TIDMRPT

RNS Number : 9298L

Enwell Energy PLC

16 September 2021

16 September 2021

ENWELL ENERGY PLC

2021 INTERIM RESULTS

Enwell Energy plc (the "Company", and with its subsidiaries, the "Group"), the AIM-quoted (ENW) oil and gas exploration and production group, announces its unaudited results for the six month period ended 30 June 2021.

Highlights

Operations

 
 --   Aggregate average daily production from the MEX-GOL, SV and 
       VAS fields of 4,917 boepd, which compares with 4,545 boepd 
       during the first half of 2020, an increase of approximately 
       8%, with record levels of average daily production of 5,254 
       boepd achieved in Q2 2021 
 --   SV-25 appraisal well successfully completed and brought on 
       production in February 2021 
 --   Drilling operations for SV-29 development well completed in 
       late August 2021 and testing operations now underway 
 --   Commencement of drilling of SC-4 appraisal well on the SC 
       licence 
 --   No significant disruption to the Group's operations arising 
       from the COVID-19 pandemic to date 
 

Finance

 
 --   Revenue of $41.1 million (1H 2020: $24.7 million), up 66% 
       as a result of higher production rates and much improved gas 
       prices in the period 
 --   Operating profit of $18.1 million (1H 2020: $5.2 million) 
 --   Net profit for the first half of 2021 of $13.8 million (1H 
       2020: $1.2 million) 
 --   Cash and cash equivalents of $62.9 million at 30 June 2021, 
       and at 14 September 2021 of $54.4 million (31 December 2020: 
       $61.0 million) 
 --   Average realised gas, condensate and LPG prices in Ukraine 
       were much higher, particularly gas prices, at $249/Mm(3) (UAH6,897/Mm(3) 
       ), $74/bbl and $66/bbl respectively (1H 2020: $139/Mm(3) (UAH3,514/Mm(3) 
       ) gas, $42/bbl condensate and $40/bbl LPG) 
 --   Reduction of capital completed through the cancellation of 
       the Company's entire share premium account which has created 
       distributable reserves, thereby enabling the possibility of 
       the Company making distributions to shareholders in the future 
 

Outlook

 
 --   Development work for the remainder of 2021 at the MEX-GOL 
       and SV fields includes: testing of the SV-29 well, and subject 
       thereto, hook-up to production facilities; commencement of 
       drilling of the SV-31 development well; and undertaking an 
       upgrade of the gas processing facilities 
 --   Development work for the remainder of 2021 at the VAS field 
       includes: planning for a new well to explore the VED prospect 
       within the VAS licence area; and maintenance of the gas processing 
       facilities, flow-line network and other field infrastructure 
 --   Development work for the remainder of 2021 at the SC licence 
       area includes: continuing drilling operations on the SC-4 
       well; acquisition of 150 km(2) of 3D seismic; and further 
       planning for the development of the SC licence area 
 --   Development programme for the remainder of 2021 expected to 
       be funded from existing cash resources and operational cash 
       flow 
 

Sergii Glazunov, CEO, commented: "2021 has been an excellent operational year so far, with strong production from the MEX-GOL, SV and VAS fields, coupled with the significant recovery in gas prices, contributing to our much improved profitability in the period. We are looking forward to the results of the SV-29 development well and to further progressing our development programme over the remainder of the year. We are also pleased to have commenced the appraisal of the SC licence, with the spudding of the SC-4 well, our first well on this licence."

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014, which forms part of United Kingdom domestic law by virtue of the European Union (Withdrawal) Act 2018.

For further information, please contact:

 
 Enwell Energy plc                          Tel: 020 3427 3550 
 Chris Hopkinson, Chairman 
 Sergii Glazunov, Chief Executive Officer 
 Bruce Burrows, Finance Director 
 
 Strand Hanson Limited                      Tel: 020 7409 3494 
 Rory Murphy / Matthew Chandler 
 
 Arden Partners plc                         Tel: 020 7614 5900 
 Ruari McGirr / Elliot Mustoe (Corporate 
  Finance) 
 Simon Johnson (Corporate Broking) 
 
 Citigate Dewe Rogerson                     Tel: 020 7638 9571 
 Elizabeth Kittle 
 

Dmitry Sazonenko, MSc Geology, MSc Petroleum Engineering, Member of AAPG, SPE and EAGE, Director of the Company, has reviewed and approved the technical information contained within this press release in his capacity as a qualified person, as required under the AIM Rules.

 
 Definitions/Glossary 
 
 AAPG                   American Association of Petroleum Geologists 
 Arkona                 LLC Arkona Gas-Energy 
 bbl                    barrel 
 bbl/d                  barrels per day 
 boe                    barrels of oil equivalent 
 boepd                  barrels of oil equivalent per day 
 Company                Enwell Energy plc 
 Group                  Enwell Energy plc and its subsidiaries 
 km                     kilometre 
 km(2)                  square kilometre 
 LPG                    liquefied petroleum gas 
 MEX-GOL                Mekhediviska-Golotvshinska 
 m(3)                   cubic metre 
 Mm(3)                  thousand cubic metres 
 MMboe                  million barrels of oil equivalent 
 MMscf                  million scf 
 MMscf/d                million scf per day 
 %                      per cent 
 QHSE                   quality, health, safety and environment 
 SC                     Svystunivsko-Chervonolutskyi 
 scf                    standard cubic feet measured at 20 degrees 
                         Celsius and one atmosphere 
 SPE                    Society of Petroleum Engineers 
 SPEE                   Society of Petroleum Evaluation Engineers 
 SV                     Svyrydivske 
 $                      United States Dollar 
 UAH                    Ukrainian Hryvnia 
 VAS                    Vasyschevskoye 
 VED                    Vvdenska 
 WPC                    World Petroleum Council 
 

Chairman's Statement

I am delighted to present the 2021 Interim Results. Having faced extraordinary times globally as a result of the COVID-19 pandemic, I am pleased to report that the Group has not been significantly affected on an operational level in the first half of 2021, and has achieved an excellent performance.

The Group has continued to make good progress with its development of the MEX-GOL, SV and VAS gas and condensate fields in north-eastern Ukraine, and has delivered a very strong financial performance during the period. Drilling of the SV-25 appraisal well was successfully completed and the well brought on production in February 2021, whilst the SV-29 development well, which was spudded in February 2021, is now being tested, and subject thereto, will be hooked-up to the gas processing facilities. On the SC licence area, the Group's first well, SC-4, was spudded in August 2021.

Aggregate average daily production from the MEX-GOL, SV and VAS fields during the first half of 2021 was 4,917 boepd, which compares favourably with an aggregate daily production rate of 4,545 boepd during the first half of 2020, an increase of approximately 8%. At the VAS field, production was steady, but lower than during the first half of 2020 after a decline in production from the VAS-10 well. Overall, average daily production in Q2 2021 hit a record quarterly level of 5,254 boepd.

The combination of higher production levels and the strong recovery in gas prices resulted in much improved profitability. During the first half of 2021, the Group's operating profit was $18.1 million (1H 2020: $5.2 million), showing a significant increase from the same period last year, and cash generated from operations during the period was also higher at $19.2 million (1H 2020: $11.0 million).

This improved level of cash generation has enabled the Group to progress its multiple work programmes across its broadened asset portfolio, with approximately $26 million invested during the 2021 year to date, with $15 million invested in 1H 2021.

The fiscal and economic environment in Ukraine remains stable (despite the effects of the COVID-19 pandemic resulting in a contraction in GDP and an increase in the rate of inflation) and, following a weakening during 2020, the Ukrainian Hryvnia exchange rate has improved in 2021 to approximately the rate of mid-2020. Nevertheless, future fiscal and economic uncertainties remain in the Ukrainian market and we continue to be vigilant.

The deregulation of the gas supply market, supported by electronic gas trading platforms and improved pricing transparency, has meant that the market gas prices in Ukraine now broadly correlate with the imported gas prices. During the first half of 2021, gas prices recovered significantly, reflecting a similar trend in European gas prices. Similarly, condensate and LPG prices were also higher by comparison with last year.

COVID-19

We continue to closely monitor the volatility in global financial markets, and the implications on the operational, economic and social environment caused by the COVID-19 pandemic. To date, there has been no significant operational disruption arising from the COVID-19 pandemic, and no material impact is currently envisaged on the Group's prospects. However, the Board and management remain acutely aware of the risks, and are taking action to mitigate them where possible, not only to protect our staff and other stakeholders, but also to minimise any potential disruption to our business. We have taken steps to continually monitor the health of our operational staff, including temperature checks for such staff at the commencement of each shift, as well as investing in technology to enable many staff to work from remote locations. We continue to reassess our medium-term forecasts based on current pricing and are highly confident we have the resources to deliver on our plans. Of course, we cannot be certain of the duration of the pandemic's impact but will remain focussed on monitoring and protecting our business through the period of uncertainty. In protecting our stakeholders interests, we are conscious of our wider obligations to the communities, and country, in which we operate. Accordingly, as previously announced, last year we acted, alongside other corporate entities in Ukraine, to directly acquire critical equipment and supplies from Chinese suppliers to donate to the Ukrainian State to assist its efforts to manage the pandemic in Ukraine.

Capital Reduction

On 25 February 2021, the Company completed a reduction of its share capital through the cancellation of its entire share premium account. This reduction of capital created distributable reserves of the Company, which enables the Company to make distributions to its shareholders in the future, subject to the Company's financial performance. However, the Company is not indicating any commitment, and does not have any current intention, to make any distributions to shareholders.

Outlook

Whilst there are still challenges, the business environment in Ukraine is relatively stable despite the COVID-19 outbreak. Following the strong operational performance during the first half of 2021, and the increased production output during the period, we are looking forward to the results of the SV-29 development well, which are expected in the near future. We are also looking forward to achieving further success in the development activities planned for the remainder of 2021 and, facilitated by the strong current gas price environment, delivering a steadily increasing production and revenue stream in the future.

In conclusion, on behalf of the Board, I would like to thank all of our staff for the continued dedication and support they have shown during the year to date and especially in the midst of the COVID-19 pandemic.

Chris Hopkinson

Chairman

15 September 2021

Chief Executive Officer's Statement

Introduction

The Group continued to make good progress at its Ukrainian fields during 2021, with development activity at the MEX-GOL and SV fields including success with the drilling of the SV-25 appraisal well, which came on production in February 2021, and completion of drilling operations on the SV-29 development well in late August 2021, which is now undergoing testing operations. In addition, work continued on preparations for the drilling of the SV-31 development well and the upgrade of the gas processing facilities, as well as work on upgrades to the flow-line network and remedial activity on existing wells.

Overall production continued its upward trend during the period, achieving record levels for the Group in Q2 2021, and being approximately 8% higher than in the first half of 2020, with a substantial boost in February 2021, once the SV-25 well came on production.

Production

The average daily production of gas, condensate and LPG from the MEX-GOL, SV and VAS fields for the six month period ended 30 June 2021 was as follows:

 
   Field             Gas             Condensate             LPG              Aggregate 
                  (MMscf/d)            (bbl/d)             (bbl/d)             boepd 
              1H 2021   1H 2020   1H 2021   1H 2020   1H 2021   1 2020   1H 2021   1H 2020 
             --------  --------  --------  --------  --------  -------  --------  -------- 
 
   MEX-GOL 
   & SV        19.7      17.4       694       654       331      292      4,403     3,941 
             --------  --------  --------  --------  --------  -------  --------  -------- 
 
   VAS          2.8       3.1       28        34         -        -        514       604 
             --------  --------  --------  --------  --------  -------  --------  -------- 
 
   Total       22.5      20.5       722       688       331      292      4,917     4,545 
             --------  --------  --------  --------  --------  -------  --------  -------- 
 

Production rates were higher when compared with the corresponding period in 2020, predominantly due to the contributions of the SV-54 well, which commenced production in May 2020, and the SV-25 well, which commenced production in February 2021.

The Group's average daily production for the period from 1 July 2021 to 14 September 2021 from the MEX-GOL and SV field was 21.0 MMscf/d of gas, 749 bbl/d of condensate and 274 bbl/d of LPG (4,657 boepd in aggregate) and from the VAS field was 2.5 MMscf/d of gas and 23 bbl/d of condensate (480 boepd in aggregate).

Operations

Notwithstanding the impact of the COVID-19 pandemic during 2020 and 2021, over recent periods, there have been relatively stable fiscal and economic conditions in Ukraine, as well as reductions in the subsoil tax rates and improvements in the regulatory procedures in the oil and gas sector in Ukraine , and this has given the Board confidence to continue the Group's development programme at its Ukrainian fields during 2021. Furthermore, the strong recovery in gas prices in Europe has fed through to the Group's realised prices in Ukraine, providing a significant boost to the Group's revenues and profitability in the first half of 2021.

The Group has continued to refine its geological subsurface models of the MEX-GOL, SV and VAS fields, in order to enhance its strategy for the further development of the fields, including the timing and level of future capital investment required to exploit the hydrocarbon resources.

At the MEX-GOL and SV fields, the drilling of the SV-25 appraisal well was completed in February 2021, having been drilled to a final depth of 5,320 metres. One interval, at a drilled depth of 5,184 - 5,190 metres, within the V-22 Visean formation was perforated, and after successful testing, the well was hooked-up to the gas processing facilities.

The Group continues to operate each of the SV-2 and SV-12 wells under joint venture agreements with NJSC Ukrnafta, the majority State-owned oil and gas producer. Under the agreements, the gas and condensate produced from the respective wells is sold under an equal net profit sharing arrangement between the Group and NJSC Ukrnafta, with the Group accounting for the hydrocarbons produced and sold from the wells as revenue, and the net profit share due to NJSC Ukrnafta being treated as a lease expense in cost of sales. Both of these wells have proven to be strong producers since being brought back on production.

At the VAS field, a successful workover of the VAS-10 well was undertaken to access an alternative production horizon, which improved production rates from the VAS field.

In March 2019 (as set out in the announcement made on 12 March 2019), a regulatory issue arose when the State Service of Geology and Subsoil of Ukraine issued an order for suspension (the "Order") of the production licence for the VAS field. Under the applicable legislation, the Order would lead to a shut-down of production operations at the VAS field, but the Group has issued legal proceedings to challenge the Order, and has obtained a ruling suspending operation of the Order pending a hearing of the substantive issues. The Group does not believe that there are any grounds for the Order, and is continuing to pursue its challenge to the Order through the Ukrainian Courts.

Arkona Acquisition

As announced on 24 March 2020, the Group acquired the entire issued share capital of LLC Arkona Gas-Energy ("Arkona") for a total consideration of up to $8.63 million, of which $4.32 million was subject to the satisfaction of certain conditions. Following satisfaction of the requisite conditions and by agreement between the parties to the acquisition agreement, further payments totalling $2.6 million (net of an indemnity liability) have been paid, and the balance of the consideration is subject to the remaining conditions. Arkona holds a 100% interest in the Svystunivsko-Chervonolutskyi ("SC") exploration licence, which is located in the Poltava region in north-eastern Ukraine. The SC licence covers an area of 97 km(2) , and is approximately 15 km east of the SV field. The licence was granted in May 2017 with a duration of 20 years. The licence is prospective for gas and condensate, and has been the subject of exploration since the 1980s, with 5 wells having been drilled on the licence since then, although none of these wells are currently on production. As with the productive reservoirs in the SV field, the prospective reservoirs in the licence are Visean, at depths between 4,600 - 6,000 metres.

However, NJSC Ukrnafta, the majority State-owned oil and gas producer, issued legal proceedings against Arkona, in which NJSC Ukrnafta made claims of irregularities in the procedures involved in the grant of the SC licence to Arkona in May 2017. In early July 2020, the First Instance Court in Ukraine made a ruling in favour of NJSC Ukrnafta, which found that the grant of the SC licence was irregular, but this ruling was overturned by the Appellate Administrative Court in September 2020, and a final appeal to the Supreme Court of Ukraine was determined in favour of Arkona in February 2021. Further information can be found in the Company's announcements dated 3 July 2020, 31 July 2020, 30 September 2020, 23 November 2020 and 11 February 2021.

During early 2021, the Group engaged independent petroleum consultants, DeGolyer and MacNaughton, to prepare an assessment of the remaining reserves and contingent resources attributable to the SC licence as of 1 January 2021, in accordance with the March 2007 (as revised in June 2018) SPE/WPC/AAPG/SPEE Petroleum Resources Management System standard for classification and reporting. Their assessment estimated the proved and probable (2P) reserves attributable to the SC licence at 12.1 MMboe. The assessment is consistent with the Group's proposed field development plan for the SC licence, which includes the drilling of the SC-4 well and the acquisition of 150 km(2) of 3D seismic later this year, and the construction of a gas processing plant. Development is then planned to continue with the drilling of a further six wells to recover the reserves and resources in the SC licence. Due to their targeted depths, the wells are each likely to take up to 12 months to complete, and are planned to be drilled consecutively over the next eight years. Further information on DeGolyer and MacNaughton's assessment can be found in the Company's announcement dated 2 June 2021.

Outlook

During the remainder of 2021, the Group will continue to develop the MEX-GOL, SV and VAS fields, as well as moving forward with the appraisal and development of the SC licence . At the MEX-GOL and SV fields, the development programme includes completing the testing of the SV-29 development well and, subject thereto, hooking-up the well to the gas processing facilities, commencing the drilling of the SV-31 development well, investigating workover opportunities for other existing wells, and remedial and upgrade work on existing wells, the flow-line network and pipelines and other infrastructure.

In addition, preparations for upgrade works to the gas processing facilities at the MEX-GOL and SV fields are continuing, with permitting recently completed and the procurement of long-lead items progressing as planned. These works involve an upgrade of the LPG extraction circuit, an increase to the flow capacity of the facilities, and a significant increase to the liquids tank storage capacity, which are designed to improve overall plant efficiencies, improve the quality of liquids produced and boost recoveries of LPG, while reducing environmental emissions. The works are scheduled to commence later in the year, and, in total, will take approximately three and a half months to complete. In the later stages of the works, it will be necessary for the plant to be shut-in for approximately one month, during which period, production through the plant will be suspended. However, in order to mitigate the impact on production during this period, the Group has agreed with the operator of an adjacent field for the toll treatment of a material proportion of its forecast production volumes of gas and condensate. Although there will be a temporary impact on the Group's revenues during the period that the plant is shut-in, it is envisaged that the improved recovery of LPG following completion of the upgrade works will significantly boost future revenues, resulting in no overall material impact on revenues over the six month period during and immediately following the works, and a positive impact in future periods thereafter.

At the VAS field, planning for the proposed new well to explore the VED prospect within the VAS licence area is continuing, and maintenance of the gas processing facilities, pipeline network and other field infrastructure is planned.

With the resolution of the legal issues relating to the SC licence, the Group has re-commenced appraisal and development work on the SC licence, with the SC-4 appraisal well spudded in August 2021, and the acquisition of 150 km(2) of 3D seismic planned for later this year.

Ongoing legislative reforms and the general stability in the business climate in Ukraine, are encouraging and supportive of the independent oil and gas producers in Ukraine.

Finally, I would like to add my thanks to all of our staff for the continued hard work and dedication they have shown during this year, and to especially recognise their continuing efforts and professionalism during the current COVID-19 pandemic.

Sergii Glazunov

Chief Executive Officer

Finance Review

The Group's strong financial performance in the first half of 2021 was predominantly due to the Group's higher levels of production and the significant recovery in average gas realisations. This resulted in the Group making a net profit of $13.8 million (1H 2020: $1.2 million).

Revenue for the period, derived from the sale of the Group's Ukrainian gas, condensate and LPG production, was appreciably up 66% at $41.1 million (1H 2020: $24.7 million).

Gross profit for the period nearly tripled, at $21.6 million (1H 2020: $7.5 million), and the improvement in profit before tax was even more marked, increasing by a factor of almost seven, to $18.0 million (1H 2020: $2.6 million).

Average gas realisations in the period were up 79% at $249/Mm(3) (UAH6,897/Mm(3) ), with condensate and LPG sales also up by 76% and 65% at $74/bbl and $66/bbl respectively (1H 2020: $139/Mm(3) (UAH3,514/Mm(3) ), $42/bbl and $40/bbl respectively).

During the period from 1 July 2021 to 14 September 2021, the average realised gas, condensate and LPG prices were $431/Mm(3) (UAH11,602/Mm(3) ), $76/bbl and $79/bbl respectively.

Since the deregulation of the gas supply market in Ukraine in October 2015, the market price for gas has broadly correlated to the price of imported gas, which generally reflects trends in European gas prices. Gas prices are also subject to seasonal variation. During the first half of 2021, there was a sustained recovery in prices (a function of a more general recovery in European commodity prices, as well as the 2020-21 winter being one of the coldest winters in a decade in Ukraine), and gas prices are continuing to maintain their high levels.

Cost of sales for the period was up 13% at $19.5 million (1H 2020: $17.2 million). There were some significant movements within this total: depreciation of property, plant and equipment was 11% lower at $5.5 million (1H 2020: $6.2 million) as a combined result of lower forecast future capital expenditure and a greater volume sold in 1H 2021, compared with 1H 2020, with 1H 2020 sales volumes benefiting from 153,722 boe sold from inventory; production taxes increased materially, by 49%, as a result of increased gas revenues, in turn a function of the much higher gas prices as noted above; a 40% increase in rent expense, a function of higher well profitability; and staff costs declined by 26% as a function of the aforementioned reduction in sales volumes (distinct from the increased production volumes) resulting in the unit of production allocation of staff costs being lower than in 1H 2020, which saw a release of such costs that had been held in inventory at year-end 2019.

The subsoil tax rates applicable to gas production were stable during the period at 29% for gas produced from deposits at depths shallower than 5,000 metres and 14% for gas produced from deposits deeper than 5,000 metres, but reductions in the subsoil rates applicable to new wells and to condensate production were applicable, under which (i) for new wells drilled after 1 January 2018, the subsoil tax rates were reduced from 29% to 12% for gas produced from deposits at depths shallower than 5,000 metres and from 14% to 6% for gas produced from deposits deeper than 5,000 metres for the period between 2018 and 2022, and (ii) with effect from 1 January 2019 and applicable to all wells, the subsoil tax rates for condensate were reduced from 45% to 31% for condensate produced from deposits shallower than 5,000 metres and from 21% to 16% for condensate produced from deposits deeper than 5,000 metres.

Administrative expenses for the period were broadly unchanged at $4.0 million (1H 2020: $3.9 million).

The 69% fall in Other operating income (net) of $0.5 million is mainly due to the 70% drop in interest income to $0.3 million as a result of the general fall in global interest rates.

Other expenses (net) in the period reduced significantly by 98%, a net effect of: a small foreign exchange loss in the period of $0.03 million compared to a profit of $0.2 million in 2020; and most materially, the de-minimis charitable donations in the period compared to the $2.1 million in 1H 2020 ( for the supply of COVID-19-related medical equipment for the Ukrainian authorities and charitable foundations) .

The tax charge for the six month period ended 30 June 2021 of $4.2million (1H 2020: $1.4 million charge) comprises a current tax charge of $4.0 million (1H 2020: $1.4 million charge) and a deferred tax charge of $0.2 million (1H 2020: $0.01 million). The current tax charge increased by 200% due to the increase in profit.

A deferred tax asset relating to the Group's provision for decommissioning at 30 June 2021 of $0.2 million (31 December 2020: $0.2 million) was recognised on the tax effect of the temporary differences of the Group's provision for decommissioning at the MEX-GOL and SV fields, and its tax base. A deferred tax liability relating to the Group's development and production assets at the MEX-GOL and SV fields at 30 June 2021 of $3.3 million (31 December 2020: $2.9 million) was recognised on the tax effect of the temporary differences between the carrying value of the Group's development and production asset at the MEX-GOL and SV fields, and its tax base.

A deferred tax asset relating to the Group's provision for decommissioning at 30 June 2021 of $0.3 million (31 December 2020: $0.3 million) was recognised on the tax effect of the temporary differences on the Group's provision on decommissioning at the VAS field, and its tax base. The deferred tax liability relating to the Group's development and production assets at the VAS field at 30 June 2021 of $0.1 million (31 December 2020: $0.2 million) was recognised on the tax effect of the temporary differences between the carrying value of the Group's development and production asset at the VAS field, and its tax base.

There were $10.7 million of additions to Property, Plant and Equipment, reflecting investment in the Group's oil and gas development and production assets during the period (1H 2020: $8.8 million), primarily relating to the expenditure associated with the drilling of the SV-25 and SV-29 wells.

Cash and cash equivalents held at 30 June 2021 were $62.9 million (31 December 2020: $61.0 million cash and cash equivalents). The Group's cash and cash equivalents balance at 14 September 2021 was $54.4 million, held as to $16.3 million equivalent in Ukrainian Hryvnia, and the balance of $38.1 million equivalent predominantly in US Dollars, Euros and Pounds Sterling.

Between early 2014 and 2020, the Ukrainian Hryvnia devalued significantly against the US Dollar, falling from UAH8.3/$1.00 on 1 January 2014 to UAH28.3/$1.00 on 31 December 2020, which resulted in substantial foreign exchange translation losses for the Group over that period, and in turn adversely impacted the carrying value of the MEX-GOL and SV asset due to the translation of two of the Group's subsidiaries from their functional currency of Ukrainian Hryvnia to the Group's presentation currency of US Dollars. In the first half of 2021, the Ukrainian Hryvnia has strengthened against the US Dollar with the exchange rate at 30 June 2021 being UAH27.2/$1.00. The impact of this was $3.9 million of foreign exchange gains (1H 2020: $10.8 million of foreign exchange losses). Further movements of the Ukrainian Hryvnia against the US Dollar may affect the carrying value of the Group's assets in the future.

Cash from operations has funded the capital investment during the period, and the Group's current cash position and positive operating cash flow are the sources from which the Group plans to fund the development programmes for its assets over the remainder of 2021 and beyond. This is coupled with the fact that the Group remains debt-free, and therefore has no debt covenants that may otherwise impede its ability to implement contingency plans if domestic and/or global circumstances dictate. This flexibility and ability to monitor and manage development plans and liquidity is a cornerstone of our planning, and underpins our assessments of the future. With cash resources at the end of the period in excess of $62 million, and annual running costs of less than $8 million, the Group remains in a very strong position should any local or global shocks occur to the industry and/or the Group.

On 25 February 2021, the Company completed a reduction of its share capital through the cancellation of its entire share premium account. This reduction of capital created distributable reserves of the Company, which enables the Company to make distributions to its shareholders in the future, subject to the Company's financial performance. However, the Company is not indicating any commitment, and does not have any current intention, to make any distributions to shareholders.

Bruce Burrows

Finance Director

Principal Risks and Uncertainties

The Group has a risk evaluation methodology in place to assist in the review of the risks across all material aspects of its business. This methodology highlights external, operational and technical, financial and corporate risks and assesses the level of risk and potential consequences. It is periodically presented to the Audit Committee and the Board for review, to bring to their attention potential risks and, where possible, propose mitigating actions. Key risks recognised and mitigation factors, materially unchanged from the previous period, are detailed below:

 
Risk                                            Mitigation 
External risks 
                                               ----------------------------------------------- 
Risk relating to Ukraine 
                                               ----------------------------------------------- 
Ukraine is an emerging market and               The Group minimises this risk by 
 as such, the Group is exposed to                continuously monitoring the market 
 greater regulatory, economic and                in Ukraine and by maintaining a 
 political risks than it would be                strong working relationship with 
 in other jurisdictions. Emerging                the Ukrainian regulatory authorities. 
 economies are generally subject                 The Group also maintains a significant 
 to a volatile political and economic            proportion of its cash holdings 
 environment, which makes them vulnerable        in international banks outside Ukraine. 
 to market downturns elsewhere in 
 the world, and could adversely impact 
 the Group's ability to operate in 
 the market. 
                                               ----------------------------------------------- 
Regional conflict 
                                               ----------------------------------------------- 
Ukraine continues to have a strained            As the Group has no assets in Crimea 
 relationship with Russia, following             or the areas of conflict in the 
 Ukraine's agreement to join a free              east of Ukraine, nor do its operations 
 trade area with the European Union,             rely on sales or costs incurred 
 which resulted in the implementation            there, the Group has not been directly 
 of mutual trade restrictions between            affected by the conflict. However, 
 Russia and Ukraine on many key products.        the Group continues to monitor the 
 Further, the conflict in parts of               situation and endeavours to procure 
 eastern Ukraine has not been resolved           its equipment from sources in other 
 to date, and Russia continues to                markets. The disputes and interruption 
 occupy Crimea. This conflict has                to the supply of gas from Russia 
 put further pressure on relations               has indirectly encouraged Ukrainian 
 between Ukraine and Russia, and                 Government support for the development 
 the political tensions have had                 of the domestic production of hydrocarbons 
 an adverse effect on the Ukrainian              since Ukraine imports a significant 
 financial markets, hampering the                proportion of its gas, which has 
 ability of Ukrainian companies and              resulted in legislative measures 
 banks to obtain funding from the                to improve the regulatory requirements 
 international capital and debt markets.         for hydrocarbon extraction in Ukraine. 
 This strained relationship between 
 Russia and Ukraine has also resulted 
 in disputes and interruptions in 
 the supply of gas from Russia. 
                                               ----------------------------------------------- 
Banking system in Ukraine 
                                               ----------------------------------------------- 
The banking system in Ukraine has               The creditworthiness and potential 
 been under great strain in recent               risks relating to the banks in Ukraine 
 years due to the weak level of capital,         are regularly reviewed by the Group, 
 low asset quality caused by the                 but the geopolitical and economic 
 economic situation, currency depreciation,      events since 2013 in Ukraine have 
 changing regulations and other economic         significantly weakened the Ukrainian 
 pressures generally, and so the                 banking sector. In light of this, 
 risks associated with the banks                 the Group has taken and continues 
 in Ukraine have been significant,               to take steps to diversify its banking 
 including in relation to the banks              arrangements between a number of 
 with which the Group has operated               banks in Ukraine. These measures 
 bank accounts. However, following               are designed to spread the risks 
 remedial action imposed by the National         associated with each bank's creditworthiness, 
 Bank of Ukraine, Ukraine's banking              and the Group endeavours to use 
 system has improved moderately.                 banks that have the best available 
 Furthermore, Ukraine has continued              creditworthiness. Nevertheless, 
 to have support and access to funding           and despite some recent improvements, 
 from the International Monetary                 the Ukrainian banking sector remains 
 Fund.                                           weakly capitalised and so the risks 
                                                 associated with the banks in Ukraine 
                                                 remain significant, including in 
                                                 relation to the banks with which 
                                                 the Group operates bank accounts. 
                                                 As a consequence, the Group also 
                                                 maintains a significant proportion 
                                                 of its cash holdings in international 
                                                 banks outside Ukraine. 
                                               ----------------------------------------------- 
Geopolitical environment in Ukraine 
                                               ----------------------------------------------- 
Although there have been some improvements      The Group continually monitors the 
 in recent years, there has not been             market and business environment 
 a final resolution of the political,            in Ukraine and endeavours to recognise 
 fiscal and economic situation in                approaching risks and factors that 
 Ukraine and its ongoing effects                 may affect its business. In addition, 
 are difficult to predict and likely             the involvement of Smart Holding 
 to continue to affect the Ukrainian             (Cyprus) Limited, as the indirect 
 economy and potentially the Group's             majority shareholder with extensive 
 business. Whilst not materially                 experience in Ukraine, is considered 
 affecting the Group's production                helpful to mitigate such risks. 
 operations, the instability has 
 disrupted the Group's development 
 and operational planning for its 
 assets. 
                                               ----------------------------------------------- 
Climate change 
                                               ----------------------------------------------- 
Any near and medium-term continued              The Group's plans and actions include: 
 warming of the Planet can have potentially      assessing, reducing and/or mitigating 
 increasing negative social, economic            its emissions in its operations; 
 and environmental consequences,                 and identifying climate change-related 
 generally globally and regionally,              risks and assessing the degree to 
 and specifically in relation to                 which they can affect its business, 
 the Group. The potential impacts                including financial implications. 
 include: loss of market; and increased          The Group's Health, Safety and Environment 
 costs of operation through increasing           Committee, which was established 
 regulatory oversight and controls,              in 2020, is specifically tasked 
 including potential effective or                with overseeing measuring, benchmarking 
 actual loss of licence to operate.              and mitigating the Group's environmental 
 As a diligent operator aware and                and climate impact, which will be 
 responsive to its good stewardship              reported on in future periods. At 
 responsibilities, the Group not                 this stage, the Group does not consider 
 only needs to monitor and modify                climate change to have any material 
 its business plans and operations               implications on the Group's financial 
 to react to changes, but also to                statements, including the accounting 
 ensure its environmental footprint              estimates. 
 is as minimal as it can practicably 
 be in managing the hydrocarbon resources 
 the Group produces. 
                                               ----------------------------------------------- 
Operational and technical risks 
                                               ----------------------------------------------- 
Quality, Health, Safety and Environment 
 ("QHSE") 
                                               ----------------------------------------------- 
The oil and gas industry, by its                The Group maintains QHSE policies 
 nature, conducts activities which               and requires that management, staff 
 can cause health, safety, environmental         and contractors adhere to these 
 and security incidents. Serious                 policies. The policies ensure that 
 incidents can not only have a financial         the Group meets Ukrainian legislative 
 impact but can also damage the Group's          standards in full and achieves international 
 reputation and the opportunity to               standards to the maximum extent 
 undertake further projects. As evidenced        possible. As a consequence of the 
 by recent events, pandemics also                COVID-19 pandemic, including the 
 pose a risk to operations, by potential         threat of any resurgences in the 
 illness and threat to life of employees         scale and impact of the virus, or 
 and contractors, and the associated             new viruses, the Group is re-visiting 
 disruptions in staffing levels,                 processes and controls intended 
 operations and supply chains.                   to ensure protection of all our 
                                                 stakeholders and minimise any disruption 
                                                 to our business. Whilst possible 
                                                 to only a limited extent in field 
                                                 operations, the Group has invested 
                                                 in technology that will allow many 
                                                 staff to work just as effectively 
                                                 from remote locations. 
                                               ----------------------------------------------- 
Industry risks 
                                               ----------------------------------------------- 
The Group is exposed to risks which             The Group has well qualified and 
 are generally associated with the               experienced technical management 
 oil and gas industry. For example,              staff to plan and supervise operational 
 the Group's ability to pursue and               activities. In addition, the Group 
 develop its projects and development            engages with suitably qualified 
 programmes depends on a number of               local and international geological, 
 uncertainties, including the availability       geophysical and engineering experts 
 of capital, seasonal conditions,                and contractors to supplement and 
 regulatory approvals, gas, oil,                 broaden the pool of expertise available 
 condensate and LPG prices, development          to the Group. Detailed planning 
 costs and drilling success. As a                of development activities is undertaken 
 result of these uncertainties, it               with the aim of managing the inherent 
 is unknown whether potential drilling           risks associated with oil and gas 
 locations identified on proposed                exploration and production, as well 
 projects will ever be drilled or                as ensuring that appropriate equipment 
 whether these or any other potential            and personnel are available for 
 drilling locations will be able                 the operations, and that local contractors 
 to produce gas, oil or condensate.              are appropriately supervised. 
 In addition, drilling activities 
 are subject to many risks, including 
 the risk that commercially productive 
 reservoirs will not be discovered. 
 Drilling for hydrocarbons can be 
 unprofitable, not only due to dry 
 holes, but also as a result of productive 
 wells that do not produce sufficiently 
 to be economic. In addition, drilling 
 and production operations are highly 
 technical and complex activities 
 and may be curtailed, delayed or 
 cancelled as a result of a variety 
 of factors. 
                                               ----------------------------------------------- 
Production of hydrocarbons 
                                               ----------------------------------------------- 
Producing gas and condensate reservoirs         In 2016, the Group engaged external 
 are generally characterised by declining        technical consultants to undertake 
 production rates which vary depending           a comprehensive review and re-evaluation 
 upon reservoir characteristics and              study of the MEX-GOL and SV fields 
 other factors. Future production                in order to gain an improved understanding 
 of the Group's gas and condensate               of the geological aspects of the 
 reserves, and therefore the Group's             fields and reservoir engineering, 
 cash flow and income, are highly                drilling and completion techniques, 
 dependent on the Group's success                and the results of this study and 
 in operating existing producing                 further planned technical work is 
 wells, drilling new production wells            being used by the Group in the future 
 and efficiently developing and exploiting       development of these fields. The 
 any reserves, and finding or acquiring          Group has established an ongoing 
 additional reserves. The Group may              relationship with such external 
 not be able to develop, find or                 technical consultants to ensure 
 acquire reserves at acceptable costs.           that technical management and planning 
 The experience gained from drilling             is of a high quality in respect 
 undertaken to date highlights such              of all development activities on 
 risks as the Group targets the appraisal        the Group's fields. 
 and production of these hydrocarbons. 
                                               ----------------------------------------------- 
Risks relating to further development 
 and operation of the Group's gas 
 and condensate fields in Ukraine 
                                               ----------------------------------------------- 
The planned development and operation           The Group's technical management 
 of the Group's gas and condensate               staff, in consultation with its 
 fields in Ukraine is susceptible                external technical consultants, 
 to appraisal, development and operational       carefully plan and supervise development 
 risk. This could include, but is                and operational activities with 
 not restricted to, delays in delivery           the aim of managing the risks associated 
 of equipment in Ukraine, failure                with the further development of 
 of key equipment, lower than expected           the Group's fields in Ukraine. This 
 production from wells that are currently        includes detailed review and consideration 
 producing, or new wells that are                of available subsurface data, utilisation 
 brought on-stream, problematic wells            of modern geological software, and 
 and complex geology which is difficult          utilisation of engineering and completion 
 to drill or interpret. The generation           techniques developed for the fields. 
 of significant operational cash                 With operational activities, the 
 is dependent on the successful delivery         Group ensures that appropriate equipment 
 and completion of the development               and personnel is available for the 
 and operation of the fields.                    operations, and that operational 
                                                 contractors are appropriately supervised. 
                                                 In addition, the Group performs 
                                                 a review of its oil and gas assets 
                                                 for impairment on an annual basis, 
                                                 and considers whether an assessment 
                                                 of its oil and gas assets by a suitably 
                                                 qualified independent assessor is 
                                                 appropriate or required. 
                                               ----------------------------------------------- 
Drilling and workover operations 
                                               ----------------------------------------------- 
Due to the depth and nature of the              The utilisation of detailed sub-surface 
 reservoirs in the Group's fields,               analysis, careful well planning 
 the technical difficulty of drilling            and engineering design in designing 
 or re-entering wells in the Group's             work programmes, along with appropriate 
 fields is high, and this and the                procurement procedures and competent 
 equipment limitations within Ukraine,           on-site management, aims to minimise 
 can result in unsuccessful or lower             these risks. 
 than expected outcomes for wells. 
                                               ----------------------------------------------- 
Maintenance of facilities 
                                               ----------------------------------------------- 
There is a risk that production                 The Group's facilities are operated 
 or transportation facilities can                and maintained at standards above 
 fail due to non-adequate maintenance,           the Ukrainian minimum legal requirements. 
 control or poor performance of the              Operations staff are experienced 
 Group's suppliers.                              and receive supplemental training 
                                                 to ensure that facilities are properly 
                                                 operated and maintained. Service 
                                                 providers are rigorously reviewed 
                                                 at the tender stage and are monitored 
                                                 during the contract period. 
                                               ----------------------------------------------- 
Financial risks 
                                               ----------------------------------------------- 
Exposure to cash flow and liquidity 
 risk 
                                               ----------------------------------------------- 
There is a risk that insufficient               The Group maintains adequate cash 
 funds are available to meet the                 reserves and closely monitors forecasted 
 Group's development obligations                 and actual cash flow, as well as 
 to commercialise the Group's oil                short and longer-term funding requirements. 
 and gas assets. Since a significant             The Group does not currently have 
 proportion of the future capital                any loans outstanding, internal 
 requirements of the Group is expected           financial projections are regularly 
 to be derived from operational cash             made based on the latest estimates 
 generated from production, including            available, and various scenarios 
 from wells yet to be drilled, there             are run to assess the robustness 
 is a risk that in the longer term,              of the liquidity of the Group. However, 
 insufficient operational cash is                as the risk to future capital funding 
 generated, or that additional funding,          is inherent in the oil and gas exploration 
 should the need arise, cannot be                and development industry and reliant 
 secured.                                        in part on future development success, 
                                                 it is difficult for the Group to 
                                                 take any other measures to further 
                                                 mitigate this risk, other than tailoring 
                                                 its development activities to its 
                                                 available capital funding from time 
                                                 to time. 
                                               ----------------------------------------------- 
Ensuring appropriate business practices 
                                               ----------------------------------------------- 
The Group operates in Ukraine, an               The Group maintains anti-bribery 
 emerging market, where certain inappropriate    and corruption policies in relation 
 business practices may, from time               to all aspects of its business, 
 to time occur, such as corrupt business         and ensures that clear authority 
 practices, bribery, appropriation               levels and robust approval processes 
 of property and fraud, all of which             are in place, with stringent controls 
 can lead to financial loss.                     over cash management and the tendering 
                                                 and procurement processes. In addition, 
                                                 office and site protection is maintained 
                                                 to protect the Group's assets. 
                                               ----------------------------------------------- 
Hydrocarbon price risk 
                                               ----------------------------------------------- 
The Group derives its revenue principally       The Group sells a proportion of 
 from the sale of its Ukrainian gas,             its hydrocarbon production through 
 condensate and LPG production. These            offtake arrangements, which include 
 revenues are subject to commodity               pricing formulae so as to ensure 
 price volatility and political influence.       that it achieves market prices for 
 A prolonged period of low gas, condensate       its products, as well as utilising 
 and LPG prices may impact the Group's           the electronic market platforms 
 ability to maintain its long-term               in Ukraine to achieve market prices 
 investment programme with a consequent          for its remaining products. However, 
 effect on growth rate, which in                 hydrocarbon prices in Ukraine are 
 turn may impact the share price                 implicitly linked to world hydrocarbon 
 or any shareholder returns. Lower               prices and so the Group is subject 
 gas, condensate and LPG prices may              to external price trends. 
 not only decrease the Group's revenues 
 per unit, but may also reduce the 
 amount of gas, condensate and LPG 
 which the Group can produce economically, 
 as would increases in costs associated 
 with hydrocarbon production, such 
 as subsoil taxes and royalties. 
 The overall economics of the Group's 
 key assets (being the net present 
 value of the future cash flows from 
 its Ukrainian projects) are far 
 more sensitive to long term gas, 
 condensate and LPG prices than short-term 
 price volatility. However, short-term 
 volatility does affect liquidity 
 risk, as, in the early stage of 
 the projects, income from production 
 revenues is offset by capital investment. 
                                               ----------------------------------------------- 
Currency risk 
                                               ----------------------------------------------- 
Since the beginning of 2014 , the               The Group's sales proceeds are received 
 Ukrainian Hryvnia significantly                 in Ukrainian Hryvnia, and the majority 
 devalued against major world currencies,        of the capital expenditure costs 
 including the US Dollar, where it               for the current investment programme 
 has fallen from UAH8.3/$1.00 on                 will be incurred in Ukrainian Hryvnia, 
 1 January 2014 to UAH27.2/$1.00                 thus the currency of revenue and 
 on 30 June 2021 This devaluation                costs are largely matched. In light 
 has been a significant contributor              of the previous devaluation and 
 to the imposition of the banking                volatility of the Ukrainian Hryvnia 
 restrictions by the National Bank               against major world currencies, 
 of Ukraine over recent years. In                and since the Ukrainian Hryvnia 
 addition, the geopolitical events               does not benefit from the range 
 in Ukraine over recent years, are               of currency hedging instruments 
 likely to continue to impact the                which are available in more developed 
 valuation of the Ukrainian Hryvnia              economies, the Group has adopted 
 against major world currencies.                 a policy that, where possible, funds 
 Further devaluation, and volatility,            not required for use in Ukraine 
 of the Ukrainian Hryvnia against                be retained on deposit in the United 
 the US Dollar will affect the carrying          Kingdom and Europe, principally 
 value of the Group's assets.                    in US Dollars. 
                                               ----------------------------------------------- 
Counterparty and credit risk 
                                               ----------------------------------------------- 
The challenging political and economic          The Group monitors the financial 
 environment in Ukraine means that               position and credit quality of its 
 businesses can be subject to significant        contractual counterparties and seeks 
 financial strain, which can mean                to manage the risk associated with 
 that the Group is exposed to increased          counterparties by contracting with 
 counterparty risk if counterparties             creditworthy contractors and customers. 
 fail or default in their contractual            Hydrocarbon production is sold on 
 obligations to the Group, including             terms that limit supply credit and/or 
 in relation to the sale of its hydrocarbon      title transfer until payment is 
 production, resulting in financial              received . 
 loss to the Group. 
                                               ----------------------------------------------- 
Financial markets and economic outlook 
                                               ----------------------------------------------- 
The performance of the Group is                 The Group's sales proceeds are received 
 influenced by global economic conditions        in Ukrainian Hryvnia and a significant 
 and, in particular, the conditions              proportion of investment expenditure 
 prevailing in the United Kingdom                is made in Ukrainian Hryvnia , which 
 and Ukraine. The economies in these             minimises risks related to foreign 
 regions have been subject to volatile           exchange volatility. However, hydrocarbon 
 pressures in recent periods, with               prices in Ukraine are implicitly 
 the global economy having experienced           linked to world hydrocarbon prices 
 a long period of difficulties, and              and so the Group is subject to external 
 more particularly the events that               price movements. The Group holds 
 have occurred in Ukraine over recent            a significant proportion of its 
 years. This has led to extreme foreign          cash reserves in the United Kingdom 
 exchange movements in the Ukrainian             and Europe, mostly in US Dollars, 
 Hryvnia , high inflation and interest           with reputable financial institutions. 
 rates, and increased credit risk                The financial status of counterparties 
 relating to the Group's key counterparties.     is carefully monitored to manage 
                                                 counterparty risks. Nevertheless, 
                                                 the risks that the Group faces as 
                                                 a result of these risks cannot be 
                                                 predicted and many of these are 
                                                 outside of the Group's control. 
                                               ----------------------------------------------- 
Corporate risks 
                                               ----------------------------------------------- 
Ukraine production licences 
                                               ----------------------------------------------- 
The Group operates in a region where            The Group ensures compliance with 
 the right to production can be challenged       commitments and regulations relating 
 by State and non-State parties.                 to its production licences through 
 In 2010, this manifested itself                 Group procedures and controls or, 
 in the form of a Ministry Order                 where this is not immediately feasible 
 instructing the Group to suspend                for practical or logistical considerations, 
 all operations and production from              seeks to enter into dialogue with 
 its MEX-GOL and SV production licences,         the relevant Government bodies with 
 which was not resolved until mid-2011.          a view to agreeing a reasonable 
 In 2013, new rules relating to the              time frame for achieving compliance 
 updating of production licences                 or an alternative, mutually agreeable 
 led to further challenges being                 course of action. Work programmes 
 raised by the Ukrainian authorities             are designed to ensure that all 
 to the production licences held                 licence obligations are met and 
 by independent oil and gas producers            continual interaction with Government 
 in Ukraine, including the Group,                bodies is maintained in relation 
 which may result in requirements                to licence obligations and commitments. 
 for remediation work, financial 
 penalties and/or the suspension 
 of such licences, which, in turn, 
 may adversely affect the Group's 
 operations and financial position. 
 In March 2019, a Ministry Order 
 was issued instructing the Group 
 to suspend all operations and production 
 from its VAS production licence. 
 The Group is challenging this Order 
 through legal proceedings, during 
 which production from the licence 
 is continuing, but this matter remains 
 unresolved. In 2020, LLC Arkona 
 Gas-Energy ("Arkona") faced a challenge 
 from NJSC Ukrnafta concerning the 
 validity of its SC exploration licence 
 , which was ultimately resolved 
 in Arkona's favour by a decision 
 of the Supreme Court of Ukraine 
 in February 2021. All such challenges 
 affecting the Group have thus far 
 been successfully defended through 
 the Ukrainian legal system. However, 
 the business environment is such 
 that these types of challenges may 
 arise at any time in relation to 
 the Group's operations, licence 
 history, compliance with licence 
 commitments and/or local regulations. 
 In addition, these licences carry 
 ongoing compliance obligations, 
 which if not met, may lead to the 
 loss of a licence. 
                                               ----------------------------------------------- 
Risks relating to key personnel 
                                               ----------------------------------------------- 
The Group's success depends upon                The Group periodically reviews the 
 skilled management as well as technical         compensation and contractual terms 
 expertise and administrative staff.             of its staff. In addition, the Group 
 The loss of service of critical                 has developed relationships with 
 members from the Group's team could             a number of technical and other 
 have an adverse effect on the business.         professional experts and advisers, 
                                                 who are used to provide specialist 
                                                 services as required. 
                                               ----------------------------------------------- 
 

Directors' Responsibility Statement

The Directors confirm that, to the best of their knowledge:

a) the unaudited condensed interim consolidated financial statements have been prepared in accordance with UK-adopted International Accounting Standard 34, 'Interim Financial Reporting' ("IAS 34") and the AIM Rules for Companies; and

   b)       these unaudited interim results include: 

(i) a fair review of the information required (i.e. an indication of important events and their impact and a description of the principal risks and uncertainties for the remaining six months of the financial year); and

   (ii)      a fair review of the information required on related party transactions. 

A list of current Directors is maintained on the Group's website, www.enwell-energy.com.

Condensed Interim Consolidated Income Statement

 
                                                                  6 months 
                                              6 months ended         ended 
                                                  30 Jun 2 1     30 Jun 20 
                                                 (unaudited)   (unaudited) 
                                       Note             $000          $000 
 
 Revenue                                  3           41,050        24,708 
 Cost of sales                            4         (19,452)      (17,203) 
------------------------------------  -----  ---------------  ------------ 
 Gross profit                                         21,598         7,505 
 Administrative expenses                             (3,953)       (3,852) 
 Other operating income, (net)            5              469         1,500 
 Operating profit                                     18,114         5,153 
 Net impairment losses on financial 
  assets                                              (1 9 )          (29) 
 Other expenses, (net)                    6             (39)       (1,925) 
 Finance income                                           87             - 
 Finance costs                                       ( 197 )         (604) 
 Profit before taxation                              17,94 6         2,595 
 Income tax expense                       7        (4,15 7 )       (1,366) 
------------------------------------  -----  ---------------  ------------ 
 Profit for the period                               13,7 89         1,229 
------------------------------------  -----  ---------------  ------------ 
 
   Earnings per share (cents) 
 Basic and diluted                        8            4 .3c       0 . 4 c 
------------------------------------  -----  ---------------  ------------ 
 

The Notes set out below are an integral part of these unaudited condensed interim consolidated financial statements.

Condensed Interim Consolidated Statement of Comprehensive Income

 
                                                6 months ended      6 months 
                                                                       ended 
                                                      30 Jun 2     30 Jun 20 
                                                             1 
                                                   (unaudited)   (unaudited) 
                                                          $000          $000 
 
 Profit for the period                                 13,7 89         1,229 
 
 Other comprehensive income: 
 Items that may be subsequently reclassified 
  to profit or loss: 
 Equity - foreign currency translation                  3,9 27      (10,841) 
---------------------------------------------  ---------------  ------------ 
 Total other comprehensive income/(loss)                3,9 27      (10,841) 
 Total comprehensive income/(loss) for 
  the period                                          17 , 716       (9,612) 
---------------------------------------------  ---------------  ------------ 
 

The Notes set out below are an integral part of these unaudited condensed interim consolidated financial statements.

Condensed Interim Consolidated Balance Sheet

 
                                             30 Jun 2     31 Dec 20 
                                                    1 
                                          (unaudited)     (audited) 
                                   Note          $000          $000 
 
 Assets 
 Non-current assets 
 Property, plant and equipment      10         73,501      65 , 662 
 Intangible assets                  11         12,698      12 , 232 
 Right-of-use assets                            1,143           512 
 Corporation tax receivable                         -             9 
 Deferred tax asset                 7             270           167 
                                               87,612     7 8 , 582 
 
 Current assets 
 Inventories                                    1,700       1 , 541 
 Trade and other receivables        12         12,740       4 , 847 
 Cash and cash equivalents          15         62,857     6 0 , 993 
--------------------------------  -----  ------------  ------------ 
                                               77,297      67 , 381 
 Total assets                                 164,909    1 45 , 963 
--------------------------------  -----  ------------  ------------ 
 
 Liabilities 
 Current liabilities 
                                                          ( 6 , 641 
 Trade and other payables                     (7,264)             ) 
 Lease liabilities                              (447)       ( 245 ) 
                                                          ( 1 , 062 
 Corporation tax payable                      (2,242)             ) 
--------------------------------  -----  ------------  ------------ 
                                                          ( 7 , 948 
                                              (9,953)             ) 
--------------------------------  -----  ------------  ------------ 
 Net current assets                            67,344      59 , 433 
--------------------------------  -----  ------------  ------------ 
 
 Non-current liabilities 
                                                          ( 6 , 819 
 Provision for decommissioning      13        (7,111)             ) 
 Lease liabilities                              (755)       ( 371 ) 
 Defined benefit liability                      (545)       ( 530 ) 
 Deferred tax liability             7         (3,100)     (2, 705 ) 
 Other non-current liabilities      14          (114)       (1,975) 
                                                         (1 2 , 400 
                                             (11,625)             ) 
 
                                                         ( 20 , 348 
 Total liabilities                           (21,578)             ) 
--------------------------------  -----  ------------  ------------ 
 
 Net assets                                   143,331    1 25 , 615 
--------------------------------  -----  ------------  ------------ 
 
 Equity 
 Called up share capital                       28,115        28,115 
 Share premium account              9               -       555,090 
                                                         ( 105 , 22 
 Foreign exchange reserve                   (101,295)            2) 
 Other reserves                                 4,273         4,273 
 Retained earnings/(accumulated                         (35 6 , 641 
  losses)                           9         212,238             ) 
--------------------------------  -----  ------------  ------------ 
 Total equity                                 143,331    1 25 , 615 
--------------------------------  -----  ------------  ------------ 
 

The Notes set out below are an integral part of these unaudited condensed interim consolidated financial statements.

Condensed Interim Consolidated Statement of Changes in Equity

 
                                                         Merger                                     Retained 
                                                        reserve          Capital     Foreign       earnings/ 
                           Called up   Share premium               contributions    exchange    (accumulated     Total 
                       share capital         account                     reserve    reserve*         losses)    equity 
                                $000            $000       $000             $000        $000            $000      $000 
 
 As at 1 January                                                                       ( 105         (35 6 ,      1 25 
  202 1 (audited)             28,115         555,090    (3,204)            7,477     , 222 )           641 )     , 615 
 Profit for the 
  period                           -               -          -                -           -          13,789    13,789 
 Other 
 comprehensive 
 income 
  - exchange 
   differences                     -               -          -                -       3,927               -     3,927 
-------------------  ---------------  --------------  ---------  ---------------  ----------  --------------  -------- 
 Total 
  comprehensive 
  income                           -               -          -                -       3,927          13,789    17,716 
 Transactions with 
 owners 
 in their capacity 
 as owners: 
 Cancellation of 
  share premium 
  account                          -       (555,090)          -                -           -         555,090         - 
 As at 30 June 202 
  1 (unaudited)               28,115               -    (3,204)            7,477   (101,295)         212,238   143,331 
-------------------  ---------------  --------------  ---------  ---------------  ----------  --------------  -------- 
 
 
                                                                          Capital     Foreign 
                            Called up   Share premium     Merger    contributions    exchange   Accumulated      Total 
                        share capital         account    reserve          reserve    reserve*        losses     equity 
                                 $000            $000       $000             $000        $000          $000       $000 
 
 As at 1 January 20 
  20 (audited)                 28,115         555,090    (3,204)            7,477    (90,172)     (359,756)    137,550 
 Profit for the 
  period                            -               -          -                -           -         1,229      1,229 
 Other comprehensive 
 income 
  - exchange 
   differences                      -               -          -                -    (10,841)             -   (10,841) 
--------------------  ---------------  --------------  ---------  ---------------  ----------  ------------  --------- 
 Total comprehensive 
  income                            -               -          -                -    (10,841)         1,229    (9,612) 
 As at 30 June 20 20 
  (unaudited)                  28,115         555,090    (3,204)            7,477   (101,013)     (358,527)    127,938 
--------------------  ---------------  --------------  ---------  ---------------  ----------  ------------  --------- 
 

* Predominantly as a result of exchange differences on retranslation, where the subsidiaries ' functional currency is not US Dollars

The Notes set out below are an integral part of these unaudited condensed interim consolidated financial statements.

Condensed Interim Consolidated Statement of Cash Flows

 
                                                         6 months      6 months 
                                                            ended         ended 
                                                         30 Jun 2     30 Jun 20 
                                                                1 
                                                      (unaudited)   (unaudited) 
                                               Note          $000          $000 
 
 Operating activities 
 Cash generated from operations                  16      19,1 4 8       11,03 0 
 Charitable donations                                        (23)       (2,057) 
 Equipment rental income                                       15            17 
 Income tax paid                                          (2,897)       (2,856) 
 Interest received                                            261         1,066 
--------------------------------------------  -----  ------------  ------------ 
 Net cash inflow from operating activities                16,50 4        7,20 0 
--------------------------------------------  -----  ------------  ------------ 
 
 Investing activities 
 Purchase of property, plant and equipment               (13,092)       (8,096) 
 Purchase of intangible assets                            (2,233)       (4,428) 
 Proceeds from return of prepayments                          250             - 
  for shares 
 Proceeds from sale of property, plant 
  and equipment                                                 9             1 
 Net cash outflow from investing activities              (15,066)      (12,523) 
--------------------------------------------  -----  ------------  ------------ 
 
 Financing activities 
 Principal elements of lease payments                       (330)         (282) 
 Net cash outflow from financing activities                 (330)         (282) 
 
 Net increase in cash and cash equivalents                 1,10 8     (5, 605 ) 
 Cash and cash equivalents at beginning 
  of the period                                  15        60,993        62,474 
 Effect of foreign exchange rate changes                     75 6     (2, 641 ) 
 Cash and cash equivalents at end of 
  the period                                     15        62,857        54,228 
--------------------------------------------  -----  ------------  ------------ 
 

The Notes set out below are an integral part of these unaudited condensed interim consolidated financial statements.

Notes to the U naudited Condensed Interim Consolidated Financial Statements

   1.         General Information and Operational Environment 

Enwell Energy plc (formerly Regal Petroleum plc) (the "Company") and its subsidiaries (together the "Group") is a gas, condensate and LPG production group.

Enwell Energy plc is a public limited company incorporated in England and Wales under the Companies Act 2006, whose shares are quoted on the AIM Market of London Stock Exchange plc. The Company's registered office is at 16 Old Queen Street, London SW1H 9HP, United Kingdom and its registered number is 4462555.

As at 30 June 2021, the Company's majority shareholder, with 82.65% of the issued share capital, and immediate parent company was Smart Energy (CY) Ltd (formerly named Pelidona Services Ltd), which is 100% owned by Smart Holding (Cyprus) Ltd (formerly named Lovitia Investments Ltd), which is 100% owned by Mr Vadym Novynskyi. Accordingly, the Company is ultimately controlled by Mr Vadym Novynskyi.

The Group's gas, condensate and LPG extraction and production facilities are located in Ukraine. The ongoing political and economic instability in Ukraine, which commenced in late 2013, has led to a deterioration of Ukrainian State finances, volatility of financial markets, illiquidity in capital markets, higher inflation and a depreciation of the national currency against major foreign currencies, although there have been some gradual improvements lately.

In recent years, the Ukrainian economy demonstrated growth amid overall macroeconomic stabilisation supported by structural reforms, a rise in domestic investment, revival in household consumption, increase in industrial production, construction activity and improved environment on external markets.

During 2021, the Ukrainian economy has experienced moderate growth in industrial output , leveling the consequences of the COVID-19 outbreak, which started in March 2020. The National Bank of Ukraine ("NBU") follows an interest rate policy consistent with inflation targets and keeps the Ukrainian Hryvnia floating. The annualised inflation rate in Ukraine was 9.5% in the first half of 2021 (compared with 2.0% in the first half of 2020 and 5.0% over the 2020 year), with the NBU increasing the key policy rate from 6.0% effective 12 June 2020 to 7.5% effective 18 June 2021, adhering to its inflation targeting policy .

As at the date of this report, the official NBU exchange rate of the Ukrainian Hryvnia against the US Dollar was UAH26.64/$1.00, compared with UAH27.18/$1.00 as at 30 June 2021 and UAH28.27/$1.00 as at 31 December 2020. In 2019, the NBU cancelled some of the currency control restrictions, such as the required share of foreign currency proceeds subject to mandatory sale and the amount of dividend payments allowed to non-residents, which were implemented in 2014 - 2015.

Further details of risks relating to Ukraine can be found within the Principal Risks and Uncertainties section earlier in this announcement.

Going concern

As a consequence of the COVID-19 pandemic, the Group has implemented processes and controls intended to ensure protection of all its stakeholders and minimise any disruption to its business. The Group is closely monitoring the current volatility in global financial markets, and the implications on the operational, economic and social environment within which the Group works caused by the COVID-19 pandemic. To date, there has been no significant operational disruption arising from the COVID-19 pandemic, and no material impact is currently envisaged on the Group's prospects. However, the Board and management remain acutely aware of the risks, and continue to take action to mitigate them where possible, not only to protect the Group's staff and stakeholders but also to minimise disruption to the Group's business. The Group continues to reassess its medium-term forecasts based on current pricing and is highly confident that it has the resources to continue to deliver on its plans. It is not possible to forecast the duration of the pandemic's impact but the Group will remain focussed on monitoring and protecting its business throughout the period of uncertainty.

The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future regarded as at least 12 months from the date of these unaudited condensed interim consolidated financial statements. Accordingly, the going concern basis has been adopted in preparing these unaudited condensed interim consolidated financial statements for the six months ended 30 June 2021.

   2.         Accounting Judgements and Estimates 

Basis of preparation

These unaudited condensed interim consolidated financial statements for the six month period ended 30 June 2021 have been prepared in accordance with UK-adopted International Accounting Standard 34, 'Interim Financial Reporting' ("IAS 34") and the AIM Rules for Companies. The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period.

These unaudited condensed interim consolidated financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2020 were approved by the Board of Directors on 30 March 2021 and subsequently filed with the Registrar of Companies. The Auditors' Report on those accounts was not qualified and did not contain any statement under section 498 of the Companies Act 2006.

The unaudited condensed interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements for the year ended 31 December 2020, which were prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.

In the year to 31 December 2021, the annual financial statements will be prepared in accordance with IFRS as adopted by the UK Endorsement Board, and this change in basis of preparation is required by UK company law for the purposes of financial reporting as a result of the UK's exit from the European Union on 31 January 2020 and the cessation of the transition period on 31 December 2020.

This change does not constitute a change in accounting policy but rather a change in the framework which is required to ground the use of IFRS in company law.

There is no impact on recognition, measurement or disclosure between the two frameworks in the period reported.

The accounting policies and methods of computation and presentation used are consistent with those used in the Group's Annual Report and Financial Statements for the year ended 31 December 2020, with the exception of the following new or revised standards and interpretations:

New and amended standards adopted by the Group

The following new standards, amendments to standards and interpretations became effective for the Group on 1 January 2021 or after (t hese standards, amendments to standards and interpretations did not have a material impact on this unaudited interim condensed consolidated financial information):

 
 --   IFRS 17 'Insurance Contracts' (issued on 18 May 2017 and effective 
       for annual periods beginning on or after 1 January 2021); 
 --   Interest rate benchmark (IBOR) reform - phase 2 amendments 
       to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (issued on 27 
       August 2020 and effective for annual periods beginning on 
       or after 1 January 2021); 
 

There are no other amended standards which the Group considers to have a material impact on these financial statements:

Significant accounting judgements and estimates

The preparation of the unaudited condensed interim consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.

In preparing these unaudited condensed interim consolidated financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were consistent with those that applied to the consolidated financial statements for the year ended 31 December 2020 with certain updates described below.

Estimates

Recoverability of Development and Production Assets in Ukraine

According to the Group's accounting policies, costs capitalised as assets are assessed for impairment at each balance sheet date if impairment indicators exist. In assessing whether an impairment loss has occurred, the carrying value of the asset or cash-generating unit ("CGU") is compared to its recoverable amount. The recoverable amount is the greater of fair value less costs to dispose and value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and the respective impairment loss is recognised as an expense immediately. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversals are recognised as income immediately.

MEX-GOL, SV, SC and VAS gas and condensate fields

As at 30 June 2021, no impairment indicators were identified by the Group, and therefore no impairment test was performed for the MEX-GOL, SV, SC and VAS gas and condensate fields.

Depreciation of Development and Production Assets

Development and production assets held in property, plant and equipment are depreciated on a unit of production basis at a rate calculated by reference to proven and probable reserves at the end of the period plus the production in the period, and incorporating the estimated future cost of developing and extracting those reserves. Future development costs are estimated using assumptions about the number of wells required to produce those reserves, the cost of the wells, future production facilities and operating costs, together with assumptions on oil and gas realisations, and are revised annually. The reserves estimates used are determined using estimates of gas in place, recovery factors, future hydrocarbon prices and also take into consideration the Group's latest development plan for the associated development and production asset.

Provision for Decommissioning

The Group has decommissioning obligations in respect of its Ukrainian assets. The full extent to which the provision is required depends on the legal requirements at the time of decommissioning, the costs and timing of any decommissioning works and the discount rate applied to such costs.

A detailed assessment of gross decommissioning cost was undertaken on a well-by-well basis using local data on day rates and equipment costs. The discount rate applied on the decommissioning cost provision at 30 June 2021 was 4.13% (31 December 2020: 3.70%). The discount rate is calculated in real terms based on the yield to maturity of Ukrainian Government bonds denominated in the currency in which the liability is expected to be settled and with the settlement date that approximates the timing of settlement of decommissioning obligations.

The change in estimate applied to calculate the provision as at 30 June 2021 resulted from the revision of the estimated costs of decommissioning (increase of $218,000 in provision) and the increase in the discount rate applied (decrease of $452,000 in provision). The increase in discount rate at 30 June 2021 resulted from the increase in Ukrainian Eurobonds yield and the respective increase of country risk premium. The costs are expected to be incurred by 2038 on the MEX-GOL field, by 2042 on the SV field, and by 2028 on the VAS field, which is the end of the estimated economic life of the respective fields.

   3.         Segmental Information 

In line with the Group's internal reporting framework and management structure, the key strategic and operating decisions are made by the Board of Directors, who review internal monthly management reports, budgets and forecast information as part of this process. Accordingly, the Board of Directors is deemed to be the Chief Operating Decision Maker within the Group.

The Group's only class of business activity is oil and gas exploration, development and production. The Group's operations are located in Ukraine, with its head office in the United Kingdom. These geographical regions are the basis on which the Group reports its segment information. The segment results as presented represent operating profit before depreciation and amortisation.

6 months ended 30 June 2021 (unaudited)

 
                                               United 
                                   Ukraine    Kingdom     Total 
                                      $000       $000      $000 
 
 Revenue 
 Gas sales                          28,514          -    28,514 
 Condensate sales                    9,760          -     9,760 
 Liquefied Petroleum Gas sales       2,776          -     2,776 
-------------------------------  ---------  ---------  -------- 
 Total revenue                      41,050          -    41,050 
 
                                                           24,0 
 Segment result                    25,6 41    (1,547)        94 
 Depreciation and amortisation     (5,980)          -   (5,980) 
 Operating profit                                       18, 114 
-------------------------------  ---------  ---------  -------- 
 
                                                           164, 
 Segment assets                   127, 927     36,982       909 
 
                                     1 1 ,                1 1 , 
 Capital additions*                    035          -       035 
 

6 months ended 30 June 20 20 (unaudited)

 
                                              United 
                                  Ukraine    Kingdom     Total 
                                     $000       $000      $000 
 
 Revenue 
 Gas sales                         17,974          -    17,974 
 Condensate sales                   5,232          -     5,232 
 Liquefied Petroleum Gas sales      1,502          -     1,502 
-------------------------------  --------  ---------  -------- 
 Total revenue                     24,708          -    24,708 
 
 Segment result                    11,109        827    11,936 
 Depreciation and amortisation    (6,783)          -   (6,783) 
-------------------------------  --------  ---------  -------- 
 Operating profit                                        5,153 
-------------------------------  --------  ---------  -------- 
 
 Segment assets                   106,494     38,037   144,531 
 
 Capital additions*                17,102          -    17,102 
 

*Comprises additions to property, plant and equipment and intangible assets (Notes 10 and 11).

There are no inter-segment sales within the Group and all products are sold in the geographical region in which they are produced. The Group is not significantly impacted by seasonality.

   4.         Cost of Sales 
 
                                                  6 months ended      6 months 
                                                        30 Jun 2         ended 
                                                               1     30 Jun 20 
                                                     (unaudited)   (unaudited) 
                                                            $000          $000 
 
 Production taxes                                          7,273         4,875 
 Depreciation of property, plant and equipment             5,529         6,176 
 Rent expenses                                             2,964         2,121 
 Staff costs                                               1,368         1,837 
 Cost of inventories recognised as an 
  expense                                                    910           624 
 Transmission tariff for Ukrainian gas 
  system                                                     436           421 
 Amortisation of mineral reserves                            236           253 
 Other expenses                                              736           896 
                                                         19, 452        17,203 
 
   5.         Other operating income/(expenses), (net) 
 
                                                 6 months ended      6 months 
                                                       30 Jun 2         ended 
                                                              1     30 Jun 20 
                                                    (unaudited)   (unaudited) 
                                                           $000          $000 
 
 Interest income on cash and cash equivalents               312         1,023 
 Reversal of accruals                                       167           263 
 Contractor penalties applied                                 -            15 
 Other operating (losses)/income, net                    ( 10 )           199 
                                                           4 69         1,500 
 
   6.         Other income/(expenses), (net) 
 
                                        6 months ended      6 months 
                                              30 Jun 2         ended 
                                                     1     30 Jun 20 
                                           (unaudited)   (unaudited) 
                                                  $000          $000 
 
 Net foreign exchange (losses)/gains              (26)           194 
 Charitable donations                             (23)       (2,057) 
 Other income/(expenses), (net)                     10          (62) 
                                                  (39)       (1,925) 
 
   7.         Taxation 

The income tax charge of $4,157,000 for the six month period ended 30 June 2021 relates to a urrent tax charge of $4,003,000 and a deferred tax charge of $154,000 (1H 2020: current tax charge of $1,356,000 and deferred tax charge of $10,000).

The movement in the period was as follows:

 
                                               6 months ended      6 months 
                                                                      ended 
                                                     30 Jun 2     30 Jun 20 
                                                            1 
                                                  (unaudited)   (unaudited) 
                                                         $000          $000 
 Deferred tax (liability)/asset recognised 
  relating to development and production 
  assets at MEX-GOL-SV fields and provision 
  for decommissioning 
 At beginning of the period                           (2,705)       (2,141) 
 Charged to Income Statement - current 
  period                                                (249)         (170) 
 Effect of exchange difference                          (146)           115 
-------------------------------------------- 
 At end of the period                                 (3,100)       (2,196) 
--------------------------------------------  ---------------  ------------ 
 
 
 Deferred tax asset/( liability ) recognised 
  relating to development and production 
  assets at VAS field and provision for 
  decommissioning 
 At beginning of the period                     167   (147) 
 Credited to Income Statement - current 
  period                                         95     160 
 Effect of exchange difference                    8      12 
--------------------------------------------- 
 At end of the period                           270      25 
---------------------------------------------  ----  ------ 
 

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to the expected total annual profit or loss. The effective tax rate for the six month period ended 30 June 2021 was 23% (1H 2020: 53%).

The deferred tax asset relating to the Group's provision for decommissioning at 30 June 2021 of $248,000 (31 December 2020: $170,000) was recognised on the tax effect of the temporary differences of the Group's provision for decommissioning at the MEX-GOL and SV fields, and its tax base. The deferred tax liability relating to the Group's development and production assets at the MEX-GOL and SV fields at 30 June 2021 of $3,348,000 (31 December 2020: $2,875,000) was recognised on the tax effect of the temporary differences between the carrying value of the Group's development and production asset at the MEX-GOL and SV fields, and its tax base.

The deferred tax asset relating to the Group's provision for decommissioning at 30 June 2021 of $342,000 (31 December 2020: $323,000) was recognised on the tax effect of the temporary differences on the Group's provision on decommissioning at the VAS field, and its tax base. The deferred tax liability relating to the Group's development and production assets at the VAS field at 30 June 2021 of $72,000 (31 December 2020: $156,000) was recognised on the tax effect of the temporary differences between the carrying value of the Group's development and production asset at the VAS field, and its tax base.

   8.         Earnings per Share 

The calculation of basic and diluted earnings per ordinary share has been based on the profit for the six month period ended 30 June 2021 and 30 June 2020 and 320,637,836 ordinary shares, being the average number of shares in issue for the period. There are no dilutive instruments.

   9.         Reduction of Capital 

On 25 February 2021, the Company completed a reduction of its share capital through the cancellation of its entire share premium account, thereby creating distributable reserves, which enables the Company to make distributions to its shareholders in the future, subject to the Company's financial performance. However, the Company is not indicating any commitment, and does not have any current intention, to make any distributions to shareholders.

   10.        Property, Plant and Equipment 
 
                                 6 months ended 30 Jun 21                            6 months ended 30 Jun 20 
                                        (unaudited)                                         (unaudited) 
                       Oil and       Oil and     Other       Total        Oil and       Oil and      Other       Total 
                         gas           gas       fixed                      gas           gas        fixed 
                     development   exploration   assets                 development   exploration    assets 
                         and           and                                  and           and 
                     production    evaluation                           production    evaluation 
                       assets        assets                               assets        assets 
                       Ukraine                                            Ukraine 
                            $000          $000     $000          $000          $000          $000      $000           $000 
 Cost 
 At beginning of 
  the 
  period                135 ,966         2,362    2,217       140,545       143,127         2,571     2,103        147,801 
 Additions                10,604            80       55        10,739         8,199           172       386          8,757 
 Change in 
  decommissioning 
  provision                (107)             -        -         (107)         (903)             -         -          (903) 
 Disposals                  (36)             -     (70)         (106)         (117)             -       (2)          (119) 
 Exchange 
  differences              5,850            97       75         6,022      (16,216)         (279)     (375)       (16,870) 
 At end of the 
  period                 152,277         2,539    2,277       157,093       134,090         2,464     2,112        138,666 
 
 Accumulated 
 depreciation 
 and impairment 
 At beginning of 
  the 
  period                  73,816             -    1,067        74,883        76,802             -       947         77,749 
 Charge for the 
  period                   5,447             -      158         5,605         5,268             -       201          5,469 
 Disposals                   (7)             -      (9)          (16)          (31)             -       (2)           (33) 
 Exchange 
  differences              3,072             -       48         3,120       (8,590)             -     (183)        (8,773) 
 At end of the 
  period                  82,328             -    1,264        83,592        73,449             -       963         74,412 
 Net book value at 
  the beginning of 
  the period              62,150         2,362    1,150        65,662        66,325         2,571     1,156         70,052 
------------------  ------------  ------------  -------  ------------  ------------  ------------   -------  ------------- 
 Net book value at 
  end of the 
  period                  69,949         2,539    1,013        73,501        60,641         2,464     1,149         64,254 
------------------  ------------  ------------  -------  ------------  ------------  ------------   -------  ------------- 
 
 

At 30 June 2021, the Group performed an assessment of external and internal indicators to ascertain whether there was any indication of potential impairment. Based on the analysis performed, the Group concluded that no external or internal impairment indicators existed as at 30 June 2021, and accordingly no impairment testing was required as at that date.

   11.        Intangible Assets 
 
                             6 months ended 30 Jun 2 1                         6 months ended 30 Jun 20 
                                    (unaudited)                                       (unaudited) 
                              Exploration                                       Exploration 
                                      and                                               and 
                   Mineral     evaluation         Other             Mineral      evaluation         Other 
                   reserve     intangible    intangible             reserve      intangible    intangible 
                    rights         assets        assets    Total     rights          assets        assets      Total 
                      $000           $000          $000     $000       $000            $000          $000       $000 
  Cost 
  At beginning 
   of the 
   period            6,570          8,286           616   15,472      7,843               -           572      8,415 
  Additions              -             63           233      296          -           8,331           101      8,432 
  Disposals              -              -         (137)    (137)          -               -          (53)       (53) 
  Exchange 
   differences         265            335            26      626      (884)              16          (52)      (920) 
---------------  ---------  -------------  ------------  -------  ---------  --------------  ------------  --------- 
  At end of 
   the period        6,835          8,684           738   16,257      6,959           8,347           568     15,874 
---------------  ---------  -------------  ------------  -------  ---------  --------------  ------------  --------- 
 
  Accumulated 
  amortisation 
  and 
  impairment 
  At beginning 
   of the 
   period            2,855              -           385    3,240      2,851               -           367      3,218 
  Amortisation 
   charge for 
   the period          236              -           105      341        253               -            78        331 
  Disposals              -              -         (136)    (136)          -               -          (53)       (53) 
  Exchange 
   differences          99              -            15      114      (274)               -          (28)      (302) 
---------------  ---------  -------------  ------------  -------  ---------  --------------  ------------  --------- 
  At end of 
   the period        3,190              -           369    3,559      2,830               -           364      3,194 
---------------  ---------  -------------  ------------  -------  ---------  --------------  ------------  --------- 
  Net book 
   value at 
   beginning 
   of the 
   period            3,715          8,286           231   12,232      4,992               -           205      5,197 
---------------  ---------  -------------  ------------  -------  ---------  --------------  ------------  --------- 
  Net book 
   value at 
   end of the 
   period            3,645          8,684           369   12,698      4,129           8,347           204     12,680 
---------------  ---------  -------------  ------------  -------  ---------  --------------  ------------  --------- 
 
 
 

Intangible assets consist mainly of the hydrocarbon production licence relating to the VAS gas and condensate field which is held by one of the Group's subsidiaries, LLC Prom-Enerho Produkt, and a recently acquired hydrocarbon exploration licence named Svystunivsko-Chervonolutski ("SC"), which is held by LLC Arkona Gas-Energy. The Group amortises the hydrocarbon production licence relating to the VAS gas and condensate field using the straight-line method over the term of the economic life of the VAS field until 2028. The SC hydrocarbon exploration licence is not amortised due to it being at an exploration and evaluation stage.

As at 30 June 2021, the Group performed an assessment of external and internal indicators to ascertain whether there was any indication of potential impairment of intangible assets. Based on the analysis performed, the Group concluded that no external or internal impairment indicators existed as at 30 June 2021, and accordingly no impairment testing was required as at that date.

   12.        Trade and Other Receivables 
 
                                            30 Jun    31 Dec 20 
                                               2 1 
                                       (unaudited)    (audited) 
                                              $000         $000 
 
 Trade receivables                           7,869      1 , 936 
 Other financial receivables                   547       1, 053 
 Less credit loss allowance                  (143)      (1 33 ) 
-----------------------------------  -------------  ----------- 
 Total financial receivables                 8,273      2 , 856 
 
 Prepayments and accrued income              3,934      1 , 387 
 Other receivables                             533          604 
 Total trade and other receivables          12,740      4 , 847 
 

Due to the short-term nature of the current trade and other financial receivables, their carrying amount is assumed to be the same as their fair value. All trade and other financial receivables, except those provided for, are considered to be of high credit quality.

The majority of the trade receivables are from a related party, LLC Smart Energy, that purchases all of the Group's gas production. The applicable payment terms, which were revised in the period, are payment for one third of the monthly volume of gas by the 15(th) of the month following the month of delivery, and payment of the remaining balance by the end of that month (1H 2020: payment for one third of the estimated monthly volume of gas by the 20(th) of the month of delivery, and payment of the remaining balance by the 10(th) of the month following the month of delivery). The trade receivables were paid in full after the end of the period.

Prepayments and accrued income mainly consist of prepayments of $1,019,000 relating to the development of the SV field and $1,144,000 relating to the development of the MEX-GOL field (31 December 2020: $926,000 relating to the development of the SV field).

   13.        Provision for Decommissioning 
 
                                  6 months ended   6 months ended 
                                       30 Jun 21        30 Jun 20 
                                     (unaudited)      (unaudited) 
                                            $000             $000 
 
 At beginning of the period                6,819            7,447 
 Amounts provided                            127                - 
 Unwinding of discount                       122               94 
 Change in estimate                        (234)            (903) 
 Effect of exchange difference               277            (789) 
-------------------------------  ---------------  --------------- 
 At end of the period                      7,111            5,849 
 

The provision for decommissioning is based on the net present value of the Group's estimated liability for the removal of the Ukrainian production facilities and well site restoration at the end of production life.

The non-current provision of $7,111,000 (31 December 2020: $6,819,000) represents a provision for the decommissioning of the Group's MEX-GOL, SV and VAS production facilities, including site restoration. None of the provision was utilised during the reporting period.

As described in Note 2, the change in estimates applied to calculate the provision as at 30 June 2021 resulted from the revision of the estimated costs of decommissioning (increase of $218,000 in provision) and the increase in the discount rate applied (decrease of $452,000 in provision).

   14.        Other non-current liabilities 

Other non-current liabilities as at 30 June 2021, consist of the long-term obligations for the Ukrainian State special purpose fund of $114,000 measured at amortised cost using an interest rate of 20% (as at 31 December 2020: the long-term portion of the deferred consideration for the acquisition of LLC Arkona Gas-Energy of $1,851,861 and the long-term obligations for the Ukrainian State special purpose fund of $124,000). This long-term portion of the deferred consideration for the acquisition of LLC Arkona Gas-Energy of $1,851,861 was transferred, as current, to trade and other payables as at 30 June 2021. The final payments relating to the acquisition of LLC Arkona Gas-Energy are due to be paid in March 2022, subject to such payments becoming payable in accordance with the terms and conditions of the acquisition agreement.

   15.        Financial Instruments 

The Group's financial instruments comprise cash and cash equivalents and various items such as debtors and creditors that arise directly from its operations. The Group has bank accounts denominated in British Pounds, US Dollars, Euros, and Ukrainian Hryvnia. The Group does not have any borrowings. The main future risks arising from the Group's financial instruments are currency risk, interest rate risk, liquidity risk and credit risk.

The Group's financial assets and financial liabilities, measured at amortised cost, which approximates their fair value, comprise the following:

 
 
                                         30 Jun 21        31 Dec 20 
                                       (unaudited)        (audited) 
                                              $000             $000 
 Financial assets 
 Cash and cash equivalents                  62,857           60,993 
 Trade and other receivables                 8,273            2,856 
                                            71,130           63,849 
 Financial Liabilities 
 Lease liabilities                           1,202              616 
 Trade payables                              1,303              843 
 Other financial liabilities                 1,966            4,336 
                                                    --------------- 
                                             4,471            5,795 
 
 

At 30 June 2021, the Group held cash and cash equivalents in the following currencies:

 
                      30 Jun 21 (unaudited)     31 Dec 20 
                                                (audited) 
                                       $000          $000 
 
 US Dollars                          36,145        40,187 
 Ukrainian Hryvnia                   26,453        20,569 
 British Pounds                         252           232 
 Euros                                    7             5 
                                     62,857        60,993 
-------------------  ----------------------  ------------ 
 
 

All of the cash and cash equivalents held in Ukrainian Hryvnia are held in banks within Ukraine, and all other cash and cash equivalents are held in banks within Europe, Ukraine and the United Kingdom.

   16.        Reconciliation of Operating Profit to Operating Cash Flow 
 
                                              6 months ended   6 months ended 
                                                   30 Jun 21        30 Jun 20 
                                                 (unaudited)      (unaudited) 
                                                        $000             $000 
 
 Operating profit                                     18,114            5,153 
 
 Depreciation and amortisation                         6,164            6,783 
 Less interest income recorded within 
  operating profit                                     (312)          (1,023) 
 Fines and penalties received                            (1)              (1) 
 Loss from write off of non-current assets                90               81 
 Gain on sales of current assets, net                   (12)              (5) 
 Decrease in provisions                                ( 4 )          (1 75 ) 
 (Increase)/decrease in inventory                       (93)            2,106 
 Increase in receivables                             (5,426)          (1,032) 
 Increase/(decrease) in payables                         628            (857) 
-------------------------------------------  ---------------  --------------- 
 Cash generated from operations                       19,148          11,03 0 
-------------------------------------------  ---------------  --------------- 
 
   17.        Contingencies and Commitments 

Amounts related to works contracted but not yet undertaken in relation to the Group's 2021 investment programme at the MEX-GOL, SV and VAS gas and condensate fields in Ukraine, but not recorded in the unaudited condensed interim consolidated financial statements at 30 June 2021, were $3,283,000 (31 December 2020: $9,052,165).

Since 2010, the Group has been in dispute with the Ukrainian tax authorities in respect of VAT receivables on imported leased equipment, with a disputed liability of up to UAH8,487,000 ($324,000) inclusive of penalties and other associated costs. There is a level of ambiguity in the interpretation of the relevant tax legislation, and the position adopted by the Group has been challenged by the Ukrainian tax authorities, which has led to legal proceedings to resolve the issue. The Group had been successful in three court cases in respect of this dispute in ourts of different levels. On 20 September 2016, a hearing was held in the Supreme Court of Ukraine of an appeal of the Ukrainian tax authorities against the decision of the Higher Administrative Court of Ukraine, in which the appeal of the Ukrainian tax authorities was upheld. As a result of this appeal decision, all decisions of the lower courts were cancelled, and the case was remitted to the first instance court for a new trial. On 1 December 2016 and 7 March 2017, the Group received positive decisions in the first and second instance courts, but further legal proceedings may arise. Since the Group had been successful in previous court cases in respect of this dispute in ourts of different levels, the date of the next legal proceedings has not been set and as the management believes that adequate defences exist to the claim, no liability has been recognised in these unaudited condensed interim consolidated financial statements for the six months ended 30 June 2021 (31 December 2020: nil).

On 12 March 2019, the Group announced the publication of an Order for suspension (the "Order") by the State Service of Geology and Subsoil of Ukraine affecting the production licence for its VAS gas and condensate field. The Group is confident there are no violations of the terms of the licence or in relation to the operational activities of the Group that would justify the Order or the suspension of the licence. The Group has issued legal proceedings in the Ukrainian Courts to challenge the validity of the Order, and in these proceedings, on 18 March 2019 the Court made a ruling on interim measures to suspend the Order pending hearings of the substantive issues of the case to be held subsequently. The effect of this ruling is that the suspension of operational activities at the VAS licence is deferred until the result of the legal proceedings is determined. These legal proceedings are continuing through the Ukrainian Court system and the ultimate outcome is not yet known. However, the Group considers that the Order is groundless and that the outcome of the legal proceedings challenging the Order will ultimately be in favour of the Group, and consequently, the Group does not expect any negative effect on its operations in respect of this matter.

   18.        Related Party Disclosures 

Key management personnel of the Group are considered to comprise only the Directors. Remuneration of the Directors for the six month period ended 30 June 2021 was $617,000 (six month period ended 30 June 2020: $532,000, and year ended 31 December 2020: $1,026,000).

During the period, Group companies entered into the following transactions with related parties which are not members of the Group:

 
                                    6 months ended   6 months ended 
                                         30 Jun 21        30 Jun 20 
                                       (unaudited)      (unaudited) 
                                              $000             $000 
 
 Sale of goods/services                     28,417           17,752 
 Purchase of goods/services                    585              461 
 Amounts owed by related parties             7,732            1,490 
 Amounts owed to related parties               825              347 
 

All related party transactions were with subsidiaries of the ultimate Parent Company, and primarily relate to the sale of gas to LLC Smart Energy, the rental of office facilities and vehicles and the sale of equipment. The amounts outstanding were unsecured and have been or will be settled in cash.

As of 30 June 2021, the Company's immediate parent company was Smart Energy (CY) Ltd (formerly named Pelidona Services Ltd), which is 100% owned by Smart Holding (Cyprus) Ltd (formerly named Lovitia Investments Ltd), which is 100% owned by Mr Vadym Novynskyi. Accordingly, the Company was ultimately controlled by Mr Vadym Novynskyi.

Until April 2021, the Group operated bank accounts in Ukraine with a related party bank, Unex Bank, which was ultimately controlled by Mr Vadym Novynskyi. There were the following transactions and balances with Unex Bank during the reporting period:

 
                         6 months ended   6 months ended 
                              30 Jun 21        30 Jun 20 
                            (unaudited)      (unaudited) 
                                   $000             $000 
 
 Bank charges                         1                1 
 Closing cash balance                 -               13 
 
 

As at 30 June 2021, Unex Bank is not considered to be a related party of the Group, following the completion of the sale by Mr Vadym Novynskyi of the entire issued share capital of Unex Bank to an unrelated third party.

At the date of this announcement, none of the Company's controlling parties prepares consolidated financial statements available for public use.

   19.        Events occurring after the Reporting Period 

The Group's first well at the SC licence, SC-4, was spudded in August 2021.

In September 2021, the Group made an early payment of 25% of the third tranche of the consideration for the acquisition of LLC Arkona Gas-Energy, totalling $539,375.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.

END

IR DBGDCSGBDGBU

(END) Dow Jones Newswires

September 16, 2021 02:00 ET (06:00 GMT)

Enwell Energy (LSE:ENW)
Historical Stock Chart
From Oct 2021 to Nov 2021 Click Here for more Enwell Energy Charts.
Enwell Energy (LSE:ENW)
Historical Stock Chart
From Nov 2020 to Nov 2021 Click Here for more Enwell Energy Charts.