TIDMG3E
RNS Number : 0963B
G3 Exploration Limited
18 September 2018
18 September 2018
G3 Exploration LTD.
("G3E", "G3 Exploration" or the "Company")
Interim Results for the Six Months Ended 30 June 2018
Financial and Operational Highlights
G3 Exploration
-- Guizhou Block exploration programme was successfully
accomplished, next phase being discussed with PetroChina.
-- Jiangxi, Anhui, Shanxi exploration blocks' development
potential re-assessed with non-prospective acreage identified.
-- Composition of board of directors enhanced with the addition of Bryan Smart and Zhao LiGuo.
Green Dragon Gas (Held for sale disposal group)
-- Revenue of US$13.7 million (H1 2017 - US$11.2 million).
-- Gross revenue of US$8.7/mcf (H1 2017 - US$7.2/mcf).
-- Of the 200 G3E operated wells, 130 wells are online with 105
connected to sales infrastructure.
-- EBITDA of US$8.7 million (H1 2017 - US$6.0 million).
-- Substantial infrastructure progress with 1,063 wells of 1,453 connected to pipelines.
2018 OUTLOOK
Recapitalise balance sheet. Increase production cash flow. Drive
development programme.
Divest main producing assets (blocks GSS and GCZ) into a new
Hong Kong listed company.
G3 Exploration
-- Expect to repay two bond creditors from debt and equity issuance in Green Dragon Gas.
-- Conclude evolution to exploration and development business.
-- Finalise dividend in specie for producing assets.
-- First gas in Guizhou Block.
-- Expand into additional geography.
Green Dragon Gas (Held for sale disposal group)
-- Infrastructure focus to monetise invested capital.
-- Work alongside Chinese partner CNOOC on GSS block for the
connection of all existing 1,139 drilled wells to the sales
infrastructure.
-- Increase gas sales volumes on GSS block from GDG existing
producing wells through better compression management
infrastructure.
-- Launch GSS LiFaBriC drilling programme to further increase sales volumes.
-- Commence GCZ ODP to drill 147 wells through yearend 2019.
CHAIRMAN'S STATEMENT
I am pleased to report continued operational progress across our
two producing commercial blocks in Shanxi as well as our six
exploration blocks in Anhui, Guizhou, Jiangxi and Shanxi.
Most notably is the progress being made in the GSS block since
the conclusion of the Supplementary Agreements with CNOOC which
were accepted with determined cost recovery amounts by the Joint
Management Committee at March end. Since the signing of the
agreements, the parties are working closely together into rapidly
advancing the producing wells and are focused on monetising the gas
sales within the GSS commercial producing block. This focus has
seen gas sales increase 63% at CNOOC operated wells from January to
the end of August. Of the total 1,139 existing drilled wells by
CNOOC, 889 or 78% have been connected to the newly built pipeline
infrastructure while 330 of the wells are already contributing to
the gas sales, in addition to the 105 operated by us. We expect the
connected wells to be a foundation of increasing gas sales for many
years to come as wells successfully dewater the coal seam and
convert to gas production. At our flagship GSS block, of the total
1,453 drilled wells, we now have 1,063 or 73% connected to a
pipeline network spanning 586.8 km across the 388sqkm gas block
with three operational gas gathering compressor stations.
Our producing GCZ block with CNPC continued its commercial gas
sales while the collaborative Joint Operating Team concluded its
Overall Development Plan. The plan previously approved by CNPC
received the NDRC Energy department approval in August and is
expected to have final NDRC approval this month. This ODP commits
the drilling of 147 wells by yearend 2019, with drilling
anticipated to start in the fourth quarter. The expected gas
production following this ODP execution forecasts production in GCZ
to be 6 BCFPY which will counter the current decline curve as no
wells have been drilled on the block since 2010.
In addition to our CNOOC and CNPC partnership on the two
producing blocks, we continue to progress our PetroChina
partnership in the Guizhou (GGZ) exploration block. The team is
focused on concluding the production and completion plan on the
twelve successful wells drilled by 2017 yearend. We expect to
commence test gas sales this year so as to progress the asset into
development next year.
Our exploration teams re-evaluated all the acreage within the
six exploration blocks. This targeted task specifically delineated
the prospective development acreage and identified non-prospective
acreage within the vast exploration area. The technical teams are
progressing discussions on their conclusions with our partners
CNOOC and PetroChina. We expect to collaboratively establish the
exploration plans over the six vast blocks during the fourth
quarter and launch the programmes in 2019.
Concurrent to the operational progress, the management team has
stayed focused on the balance sheet re-vitalisation. A structured
process is underway, led by an energy specialist investment bank to
conclude up to $200m financing over Green Dragon Gas assets. We
expect to conclude such financing so as to progress the dividend in
specie of Green Dragon Gas shares to our shareholders and conclude
a full deleveraging of G3 Exploration. We look forward to a full
repayment of all our bonds timely.
I look forward to monetising the value in our producing assets,
developing our exploration assets and committing to incremental
geographies where our deep knowledge in CBM is of accretive value
to our shareholders.
Randeep S. Grewal
Founder & Chairman
About G3E
G3E is a leading independent gas producer with operations in
China and is listed on the main market of the London Stock Exchange
(LSE: G3E). The Company has 559Bcf of 2P reserves and 2,386Bcf of
3P reserves across eight production blocks covering over 7,566km(2)
of license area in the Shanxi, Jiangxi, Anhui and Guizhou
provinces. It holds six Production Sharing Agreements with strong,
highly capitalised Chinese partners including CNOOC, CNPC and
PetroChina, and has infrastructure in place to support multiple
routes to monetise gas production.
The Company is committed to an exploration and appraisal focused
business plan in coal bed methane development across three
geographies concurrently. It has a well-established track record
and demonstrated perseverance in going the distance to monetise
shareholder value through the below key basic principles:
-- Focus on core intellectual aptitude in developing coal bed methane
-- Develop assets in an environmentally and socially prudent manner
-- Protect accreted shareholder value
Condensed Consolidated Statement of Comprehensive Income
Six months ended 30 June 2018
Six months ended 30 June Six months ended 30 June Year ended
2018 2017 Restated* 31 December 2017
Notes US$'000 US$'000 US$'000
Unaudited Unaudited Audited
Continuing operations
Revenue 3 - - -
Cost of sales 3 - - -
---------------------------- --------------------------- --------------------
Gross profit - - -
Other income 4 7 - 13
Selling and distribution - - -
costs
Administrative expenses 3 (1,649) (1,660) (4,144)
Profit from operations (1,642) (1,660) (4,131)
Finance income 4 1,618 4,822 4,457
Finance costs 13,14 (10,822) (7,435) (17,426)
Profit (loss) before
income tax (10,846) (4,273) (17,100)
Income tax /credit 24 22 46
---------------------------- --------------------------- --------------------
(Loss) for the period
from continuing
operations (10,822) (4,251) (17,054)
Discontinued operations
Gain/(loss) for the period
from discontinued
operations 5 4,484 4,652 (7,522)
---------------------------- --------------------------- --------------------
Profit/(loss) for the
period attributable to
owners of the company (6,338) 401 (24,576)
Other comprehensive
expense, net of tax:
Items that may be
reclassified to profit or
loss:
Exchange differences
arising on
translating foreign
operations (13,795) 14,543 57,328
---------------------------- --------------------------- --------------------
Total comprehensive
income/(expense)
for the period
attributable to owners of
the company (20,133) 14,944 32,752
============================ =========================== ====================
Basic and diluted
earnings/(loss) per share
from continuing
operations (US$) 6 (0.069) (0.027) (0.109)
Basic and diluted
earnings/(loss) per share
from discontinued
operations (US$) 6 0.029 0.030 (0.048)
---------------------------- --------------------------- --------------------
Basic and diluted
earnings/(loss) per share
(US$) 6 (0.040) 0.003 (0.157)
============================ =========================== ====================
* Certain amounts shown here do not correspond to the 2017
financial statements and reflect adjustments made in respect to
assets held for sale, refer to note 5.
Condensed Consolidated Statement of Financial Position
At 30 June 2018
As at As at
30 June 2018 31 December
2017
Notes US$'000 US$'000
Unaudited Audited
Assets
Non-current assets
Property, plant and equipment 8 273 33
Gas exploration and appraisal
assets 9 613,793 617,900
Long term prepaid expenses - 299
Deferred tax asset 17 337 317
---------------- ---------------
614,403 618,549
---------------- ---------------
Current assets
Trade and other receivables 10 8,364 8,167
Restricted cash 1,000 1,000
Cash and cash equivalents 11 1,087 1,347
---------------- ---------------
10,451 10,514
Assets of disposal group
classified as held-for-sale 5 372,029 380,133
---------------- ---------------
382,480 390,647
Total assets 996,883 1,009,196
---------------- ---------------
As at As at
30 June 31 December
2018 2017
Notes US$'000 US$'000
Unaudited Audited
Liabilities
Current liabilities
Trade and other payables 12 9,498 10,198
Convertible notes 13 55,905 53,132
Bonds 14 103,981 95,932
Current tax liabilities - -
----------- ---------------
169,384 159,262
Liabilities of disposal group
classified
as held-for-sale 5 50,004 50,548
219,388 209,810
Non-current liabilities
Deferred tax liability 17 123,997 124,137
Share buyback option liability 13 1,851 3,469
----------- ---------------
125,848 127,606
----------- ---------------
Total liabilities 345,236 337,416
----------- ---------------
Total net assets 651,647 671,780
=========== ===============
Capital and reserves
Share capital 16 16 16
Share premium 808,981 808,981
Share redemption reserve (8,255) (8,255)
Convertible note equity reserve 2,851 2,851
Share-based payment reserve - -
Foreign exchange reserve 24,586 38,381
Retained deficit (176,532) (170,194)
----------- ---------------
Total equity attributable
to owners of the parent 651,647 671,780
=========== ===============
Total equity 651,647 671,780
=========== ===============
Condensed Consolidated Statement of Changes in Equity
Six months ended 30 June 2018
Equity
Share Share attributable
buyback Convertible based Foreign to owners
Share Share option note equity payment exchange Retained of the
capital premium reserve reserve reserve reserve deficit parent
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
--------- --------- --------- ------------- --------- ------------ ----------- --------------
At 1 January
2017 16 808,981 (8,255) 2,851 - (18,947) (145,618) 639,028
Profit for the
period - - - - - - 401 401
Exchange
differences
on
translating
foreign
operations - - - - - 14,543 - 14,543
--------- --------- --------- ------------- --------- ------------ ----------- --------------
Total
comprehensive
expense for the
period - - - - - 14,543 401 14,944
Transfer to - - - - - - - -
retained
deficit
At 30 June 2017 16 808,981 (8,255) 2,851 - (4,404) (145,217) 653,972
(unaudited)
--------- --------- --------- ------------- --------- ------------ ----------- --------------
At 1 January
2018 16 808,981 (8,255) 2,851 - 38,381 (170,194) 671,780
Loss for the
period - - - - - - (6,338) (6,338)
Exchange
differences
on
translating
foreign
operations - - - - - (13,795) - (13,795)
Total
comprehensive
income for the (13,795) (6,338) (20,133)
period - - - - - - - -
Transfer to - - - - - - - -
retained
deficit
At 30 June 2018 16 808,981 (8,255) 2,851 - 24,586 (176,532) 651,647
(unaudited)
========= ========= ========= ============= ========= ============ =========== ==============
Condensed Consolidated Statement of Cash Flows
Six months ended 30 June 2018
Six months Six months Year ended
ended 30 ended 30 31 December
June 2018 June 2017 2017
US$'000 US$'000 US$'000
Notes Unaudited Unaudited Audited
Cash flows used in continuing
operating activities
(Loss)/profit after tax 3 (10,822) 1,822 (17,054)
Adjustments for:
Depreciation 11 2,160 22
Other income and finance
income 4 (1,618) (4,999) (4,475)
Finance costs 13,14 10,822 7,435 17,426
Accelerated finance charge - - -
Taxation (24) (245) (46)
Cash used in from operating
activities before changes
in
working capital (1,631) 6,173 (4,153)
Movement in inventory - - -
Movement in trade and other
receivables (197) (3,679) 4,690
Movement in trade and other
payables (709) 2,568 5,258
------------ ------------ --------------
Net cash generated from
operations (2,537) 5,062 5,795
Income tax - - -
------------ ------------ --------------
Net cash used in
continuing operating activities (2,537) 5,062 5,795
Net cash used in
discontinued operating
activities 5 2,307 (1,870) 11,731
------------ ------------ --------------
Net cash used in
operating activities (230) 3,192 17,526
------------ ------------ --------------
Six months Six months Year ended
ended 30 ended 31 December
June 2018 30 June 2017 2017
US$'000 US$'000 US$'000
Notes Unaudited Unaudited Audited
Investing activities
Payments for purchase
of property,
Plant and equipment 8 (273) (29) -
Payments for exploration
activities - (6,565) (6,259)
Interest received - 2 4
Refund of deposit received
from PetroChina 500 1,000
------------ --------------- --------------
Net cash used in continuing
investing activities (273) (6,092) (5,255)
Net cash used in discontinued
investing activities 5 (1,503) (77) (12,192)
------------ --------------- --------------
Net cash used in
investing activities (1,776) (6,169) (17,447)
------------ --------------- --------------
Financing activities
Interest paid - (4,400) (4,400)
------------ --------------- --------------
Repayment received from
Investing in Discontinued 2,583 - -
Operations
------------ --------------- --------------
Net cash used in continuing
financing activities 2,583 (4,400) (4,400)
Net cash used in discontinued
financing activities 5 (2,583) - -
------------ --------------- --------------
Net cash used in
financing activities - (4,400) (4,400)
------------ --------------- --------------
Net decrease in cash
and cash equivalents (2,006) (7,377) (4,321)
Cash and cash equivalents
at beginning of period 3,175 7,324 7,324
------------ --------------- --------------
1,169 (53) 3,003
Effect of foreign exchange
rate changes (33) 826 172
------------ --------------- --------------
Cash and cash equivalents
at the end of period 1,136 773 3,175
------------ --------------- --------------
Attributable to continuing
activities 11 1,087 72 1,347
------------ --------------- --------------
Attributable to discontinued
activities 5 49 701 1,828
============ =============== ==============
Notes to Condensed Interim Financial Statements
1 GENERAL INFORMATION
The condensed financial information for the six months ended 30
June 2018 and 30 June 2017 is unaudited and does not constitute a
set of statutory financial statements. The consolidated unaudited
interim financial information set out in this report represents the
consolidated financial statements of G3E Ltd. and its subsidiary
companies (together referred to as the 'Group'). The condensed
consolidated financial information should be read in conjunction
with the annual financial statements for the year ended 31 December
2017, which have been prepared in accordance with International
Financial Reporting Standards as adopted by the European Union
("IFRS"). The comparative financial information for the full year
ended 31 December 2017 presented here is not the Group's full
annual accounts for that period but has been derived from the
annual financial statements for that period. The auditors' report
on those accounts was unqualified and includes reference to a
matter to which the auditors drew attention by way of Material
uncertainty related to going concern paragraph on the Group's
ability to continue as a going concern without qualifying their
report.
2 ACCOUNTING POLICIES
IFRS 9 'Financial Instruments'
IFRS 9 (2014) - as issued in July 2014 reflects the final
version of the IASB's work on the replacement of IAS 39 and will be
effective for annual periods beginning on or after 1 January 2018.
Early application is permitted but the Group has not early adopted
IFRS 9. IFRS 9, Financial Instruments, covers mainly: i) the
classification and measurement of financial assets and financial
liabilities, ii) the new impairment model for the recognition of
expected credit losses, and iii) the new hedge accounting
model.
The Group adopted IFRS 9 in the financial reporting period
commencing 1 January 2018. IFRS 9 determines the measurement and
presentation of financial instruments depending on their
contractual cash flows and business model under which they are
held. The impairment requirements are based on an expected credit
loss ("ECL") model that replaces the IAS 39 incurred loss model.
The Group made an assessment of all the account receivables
specifically relating to credit risk and expected credit losses;
the Group has not found significant impact on adoption of IFRS 9's
impairment requirements.
For financial liabilities, the existing classification and
measurement requirements of IAS 39 are largely retained by IFRS 9.
The accounting treatment of the group's current financial
liabilities (notes 13, 14) is based on IAS 39.
Therefore, the Group does not have a significant impact on
adoption of IFRS 9's financial assets and liabilities.
IFRS 15 'Revenue from Contracts with Customers'
IFRS 15, Revenue from Contracts with Customers, outlines a
single comprehensive model for entities to use in accounting for
revenue arising from contracts with customers. IFRS 15 Revenue from
Contracts with Customers replaces IAS 11 Construction Contracts,
IAS 18 Revenue and related interpretations and will be effective
for annual periods beginning on or after 1 January 2018. It applies
to all entities that enter into contracts to provide goods or
services to their customers, unless the contracts are in the scope
of other IFRS, such as IAS 17 Leases. The standard also provides a
model for the measurement and recognition of gains and losses on
the sale of certain non-financial assets, such as property or
equipment. Extensive disclosures will be required, including
disaggregation of total revenue; information about performance
obligations; changes in contract asset; and liability account
balances between periods and key judgments and estimates.
The Group has applied this new standard for the contracts that
are currently booked. The transfer of control natural gas sold by
the group usually coincides with title passing to the customer and
the customer taking physical possession. The group principally
satisfies its performance obligations at a point in time of gas
delivered to customer. Although, according written clauses in
selling contracts, the group will give discount if there was a
quality issue; however, the situation is uncommon. The Group does
not meet a significant impact on adoption of IFRS 15 during the
first half of 2018.
IFRS 16 'Leases'
IFRS 16 is effective for the 31 December 2019 financial
year-end. IFRS 16 'Leases' provides a new model for lessee
accounting in which all leases, other than short-term leases and
leases of low-value items, will be accounted for by the recognition
under a single on-balance sheet model of a right-to-use asset and a
lease liability, similar to finance leases under IAS 17. The
subsequent amortization of the right-to-use asset and the interest
expense related to the lease liability will be recognized
separately in profit or loss over the lease term. Lessor accounting
is substantially unchanged from today's accounting under IAS 17. A
lessee can choose to apply the standard using either a full
retrospective or a modified retrospective transition approach. The
standard's transition provisions permit certain reliefs. Early
application is permitted, but not before an entity applies IFRS
15.
The group will continue to assess all lease agreements. The
group expects that IFRS 16 will have a non-material effect on the
group's financial statements after its adoption, as the total
amount of lease agreement is insignificant.
Basis of preparation and going concern
These financial statements have been prepared on a going concern
basis.
Included in current liabilities as at the 30 June 2018 are two
specific instruments;
The Company has a $50.0 million convertible loan note which is
due for repayment on 31 December 2020. On the 23 October 2017 an
extension to the one-time early redemption option was agreed with
the note holder such that is now exercisable at any time up to 20
November 2018, and would require early repayment of the whole
amount due no earlier than 20 November 2018. The option to require
early repayment is at the note holder's sole discretion. Further
details of the terms of the instrument are included in note 13.
The Company has an $88.0 million bond which was due for
repayment in November 2017. The bond has not been repaid, the due
date has passed. On 22 December 2017 the Bond Trustee reported that
it was instructed by one or more bondholders representing a
majority of the outstanding bond that they were in discussions with
the Company regarding amongst other things an amendment to the bond
agreement to extend the maturity date. Furthermore, the Bond
Trustee was instructed by those majority bondholders not to take
any action to recover amounts due and, until further notice, and as
long as no conflicting instruction is received, they will not
declare the bond to be in default or demand immediate payment.
Further details of the terms of the instrument are included in note
14.
The Company also has other payables due to third parties of
approximately $16.4 million, due immediately. The Company is
managing these payables through continuing negotiation with
suppliers.
In considering the appropriateness of the going concern basis,
the Board gave consideration to the following:
The Company is currently in negotiation with a bank in order to
re-finance the $88.0 million bond, the $50.0 million convertible
loan note and settle all other liabilities and fund commitments.
The Company has received a draft term sheet and the Company expects
that a bank will complete its appropriate due diligence process and
confirm debt financing in due course.
The Company plans to divest its main producing assets (blocks
GSS and GCZ) into a new Hong Kong listed company, Green Dragon Gas
(GDG), and at the same time raise sufficient cash from new equity
to repay all of the Company's existing debt. The remaining
development and exploration blocks are planned to stay in G3E,
which in turn will remain listed in London. The Hong Kong listing
and concurrent equity raise is subject to approval from the Hong
Kong Stock Exchange (HKEX) and confirmation of investment from
potential new shareholders, however the Board is confident this
will be completed.
The Company's major shareholder and CEO, Randeep S. Grewal, has
confirmed that he will provide sufficient financial support in
respect to other current payables of $16.4 million, prior to the
expected fundraising through debt or the IPO, if required.
The Directors have informed the Bondholder Trustee of the
Company's intention to raise financing through the issue of debt or
equity from the Hong Kong listing and to use the new financing to
repay the $88.0 million bond. The Company notes that discussions
continue and a major bondholder has also signed a non-binding draft
agreement to defer the due date to November 2018. To date the
Company is not aware of any immediate intention of the Bond Trustee
to take action to recover amounts due. On the basis of the above,
the Company does not expect the bondholders to put the bond into
default before additional funding is received. However, the
bondholders have given no written assertions that they will not put
the bond into default.
The Company is confident that the $50.0 million note holder will
continue to support the Company as it acts to refinance the bond,
such that the note holder will not be motivated to act on their
early redemption option available until 20 November 2018. However,
the note holder has not given any written assertions that they will
not exercise their early redemption option.
The Company expects to use the proceeds from the Hong Kong
listing and the new debt finance to repay all of the Company's
debts. Based on the above, the Company expects to be able to meet
its liabilities as they fall due for a period not less than one
year.
However, as at the date of this report, there were no binding
debt re-financing agreements in place, the HKEX have not yet
approved the Hong Kong Listing and investors have not committed to
provide equity financing. Therefore there can be no certainty that
re-financing will be successful. There can also be no certainty
that the $50.0 million note holder will continue to support the
Company and not exercise their right to early redemption, or that
no default notice will be issued in respect of the $88.0 million
bond.
Notwithstanding the confidence that the Board has, the
Directors, in accordance with Financial Reporting Council guidance
in this area, conclude that at this time there is material
uncertainty that such finance can be procured and failure to do so
might cast significant doubt upon the Group's ability to continue
as a going concern and that the Group may therefore be unable to
realise their assets and discharge their liabilities in the normal
course of business. These Financial Statements do not include the
adjustments that would result if the Group was unable to continue
as a going concern.
3 REVENUE AND SEGMENTAL INFORMATION
The Group's reportable segments are as set out below. The
operating results of each of these segments are regularly reviewed
by the Group's chief operating decision-makers in order to make
decisions about the allocation of resources and assess their
performance.
During the period, the revenue of US$13.7 million (30 June 2017:
US$11.2 million) was recognised by the upstream discontinued
business. The average RMB/USD exchange rate for the period is 5%
higher compared to the equivalent period in the prior year. The
average RMB/USD exchange rate for the period ended 30 June 2018,
and used for translating income statement RMB transactions for the
purposes of this financial information was 6.8610 as compared to
6.5557 in the equivalent period of the prior year.
For the period ended 30 June 2018 (unaudited)
Upstream Upstream Downstream Corporate Sub-total Eliminations Consolidated
continuing discontinued discontinued
operations operations operation
(G3E)US$'000 (GDG)US$'000 (GGD)US$'000 (G3E)US$'000 US$'000 US$'000 US$'000
Segment
revenue:
Sales to
external
customers - 13,727 1,525 - 15,252 (15,252) -
Inter-segment - - - - - - -
sales
- 13,727 1,525 - 15,252 (15,252) -
============== ============== ============== ============== =========== ============== ==============
Depreciation - (3,353) (158) (11) (3,522) 3,511 (11)
Amortisation - - - - - - -
Impairment - - - - - - -
Profit/(loss)
from operation - 5,327 (715) (1,642) 2,970 (4,612) (1,642)
Finance income - 1 - 1,618 1,619 (1) 1,618
Finance cost - - (129) (10,822) (10,951) 129 (10,822)
Income tax 24 - - - 24 - 24
Profit/(Loss)
for the period 24 5,328 (844) (10,846) (6,338) (4,484) (10,822)
============== ============== ============== ============== =========== ============== ==============
Assets 121,360 369,416 2,613 503,494 996,883 (372,029) 624,854
Liabilities 135,360 47,391 2,613 159,872 345,236 (50,004) 295,232
PPE additions 273 156 - - 429 (156) 273
Gas exploration
additions - 1,503 - - 1,503 (1,503) -
For the period ended 30 June 2017 (unaudited)
Upstream Upstream Downstream Corporate Sub-total Eliminations Consolidated
continuing discontinued discontinued
operations operations operation
(G3E)US$'000 (GDG)US$'000 (GGD)US$'000 (G3E)US$'000 US$'000 US$'000 US$'000
Segment
revenue:
Sales to
external
customers - 11,200 1,753 - 12,953 (12,953) -
Inter-segment
sales - 6,694 364 - 7,058 (7,058) -
- 17,894 2,117 - 20,011 (20,011) -
Depreciation - (1,620) (278) (22) (1,920) 1,898 (22)
Amortisation - - (356) - (356) 356 -
Impairment - - - - - - -
Profit/(loss)
from
operation - 4,525 (186) (1,660) 2,679 (4,339) (1,660)
Finance income - 2 233 4,822 5,057 (235) 4,822
Finance cost - - - (7,435) (7,435) - (7,435)
Income tax 22 - 78 - 100 (78) 22
Profit/(Loss)
for the
period 22 4,527 125 (4,273) 401 (4,652) (4,251)
============== ============== ============== ============== =========== ============== ==============
Assets 121,350 351,078 44,744 858,418 1,375,590 (386,346) 989,244
Liabilities 125,949 24,440 71,078 500,151 721,618 (378,909) 342,709
PPE additions 29 80 - - 109 (80) 29
Gas
exploration
additions 722 8,223 - - 8,945 (8,223) 722
For the year ended 31 December 2017 (audited)
Upstream Upstream Downstream Corporate Sub-total Eliminations Consolidated
continuing discontinued discontinued
operations operations operation
(G3E)US$'000 (GDG)US$'000 (GGD)US$'000 (G3E)US$'000 US$'000 US$'000 US$'000
Segment
revenue:
Sales to
external
customers - 14,618 11,039 - 25,657 (25,657) -
Inter-segment
sales - 12,500 646 - 13,146 (13,146) -
- 27,118 11,685 - 38,803 (38,803) -
============== ============== ============== ============== =========== ============== ==============
Depreciation - (7,623) (1,524) (22) (9,169) 9,147 (22)
Amortisation - - 1,066 - 1,066 (1,066) -
Impairment - - (13,095) - (13,095) 13,095 -
Profit/(loss)
from
operation - 7,577 (18,195) (4,131) (14,749) 10,618 (4,131)
Finance income 12 1 2 4,445 4,460 (3) 4,457
Finance cost - - 580 (17,426) (16,846) (580) (17,426)
Income tax 46 2,347 166 - 2,559 (2,513) 46
Profit/(Loss)
for the year 58 9,925 (17,447) (17,112) (24,576) 7,522 (17,054)
============== ============== ============== ============== =========== ============== ==============
Assets 127,550 377,513 2,619 501,513 1,009,195 (380,133) 629,062
Liabilities 132,296 47,928 2,619 154,570 337,413 (50,548) 286,865
PPE additions - - 162 3 165 (161) 4
Gas
exploration
additions 9,261 3,970 - - 13,231 (3,970) 9,261
============== ============== ============== ============== =========== ============== ==============
4 OTHER INCOME AND FINANCE INCOME
Six months ended 30 Six months ended 30 Year ended
June 2018 June 2017 31 December 2017
US$'000 US$'000 US$'000
Unaudited Unaudited Audited
Revaluation of share buyback option 1,618 4,817 4,455
Others 7 7 2
--------------------- --------------------- --------------------
1,625 4,822 4,457
===================== ===================== ====================
5 NON-CURRENT ASSETS HELD-FOR-SALE AND DISCONTINUED OPERATION
The assets and liabilities relating to the carve-out of the
producing blocks (GSS & GCZ) of Greka Energy (International)
B.V., a 100% wholly-owned subsidiary of the Company, have been
presented as held for sale following the board decision to launch
GSS & GCZ blocks IPO listing in the Hong Kong Stock Exchange.
Management expects GSS & GCZ blocks to be sold within the next
12 months.
The assets and liabilities relating to Greka Gas Distribution
Ltd, a 100% wholly-owned subsidiary of the Company, have been
presented as held for sale following the announcement made to sell
Greka Gas Distribution Ltd in the PRC. Management expects Greka Gas
Distribution Ltd to be sold within the next 6 months.
(a) Assets of disposal group classified as held-for-sale
Note As at As at As at
30 June 2018 30 June 2018 30 June
2018
Upstream Downstream Subtotal
group group
US$'000 US$'000 US$'000
Property, plant and equipment 8 140,365 - 140,365
Gas exploration and appraisal
assets 9 216,284 - 216,284
Long term prepaid expenses - 579 579
Deferred tax asset 17 4,244 - 4,244
Trade and other receivables 8,511 1,997 10,508
Cash and cash equivalents 12 37 49
================================ ====== =============== =============== ==========
369,416 2,613 372,029
Note As at As at As at
31 December 31 December 31 December
2017 2017 2017
Upstream group Downstream Subtotal
group
US$'000 US$'000 US$'000
Property, plant and equipment 8 141,445 - 141,445
Gas exploration and appraisal
assets 9 223,713 - 223,713
Long term prepaid expenses - 579 579
Deferred tax asset 17 4,268 - 4,268
Trade and other receivables 7,478 822 8,300
Cash and cash equivalents 609 1,219 1,828
================================ ====== ================ ============== ==============
377,513 2,620 380,133
(b) Liabilities of disposal group classified as held-for-sale
Note As at As at As at
30 June 2018 30 June 2018 30 June 2018
Upstream Downstream Subtotal
group group
US$'000 US$'000 US$'000
Trade and other payables (18,533) (3,248) (21,781)
Deferred tax liabilities 17 (28,945) (145) (29,090)
Current tax liabilities 2 865 867
=========================== ====== =============== =============== ===============
(47,476) (2,528) (50,004)
Note As at As at As at
31 December 31 December 31 December
2017 2017 2017
Upstream Downstream Subtotal
group group
US$'000 US$'000 US$'000
Trade and other payables (19,061) (3,340) (22,401)
Deferred tax liabilities 17 (28,806) (145) (28,951)
Current tax liabilities (61) 865 804
=========================== ====== ============== ============== ==============
(47,928) (2,620) (50,548)
(c) Analysis of the results of discontinued operations is as follows:
As at As at As at
30 June 30 June 30 June
2018 2018 2018
Note Upstream Downstream Subtotal
group group
US$'000 US$'000 US$'000
Revenue: 3 13,727 1,525 15,252
---------- ------------ ----------
Profit/(loss) from operation 3 5,327 (715) 4,612
Finance income 3 1 - 1
Finance cost 3 - (129) (129)
Income tax 3 - - -
------------------------------- ------ ---------- ------------ ----------
Gain/(Loss )after tax of
discontinued operations
attributable to owners of
the company 5,328 (844) 4,484
=============================== ====== ========== ============ ==========
As at As at As at
30 June 30 June 2017 30 June
2017 2017
Note Upstream Downstream Subtotal
group group
US$'000 US$'000 US$'000
Revenue: 3 11,200 1,797 12,997
---------- --------------- ----------
Profit/(loss) from operation 3 4,525 (186) 4,339
Finance income 3 2 233 235
Finance cost 3 - - -
Income tax 3 - 78 78
------------------------------- ------ ---------- --------------- ----------
Gain/(Loss )after tax of
discontinued operations
attributable to owners of
the company 4,527 125 4,652
=============================== ====== ========== =============== ==========
(d) Cash flow from (used in) discontinued operations:
As at As at As at
30 June 2018 30 June 2018 30 June 2018
US$'000 US$'000 US$'000
Upstream group Downstream Subtotal
group
Net cash used in operating
activities 2,879 (572) 2,307
Net cash generated from investing
activities (1,503) - (1,503)
Net cash generated from financing
activities (2,583) - (2,583)
===================================== ================ =============== ===============
Net cash inflow/(outflow) (1,207) (572) (1,779)
As at As at As at
30 June 2017 30 June 2017 30 June 2017
US$'000 US$'000 US$'000
Upstream group Downstream Subtotal
group
Net cash used in operating
activities 970 5,158 6,128
Net cash generated from
investing activities (7,700) (77) (7,777)
Net cash generated from
financing activities - - -
============================= ================ =============== ===============
Net cash inflow/(outflow) (6,730) 5,081 (1,649)
6 EARNINGS AND (LOSS) PER SHARE
The calculation of basic and diluted profit/(loss) per share
attributable to the owners of the Company is based on the following
data:
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2018 2017 2017
US$'000 US$'000 US$'000
Unaudited Unaudited Audited
Loss for the period attributable
to the owners of the Company
used in basic and diluted earnings/(loss)
per share from:
Continuing operations (10,822) (4,251) (17,054)
============= ============= ==============
Discontinued operations 4,484 4,652 (7,522)
============= ============= ==============
Continuing and discontinued
operations (6,338) 401 (24,576)
============= ============= ==============
Weighted average number of
ordinary shares
for the basic and diluted loss/earnings
per share 156,072,289 156,072,289 156,072,289
============= ============= ==============
Basic and diluted earnings/(loss) per share from continuing operations (US$) (0.069) (0.027) (0.109)
Basic and diluted earnings/(loss) per share from discontinued operations (US$) 0.029 0.030 (0.048)
Basic and diluted earnings/(loss) per share (US$) (0.040) 0.003 (0.157)
Profit/(loss) per share is based on the loss attributable to
ordinary equity holders of the Company of divided by the weighted
average of ordinary shares in issue during the corresponding
period.
No separate calculation of diluted profit/(loss) per share has
been presented as, at the date of this financial information, no
options, warrants or other instruments that could have a dilutive
effect on the share capital of the Company were outstanding.
7 DIVIDS
The Directors do not recommend the payment of an interim
dividend during the period ended 30 June 2018 and year ended 31
December 2017.
8 PROPERTY, PLANT AND EQUIPMENT
Building Fixtures,
and Construction Motor fittings
Gas assets structures in progress vehicles and equipment Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Cost
At 1 January
2017 285,869 1,220 1,493 3,802 4,751 297,135
Additions - 15 51 43 56 165
Share of CUCBM
additions 7,726 - - - - 7,726
Change in
estimate
of CUCBM
provision (145,945) - - - - (145,945)
Disposals - - - - - -
Transferred to
disposal
group
classified
as held for
sale
(note 5) (170,045) (1,295) (1,636) (4,024) (4,412) (181,412)
Exchange
differences 22,395 60 92 179 208 22,934
Balance as at
31
December 2017 - - - - 603 603
Additions - - - - 305 305
Exchange
differences - - - - (3) (3)
At 30 June 2018 - - - - 905 905
Depreciation
At 1 January
2017 19,771 579 - 2,128 2,074 24,552
Provided for
the
year 7,623 101 - 1,163 282 9,169
Impairments
loss - 580 1,636 603 2,536 5,355
Transferred to
disposal
group
classified
as held for
sale
(note 5) (28,600) (1,295) (1,636) (4,024) (4,412) (39,967)
Exchange
differences 1,206 35 - 130 90 1,461
Balance as at
31
December 2017 - - - - 570 570
Provided for
the
period - - - - 63 63
Exchange
differences - - - - (1) (1)
At 30 June 2018 - - - - 632 632
============== ================ ================ ================ ================ ===========
Net book value
At 30 June 2018 - - - - 273 273
============== ================ ================ ================ ================ ===========
At 31
December 2017 - - - - 33 33
============== ================ ================ ================ ================ ===========
9 GAS EXPLORATION AND APPRAISAL ASSETS
Cost US$'000
-------------
At 1 January 2017 1,034,117
Additions 13,231
Capitalisation of internal
costs 3,461
Share of gas exploration and
appraisal assets from CUCBM 13,886
Reversal of Share of gas exploration
and appraisal assets from CUCBM (288,872)
Classified as held for sale(note
5) (223,713)
Exchange differences 65,790
-------------
At 31 December 2017 (audited) 617,900
Capitalisation of internal
costs 1,601
Exchange differences (5,708)
-------------
At 30 June 2018 (unaudited) 613,793
=============
10 TRADE AND OTHER RECEIVABLES
As at As at
30 June 31 December
2018 2017
US$'000 US$'000
Unaudited Audited
Trade receivables - -
Prepayments - 72
Other receivables 2,869 1,928
Amount due from related parties 5,495 6,167
----------- --------------
8,364 8,167
=========== ==============
11 CASH AND CASH EQUIVALENTS
An analysis of the balances of cash and cash equivalents is as
follows:
As at As at
30 June 31 December
2018 2017
US$'000 US$'000
Unaudited Audited
------------------------------------ ------------ --------------
Cash and bank balances 1,087 1,347
===================================== ============ ==============
Significant non-cash transactions US$'000 US$'000
are as follows: Unaudited Audited
Investing activities - -
------------------------------------ ------------ --------------
- Change in estimate relating
to CUCBM provision - (410,313)
===================================== ============ ==============
Current loans and borrowing
USD'000
At 1 January 2018 149,064
Cash flows -
Accrued interest 10,822
---------------------- ---------
At 30 June 2018 159,886
---------------------- ---------
At 1 January 2017 136,142
Cash flows (4,400)
Accrued interest 17,322
---------------------- ---------
At 31 December 2018 149,064
---------------------- ---------
12 TRADE AND OTHER PAYABLES
As at As at
30 June 31 December
2018 2017
US$'000 US$'000
Unaudited Audited
Trade payables 7,659 6,712
Amounts due to related parties 1,839 3,486
----------- --------------
9,498 10,198
=========== ==============
13 CONVERTIBLE NOTES
As at As at
30 June 31 December
2018 2017
US$'000 US$'000
Unaudited Audited
Brought forward from prior
year 53,132 47,347
Accrued interest 2,773 5,785
55,905 53,132
=========== ==============
As at 30 June 2018, the Company had one (31 December 2017: one)
convertible note in issue repayable within 1 year.
Convertible note issued 2014
US$50 million 7% coupon convertible note due 2017
On 2 June 2014, the Company issued a three-year convertible note
having a face value of US$50,000,000 with a maturity date of 1 June
2017. The note bears interest at 7% per annum, payable on a
semi-annual basis. At the Maturity Date, the total sum of 100% of
the outstanding principal amount of the convertible note and the
accrued interest shall become payable, unless previously converted
or redeemed.
The convertible note can be converted into Ordinary Shares of
the Company at the note holder's option at any time prior to the
Maturity Date at US$9.34 per share.
Convertible note amendment
US$50 million 10% coupon convertible note due 2020
In December 2016, the Company reached agreement with the note
holder to extend the maturity of the US$50 million convertible note
entered into in June 2014. Under the agreement, the note remains
unsecured, has a revised coupon of 10% and a maturity date extended
to 31 December 2020. The Company issued an option for the note
holder to require (one-time) early repayment on the original
maturity date, the option being exercisable at the discretion of
the note holder by 28 April 2017. The conversion price of the note
was amended to US$2.83 per share representing a 25% premium over
the 13 December 2016 closing price.
During the year ended 31 December 2017, the company reached
agreement with the note holder to extend the period during which
the put option is exercisable to 20 November 2018.
At final maturity of the note, the note holder has the right to
require the Company to purchase all of its share holdings up to a
maximum limit of 10,775,578 shares or 6.69% of the entire issued
share capital of the Company at a price based on the 90 day VWAP
calculated as of 31 December 2020 and to be settled prior to 30
April 2021. See the share buyback option liability below.
*Share buyback option liability
As at As at
30 June 31 December
2018 2017
US$'000 US$'000
Unaudited Audited
Brought forward from
prior year 3,469 7,924
Revaluation of share
buyback option (1,618) (4,455)
----------- --------------
1,851 3,469
=========== ==============
(a) Accounting for convertible notes
On initial recognition, the fair value of the liability
component of the convertible loan note was determined using the
prevailing market interest rate of similar debts without conversion
option and early redemption options. For the note issued during
2014, the rate considered to be comparable was 10%. The loan note
is subsequently carried at amortised cost.
The equity element arising from the conversion option of their
convertible notes, being the residual value at initial recognition,
is presented in the equity heading "convertible note equity
reserve", as disclosed in note 24 to the financial statements.
On the amendment of the convertible note, the original financial
liability was extinguished and the convertible reserve was
transferred to retained earnings through reserves. The fair value
of the liability component of the amended convertible loan was
determined using the prevailing market interest rate of similar
debts without conversion option and early redemption options. the
rate considered to be comparable was 12%. The loan note is
subsequently carried at amortised cost.
The equity element arising from the conversion option of the
convertible notes, being the residual value at initial recognition,
is presented in the equity heading "convertible note equity
reserve", as disclosed in note 24 to the financial statements.
The terms of the convertible note include a clause whereby if
another loan held by the Company becomes in default then the
convertible note would also be in default. At the balance sheet
date, no other loans were in default but there was a breach of
covenants on the Company's public corporate bond
14 BONDS AND DERIVATIVE FINANCIAL INSTRUMENT
On 8 December 2014, G3E issued a public corporate bond (the
"Bond") in the amount of US$88,000,000. The bond was issued at a
discount of 2.5% and is senior secured three-year paper due on 20
November 2017. The Bond carries a 10% coupon payable semi-annually
and also carries a redemption premium of 2% at maturity. The Bond
is secured by a pledge over the shares of Greka Gas China, a
wholly-owned subsidiary of G3E. The bond was initially recorded at
fair value and is subsequently carried at amortised cost. Issue
fees of US$1,893,000 were offset against the principal amount of
the bond and will be amortised as part of the effective interest
rate charge to the maturity date. The redemption premium is
amortised as part of the effective interest rate charge to the
maturity date. The following table summarises the movements in the
bond:
As at As at
30 June 31 December
2018 2017
US$'000 US$'000
Unaudited Audited
Brought forward from prior
year 95,932 88,795
Accrued interest 8,049 11,537
Interest payment - (4,400)
----------- --------------
103,981 95,932
=========== ==============
As disclosed in the Company's 2017 annual report, due to the
non-inclusion of CUCBM's revenue and related costs, the Company's
2017 financial statements failed to meet two of the bonds'
financial covenants. The bonds are disclosed as a current liability
at the period end of 2017 and 2018 as they are due on November 2017
and are therefore overdue.
15 PROVISIONS
The cost recovery provision accounted for in upstream
discontinued operations (Note 5) also includes US$13,000,000 (2016:
US$13,000,000) in respect of exploration costs incurred by CUCBM
prior to the PSC period. The Group has an option to increase its
participating interest in the GSS Block from its current 60% to 70%
by investing two installments of US$6,500,000, one prior to 31
December 2017, and the second prior to 31 December 2018. The amount
is unsecured and does not bear interest. Discounting is considered
to be immaterial. See note 19 for more information.
16 SHARE CAPITAL AND RESERVES
Authorised Issued and fully paid
Number Number
of shares US$ of shares US$
At 1 January 2017, 31
December 2017 and 30 June
2018 ordinary shares of
US$0.0001 each 500,000,000 50,000 156,072,289 15,607
============= ======== =============== ========
Nature and purpose of reserves
(i) Share premium
The amount relates to subscription for or issue of shares in
excess of nominal value. The application of the share premium
account is governed by the Companies Law of the Cayman Islands.
(ii) Share redemption reserve
The amount represents the initial value of the liability in
respect of the option the company has granted to buy back
shares.
(iii) Convertible note equity reserve
The amount represents the value of the unexercised equity
component of the convertible note issued by the Company recognised
in accordance with the Group's accounting policy.
(iv) Share based payment reserve
The amount relates to the fair value of the share options that
have been expensed through the income statement less amounts, if
any, that have been transferred to the retained earnings/deficit
upon exercise.
(v) Foreign exchange reserve
The amount represents gains/losses arising from the translation
of the financial statements of foreign operation the functional
currency of which is different from the presentation currency of
the Group.
(vi) Retained deficit
The amount represents cumulative net gains and losses recognised
in consolidated profit or loss less any amounts reflected directly
in other reserves.
17 DEFERRED TAXATION
(a) Deferred tax assets
US$'000
---------
At 1 January 2017 2,079
Additions 2,347
Exchange differences 159
Classified as held for sale(note 5) (4,268)
---------
At 31 December 2017 - audited 317
Movement in classified as held for sale(note
5) 24
Exchange differences (4)
---------
At 30 June 2018 (unaudited) 337
=========
(b) Deferred tax liabilities
US$'000
----------
At 1 January 2017 144,831
Reversal of temporary difference (177)
Exchange differences 8,434
Classified as held for sale(note 5) (28,951)
At 31 December 2017 - audited 124,137
----------
Movement in classified as held for sale(note
5) (139)
Reversal of temporary difference -
Exchange differences (1)
----------
At 30 June 2018 (unaudited) 123,997
==========
As at As at
30 June 31 December
2018 2017
US$'000 US$'000
Unaudited Audited
Recognised deferred tax (liabilities)
and assets at PRC rate of 25%
Deferred tax assets and liabilities
are attributable to the following:
Fair value adjustments in exploration
and evaluation assets (123,997) (124,137)
============= ==============
Tax losses - overseas 337 317
============= ==============
Unrecognised deferred tax assets
Deferred tax assets have not
been recognised in respect of
the following:
Tax losses - overseas - -
============= ==============
Potential unrecognised tax benefit
at PRC rate of 25% - -
============= ==============
The deductible temporary timing differences do not expire under
current tax legislation. PRC tax losses expire after five years.
Deferred tax assets have not been recognised in respect of the full
value of these items because at this point in the Groups
development it is not virtually certain that future taxable profits
will be available against which the Group companies can utilise the
benefits of these tax losses in the near future. The Group has not
offset deferred tax assets and liabilities across different
jurisdictions.
18 SUBSIDIARIES
The principal subsidiaries of the Company, all of which have
been included in these consolidated financial statements, are as
follows:
As at 30 As at 31
June 2018Percentage December
of ownershipinterest 2017
held Percentage
of ownershipinterest
held
Name Place of Principal Directly Indirectly Directly Indirectly
incorporation activities
Greka Gas Investment
China Limited Cayman Islands holding 100% - 100% -
Exploration,
development
Greka and production
Energy(International). Amsterdam,Nethe of coal bed
B.V. rlands methane - 100% - 100%
GDGF Ltd British Virgin Investment - 100% - -
Islands holding
Exploration,
development
and production
Greka GSN British Virgin of coal bed
Ltd Islands methane - 100% - 100%
Greka Integrated British Virgin Investment
Products Ltd Islands holding - 100% - 100%
Exploration,
development
and production
Greka GFC British Virgin of coal bed
Ltd Islands methane - 100% - 100%
Greka Gas
Distribution British Virgin Investment
Ltd Islands holding - 100% - 100%
Exploration,
development
and production
Greka GQY British Virgin of coal bed
Ltd Islands methane - 100% - 100%
Greka Exploration
and Production Investment
Ltd Cayman Islands holding - 100% - 100%
Exploration,
development
and production
Greka GPX British Virgin of coal bed
Ltd Islands methane - 100% - 100%
Zhengzhou Supply and
Greka Gas distribution
Co.,Ltd. The PRC of natural gas - 100% - 100%
PingDingShan Supply and
Greka Gas distribution
Co.,Ltd The PRC of natural gas - 100% - 100%
Gongyi Greka
Transportation Investment
Co.,Ltd The PRC holding - 100% - 100%
Exploration,
development
and production
Greka Guizhou British Virgin of coal bed
E&P Ltd Islands methane - 100% - 100%
Supply and
Yanjin Changda distribution
Gas Station The PRC of natural gas - 100% - 100%
19 JOINT ARRANGEMENTS
The Group currently operates under six (2017: six) production
sharing contracts ("PSCs") for the exploration and development of
CBM gas in the PRC.
Background
On 8 January 2003, the Group entered into four PSCs with CUCBM
to explore, develop and produce coal bed methane in five blocks
comprising Shizhuang South ("GSS"), Chengzhuang ("GCZ"), Shizhuang
North ("GSN"), Qinyuan ("GQY") and Panxie East ("GPX"). GSS, GCZ,
GSN and GQY are located in Shanxi Province with PanxieEast located
in Anhui Province.
In 2003 the Group also obtained the rights as foreign contractor
related to the Fengcheng ("GFC") PSC. This PSC, dated 13 August
1999, was originally entered between Saba Petroleum Inc. as foreign
contractor and CUCBM. Saba Petroleum Inc. was a related company of
the Group by way of the common controlling shareholder, Mr. Randeep
S. Grewal. The GFC block is located in Jiangxi Province.
Under the terms of these five PSCs the Group, as operator,
agreed to provide funds and apply its technology and managerial
experience and to cooperate with CUCBM to explore, develop and
produce coal bed methane from the license areas. CUCBM as a
state-owned enterprise is eligible to apply for the exclusive
rights for the exploitation of coal bed methane in the areas as
defined in the contracts.
The PSCs provide that all costs incurred in the exploration
stage shall be borne by the Group. The terms of the PSCs require
the Group to cooperate with the state partner to submit the Overall
Development Plan to the relevant authorities. Upon approval of the
ODP by the Chinese authorities, the PSC operations are determined
to have entered the development stage. However, as detailed in Note
2in circumstances when the approval of ODP is delayed other
factors, including the substantive nature of operations and cash
generation, may be considered to determine whether the development
stage has been reached regardless of formal ODP approval.
Where it is determined that an asset is in the development stage
based on facts and circumstances then the associated investment
balance is reclassified from the exploration and appraisal category
to the property, plant and equipment category of fixed assets. The
responsibility for procuring approval of the ODP lies with the
State partner. Once formally in the development stage the cost
sharing mechanisms within the PSCs become effective and development
and operating costs are borne by the partners in accordance with
their respective equity interests in the relevant PSCs. Once
production commences the cost recovery mechanism within the PSCs
provides that the proceeds of production output (after deduction of
value-added tax and any royalty payable to the Chinese tax
authority) are allocated as follows:
-- firstly towards operating costs recovery in the proportion
above mentioned (the "Sharing Proportion");
-- secondly to exploration cost recovery; and
-- thirdly to development cost recovery (including deemed interest as appropriate).
Any unallocated revenue after cost recovery is allocated to the
partners in accordance with their equity participation in the PSC
after calculating a final royalty payable to the Chinese
Authorities. The final royalty is based on a sliding scale from 0%
to the maximum payable of 15% and calculated over total block
production.
The five PSCs each have a term of 30 years, with a production
period of not more than 20 consecutive years commencing on a date
determined by the Joint Management Committee but aligned with the
approval date of ODP. The JMC is established in accordance with the
PSC between the Group and CUCBM to oversee the operations in the
contracted area. Currently all the six blocks covered by these five
production sharing contracts are formally in the exploration stage
based on the Chinese requirement for ODP approval before transition
to development. In 2015 the assets associated with area 4 within
the GSS block were reclassified as property, plant and equipment
due to the substantive nature of the production operations and
associated cash generation from this area.
PSCs held with PetroChina (CNPC)
Chengzhuang block ("GCZ")
In August 2014, the Group finalised and signed the Cooperation
Agreement with PetroChina in respect of the GCZ block in accordance
with a memorandum of understanding previously entered in December
2013. GCZlies within the GSS licence area and prior to the
Cooperation Agreement was governed by the GSS PSC. The Cooperation
Agreement reaffirms the rights of the Group contained in the PSC
over the GCZ block. The Cooperation Agreement confirms the Group's
47% participating interest in the block and defines the term of the
agreement as running from March 2010 to March 2033.
The Cooperation Agreement confirmed the Group's contribution to
cumulative capital expenditure and its share of net revenue. The
Cooperation Agreement also confirmed the Group's entitlement to its
share of the downstream infrastructure assets in place, including
the gas gathering station, together with the Group's funding
obligation for those assets. The Group recorded US$10,900,000
within property, plant and equipment in respect of its 47% share in
these assets in 2014 based on the final agreement of the costs
associated with the downstream infrastructure. The Group also
elected to settle its obligation for all historic amounts due to
PetroChina through its share of future production.
In 2015 PetroChina achieved cost recovery in respect of its
historic investment in the GCZ block. Following cost recovery by
PetroChina the Group is receiving its proportion of revenue in cash
each month. As a result, the billing arrangements for GCZ have
moved to a full joint operations basis where the Group receives its
share of revenue on the conclusion of each month and is separately
cash-called for its share of opex and capex on a month-ahead basis.
Cash calls are reconciled to actual expenditure quarterly.
The following table summarises the Group's share of the capital
expenditure and net revenues arising from the GCZ block for the
current period and prior year.
30 June 31 December
2018 2017
US$'000 US$'000
Unaudited Audited
Capital expenditure - -
============ =============
Revenue and other income 6,142 10,692
Total operational costs and expenses (2,109) (6,776)
------------ -------------
Net Profit 4,033 3,916
============ =============
Amount due from/(to) PetroChina
Opening balance 3,935 1,487
Capital expenditure for GCZ block - -
Share of profit for GCZ block 2,010 3,917
Cash received (5,300) (1,469)
------------ -------------
Closing balance 645 3,935
============ =============
The balance due from PetroChina is included within trade and
other receivables, is unsecured and interest free.
Baotian-Qingshan block ('GGZ')
In addition, Greka Guizhou E&P Ltd., a subsidiary of the
Company, is party to a PSC with PetroChina to explore for and
develop coal bed methane resources in Guizhou Province. The Group
has a 60% participating interest in GGZ and has provided a
performance bond against its pilot exploration programme commitment
in the amount of US$1,000,000 (31 December 2017: US$1,000,000). At
30 June 2018, the cumulative net investment made by the Group in
GGZ was US$36,566,000 (31 December 2017: US$35,960,000), of which
US$606,000 was invested in the six months ended 30 June 2018.
PetroChina is a subsidiary of state-owned China National
Petroleum Corporation (CNPC), headquartered in Dongcheng District,
Beijing.
PSCs held with CUCBM (CNOOC)
Framework Agreement with CUCBM
On 31 March 2014, and following the identification of
unauthorised drilling activities across several of the Group's
blocks by CUCBM, the Group entered a Framework Agreement CUCBM the
purpose of which was to amend and clarify the rights of both the
Group and CUCBM in relation to the PSCs jointly held between the
parties. Under the terms of the Framework agreement, the Group's
percentage share in the relevant blocks were updated and confirmed
as follows:
PSC G3E share CUCBM
share
--------------- ----------- -------- ----------------------------------------
Shizhuang G3E share increasing to 70% on payment
South 60% 40% of US$13,000,000 to CUCBM
Shizhuang
North 50% 50%
Quinyan Area
A 10% 90%
Quinyan Area
B 60% 40%
Fengcheng 49%* 51%
Panxie East 60%* 40%
--------------- ----------- -------- ----------------------------------------
* unchanged
The Framework Agreement reaffirmed the status of the PSC's.
Under the PSCs, the exploration costs were due to be incurred by
the Group, with the Group carrying the exploration risk and the
associated costs being recovered from future production.
Notwithstanding the terms of the PSC, CUCBM undertook significant
unauthorised exploration work within the license area incurring
gross expenditure of US$611,300,000 related to the drilling of
wells and the establishment of certain infrastructure across the
PSC blocks.
In the prior year a provision for a potential liability to CUCBM
was recognised on the basis of there being a dispute over the
historic wells drilled by CUCBM. The provision represented the best
estimate of the Group's obligation to settle its share of the costs
of the disputed wells.
Upon finalisation of the Supplemental Agreements in 2017, the
original dispute that arose is now settled, and the outcome is that
CUCBM will recover its historic costs through potential future
production. As described in the accounting policies, the Group's
oil and gas assets are accounted for as joint operations and the
Group therefore accounts for its share of income and expenditure.
As such, it is no longer appropriate for the Group to recognise
CUCBM's historic costs. As the disputed wells are no longer subject
to a settlement obligation, it is deemed appropriate to reduce the
provision to $nil. The original recognition of the provision had no
impact on the income statement and therefore the reversal of the
provision also has no impact on the income statement, and is
recognised as a reduction to the Group's exploration assets. The
change in provision represents a change in accounting estimate as a
result of the Supplemental Agreements executed in 2017.
The following table summarises the cost recovery provision which
also represents the Group's cumulative share of capital
expenditure:
As at As at
30 June 31 December
2018 2017
US$'000 US$'000
Unaudited audited
Opening balance - 401,702
Capital additions in the period - 21,612
Reclassified to payable - (13,000)*
FX (gain)/loss - 24,503
Change in estimate of CUCBM provision - (434,817)
------------- --------------
Closing provision for amounts due to CUCBM - -
============= ==============
* $13 million has been reclassified to payables due to
management's intention to exercise the option to obtain a higher
share rate.
The cumulative expenditure by CUCBM across the PSCs, which the
Group is reimbursing through future production, bears interest at
9%. No discounting of the provision applies given the interest
bearing nature.
Under the original Shizhuang South PSC and as reaffirmed by the
Framework Agreement US$13,000,000 included within provisions (2017:
US$13,000,000) represent amounts payable to CUCBM in respect of
exploration costs incurred by CUCBM on GSS prior to the original
PSC between the parties. The Group has an option to increase its
participating interest in the GSS Block from its current 60% to 70%
by investing two installments of US$6,500,000, one prior to 31
December 2017, and the second prior to 31 December 2018. The
balance is unsecured, and interest-free. Discounting is considered
immaterial. The obligation is classified as a provision given the
option to increase its participating interest in the GSS Block is
at the Company.
Shizhuang North PSC
Under the terms of the Framework Agreement, the Group agreed to
reduce its interest in the GSN Block by 10% in return for CUCBM
providing the Group with a carried interest of US$100,000,000
related to exploration and development expenditure across the
block. The Group has incurred US$7,700,000 on the block which is
currently held as exploration asset. No gain in respect of the
committed future expenditure as compared to the 10% interest in the
Group's existing assets has been recognised under the Group's
accounting policy.
Fengcheng PSC
According to the Supplementary Agreement signed in September
2017, the exploration period is from 15 April 2014 to 14 April
2019. The group is required to undertake $8.9 million discretionary
capital expenditure prior to the expiry of the exploration
period.
Panxie PSC
According to the Supplementary Agreement signed in September
2017, the exploration period is from 15 April 2014 to 14 April
2019. The group is required to undertake $4.2 million discretionary
capital expenditure prior to the expiry of the exploration
period.
Qinyuan PSC
According to the Supplementary Agreement signed in September
2017, the exploration period is from 15 April 2014 to 14 April
2019. The group is required to undertake $27 million discretionary
capital expenditure prior to the expiry of the exploration
period.
According to the supplementary agreement, the Group will pay
CUCBM for any unfulfilled balance of the minimum commitment
converted into cash, together with relinquishment of certain
percentage of the block. Based on the Group's assessments, it is
confident that future minimum commitments will be fulfilled
accordingly.
CUCBM is majority owned by China National Offshore Oil Corp and
is headquartered in Dongcheng District, Beijing.
Baotian-Qingshan block ('GGZ')
In addition, Greka Guizhou E&P Ltd, a subsidiary of the
Company, is party to a PSC with PetroChina to explore for and
develop coal bed methane resources in Guizhou Province. The Group
is entitled to earn a 60% interest in GGZ by funding up to
US$8,000,000 in respect of an exploration pilot programme and has
provided a performance bond against this commitment in the amount
of US$1,000,000 (31 December 2017: US$1,000,000). At 30 June 2018,
the cumulative net investment made by the Group in GGZ was
US$36,566,000 (31 December 2017: US$35,960,000), of which
US$606,000 was invested in the six months ended 30 June2018.
PetroChina is a subsidiary of state-owned China National
Petroleum Corporation (CNPC), headquartered in Dongcheng District,
Beijing.
20 RELATED PARTY TRANSACTIONS
Save as disclosed in notes 10, 11, 13 and 18, there were no
other related party transactions that are required to be disclosed.
Transactions between the company and its subsidiary undertakings,
which are related parties, have been eliminated on consolidation
and are not disclosed in this note. The related party transactions
of the Group during the period include the following
-- Amounts due from related parties of US$5,495,000 (31 December
2017: US$6,167,000) and amounts due to related parties of
US$1,839,000 (31 December 2017: US$3,486,000) are companies that
are subsidiaries of Greka Drilling Ltd., Greka Engineering &
Technology Ltd., and Greka CBM Comprehensive Utilization Co., Ltd
(Party B) which are companies under common control. The Group has
contracts with both companies regarding drilling services and gas
processing respectively. All amounts due from related parties are
unsecured, interest free and repayable on demand.
-- Amounts due from CNPC of US$645,000 (31 December 2017:
Amounts due from CNPC of US$3,935,000), which is a party to the
production sharing contracts on the activities of exploration,
development and production of coal bed methane, in respect of
exploration costs incurred. The balance is unsecured and
interest-free.
-- Amounts due to CUCBM under the Framework Agreement. These are detailed in note 19.
-- Drilling costs of US$560,000 (31 December 2017: US$6,890,000)
on services provided by wholly-owned subsidiaries of Greka Drilling
Limited.
-- Incurred infrastructure services costs of US$3,470,000 (31
December 2017: US$6,250,600) from wholly-owned subsidiaries of
Greka Engineering and Technology Limited.
-- Sold gas of US$1,007,000 (31 December 2017: US$1,454,000) to
a wholly-owned subsidiary of Greka Engineering and Technology
Limited for power generation.
-- Sold gas of US$5,383,000 (31 December 2017: US$nil) to a
wholly-owned subsidiary of Greka Engineering and Technology Limited
for gas supply.
21 OPERATING LEASE COMMITMENTS
At the reporting dates, the Group had commitments, as lessee,
for future minimum lease payments under non-cancellable operating
lease in respect of land and buildings which fall due as
follows:
As at Year ended
30 June 2018 31 December
2017
2018 2017
USD'000 USD'000
Unaudited Audited
No Later than 1 year 1,543 1,944
Later than 1 year and
no later than 5 years 864 1,071
-------------------------- --------------- --------------
2,407 3,015
========================= =============== ==============
22 CAPITAL COMMITMENTS
As at Year ended
30 June 2018 31 December 2017
2018 2017
USD'000 USD'000
Unaudited Audited
Capital expenditure contracted but not provided for in respect of
-additions to exploration costs and appraisal assets 7,011 7,017
-acquisition of property , plant and equipment - -
-------------------------------------------------------------------- --------------- -------------------
7,011 7,017
==================================================================== =============== ===================
The Group is required to undertake certain discretionary capital
expenditures upon signing supplementary agreements with CUCBM on
certain blocks, details of which are disclosed in note 19.
For disclosure of discretionary commitments under the CUCBM
supplementary agreement, see note 19.
23 FINANCIAL INSTRUMENTS
Financial Assets As at Year ended
30 June 2018 31 December 2017
2018 2017
USD'000 USD'000
Unaudited Audited
Loans and receivable:
Trade and other receivables 8,364 8,167
Restricted Cash 1,000 1,000
Cash and cash equivalents 1,087 1,347
Total financial assets 10,451 10,514
Financial Liabilities As at Year ended
30 June 2018 31 December 2017
2018 2017
USD'000 USD'000
Unaudited Audited
At amortised cost:
Trade and other payables 9,498 10,198
Convertible notes 55,905 53,132
Bonds 103,981 95,932
Share buyback option liabilities 1,851 3,469
Total financial liabilities 171,235 162,731
The carrying value of the financial asset and liabilities is
approximately equal to their fair value at 30 June 2018 and 31
December 2017.
Interest rate risk
The Group's income and operating cash flows are substantially
independent of changes in market interest rates. The Group's bond
and convertible loan note bear fixed interest. The Group has not
entered into any cash flow interest rate hedging contracts or any
other derivative financial instruments for hedging purposes.
However, the management closely monitors its exposure to future
cash flow as a result of changes in market interest rates, and will
consider hedging such changes should the need arise.
The interest rate profile of the Group's financial assets at
each year end was as follows:
As at Year ended
30 June 2018 31 December 2017
2018 2017
USD'000 USD'000
Unaudited Audited
Cash and cash equivalents
USD Non-interest bearing 2 2
USD Floating rate 1,001 1,056
GBP Non-interest bearing 1 1
GBP Floating rate 3 3
CAD Floating rate 1 1
RMB Non-interest bearing 52 135
RMB Floating rate 2 1,731
HKD Non-interest bearing 24 245
HKD Floating rate 1 1
Other financial assets
USD Non-interest bearing 3,267 2,396
RMB Non-interest bearing 5,603 14,579
HKD Non-interest bearing 494 489
10,451 20,639
The weighted average interest rate earned during the year was
0.15% (2017: 0.20%) on floating rate US dollar cash balances, 0.03%
(2017: 0.05%) on floating rate GBP balances and 0.45% (2017: 0.52%)
on floating rate RMB balances. At the year end, the Group had cash
on short-term deposit for periods of between over-night and one
week.
The interest rate profile of the Group's financial liabilities
at each year end was as follows:
As at Year ended
30 June 2018 31 December 2017
2018 2017
USD'000 USD'000
Unaudited Audited
Loans and borrowings, convertible notes and bonds financial liability
USD Fixed rate 159,886 149,064
Other financial liabilities
USD Non-interest bearing 5,387 5,085
RMB Non-interest bearing 5,903 30,776
GBP Non-interest bearing 49 49
HKD Non-interest bearing 10 154
11,349 36,064
The interest rates payable during the year was 10% (2017: 10%)
on US dollars convertible notes and 12% (2017: 10%) on US dollars
bonds. If all interest rates had been 50 basis points higher/lower,
with all other variables held constant, post-tax profit would have
been US$nil (2017: US$nil) higher/lower and there will be no impact
on other components of equity.
Foreign currency risk
While the Group continually monitors its exposure to movements
in currency rates, it does not utilise hedging instruments to
protect against currency risks. The main currency exposure risk to
the Group has been in relation to the trade payable and other
payables denominated in RMB. The Directors consider the foreign
currency exposure to be limited. Receivables are generated in RMB,
operational cash balances are held in RMB, revenues and future
revenues from certain subsidiary operations will be generated in
RMB.
As at 30 June 2018 (Unaudited) In NOK In CAD In USD In RMB In GBP IN HKD Total in
USD
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Financial Assets
Trade and other receivables - - 2,267 5,603 - 494 8,364
Restricted cash - - 1,000 - - - 1,000
Cash and cash equivalents - - 1,004 53 5 25 1,087
- - 4,271 5,656 5 519 10,451
Financial Liabilities
Financial Assets
Trade and other payables 49 - 3,536 5,903 - 10 9,498
Convertible notes and bonds - - 159,886 - - - 159,886
Derivative financial liabilities - - 1,851 - - - 1,851
49 - 165,273 5,903 - 10 171,235
As at 31 December 2017 (Audited) In NOK In CAD In USD In RMB In GBP IN HKD Total in USD
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Financial Assets
Trade and other receivables - - 1,396 6,281 - 489 8,167
Restricted cash - - 1,000 - - - 1,000
Cash and cash equivalents - - 1,059 39 4 246 1,347
- - 3,455 6,320 4 735 10,514
Financial Liabilities
Trade and other payables 49 - 1,616 8,373 - 154 10,192
Convertible notes and bonds - - 149,064 - - - 149,064
Derivative financial liabilities - - 3,469 - - - 3,469
49 154,149 8,373 - 154 162,725
The above RMB cash, trade and other receivables, trade and other
payables and other financial liabilities balances are denominated
in a currency other than US dollars. A 3% decrease in the US
dollar/RMB exchange rate would result in reported profits for the
year ended 30 June 2018 being US$265,000 (31 December 2017:
537,000) higher or lower respectively.
Liquidity risk
The liquidity risk of each group entity is managed centrally by
the group treasury function. The investment budgets and work plans
are set by the operating teams in the PRC and agreed by the Board
annually in advance, enabling the Group's cash requirements to be
anticipated. Where facilities of group entities need to be
increased, approval must be sought from the Board. Further
disclosures on liquidity risk and going concern are included in
note 2.
All surplus cash is held centrally to maximise the returns on
deposits through economies of scale while required cash will be
remitted to the PRC based on monthly cash-call basis.
The maturity profile of the Group's financial liabilities at the
reporting dates based on contractual undiscounted payments are
summarised below:
Six months Six months Within one Over five Undiscounted Adjustments Carrying
or less to one to five years payments balance
year years
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
At 30 June
2018
(unaudited)
Trade and
other
payables 9,499 - - - 9,499 9,499
Convertible
notes and
bonds 9,822 150,064 - - 159,886 159,886
Share
buyback
option
liabilities - - 4,400 - 4,400 (2,549) 1,851
19,321 150,064 4,400 - 173,785 (2,549) 171,236
Six Six Within Over Undiscounted Adjustments Carrying
months months one to five payments balance
or less to one five years
year years
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
At 31
December
2017
(Audited)
Trade and
other
payables 10,198 - - - 10,198 - 10,198
Convertible
notes and
bonds 6,900 156,844 - - 164,744 (14,680) 150,064
Share
buyback
option
liabilities - - 4,400 - 4,400 (971) 3,469
17,098 156,844 4,400 - 179,382 (15,651) 163,731
Notes:
(i) Undiscounted payments are drawn up based on the earliest
date on which the Group can be required to pay. They include both
principal and interest cash outflows.
(ii) In the period ended 30 June 2018 and 31 December 2017, the
adjustment to the convertible notes and bonds represents the impact
of the unamortised transaction costs and future interest.
(iii) Carrying balance represents the balance per consolidated
statement of financial position at the end of each reporting
period.
Credit risk
The Group's maximum exposure to credit risk by class of
individual financial instrument is shown below:
30 June 2018 (Unaudited) 31 Dec 2017 (Audited)
Carrying Maximum Carrying Maximum
value value
value exposure value exposure
Current asset USD$'000 USD$'000 USD$'000 USD$'000
Trade and other receivables 8,364 8,364 8,167 8,167
Restricted cash 1,000 1,000 1,000 1,000
Cash and cash equivalents 1,087 1,087 1,347 1,347
10,451 10,451 10,514 10,514
In relation to its cash and cash equivalents, the Group has to
manage its currency exposures and the credit risk associated with
the credit quality of the financial institutions in which the Group
maintains its cash resources. As at 31 December 2017, the Group
holds approximately 91% (2017: 19%) of its cash in US dollars and
1% (2017: 6%) in British Pound with Baa2 (2017: Baa2) or higher
(Moody's) rated institutions. The Group continues to monitor its
treasury management to ensure an appropriate balance of the safety
of funds and maximisation of yield.
None of trade and other receivables, including the amount due
from related parties, had been impaired. Trade and other
receivables are predominantly non-interest bearing. The Group does
not hold any collateral as security and the Group does not hold any
significant provision in the impairment account for trade and other
receivables as they mainly relate to customers with no default
history. The Group has current receivables of due from a related
party of US$5,495,000 (2017: US$6,166,000), the recovery of which
is dependent on the future profits of the related party. The Group
expects to fully recover its receivable based on the profit
forecasts of the related party.
Capital risk management
The Group's objectives when managing capital are to ensure the
ability of the entities in the Group to continue as a going concern
in order to provide returns for equity holders and benefits for
other stakeholders and to maintain an optimal capital structure to
reduce the cost of capital. In order to maintain the capital
structure, the Group considers the macro economic conditions,
prevailing borrowing rates in the market and adequacy of cash flows
generated from operations and may adjust the amount of dividends
paid or payable to equity holders, raise funding through capital
market, adjust the amount of other borrowings as necessary. No
changes were made to the objectives or policies during the
year/period.
The Group monitors capital on the basis of the debt-to-equity
ratio. This ratio is calculated as net debts divided by equity
attributable to the Company's equity holders. Net debt includes
current and non-current liabilities less cash and cash equivalents,
as shown in the consolidated statements of financial position.
Equity includes equity attributable to equity holders of the
Company. Debt-to-equity ratios at 30 June 2018 and 31 December
2017are as follows:
Period ended Year ended 31
30 June 2018 December 2017
USD'000 USD'000
Unaudited Audited
Current liabilities 169,384 159,262
Non-current liabilities 125,848 127,606
Cash and cash equivalents (1,087) (1,347)
Net debt 294,145 285,521
Equity 651,647 671,780
Debt-to-equity
ratio 0.45 0.43
Fair Value
The carrying amounts of significant financial assets and
liabilities approximate their respective fair values as at 30 June
2018 and 31 December 2017.
The carrying values of cash and bank balances, trade and other
receivables, and trade and other payables approximate their
respective fair values because of their short maturities. The
carrying amounts of other liabilities approximate their fair value
as the effect of discounting is immaterial. The carrying amounts of
loan and borrowings and convertible notes approximate their fair
values because the effective interest rates of the debts are
approximate to the prevailing market interest rates at the
reporting dates for similar borrowings available to the Group.
24 EVENTS AFTER REPORTING DATE
There is no subsequent event after the balance sheet date which
requires disclosure in the financial statements.
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
(a) the Condensed Financial Statements have been prepared in
accordance with IAS 34 Interim Financial Reporting, as adopted by
the European Union, and give a true and fair view of the assets,
liabilities, financial position and profit of the Group; and
(b) The Interim Management Report includes a fair review of the
information required by FCA's Disclosure Guidance and Transparency
Rules (DTR 4.2.7 R and 4.2.8 R).
On behalf of the Board
Randeep S. Grewal
Founder & Chairman
17 September 2018
INDEPENT REVIEW REPORT TO G3 EXPLORATION LIMITED
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2018 which comprises the condensed
consolidated statement of comprehensive income, condensed
consolidated statement of financial position, condensed
consolidated statement of changes in equity, the condensed
consolidated statement of cash-flows and the related notes.
We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of and
has been approved by the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the
group are prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union. The
condensed set of financial statements included in this half-yearly
financial report has been prepared in accordance with International
Accounting Standard 34, "Interim Financial Reporting", as adopted
by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Our report has been prepared in accordance with the terms of our
engagement to assist the Company in meeting its responsibilities in
respect of half-yearly financial reporting in accordance with the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority and for no other purpose. No person is
entitled to rely on this report unless such a person is a person
entitled to rely upon this report by virtue of and for the purpose
of our terms of engagement or has been expressly authorised to do
so by our prior written consent. Save as above, we do not accept
responsibility for this report to any other person or for any other
purpose and we hereby expressly disclaim any and all such
liability.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity", issued by the Financial Reporting Council for use
in the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2018 is not prepared, in all material respects, in accordance
with International Accounting Standard 34, as adopted by the
European Union, and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
Material uncertainty related to going concern
We draw attention to note 2 to the financial statements, which
indicates that the group's debt and liabilities may be due
immediately and therefore require refinancing, which is yet to be
agreed. As stated in note 2.1, these events or conditions, along
with other matters as set out in note 2, indicate that a material
uncertainty exists that may cast significant doubt on the group's
ability to continue as a going concern. Our opinion is not modified
in respect of this matter.
BDO LLP
Chartered Accountants United Kingdom
17 September 2018
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
DIRECTORS, COMPANY SECRETARY AND ADVISORS
DIRECTORS
Randeep S. Grewal
Executive Director, Chairman and CEO
Bryan Smart
Non-Executive Director
Wayne Roberts
Non-Executive Director
Zhao Li Guo
Non-Executive Director
Gong Da Bing
Non-Executive Director
LEGAL ADVISORS
As to Chinese Law
Guantao Law Firm
17/F, Tower 2,
YingtaiCenter, NO. 28,
Finance Street, Xicheng District,
Beijing 100140, P R China
As to Cayman Islands & BVI Law
Conyers Dill & Pearman
29th Floor
One Exchange Square
8 Connaught Place
Central Hong Kong
As to English Law
Memery Crystal LLP
44 Southampton Buildings
London WC2A 1AP
REGISTERED OFFICE
PO Box 2681
Cricket Square
Hutchins Drive
Grand Cayman KY1 -1111
Cayman Islands
COMPANY SECRETARY
International Corporation Services Ltd.
AUDITORS
BDO LLP
55 Baker Street
London W1U 7EU
INVESTOR RELATIONS
FTI Consulting
200 Aldersgate
Aldersgate Street
London EC1A 4HD
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR ZMGMLNRVGRZG
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