. |
Matters on which we
are required to report by exception |
Arising solely from the
limitation on our work relating to the loan receivable described
above:
- We
have not obtained all the information and explanations that we
considered necessary for the purpose of our audit.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
-
adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been received
from branches not visited by us; or
- the
Parent Company financial statements and the part of the Directors’
remuneration report to be audited are not in agreement with the
accounting records and returns; or
-
certain disclosures of Directors’ remuneration specified by law are
not made. |
Responsibilities of Directors
As explained more fully in the Statement of directors’
responsibilities, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give
a true and fair view, and for such internal control as the
Directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Group’s and the Parent Company’s
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis
of accounting unless the Directors either intend to liquidate the
Group or the Parent Company or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities for the
audit of the financial statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
Extent to which the audit was capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below:
- Holding discussions with management and the audit committee to
consider any known or suspected instances of non-compliance with
laws and regulations or fraud identified by them;
- Communicating any known or suspected instances of
non-compliance with laws and regulations or fraud within the Group
audit team and the component audit team through the engagement team
discussion and through the course of the audit;
- Gaining an understanding of the legal and regulatory framework
applicable to the Group and the industry in which it operates,
through discussion with management and the audit committee and our
knowledge of the industry;
- Considering the significant laws and regulations of
Ukraine and the UK to be those
relating to the industry, financial reporting framework, tax
legislation and the listing rules.
- Assessing the susceptibility of the Group’s financial
statements to material misstatement, including how fraud might
occur;
- Testing the appropriateness of journal entries made through the
year by applying specific criteria to detect possible
irregularities and fraud;
- Obtaining an understanding of management’s procedures to
evaluate the validity of supplier arrangements and identify and
assess any unusual items;
- Performing a review of supplier contract arrangements across
the Group, making inquiries regarding the nature and purpose of the
arrangement and reviewing contracts for certain supplier
arrangements;
- Performing a detailed review of the Group’s year-end adjusting
entries and investigating any that appear unusual as to nature or
amount and agreeing to supporting documentation;
- Reviewing legal correspondence, obtaining confirmations from in
house legal counsel and meeting with internal and external counsel
in respect of certain legal disputes;
- Assessing the judgements made by management when making key
accounting estimates were indicative of a potential bias (refer to
key audit matter and basis for qualified audit opinion above);
- Extending inquiries to individuals outside of management and
the accounting department to corroborate management’s ability and
intent to carry out plans that are relevant to developing the
estimates set out in the key audit matters section above;
- Reviewing minutes from board meetings of those charges with
governance to identify any instances of non-compliance with laws
and regulations;
- Communicating relevant identified laws and regulations and
potential fraud risks to all audit team members and remained alert
to any indications of fraud or non-compliance with laws and
regulations throughout the audit; and
- Directing the auditors of the significant components to ensure
an assessment is performed on the extent of the components
compliance with the relevant local and regulatory framework.
Reviewing this work and holding meetings with relevant internal
management and external third parties to form our own opinion on
the extent of Group wide compliance.
Our audit procedures were designed to respond to risks of
material misstatement in the financial statements, recognising that
the risk of not detecting a material misstatement due to fraud is
higher than the risk of not detecting one resulting from error, as
fraud may involve deliberate concealment by, for example, forgery,
misrepresentations or through collusion. There are inherent
limitations in the audit procedures performed and the further
removed non-compliance with laws and regulations is from the events
and transactions reflected in the financial statements, the less
likely we are to become aware of it.
A further description of our responsibilities is available on
the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor’s report.
Use of our report
This report is made solely to the Parent Company’s members, as a
body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might
state to the Parent Company’s members those matters we are required
to state to them in an auditor’s report and for no other
purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Parent
Company and the Parent Company’s members as a body, for our audit
work, for this report, or for the opinions we have formed.
Ryan Ferguson (Senior Statutory
Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London,
United Kingdom
5 May 2021
BDO LLP is a limited liability partnership registered in
England and Wales (with registered number OC305127).
Consolidated Income
Statement
for the year ended 31 December 2020 |
|
|
|
|
Notes |
2020
$’000 |
2019
$’000 |
CONTINUING OPERATIONS |
|
|
|
Revenue |
6 |
5,105 |
5,876 |
Cost of sales |
|
(4,500) |
(4,872) |
Provision against unsold gas
inventory |
8 |
- |
(1,946) |
Gross profit/(loss) |
|
605 |
(942) |
|
|
|
|
|
|
|
|
Administrative
expenses |
7 |
(3,771) |
(5,652) |
Reversal of impairment of other
assets |
8 |
644 |
345 |
Impairment of other assets |
8 |
(53) |
(162) |
Fair value (loss)/gain on loan and
call option |
8, 26 |
(334) |
697 |
Other operating (loss)/income,
net |
9 |
(71) |
3,972 |
Net foreign exchange
gain/(losses) |
|
1,938 |
(385) |
Operating loss |
|
(1,042) |
(2,127) |
|
|
|
|
Finance income, net |
12 |
40 |
25 |
Loss before tax |
|
(1,002) |
(2,102) |
|
|
|
|
Taxation |
13 |
- |
- |
Loss for the year |
|
(1,002) |
(2,102) |
|
|
|
|
Attributable to: |
|
|
|
Owners of the Company |
|
(996) |
(2,103) |
Non-controlling interest |
|
(6) |
1 |
|
|
(1,002) |
(2,102) |
|
|
|
|
Loss per Ordinary share |
|
Cents |
cents |
Basic and diluted |
14 |
(0.4) |
(0.9) |
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2020 |
|
|
|
|
|
|
|
|
|
|
|
2020
$’000 |
2019
$’000 |
|
|
|
|
|
Loss for the year |
|
|
(1,002) |
(2,102) |
Other comprehensive
profit |
|
|
|
|
Items that may be reclassified subsequently to profit or loss: |
|
|
Unrealised currency translation
differences |
|
|
(3,880) |
3,541 |
Other comprehensive
(loss)/profit |
|
|
(3,880) |
3,541 |
|
|
|
|
|
Total comprehensive (loss)/profit
for the year |
|
|
(4,882) |
1,439 |
|
|
|
|
|
Attributable to: |
|
|
|
|
Owners of the Company |
|
|
(4,876) |
1,438 |
Non-controlling interest |
|
|
(6) |
1 |
|
|
|
(4,882) |
1,439 |
Consolidated Balance Sheet
As at 31 December 2020 |
|
|
|
|
Notes |
2020
$’000 |
2019
$’000 |
ASSETS |
|
|
|
Non-current
assets |
|
|
|
Intangible exploration
and evaluation assets |
15 |
2,381 |
2,971 |
Property, plant and
equipment |
16 |
9,963 |
12,338 |
Loan classified at
fair value through profit and loss |
26 |
- |
15,707 |
Right-of-use
assets |
22 |
292 |
- |
Deferred tax
asset |
21 |
419 |
501 |
|
|
13,055 |
31,517 |
Current
assets |
|
|
|
Inventories |
18 |
2,156 |
4,453 |
Trade and other
receivables |
19 |
1,632 |
2,639 |
Loan classified at
fair value through profit and loss |
26 |
16,812 |
- |
Cash |
20 |
13,253 |
12,834 |
|
|
33,853 |
19,926 |
Total
assets |
|
46,908 |
51,443 |
|
|
|
|
LIABILITIES |
|
|
|
Non-current
liabilities |
|
|
|
Long-term lease
liability |
22 |
(195) |
- |
Provisions |
24 |
(223) |
(289) |
|
|
(418) |
(289) |
Current
liabilities |
|
|
|
Trade and other
payables |
23 |
(1,387) |
(1,266) |
Short-term lease
liability |
22 |
(97) |
- |
|
|
(1,484) |
(1,266) |
Total
liabilities |
|
(1,902) |
(1,555) |
|
|
|
|
NET ASSETS |
|
45,006 |
49,888 |
|
|
|
|
EQUITY |
|
|
|
Share capital |
25 |
13,832 |
13,525 |
Share premium |
|
514 |
329 |
Retained earnings |
|
190,963 |
191,959 |
Cumulative translation
reserves |
|
(162,155) |
(158,275) |
Other reserves |
|
1,589 |
2,081 |
Equity attributable
to owners of the Company |
|
44,743 |
49,619 |
|
|
|
|
Non-controlling
interest |
|
263 |
269 |
TOTAL
EQUITY |
|
45,006 |
49,888 |
|
|
|
|
The consolidated financial statements of Cadogan Petroleum plc,
registered in England and
Wales no. 05718406, were approved
by the Board of Directors and authorised for issue on 5 May 2021. They were signed on its behalf
by:
Fady Khallouf
Chief Executive Officer
5 May 2021
The notes on pages 79 to 109 form an integral part of these
financial statements.
Consolidated Cash Flow Statement
for the year ended 31 December 2020 |
|
Note |
2020
$’000 |
2019
$’000 |
Operating profit / (loss) |
|
(1,042) |
(2,127) |
Adjustments for: |
|
|
|
Depreciation of property, plant and equipment |
16 |
734 |
653 |
Movement
in fair value of loan and call option |
26 |
334 |
(697) |
Impairment
of inventories |
8 |
50 |
1,946 |
Impairment
of receivables |
8 |
3 |
- |
Gain on
disposal of subsidiaries |
17 |
- |
(4,000) |
Interest
received |
|
- |
(431) |
Reversal
of impairment of other assets |
|
- |
(345) |
(Reversal
of impairment)/Impairment of VAT recoverable |
8 |
(644) |
162 |
Effect of
foreign exchange rate changes |
|
(1,938) |
385 |
Operating cash flows before movements in working
capital |
|
(2,503) |
(4,454) |
Decrease/(Increase) in inventories |
|
1,624 |
(971) |
Decrease
in receivables |
|
930 |
664 |
Decrease
in payables and provisions |
|
34 |
78 |
Cash
generated by / (used in) operations |
|
85 |
(4,683) |
Interest
received |
|
25 |
480 |
Net cash
inflow/(outflow) from operating activities |
|
|
110 |
(4,203) |
Investing activities |
|
|
|
|
Proceeds from disposal
of subsidiaries |
|
17 |
- |
4,000 |
Purchases of property,
plant and equipment |
|
|
(279) |
(6,952) |
Purchases of
intangible exploration and evaluation assets |
|
|
(32) |
(241) |
Proceeds from sale of
property, plant and equipment |
|
|
- |
345 |
Loan provided |
|
|
- |
(15,246) |
Interest received |
|
|
38 |
140 |
Net cash used in
investing activities |
|
|
(273) |
(17,954) |
|
|
|
|
|
Net decrease in
cash |
|
|
(163) |
(22,157) |
Effect of foreign
exchange rate changes |
|
|
582 |
(145) |
Cash at beginning of
year |
|
|
12,834 |
35,136 |
Cash at end of
year. |
|
|
13,253 |
12,834 |
|
|
|
|
|
|
|
|
|
Consolidated Statement of Changes in Equity
for the year ended 31 December 2020 |
|
Share
capital
$’000 |
|
Retained earnings
$’000 |
Cumulative
translation
reserves
$’000 |
|
|
Non-controlling
interest
$’000 |
Total
$’000 |
Share
premium account
$’000 |
Other
reserves
$’000 |
Equity
attributable to owners of the Company |
As at 1 January
2019 |
13,525 |
329 |
194,062 |
(161,816) |
1,668 |
47,768 |
268 |
48,036 |
Net (loss)/profit for
the year |
- |
- |
(2,103) |
- |
- |
(2,103) |
1 |
(2,102) |
Other comprehensive
profit |
- |
- |
- |
3,541 |
- |
3,541 |
- |
3,541 |
Total comprehensive
profit for the year |
- |
- |
(2,103) |
3,541 |
- |
1,438 |
1 |
1,439 |
Director bonus share
award |
- |
- |
|
- |
413 |
413 |
- |
413 |
As at 1 January
2020 |
13,525 |
329 |
191,959 |
(158,275) |
2,081 |
49,619 |
269 |
49,888 |
Net loss for the
year |
- |
- |
(996) |
- |
- |
(996) |
(6) |
(1,002) |
Other comprehensive
loss |
- |
- |
- |
(3,880) |
- |
(3,880) |
- |
(3,880) |
Total comprehensive
loss for the year |
- |
- |
(996) |
(3,880) |
- |
(4,876) |
(6) |
(4,882) |
Issue of ordinary
shares for director bonus share awards |
307 |
185 |
- |
- |
(492) |
- |
- |
- |
As at 31 December
2020 |
13,832 |
514 |
190,963 |
(162,155) |
1,589 |
44,743 |
263 |
45,006 |
|
|
|
|
|
|
|
|
|
Notes to the Consolidated Financial Statements
for the year ended 31 December
2020
1.
General information
Cadogan Petroleum plc (the “Company”, together with its
subsidiaries the “Group”), is registered in England and Wales under the Companies Act 2006. 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 11 to 12 and the
Financial Review on pages 13 to 14.
2.
Adoption of new and revised Standards
New IFRS accounting standards,
amendments and interpretations effective from 1 January 2020
The disclosed policies have been applied consistently by the
Group for both the current and previous financial year with the
exception of the new standards adopted.
The IFRS financial information has been drawn up on the basis of
accounting policies consistent with those applied in the financial
statements for the year to 31 December
2019, except for the following:
(a) Definition of Material - Amendments to IAS 1 and
IAS 8;
(b) Definition of a Business - Amendments to IFRS
3;
(c) Interest Rate Benchmark Reform -
Amendments to IFRS 7, IFRS 9 and IAS 39;
(d) Revised Conceptual Framework for Financial
Reporting;
(e) COVID-19-related Rent Concessions - Amendments
to IFRS 16.
The application of the above standards has had no impact on the
disclosures or the amounts recognised in the Group's consolidated
financial statements.
New IFRS accounting standards,
amendments and interpretations not yet effective
Below is a list of new and revised IFRSs that are not yet
mandatorily effective (but allow early application) for the year
ending 31 December 2020 and have not
been early adopted by the Group. These standards are not expected
to have a material impact on the Group in the future reporting
periods and on foreseeable future transactions.
IFRS
accounting standards |
Effective periods
beginning on or after |
Property, Plant and
Equipment: Proceeds before intended use - Amendments to IAS 16 |
01 January 2022 |
Reference to the
Conceptual Framework - Amendments to IFRS 3 |
01 January 2022 |
Onerous Contracts -
Cost of Fulfilling a Contract Amendments to IAS 37 |
01 January 2022 |
Annual Improvements to
IFRS Standards 2018-2020 |
01 January 2022 |
Classification of
Liabilities as Current or Non-current - Amendments to IAS 1 |
01 January 2023 |
IFRS 17, 'Insurance
contracts' |
01 January 2023 |
3.
Significant accounting policies
(a) Basis of
accounting
The financial statements have been prepared in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006 and in accordance with
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European
Union.
The financial statements have been prepared on the historical
cost convention basis.
The principal accounting policies adopted are set out below:
(b) Going
concern
The Group’s cash balance at 31 December
2020 was $13.3 million (2019:
$12.8 million). The Directors believe
that the funds available at the date of the issue of these
financial statements are sufficient for the Group to manage its
business risks and planned investments successfully.
The directors’ have carried out a robust assessment of the
principal risks facing the Group, including those that could
potentially threaten its business model, future performance,
solvency or liquidity is on pages 27 to 28.
The Group’s forecasts and projections, taking into account
reasonably possible changes in trading activities, operational
performance, flow rates for commercial production 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.
Notwithstanding the Group’s current financial performance and
position, the Board are cognisant of the actual impacts of COVID-19
on the Group. The Board has considered possible reverse stress case
scenarios for the impact on the Group’s operations, financial
position and forecasts. Whilst the potential future impacts
of Covid-19 are unknown the Board has considered operational
disruption that may be caused by the factors such as a)
restrictions applied by governments, illness amongst our workforce
and disruption to supply chain and sales channels; b) market
volatility in respect of commodity prices associated with Covid-19
in addition to geopolitical factors.
In addition to sensitivities that reflect future expectations
regarding country, commodity price and currency risks that the
Group may encounter reverse stress tests have been run to reflect
possible negative effects of COVID-19. The Group’s forecasts
demonstrate that owing to its cash resources the Group is able to
meet its operating cash flow requirements and commitments whilst
maintaining significant liquidity for a period of at least the next
12 months allowing for sustained reductions in commodity prices and
extended and severe disruption to operations should such a scenario
occur.
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 annual financial statements.
(c) Basis of
consolidation
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company
(its subsidiaries) made up to 31 December each year. IFRS 10
defines control to be investor control over an investee when it is
exposed, or has rights, to variable returns from its involvement
with the investee and has the ability to control those returns
through its power over the investee.
The results of subsidiaries acquired or disposed of during the
year are included in the consolidated income statement from the
effective date of acquisition or up to the effective date of
disposal, as appropriate. Where necessary, adjustments are made to
the financial statements of subsidiaries to bring accounting
policies used into line with those used by the Group. All
intra-group transactions, balances, income and expenses are
eliminated on consolidation.
3.
Significant accounting policies (continued)
(c) Basis of
consolidation (continued)
Non-controlling interests in subsidiaries are identified
separately from the Group’s equity therein. Those interests of
non-controlling shareholders that are present ownership interests
entitling their holders to a proportionate share of net assets upon
liquidation may be initially measured at fair value or at the
non-controlling interests’ proportionate share of the fair value of
the acquiree’s identifiable net assets. The choice of measurement
is made on an acquisition-by-acquisition basis. Other
non-controlling interests are initially measured at fair value.
Subsequent to acquisition, the carrying amount of
non-controlling interests is the amount of those interests at
initial recognition plus the non-controlling interests’ share of
subsequent changes in equity. Total comprehensive income is
attributed to non-controlling interests even if this results in the
non-controlling interests having a deficit balance.
Changes in the Group’s interests in subsidiaries that do not
result in a loss of control are accounted for as equity
transactions. The carrying amount of the Group’s interests and the
non-controlling interests are adjusted to reflect the changes in
their relative interests in the subsidiaries. Any difference
between the amount by which the non-controlling interests are
adjusted and the fair value of the consideration paid or received
is recognised directly in equity and attributed to the owners of
the Company.
(d) Business
combinations
The acquisition of subsidiaries is accounted for using the
acquisition method. The cost of the acquisition is measured at the
aggregate of the fair values, at the date of exchange, of assets
given, liabilities incurred or assumed, and equity instruments
issued in exchange for control of the acquiree. Acquisition-related
costs are recognised in profit or loss as incurred. The acquiree’s
identifiable assets, liabilities and contingent liabilities that
meet the conditions for recognition under IFRS 3 Business
Combinations are recognized at their fair value at the acquisition
date, except for non-current assets (or disposal groups) that are
classified as held for resale in accordance with IFRS 5 Non-Current
Assets held for sale and Discontinued Operations. These are
recognised and measured at fair value less costs to sell.
(e)
Investments in joint ventures
A joint venture is a joint arrangement whereby the parties that
have joint control of the arrangement have rights to the net assets
of the arrangement. A joint venture firm recognises its interest in
a joint venture as an investment and shall account for that
investment using the equity method in accordance with IAS 28
Investments in Associates and Joint Ventures.
Under the equity method, the investment is carried on the
balance sheet at cost plus changes in the Group’s share of net
assets of the entity, less distributions received and less any
impairment in value of the investment. The Group Consolidated
Income Statement reflects the Group’s share of the results after
tax of the equity-accounted entity, adjusted to account for
depreciation, amortization and any impairment of the equity
accounted entity’s assets. The Group Statement of Comprehensive
Income includes the Group’s share of the equity-accounted entity’s
other comprehensive income.
3.
Significant accounting policies (continued)
(e)
Investments in joint ventures (continued)
Financial statements of equity-accounted entities are prepared
for the same reporting year as the Group. The Group assesses
investments in equity-accounted entities for impairment whenever
events or changes in circumstances indicate that the carrying value
may not be recoverable. In doing so, the Group applies the criteria
of IFRS 6 ‘Exploration for and evaluation of mineral resources’ as
the joint venture holds exploration phase assets. If any such
indication of impairment exists, the carrying amount of the
investment is compared with its recoverable amount, being the
higher of its fair value less costs of disposal and value in use.
If the carrying amount exceeds the recoverable amount, the
investment is written down to its recoverable amount.
The Group ceases to use the equity method of accounting from the
date on which it no longer has joint control over the joint venture
or significant influence over the associate, or when the interest
becomes classified as an asset held for sale.
(f)
Revenue recognition
Revenue from contracts with customers is recognized when or as
the Group satisfies a performance obligation by transferring a
promised good or service to a customer. A good or service is
transferred when the customer obtains control of that good or
service. Revenue is measured based on measurement principles of
IFRS 15 and represents amounts receivable for hydrocarbon products
and services provided in the normal course of business, net of
value added tax (‘VAT’) and other sales-related taxes, excluding
royalties on production. Royalties on production are recorded
within cost of sales.
E&P and Trading business
segments
The transfer of control of hydrocarbons usually coincides with
title passing to the customer and the customer taking physical
possession as the product passes a physical point such as a
designated point in the pipeline for the sale of gas or loading
point in the case of oil. The Group principally satisfies its
performance obligations at a point in time.
To the extent that revenue arises from test production during an
evaluation programme, an amount is credited to evaluation costs and
charged to cost of sales, to reflect a zero-net margin.
Services business segment
Revenue from services is recognized in the accounting period in
which services are rendered. The main types of services provided by
the Group are drilling and civil works services. Revenue is
recorded as the service is provided over time such as through day
rates for supply of drill rigs, civil works and manpower.
Interest income is accrued on a time basis, by reference to the
principal outstanding and at the effective interest rate
applicable, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the financial
asset to that asset’s net carrying amount on initial
recognition.
(g) Foreign
currencies
The functional currency of the Group’s Ukrainian operations is
Ukrainian Hryvnia. The functional currency of the Group’s UK
subsidiaries and the parent company is US Dollar.
In preparing the financial statements of the individual
companies, transactions in currencies other than the functional
currency of each Group company (‘foreign currencies’) are recorded
in the functional currency at the rates of exchange prevailing on
the dates of the transactions. At each balance sheet date, monetary
assets and liabilities that are denominated in foreign currencies
are retranslated into the functional currency at the rates
prevailing on the balance sheet date. Non-monetary assets and
liabilities carried at fair value that are denominated in foreign
currencies are translated at the rates prevailing at the date when
the fair value was determined. Non-monetary items that are measured
in terms of historical cost in a foreign currency are not
retranslated. Foreign exchange differences on cash are recognized
in operating profit or loss in the period in which they arise.
3.
Significant accounting policies (continued)
(g) Foreign
currencies (continued)
Exchange differences are recognized in the profit or loss in the
period in which they arise except for exchange differences on
monetary items receivable from or payable to a foreign operation
for which settlement is neither planned nor likely to occur. This
forms part of the net investment in a foreign operation, which is
recognized in the foreign currency translation reserve and in
profit or loss on disposal of the net investment.
For the purpose of presenting consolidated financial statements,
the results and financial position of each entity of the Group,
where the functional currency is not the US dollar, are translated
into US dollars as follows:
i.
assets and liabilities of the Group’s foreign operations are
translated at the closing rate on the balance sheet date;
ii.
income and expenses are translated at the average exchange rates
for the period, where it approximates to actual rates. In other
cases, if exchange rates fluctuate significantly during that
period, the exchange rates at the date of the transactions are
used; and
iii.
all resulting exchange differences arising, if any, are recognized
in other comprehensive income and accumulated equity (attributed to
non-controlling interests as appropriate), transferred to the
Group’s translation reserve. Such translation differences are
recognized as income or as expenses in the period in which the
operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition
of a foreign entity are treated as assets and liabilities of the
foreign entity and translated at the closing rate.
|
|
The
relevant exchange rates used were as follows: |
|
Year ended
31 December 2020 |
Year ended
31 December 2019 |
|
GBP/USD |
EURO/USD |
USD/UAH |
GBP/USD |
EURO/USD |
USD/UAH |
Closing rate |
1.3678 |
1.2217 |
28.3700 |
1.3263 |
1.1214 |
23.7100 |
Average rate |
1.2843 |
1.1420 |
27.0034 |
1.2773 |
1.1197 |
25.9003 |
|
|
|
|
|
|
|
(h)
Taxation
The tax expense represents the sum of the tax currently payable
and deferred tax.
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from net profit as reported in the
consolidated income statement because it excludes items of income
or expense that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible. The
Group’s liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the balance
sheet date.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profit. This is accounted for using the
balance sheet liability method. Deferred tax liabilities are
generally recognized for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such assets and
liabilities are not recognized if the temporary difference arises
from the initial recognition of goodwill or from the initial
recognition (other than in a business combination) of other assets
and liabilities in a transaction that affects neither the taxable
profit nor the accounting profit. Deferred tax liabilities are
recognized for taxable temporary differences arising on investments
in subsidiaries and associates, and interests in joint ventures,
except where the Group is able to control the reversal of the
temporary difference and it is probable that the temporary
difference will not reverse in the foreseeable future.
3.
Significant accounting policies (continued)
(h) Taxation
(continued)
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered. Deferred tax is
calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realized.
Deferred tax is charged or credited in the income statement, except
when it relates to items charged or credited in other comprehensive
income, in which case the deferred tax is also dealt with in other
comprehensive income.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied
by the same taxation authority and the Group intends to settle its
current tax assets and liabilities on a net basis.
In case of the uncertainty of the tax treatment, the Group
assess, whether it is probable or not, that the tax treatment will
be accepted, and to determine the value, the Group use the most
likely amount or the expected value in determining taxable profit
(tax loss), tax bases, unused tax losses, unused tax credits and
tax rates.
(i)
Other property, plant and equipment
Property, plant and equipment (‘PP&E’) are carried at cost
less accumulated depreciation and any recognized impairment loss.
Depreciation and amortization is charged so as to write-off the
cost or valuation of assets, other than land, over their estimated
useful lives, using the straight-line method, on the following
bases:
Other
PP&E
10% to 30%
The gain or loss arising on the disposal or retirement of an
asset is determined as the difference between the sales proceeds
and the carrying amount of the asset and is recognized in
income.
(j)
Intangible exploration and evaluation assets
The Group applies the modified full cost method of accounting
for intangible exploration and evaluation (‘E&E’) expenditure,
which complies with requirements set out in IFRS 6 Exploration
for and Evaluation of Mineral Resources. Under the modified
full cost method of accounting, expenditure made on exploring for
and evaluating oil and gas properties is accumulated and initially
capitalized as an intangible asset, by reference to appropriate
cost centres being the appropriate oil or gas property. E&E
assets are then assessed for impairment on a geographical cost pool
basis, which are assessed at the level of individual licences.
E&E assets comprise costs of (i) E&E activities which
are in progress at the balance sheet date, but where the existence
of commercial reserves has yet to be determined (ii) E&E
expenditure which, whilst representing part of the E&E
activities associated with adding to the commercial reserves of an
established cost pool, did not result in the discovery of
commercial reserves.
Costs incurred prior to having obtained the legal rights to
explore an area are expensed directly to the income statement as
incurred.
Exploration and Evaluation costs
E&E expenditure is initially capitalized as an E&E
asset. Payments to acquire the legal right to explore, costs of
technical services and studies, seismic acquisition, exploratory
drilling and testing are also capitalized as intangible E&E
assets.
Tangible assets used in E&E activities (such as the Group’s
vehicles, drilling rigs, seismic equipment and other property,
plant and equipment) are normally classified as PP&E. However,
to the extent that such assets are consumed in developing an
intangible E&E asset, the amount reflecting that consumption is
recorded as part of the cost of the intangible asset. Such
intangible costs include directly attributable overheads, including
the depreciation of PP&E items utilised in E&E activities,
together with the cost of other materials consumed during the
exploration and evaluation phases.
3. Significant accounting policies
(continued)
(j) Intangible
exploration and evaluation assets (continued)
E&E assets are not amortized prior to the conclusion of
appraisal activities.
Treatment of E&E assets at
conclusion of appraisal activities
Intangible E&E assets related to each exploration property
are carried forward, until the existence (or otherwise) of
commercial reserves has been determined. If commercial reserves
have been discovered, the related E&E assets are assessed for
impairment on individual assets basis as set out below and any
impairment loss is recognized in the income statement. Upon
approval of a development programme, the carrying value, after any
impairment loss, of the relevant E&E assets is reclassified to
the development and production assets within PP&E.
Intangible E&E assets which relate to E&E activities
that are determined not to have resulted in the discovery of
commercial reserves remain capitalized as intangible E&E assets
at cost less accumulated amortization, subject to meeting a
pool-wide impairment test in accordance with the accounting policy
for impairment of E&E assets set out below.
Impairment of E&E assets
E&E assets are assessed for impairment when facts and
circumstances suggest that the carrying amount may exceed its
recoverable amount. Such indicators include, but are not limited to
those situations outlined in paragraph 20 of IFRS 6 Exploration
for and Evaluation of Mineral Resources such as, a) license
expiry during year or in the near future and will not likely to be
renewed; b) expenditure on E&E activity neither budgeted nor
planned; c) commercial quantities of mineral resources have been
discovered; and d) sufficient data exist to indicate that carrying
amount of E&E asset is unlikely to be recovered in full from
successful development or sale.
Where there are indications of impairment, the E&E assets
concerned are tested for impairment. Where the E&E assets
concerned fall within the scope of an established full cost pool,
which are not larger than an operating segment, they are tested for
impairment together with all development and production assets
associated with that cost pool, as a single cash generating
unit.
The aggregate carrying value of the relevant assets is compared
against the expected recoverable amount of the pool, generally by
reference to the present value of the future net cash flows
expected to be derived from production of commercial reserves from
that pool. Where the assets fall into an area that does not have an
established pool or if there are no producing assets to cover the
unsuccessful exploration and evaluation costs, those assets would
fail the impairment test and be written off to the income statement
in full.
Impairment losses are recognized in the income statement and are
separately disclosed.
(k) Development and production
assets
Development and production assets are accumulated on a
field-by-field basis and represent the cost of developing the
commercial Reserves discovered and bringing them into production,
together with E&E expenditures incurred in finding commercial
Reserves transferred from intangible E&E assets.
The cost of development and production assets comprises the cost
of acquisitions and purchases of such assets, directly attributable
overheads, finance costs capitalized, and the cost of recognizing
provisions for future restoration and decommissioning.
Depreciation of producing assets
Depreciation is calculated on the net book values of producing
assets on a field-by-field basis using the unit of production
method. The unit of production method refers to the ratio of
production in the reporting year as a proportion of the Proved and
Probable Reserves of the relevant field based on assessments of
internal geologists utilising the most recent Competent Person
Report and subsequent drilling and exploration, taking into account
future development expenditures necessary to bring those Reserves
into production.
Producing assets are generally grouped with other assets that
are dedicated to serving the same Reserves for depreciation
purposes, but are depreciated separately from producing assets that
serve other Reserves.
3. Significant accounting policies
(continued)
(l) Impairment of development and
production assets and other property, plant and equipment
At each balance sheet date, the Group reviews the carrying
amounts of its PP&E to determine whether there is any
indication that those assets have suffered an impairment loss. If
any such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss
(if any). Where the asset does not generate cash flows that are
independent from other assets, the Group estimates the recoverable
amount of the cash-generating unit to which the asset belongs. The
recoverable amount is the higher of fair value less costs to sell
and value in use. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset for which the
estimates of future cash flows have not been adjusted. In
determining fair value less cost to sell, the estimated future cash
flows are discounted to their present value using a post-tax
discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset for which the
estimates of future cash flows have not been adjusted. Such
cash flows include relevant development expenditure that a market
participant would reasonably be expected to undertake.
If the recoverable amount of an asset (or cash-generating unit)
is estimated to be less than its carrying amount, the carrying
amount of the asset (cash-generating unit) is reduced to its
recoverable amount. An impairment loss is recognised as an expense
immediately.
Where an impairment loss subsequently reverses, the carrying
amount of the asset (cash-generating unit) is increased to the
revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount that
would have been determined had no impairment loss been recognised
for the asset (cash-generating unit) in prior years. A reversal of
an impairment loss is recognized as income immediately.
(m) Inventories
Oil and gas stock and spare parts are stated at the lower of
cost and net realisable value. Costs comprise direct materials and,
where applicable, direct labour costs and those overheads that have
been incurred in bringing the inventories to their present location
and condition. Cost is allocated using the weighted average method.
Net realisable value represents the estimated selling price less
all estimated costs of completion and costs to be incurred in
marketing, selling and distribution.
(n) Financial
instruments
Financial assets and financial liabilities are recognized in the
consolidated statement of financial position when the Group becomes
party to the contractual provisions of the instrument.
Loan classified at fair value through
profit and loss
Loan instruments which include options to convert the instrument
into equity are classified as fair value through profit and loss
instruments because they do not meet the criteria for amortized
cost measurement as they are not held for the collection of
contractual cash flows representing solely payments of principal
and interest. Such loan instruments are initially recorded at fair
value which is typically the cash advanced under the instrument and
subsequently recorded at fair value with changes in fair value
recorded in the income statement. Transaction costs for loans
classified at fair value through profit or loss are expensed in the
income statement.
Trade and other payables
Payables are initially measured at fair value, net of
transaction costs and are subsequently measured at amortized cost
using the effective interest method.
3. Significant accounting policies
(continued)
(n) Financial
instruments (continued)
Trade and other receivables
Trade and other receivables are recognized initially at their
transaction price in accordance with IFRS 9 and are subsequently
measured at amortised cost. The Group applies the simplified
approach to providing for expected credit losses (ECL) prescribed
by IFRS 9, which permits the use of the lifetime expected loss
provision for all trade receivables. Expected credit losses are
assessed on a forward-looking basis. The loss allowance is measured
at initial recognition and throughout its life at an amount equal
to lifetime ECL. Any impairment is recognized in the income
statement.
Cash
Cash comprise cash on hand and on-demand deposits. Deposits are
recorded as cash and cash equivalents when they have a maturity of
less than 90 days at inception.
(o)
Provisions
Provisions are recognized when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that the Group will be required to settle that
obligation and a reliable estimate can be made of the amount of the
obligation. The amount recognized as a provision is the best
estimate of the consideration required to settle the present
obligation at the balance sheet date, taking into account the risks
and uncertainties surrounding the obligation. When a provision is
measured using the cash flows estimated to settle the present
obligation, its carrying amount is the present value of those cash
flows.
(p)
Decommissioning
A provision for decommissioning is recognized in full when the
related facilities are installed. The decommissioning provision is
calculated as the net present value of the Group’s share of the
expenditure expected to be incurred at the end of the producing
life of each field in the removal and decommissioning of the
production, storage and transportation facilities currently in
place. The cost of recognizing the decommissioning provision is
included as part of the cost of the relevant asset and is thus
charged to the income statement on a unit of production basis in
accordance with the Group’s policy for depletion and depreciation
of tangible non-current assets. Period charges for changes in the
net present value of the decommissioning provision arising from
discounting are included within finance costs.
(q)
Leases
At inception of a contract, the Group assesses whether a
contract is, or contains, a lease based on whether the contract
conveys the right to control the use of an identified asset for a
period of time in exchange for consideration. Service agreements
for equipment on the working sites are not considered leases as,
based upon an assessment of the terms and nature of their
contractual arrangements, the contracts do not convey the right to
control the use of an identified asset.
The right-of-use asset is initially measured based on the
initial amount of the lease liability adjusted for any lease
payments made at or before the commencement date, plus any initial
direct costs incurred and an estimate of costs to dismantle and
remove the underlying asset or to restore the underlying asset or
the site on which it is located, less any lease incentives
received.
The asset is depreciated to the earlier of the end of the useful
life of the right-of-use asset or the lease term using the
straight-line method as this most closely reflects the expected
pattern of consumption of the future economic benefits. The lease
term includes periods covered by an option to extend if the Group
is reasonably certain to exercise that option. In addition, the
right-of-use asset is periodically reduced by impairment losses, if
any, and adjusted for certain remeasurements of the lease
liability.
3. Significant accounting policies
(continued)
(q) Leases
(continued)
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if
that rate cannot be readily determined, the incremental borrowing
rate. The lease liability is measured at amortized cost using the
effective interest method. It is remeasured when there is a change
in future lease payments arising from a change in an index or rate,
if there is a change in the Group’s estimate of the amount expected
to be payable under a residual value guarantee, or if the Group
changes its assessment of whether it will exercise a purchase,
extension or termination option. When the lease liability is
remeasured in this way, a corresponding adjustment is made to the
carrying amount of the right-of-use asset, or the effect is
recorded in profit or loss if the carrying amount of the
right-of-use asset has been reduced to zero.
The Group elected to apply the practical expedient not to
recognise right-of-use assets and lease liabilities for short-term
leases that have a lease term of 12 months or less and leases of
low-value assets. The Group also made use of the practical
expedient to not recognize a right-of-use asset or a lease
liability for leases for which the lease term ends within 12 months
of the date of initial application.
The lease payments associated with these leases are recognized
as an expense on a straight-line basis over the lease term.
4.
Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Group’s accounting policies, which are
described in note 3, the Directors are required to make judgements,
estimates and assumptions about the carrying amounts of the assets
and liabilities that are not readily apparent from other sources.
The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognized in
the period in which the estimate is revised if the revision affects
only that period or in the period of the revision and future
periods if the revision affects both the current and future
periods.
The following are the critical judgements and estimates that the
Directors have made in the process of applying the Group’s
accounting policies and that have the most significant effect on
the amounts recognized in the financial statements.
Critical judgements and estimates
(a) Impairment indicator assessment
for E&E assets
The outcome of ongoing exploration, and therefore the
recoverability of the carrying value of intangible exploration and
evaluation assets, is inherently uncertain. Management assesses its
E&E assets for impairment indicators and if indicators of
impairment are identified performs an impairment test. In
assessing potential indicators of impairment judgment was required
and management considered factors such as the anticipated
conversion to a production licence, reserves reports and the net
present value of economic models, the results of drilling and
exploration in the year and the future plans including farm out
proposals. In respect of the renewal and conversion of the license
which remains outstanding having been rejected by the licencing
authority in 2020 management carefully considered the likelihood of
the licence being ultimately awarded once the current legal process
to challenge the decision of the licencing authorities is
completed. In doing so, consideration was given to external
legal advice regarding the validity of its application, compliance
with relevant license commitments, completeness of the application
and political and judicial environment of Ukraine (note 15).
4.
Critical accounting judgements and key sources of estimation
uncertainty (continued)
(b)
Impairment of PP&E
Management assesses its development and production assets for
impairment indicators and if indicators of impairment are
identified performs an impairment test. Management performed an
impairment assessment using a discounted cash flow model which
required estimates including forecast oil prices, reserves and
production, costs and discount rates (note 16).
(c)
Recoverability and measurement of VAT
Judgment is required in assessing the recoverability of VAT
assets and the extent to which historical impairment provisions
remain appropriate, particularly noting the recent recoveries
against historically impaired VAT. In forming this assessment, the
Group considers the nature and age of the VAT, the likelihood of
eligible future supplies to VAT, the pattern of recoveries and
risks and uncertainties associated with the operating
environment.
(d) Loan
classified at fair value through profit and loss
In February 2019, the Group
advanced a Euro 13,385,000 loan to
Proger Managers & Partners Srl (“PMP”), a privately owned
Italian company whose only interest is a 72.92% participation in
Proger Ingegneria Srl (“Proger Ingegneria”), a privately owned
company which held a 75.95% participating interest in Proger Spa
(“Proger”) at 31 December 2020. 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
(February 2019) and assuming that the
call option described below is not exercised). The principal of the
loan is secured by a pledge over PMP’s current participating
interest in Proger Ingegneria Srl, up to a maximum guaranteed
amount of Euro 13,385,000.
As part of the instrument, the Group was granted a call option
to acquire, at its sole discretion, 33% of participating interest
in Proger Ingegneria; the exercise of the option would give
Cadogan, through CPHBV, an indirect 25% interest in Proger at
31 December 2020. The call option was
granted at no additional cost and could 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 Cadogan
shareholders having approved the exercise of the call option as
explained further below. Should CPHBV 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 CPHBV, 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.
Management considered the extent to which the option and rights
to representation on the Board of Proger Ingegneria and Proger
meant significant influence existed. The requirement to
obtain shareholder approval for any exercise of the option was
considered to represent a substantive condition such that the
option was not ‘currently exercisable’ under IFRS at 31 December 2020. In consequence, the potential
voting rights associated with any subsequent exercise of the option
were not considered to contribute to significant influence over the
investee.
Under the Group’s accounting policies, the instrument is held at
fair value through profit and loss and determination of fair value
requires assessment of both key investee specific information
regarding financial performance and prospects and market
information. The determination of fair value is made at
31 December 2020 based on facts and
circumstances at that date, notwithstanding that the borrower
failed to repay the loan at maturity in 2021.
The Group’s original investment decision involved assessment of
Proger Spa business plans and analysis with professional advisers
including valuations performed using the income method (discounted
cash flows) and market approach using both the precedent
transactions and trading multiples methods.
Unfortunately, Proger has refused to provide Cadogan information
regarding its 2020 financial performance or updated forecasts to
undertake a detailed fair value assessment using the income method
or market approach at 31 December
2020. As a consequence, management assessed the fair value
of the instrument based on the
4. Critical accounting judgements and key
sources of estimation uncertainty (continued)
(d) Loan classified at fair value through profit
and loss (continued)
terms of the agreement, including the pledge over shares,
together with financial information in respect of prior periods and
determined that $16.8 million
represented the best estimate of fair value, being equal to
anticipated receipts and timing thereof discounted at an estimated
market rate of interest of 7.8%. In forming its
assessment at 31 December 2020,
management particularly considered the impact of any claim under
the pledge and further litigation options on the underlying
investee business and shareholders and resulting incentive that
created for the borrower to ultimately meet the contractual payment
obligation. Management further considered information relevant to
Proger business and PMP’s ability to pay, noting the absence of
2020 financial information. However, the absence of information
regarding Proger’s 2020 financial performance and prospects
represents a significant limitation on the fair value exercise and,
as a result, if received, the fair value could be materially higher
or lower than this value. (Note 26)
(e) Well
services and rental agreements
The Group’s well rental arrangements in Ukraine for oil and gas extraction activities
are outside of the scope of IFRS 16. Judgment was required in
forming this assessment, based on analysis of the scope of IFRS 16
and the nature of the well rental arrangements. This assessment
focused on the extent to which the rental agreements provided
access to sub-surface well structures to extract hydrocarbons
versus surface level infrastructure for the transport and
processing of extracted hydrocarbons.
(f)
Contingent liabilities
Judgment has been applied in assessing the likelihood of
financial loss in respect of the ongoing litigation in respect of
VAT and tax losses detailed in note 27. In forming the conclusion
no provision is required management considered the findings of the
first and second instance courts, although the matter remains
subject to appeal.
5. 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 reports provided to the Group’s chief operating
decision maker (“CODM”). The Group has identified its senior
management team as its CODM and the internal reports used by the
senior management team to oversee operations and make decisions on
allocating resources serve as the basis of information presented.
These internal reports are prepared on the same basis as these
consolidated financial statements.
Segment information is analysed on the basis of the type of
activity, products sold, or services provided. The majority of the
Group’s operations and all Group’s revenues 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 exploration and production licences
for natural gas, oil and condensate.
Service
- Drilling services to exploration and production companies;
and
- Civil works services to exploration and production
companies.
Trading
- Import of natural gas from European countries; and
- 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 described in note 3. Sales
between segments are carried out at rates considered to approximate
market prices. The segment result represents operating profit under
IFRS before unallocated corporate expenses. Unallocated corporate
expenses include management remuneration, representative expenses
and expenses incurred in
5. Segment information (continued)
respect of the maintenance of 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 31 December 2020 and for the
year then ended the Group’s segmental information was as
follows:
|
Exploration and
Production |
Services(2) |
Trading |
Consolidated |
|
$’000 |
$’000 |
$’000 |
$’000 |
Sales of hydrocarbons |
3,457 |
- |
1,643 |
5,100 |
Other revenue |
- |
5 |
- |
5 |
Sales between segments |
- |
- |
- |
- |
Total revenue |
3,457 |
5 |
1,643 |
5,105 |
Cost of sales |
(3,033) |
(7) |
(1,460) |
(4,500) |
Administrative expenses |
(509) |
(53) |
(135) |
(697) |
Other operating costs |
(55) |
- |
- |
(55) |
(Impairment)/reverse of
impairment |
(53) |
- |
- |
(53) |
Reversal of impairment of VAT
recoverable |
74 |
- |
570 |
644 |
Finance income (1) |
- |
- |
25 |
25 |
Segment results |
(119) |
(55) |
643 |
469 |
Unallocated administrative
expenses |
- |
- |
- |
(3,074) |
Other costs, net (3) |
- |
- |
- |
(335) |
Net foreign exchange gain |
- |
- |
- |
1,938 |
Loss before tax |
- |
- |
- |
(1,002) |
- Net finance income includes $25
thousand of interest on cash deposits used for trading.
- The services business segment in 2020 primarily provided well
workovers and other works to other Group companies.
- Includes decrease in FVPL of $334
thousand.
As of 31 December 2019 and for the
year then ended the Group’s segmental information was as
follows:
|
Exploration and
Production |
Service |
Trading |
Consolidated |
|
$’000 |
$’000 |
$’000 |
$’000 |
Sales of hydrocarbons |
4,861 |
- |
956 |
5,817 |
Other revenue |
- |
59 |
- |
59 |
Sales between segments |
- |
- |
- |
- |
Total revenue |
4,861 |
59 |
956 |
5,876 |
Cost of sales |
(3,807) |
(30) |
(1,035) |
(4,872) |
Administrative expenses |
(633) |
(42) |
(128) |
(803) |
Impairment |
(30) |
- |
(1,916) |
(1,946) |
Finance income, net
4 |
- |
- |
85 |
85 |
Segment results |
391 |
(13) |
(2,038) |
(1,660) |
Unallocated administrative
expenses |
|
|
|
(4,849) |
Other income, net |
|
|
|
4,954 |
Impairment |
|
|
|
(162) |
Net foreign exchange loss |
|
|
|
(385) |
Profit before tax |
|
|
|
(2,102) |
- Net finance income includes $49
thousand of interest on short-term borrowings and
$36 thousand of interest on cash
deposits used for trading.
6.
Revenue
|
2020
$’000 |
2019
$’000 |
Sale of hydrocarbons (exploration
and production) – point in time |
3,457 |
4,861 |
Sale of hydrocarbons (trading) –
point in time |
1,643 |
956 |
Service revenues – over time |
5 |
59 |
|
5,105 |
5,876 |
Revenue is generated in the Ukraine. Refer to note 3 (f) for details of
the performance obligations. Service revenue and associated
contract assets and liabilities are immaterial.
Information about major customers
Included in revenues arising from the Trading segment for the
year ended 31 December 2020 are
revenues of $1.6 million, which arose
from sales to the Group’s four customers.
65% of exploration and production business segment revenue arose
from sales to four largest customers. Each of them contributed for
more than 10% of the total revenue of the exploration and
production business segment revenue for the year ended 31 December
2020.
In 2019, Trading segment revenue for the year ended 31 December 2019 of $0.9
million arose from sales to the Group’s three customers. No
other single customers contributed 10 per cent or more to the
Group’s Exploration and Production revenue in 2019.
7.
Administrative expenses
|
|
|
2020
$’000 |
2019
$’000 |
Staff |
|
|
1,982 |
2,797 |
Professional fees |
|
|
895 |
1,776 |
Insurance |
|
|
183 |
103 |
Office costs including utilities and
maintenance |
|
|
170 |
204 |
IT and communication |
|
|
81 |
134 |
Bank charges |
|
|
40 |
81 |
Travel |
|
|
25 |
144 |
Other |
|
|
395 |
413 |
|
|
3,771 |
5,652 |
8.
Reversal of impairment/(impairment) of other assets
|
|
|
2020
$’000 |
2019
$’000 |
VAT recoverable |
|
|
644 |
- |
Other Property, Plant and
Equipment |
|
|
- |
345 |
Reversal of impairment of other
assets |
|
|
644 |
345 |
In 2020, $0.6 million of provision
against VAT has been released in respect of input VAT historically
impaired that has been offset against output VAT.
$1.5 million (2019: $2.4 million) of historical VAT receivables
remain impaired. Refer to Note 4.
|
|
|
2020
$’000 |
2019
$’000 |
Inventories |
|
|
(50) |
(1,946) |
Other receivables |
|
|
(3) |
- |
VAT recoverable |
|
|
- |
(162) |
Impairment of other
assets |
|
(53) |
(2,108) |
Impairment of other assets totalled $53
thousand (2019: $2.1 million)
includes impairment of inventories and other receivables. In 2019,
impairment of inventories includes $1.9
million natural gas value impairment due to revaluation to
market price at the year end.
9.
Other operating income, net
|
|
|
2020
$’000 |
2019
$’000 |
Profit on disposal of
subsidiaries |
|
|
- |
4,000 |
Other expenses |
|
|
(71) |
(28) |
|
|
(71) |
3,972 |
For the details on disposal of subsidiaries please refer to Note
17.
10. Auditor’s
remuneration
The analysis of auditor’s remuneration is as follows:
|
2020
$’000 |
2019
$’000 |
Audit fees |
|
|
Fees payable to the Company’s
auditor and their associates for the audit of the Company’s annual
accounts |
157 |
143 |
Fees payable to the Company’s
auditor and their associates for other services to the Group: |
|
|
- The audit of the Company’s subsidiaries
|
8 |
13 |
Total audit fees |
165 |
156 |
|
|
|
Non-audit fees |
|
|
- Review of regulatory communications
|
5 |
- |
Non-audit fees |
5 |
- |
Audit fees for 2020 refer to BDO LLP of $165 thousand for the audit of group accounts and
subsidiaries as of and for the year ended 31
December 2020.
11. Staff costs
The average monthly number of employees (including Executive
Directors) was:
|
2020
Number |
2019
Number |
Executive Director |
1 |
1 |
Other employees |
79 |
79 |
|
80 |
80 |
|
|
|
Total number of employees at 31
December |
80 |
80 |
|
|
|
|
$’000 |
$’000 |
Their aggregate remuneration
comprised: |
|
|
Wages and salaries |
1,689 |
1,901 |
Social security costs |
356 |
401 |
Annual bonus |
131 |
82 |
Charge for bonus granted in
shares |
- |
413 |
|
2,176 |
2,797 |
12. Finance
income/(costs), net
|
2020
$’000 |
2019
$’000 |
Investment revenue |
37 |
104 |
Interest income on cash deposits in
Ukraine |
25 |
49 |
Interest income on receivables |
- |
36 |
Total interest income on
financial assets |
62 |
189 |
|
|
|
Unwinding of discount on
decommissioning provision (note 24) |
(22) |
(164) |
|
40 |
25 |
13. Tax
|
2020
$’000 |
2019
$’000 |
Current tax |
- |
- |
Deferred tax |
- |
- |
|
- |
- |
The Group’s operations are conducted primarily outside the UK,
namely in Ukraine. The most
appropriate tax rate for the Group is therefore considered to be 18
% (2019: 18%), the rate of profit tax in Ukraine, which is the primary source of
revenue for the Group. Taxation for other jurisdictions is
calculated at the rates prevailing in the respective
jurisdictions.
13. Tax (continued)
The taxation charge for the year can be reconciled to the
profit/(loss) per the income statement as follows:
|
2020
$’000 |
2020
% |
2019
$’000 |
2019
% |
(Loss)/profit before tax |
(1,002) |
100 |
(2,102) |
100 |
Tax credit at Ukraine corporation
tax rate of 18% (2018: 18%) |
(180) |
18 |
(378) |
18 |
Permanent
differences |
(829) |
83 |
(944) |
45 |
Unrecognized tax losses generated in
the year |
1,125 |
(112) |
1,448 |
(69) |
Effect of different tax rates |
(116) |
11 |
(126) |
6 |
|
- |
- |
- |
- |
Adjustments recognized
in the current year in relation
with the current tax of prior years |
- |
- |
- |
- |
Income tax (benefit)/expense
recognized in profit or loss |
- |
- |
- |
- |
Permanent differences mostly represent items, including
provisions, accruals and impairments related to taxation in
Ukraine, these are items not
deductible in tax computations.
14. Loss per
Ordinary share
Loss attributable to owners of
the Company |
2020
$’000 |
2019
$’000 |
Loss for the purposes
of basic loss per share being net loss attributable to owners of
the Company |
(996) |
(2,103) |
Number of shares |
Number
‘000 |
Number
‘000 |
Weighted average number of Ordinary
shares used in calculation of earnings per share: |
|
|
Basic |
240,628 |
235,729 |
Diluted |
244,128 |
235,729 |
|
Cent |
cent |
Loss per Ordinary share |
|
|
Basic and diluted |
(0.4) |
(0.9) |
Basic loss per Ordinary share is calculated by dividing the net
loss for the year attributable to owners of the Company by the
weighted average number of Ordinary shares outstanding during the
year. The calculation of the basic loss per share is based on the
following data:
In 2020 and 2019 the Group generated a loss and therefore there
is no difference between basic and diluted EPS.
15. Intangible
exploration and evaluation assets
Cost |
|
$’000 |
At 1 January 2019 |
|
22,184 |
Additions |
|
241 |
Disposals |
|
(6,062) |
Change in estimate of
decommissioning assets (note 24) |
|
(63) |
Exchange differences |
|
3,218 |
At 1 January 2020 |
|
19,518 |
Additions |
|
32 |
Disposals |
|
(127) |
Change in estimate of
decommissioning assets (note 24) |
|
(12) |
Exchange differences |
|
(3,200) |
At 31 December
2020 |
|
16,211 |
|
|
|
Impairment |
|
|
At 1 January
2019 |
|
19,798 |
Disposals |
|
(6,062) |
Exchange
differences |
|
2,811 |
At 1 January
2020 |
|
16,547 |
Disposals |
|
- |
Exchange
differences |
|
(2,717) |
At 31 December
2020 |
|
13,830 |
|
|
|
Carrying
amount |
|
|
At 31 December
2020 |
|
2,381 |
At 31 December
2019 |
|
2,971 |
The carrying amount of E&E assets at 31 December 2020 of $2.4
million (2019: $2.9 million)
relates to the Bitlyanska license.
Management has performed an impairment indicator review.
Refer to note 4 (a). As part of the impairment indicator assessment
management considered the Bitlyanska license’s economic model of
underlying discounted cash flow forecasts which demonstrated
significant headroom over carrying value. Accordingly, disclosure
of estimation uncertainty for individual inputs is not
included.
A critical judgment in the impairment indicator assessment was
the likelihood of the Bitlyanska license being renewed following
the rejection of the application in 2020 and subsequent legal
process that remains underway. Cadogan has fully complied with
legislative requirements and submitted its application for a
20-year exploration and production license 5 months before its
expiry on 23 December 2019. A
decision on the award was expected to be provided by State
Geological Service of Ukraine
before 19 January 2020, since all
other intermediary approvals had been secured in line with the
applicable legislation requirements. Given the delay to granting of
the new license beyond the regular timeline provided by legislation
in the Ukraine, Cadogan has
launched a claim before the Administrative Court to challenge the
non-granting of the 20-year production license by the Licensing
Authority. Given the compliance with license commitments and
renewal process and having considered legal advice received,
management have a reasonable expectation of the license being
awarded. However, in the event the Group is ultimately unsuccessful
the exploration licence would hold no value and give rise to
impairment.
16. Property, plant
and equipment
Cost |
Development
and
production assets
$’000 |
Other
$’000 |
Total
$’000 |
At 1 January
2019 |
8,532 |
2,721 |
11,253 |
Additions |
8,213 |
57 |
8,270 |
Change in estimate of
decommissioning assets (note 24) |
135 |
- |
135 |
Disposals |
(2,372) |
- |
(2,372) |
Exchange
differences |
2,004 |
468 |
2,472 |
At 1 January
2020 |
16,512 |
3,246 |
19,758 |
Additions |
259 |
147 |
406 |
Change in estimate of
decommissioning assets (note 24) |
(30) |
- |
(30) |
Exchange
differences |
(2,723) |
(540) |
(3,263) |
At 31 December
2020 |
14,018 |
2,853 |
16,871 |
|
|
|
|
Accumulated
depreciation and impairment |
|
|
|
At 1 January
2019 |
5,772 |
2,185 |
7,957 |
Charge for the
year |
495 |
158 |
653 |
Disposals |
(2,372) |
- |
(2,372) |
Exchange
differences |
810 |
372 |
1,182 |
At 1 January
2020 |
4,705 |
2,715 |
7,420 |
Charge for the
year |
595 |
139 |
734 |
Exchange
differences |
(801) |
(445) |
(1,246) |
At 31 December
2020 |
4,499 |
2,409 |
6,908 |
|
|
|
|
Carrying
amount |
|
|
|
At 31 December
2020 |
9,519 |
444 |
9,963 |
At 31 December
2019 |
11,807 |
531 |
12,338 |
Other property, plant and equipment include fixtures and
fittings for the development and production activities.
The carrying amount of development and production assets at
31 December 2020 of $9,5 million relates to the Blazhiv license.
Depreciation includes $0.6 million
for the Blazhiv license.
Management has performed an impairment review of Development and
production assets. As part of the information considered
management carried out the assessment of the Blazhivska license’s
recoverable amount based on the underlying discounted cash flow
forecasts. The impairment review supported the conclusion that no
impairment was applicable. Key assumptions used in the impairment
assessment were: future oil prices which were assumed at a constant
$297 (2019: $308), real per tonne; a production forecast with
a natural decline; estimated reserves and a discount rate of 15%,
nominal.
Sensitivity analysis for the Blazhiv license
Any impairment is dependent on judgement used in determining the
most appropriate basis for the assumptions and estimates made by
management, particularly in relation to the key assumptions
described above. Sensitivity analysis to potential changes in key
assumptions to reach break-even has been provided below:
Change in the
assumptions to be break even |
|
Oil price |
(14%) |
Oil production
volumes |
(20%) |
Discount rate |
22% |
17.
Subsidiaries
The Company had investments in the following subsidiary
undertakings at 31 December 2020:
Name |
Country of
incorporation
and operation |
Proportion
of voting
interest % |
Activity |
Registered office |
Directly held |
|
|
|
|
Cadogan Petroleum Holdings Ltd |
UK |
100 |
Holding company |
6th Floor 60 Gracechurch Street,
London, United Kingdom, EC3V 0HR |
Ramet Holdings Ltd |
Cyprus |
100 |
Holding company |
48 Inomenon Ethnon, Guricon House,
Floor 2 & 3, 6042, Larnaca, Cyprus |
Indirectly held |
|
|
|
|
Cadogan Petroleum Holdings BV |
Netherlands |
100 |
Holding company |
Hoogoorddreef 15, 1101 BA
Amsterdam |
Cadogan Bitlyanske BV |
Netherlands |
100 |
Holding company |
Hoogoorddreef 15, 1101 BA
Amsterdam |
Zagoryanska Petroleum BV |
Netherlands |
100 |
Holding company |
Hoogoorddreef 15, 1101 BA
Amsterdam |
LLC Astro Gas |
Ukraine |
100 |
Exploration |
5a, Pogrebnyak Street, ap. 2,
Zinkiv, Poltava region, Ukraine, 38100 |
LLC Astroinvest-Energy |
Ukraine |
100 |
Trading |
5a, Pogrebnyak Street, ap. 2,
Zinkiv, Poltava region, Ukraine, 38100 |
DP USENCO Ukraine |
Ukraine |
100 |
Production |
8, Mitskevycha sq.,Lviv,
Ukraine,79000 |
LLC USENCO Nadra |
Ukraine |
95 |
Production |
9a, Karpenka-Karoho str., Sambir,
Lviv region, Ukraine |
LLC Astro-Service |
Ukraine |
100 |
Service Company |
3 Petro Kozlaniuk str, Kolomyia,
Ukraine |
OJSC AgroNaftoGasTechService |
Ukraine |
79.9 |
Construction services |
Ivan Franko str, Hvizdets, Kolomyia
district, Ivano-Frankivsk Region, Ukraine |
Exploenergy s.r.l. |
Italy |
90 |
Exploration |
Via Triulziana 16c, San Donato
Milanese Milano, CAP 20097, Italy |
During the year ended 31 December
2020, the Group structure continued to be rationalised both
to reduce the number of legal entities and also to replace the
structure of multiple jurisdictions with one based on a series of
sub-holding companies incorporated in the
Netherlands for each licence area. In February 2020, the Group liquidated Rentoul Ltd.
In September 2020, the Group
liquidated Momentum Enterprises (Europe) Ltd. In November 2020, the Group liquidated Cadogan
Ukraine Holdings Limited (Cyprus).
In December 2020, Zagoryanska
Petroleum BV merged Cadogan Astro Enegy BV, Cadogan Pirkovskoe BV,
Cadogan Pokrovska BV, Cadogan Zagoryanske Production BV and Cadogan
Delta BV.
In 2019, the Group disposed its subsidiaries LLC Astroinvest
Ukraine and LLC Gazvydobuvannya for the consideration of
$4 million. At the date of disposal,
the subsidiaries had $1.8 million of
VAT recoverable balance which was previously impaired in the
Group’s accounts and $136 million
accumulated tax losses which were not recognised historically due
to the lack of sufficient certainty regarding future profits to
utilize the losses.
18. Inventories
|
|
2020
$’000 |
2019
$’000 |
Natural gas |
|
1,825 |
4,949 |
Other inventories |
|
1,607 |
1,984 |
Impairment
provision |
|
(1,276) |
(2,480) |
Carrying
amount |
|
2,156 |
4,453 |
The impairment provision at 31 December
2020 and 2019 is made so as to reduce the carrying value of
the inventories to the net realizable value. The reduction of the
provision included c$1.0 million
related to the sales of natural gas during the year 2020.
19. Trade and other
receivables
|
|
2020
$’000 |
2019
$’000 |
VAT recoverable |
|
1,500 |
2,402
|
Other receivables |
|
132 |
237 |
|
|
1,632 |
2,639 |
The Group considers that the carrying amount of receivables
approximates their fair value.
VAT recoverable is presented net of the cumulative provision of
$1.5 million (2019: $2.4 million) against Ukrainian VAT receivable
that has been recognized as at 31 December
2020. VAT recoverable relates to the oil production and gas
trading operations and is expected to be recovered through the gas
and oil sales VAT.
20. Notes
supporting statement of cash flows
Cash at 31 December 2020 of
$13.3 million (2019: $12.8 million) comprise cash held by the Group.
The Directors consider that the carrying amount of these assets
approximates to their fair value. There were no cash transactions
from financing activities for the year 2020.
21. Deferred
tax
The following are the major deferred tax liabilities and assets
recognised by the Group and movements thereon during the current
and prior reporting period:
|
Temporary
differences
$’000 |
Asset at 1 January 2019 |
501 |
Deferred
tax benefit |
- |
Exchange
differences |
- |
Asset at 1 January 2020 |
501 |
Deferred tax
benefit |
- |
Exchange differences |
(82) |
Asset at 31 December
2020 |
419 |
At 31 December 2020, the Group had
the following unused tax losses available for offset against future
taxable profits:
|
|
|
2020
$’000 |
2019
$’000 |
UK |
|
|
56,437 |
30,756 |
Ukraine |
|
|
49,364 |
50,257 |
|
|
|
105,801 |
81,013 |
21.
Deferred tax (continued)
Deferred tax assets have been recognized in respect of those tax
losses where there is sufficient certainty that profit will be
available in future periods against which they can be utilized. The
Group’s unused tax losses of $56.4
million (2019: $30.8 million)
relating to losses incurred in the UK are available to shelter
future non-trading profits arising within the Company. These losses
are not subject to a time restriction on expiry. No deferred tax
asset is recorded.
Unused tax losses incurred by Ukraine subsidiaries amount to $49.4 million (2019: $50.3
million). Under general tax law provisions, these losses may
be carried forward indefinitely to be offset against any type of
taxable income arising from the same company. Tax losses may not be
surrendered from one Ukraine
subsidiary to another. The deferred tax asset recorded is expected
to be utilized based on forecasts and relates to oil production
subsidiaries which are generating taxable profits.
22. Lease
liabilities
The Group recognized right-of-use assets and lease liabilities
based on rental contract for a rent of Kyiv office with maturity date end of
February 2024 which was entered into
in the period.
The following table sets out a maturity analysis of lease
liability, showing the undiscounted lease payments to be paid after
the reporting date.
|
2020
$’000 |
2019
$’000 |
Year 1 |
106 |
- |
Year 2 |
110 |
- |
Year 3 |
118 |
- |
Year 4 |
20 |
- |
Less: unearned
interest |
(62) |
- |
Lease liabilities |
292 |
- |
|
2020
$’000 |
2019
$’000 |
Analysed
as: |
|
|
Current |
97 |
- |
Non-current |
195 |
- |
Lease liabilities |
292 |
- |
23. Trade and other
payables
|
2020
$’000 |
2019
$’000 |
Accruals |
213 |
604 |
Trade creditors |
605 |
253 |
Other payables |
569 |
409 |
|
1,387 |
1,266 |
Trade creditors and accruals principally comprise amounts
outstanding for ongoing costs. The average credit period taken for
trade purchases is 30 days (2019: 29 days). The Group has financial
risk management policies to ensure that all payables are paid
within the credit timeframe.
The Directors consider that the carrying amount of trade and
other payables approximates to their fair value. No interest is
generally charged on outstanding balances.
24. Provisions
The provisions at 31 December 2020
comprise of $0.2 million (2019:
$0.3 million) of decommissioning
provision.
Decommissioning
|
$’000 |
At 1 January 2019 |
315 |
Change in estimate (note 15 and
16) |
(63) |
Additional provisions recognized in
the period |
135 |
Utilization of provision on impaired
oil and gas assets |
(335) |
Unwinding of discount on
decommissioning provision (note 12) |
164 |
Exchange differences |
73 |
At 1 January 2020 |
289 |
Change in estimate (note 15 and
16) |
(42) |
Additional provisions recognized in
the period |
- |
Utilization of provision on impaired
oil and gas assets |
- |
Unwinding of discount on
decommissioning provision (note 12) |
22 |
Exchange differences |
(46) |
At 31 December 2020 |
223 |
|
$’000 |
At 1 January 2019 |
315 |
Non-current |
289 |
Current |
- |
At 1 January 2020 |
289 |
Non-current |
223 |
Current |
- |
At 31 December 2020 |
223 |
In accordance with the Group’s environmental policy and
applicable legal requirements as of 31st December 2020, the Group intends to restore the
sites it is working on after completing exploration or development
activities.
A long-term provision of $0.2
million (2019: $0.3 million)
has been made for decommissioning costs, which are expected to be
incurred at the end of the licenses period as a result of the
demobilization of gas and oil facilities and respective site
restoration.
25. Share
capital
Authorised and issued equity share
capital
|
2020 |
2019 |
|
Number
(‘000) |
$’000 |
Number
(‘000) |
$’000 |
Authorized
Ordinary shares of £0.03 each |
1,000,000 |
57,713 |
1,000,000 |
57,713 |
Issued
Ordinary shares of £0.03 each |
244,128 |
13,832 |
235,729 |
13,525 |
Authorized but unissued share capital of £30 million has been
translated into US dollars at the historic exchange rate of the
issued share capital. The Company has one class of Ordinary shares,
which carry no right to fixed income.
Issued equity share capital
|
|
Ordinary shares
of £0.03 |
At 31 December
2017 |
|
|
235,729,322 |
Issued during
year |
|
|
- |
At 31 December
2018 |
|
|
235,729,322 |
Issued during
year |
|
|
- |
At 31 December
2019 |
|
|
235,729,322 |
Issued during
year |
|
|
8,399,165 |
At 31 December
2020 |
|
|
244,128,487 |
|
|
|
|
|
|
|
|
Mr. Khallouf was appointed as Chief Executive Officer on
15 November 2019. As part of Mr.
Khallouf’s employment agreement, a welcome bonus equivalent in
value to 5,500,000 ordinary shares (using the market value of the
shares on the business day prior to the date of issue) is payable
to Mr. Khallouf and a holding period of two years is applicable to
the shares acquired. Pursuant to the terms of the bonus, the amount
must be subscribed for ordinary shares in the Company at such time
as the executive agrees. The welcome bonus was provided to Mr.
Khallouf in May 2020.
Following shareholders’ approval of the new Remuneration Policy,
Mr. Michelotti received in 2019 the Performance Bonus of €100,000
awarded to him based on the achievement versus his 2019 scorecard
and without a discretionary element. The Remuneration Committee
decided to award in shares 50% of the awarded bonus less taxes and
social contribution and therefore the €100,000 bonus was split in
€72,500 cash (inclusive of income tax and social contributions to
be paid by Mr. Michelotti on the entire awarded amount) and €27,500
in shares priced at their market value at closing on the Business
Day prior to the Subscription Date. The shares element was paid in
May 2020.
26. Financial
instruments
Capital risk management
The Group manages its capital to ensure that entities in the
Group will be able to continue as a going concern, while maximising
the return to shareholders.
The capital resources of the Group consist of cash arising from
equity attributable to owners of the Company, comprising issued
capital, reserves and retained earnings as disclosed in the
Consolidated Statement of Changes in Equity.
Externally imposed capital
requirement
The Group is not subject to externally imposed capital
requirements.
Categories of financial
instruments
|
2020
$’000 |
2019
$’000 |
Financial assets (includes cash) |
|
|
Financial
assets at fair value through profit and loss |
16,812 |
15,707 |
Cash – amortised
cost |
|
13,253 |
12,834 |
Other receivables–
amortized cost |
|
132 |
237 |
|
30,197 |
28,778 |
Financial liabilities – measured at amortized cost |
|
|
Trade
creditors |
605 |
253 |
Lease
liabilities |
292 |
- |
Accruals |
213 |
604 |
Other
payables |
569 |
409 |
|
1,679 |
1,266 |
Refer to note 4(d) for details of the terms of the Proger loan
recorded as a financial asset at fair value through profit and
loss. The instrument is recorded at management’s best
estimate of fair value as set out in note 4(d) although management
have not been able to undertake a valuation exercise under the
income method based on Proger’s underlying cash flows or
market-based method which would incorporate relevant recent
financial information on the investee or its prospects.
Financial assets at fair value through profit and
loss
$’000 |
As at 1 January
2019 |
- |
Long-term loans
provided |
15,246 |
Movement in FVPL |
697 |
Exchange
differences |
(236) |
As at 1 January
2020 |
15,707 |
Movement in FVPL |
(334) |
Exchange
differences |
1,439 |
As at 31 December
2020 |
16,812 |
The Group has applied a level 3 valuation under IFRS as inputs
to the valuation have included assessment of the cash repayments
anticipated under the loan terms at maturity, delayed by the
arbitration process requested by PMP (the Borrower), historical
financial information for the periods prior to 2020 and assessment
of the security provided by the pledge over shares together with
the impact of the Covid-19 on the activity of Proger. As a result,
$ 16.8 million was determined as the
best estimate of fair value, being equal to anticipated receipts
and timing thereof discounted at an estimated market rate of
interest of 7.8%. However, there is significant estimation
uncertainty given the limitations on information provided by Proger
and the ongoing process to recover the loan principal and interest.
The estimate of fair value is based on key assumptions in respect
of the period to receipt and market rate of interest for an
equivalent instrument at 31 December 2020. A 3 month 26.
Financial instruments (continued)
change in the timing of receipt would increase/(decrease) the
fair value by $0.3 million /
$0.3 million or a 1% change to the
market rate of interest would increase/(decrease) the fair value by
$0.14 million / $0.14 million.
If the Group had been provided with information to complete a
valuation under the income method or market method the key
assumptions would have included: a) In terms of the income method:
forecast revenues, EBITDA and unlevered free cash flows of the
investee including assessment of performance against its original
business plan at the time the loan was advanced, growth rates and
terminal values, determination of an appropriate discount rate,
adjustments to the enterprise value for debt and working capital
adjustments; b) In terms of the market method: 2020 EBITDA and
information to assess the quality of such earnings, enterprise
value multiples based on a basket of comparable transactions and
companies, adjustments to the enterprise value for debt and working
capital adjustments and other risk adjustment factors.
The Group considers that the carrying amount of financial
instruments approximates their fair value.
Financial risk management
objectives
Management co-ordinates access to domestic and international
financial markets and monitors and manages the financial risks
relating to the operations of the Group in Ukraine through internal risks reports, which
analyse exposures by degree and magnitude of risks. These risks
include commodity price risks, foreign currency risk, credit risk,
liquidity risk and cash flow interest rate risk. The Group does not
enter into or trade financial instruments, including derivative
financial instruments, for speculative purposes.
The Audit Committee of the Board reviews and monitors risks
faced by the Group at meetings held throughout the year.
Interest rate risk
Interest rate risk arises from the possibility that changes in
interest rates will affect the value of the financial instruments.
The Group is not exposed to interest rate risk because entities of
the Group borrow funds at fixed interest rates.
Commodity price risk
The commodity price risk related to Ukrainian gas and condensate
prices and prices for crude oil are the Group’s most significant
market risk exposures. World prices for gas and crude oil are
characterised by significant fluctuations that are determined by
the global balance of supply and demand and worldwide political
developments, including actions taken by the Organization of
Petroleum Exporting Countries.
These fluctuations may have a significant effect on the Group’s
revenues and operating profits going forward. In 2020 the price for
Ukrainian gas significantly decreased and was mainly based on the
current price of the European gas imports. Management continues to
expect that the Group’s principal market for gas will be the
Ukrainian domestic market.
The Group does not hedge market risk resulting from fluctuations
in gas, condensate and oil prices, and holds no financial
instruments, which are sensitive to commodity price risk.
Foreign exchange risk and foreign
currency risk management
The Company holds a large portion of its monetary assets in the
US Dollars and Euro, mitigating the exchange risk between the US
Dollars and Euro and monetary liability in the US Dollars.
Inflation risk management
Inflation in Ukraine and in the
international market for oil and gas may affect the Group’s cost
for equipment and supplies. The Directors will proceed with the
Group’s practices of keeping deposits in US dollar accounts until
funds are needed and selling its production in the spot market to
enable the Group to manage the risk of inflation.
26. Financial instruments
(continued)
Credit risk management
Credit risk refers to the risk that counterparty will default on
its contractual obligations resulting in financial loss to the
Group. The Group’s credit management process includes the
assessment, monitoring and reporting of counterparty exposure on a
regular basis. Credit risk with respect to receivables and advances
is mitigated by active and continuous monitoring the credit quality
of its counterparties through internal reviews and assessment.
There was no material past due receivables as at year end.
The Group makes allowances for expected credit losses on
receivables in accordance with its accounting policy.
The credit risk on liquid funds (cash) is considered to be
limited because the counterparties are financial institutions with
high and good credit ratings, assigned by international
credit-rating agencies in the UK and Ukraine respectively.
The carrying amount of financial assets recorded in the
financial statements represents the Group’s maximum exposure to
credit risk.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with
the Board of Directors, which has built an appropriate liquidity
risk management framework for the management of the Group’s short,
medium and long-term funding and liquidity management requirements.
The Group manages liquidity risk by maintaining adequate cash
reserves and by continuously monitoring forecast and actual cash
flows.
The following tables sets out details of the expected
contractual maturity of financial liabilities.
|
Within
3 months |
3 months to 1
year |
More than 1
year |
Total |
|
$’000 |
$’000 |
$’000 |
$’000 |
At 31 December 2019 |
|
|
|
|
Trade and other payables |
1,266 |
- |
- |
1,266 |
At 31 December 2020 |
|
|
|
|
Trade and other
payables |
1,387 |
- |
- |
1,387 |
Lease liability |
- |
106 |
248 |
354 |
27. Commitments and
contingencies
The Group has working interests in four licences to conduct its
exploration and development activities in Ukraine. Each license is held with the
obligation to fulfil a minimum set of exploration activities within
its term and is summarised on an annual basis, including the agreed
minimum amount forecasted expenditure to fulfil those obligations.
The activities and proposed expenditure levels are agreed with the
government licensing authority.
The required future financing of exploration and development
work on fields under the license obligations are as follows:
|
2020
$’000 |
2019
$’000 |
Within one year |
- |
- |
Between two and five
years |
2,058 |
2,573 |
|
2,058 |
2,573 |
27. Commitments and contingencies (continued)
Tax contingent liabilities
The Group assesses its liabilities and contingencies for all tax
years open for audit by UK, Netherlands and Ukraine tax authorities based upon the latest
information available. Where management concludes that it is not
probable that a particular tax treatment is accepted, a provision
is recorded based on the most likely amount or the expected value
of the tax treatment when determining taxable profit (tax loss),
tax bases, unused tax losses, unused tax credits and tax rates. The
decision should be based on which method provides better
predictions of the resolution of the uncertainty. Inherent
uncertainties exist in estimates of tax contingencies due to
complexities of interpretation and changes in tax laws.
Whilst the Group believes it has adequately provided for the
outcome of these matters, certain periods are under audit by the
UK, Netherlands and Ukraine tax authorities, and therefore future
results may include favourable or unfavourable adjustments to these
estimated tax liabilities in the period the assessments are made or
resolved. The final outcome of tax examinations may result in a
materially different outcome than assumed in the tax
liabilities.
After an inspection conducted by Ukraine’s tax authorities in
September 2019, Astroinvest Energy
LLC was notified of a tax claim related to the historic costs for
the liquidation of wells on the Zagoryanska license. The tax
authorities notified Astroinvest Energy LLC that they consider
recoverable VAT ($3.6 million) that
has subsequently been used to offset output VAT to be
non-deductible and additionally that the subsidiary’s tax losses
carry forward should be reduced by $15.3
million (Note 21). Astroinvest Energy LLC has launched a
claim against the tax authority’s decision on the basis of the
current tax legislation and related court decisions and considers
the potential for a liability to be less than probable.
If unsuccessful Astroinvest Energy LLC would offset the amount
of notified tax losses with part of the historical accumulated tax
losses. The disputed amount of VAT would be partially covered with
recoverable VAT not recognized as of 31
December 2020 (note 19) such that the eventual impact would
be $2.1 million.
28. Related party
transactions
All transactions between the Company and its subsidiaries, which
are related parties, have been eliminated on consolidation and are
not disclosed in this note. The application of IFRS 11 resulted in
the joint venture LLC Westgasinvest being accounted for under the
equity method and disclosed as a related party.
In February 2019, the Group
entered in a 2-year loan agreement with Proger Management &
Partners Srl with an option to convert it into a direct 33% equity
interest in Proger Ingegneria. At that time, Mr Michelotti was a
non-executive Director of Proger Ingegneria Srl and Proger Spa, and
CEO of Cadogan Petroleum PLC. Mr Michelotti did not participate to
the voting for the approval of the loan agreement at the Board of
Cadogan.
During the period, Group companies entered into the following
transactions with joint ventures who are considered as related
parties of the Group:
|
|
|
2020
$’000 |
2019
$’000 |
Revenues
from services provided and sales of goods |
|
- |
- |
Amounts
owed by related parties |
|
- |
- |
|
|
|
|
|
|
28. Related party
transactions (continued)
Directors’ remuneration
The remuneration of the Directors, who are the key management
personnel of the Group, is set out below in aggregate for each of
the categories specified in IAS 24 Related Party
Disclosures. Further information about the remuneration of
individual Directors is provided in the audited part of the Annual
Report on Remuneration 2020 on page 43.
|
Purchase of services |
Amounts owing |
|
|
2020
$’000 |
2019
$’000 |
2020
$’000 |
2019
$’000 |
|
Directors’
remuneration |
853 |
1,454 |
- |
594 |
|
Social contribution on
Directors’ remuneration |
81 |
76 |
- |
- |
|
|
|
|
|
|
|
|
The total remuneration of the highest paid Director was
$0.6 million in the year (2019:
$0.6 million).
No guarantees have been given or received and no provisions have
been made for doubtful debts in respect of the amounts owed by
related parties.
29. Events after
the balance sheet date
In February 2019, the Group
entered in a 2-year loan agreement with Proger Management &
Partners Srl with an option to convert it into a 33% equity
interest in Proger Ingegneria Srl which in turn held at
31 December 2020 a 75.95% equity
interest in Proger Spa.
The Borrower subsequently defaulted in payment. The Call Option
was not exercised and the Company notified PMP for the Loan
reimbursement at the Maturity Date, 25
February 2021. According to the Loan Agreement, PMP is in
default for the non-reimbursement of EUR
14,857,350 being the principal and the accumulated
interest.
End of March 2021, PMP contested
the default situation and the obligation to reimburse and asked for
an Arbitration according to the said Loan Agreement to get the Loan
Agreement recognised as an investment contract. Cadogan consider
PMP’s arguments as groundless and consider that they are intended
to delay PMP reimbursement obligations.
The Group determined $16.8 million
as the best estimate of fair value, being equal to anticipated
receipts and timing thereof discounted at an estimated market rate
of interest of 7.8%.
Company Balance Sheet
as at 31 December 2020 |
|
|
|
|
Notes |
2020
$’000 |
2019
$’000 |
ASSETS |
|
|
|
Non-current
assets |
|
|
|
Receivables from
subsidiaries |
33 |
38,598 |
37,324 |
|
|
38,598 |
37,324 |
Current
assets |
|
|
|
Trade and other
receivables |
33 |
3 |
- |
Cash |
33 |
5,759 |
6,971 |
|
|
5,762 |
6,971 |
Total
assets |
|
44,360 |
44,295 |
|
|
|
|
LIABILITIES |
|
|
|
Current
liabilities |
|
|
|
Trade and other
payables |
34 |
(240) |
(350) |
|
|
(240) |
(350) |
Total
liabilities |
|
(240) |
(350) |
|
|
|
|
Net assets |
|
44,120 |
43,945 |
|
|
|
|
EQUITY |
|
|
|
Share capital |
35 |
13,832 |
13,525 |
Share premium |
|
514 |
329 |
Retained
earnings[26] |
|
138,493 |
138,318 |
Other reserve |
|
- |
492 |
Cumulative translation
reserves |
36 |
(108,719) |
(108,719) |
Total
equity |
|
44,120 |
43,945 |
The financial statements of Cadogan Petroleum plc, registered in
England and Wales no. 05718406, were approved by the Board
of Directors and authorized for issue on 5
May 2021.
They were signed on its behalf by:
Fady Khallouf
Chief Executive Officer
5 May 2021
The notes on pages 113 to 116 form part of these financial
statements.
Company Cash Flow Statement
for the year ended 31 December 2020 |
|
|
|
2020
$’000 |
2019
$’000 |
Operating activities
Profit/(loss) for the year |
175 |
(1,788) |
Adjustments for:
Interest received
Effect of foreign exchange rate changes
Other payables to subsidiaries written off
Movement in provisions |
(24)
(1,617)
-
(32) |
(50)
143
(382)
- |
Operating cash
flows before movements in working capital |
(1,498) |
(2,077) |
Increase in
receivables |
(77) |
(2,699) |
(Decrease)/Increase in
payables |
(80) |
530 |
Cash used in
operations |
(1,655) |
(4,246) |
Income taxes paid |
- |
- |
Net cash outflow
from operating activities |
(1,655) |
(4,246) |
Investing activities |
|
|
Interest received |
24 |
50 |
Loans to subsidiary
companies |
- |
(6,237) |
Net cash used in
investing activities |
24 |
(6,187) |
|
|
|
|
|
|
Net decrease in
cash |
(1,631) |
(10,433) |
Effect of foreign
exchange rate changes |
419 |
(73) |
Cash at beginning of
year |
6,971 |
17,477 |
Cash at end of
year |
5,759 |
6,971 |
|
|
|
|
Company Statement of Changes in Equity
for the year ended 31 December 2020 |
|
Share
capital
$’000 |
Share
premium account
$’000 |
Retained earnings
$’000 |
Other Reserve
$’000 |
Cumulative translation reserves
$’000 |
Total
$’000 |
As at 1
January 2019 |
13,525 |
329 |
140,106 |
79 |
(108,719) |
45,320 |
Net loss for the
year |
- |
- |
(1,788) |
- |
- |
(1,788) |
Total comprehensive
loss for the year |
- |
- |
(1,788) |
- |
- |
(1,788) |
Share based award |
- |
- |
- |
413 |
- |
413 |
As at 1
January 2020 |
13,525 |
329 |
138,318 |
492 |
(108,719) |
43,945 |
Net income for the
year |
- |
- |
175 |
- |
- |
175 |
Total comprehensive
income for the year |
- |
- |
175 |
- |
- |
175 |
Issue of ordinary
shares |
307 |
185 |
- |
(492) |
- |
- |
As at 31 December
2020 |
13,832 |
514 |
138,493 |
- |
(108,719) |
44,120 |
|
|
|
|
|
|
|
Notes to the Company Financial
Statements
for the year ended 31 December 2020
30. Significant
accounting policies
The separate financial statements of the Company are presented
as required by the Companies Act 2006 (the “Act”). As permitted by
the Act, the separate financial statements have been prepared in
accordance with International Accounting Standards.
The financial statements have been prepared on the historical
cost basis. The principal accounting policies adopted are the same
as those set out in note 3 to the Consolidated Financial Statements
except as noted below.
As permitted by section 408 of the Act, the Company has elected
not to present its profit and loss account for the year. Cadogan
Petroleum plc reports a profit for the financial year ended
31 December 2020 of $0.2 million (2019: Loss $1.8 million).
Investments
Investments in subsidiaries are stated at cost less, where
appropriate, provisions for impairment.
Receivables from subsidiaries
Loans to subsidiary undertakings are subject to IFRS 9’s new
expected credit loss model. As all intercompany loans are repayable
on demand, the loan is considered to be in stage 3 of the IFRS 9
ECL model on the basis the subsidiary does not have enough liquid
assets in order to repay the loans if demanded. Lifetime ECLs are
determined using all relevant, reasonable and supportable
historical, current and forward-looking information that provides
evidence about the risk that the subsidiaries will default on the
loan and the amount of losses that would arise as a result of that
default. Analysis indicated that the Company will fully recover the
carrying value of the loans (net of historic credit loss
provisions) so no additional ECL has been recognised in the current
period.
Critical accounting judgements and key
sources of estimation uncertainty
The Company’s financial statements, and in particular its
investments in and receivables from subsidiaries, are affected by
certain of the critical accounting judgements and key sources of
estimation uncertainty.
The critical estimates and judgments referred to application of
the expected credit loss model to intercompany receivables (note
33). Management determined that the interest free on demand loans
were required to be assessed on the lifetime expected credit loss
approach and assessed scenarios considering risks of loss events
and the amounts which could be realised on the loans. In
doing so, consideration was given to factors such as the cash held
by subsidiaries and the underlying forecasts of the Group’s
divisions and their incorporation of prospective risks and
uncertainties.
31. Auditor’s
remuneration
The auditor’s remuneration for audit and other services is
disclosed in note 10 to the Consolidated Financial Statements.
32. Investments
The Company’s subsidiaries are disclosed in note 17 to the
Consolidated Financial Statements. The investments in subsidiaries
are all stated at cost less any provision for impairment.
33. Financial
assets
The Company’s principal financial assets are bank balances and
cash and receivables from related parties none of which are past
due. The Directors consider that the carrying amount of receivables
from related parties approximates to their fair value.
33. Financial assets
(continued)
Receivables from subsidiaries
At the balance sheet date gross amounts receivable from the
fellow Group companies were $351
million (2019: $349.9
million). The Company recognized no additional expected
credit loss provisions in relation to receivables from subsidiaries
in 2020 (2019: nil). The accumulated provision on receivables at
31 December 2020 was $312.4 million (2019: $312.6 million). Changes in accumulated provision
on receivables of $0.2 million
occurred due to the liquidation of the subsidiary during 2020 (Note
17). The carrying value of the receivables from the fellow Group
companies at 31 December 2020 was
$38.6 million (2019: $37.3 million). Receivables from subsidiaries are
interest free and repayable on demand. There are no past due
receivables. The receivables are classified as non-current based on
the expected timing of receipt notwithstanding their terms.
Cash
Cash comprises cash held by the Company and short-term bank
deposits with an original maturity of three months or less. The
carrying value of these assets approximates to their fair
value.
34. Financial
liabilities
Trade and other payables
|
|
2020
$’000 |
2019
$’000 |
Accruals |
|
139 |
211 |
Trade creditors |
|
101 |
139 |
|
|
240 |
350 |
Trade payables principally comprise amounts outstanding for
trade purchases and ongoing costs. The average credit period taken
for trade purchases is 30 days (2019: 34 days).
The Directors consider that the carrying amount of trade and
other payables approximates to their fair value. No interest is
charged on balances outstanding.
35. Share
capital
The Company’s share capital is disclosed in note 25 to the
Consolidated Financial Statements.
36. Cumulative
translation reserve
The directors decided to change the functional currency of the
Company from sterling to US dollars with effect from 1 January 2016. The effect of a change in
functional currency is accounted for prospectively. In other words,
the Company translates all items into the US dollar using the
exchange rate at the date of the change. The resulting translated
amounts for non-monetary items are treated as their historical
cost. Exchange differences arising from the translation of an
operation previously recognised in other comprehensive income in
accordance with paragraphs 32 and 39(c) IAS 21 “Foreign
Currency” are not reclassified from equity to profit or loss
until the disposal of the operation.
37. Financial instruments
The Company manages its capital to ensure that it is able to
continue as a going concern while maximising the return to
shareholders. Refer to note 26 for the Group’s overall strategy and
financial risk management objectives.
The capital resources of the Company consist of cash arising
from equity, comprising issued capital, reserves and retained
earnings.
Categories of financial
instruments
|
2020
$’000 |
2019
$’000 |
Financial assets –
loans and receivables (includes cash) |
|
|
Cash |
5,759 |
6,971 |
Amounts due from
subsidiaries |
38,598 |
37,324 |
|
44,357 |
44,295 |
Financial
liabilities – measured at amortized cost |
|
|
Trade creditors |
(101) |
(139) |
|
(101) |
(139) |
Interest rate risk
All financial liabilities held by the Company are non-interest
bearing. As the Company has no committed borrowings, the Company is
not exposed to any significant risks associated with fluctuations
in interest rates.
Credit risk
Credit risk refers to the risk that counterparty will default on
its contractual obligations resulting in financial loss to the
Company. For cash, the Company only transacts with entities that
are rated equivalent to investment grade and above. Other financial
assets consist of amounts receivable from related parties.
The Company’s credit risk on liquid funds is limited because the
counterparties are banks with high credit ratings assigned by
international credit-rating agencies.
The carrying amount of financial assets recorded in the Company
financial statements, which is net of any impairment losses,
represents the Company’s maximum exposure to credit risk.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with
the Board of Directors, which has built an appropriate liquidity
risk management framework for the management of the Company’s
short, medium and long-term funding and liquidity management
requirements. The Company maintains adequate reserves, by
continuously monitoring forecast and actual cash flows.
The Company’s financial liabilities are not significant and
therefore no maturity analysis has been presented.
Foreign exchange risk and foreign
currency risk management
The Company holds a large portion of its monetary assets in the
US Dollars and Euro, mitigating the exchange risk between the US
Dollars and Euro and monetary liability in the US Dollars. More
information on the foreign exchange risk and foreign currency risk
management is disclosed in note 26 to the Consolidated Financial
Statements.
38. Related parties
Amounts due from subsidiaries
The Company has entered into a number of unsecured related party
transactions with its subsidiary undertakings. The most significant
transactions carried out between the Company and its subsidiary
undertakings are mainly for short and long-term financing. Amounts
owed from these entities are detailed below:
|
2020
$’000 |
2019
$’000 |
Cadogan Petroleum
Holdings Limited |
38,598 |
37,324 |
|
38,598 |
37,324 |
Refer to note 32 for details on the Company’s receivables due
from subsidiaries.
The remuneration of the Directors, who are the key management
personnel of the Group, is set out below in aggregate for each of
the categories specified in IAS 24 Related Party
Disclosures. In 2020 there were no other employees in the
Company. Further information about the remuneration of individual
Directors is provided in the audited part of the Annual Report on
Remuneration 2020 on pages 42 to 49.
|
Purchase of services |
Amounts owing |
|
|
2020
$’000 |
2019
$’000 |
2020
$’000 |
2019
$’000 |
|
Directors’
remuneration |
853 |
1,454 |
- |
594 |
|
Social contribution on
Directors’ remuneration |
81 |
76 |
- |
- |
|
|
|
|
|
|
|
|
The total remuneration of the highest paid Director was
$0.6 million in the year (2019:
$0.6 million).
39. Events after
the balance sheet date
Events after the balance sheet date are disclosed in note 29 to
the Consolidated Financial Statements.
Glossary
IFRSs International Financial
Reporting Standards
JAA Joint
activity agreement
UAH Ukrainian hryvnia
GBP Great Britain pounds
$
United States dollars
bbl
Barrel
boe Barrel of oil
equivalent
mmboe
Million barrels of oil equivalent
mboe Thousand barrels of oil
equivalent
mboepd
Thousand barrels of oil equivalent per day
boepd Barrels of oil equivalent per day
bcf Billion
cubic feet
mmcm Million cubic metres
mcm Thousand cubic metres
Reserves
Those quantities of petroleum anticipated to be commercially
recoverable by application of development projects to known
accumulations from a given date forward under defined conditions.
Reserves include proved, probable and possible reserve
categories.
Proved Reserves
Those additional Reserves which analysis of geoscience and
engineering data can be estimated with reasonable certainty to be
commercially recoverable, from a given date forward, from
reservoirs and under defined economic conditions, operating methods
and government regulations.
Probable Reserves
Those
additional Reserves which analysis of geoscience and engineering
data indicate are less likely to be recovered than proved Resources
but more certain to be recovered than possible Reserves.
Possible Reserves
Those
additional Reserves which analysis of geoscience and engineering
data indicate are less likely to be recoverable than probable
Reserves.
Contingent Resources Those quantities of
petroleum estimated, as of a given date, to be potentially
recoverable from known accumulations by application of development
projects, but which are not currently considered to be commercially
recoverable due to one or more contingencies.
Prospective Resources Those quantities of
petroleum which are estimated as of a given date to be potentially
recoverable from undiscovered accumulations.
P1
Proved Reserves
P2
Probable Reserves
P3 Possible
Reserves
1P
Proved Reserves
2P
Proved plus Probable Reserves
3P Proved plus
Probable plus Possible Reserves
Workover
The process of performing major maintenance or remedial treatment
of an existing oil or gas well
E&E /
E&P
Exploration and Evaluation / Exploration and Production
LTI
Lost
time incidents
Shareholder Information
Enquiries relating to the following administrative matters
should be addressed to the Company’s registrars: Link Group, 10th
Floor, Central Square, 29 Wellington Street, Leeds LS1 4DL.
Telephone: 0371 664 0300. Calls are charged at the standard
geographic rate and will vary by provider. Calls outside the
United Kingdom will be charged at
the applicable international rate. Lines are open between 09:00 –
17:30, Monday to Friday excluding public holidays in England and Wales.
- Loss of share certificates.
- Notification of change of address.
- Transfers of shares to another person.
- Amalgamation of accounts: if you receive more than one copy of
the Annual Financial Report, you may wish to amalgamate your
accounts on the share register.
You can access your shareholding details and a range of other
services at the Shareholder Portal www.signalshares.com.
Information concerning the day-to-day movement of the share
price of the Company can be found on the Group’s website
www.cadoganpetroleum.com or that of the London Stock exchange
www.prices.londonstockexchange.com.
Unsolicited mail
As the Company’s share register is, by law, open to public
inspection, shareholders may receive unsolicited mail from
organisations that use it as a mailing list. To reduce the amount
of unsolicited mail you receive, contact: The Mailing Preference
Service, FREEPOST 22, London W1E
7EZ. Telephone: 0845 703 4599. Website: www.mpsonline.org.uk.
Financial calendar 2020/2021
Annual General
Meeting
June 2021
Half Yearly results
announced
September 2020
Annual results
announced
May 2021
Investor relations
Enquiries to: info@cadoganpetroleum.com
Registered office
Shakespeare Martineau LLP,
6th Floor, 60 Gracechurch Street, London EC3V 0HR
Registered in England and
Wales no. 05718406
Ukraine
48/50A Zhylyanska Street
Business center “Prime”, 8th floor
01033 Kyiv
Ukraine
Email: info@cadoganpetroleum.com
Tel: +38 044 594 58
70
Fax: +38 044 594 58
71
www.cadoganpetroleum.com
References to page numbers throughout this announcement relates
to the page numbers within the Annual Report of the Company for the
year ended 31st December 2020
[1] Gross revenues of $5.1 million
(2019: $5.9 million) included
$1.6 million (2019: $0.9 million) from trading of natural gas,
$3.5 million (2019: $4.9 million) from exploration and production
[2] Administrative expenses (“G&A”)
[3] Astroservice LLC used its rig for the workover campaign on
the Blazhiv license
[4] LTI: Lost Time Incidents; TRI: Total Recordable
Incidents
[5] Segment result being the gross profit net of administrative
expenses of the segment.
[6] Taxable benefits include life and medical insurance provided
to the executive and leased car.
[7] Amount includes catchup payment for two months 2019.
[8] 2019 Annual bonus is a sum of Mr Michelotti’s bonus of
$112,140 and welcome bonus for Mr
Khallouf equivalent in value of 5,500,000 ordinary shares based on
share’s price of £0.0525. Welcome bonus for Mr Khallouf was
provided in May 2020 based on share’s
price of £0.03. Respective correction of the bonus reserve
equivalent to $185 thousand was
recognised through share premium account in 2020.
[9] The salary for the period from 1
January 2019 till 15 November
2019.
[10] Total amount of fixed remuneration for Mr Michelotti and Mr
Khallouf for the year 2019
[11] 2015 CEO’s salary is the sum of Mr. des Pallieres' salary
for the period January to June and of Mr. Michelotti's salary for
the period July to December.
[12] In relation to performance in 2016 and 2015, the CEO used
the entire amount of the bonus to buy at market price newly issued
company shares on 22 September
2017.
[13] 2019 Annual bonus is a sum of Mr Michelotti’s bonus of
$112,140 and welcome bonus for Mr
Khallouf equivalent in value of 5,500,000 ordinary shares based on
share’s price of £0.0525. Welcome bonus for Mr Khallouf was
provided in May 2020 based on share’s
price of £0.03. Respective correction of the bonus reserve
equivalent to $185 thousand was
recognised through share premium account in 2020.
[14] The new Remuneration Policy approved in June 2018, reduces the maximum allowable bonus
from 200% to 125% of the base salary.
[15] Includes a welcome bonus for Mr Khallouf equivalent in
value of 5,500,000 ordinary shares based on share’s price of
£0.0525.
[16] Mr Michelotti undertook to use the entire bonus to buy
company’s share at market price in order to leave the Company cash
neutral.
[17] Year-end performance-based bonus was an alternative to an
up-front sign-on bonus. Mr Michelotti use the entire bonus to buy
company’s share at market price on 22
September 2017.
[18] $280,298 paid as fees,
pension and loss of office.
[19] From 1 August, 2011.
[20] From 19 March 2009.
[21] Included salary of Mr Michelotti and Mr Khallouf.
[22] All employees mean all employees of the Group, including
CEO and other Directors (note 11, page 96).
[23] Includes taxable benefits for 2019.
[24] 2019 Annual bonus is a sum of Mr Michelotti’s bonus of
$112,140 and welcome bonus provision
for Mr Khallouf of $382,969 to be
granted in shares during 2020.
[25] Please note that the salary of the CEO for 2020 remain at
€440,000.
[26] Included in retained earnings, profit for the
financial year ended 31 December 2020
was $0.2 million (2019: loss
$1.8 million).