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RNS Number : 2599B

Enwell Energy PLC

30 September 2022

30 September 2022

ENWELL ENERGY PLC

2022 INTERIM RESULTS

Enwell Energy plc ("Enwell Energy" or the "Company", together 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 2022.

Highlights

Operational

 
 --   Aggregate average daily production of 3,026 boepd (calculated 
       on the days when the Group's fields were actually in production) 
       (1H 2021: 4,917 boepd) 
 --   SV-31 development well successfully completed and brought 
       on production in May 2022 
 

Financial

 
 --   Revenue of $77.2 million (1H 2021: $41.1 million), up 88% 
       as a result of significantly higher gas prices offset by lower 
       production volumes 
 --   Gross profit of $51.5 million (1H 2021: $21.6 million), up 
       138% 
 --   Operating profit of $48.9 million (1H 2021: $18.1 million), 
       up 170% 
 --   Cash generated from operations of $12.5 million (1H 2021: 
       $19.2 million), down 35% 
 --   Net profit of $32.4 million (1H 2021: $13.8 million), up 135% 
 --   Cash, cash equivalents of $77.4 million as at 30 June 2022, 
       and of $76.2 million as at 28 September 2022 (31 December 
       2021: $92.5 million) 
 --   Average realised gas, condensate and LPG prices in Ukraine 
       were much higher, particularly gas prices, at $1,165/Mm(3) 
       (UAH33,524/Mm(3) ), $103/bbl and $165/bbl respectively (1H 
       2021: $249/Mm(3) (UAH6,897/Mm(3) ) gas, $74/bbl condensate 
       and $66/bbl LPG) 
 

Outlook

 
 --   The Russian invasion of Ukraine in February 2022 has had a 
       significant impact on all aspects of life in Ukraine, including 
       the Group's business and operations, with all field operations 
       being suspended from 24 February to 15 March 2022, after which 
       production operations and some field activities resumed at 
       the MEX-GOL and SV fields, and subsequently on the SC licence 
       area. At the VAS field all operations have remained suspended 
       since the invasion, but a resumption of production operations 
       is planned in October 2022. The scale and duration of disruption 
       to the Group's business is currently unknown, and there remains 
       significant uncertainty about the outcome of the conflict 
       in Ukraine. 
 --   The Group retains the majority (75% as at 28 September 2022) 
       of its cash outside Ukraine, which enhances the Group's ability 
       to navigate the current risk environment for the foreseeable 
       future, and provides a material buffer to any further disruptions 
       to the Group's operations. 
 --   Subject to the Group's ability to operate safely, development 
       work planned for the remainder of 2022 includes: 
      --   at the MEX-GOL and SV fields: investigating the deepening 
            of the MEX-109 well to explore a deeper horizon; investigating 
            the hydraulic fracturing of the SV-29 well; and planning 
            the drilling of two new wells, MEX-107 and MEX-114, at the 
            MEX-GOL field 
      --   at the SC licence: completing the testing of the SC-4 well; 
            completing the interpretation of the 150 km(2) of 3D seismic 
            data acquired over the 2021-2022 winter period; and planning 
            for the development of the licence area 
      --   at the VAS field: planning for the further development of 
            the field; planning for a new well to explore the VED prospect 
            within the VAS licence area; and maintenance of the gas 
            processing facilities and other field infrastructure 
 --   Development programme for the remainder of 2022 expected to 
       be funded from existing cash resources and operational cash 
       flow 
 

Sergii Glazunov, CEO, commented : "The military conflict in Ukraine is entirely overshadowing and hugely impacting all aspects of life in Ukraine. Nevertheless, after a brief suspension, we were able to restart production at our MEX-GOL and SV fields, although production operations at our VAS field remained suspended. Subsequently, we were also able to complete the drilling of the SC-4 well on our SC licence area and are now testing this well, and are planning to shortly resume production operations at the VAS field. Our ability to continue to operate is testament to the diligence and fortitude of our operations team.

Maintaining operations in the current environment is extremely challenging, and the safety and well-being of our staff is paramount, but, subject to that, we will endeavour to continue our operations for the benefit of all our stakeholders and make our best contribution to the economy in Ukraine."

This announcement contains inside information for the purposes of Article 7 of EU Regulation No. 596/2014, which forms part of United Kingdom domestic law by virtue of the European Union (Withdrawal) Act 2018, as amended.

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 
 Ellen Wilton 
 

Dr Gehrig Schultz, BSc Geophysical Engineering, PhD Geophysics, Member of the European Association of Geophysical Engineers, Member of the Executive Coordinating Committee of the Continental European Energy Council, and a Non-Executive Director of the Company, has reviewed and approved the technical information contained within this announcement in his capacity as a qualified person, as required under the AIM Rules for Companies.

 
 Definitions/Glossary 
 
 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 
 EUR                    Euro 
 GDP                    gross domestic product 
 Group                  Enwell Energy plc and its subsidiaries 
 km                     kilometre 
 km(2)                  square kilometre 
 LPG                    liquefied petroleum gas 
 MEX-GOL                Mekhediviska-Golotvshinska 
 m(3)                   cubic metres 
 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 
 SV                     Svyrydivske 
 $                      United States Dollar 
 UAH                    Ukrainian Hryvnia 
 VAS                    Vasyschevskoye 
 VED                    Vvdenska 
 

Chairman's Statement

I present the results for the first half of 2022 in circumstances that I wish were different. The invasion of Ukraine by Russia in February 2022 and the ongoing conflict has created a very challenging and worrying outlook for both the current and future situation in Ukraine, and I am greatly saddened by the terrible events occurring there.

The invasion has had a significant impact on all aspects of life in Ukraine, including the Group's business and operations, with all field operations being suspended from 24 February to 15 March 2022, after which production operations and some field activities resumed at the MEX-GOL and SV fields. Subsequently, in July 2022, drilling operations on the SC-4 well resumed on the SC licence area to complete the well. However, all operations have remained suspended at the VAS field to date, although a resumption of production operations is planned for October 2022. The overall scale and duration of disruption to the Group's business is currently unknown, and there remains significant uncertainty about the outcome of the ongoing conflict in Ukraine.

Notwithstanding the disruption caused by the invasion, during the period, the Group continued with some development activities at the MEX-GOL, SV and VAS gas and condensate fields and SC licence in north-eastern Ukraine. At the SV field, the SV-31 development well was completed and brought on production in May 2022, and planning has continued for the drilling of two new wells, MEX-107 and MEX-114, in the MEX-GOL field, as well as the possible deepening of the MEX-109 well to explore a deeper horizon. At the SV-29 development well, additional horizons were perforated and tested but stabilised production was not established and consequently the possible hydraulic fracturing of the well is under consideration. Drilling of the SC-4 appraisal well on the SC licence area was completed and testing of this well is now underway, alongside ongoing planning for the further development of the VAS field.

Aggregate average daily production (calculated on the days when the fields were actually in production) from the MEX-GOL, SV and VAS fields during the first half of 2022 was 3,026 boepd, which is lower than the aggregate daily production rate of 4,917 boepd achieved during the first half of 2021 due to the disruption caused by the invasion.

Although production volumes were lower, the dramatic rise in gas prices during the period has meant that revenues were still strong at $77.2 million (1H 2021: $41.1 million). The Group's net profit was also higher at $32.4 million (1H 2021: $13.8 million) and operating profit was $48.9 million (1H 2021: $18.1 million).

There is significant disruption to the fiscal and economic environment in Ukraine due to the ongoing conflict resulting in a contraction in GDP, an increase in the rate of inflation and a weakening of the Ukrainian Hryvnia against other currencies. Furthermore, it is likely that fiscal and economic uncertainties will continue in the future until an acceptable resolution of the conflict occurs.

The Ukrainian Government has implemented a number of reforms in the oil and gas sector in recent years, which include the deregulation of the gas supply market in late 2015, and subsequently, reductions in the subsoil tax rates relating to oil and gas production and a simplification of the regulatory procedures applicable to oil and gas exploration and production activities in Ukraine.

The deregulation of the gas supply market, supported by electronic gas trading platforms and improved pricing transparency, has meant that Ukrainian market gas prices broadly correlated with imported gas prices. During 2022 to date, gas prices have increased significantly, reflecting a similar trend in European gas prices, substantially as a result of the disruption to worldwide oil and gas supplies caused by the conflict. Condensate and LPG prices were also much higher by comparison to last year for the same reason.

However, in Q1 2022, the Ukrainian Government imposed two material measures on oil and gas producers. Firstly, in January 2022, temporary partial gas price regulations were imposed until 30 April 2022, designed to support the production of certain designated food products, further details of which were set out in the Company's announcement dated 17 January 2022. Secondly, changes to the subsoil production tax rates applicable to gas production were introduced with effect from 1 March 2022, pursuant to which the tax rates were linked to gas prices, the incentive rates for new wells were extended for a further 10 years and improvements were made to the regulatory environment. In addition, an excise tax applicable to LPG sales was cancelled in February 2022, and the VAT rate applicable to condensate and LPG sales was reduced in March 2022. Further details were set out in the Company's announcement dated 13 April 2022.

Outlook

The invasion of Ukraine by Russia means that there is a devastating humanitarian situation in Ukraine, as well as extreme challenges to the fiscal, economic and business environment. These circumstances mean that it is extremely difficult to plan future investment and operational activities at the Group's fields, but subject to it being safe to do so, the Group is planning to undertake further development activities during the remainder of 2022 and beyond in order to continue the development of its fields. However, in doing so, the Group is taking and will take all measures available to protect and safeguard its personnel and business, with the safety and wellbeing of its personnel and contractors being paramount. The Group retains the majority (75% as at 28 September 2022) of its cash outside Ukraine, and this has enabled the Board to reach the opinion that the Group has sufficient resources to navigate the current risk environment for the foreseeable future.

In conclusion, on behalf of the Board, I would like to thank all of our staff for their continued dedication and support they showed during this year, especially their remarkable fortitude since the invasion of Ukraine in February 2022.

Chris Hopkinson

Chairman

29 September 2022

Chief Executive's Statement

Introduction

The Russian invasion of Ukraine has materially disrupted the Group's development activity at its Ukrainian fields during the first half of 2022, with operations suspended at all fields immediately after the invasion in February 2022. However, production operations and some field activities resumed at the MEX-GOL and SV fields in mid-March 2022, and this enabled the completion of the SV-31 development well, which came on production in May 2022. At the SV-29 development well, further intervals were perforated, but it was not possible to establish a stabilised flow rate, and the potential hydraulic fracturing of this well is now under consideration. In addition, upgrades to the gas processing facilities were completed.

On the SC licence area, drilling of the SC-4 appraisal well was suspended for a period, but drilling resumed in July 2022, and the well has now been completed and is undergoing testing. In addition, the interpretation of the 150 km(2) of 3D seismic, which was acquired over the 2021-2022 winter period, is nearing completion.

At the VAS field, all operations have remained suspended since the invasion, but a resumption of production operations is planned for October 2022. In addition, planning for the further development of the field, as well as for a proposed new well to explore the VED prospect within the VAS licence area has continued.

Overall production in the first half of 2022 was lower than in the corresponding period in 2021 due to the disruption to production operations caused by the ongoing conflict in Ukraine.

Production

The average daily production of gas, condensate and LPG for the 167 days that the MEX-GOL and SV fields were producing and for the 55 days that the VAS field was producing during the six month period ended 30 June 2022 is shown below.

 
   Field             Gas             Condensate              LPG              Aggregate 
                  (MMscf/d)            (bbl/d)             (bbl/d)              boepd 
              1H 2022   1H 2021   1H 2022   1H 2021   1H 2022   1H 2021   1H 2022   1H 2021 
             --------  --------  --------  --------  --------  --------  --------  -------- 
 
   MEX-GOL 
   & SV        11.1      19.7       451       694       261       331      2,592     4,403 
             --------  --------  --------  --------  --------  --------  --------  -------- 
 
   VAS          2.2       2.8       24        28         -         -        434       514 
             --------  --------  --------  --------  --------  --------  --------  -------- 
 
   Total       13.3      22.5       475       722       261       331      3,026     4,917 
             --------  --------  --------  --------  --------  --------  --------  -------- 
 

The average daily production of gas, condensate and LPG from the MEX-GOL, SV and VAS fields over the entire six month period ended 30 June 2022 (inclusive of shut-in periods) is shown below.

 
   Field             Gas             Condensate              LPG              Aggregate 
                  (MMscf/d)            (bbl/d)             (bbl/d)              boepd 
              1H 2022   1H 2021   1H 2022   1H 2021   1H 2022   1H 2021   1H 2022   1H 2021 
             --------  --------  --------  --------  --------  --------  --------  -------- 
 
   MEX-GOL 
   & SV        10.2      19.7       416       694       241       331      2,392     4,403 
             --------  --------  --------  --------  --------  --------  --------  -------- 
 
   VAS          0.7       2.8        7        28         -         -        132       514 
             --------  --------  --------  --------  --------  --------  --------  -------- 
 
   Total       10.9      22.5       423       722       241       331      2,524     4,917 
             --------  --------  --------  --------  --------  --------  --------  -------- 
 

The Russian invasion of Ukraine in February 2022 meant that the Group suspended all field operations for the period from 24 February to 15 March 2022, after which production operations and some field activities resumed at the MEX-GOL and SV fields, while all operations remained suspended at the VAS field and on the SC licence area. Subsequently, in July 2022, drilling resumed at the SC-4 well on the SC licence area and this well has now been completed, but all operations remained suspended at the VAS field since it is located near Kharkiv in north-eastern Ukraine, which has experienced significant military activity. However, a resumption of production operations at this field is planned for October 2022. As a result of the disruptions to operations caused by the invasion, the Group's average daily production for 2022 to date has been materially affected, although production is currently continuing at the MEX-GOL and SV fields at a rate of approximately 2,700 boepd.

Operations

Notwithstanding the impact of the COVID-19 pandemic beginning in 2020, in the period leading up to the Russian invasion of Ukraine, there was relative fiscal and economic stability 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. However, the Russian invasion has caused significant disruption to the fiscal and economic conditions in Ukraine since then. During the first half of 2022, the material increase in gas prices in Europe did, however, feed through to the Group's realised prices in Ukraine, and provided a significant boost to the Group's revenues and profitability during the period.

During 2022 to date, the Group has continued to refine its geological subsurface models of the MEX-GOL, SV and VAS fields, as well as the SC licence area, in order to enhance its strategy for the further development of such fields and licence area, including the timing and level of future capital investment required to exploit the hydrocarbon resources.

At the MEX-GOL and SV fields, the SV-31 development well was completed in May 2022, having been drilled to a final depth of 5,240 metres. At that time, one interval, at a drilled depth of 5,210 - 5,219 metres, within the V-22 Visean formation was perforated, and, following initial testing, the well was hooked up to the gas processing facilities. The well has produced strongly since then, and pursuant to the plans for this well, two additional intervals, at drilled depths of 5,187 - 5,189 and 5,120 - 5,123 metres, respectively within the V-22 and V-21 Visean formations, have recently been perforated to access additional reserves. These additional intervals have also proved productive and materially boosted production rates from this well, which are currently approximately 3.53 MMscf/d of gas and 210 bbl/d of condensate (835 boepd in aggregate).

At the SV-29 development well, additional intervals, at drilled depths of 4,955 - 4,960 and 5,037 - 5,046 metres, within the V-19 and V-20 Visean formation respectively were perforated, but such intervals were not productive. This well was completed in August 2021, having been drilled to a final depth of 5,450 metres. Previously, two intervals, at drilled depths of 5,246 - 5,249 metres and 5,228 - 5,232 metres respectively, within the V-22 Visean formation, were perforated, and although some gas flows were achieved, a stabilised flow from these intervals was not established. In light of the intermittent gas flows in these intervals, the possible hydraulic fracturing of the well is now under consideration.

The Group continued 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. However, during Q4 2021, the SV-2 well experienced water ingress and consequently had to be taken off production. A workover of this well was commenced to remove and replace the production string, but this work was suspended as a result of the Russian invasion of Ukraine. However, workover operations have now re-commenced and are ongoing.

In addition, in Q4 2021, the MEX-109 well also experienced water ingress and as a result was taken off production. A workover of the well was commenced, and steps were taken to seal the source of the water ingress, but again the work was suspended as a result of the Russian invasion. However, the workover operations have now been completed, and the previously producing horizon has now been sealed to prevent water ingress into that horizon, so as to avoid possible disruption to another well which is producing from the same horizon. As a result, further production from such horizon in this well will not be possible, and the possible deepening of this well to explore deeper horizons is now being considered.

Finally, at the MEX-GOL and SV fields, the upgrades to the gas processing facilities have been completed. T hese works involved 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.

On the SC licence area, after a period of suspension, drilling operations resumed at the SC-4 well in July 2022 and the well has now been drilled to its final depth of 5,585 metres. The well is primarily an appraisal well, targeting production from the V-22 horizon, as well as exploring the V-16 and V-21 horizons, in the Visean formation. Currently, testing operations are underway at the well. In addition , the interpretation of the 1 50 km(2) of 3D seismic, that was acquired over the 2021 - 22 winter, is now nearing completion.

At the VAS field, the resumption of production operations is scheduled for October 2022, and planning for the further development of the field, as well as for a proposed new well to explore the VED prospect within the VAS licence area, has continued.

In March 2019 (as set out in the Company's 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 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 intends to pursue its challenge to the Order through the Ukrainian Courts.

Outlook

The Russian invasion of Ukraine in February 2022 has caused significant disruption to Ukraine as a whole and to the Group's business activities, and until there is a satisfactory resolution to the conflict, such disruption and uncertainty is likely to continue. However, and subject to it being safe to do so, during the remainder of 2022, the Group plans to continue to develop the MEX-GOL, SV and VAS fields, as well as moving forward with the appraisal and development of the SC licence area .

At the MEX-GOL and SV fields, the development programme includes completing the workover of the SV-2 well, the possible deepening of the MEX-109 well to explore deeper horizons in the Visean formation, preparations for the drilling of two further wells, MEX-107 and MEX-114, in the MEX-GOL field, installation of further compression equipment, and remedial and upgrade work on existing wells, the flow-line network and pipelines and other infrastructure.

On the SC licence area, it is planned to complete the testing of the SC-4 well, finalise the interpretation of the recently acquired 3D seismic, and continue planning for the development of the licence area, including construction of gas processing facilities.

At the VAS field, planning for the further development of the field, as well as for a proposed new well to explore the VED prospect within the VAS licence area will continue, and maintenance of the gas processing facilities and other infrastructure is planned.

Finally, I would like to add my thanks to all of our staff for the continued hard work and dedication they have shown over the course of 2022 to date, and to especially recognise their continuing efforts and professionalism in the face of the extremely challenging current situation in Ukraine.

Sergii Glazunov

Chief Executive Officer

Finance Review

Despite the significant disruption caused by the Russian invasion of Ukraine earlier this year, and almost entirely as a result of the well documented monumental increase in global gas prices, the Group's financial performance in the first six months of 2022 showed an improvement on the corresponding period in 2021, with a net profit for the period of $32.4 million being an approximate 135% increase on the first six months of 2021 (1H 2021: $13.8 million).

Revenue for the period, derived from the sale of the Group's Ukrainian gas, condensate and LPG production, was up at $77.2 million (1H 2021: $41.1 million). Most notably, within this total, the revenue from gas sales alone was up approximately 125% at $64.1 million (1H 2021: $28.5 million).

Aggregate production for the first half of 2022 (calculated on the days when the Group's fields were actually in production) was down approximately 38% at 3,026 boepd (1H 2021: 4,917 boepd) due to the disruption to operations as a result of the Russian invasion of Ukraine.

As noted in the Group's 2021 Annual Report and as amplified after the Russian invasion of Ukraine, rarely has natural gas, and its pricing, been more of a focus of public attention, with the significant global rise in the commodity's pricing being well documented over recent months. These global, and particularly European, price increases were also experienced in Ukraine during the first half of 2022, and underpinned the 368% rise in average gas price realisations in the period at $1,165/Mm(3) (UAH33,524/Mm(3) ), with condensate and LPG average sales prices also up by 39% and 150% at $103/bbl and $165/bbl respectively (1H 2021: $249/Mm(3) (UAH6,897/Mm(3) ), $74/bbl and $66/bbl respectively).

During the period from 1 July 2022 to 31 August 2022, the average realised gas, condensate and LPG prices were $729/Mm(3) (UAH26,674/Mm(3) ), $44/bbl and $118/bbl respectively.

Cost of sales for the period was up approximately 32% at $25.7 million (1H 2021: $19.5 million). The major contributor to this increase is the material rise in the revenue-related costs of taxes and well rental (with their direct link to commodity prices), up approximately 80% at a combined $18.4 million (1H 2021: $10.2 million), partially offset by the 40% decrease in Depreciation of Producing Assets to $3.3 million (1H 2021: $5.5 million). The decline in production drove a decline in depreciation but such decline was more than offset by commodity prices to drive up the revenue-related costs of taxes and well rental. Excluding these tax expenses directly related to commodity prices, the residual cost of sales is consistent at $12.8 million (1H 2021: $12.2 million).

Gross profit for the period was higher at $51.5 million (1H 2021: $21.6 million).

Cash generated from operations fell 35% to $12.5 million (1H 2021: $19.1 million), most significantly as a consequence of the $36.4 million increase in receivables (1H 2021: $5.4 million).

The subsoil tax rates applicable to gas production were stable during the first two months of 2022 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, except in respect of gas produced from new wells drilled after 1 January 2018, where 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. The subsoil tax rates for condensate were 31% for condensate produced from deposits shallower than 5,000 metres and 16% for condensate produced from deposits deeper than 5,000 metres.

However, with effect from 1 March 2022, changes to the subsoil production tax rates applicable to gas production were introduced. These changes modified the applicable tax rates based on gas prices, extended the incentive rates for new wells for a further 10 years and made improvements to the regulatory environment. The legislation which introduced these changes also included provisions that these rates will not be increased for 10 years.

The new subsoil production tax rates applicable to gas production are as follows:

 
 (i)     when gas prices are up to $150/Mm(3) , the rate for wells 
          drilled prior to 1 January 2018 ("old wells") is 14.5% for 
          gas produced from deposits at depths shallower than 5,000 
          metres and 7% for gas produced from deposits deeper than 5,000 
          metres, and for wells drilled after 1 January 2018 ("new wells") 
          is 6% for gas produced from deposits at depths shallower than 
          5,000 metres and 3% for gas produced from deposits deeper 
          than 5,000 metres; 
 (ii)    when gas prices are between $150/Mm(3) and $400/Mm(3) , the 
          rate for old wells is 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, and for new wells 
          is 12% for gas produced from deposits at depths shallower 
          than 5,000 metres and 6% for gas produced from deposits deeper 
          than 5,000 metres; 
 (iii)   when gas prices are more than $400/Mm(3) , for the first $400/Mm(3) 
          , the rate for old wells is 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, and for new wells 
          is 12% for gas produced from deposits at depths shallower 
          than 5,000 metres and 6% for gas produced from deposits deeper 
          than 5,000 metres, and for the difference between $400/Mm(3) 
          and the actual price, the rate for old wells is 65% for gas 
          produced from deposits at depths shallower than 5,000 metres 
          and 31% for gas produced from deposits deeper than 5,000 metres, 
          and for new wells is 36% for gas produced from deposits at 
          depths shallower than 5,000 metres and 18% for gas produced 
          from deposits deeper than 5,000 metres. 
 

The tax rates applicable to condensate production were unchanged and so remain at 31% for condensate produced from deposits shallower than 5,000 metres and 16% for condensate produced from deposits deeper than 5,000 metres, for both old and new wells.

As a direct result of the conflict in Ukraine, including the significant decline in domestic consumption disrupting the previous supply, demand and pricing dynamics, there has been a divergence between domestic and European gas pricing, and accordingly, the methodology (linked to European prices) used to determine the reference gas price for the subsoil tax rates has had a significantly detrimental effect for domestic gas producers. In order to address this issue, the Ukrainian Parliament, in September 2022, approved draft legislation which modifies such methodology to ensure that it operates as originally intended (with such reference price being aligned with domestic prices). This legislation has not yet completed all of the requisite procedural steps to be enacted and brought into force, but the draft legislation envisages an effective implementation date of 1 August 2022 if enacted.

In addition, the excise tax on LPG sales has been suspended between 24 February 2022 and 30 September 2022, but is now being reinstated, and the VAT rate applicable to condensate and LPG sales was reduced to 7% (from 20%) with effect from 18 March 2022.

Finally, in early 2022, the Ukrainian Government imposed temporary and partial gas price regulation to support the production of certain food products through the supply of gas at regulated prices to the producers of such products. Under this scheme, all independent gas producers in Ukraine were required to sell up to 20% of their natural gas production for the period until 30 April 2022 at a price set as the cost of sales of the relevant gas producer (based on established accounting rules) for such gas, plus a margin of 24%, plus existing subsoil production taxes (the "Regulated Price"). This gas was then sold to specified producers of designated socially important food products at the Regulated Price, so as to reduce the energy costs of such producers during the period through to 30 April 2022. The designated products were certain types of flour, milk (with up to 2.5% fat), bread, eggs, chicken and sunflower oil, for sale in the Ukrainian domestic market. This temporary scheme has now concluded. Further details are set out in the Company's announcement dated 17 January 2022.

Administrative expenses for the period were 13% lower at $3.4 million (1H 2021: $4.0 million), primarily as a result of a 19% decrease in payroll and related taxes, and no performance related payments being made in 2022.

Other expenses in the period increased significantly as a result of the charitable donation of $5.0 million (1H 2021: nil) for financial support to the Ukrainian war, security and relief effort .

The tax charge for the six months ended 30 June 2022 increased by 148% to $10.4 million (1H 2021: $4.2 million charge) mainly due to the material increase in profit before tax, and comprised a current tax charge of $8.7 million (1H 2021: $4.0 million charge) and a deferred tax charge of $1.7 million (1H 2021: $0.2 million charge).

A deferred tax asset relating to the Group's provision for decommissioning as at 30 June 2022 of $0.5 million (31 December 2021: $0.5 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 as at 30 June 2022 of $6.6 million (31 December 2021: $5.7 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 as at 30 June 2022 of $0.2 million (31 December 2021: $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. A deferred tax liability relating to the Group's development and production assets at the VAS field as at 30 June 2022 of $0.2 million (31 December 2021: $0.05 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.

Capital investment of $12.0 million reflects the investment in the Group's oil and gas development and production assets during the period (1H 2021: $13.0 million), primarily relating to the drilling of the SV-29, SV-31 and SC-4 wells.

A review for any indicators of impairment of the carrying value of the Group's assets was undertaken at the end of the period and this review did conclude that the Russian invasion of Ukraine had resulted in such an indicator. Impairment reviews were therefore conducted on the carrying value of the Group's assets but resulted in a conclusion that no impairment to carrying value had occurred on any Group asset.

With the material increase in commodity prices during the period, and necessary payment term accommodations that needed to be agreed with the Group's largest indirect off-taker pursuant to a contract facilitated by the Group's related party, LLC Smart Energy, trade receivables were up materially at $39.5 million (1H 2021: $5.3 million). Since the period end, $7.1 million of those trade receivables has been paid, and the balance is expected to be fully received in the near term.

Cash, cash equivalents and short-term investments held as at 30 June 2022 were $77.4 million (31 December 2021: $92.5 million), the decrease being predominantly a result of the $35.6 million increase in Trade and Other Receivables. Cash, cash equivalents, short-term investments and trade and other receivables combined totalled $126.0 million (31 December: $105.6 million), a 19% increase. The Group's cash and cash equivalents balance as at 28 September 2022 was $76.2 million, held as to $18.5 million equivalent in Ukrainian Hryvnia and the balance of $57.7 million equivalent predominantly in US Dollars, Euros and Pounds Sterling.

During the first six months of 2022, the Ukrainian Hryvnia was relatively stable against the US Dollar, weakening modestly from UAH27.3/$1.00 on 31 December 2021 to UAH29.3/$1.00 on 30 June 2022. The impact of this was $7.9 million of foreign exchange loss (1H 2021: $3.9 million of foreign exchange gain). Increases and decreases in the value of the Ukrainian Hryvnia against the US Dollar affect the carrying value of the Group's assets. However, since the period end, in July 2022, the National Bank of Ukraine devalued the Ukrainian Hryvnia by 25% against the US Dollar in order to protect its foreign exchange reserves as the ongoing war continues to materially affect the Ukrainian economy, and currently the official exchange rate of the Ukrainian Hryvnia to the US Dollar is UAH36.57/$1.00. This is not expected to a have a material net impact on the Group with its production and sales dictated by (but not directly linked to) international commodity prices, and should materially offset general price increases that will result from such devaluation.

Cash from operations has funded 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 2022 and beyond. This is coupled with the fact that the Group is currently 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 monetary resources at the end of the period of $77.4 million ($58.8 million of which was held outside Ukraine), and annual running costs of less than $ 8 million, the Group remains in a very strong position, notwithstanding the impact of the current ongoing conflict in Ukraine, as well as any local or global shocks that may occur to the industry and/or the Group.

Bruce Burrows

Finance Director

Principal Risks and How We Manage Them

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 are detailed below:-

 
 Risk                                             Mitigation 
 External risks 
                                                 ---------------------------------------------- 
 Military conflict in Ukraine 
                                                 ---------------------------------------------- 
 On 24 February 2022, Russia invaded              The Group has assets in the areas 
  Ukraine and there is currently                   of conflict in the east of Ukraine, 
  a serious and ongoing military                   and the conflict has disrupted its 
  conflict within Ukraine. This conflict           operations in those areas. The Group 
  is having a huge impact on Ukraine               has suspended all field operations 
  and its population, with significant             at the VAS field to date, and is 
  destruction of infrastructure and                only undertaking limited field and 
  buildings in the areas of conflict,              production operations at the MEX-GOL 
  as well as damage in other areas                 and SV fields and SC licence area. 
  of Ukraine. The conflict is resulting            At the MEX-GOL and SV fields, inventories 
  in significant casualties and has                of hydrocarbons are being maintained 
  caused a huge humanitarian catastrophe           at minimum levels. At the sites 
  and refugee influx into neighbouring             where operations are suspended, 
  countries. The conflict is also                  there are no staff on site, except 
  impacting the fiscal and economic                for necessary security staff. Where 
  environment in Ukraine, as well                  possible, all other staff work remotely 
  as the financial stability and                   and have been supplied with all 
  banking system in Ukraine, including             necessary devices and software to 
  restrictions on the transfer of                  facilitate remote working. Additionally, 
  funds outside Ukraine. The conflict              the Group aims to maintain the significant 
  is an escalation of the previous                 majority of its cash resources outside 
  Regional Conflict risk faced by                  Ukraine (being 75% as at 28 September 
  the business, a dispute that has                 2022). The Group continues to monitor 
  been going on since 2014 in parts                the situation and endeavours to 
  of eastern Ukraine, and, since                   protect its assets and safeguard 
  that time, Russia has continued                  its staff and contractors. 
  to occupy Crimea. The current conflict 
  is also having a significant adverse 
  effect on the Ukrainian financial 
  markets, hampering the ability 
  of Ukrainian companies and banks 
  to obtain funding from the international 
  capital and debt markets. The conflict 
  has disrupted the Group's business 
  and operations, causing the suspension 
  of field operations, albeit recommenced 
  in March 2022 at the MEX-GOL and 
  SV fields and July 2022 at the 
  SC licence area, and planned to 
  be recommenced at the VAS field 
  in October 2022, and has also impacted 
  the supply of materials and equipment 
  and the availability of contractors 
  to undertake field operations. 
  At present, the conflict is ongoing 
  and the scope and duration of the 
  conflict is uncertain. 
                                                 ---------------------------------------------- 
 Risk relating to Ukraine 
                                                 ---------------------------------------------- 
 Ukraine is an emerging market and                The Group endeavours to minimise 
  as such the Group is exposed to                  this risk by continuously monitoring 
  greater regulatory, economic and                 the market in Ukraine and by maintaining 
  political risks than would be the                a strong working relationship with 
  case 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. Furthermore, the 
  military conflict in Ukraine is 
  impacting the fiscal and economic 
  environment, the financial and 
  banking system, and the economic 
  stability of Ukraine. As a result, 
  Ukraine will require financial 
  assistance and/or aid from international 
  financial agencies to provide economic 
  support and assist with the reconstruction 
  of infrastructure and buildings 
  damaged in the conflict. 
                                                 ---------------------------------------------- 
 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                   are regularly reviewed by the Group, 
  capital, low asset quality caused                but the geopolitical and economic 
  by the economic situation, currency              events in Ukraine over recent years 
  depreciation, changing regulations               have significantly weakened the 
  and other economic pressures generally,          Ukrainian banking sector. This has 
  and so the risks associated with                 been exacerbated by the current 
  the banks in Ukraine have been                   military conflict in Ukraine. In 
  significant, including in relation               light of this, the Group has taken 
  to the banks with which the Group                and continues to take steps to diversify 
  has operated bank accounts. This                 its banking arrangements between 
  situation was improving moderately               a number of banks in Ukraine. These 
  following remedial action by the                 measures are designed to spread 
  National Bank of Ukraine, but the                the risks associated with each bank's 
  current military conflict has significantly      creditworthiness, and the Group 
  affected such improvements, and                  endeavours to use banks that have 
  the National Bank of Ukraine has                 the best available creditworthiness. 
  imposed a number of restrictive                  Nevertheless, and despite the recent 
  measures designed to protect the                 improvements, the Ukrainian banking 
  banking system, including restrictions           sector remains weakly capitalised 
  of the transfer of funds outside                 and so the risks associated with 
  Ukraine (albeit that the Group                   the banks in Ukraine remain significant, 
  aims to maintain the significant                 including in relation to the banks 
  majority of its cash resources                   with which the Group operates bank 
  outside Ukraine (being 75% as at                 accounts. As a consequence, the 
  28 September 2022). In addition,                 Group also maintains a significant 
  Ukraine continues to be supported                proportion of its cash holdings 
  by funding from the International                in international banks outside Ukraine. 
  Monetary Fund, and has requested 
  further funding support from the 
  International Monetary Fund. 
                                                 ---------------------------------------------- 
 Geopolitical environment in Ukraine 
                                                 ---------------------------------------------- 
 Although there were some improvements            The Group continually monitors the 
  in recent years, there has not                   market and business environment 
  been a final resolution of the                   in Ukraine and endeavours to recognise 
  political, fiscal and economic                   approaching risks and factors that 
  situation in Ukraine, and the current            may affect its business. In addition, 
  military conflict has had a severe               the involvement of Smart Holding 
  detrimental effect on the economic               (Cyprus) Limited, as an indirect 
  situation in Ukraine. The ongoing                major shareholder with extensive 
  effects of this are difficult to                 experience in Ukraine, is considered 
  predict and likely to continue                   helpful to mitigate such risks. 
  to affect the Ukrainian economy                  However, the invasion of Ukraine 
  and potentially the Group's business.            creates material challenges in planning 
  This situation is currently affecting            future investment and operations. 
  the Group's production and field                 The Group is limiting its operational 
  operations, and the ongoing instability          activities to minimise risk to its 
  is disrupting the Group's development            staff and contractors, and to limit 
  and operational planning for its                 its financial exposure. 
  assets. 
                                                 ---------------------------------------------- 
 Climate change 
                                                 ---------------------------------------------- 
 Any near and medium-term continued               The Group's plans include: assessing, 
  warming of the Planet can have                   reducing and/or mitigating its emissions 
  potentially increasing negative                  in its operations ; and identifying 
  social, economic and environmental               climate change-related risks and 
  consequences, generally, globally                assessing the degree to which they 
  and regionally, and specifically                 can affect its business, including 
  in relation to the Group. The potential          financial implications. The HSE 
  impacts include: loss of market;                 Committee is specifically tasked 
  and increased costs of operations                with overseeing measuring, benchmarking 
  through increasing regulatory oversight          and mitigating the Group's environmental 
  and controls, including potential                and climate impact, which will be 
  effective or actual loss of licences             reported on in future periods. At 
  to operate. As a diligent operator,              this stage, the Group does not consider 
  aware of and responsive to its                   climate change to have any material 
  good stewardship responsibilities,               implications on the Group's financial 
  the Group not only needs to monitor              statements, including accounting 
  and modify its business plans and                estimates. 
  operations to react to changes, 
  but also to ensure its environmental 
  footprint 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                   standards in full and achieves international 
  Group's reputation and the opportunity           standards to the maximum extent 
  to undertake further projects.                   possible. As a consequence of the 
  The military conflict in Ukraine                 COVID-19 pandemic the Group has 
  poses significant risks to field                 implemented processes and controls 
  operations, by way of potential                  intended to ensure protection of 
  threat to the lives of employees                 all our stakeholders and minimise 
  and contractors, and damage to                   any disruption to our business. 
  equipment and infrastructure.                    As a consequence of the current 
                                                   military conflict in Ukraine, operations 
                                                   at the VAS field are currently suspended 
                                                   entirely, and only limited field 
                                                   and production operations are continuing 
                                                   at the MEX-GOL and SV fields and 
                                                   SC licence area. Only essential 
                                                   staff are located at site, and all 
                                                   other staff are working remotely, 
                                                   either from areas away from the 
                                                   conflict areas or outside Ukraine. 
                                                   The Group has invested in technology 
                                                   that allows 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 undertake               engages with suitably qualified 
  development programmes depends                   local and international geological, 
  on a number of uncertainties, including          geophysical and engineering experts 
  the availability of capital, seasonal            and contractors to supplement and 
  conditions, regulatory approvals,                broaden the pool of expertise available 
  gas, oil, condensate and LPG prices,             to the Group. Detailed planning 
  development costs and drilling                   of development activities is undertaken 
  success. As a result of these uncertainties,     with the aim of managing the inherent 
  it is unknown whether potential                  risks associated with oil and gas 
  drilling locations identified on                 exploration and production, as well 
  proposed projects will ever be                   as ensuring that appropriate equipment 
  drilled or whether these or any                  and personnel are available for 
  other potential drilling locations               the operations, and that local contractors 
  will be able to produce gas, oil                 are appropriately supervised. 
  or condensate. 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 recent years, the Group has engaged 
  are generally characterised by                   external technical consultants to 
  declining production rates which                 undertake a comprehensive review 
  vary depending upon reservoir characteristics    and re-evaluation study of the MEX-GOL 
  and other factors. Future production             and SV fields in order to gain an 
  of the Group's gas and condensate                improved understanding of the geological 
  reserves, and therefore the Group's              aspects of the fields and reservoir 
  cash flow and income, are highly                 engineering, drilling and completion 
  dependent on the Group's success                 techniques, and the results of this 
  in operating existing producing                  study and further planned technical 
  wells, drilling new production                   work are being used by the Group 
  wells and efficiently developing                 in the future development of these 
  and exploiting any reserves, and                 fields. The Group has established 
  finding or acquiring additional                  an ongoing relationship with such 
  reserves. The Group may not be                   external technical consultants to 
  able to develop, find or acquire                 ensure that technical management 
  reserves at acceptable costs. The                and planning is of a high quality 
  experience gained from drilling                  in respect of all development activities 
  undertaken to date highlights such               on the Group's fields. 
  risks as the Group targets the 
  appraisal and production of these 
  hydrocarbons. 
                                                 ---------------------------------------------- 
 Risks relating to the 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 the                 the aim of managing the risks associated 
  delivery of equipment in Ukraine,                with the further development of 
  failure of key equipment, lower                  the Group's fields in Ukraine. This 
  than expected production from wells              includes detailed review and consideration 
  that are currently producing, or                 of available subsurface data, utilisation 
  new wells that are brought on-stream,            of modern geological software, and 
  problematic wells and complex geology            utilisation of engineering and completion 
  which is difficult to drill or                   techniques developed for the fields. 
  interpret. The generation of significant         With regards to operational activities, 
  operational cash is dependent on                 the Group ensures that appropriate 
  the successful delivery and completion           equipment and personnel are available 
  of the development and operation                 for the operations, and that operational 
  of the fields. The military conflict             contractors are appropriately supervised. 
  in Ukraine is impacting planning                 In addition, the Group performs 
  and implementation of development                a review of indicators of impairment 
  and operations at the Group's fields.            of its oil and gas assets 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 utilisation of detailed sub-surface 
  the 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                   Operations staff are experienced 
  the 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              T he Group aims to maintain the 
  proportion of the future capital                 significant majority of its cash 
  requirements of the Group is expected            resources outside Ukraine (being 
  to be derived from operational                   75% as at 28 September 2022). The 
  cash generated from production,                  Group does not currently have any 
  including from wells yet to be                   loans outstanding, internal financial 
  drilled, there is a risk that in                 projections are regularly made based 
  the longer term insufficient operational         on the latest estimates available, 
  cash is generated, or that additional            and various scenarios are run to 
  funding, should the need arise,                  assess the robustness of the Group's 
  cannot be secured. The military                  liquidity. However, as the risk 
  conflict in Ukraine has disrupted                to future capital funding is inherent 
  production operations at the Group's             in the oil and gas exploration and 
  fields, and consequently reduced                 development industry and reliant 
  anticipated cash flows from those                in part on future development success, 
  fields, and this has increased                   it is difficult for the Group to 
  the risk regarding sufficiency                   take any other measures to further 
  of capital for development. In                   mitigate this risk, other than tailoring 
  addition, the conflict may disrupt               its development activities to its 
  the sales market for hydrocarbons                available capital funding from time 
  that are produced. Currently, however,           to time. 
  hydrocarbon prices are very high, 
  which is ameliorating the potential 
  reduction in cash flows resulting 
  from lower production, and the 
  Group's sales counterparties are 
  expected to meet their financial 
  obligations. 
                                                 ---------------------------------------------- 
 Ensuring appropriate business 
  practices 
                                                 ---------------------------------------------- 
 The Group operates in Ukraine,                   The Group maintains anti-bribery 
  an emerging market, where certain                and corruption policies in relation 
  inappropriate business practices                 to all aspects of its business, 
  may, from time to time occur, such               and ensures that clear authority 
  as corrupt business practices,                   levels and robust approval processes 
  bribery, appropriation of property               are in place, with stringent controls 
  and fraud, all of which can lead                 over cash management and the tendering 
  to financial loss.                               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                   Its hydrocarbon production through 
  gas, condensate and LPG production.              offtake arrangements, which include 
  These revenues are subject to commodity          pricing formulae so as to ensure 
  price volatility and political                   that it achieves market prices for 
  influence. A prolonged period of                 its products, as well utilising 
  low gas, condensate and LPG prices               the electronic market platforms 
  may impact the Group's ability                   in Ukraine to achieve market prices 
  to maintain its long-term investment             for its remaining products. However, 
  programme with a consequent effect               hydrocarbon prices in Ukraine are 
  on its growth rate, which in turn                implicitly linked to world hydrocarbon 
  may impact the Company's share                   prices and so the Group is subject 
  price or any shareholder returns.                to external price trends. In January 
  Lower gas, condensate and LPG prices             2022, the Ukrainian Government imposed 
  may not only decrease the Group's                temporary partial gas price regulations 
  revenues per unit, but may also                  until 30 April 2022, designed to 
  reduce the amount of gas, condensate             support the production of certain 
  and LPG which the Group can produce              designated food products. Whilst 
  economically, as would increases                 an unhelpful interference in the 
  in costs associated with hydrocarbon             functioning of the deregulated gas 
  production, such as subsoil taxes                supply market in Ukraine, in its 
  and royalties. The overall economics             stated form and duration, this temporary 
  of the Group's key assets (being                 scheme was not a material risk to 
  the net present value of the future              the Company and its cash generation, 
  cash flows from its Ukrainian projects)          and has now expired. 
  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. 
  In addition, t he military conflict 
  in Ukraine may disrupt the sales 
  market for hydrocarbons, although, 
  currently, hydrocarbon prices are 
  very high, and the Group's sales 
  counterparties are expected to 
  meet their financial obligations. 
                                                 ---------------------------------------------- 
 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                   for the current investment programme 
  it has fallen from UAH8.3/$1.00                  will be incurred in Ukrainian Hryvnia, 
  on 1 January 2014 to UAH29.3/$1.00               thus the currency of revenue and 
  on 30 June 2022, and UAH36.57$1.00               costs are largely matched. In light 
  on 29 September 2022. This devaluation           of the previous devaluation and 
  has been a significant contributor               volatility of the Ukrainian Hryvnia 
  to the imposition of banking restrictions        against major world currencies, 
  by the National Bank of Ukraine                  and since the Ukrainian Hryvnia 
  over recent years. In addition,                  does not benefit from the range 
  the geopolitical events in Ukraine               of currency hedging instruments 
  over recent years and the current                which are available in more developed 
  military conflict in Ukraine are                 economies, the Group has adopted 
  likely to continue to impact the                 a policy that, where possible, funds 
  valuation of the Ukrainian Hryvnia               not required for use in Ukraine 
  against major world currencies.                  be retained on deposit in the United 
  Further devaluation of the Ukrainian             Kingdom and Europe, principally 
  Hryvnia against the US Dollar will               in US Dollars. 
  affect the carrying value of the 
  Group's assets. 
                                                 ---------------------------------------------- 
 Counterparty and credit risk 
                                                 ---------------------------------------------- 
 The challenging political and economic           The Group monitors the financial 
  environment in Ukraine and current               position and credit quality of its 
  military conflict means that businesses          contractual counterparties and seeks 
  can be subject to significant financial          to manage the risk associated with 
  strain, which can mean that the                  counterparties by contracting with 
  Group is exposed to increased counterparty       creditworthy contractors and customers. 
  risk if counterparties fail or                   Hydrocarbon production is sold on 
  default in their contractual obligations         terms that seek to limit supply 
  to the Group, including in relation              credit and/or title transfer until 
  to the sale of its hydrocarbon                   payment is received . 
  production, resulting in financial 
  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 difficulty, the                 and so the Group is subject to external 
  COVID pandemic, and more particularly            price movements. The Group holds 
  the current military conflict in                 a significant proportion of its 
  Ukraine. This has led to extreme                 cash reserves in the United Kingdom 
  foreign exchange movements in the                and Europe, mostly in US Dollars, 
  Ukrainian Hryvnia , high inflation               with reputable financial institutions. 
  and interest rates, and increased                The financial status of counterparties 
  credit risk relating to the Group's              is carefully monitored to manage 
  key counterparties.                              counterparty risks. Nevertheless, 
                                                   the overall exposure 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 
                                                 ---------------------------------------------- 
 Ukrainian production licences 
                                                 ---------------------------------------------- 
 The Group operates in a region                   The Group ensures compliance with 
  where the right to production can                commitments and regulations relating 
  be challenged by State and non-State             to its production licences through 
  parties. During 2010, this manifested            Group procedures and controls or, 
  itself in the form of a Ministry                 where this is not immediately feasible 
  Order instructing the Group to                   for practical or logistical considerations, 
  suspend all operations and production            seeks to enter into dialogue with 
  from its MEX-GOL and SV production               the relevant Government bodies with 
  licences, which was not resolved                 a view to agreeing a reasonable 
  until mid-2011. In 2013, new rules               time frame for achieving compliance 
  relating to the updating of production           or an alternative, mutually agreeable 
  licences led to further challenges               course of action. Work programmes 
  being 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 
  In March 2019, a Ministry Order                  to licence obligations and commitments. 
  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 able to continue (although the 
  Russian invasion caused production 
  to be suspended, with resumption 
  planned for October 2022), but 
  this matter remains unresolved. 
  In 2020, LLC Arkona Gas-Energy 
  ("Arkona") faced a challenge from 
  PJSC Ukrnafta concerning the validity 
  of its SC production 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, production licences 
  in Ukraine are issued with and/or 
  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, 
  The current military conflict in                 who are used to provide specialist 
  Ukraine has meant that, as far                   services as required. As a result 
  as possible, the Group's staff                   of the military conflict, o nly 
  have needed to move away from areas              essential staff are located at site, 
  of conflict and work remotely.                   and all other staff are working 
                                                   remotely, either from areas away 
                                                   from the conflict areas or outside 
                                                   Ukraine. The Group has invested 
                                                   in technology that allows many staff 
                                                   to work just as effectively from 
                                                   remote locations. 
                                                 ---------------------------------------------- 
 

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 2      30 Jun 2 
                                                                         1 
                                                 (unaudited)   (unaudited) 
                                       Note             $000          $000 
 
 Revenue                                  3           77,228        41,050 
 Cost of sales                            4         (25,690)      (19,452) 
------------------------------------  -----  ---------------  ------------ 
 Gross profit                                         51,538        21,598 
 Administrative expenses                             (3,428)       (3,953) 
 Other operating income , (net)           5              824           469 
 Operating profit                                     48,934        18,114 
 Net impairment losses on financial 
  assets                                               (679)        (1 9 ) 
 Other expenses, (net)                    6          (5,227)          (39) 
 Finance income                                            -            87 
 Finance costs                                         (248)       ( 197 ) 
 Profit before taxation                               42,780       17,94 6 
 Income tax expense                       7         (10,408)     (4,15 7 ) 
------------------------------------  -----  ---------------  ------------ 
 Profit for the period                                32,372       13,7 89 
------------------------------------  -----  ---------------  ------------ 
 
   Earnings per share (cents) 
 Basic and diluted                        8            10.1c         4 .3c 
------------------------------------  -----  ---------------  ------------ 
 

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      6 months 
                                                      ended         ended 
                                                   30 Jun 2      30 Jun 2 
                                                          2             1 
                                                (unaudited)   (unaudited) 
                                                       $000          $000 
 
 Profit for the period                               32,372       13,7 89 
 
 Other comprehensive income: 
 Items that may be subsequently reclassified 
  to profit or loss: 
 Equity - foreign currency translation              (7,943)        3,9 27 
---------------------------------------------  ------------  ------------ 
 Total other comprehensive (loss)/ income           (7,943)        3,9 27 
 Total comprehensive income for the period           24,429      17 , 716 
---------------------------------------------  ------------  ------------ 
 

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 2 
                                                   2             1 
                                         (unaudited)     (audited) 
                                  Note          $000          $000 
 
 Assets 
 Non-current assets 
 Property, plant and equipment     9          83,487      87 , 418 
 Intangible assets                 10         11,206      12 , 340 
 Right-of-use assets                             716         1,008 
 Deferred tax asset                7             375           361 
                                              95,784      101, 127 
 
 Current assets 
 Inventories                                   2,395       1 , 862 
 Trade and other receivables      1 1         48,678      13 , 059 
 Cash and cash equivalents        1 4         77,370        87,780 
 Other short-term investments     1 4              -        4, 762 
-------------------------------  -----  ------------  ------------ 
                                             128,443     107 , 463 
 Total assets                                224,227      208, 590 
-------------------------------  -----  ------------  ------------ 
 
 Liabilities 
 Current liabilities 
                                                        ( 12 , 306 
 Trade and other payables                    (8,344)             ) 
 Lease liabilities                             (391)       ( 455 ) 
                                                         ( 5 , 445 
 Corporation tax payable                     (4,519)             ) 
-------------------------------  -----  ------------  ------------ 
                                                        ( 18 , 206 
                                            (13,254)             ) 
-------------------------------  -----  ------------  ------------ 
 Net current assets                          115,189     8 9 , 257 
-------------------------------  -----  ------------  ------------ 
 
 Non-current liabilities 
                                                         ( 5 , 467 
 Provision for decommissioning    1 2          (993)             ) 
 Lease liabilities                             (421)       ( 648 ) 
 Defined benefit liability                     (390)       ( 427 ) 
 Deferred tax liability            7         (6,119)     (5, 197 ) 
 Other non-current liabilities    1 3          (104)       ( 128 ) 
                                                        (1 1 , 867 
                                             (8,027)             ) 
 
                                                       ( 3 0 , 073 
 Total liabilities                          (21,281)             ) 
-------------------------------  -----  ------------  ------------ 
 
 Net assets                                  202,946    1 78 , 517 
-------------------------------  -----  ------------  ------------ 
 
 Equity 
 Called up share capital                      28,115        28,115 
                                                          ( 10 3 , 
 Foreign exchange reserve                  (111,554)         611 ) 
 Other reserve                               (3,204)       (3,204) 
 Capital contribution reserve                  7,477         7,477 
 Retained earnings                           282,112      249, 740 
-------------------------------  -----  ------------  ------------ 
 Total equity                                202,946    1 78 , 517 
-------------------------------  -----  ------------  ------------ 
 

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

 
                                  Called                     Merger          Capital     Foreign 
                                up share   Share premium    reserve    contributions    exchange    Retained     Total 
                                 capital         account                     reserve    reserve*    earnings    equity 
                                    $000            $000       $000             $000        $000        $000      $000 
 
 As at 1 January 202 2                                                                    ( 10 3                  1 78 
  (audited)                       28,115               -    (3,204)            7,477     , 611 )    249, 740     , 517 
 Profit for the period                 -               -          -                -           -      32,372    32,372 
 Other comprehensive income 
  - exchange differences               -               -          -                -     (7,943)           -   (7,943) 
----------------------------  ----------  --------------  ---------  ---------------  ----------  ----------  -------- 
 Total comprehensive income            -               -          -                -     (7,943)      32,372    24,429 
 As at 30 June 202 2 
  (unaudited)                     28,115               -    (3,204)            7,477   (111,554)     282,112   202,946 
----------------------------  ----------  --------------  ---------  ---------------  ----------  ----------  -------- 
 
 
                                                                                                 Accumulated 
                                                                           Capital     Foreign       losses/ 
                             Called up   Share premium     Merger    contributions    exchange      Retained     Total 
                         share capital         account    reserve          reserve    reserve*      earnings    equity 
                                  $000            $000       $000             $000        $000          $000      $000 
 
 As at 1 January 20 2 
  1 (audited)                   28,115         555,090    (3,204)            7,477   (105,222)     (356,641)   125,615 
 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 20 2 1 
  (unaudited)                   28,115               -    (3,204)            7,477   (101,295)       212,238   143,331 
---------------------  ---------------  --------------  ---------  ---------------  ----------  ------------  -------- 
 

* 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 21 
                                                                2 
                                                      (unaudited)   (unaudited) 
                                               Note          $000          $000 
 
 Operating activities 
                                                  1 
 Cash generated from operations                   5      12 , 501      19,1 4 8 
 Charitable donations                                   (4 , 996)          (23) 
 Equipment rental income                                        -            15 
 Income tax paid                                        (9 , 143)       (2,897) 
 Interest received                                            536           261 
--------------------------------------------  -----  ------------  ------------ 
 Net cash (outflow)/inflow from operating               ( 1 , 102 
  activities                                                    )       16,50 4 
--------------------------------------------  -----  ------------  ------------ 
 
 Investing activities 
                                                       ( 12 , 074 
 Purchase of property, plant and equipment                      )      (13,092) 
 Proceeds from disposal of other short-term 
  investments                                             4 , 762             - 
 Purchase of intangible assets                               (23)       (2,233) 
 Proceeds from return of prepayments 
  for shares                                                    -           250 
 Proceeds from sale of property, plant 
  and equipment                                                 2             9 
                                                        ( 7 , 333 
 Net cash outflow from investing activities                     )      (15,066) 
--------------------------------------------  -----  ------------  ------------ 
 
 Financing activities 
 Payment of principal portion of lease 
  liabilities                                               (239)         (330) 
 Net cash outflow from financing activities                 (239)         (330) 
 
 Net (decrease)/increase in cash and                    ( 8 , 674 
  cash equivalents                                              )        1,10 8 
 Cash and cash equivalents at beginning 
  of the period                                  14      87 , 780        60,993 
 ECL* of cash and cash equivalents                          (223)           (4) 
 Effect of foreign exchange rate changes                  (1,513)          7 60 
 Cash and cash equivalents at end of              1 
  the period                                      4      77 , 370        62,857 
--------------------------------------------  -----  ------------  ------------ 
 

*ECL - Expected credit losses

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 (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 202 2 , the Company's majority shareholder, with 82.65% of the issued share capital, and immediate parent company was Smart Energy (CY) Ltd , which is 100% owned by Smart Holding (Cyprus) 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. Since 2013, there has been ongoing political and economic instability in Ukraine, which 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 had been some recent gradual improvements.

Impact of the ongoing war in Ukraine

On 24 February 2022, Russia commenced a military invasion of Ukraine. This was quickly followed by the enactment of martial law by the Ukrainian President's Decree, approved by the Parliament of Ukraine, and the corresponding introduction of related temporary restrictions that impact, amongst other areas, the economic environment and business operations in Ukraine.

Currently, seven months after the initial military attack, fighting continues in and around several major Ukrainian cities, causing very significant numbers of reported military and civilian casualties and significant dislocation of the Ukrainian population. As of the date hereof, the Russian army has occupied territories in the east and south of Ukraine, including the majority of the Kherson, Zaporizhzhia, Luhansk and Donetsk regions. Russian attacks have targeted and destroyed civilian infrastructure over wide areas of Ukraine, including hospitals and residential complexes. The invasion caused, and continues to cause, significant turbulence and disruption to the social and economic environment in Ukraine, with many businesses being forced to suspend their operations. According to a projection published by the International Monetary Fund ("IMF") in April 2022, Ukrainian GDP may fall 35% in 2022.

On 3 June 2022, the National Bank of Ukraine ("NBU") increased the key policy interest rate to 25%, which was aimed at suspending price increases and strengthening the Ukrainian Hryvnia exchange rate. The NBU has also introduced temporary restrictions on foreign currency trades and limited the ability to perform cross-border payments for non-critical imports and repayment of debt to foreign creditors, apart from international institutions. At that time, the Ukrainian Hryvnia exchange rate with the US Dollar was effectively fixed at UAH29.25:$1.00 on the foreign exchange market to ensure the stable operation of Ukraine's financial system, and this was increased to UAH36.57:$1.00 in July 2022. As a result, commercial interbank quotes remain close to the officially imposed NBU exchange rate. Despite the uncertainty and instability in the general situation within Ukraine, the banking system remains relatively stable, with sufficient liquidity even as martial law continues, and banking services are available to both legal entities and individual bank customers .

The Ukrainian Government is taking action to limit the negative effects of the war on the Ukrainian economic environment during the period of martial law and beyond, including but not limited to:

 
 --   the Parliament of Ukraine has adopted a temporary easing of 
       the tax regime until the end of martial law, including the 
       suspension of tax audits and has cancelled penalties for violating 
       the tax law; 
 --   gasoline, heavy distillates, liquefied gas, oil and petroleum 
       are subject to VAT at a reduced rate of 7%, and the excise 
       tax rate for the imported fuel group of products' was suspended 
       between 24 February 2022 and 30 September 2022, although it 
       is now being reinstated at its previous level; 
 --   a number of measures were taken to limit prices for energy 
       resources, including prohibiting export of gas, setting a 
       level of electricity price on transactions a day ahead and 
       intraday markets; and 
 --   the Parliament of Ukraine passed a law ( 7038-d) to increase 
       the subsoil tax rate on natural gas production during martial 
       law. This law introduced a differentiated subsoil tax rate 
       on the production of natural gas depending on sale prices 
       for natural gas. 
 

Additional financial support was received from a number of international institutions, including from the IMF and European Bank for Reconstruction and Development ("EBRD"), to support the economy and the population. Such financial support is critical for Ukraine to continue to service its debts in the foreseeable future, including record high State debt repayments in 2022.

Given the fast-moving nature of the situation in Ukraine and the unpredictability of the outcome, it is impracticable to assess the full impact of the war on the economic environment.

Gas market developments

On 30 December 2021, the Cabinet of Ministers adopted Resolution 1433 and Resolution 1435, according to which all independent gas producers in Ukraine (as identified by a Committee set up by the Ukrainian Government (the "Committee")) were required to sell up to 20% of their natural gas production for the period until 30 April 2022 at a price set at the cost of sales of the relevant gas producer (based on established accounting rules) for such gas, plus a margin of 24%, plus existing production taxes (the "Regulated Price"). This gas was then to be sold to specified producers of designated socially important food products (as identified by the Committee) at the Regulated Price to reduce the energy costs of such producers during the period through to 30 April 2022. Although the introduction of these measures pre-dated the military conflict in Ukraine, their impact has coincided with the military conflict, but nevertheless, the measures have not had a material financial impact on the Group, given the modest volume of gas sold at Regulated Prices and the reduced production during the applicable period.

On 15 March 2022, the Ukrainian Parliament adopted the Law of Ukraine 2139-IX "On amendments to the Tax Code of Ukraine and certain legislative acts of Ukraine on the introduction of differentiated rent (subsoil tax) for natural gas production", which introduced changes to the subsoil production tax rates applicable to natural gas production by modifying the applicable rates based on gas prices, extending the incentive rates for new wells for a further 10 years and making improvements to the regulatory environment. These changes took effect on 1 March 2022, and the legislation includes provisions that these rates will not be increased for 10 years.

The new subsoil production tax rates are as follows:

 
 (a)   when gas prices are up to $150/Mm(3) , the rate for wells drilled 
        prior to 1 January 2018 ("old wells") is 14.5% for gas produced 
        from deposits at depths shallower than 5,000 metres and 7% 
        for gas produced from deposits deeper than 5,000 metres, and 
        for wells drilled after 1 January 2018 ("new wells") is 6% 
        for gas produced from deposits at depths shallower than 5,000 
        metres and 3% for gas produced from deposits deeper than 5,000 
        metres; 
 (b)   when gas prices are between $150/Mm(3) and $400/Mm(3) , the 
        rate for old wells is 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, and for new wells is 
        12% for gas produced from deposits at depths shallower than 
        5,000 metres and 6% for gas produced from deposits deeper than 
        5,000 metres; 
 (c)   when gas prices are more than $400/Mm(3) , for the first $400/Mm(3) 
        , the rate for old wells is 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, and for new wells is 
        12% for gas produced from deposits at depths shallower than 
        5,000 metres and 6% for gas produced from deposits deeper than 
        5,000 metres, and for the difference between $400/Mm(3) and 
        the actual price, the rate for old wells is 65% for gas produced 
        from deposits at depths shallower than 5,000 metres and 31% 
        for gas produced from deposits deeper than 5,000 metres, and 
        for new wells is 36% for gas produced from deposits at depths 
        shallower than 5,000 metres and 18% for gas produced from deposits 
        deeper than 5,000 metres. 
 

Prior to the changes, the tax rate for old wells was 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, and for new wells was 12% for gas produced from deposits at depths shallower than 5,000 metres and 6% for gas produced from deposits deeper than 5,000 metres. The tax rates applicable to condensate production were unchanged and remain at 31% for condensate produced from deposits shallower than 5,000 metres and 16% for condensate produced from deposits deeper than 5,000 metres, for both old and new wells.

As a direct result of the conflict in Ukraine, including the significant decline in domestic consumption disrupting the previous supply, demand and pricing dynamics, there has been a divergence between domestic and European gas pricing, and accordingly, the methodology (linked to European prices) used to determine the reference gas price for the subsoil tax rates has had a significantly detrimental effect for domestic gas producers. In order to address this issue, the Ukrainian Parliament, in September 2022, approved draft legislation which modifies such methodology to ensure that it operates as originally intended (with such reference price being aligned with domestic prices). This legislation has not yet completed all the requisite procedural steps to be enacted and brought into force, but the draft legislation envisages an effective implementation date of 1 August 2022 if enacted.

COVID-19 impact

The COVID-19 pandemic had a significant impact on the economic environment in Ukraine and throughout the world. The rapid spread of the COVID-19 coronavirus pandemic, and the restrictions introduced to counteract the pandemic significantly impacted global commodity and financial markets. The overall impact of COVID-19 will largely depend on the duration and extent of the effects of the pandemic on the global and Ukrainian economies. Businesses in Ukraine adapted to operating in new realities, arranging remote work, supply and sale modes of operation. At the date hereof, based on the available information, management believes that the uncertainties attributable to COVID-19 do not represent a key risk factor that may materially affect the liquidity and continuity of the Group's operations.

Overall, the final resolution and the ongoing effects of the military conflict and political and economic situation in Ukraine are difficult to predict, but they may have further severe effects on the Ukrainian economy and the Group's business.

As at 29 September 2022, the official NBU exchange rate of the Ukrainian Hryvnia against the US Dollar was UAH36.57/$1.00, compared with UAH29.25/$1.00 as at 30 June 2022.

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

   2.         Accounting Judgements and Estimates 

Basis of preparation

These unaudited condensed interim consolidated financial statements for the six month period ended 30 June 202 2 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 202 1 were approved by the Board of Directors on 28 June 2022 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 2021, which were prepared in accordance with UK-adopted International Accounting Standards.

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 2021, with the exception of the new or revised standards and interpretations set out below.

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 2022 or afterwards (t hese standards, amendments to standards and interpretations did not have a material impact on this unaudited interim condensed consolidated financial information):

 
 --   Amendments to IAS 16 Property, Plant and Equipment prohibit 
       the deduction from the cost of an item of property, plant 
       and equipment of any proceeds from selling items produced 
       while bringing that asset into operation and clarify that 
       these proceeds (and the corresponding costs of production) 
       are recognised in profit or loss; 
 --   Amendments to IAS 37 Provisions, Contingent Liabilities and 
       Contingent Assets clarify that the cost of fulfilling a contract 
       comprises the costs that relate directly to the contract. 
       These can either be incremental costs of fulfilling that contract 
       or the allocation of other costs that relate directly to fulfilling 
       contracts; 
 

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

Going Concern

The Group's business activities, together with the factors likely to affect its future operations, performance and financial position are set out in the Chairman's Statement, Chief Executive's Statement and Finance Review. The financial position of the Group, its cash flows and liquidity position are set out in these unaudited condensed interim consolidated financial statements.

On 24 February 2022, Russia commenced a military invasion of Ukraine. This was quickly followed by the enactment of martial law by the Ukrainian President's Decree, approved by the Parliament of Ukraine, and the corresponding introduction of related temporary restrictions that impact the economic environment and business operations in Ukraine.

The production assets of the Group are located in the central and eastern part of the country (Poltava and Kharkiv regions) which are controlled by the Ukrainian Government. Following a brief period of suspension, production and field operations, as well as construction work on upgrades to the gas processing facilities, at the MEX-GOL and SV fields recommenced. As of the date hereof, no assets of the Group have been damaged, and the Group continues to operate its MEX-GOL, SV and SC assets in the Poltava region, while all production and field operations at the VAS asset located in the Kharkiv region are suspended, although the Group plans to resume production operations at the VAS field in the near future. On the SC licence area, completion of the testing of the SC-4 well is ongoing. No military activities have occurred at the Group's field locations. The Gas Transmission System Operator of Ukraine has maintained complete operational and technological control over the operations of the Ukrainian Gas Transmission System. However, as of the date hereof, the military conflict has had, and continues to have, a material impact on the production and sales levels of the business and execution of the Group's 2022 budget.

The Group has no debt and funds its operations from its own cash resources. Cash and cash equivalents were $76.2 million as at 28 September 2022, of which $57.5 million were held outside of Ukraine, in currencies other than the Ukrainian Hryvnia. The Directors maintain a significant level of flexibility to modify the Group's development plans as may be required to preserve cash resources for liquidity management. Absent the potential impact of the military conflict in Ukraine, the Directors are satisfied that the Group and the Company are a going concern and will continue their operations for the foreseeable future.

In assessing the impact of the military conflict on the ability of the Group and the Company to continue as a going concern, the Directors have analysed a number of possible scenarios of economic and military developments and their impact on the expected cash flows of the Group and Company for the remainder of 2022 and 2023. This includes considering a possible (but in the view of the Directors, highly unlikely) worst case scenario in which the Group has zero production as a result of possible future military conflict dictating field operations being completely shut-in, and all other non-production related costs being maintained at current levels with no reduction or mitigating actions as would otherwise be possible. Even in this worst-case scenario, the Directors are satisfied that the Group and the Company have sufficient liquid resources to be able to meet their liabilities as they fall due and to be able to continue as a going concern for the foreseeable future.

In respect of the Group's operations, staff and assets in Ukraine, the potential short and long-term impact of the future development of the military conflict is inherently uncertain. Accordingly, this creates a material uncertainty related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern because of the potential impact on its ability to continue its operations for the foreseeable future and realise its assets in the normal course of business. The unaudited condensed interim consolidated financial statements do not include the adjustments that would result if the Group were unable to continue as a going concern.

The Company is a UK-based investment holding company. The Company had cash and cash equivalents of $57.5 million as at 28 September 2022, all of which are held outside of Ukraine, in US Dollars, Pounds Sterling and Euros. The Directors are satisfied that the Company is a going concern and will be able to continue its operations for the foreseeable future, and there is no material uncertainty in respect of its ability to do so.

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 2021 with certain updates described below.

Estimates

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. The latest development plan and therefore the inputs used to determine the depreciation charge for the MEX-GOL, SV and VAS fields continue until the end of the economic life of the fields, which is assessed to be 2038, 2042 and 2028 respectively, based on the assessment contained in the DeGolyer & MacNaughton reserves report for these fields. The licences for the MEX-GOL and SV fields have recently been extended until 2044. Were the estimated reserves at the beginning of the year to differ by 10% from previous assumptions, the impact on depreciation for the period ended 30 June 2022 would be to increase it by $1,302,000 or decrease it by $750,000 (31 December 2021: increase by $1,195,000 or decrease by $975,000).

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 202 2 was 22 . 97 % (31 December 202 1 : 6 . 29 %). 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 202 2 resulted from the revision of the estimated costs of decommissioning (increase of $ 114 ,000 in provision) and the increase in the discount rate applied (decrease of $ 4, 4 29 ,000 in provision). The increase in discount rate at 30 June 202 2 resulted from the increase in the 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, by 2028 on the VAS field, and by 2045 on the SC 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 2022 (unaudited)

 
                                                               United 
                                                   Ukraine    Kingdom     Total 
                                                      $000       $000      $000 
 
 Revenue 
 Gas sales                                          64,106          -    64,106 
 Condensate sales                                    8,081          -     8,081 
 Liquefied Petroleum Gas sales                       5,041          -     5,041 
----------------------------------------------  ----------  ---------  -------- 
 Total revenue                                      77,228          -    77,228 
 
                                                                           52 , 
 Segment result                                   53 , 588      (922)       666 
 Depreciation and amortisation of non-current                              (3 , 
  assets                                         (3 , 732)          -      732) 
 Operating profit                                                        48 934 
----------------------------------------------  ----------  ---------  -------- 
 
                                                     165 ,       59 ,     224 , 
 Segment assets                                        139        088       227 
 
 Capital additions*                                9 , 724          -   9 , 724 
 

*Comprises additions to property, plant and equipment and intangible assets (Notes 9 and 1 0 ).

6 months ended 30 June 20 2 1 (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 , 
 Capital additions*               1 1 , 035          -       035 
 

*Comprises additions to property, plant and equipment and intangible assets (Notes 9 and 1 0 ).

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   6 months ended 
                                                ended       30 Jun 2 1 
                                             30 Jun 2 
                                                    2 
                                          (unaudited)      (unaudited) 
                                                 $000             $000 
 
 Production taxes                              12,931            7,273 
 Depreciation of property, plant and 
  equipment                                     3,251            5,529 
 Rent expenses                                  5,440            2,964 
 Staff costs                                    1,217            1,368 
 Cost of inventories recognised as an 
  expense                                         694              910 
 Transmission tariff for Ukrainian gas 
  system                                          267              436 
 Amortisation of mineral reserves                 227              236 
 Other expenses                                 1,663              736 
                                              25,6 90          19, 452 
 
   5.         Other operating income/(expenses), (net) 
 
                                                    6 months   6 months ended 
                                                       ended       30 Jun 2 1 
                                                    30 Jun 2 
                                                           2 
                                                 (unaudited)      (unaudited) 
                                                        $000             $000 
 
 Interest income on cash and cash equivalents            536              312 
 Reversal of accruals                                    236              167 
 Contractor penalties applied                            110                - 
 Other operating (losses)/income, net                 ( 5 8)           ( 10 ) 
                                                         824             4 69 
 
   6.         Other income/(expenses), (net) 
 
                                           6 months   6 months ended 
                                              ended       30 Jun 2 1 
                                           30 Jun 2 
                                                  2 
                                        (unaudited)      (unaudited) 
                                               $000             $000 
 
 Charitable donations                       (4,996)             (23) 
 Net foreign exchange (losses)/gains            (2)             (26) 
 Other income/(expenses), (net)               (229)               10 
                                            (5,227)             (39) 
 

Following the Russian invasion of Ukraine on 24 February 2022, the Group has made a number of charitable donations totalling $ 4,996,000 to State and volunteer organisations for humanitarian and security assistance.

   7.         Taxation 

The income tax charge of $10,408,000 for the six month period ended 30 June 2022 relates to a urrent tax charge of $8,682,000 and a deferred tax charge of $1,726,000 (1H 2021: current tax charge of $4,003,000 and deferred tax charge of $154,000).

The movement in the period was as follows:

 
                                                  6 months      6 months 
                                                     ended         ended 
                                                  30 Jun 2      30 Jun 2 
                                                         2             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                        (5,197)       (2,705) 
 Charged to Income Statement - current 
  period                                           (1,740)         (249) 
 Effect of exchange difference                         818         (146) 
-------------------------------------------- 
 At end of the period                              (6,119)       (3,100) 
--------------------------------------------  ------------  ------------ 
 
 
 Deferred tax asset/( liability ) recognised 
  relating to development and production 
  assets at VAS field and provision for 
  decommissioning 
 At beginning of the period                     361   167 
 Credited to Income Statement - current 
  period                                         14    95 
 Effect of exchange difference                    -     8 
--------------------------------------------- 
 At end of the period                           375   270 
---------------------------------------------  ----  ---- 
 

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 2022 was 25% (1H 2021: 23%).

The deferred tax asset relating to the Group's provision for decommissioning at 30 June 2022 of $517,000 (31 December 2021: $457,000) 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 2022 of $6,635,000 (31 December 2021: $5,654,000) 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 2022 of $150,000 (31 December 2021: $315,000) 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 2022 of $225,000 (31 December 2021: $46,000) 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 2022 and 30 June 2021 and 320,637,836 ordinary shares, being the average number of shares in issue for the period. There are no dilutive instruments.

   9.         Property, Plant and Equipment 
 
                                 6 months ended 30 Jun 22                           6 months ended 30 Jun 2 1 
                                        (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                1 63,170        10,110    2,631       175,911      135 ,966         2,362     2,217        140,545 
 Additions                 6,469         3,027      185         9,681        10,604            80        55         10,739 
 Change in 
  decommissioning 
  provision              (4,250)          (63)        -       (4,313)         (107)             -         -          (107) 
 Disposals                  (57)             -     (25)          (82)          (36)             -      (70)          (106) 
 Exchange 
  differences           (12,166)         (463)      857      (11,772)         5,850            97        75          6,022 
 At end of the 
  period                 153,166        12,611    3,648       169,425       152,277         2,539     2,277        157,093 
 
 Accumulated 
 depreciation 
 and impairment 
 At beginning of 
  the 
  period                  87,070             -    1,423        88,493        73,816             -     1,067         74,883 
 Charge for the 
  period                   3,362             -      158         3,520         5,447             -       158          5,605 
 Disposals                  (21)             -     (23)          (45)           (7)             -       (9)           (16) 
 Exchange 
  differences            (5,933)             -     (98)       (6,037)         3,072             -        48          3,120 
 At end of the 
  period                  84,478             -    1,460        85,932        82,328             -     1,264         83,592 
 Net book value at 
  the beginning of 
  the period              76,100        10,110    1,208        87,418        62,150         2,362     1,150         65,662 
------------------  ------------  ------------  -------  ------------  ------------  ------------   -------  ------------- 
 Net book value at 
  end of the 
  period                  68,668        12,611    2,189        83,487        69,949         2,539     1,013         73,501 
------------------  ------------  ------------  -------  ------------  ------------  ------------   -------  ------------- 
 
 

At 30 June 2022, an impairment indicator (the Russian invasion of Ukraine) was identified by the Group, and impairment tests were performed for the MEX-GOL, SV, SC and VAS fields. These reviews concluded that no impairment to carrying value had occurred on any Group asset.

   10.        Intangible Assets 
 
                             6 months ended 30 Jun 2 2                         6 months ended 30 Jun 2 1 
                                    (unaudited)                                       (unaudited) 
                 -----------------------------------------------  -------------------------------------------------- 
                   Mineral   Exploration         Other     Total    Mineral   Exploration         Other        Total 
                   reserve           and    intangible              reserve           and    intangible 
                    rights    evaluation        assets               rights    evaluation        assets 
                              intangible                                       intangible 
                                  assets                                           assets 
                      $000          $000          $000      $000       $000          $000          $000         $000 
 Cost 
 At beginning 
  of the period      6,810         8,651           752    16,213      6,570         8,286           616       15,472 
 Additions               -             -            43        43          -            63           233          296 
 Disposals               -             -             -         -          -             -         (137)        (137) 
 Exchange 
  differences        (460)         (590)          (50)   (1,100)        265           335            26          626 
---------------  ---------  ------------  ------------  --------  ---------  ------------  ------------  ----------- 
 At end of the 
  period             6,350         8,061           745    15,156      6,835         8,684           738       16,257 
---------------  ---------  ------------  ------------  --------  ---------  ------------  ------------  ----------- 
 
  Accumulated 
  amortisation 
  and 
  impairment 
 At beginning 
  of the period      3,439             -           434     3,873      2,855             -           385        3,240 
 Amortisation 
  charge for 
  the 
  period               224             -           113       337        236             -           105          341 
 Disposals               -             -             -         -          -             -         (136)        (136) 
 Exchange 
  differences        (232)             -          (28)     (260)         99             -            15          114 
---------------  ---------  ------------  ------------  --------  ---------  ------------  ------------  ----------- 
 At end of the 
  period             3,431             -           519     3,950      3,190             -           369        3,559 
---------------  ---------  ------------  ------------  --------  ---------  ------------  ------------  ----------- 
 Net book value 
  at beginning 
  of the period      3,371         8,651           318    12,340      3,715         8,286           231       12,232 
---------------  ---------  ------------  ------------  --------  ---------  ------------  ------------  ----------- 
 Net book value 
  at end of the 
  period             2,919         8,061           226    11,206      3,645         8,684           369       12,698 
---------------  ---------  ------------  ------------  --------  ---------  ------------  ------------  ----------- 
 
 

Intangible assets consist mainly of the hydrocarbon production licence relating to the VAS gas and condensate field, which is held by LLC Prom-Enerho Produkt, and the Svystunivsko-Chervonolutski ("SC") hydrocarbon exploration licence, 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 2022, an impairment indicator (the Russian invasion of Ukraine) was identified by the Group, and impairment tests were performed for the MEX-GOL, SV, SC and VAS fields. These reviews concluded that no impairment to carrying value had occurred on any Group asset.

   11.        Trade and Other Receivables 
 
                                             30 Jun     31 Dec 2 
                                                2 2            1 
                                        (unaudited)    (audited) 
                                               $000         $000 
 
 Trade receivables                           39,493      5 , 308 
 Other financial receivables                    235          200 
 Less credit loss allowance                   (435)      (1 40 ) 
-----------------------------------  --------------  ----------- 
 Total financial receivables               39 , 293      5 , 368 
 
 Prepayments and accrued income               6,550      5 , 231 
 Other receivables                            2,835        2,460 
 Total trade and other receivables           48,678     13 , 059 
 

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 are payment for all of the monthly volume of gas by the 10(th) of the month following the month of delivery (1H 2021: 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).

Prepayments and accrued income mainly consist of prepayments of $5,213,000 relating to the development of the MEX-GOL field, $375,000 relating to the development of the SV field and $404,000 relating to the development of the SC licence (31 December 2021: $1,366,000 relating to the development of the SV field, $1,210,000 relating to the development of the MEX-GOL field and $2,284,000 relating to the development of the SC licence).

   12.        Provision for Decommissioning 
 
                                   6 months ended   6 months ended 
                                        30 Jun 22        30 Jun 21 
                                      (unaudited)      (unaudited) 
                                             $000             $000 
 
 At beginning of the period                 5,467            6,819 
 Amounts provided                               -              127 
 Unwinding of discount                        160              122 
 Change in estimate                       (4,313)            (234) 
 Effect of exchange difference              (321)              277 
-------------------------------  ----------------  --------------- 
 At end of the period                         993            7,111 
 

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 $ 993 ,000 (31 December 202 1 : $ 5 , 467 ,000) represents a provision for the decommissioning of the Group's MEX-GOL, SV , VAS and SC production and exploration 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 2022 resulted from the revision of the estimated costs of decommissioning (increase of $114,000 in the provision) and the increase in the discount rate applied (decrease of $4,429,000 in the provision).

   13.        Other non-current liabilities 

Other non-current liabilities as at 30 June 2022 and 31 December 2021 consist of the long-term obligations for the Ukrainian State special purpose fund measured at amortised cost using an interest rate of 20%

   14.        Financial Instruments 

The Group's financial instruments comprise cash and cash equivalents, o ther short-term investments 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 22        31 Dec 21 
                                       (unaudited)        (audited) 
                                              $000             $000 
 Financial assets 
 Cash and cash equivalents                  77,370           87,780 
 Other short-term investments                    -            4,762 
 Trade and other receivables                41,456            5,368 
                                           118,826           97,910 
 Financial liabilities 
 Lease liabilities                             812            1,103 
 Trade and other payables                    1,428            3,404 
 Other financial liabilities                 2,228            2,244 
                                                    --------------- 
                                             4,468            6,751 
 
 

At 30 June 2022, the Group held cash and cash equivalents and other short-term investments in the following currencies:

 
                       30 Jun 22 (unaudited)     31 Dec 21 
                                                 (audited) 
                                        $000          $000 
 
 US Dollars                           58,763        63,247 
 Ukrainian Hryvnia                    18,381        29,011 
 British Pounds                          222           275 
 Euros                                     4             9 
-------------------  -----------------------  ------------ 
                                      77,370        92,542 
 
 

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.

   15.        Reconciliation of Operating Profit to Operating Cash Flow 
 
                                                 6 months   6 months ended 
                                                    ended 
                                                30 Jun 22        30 Jun 21 
                                              (unaudited)      (unaudited) 
                                                     $000             $000 
 
 Operating profit                                  48,934           18,114 
 
 Depreciation and amortisation                      3,882            6,164 
 Less interest income recorded within 
  operating profit                                  (536)            (312) 
 Fines and penalties received                       (110)              (1) 
 Loss from write off of non-current assets              -               90 
 Net (gain)/loss on sale of non-current               (1)                - 
  assets 
 Gain on sales of current assets, net                   -             (12) 
 Decrease in provisions                             (228)            ( 4 ) 
 Increase in inventory                              (497)             (93) 
 Increase in receivables                         (36,354)          (5,426) 
 (Decrease)/increase in payables                  (2,589)              628 
-------------------------------------------  ------------  --------------- 
 Cash generated from operations                    12,501           19,148 
 
   16.        Contingencies and Commitments 

Amounts related to works contracted but not yet undertaken in relation to the Group's 2022 investment programme at the MEX-GOL, SV, VAS and SC gas and condensate fields in Ukraine, but not recorded in the unaudited condensed interim consolidated financial statements at 30 June 2022, were $2,435,825 related to Oil and Gas Exploration and Evaluation assets and $1,825,533 related to Oil and Gas Development and Production assets (31 December 2021: $3,101,000 and $2,674,000 respectively).

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 2022 (31 December 2021: 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.

   17.        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 2022 was $ 583 ,000 (1H 2021: $617,000, and year ended 31 December 2021: $1,115,000).

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 22        30 Jun 21 
                                       (unaudited)      (unaudited) 
                                              $000             $000 
 
 Sale of goods/services                     63,182           28,417 
 Purchase of goods/services                    515              585 
 Amounts owed by related parties            39,059            7,732 
 Amounts owed to related parties               627              825 
 

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 2022, the Company's immediate parent company was Smart Energy (CY) Ltd, which is 100% owned by Smart Holding (Cyprus) Ltd, which is 100% owned by Mr Vadym Novynskyi. Accordingly, the Company was ultimately controlled by Mr Vadym Novynskyi.

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

   18.        Events occurring after the Reporting Period 

The Russian invasion of Ukraine, which began on 24 February 2022, is ongoing, and has made the situation in Ukraine extremely challenging. Nevertheless, after a suspension of all operations immediately after the invasion, the Group was able to resume production and some field operations at the MEX-GOL and SV fields in March 2022, and the drilling of the SC-4 well at the SC licence in July 2022, although operations at the VAS field have remained suspended. However, with the eastward movement of the conflict area in the Kharkiv region, the Group is planning to resume production operations at the VAS field in October 2022.

The events described above constitute non-adjusting post balance sheet events, and therefore they had no effect on the carrying value of the Group's assets and liabilities as at 30 June 2022.

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September 30, 2022 02:00 ET (06:00 GMT)

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